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Garmin Ltd. (GRMN) Q4 Earnings Preview: Mapping Another Bullish Surprise

 February 19, 2013 03:09 PM

(By Rich Bieglmeier) Garmin Ltd. (GRMN) will host its fourth quarter 2012 earnings conference call that will be broadcast over the Internet on Wednesday, February 20, 2013 at 10:30 a.m. ET, with executives of Garmin. The call will be held in conjunction with the company's earnings release, which will be distributed prior to market open on February 20, 2013.

Wall Street anticipates that GRMN will earn $0.73 for the quarter. iStock expects the  Scientific & Technical Instruments company to report earnings that will beat Wall Street's consensus number. The iEstimate is $0.79, a 6 cents upside surprise.

[Related -Garmin Ltd. (GRMN): Photobombing Gopro's Wearable Action-Camera]

Garmin designs, develops, manufactures, and markets global positioning system (GPS) enabled products and other navigation, communication, and information products for the automotive/mobile, outdoor, fitness, marine, sailing and yachting, and general aviation markets worldwide.

In the last four years, Wall Street has usually been way off on their consensus estimate. Garmin has run by the street's number 10 of the last 16 earnings announcements by an average of 36.51% with six of the 10 exceeding 40%. On the flip side, the company fell short of the bas six times by an average of 14.16 with a max miss of 41% and min miss of 4%, twice.

While management's execution has been mostly solid in bypassing forecasts, the 10 bullish beats didn't do much for the stock. The average move was 1.45%. That's because four of beats saw shares fall in the days surrounding earnings by -3.70%, -3.80%, -7.10% and -7.20%. Meanwhile, the six leftover upside surprises helped push Garmin's stock price higher by an average of 6.05%.

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When the tech company missed, shares got cracked three of six by an average of 7.43%, twice managed to go higher by 2.80% and 5%, and remained unchanged on one occasion.

On February 15th, Jonathan Ho of William Blair initiated coverage on Garmin with an outperform ratings. The analyst wrote, "We view Garmin as an attractive investment story, based on our view that the company will continue to generate significant cash flow (we project more than $650 million in fiscal 2012, or 9.2% free cash flow yield), respectable earnings per share growth (2.5%), and a strong dividend (4.7% yield) at current valuation levels, even as it transitions beyond the decline of its core personal navigation device segment." iStock finds the initiation of coverage an aggressive move on the eve of earnings.

For Ho's thesis to be right, GRMN's management will have to follow Q3's lead as total operating expenses (TOEs) fell to 29% of sales from 30%; however, for the first 39-weeks of the year, TOEs increased from 30% to 32%. iStock is a little worried about the saving's choices management made as the third quarter's saving came from advertising and selling, general and administrative expenses – lower commissions?

We do like that accounts receivables fell 16.2%, but inventories increasing by 11.5% for the first nine months of the year while sales grew at a slower 5.3% is another potential margin killer.

Finally, year-over-year Google search intensity dropped 15.9% for the fourth quarter months of October through the end of December 2012 versus 2011. Garmin earned 96 cents for 2011's fourth quarter, which was a 30 cent upside surprise. The search volume drop off translates to 80 cents in earnings per-share for Wednesday's announcement and in-line with iStock's iEstimate.



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