Garmin Earnings: What to Watch

Garmin (GRMN 0.04%) is scheduled to report third-quarter earnings on Oct. 30. The company will likely shed light on the upcoming holiday sales expectations, which investors will not want to miss. 

In this segment from "Beat & Raise," recorded on Oct. 4, Fool.com contributors Demitri Kalogeropoulos and Brian Withers discuss a few other important metrics investors should watch when the company announces third-quarter results. 

Demitri Kalogeropoulos: Garmin. O.K., yes. Got it. Garmin is known for its GPS navigation devices. It used to be mostly in the auto industry, but it's made a much bigger portfolio over the last seven or eight years or so. They're going to be reporting in late October. Ticker symbol is GRMN, and we're looking for modest growth here, about 3% % to $1.1 billion. That number is going to be higher once you incorporate things like currency exchange rates.

That company is growing a little bit faster than that on top of really fantastic growth a year ago. Earnings are in the same ballpark there. They're expanding a little bit faster than sales, too, even though earnings will be down around 27% is what Wall Street estimates expected this quarter because of one-time stuff that happened a year ago. A couple of things to watch with Garmin is the portfolio growth, and one thing that really attracts me about this business is that it's not just fitness watches. It's not just fitness trackers or smartwatches, they've got a really robust portfolio that spans consumer products like that, fitness trackers, and you've got really high-end smartwatches. You've got very expensive, I know they've got like a scuba diving watch that's over $1,000, just high performance, stuff like that. They do really big navigation platforms for airplanes and for boating. They are big into those categories, too.

It's a very diverse base there, and typically what will happen is one or two of those areas might be underperforming in a quarter, but others will be outperforming, and that is going to help them have really good growth. They've grown significantly every year for the last six years, revenue. I'd expect that to happen again this year. Also looking at capacity, three months ago, the CEO was talking about a good problem to have for a company like this is basically they were, I think the quote he said, is bursting at the seams in terms of producing enough product to get it into retailers across their entire portfolio. They've secured another factory in Taiwan, I want to say. They're trying to ramp that up really quickly. This is a big one, so it should dramatically improve their ability to manufacture, and so we'll get some updates on that, which is important because in this time right now, looking at a big potential holiday and all these shipping and manufacturing constraints.

It might come down to which company can produce and execute around those logistics. We want to see Garmin making some progress there, and then we we'll get an updated holiday outlook from management. This is usually a really useful number to have because at this point they're going to have a good idea of what demand the retailers have for a lot of their products, especially now that it's taken a long time for shipping, a lot of these companies have already placed their orders for the holidays. The company should be able to tell investors a lot about what they expect for the fourth quarter. This updated estimates, you cannot necessarily take one to the bank but it's going to have a lot of clarity about the next few months.

Brian Withers: Very cool. Yeah, I'm turned on again. You mentioned Garmin, the company formerly known for its GPS units. But you take a look at their investor website: That's really interesting. Auto is like 10% of their business now. Fitness watches, their adventure category, is their second largest and it'll be interesting as they deal with the supply chain challenges. They're more like, what I would say, Nike (NKE 0.29%), with thousands of SKUs versus Apple (AAPL -0.86%) with dozens of SKUs. The more complex your product lineup is, the more parts you have, the more challenge that any one of those parts could hold up any number of products. It'd be interesting to see. It's not just the manufacturing plant, it's the facilities that are feeding those manufacturing plants parts as well.

Demitri Kalogeropoulos: Yeah, it's been interesting to watch that whole portfolio, like you said, the auto is around 10%. I think that number was well over 40% a couple of years ago, and it's a testament to their strategy to be able to continue to grow overall sales every year while they're formerly biggest category is slowly died into that element.

Brian Withers: Yeah. Super impressive transition with management and their new devices are all software-enabled, and so they're collecting data from their ecosystem. There's a little bit of an AI play here, as well as they collect more and more data from fish finders, boaters, triathletes, mountain climbers, you name it. The activity of lots of high-end activity-based folks all around the world.

Demitri Kalogeropoulos: One more little plug about this stock here. If you look at the operating margin of this company, it's in that high 20s range almost 30%, which is right up there with Apple. Like you said, they're trying to get more into that service category.

Brian Withers: Yeah, I'll just show the chart one more time because you might be surprised. Look at this, 63% gain over the last 12 months versus a 30% gain in the S&P, so not bad all.