How does a company top a quarter in which it outperformed expectations by more than a third? That's not a rhetorical question. Last quarter, GPS guru Garmin (NASDAQ:GRMN) earned $1 when Wall Street only expected $0.73. I honestly don't know how this company can outdo that performance, but like everyone else, I'll be glued to the computer when it reports Q3 2007 earnings Wednesday morning, hoping to find out.

What analysts say:

  • Buy, sell, or waffle? Everyone but the analysts, that is. Of the 22 analysts who follow the company, only a bare half-dozen think it's going to do well enough to be worth buying. As for the rest, 15 say to hold it, and one even counsels selling.
  • Revenue. On average, analysts estimate sales growth of 67% to $683.2 million, as Garmin products continue to fly off the shelves at Cabela's (NYSE:CAB) and Circuit City (NYSE:CC), Best Buy (NYSE:BBY) and Target (NYSE:TGT).
  • Earnings. Hard for profits to keep up at that pace. Estimates call for 62% growth to $0.81 per share.

What management says:
CEO Min Kao was "very excited" about Garmin's Q2 results. Highlighting "strong growth in the automotive/mobile segment," and a market-leading 50% share of GPS device sales in North America, Kao predicted "strong results in the holiday season" just around the corner.

Meanwhile, the firm continues to integrate vertically. No sooner had Garmin closed the books on the second quarter than it rolled up yet another of its European distributors, this time signing a letter of intent to purchase Italy's Synergy SpA. Terms were again not disclosed, and we probably won't learn them until the 10-Q is filed for the quarter in which the deal closes. But if this purchase is anything like the previous distributor buy-ups, it shouldn't be too expensive. Similar purchases that closed in Q1 totaled a cash outlay of less than $70 million.

What management does:
Garmin's margins (hey -- I just realized that name's an anagram!) skipped higher last quarter, after several quarters of declining gross margins. Don't be too surprised if they drop a bit over the next few quarters, however. Garmin announced in last quarter's report that it has begun work expanding its North American warehouse in Olathe, Kansas. Cash outlays for this should stop when work is completed in Q1 2008, but as the costs are expensed they could depress margins, er, marginally in the future.





























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.

The Fool says:
The news out of Garmin has been pretty good so far; the news outside of Garmin, not so much. Although the stock price has since recovered, Garmin had initially lost some of its market cap in response to the recent news that Nokia (NYSE:NOK) is buying its data provider, Navteq (NYSE:NVT). And the world's only other major map-data provider, Tele Atlas, is being sold to Garmin rival TomTom.

The twin developments would seem to leave Garmin out in the cold, lost and alone, trying to read a blank map in the dark. But are things really as bad as all that? Get advice from the experts who recommended Garmin to you two years and 260% worth of profits ago. Sign up for a free trial to Motley Fool Stock Advisor and read our special reports on the Navteq buy and how it affects Garmin. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.