Boosted by double-digit gains for both its Fitness and Outdoor segments on strength in wearables, Garmin Ltd.’s adjusted earnings climbed 32.0 percent in the third quarter ended September 29, easily topping Wall Street’s target.

On a pro-forma basis, earnings climbed to $190.5 million, or $1.00, from $144.3 million, or 77 cents, a year ago. Wall Street’s consensus estimate had been 76 cents.

On a GAAP basis, net earnings rose 21.9 percent to $184.2 million, or 97 cents share.

Revenues rose 7.8 percent to $810.0 million. Collective gains in the Marine, Aviation, Fitness and Outdoor segments of 16 percent offset continued declines in auto

In the Fitness segment, revenues rose 13.8 percent to $190.2 million, primarily driven by growth of the brand’s wearable products. Gross and operating margins were 54 percent and 20 percent, respectively, resulting in operating income growth of 12 percent. During the third quarter, the company launched the Vívosmart 4, a slim smart activity tracker that includes a pulse oximeter sensor. Said Cliff Pemble, president and CEO, on a conference call with analysts, “In addition to providing blood oxygen saturation levels, this device also provides users with advanced sleep monitoring and a new Body Battery feature that helps individuals understand and manage their energy levels throughout the day.”

Pemble said the overall Fitness segment’s growth was driven by advanced wearables, led by the GPS-enabled Vívo line of products.

“We also saw growth in what we call the basic tracker category which we have a more unique product lineup there compared to the rest of the market. But our unique product offerings have helped us to grow that category as well,” he added. “In terms of what we call the pure running market, we are kind of at the end of a product life cycle there. And so I think going forward as we introduce new products we’ll see upticks but we’re relatively flat in terms of the quarter on running.”

In the Outdoor segment, sales grew 13 percent to $209.4 million, again driven primarily by wearable devices. Gross margin improved year-over-year to 65 percent, while operating margin improved to 38 percent resulting in a 16 percent increase in operating income.

Said Pemble, “I think our Fēnix line continues to be an increasing part of the overall outdoor segment mix and the new Fēnix 5 Plus series has a strong margin profile.”

Garmin recently announced the integration of Spotify on the Fēnix 5 Plus series and on Wednesday, the Forerunner 645 Music was added to the list of Spotify-compatible wearables. Said Pemble, “This gives our customers the ability to download Spotify playlists to the watch via the Spotify app, which is available from the Connect IQ store. The app is already proving to be very popular with customers. During its first full day of availability, Spotify set a record for the most downloads of a new app from our Connect IQ store.”

The Outdoor division also recently announced Instinct, a GPS smartwatch with a focus on durability.

Asked about the smartwatch opportunity, Pemble said Garmin still sees the smartwatch market being a growth market, especially as consumers seek to trade up from trackers.

“I think there’s a lot of awareness around this space right now. So that’s helping as well,” he added. “So we’re getting some benefits from organic growth but also as we expand our product line like we’ve done with the Instinct that helps expand our reach to other customers who otherwise may not be ready to go or make that kind of commitment to like a Fēnix watch for example.”

He did note that competition in the smartwatch space is “definitely getting stronger,” citing entries from China. Said Pemble, “So that is a dynamic especially in the Asia market, but also even other areas as they start to play the market like what is typically done from those players that play typically on price.”

In the Marine segment, sales grew 28 percent to $98.8 million with strong sales continuing well into the summer boating season. Approximately half of the growth was organic, while the other half came from acquisitions. Gross and operating margins were 59 percent and 14 percent, respectively.

For the fourth consecutive year Garmin was recognized as the Manufacturer of the Year by the National Marine Electronics Association (NMEA), winning a total of six awards including the prestigious NMEA Technology Award. Garmin also recently announced the 2019 line up of marine electronics including the GPSMAP 8600 series, the first product line compatible with the combined Garmin and Navionics chart content.

Among other segments, sales in the Aviation segment improved 17.5 percent to $146.4 million. Auto sales were down 16 percent to $165.2 million.

Companywide, gross margin improved to 59.4 percent compared to 58.2 percent in the prior year quarter. Operating margin of 24.2 percent compared to 23.1 percent in the prior year quarter. Operating income was $196 million, up 12.8 percent.

Looking forward, Garmin said it anticipates fourth quarter revenue will be relatively flat year-over-year but it increased its 2018 guidance to reflect the strong third quarter performance and a lower tax rate.

Garmin now expects pro forma EPS of approximately $3.45, up from $3.30 previously. The operating margin is expected to be 22.0 percent, up from 21.5 percent. The pro forma effective tax rate is now expected to be about 16.0 percent, down from 17.5 percent previously. Revenues are still expected to be $3.3 billion and gross margins still projected to be 58.5 percent.

Image courtesy Garmin