Garmin Ltd. Stock Tumbles After Disappointing First Quarter

Shares of GPS giant Garmin were down more than 4% as of 11 a.m. Wednesday following the release of the company's fiscal-first-quarter earnings.

Garmin earned an adjusted $0.55 per share on revenue of $585 million. Wall Street analysts, however, had been looking for the company to post adjusted earnings per share of $0.57 on revenue of around $606 million. The strength of the U.S. dollar proved problematic for Garmin, weighing on its quarterly revenue by 7%.

Let's take a closer look at Garmin's first quarter.

Auto segment continues to decline; Outdoor segment surprises to the downsideGarmin's business is made up of five segments: Auto, Fitness, Outdoor, Aviation, and Marine. Auto remains Garmin's largest business, as it's composed of the GPS units Garmin sells to various car manufacturers and consumers.

That business has been in decline for some time, as consumers are increasingly turning to their GPS-equipped smartphones for directions. Garmin's management has projected continued annual declines in the segment of around 10%-15%, and its first-quarter performance was consistent with that. Garmin's auto sales slipped 11% on an annual basis. In total, they now compose about 37% of Garmin's business, down from more than 60% in the fourth quarter of 2011.

Garmin also reported a surprising decline in its Outdoor sales, which fell short of its expectations. In total, sales at Garmin's Outdoor unit declined 10% on an annual basis. Garmin sells a variety of gadgets -- such as rugged smartwatches, action cameras, and dog trackers -- aimed primarily at consumers who lead an an active, outdoor lifestyle.

Garmin remains optimistic, however, believing that the performance of its Outdoor segment will improve in the second quarter. Garmin cited strong demand for its high-end fenix 3 smartwatch, and a new action camera model, the VIRB X.

Fitness continues to surgeGarmin's Fitness category has been its fastest-growing in recent years, and that continued in the first quarter.Garmin offers a variety of basic activity trackers and fitness watches aimed at athletes of all kinds.

Despite facing growing competition in the segment, Garmin was able to deliver sales growth of 31%. Operating margin, however, slipped, as Garmin increased its investments in marketing and R&D. Late in the first quarter, Garmin launched the vivofit 2 and vivoactive, and believes both will be meaningful contributors to its second-quarter results. In total, Garmin's fitness gadgets generated about 22% of its total sales, and it's Garmin's second-largest business by a healthy margin.

Notably, Garmin's fitness products did not face competition from the just-launched Apple Watch during the quarter, but will throughout the rest of the year.

Results in Garmin's other two segments were less notable. Aviation sales rose a modest 2%, while Marine sales -- Garmin's smallest segment -- increased 7%.

Guidance remains unchangedIn February, Garmin issued annual 2015 guidance. At the time, it projected an adjusted annual earnings per share figure of $3.10 on revenue of $2.9 billion. Despite its first-quarter performance, Garmin's management has left its guidance unchanged.

Crucially, Garmin's business remains a cash-generating machine. In the first quarter, it produced free cash flow of $63.5 million, and it has about $2.7 billion of cash -- about one-third of its market cap. Garmin previously announced its intention to recommend raising its dividend 6.25%, and maintained that projection its first-quarter release.

As a whole, Garmin's performance was slightly disappointing, but with its share price declining, it's now yielding more than 4%. If it can continue growing its fitness business in the face of rising competition, it may make an attractive investment for those seeking income.

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