Garmin reports surge in 3Q profit

KANSAS CITY, Mo. - Navigational device maker Garmin Ltd. reported a 24 percent increase in third-quarter profit as lower costs offset a drop in sales.

The results beat Wall Street estimates but did little to calm investors' concerns that consumers are more likely to turn to cell phones equipped with increasingly sophisticated navigational features of their own.

Holiday forecasts of weaker demand and lower retail prices than in past years didn't help matters.

Shares plunged 14.8 percent, falling $4.65 to $26.76 in afternoon trading Wednesday.

Oppenheimer Equity Research analyst Yair Reiner said in a research note that he was impressed by how much better the company did than analysts like him expected, but he doubted it registered with shareholders.

"As impressive as it is, will likely do little to ease investor concerns about the sustainability of the PND business in a world of free Google mobile navigation," Reiner said. "Against that backdrop, some holders may use any strength this morning as a pathway to a clean exit."

Garmin makes devices that use Global Positioning System technology for drivers, boaters, pilots and outdoors enthusiasts. The company's shares have been pressured since last week, when Google Inc. used the Droid smartphone to unveil new mapping software that could challenge standalone personal navigational devices, or PNDs.

During a conference call with analysts, Chief Operating Officer Cliff Pemble argued that PNDs were still superior to what is being offered on cell phones, which he said are difficult to use for turn-by-turn directions in the car, can have less accurate maps, require monthly payments and are sometimes limited by their wireless carrier's network.

At the same time, Garmin has tried to enter the wireless market with its own smartphone device, called the nuvifone G60, which incorporates navigational features and went on sale through AT&T Inc. last month.

But Pemble said the device's sales have been "relatively slow." He said AT&T plans to cut the device's price to $199 from $299, and Garmin will increase advertising for the G60 heading into the holiday season.

He also said the company still planned to rollout new nuvifone devices next year, including one based on Google's Android platform.

Garmin, based in the Cayman Islands with headquarters in Olathe, Kan., reported earning $215 million, or $1.07 per share, during the July-September period, up from $171.2 million, or 82 cents per share, a year ago.

Excluding foreign exchange rate effects, Garmin said it would have earned $1.02 per share. Analysts surveyed by Thomson Reuters had predicted of 69 cents per share. Their estimates typically exclude unusual items.

Revenue declined 10 percent to $781.3 million from $870.4 million a year ago but well above the $703.9 million analysts expected.

The company said sales in the automotive segment, which accounts for a majority of overall sales, decreased 13 percent. Aviation sales, which have been hammered as fewer people are buying private jets, decreased 29 percent.

Marine sales increased 3 percent while the outdoor/fitness segment rose 11 percent.

Chief Financial Officer Kevin Rauckman said profit margins improved from the first half of the year as price cuts in the automotive segment moderated and the cost of materials continued to decline.

Looking to the fourth quarter, Pemble told analysts that the company expected to sell 40 percent to 50 percent more units than in the third quarter but that prices and profit margins would decline. The increase was also smaller than in past years, which Pemble blamed on the maturing market for the devices.

He said outdoor/fitness sales should be flat.

(This version CORRECTS UPDATES to correct that 4Q unit sales are expected to rise 40-50 percent, sted 50-60 percent; UPDATES stock price; ADDS analyst comment.)

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