Garmin Ltd. reported a better-than-expected quarterly profit in the second quarter as robust sales of its outdoor products more than offset tepid demand for its fitness and automobile devices. The company raised its full-year guidance on the performance.

In the quarter ended June 30, net earnings advanced 6.1 percent to $171.0 million, or 91 cents a share. On an adjusted basis, earnings inched up 0.5 percent to $166.4 million, or 88 cents, a share, exceeding Wall Street’s consensus estimate of 81 cents. Adjusted earnings exclude the impact of foreign currency gains/losses and the tax effect of foreign currency gains/losses.

Sales inched up 0.7 percent to $816.9 million versus Wall Street’s target on average of $807 million.

“We delivered another quarter of revenue and earnings growth led by strong double-digit growth in our outdoor and aviation segments,” said Cliff Pemble, president and CEO. “The demand for advanced wearables was particularly strong, but was partially offset by negative trends in the activity tracker market. Our results thus far give us confidence in raising our outlook for the remainder of the year.”

By far the best growth came in its Outdoor segment, which saw sales climb 46.3 percent to $194.8 million. The gains were driven by strong demand for its Fēnix 5 watch series. Gross margin in the Outdoor segment improved to 66 percent while operating margin improved to 38 percent, resulting in operating income growth of 53 percent.

“We experienced on strong demand for the Fēnix 5 watch series and anticipated will continue to have a positive impact on our outdoor segment for the remainder of the year,” said Pemble on a conference call with analysts. “In addition, we continue to see solid growth of our new inReach devices and subscription based services. Finally, we launched the Approach S60 of premium watch for the golf enthusiasts and we recently announced the newest members of our Foretrex and Rino product lines. Looking forward, we are focused on opportunities in wearables and inReach.”

In the Fitness segment, revenue declined 15.0 percent to $181.0 million, with gross and operating margins of 56 percent and 21 percent, respectively. Pemble said the Fitness segment reflects the “the rapidly maturing market for basic activity trackers and the timing of new product introductions.”

He added, “While the quarter has been challenging for business, we remain positive about the opportunities in the segment. We expect these trends to continue into Q3, however, we anticipate ending the year on a stronger note as our product refresh cycle is completed. Looking forward, we are focused on areas of opportunity, particularly in the advanced wearable category.”

In the Marine segment, revenue declined 2.7 percent to $108.5 million, with gross and operating margins of 57 percent and 22 percent, respectively. The performance marked a slowdown from the first quarter. For the half,  Marine delivered 10 percent revenue growth and 9 percent operating income growth and Garmin remains confident about Marine’s outlook for the year. During the second quarter of 2017, Garmin announced the acquisition of Active Corporation, a developer of crowd sourced content for boaters and launched its latest marine wearable, the quatix 5, adding autopilot control and the ability to mark remote multifunction display waypoints.

In other segments, Aviation posted revenue growth of 14.5 percent to $124.1 million, driven primarily by strong aftermarket sales and positive contributions from OEM product categories. Gross and operating margins were strong at 75 percent and 32 percent, respectively, resulting in 28 percent operating income growth.

The Auto segment recorded revenue decline of 15.2 percent to $208.5 million, primarily due to the ongoing PND market contraction partially offset by growth in niche categories such as fleet, camera and RV. Gross and operating margin declined year-over-year to 45 percent and 13 percent, respectively but increased sequentially.

Based on its performance in the first half of 2017, Garmin now expects revenue of approximately $3.04 billion driven primarily by higher expectations for its Outdoor and Aviation segments partially offset by lower expectations for the Fitness segment. Previously, Garmin expected revenues of $3.02 billion.

The Outdoor segment is now expected to show growth of 25 percent this year versus 10 percent previously. Aviation is now projected to increase sales by 10 percent, up from 5 percent previously. In the Fitness segment, sales are expected to decline 5 percent while previously it was expected to show a gain of 5 percent.

The Auto segment is still expected to show a decline of 17 percent. The Marine segment is still expected to show a gain of 10 percent.

The company now anticipates its full year pro forma EPS will be approximately $2.80 based on an improved gross margin of about 57.5 percent, operating margin of about 21 percent and a full year pro forma effective tax rate of about 22 percent. Previously, adjusted EPS was expected to arrive at $2.65.

Photo courtesy Garmin