Showing Fitbit’s growth challenges are far from applying to them, Garmin reported fourth-quarter results that easily topped Wall Street’s targets.

Earnings rose 3.1 percent to $136.6 million, or 72 cents a share. Revenues improved 10.1 percent to $860.8 million. On a pro-forma basis, earnings were down 1.8 percent to $137.9 million, or 73 cents a share, but handily topped Wall Street’s consensus estimate of 58 cents a share. Pro-forma results take out the impact of foreign currency headwinds.

The bottom line was aided by an improvement in gross margin in the period to 54.7 percent compared to 52.9 percent in the prior year quarter, as well as a healthy sales gain.

Revenues grew 10.1 percent to $860.8 million, with outdoor, fitness, marine and aviation collectively growing 25 percent over the prior-year quarter and contributing 74 percent of total revenue. The Street was expecting $793 million on average.

Shares of Garmin on Wednesday were up about 6 percent in late day trading on the encouraging quarter.

Among its segments, sales in the quarter in the Outdoor segment grew 46.3 percent to $175.4 million. The gains were driven by significant contributions from wearable devices combined with growth in all other product categories and the contribution of DeLorme, the Maine-based mapmaker acquired May 2016.

Gross margin in the Outdoor segment remained strong at 61.5 percent, while operating margin was relatively flat at 33 percent, resulting in 42.4 percent operating income growth, to $58.3 million.

For the full year, the Outdoor segment’s revenues grew 33 percent and operating income gained 32 percent.

“Looking back at 2016, our Fēnix line of adventure watches continue to show strong momentum while high-end Chronos variations are opening new retail channels at watch stores and specialty retailers,” said Cliff Pemble, president and CEO, on a conference call with analysts. “Our Connect IQ application platform has become an important differentiator for our smart wearables.”

He said Connect IQ now features over 2,500 apps, widgets and watch faces and has generated more than 24 million downloads since inception. To further promote the power and utility of Connect IQ, Garmin will host its first ever developer conference in mid-April, offering workshops and tools that developers can use to leverage the Garmin wearable ecosystem.

“Looking ahead, we anticipate revenue growth of approximately 10 percent in 2017,” said Pemble of the Outdoor segment. “We anticipate that wearables will continue to be strong, led by the new Fēnix 5 series. Fēnix 5 comes in three different sizes and features our new QuickFit band replacement system, allowing users to quickly change the style of their watch. We are also expanding our handheld device portfolio with inReach satellite communication technology, and we will introduce inReach devices into new geographic markets.”

In the Fitness segment, revenues in the quarter grew 19.8 percent to $274.1 million, driven by wearables with Garmin Elevate wrist heart rate technology. Gross margin increased year over year to 51.7 percent from 51.3 percent a year ago, with operating margin of 16.8 percent, resulting in a 14.6 percent growth in operating income, to $46.2 million. The recently launched Vívofit Jr. was well received by retailers and customers during the holiday quarter, and additional growth potential is seen for wearables designed specifically for children.

For the full year, Fitness segment revenues grew 24 percent with operating earnings accelerating 19 percent.

“Much has been said recently about the momentum change in certain wearable categories specifically basic activity trackers,” said Pemble. “However, demand for products with more advanced features, particularly those with GPS capability, was very strong in the holiday quarter. One possible explanation is that customers want more than just a basic activity tracker.”

For 2017, Garmin is targeting revenue growth of approximately 5 percent in the Fitness segment, with the segment becoming Garmin’s largest revenue contributor. Strength in cycling and advanced wearables is expected to offset anticipated softness in basic activity trackers. Pemble added, “We believe we are well positioned to capitalize on this trend with the broadest portfolio of activity trackers, many of which include GPS capability.”

In the Marine segment, sales grew 19.5 percent in the quarter to $67.5 million, driven by its popular lineup of chart plotters and fish finders. Gross margin decreased year over year to 52.1 percent from 53.6 percent due to product mix, while operating margin improved to 4 percent. The segment achieved operating income of $3 million in the period against a loss of $5.6 million a year ago.

In the quarter, new touchscreen and keyed chartplotter combo offerings in its popular GPSMAP product line was introduced. Many featured built-in sonar and new radar and entertainment offerings.

For the year, Marine’s sales were ahead 16 percent, with operating profits running up 82 percent due to lower operating expenses. Said Pemble, “The marine season is off to a great start, and we are ready to serve with a strong portfolio of products for every boating pursuit. For 2017, we’re targeting revenue growth of approximately 10 percent for the Marine segment.”

In other segments, Aviation sales grew 12.7 percent in the quarter to $117.3 million, while operating income eased 2.9 percent to $33 million. Auto segment sales declined 16.8 percent in the quarter to $226.6 million due to the contraction in the market for personal navigation devices. Auto’s operating income was off 46.5 percent to $19.4 million.

For the full year, Garmin’s total revenue companywide reached $3.02 billion, growing 7 over the prior year. Net income in 2016 grew 12f percent to $510.8 million, or $2.70 a share. On a pro-forma basis, earnings improved 12.9 percent to $536.5 million, or $2.83 a share.

For 2017, revenues are expected to be flat at $3.02 billion as growth in outdoor, fitness, marine and aviation is offset by ongoing declines in the auto segment. Gross margins are expected to be approximately 56 percent, relatively flat to the prior year. Operating margin is expected to be approximately 20 percent, which compares with a rate of 20.7 percent in 2016.

The bottom line will be impacted by a higher tax rate as the company, based in Switzerland, is in the process of aligning corporate tax rules from evolving international tax initiatives. With a pro-forma expected tax rate of approximately 22 percent versus 18.9 percent in 2016, pro-forma EPS is expected to reach approximately $2.65, which is down from $2.83.

Photo courtesy Garmin