5 Things Garmin Ltd.'s Management Wants You to Know

By Fool.com

Garmin shareholders have had a tough year.

Shares of the GPS giant are down nearly 14% year-to-date, sharply under-performing the broader S&P 500. Some of that loss occurred on Wednesday, following the release of Garmin's first quarter earnings report.

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During its subsequent earnings call, Garmin CEO Cliff Pemble and CFO Doug Boessen offered some color on Garmin's business. Below are five of the most important quotes from that earnings call.

Garmin is ramping its investment in R&DGarmin's operating margin declined during the quarter, falling to 26%. Pemble attempted to explain this drop during Garmin's earnings call, noting that the company was investing more heavily in its fitness R&D and advertising.

Management doesn't fear the Apple WatchGarmin's business still depends, primarily, on sales of its GPS units -- both to consumers and automanufacturers-- but its fitness gadgets are increasingly crucial to the company's future. In the first quarter, Garmin's fitness segment generated 22% of its total sales, as consumers flocked to its activity trackers and fitness watches.Competition in the space is intense. Garmin competes with a number of smaller upstarts, such as Jawbone and Fitbit, but also, increasingly, enormous tech giants. Apple's first wearable gadget, the Apple Watch, includes a number of fitness-related functions and a heart rate monitor. In time, Apple's gadget could threaten Garmin's fitness business. Yet Garmin's management is unconcerned. During the call, Boessen argued that Garmin's products exist in a different category than the Apple Watch.

Garmin plans to introduce fitness gadgets with wrist-based heart rate monitorsApple isn't the only company offering a wrist-based heart rate monitor. Both Jawbone and Fitbit offer wrist-worn activity trackers with embedded heart rate sensors. Garmin, in contrast, has stuck with its more traditional chest strap. It's a more accurate solution, but obviously more cumbersome (who wants to wear a strap around under their shirt?). Dedicated athletes may prefer the strap, but less enthusiastic users could be swayed by the competition's offerings. Boessen, however, announced that the company was planning to offer wrist trackers of its own in the near future.

It believes its next action camera will be more successful than the lastGarmin's Outdoor segment is composed of a wide variety of gadgets, including watches aimed at golfers and dog tracking solutions. One of the more intriguing product lines, however, may be its action cameras. In 2013, Garmin went after GoPro with its first action camera, the VIRB. Unfortunately for Garmin, the original VIRB was something of a failure -- it didn't take much market share, and many retailers didn't stock it.

But Garmin isn't giving up. It has two new cameras on the way, the VIRB X and the VIRB XE. During the call, Boessen explained why the company is more confident with its new cameras.

No changes to its capital returnphilosophyGarmin is a cash generating machine. During the quarter, it generated $63.5 million in free cash flow. Historically, Garmin has committed to returning nearly all of its free cash flow to its shareholders in the form of stock buybacks and dividends. But Garmin might be able to do more: it has about $2.7 billion in the bank.

But Garmin doesn't plan to go there -- at least not at this time. When asked, Pemble reiterated the company's commitment to its current policy.

The article 5 Things Garmin Ltd.'s Management Wants You to Know originally appeared on Fool.com.

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.

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