In every quarter for the past year, Garmin (NASDAQ:GRMN) has not just beaten, but creamed, the best estimates Wall Street analysts could throw at it. Tomorrow, the GPS-meister gets a chance to work its satellite-facilitated magic once again, as it comes time to report Q2 2006 earnings.

What analysts say:

  • Buy, sell, or waffle? A dozen analysts follow Garmin, most with studied ambivalence. Ten of them rate the stock a hold, and just one each rates it a buy or sell.
  • Revenues. On average, analysts estimate sales grew 43% to $378.5 million in the quarter.
  • Earnings. Hard for profits to keep up at that pace. Estimates call for 36% growth to $0.94 per share.

What management says:
CEO Min Kao exulted last quarter over his firm's record introduction of 34 new GPS products, and "triple digit growth" in the automotive/mobile product line. As a result, Kao argued, Garmin would more likely than not "meet or exceed our 2006 guidance" for this line of products at least.

CFO Kevin Rauckman continued in the same vein, noting that operating margins expanded 30 points sequentially despite increased spending on marketing and expanded manufacturing capacity.

What management does:
That said, when you take a year-over-year view, it's apparent that overall, gross and operating margins are declining on a rolling basis, and this has been true for the entire past year. Granted, the firm's rolling net margins are on the rise, but I'd discount the importance of this metric for Garmin, whose net earnings can be pushed either way by the relatively large effects of currency exchange rates on its bottom line take. Fools would be better advised to focus on operating margins and how well the firm can maintain them as it expands its production and sales to keep profits on the rise.

And of course, on free cash flow, which came in strong at $41.3 million last quarter -- up 33% from last year's $31 million.

Margins %

12/04

3/05

6/05

9/05

12/05

4/06

Gross

53.9

54.5

54.6

53.1

52.1

51.4

Op.

35.5

36.0

35.8

34.4

32.9

32.2

Net

27.0

27.4

27.1

29.2

30.3

30.4
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Reviewing Garmin's progress in his bi-annual update of Motley Fool Stock Advisor recommendations back in June, Fool co-founder David Gardner (who recommended the stock to our members) helped to shed light on why the company's net is so subject to currency exchange fluctuations: Its sales have been particularly strong in Europe of late -- and in case you hadn't noticed, the lads over there don't pay in dollars. A relatively strong euro is therefore great for Garmin's dollar-denominated results; and a strong dollar, perversely, is bad.

Moving on to illuminate us on the mysteries of the stock market, David presciently warned that Garmin's stock has climbed so high and so fast that it could be due for a fall -- and wouldn't you know it: The stock is now down about 15% from its June highs. That said, David still likes the company very much, calling it an "evergreen" -- a leader in its industry that should be bought on weakness. Hint. Hint.

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Fool contributor Rich Smith owns shares of Dell. The Fool has an ironclad disclosure policy.