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Why Garmin Stock Is Falling 12% So Far This Week

By Demitri Kalogeropoulos – Updated Oct 29, 2021 at 8:30AM

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Earnings growth is slowing as costs soar.

What happened

Shareholders of Garmin (GRMN -1.04%) are losing ground to a rising market this week, with the stock dropping 12% through late trading on Thursday afternoon. The navigation device specialist reported strong third-quarter earnings on Wednesday, but Wall Street was hoping for a more bullish outlook for the holiday season.

A woman jogging while wearing a fitness tracker.

Image source: Getty Images.

So what

Sales rose 7% in the selling period that ended in late September, representing a slowdown from the prior quarter's soaring results. But Garmin is still setting sales records and seeing strong demand across its portfolio. Sales are up over 20% in four of its five major divisions so far in 2021, with the marine segment leading the way.

"Strong demand for active lifestyle products continued," CEO Cliff Pemble said in a press release, "and our marine and aviation segments recorded impressive double-digit growth."

Now what

Garmin's earnings were pressured by supply chain issues and rising costs. Gross profit margin slipped, and operating income fell to 24% of sales from 29% a year ago.

Those trends imply weaker earnings ahead in the core holiday season. And management is predicting another sales slowdown ahead in the fourth quarter, compared to booming results a year ago.

But the broader outlook is brighter than ever. Garmin lifted its total 2021 sales target to just below $5 billion, which equates to a third consecutive year of double-digit revenue gains. Operating margin will decline, but not by as much as management initially feared.

As a result, shareholders should be bullish about Garmin's ability to capitalize on the growing active lifestyle niches. That's true even if short-term growth is pressured by supply chain issues and rising costs.

Demitri Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool recommends Garmin. The Motley Fool has a disclosure policy.

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