Garmin Ltd., in its second downward revision of the year, trimmed its EPS and revenue outlook for the year due to pricing pressures and foreign currency headwinds. Revenue targets were also lowered for its fitness, outdoor and aviation segments.
EPS on a pro-forma basis is now expected to reach approximately $2.25 for full year 2015, short of its prior guidance of approximately $2.65. In the year-ago period, it earned $3.10.
In mid-July, Garmin reduced its target from $3.10 due to currency headwinds and a more promotional pricing environment in the fitness segment.
“Given the global economic environment, revenue growth has proven difficult to generate in 2015, while gross margin has been weaker than our forecast due to geographic revenue mix and a competitive pricing environment in certain product categories,” said Cliff Pemble, president and CEO, last week. “While these dynamics have created challenges for our business, we remain confident in our plan to invest in advertising and research and development with an emphasis on new products and new markets that will deliver solid results for the long term.”
Revenues are now expected to reach approximately $2.8 billion this year, down from the previous guidance of $2.9 billion. Garmin’s fitness segment is expected to expand approximately 15 percent, down from the previous guidance of 25 percent. Its outdoor segment is expected to decline approximately 4 percent versus its previous guidance of flat sales. The aviation segment is expected to be flat versus guidance calling for 5 percent growth. Auto and marine revenue assumptions remained in place.
Gross margin is expected to be approximately 53.5 percent and operating margin is projected to reach approximately 18.5 percent. Previously, guidance called for gross margins between 54 and 55 percent with operating margin in the range of 20 to 21 percent.
Its full year tax rate is expected to increase to 21.5 percent versus prior guidance estimated it to range between 18 and 19 percent – due to an unfavorable mix of profits by taxing jurisdiction.
For the third quarter ended Sept. 26, Garmin expects revenue of approximately $680 million, which is slightly down from $706.3 million a year ago. Currency movements are estimated to have negatively impacted sales by $52 million. On a year-over-year basis, fitness revenue is expected to grow approximately 23 percent in the quarter. Mid-single digit declines are projected in outdoor and aviation, which were weaker than anticipated. Marine revenue is expected to be flat after a seasonally strong second quarter. The automotive segment is expected to decline, as expected.
Earnings are expected to come in at 63 cents a share, which compares with 76 cents a year ago. Excluding the impact of foreign currency translation gains, pro-forma EPS is expected to be approximately 51 cents for the quarter. Gross margins are expected to come in at approximately 53 percent due to geographic revenue mix shifting toward countries with weaker currencies relative to the U.S. dollar, and pricing dynamics, particularly in the fitness segment. Operating margin is expected to be approximately 18.5 percent.
