Garmin Forerunner 620. Image source: Garmin.

There were few surprises in Garmin's (NASDAQ:GRMN) third-quarter earnings report. The maker of dedicated GPS devices and fitness watches posted earnings and revenue that fell short of analyst estimates, but were in line with the preliminary results it turned in earlier in October. The market for Gamin's navigators continues to shrink at a steady pace. Unfortunately for shareholders, its other product categories haven't been able to offset that decline.

On the subsequent earnings call, Garmin's CEO Cliff Pemble and CFO Doug Boessen detailed a number of factors affecting Garmin's business. Below are five of the most important quotes from that call.

Exchange rates are having a particularly severe affect on Garmin's fitness business
Garmin's fitness business is its single most important segment. It only brought in about one-fifth of Garmin's revenue last quarter, but it was the only category to experience any sales growth. With Garmin's core personal navigator business facing a slow, inevitable decline, Garmin is relying on its fitness business for its long-term success. To its credit, fitness revenue grew by double-digits last quarter -- up 23% on an annual basis -- but that's down quite significantly from prior quarters. In the fourth quarter of last year, Garmin's fitness revenue surged 70%. During the call, Pemble cited currency to explain that sluggish growth.

Currency headwinds disproportionately impact the fitness segment due to the geographical revenue mix. These headwinds have softened revenue growth while unit deliveries have remained strong. We believe this indicates that the underlying business case remains sound.
-- CEO Cliff Pemble

But competition is also taking a toll
Still, the performance of the fitness business isn't completely attributable to currency shifts. The gross margin of Garmin's fitness business was 64% in the third quarter last year, but that fell to 54% this quarter. During the call, Boessen admitted that growing competition and a shift in price points also had an affect. 

Of the fitness gross margin, year-over-year decline, about 360 basis points of that decline ... is due to FX, the remainder is due to the product mix change, as well as the competitive pricing dynamics.
-- CFO Doug Boessen

A tough comparison for sales
Garmin separates its sales into three geographic segments: the Americas; Europe, Middle East and Africa (EMEA); and Asia Pacific. Revenue from the Americas fell 10% on an annual basis, while EMEA was flat. The Asia Pacific region enjoyed 16% growth. In theory, the Americas region should've suffered from the least significant currency headwinds, calling into question management's assertions. During the call, Pemble explained the discrepancy.

One thing I would like to highlight is that, last year in [the third quarter] the Americas region had its strongest performance of the year, up 12%. And so we are comping against a little stronger performance in the Americas region, as well.
-- Pemble

Garmin remains committed to its dividend
Year to date, Garmin's dividend payment has cost it around $281 million. Its free cash flow, however, has totaled only $252 million. If Garmin's cash flow remains muted, its dividend could be threatened. During the call, Boessen attempted to ally concerns, reiterating the company's commitment to continue its dividend, even at the cost of other alternatives.

[Our] dividend is a high priority for us, particularly to be a reliable, long-term payer ... that's really our number one priority in terms of our overall usage of free cash flow. For us, at higher levels of cash flow we also want to consider other investments like acquisitions and buybacks, but will tend to fill those in based on our available cash flow in order to make sure that we're able to manage our cash appropriately.
-- Boessen

No plans to split up
Given the challenges Garmin is facing, it might be prudent for the company to consider strategic alternatives, like spinning off some of its segments, or breaking up. At least for the time being, Pemble remains committed to running the company as it currently stands.

[In terms of a strategic decision to unlock] value [by splitting up the company], that is not something that is on our radar right now. We view our all of our segments as strategic components of our overall portfolio, and it's something that we aren't considering.
-- Pemble