Shares of GPS giant Garmin (NASDAQ:GRMN) fell more than 5% on Wednesday October 29, 2014 after the company posted its third-quarter results. Although Garmin's earnings and revenue exceeded expectations, investors may have been disappointed with the decline of its core GPS business.
In its quarterly conference call, Garmin's management offered further insight into the trends affecting its business. Below are five of the most important quotes from that call.
GPS continues to decline at a modest pace
Garmin bears have argued for years that the proliferation of GPS-equipped smartphones and tablets would eventually doom Garmin's core business. To be sure, Garmin's Automotive/Mobile segment has been contracting -- down 5% just this quarter -- but Garmin's management is well aware of the challenging environment. During the earnings call, CEO Clifton Pemble explained how Garmin views this portion of its business going forward.
In our Automotive/Mobile segment, revenues decreased 5% [...] as [Personal Navigator] volumes continued to decline per [our] expectations. Profitability of this segment [however] continues to be strong, with operating margins of 17% [...] We continue to build market share [...] [this quarter] was our highest-yet, U.S. market share for the [...] quarter [was] at 84%, an improvement from 78% in [the same quarter last year].
Garmin is still focused on returning capital
In recent years, Garmin's management has placed a premium on returning capital to shareholders, and it doesn't appear as though that will change for the foreseeable future. Currently, Garmin shares yield about 3.50%, and management has been conducting steady share repurchases under a buyback program. Garmin's CFO Doug Boessen explained the company's commitment to future capital returns during its earnings call.
This year [...] we'll return about $600 million between dividends and share repurchases [...] We'll take another look at that in February, looking at our dividend and share repurchase in connection with our guidance [...] But I'd say it's pretty consistent with what we've looked at in the past.
Can Garmin take on GoPro?
GoPro's success hasn't been lost on Garmin. Late last year, Garmin entered the market with its VIRB action cameras. Unfortunately, the company has seen little traction, but it remains committed to the market. Although Pemble declined to offer up any specific announcements, he reiterated Garmin's commitment to the product category during the call.
In terms of new products, we're constantly working on our product road maps. We don't have anything specific that we would share at this time in terms of action cameras, but we are continuing to invest.
Will Apple Watch destroy Garmin?
It isn't Garmin's biggest category, but it may be its most important for its long-term future: Demand for Garmin's wearable fitness gadgets has exploded in recent months -- last quarter, sales rose more than 40% -- as consumers snap up Garmin's smartwatches and bands. But in spite of Garmin's recent success, it's clearly a crowded market, with many major competitors planning an entrance. In particular, the Apple Watch could weigh on demand for Garmin's wearables, as it includes many fitness features.
But Pemble is not concerned. Garmin is well aware of the competition it faces but believes it can continue to succeed.
No question this category is drawing a lot of interest from people. It's a category that we really pioneered and innovated in over the years. So there's many new players getting into that, and we would expect many more that aren't necessarily visible [...] In terms of our product road map [...] we feel good about our positioning.
Garmin plans its own ecosystem
The biggest advantage Apple Watch may have over Garmin is software ecosystem -- it seems probable that, at some point in the future, there will be tens of thousands, if not hundreds of thousands, of apps available for Apple Watch, giving it more utility than Garmin's products.
But Garmin has an answer: Garmin's upcoming fitness watches will include a platform -- Connect IQ -- that allows developers to create apps for Garmin's devices. It won't be as robust as other platforms, but Pemble noted that Garmin's products will no longer be completely closed off.
Connect IQ provides [...] [an] opportunity for people to be able to expand the utility beyond just what we offer in our markets [...] we're not putting that up against the big open players that are out there. That's not our objective at all. But we do feel like there's a strong desire for people to be able to customize their watches and to be able to expand the utility.
Sam Mattera has no position in any stocks mentioned. The Motley Fool recommends Apple and GoPro. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.