TomTom's Quarterly Operating Profit Beats Expectations

TomTom, Europe's largest maker of car navigation devices, beat average analyst forecasts with a 43 percent rise in operating profit on Wednesday and raised its full-year outlook.

TomTom shares rose 8.3 percent to 61.51 euros in early trade in Amsterdam after the company posted record profits and units shipped and showed a surprise rise in gross margins to 49 percent.

"What a margin!" Petercam analyst Eric de Graaf wrote in a note. "TomTom released results that were a bit weak on the top-line, but very strong on the margin development."

TomTom said its market share in the United States -- where it is trailing rival Garmin -- had risen to around 27 percent at the end of the third quarter and that it was aiming for 30 percent in the fourth quarter. It seeks to keep its European market share at the current 50 percent.

"We are confident that with our strong product line-up, supported by advertising campaigns and promotional activity TomTom will be able to defend its market position in Europe and to grow market share in the U.S.," Chief Executive Harold Goddijn said in a statement.

The company, which is seeking to buy its map supplier Tele Atlas in a 1.8 billion-euro deal, said it shipped 2.2 million navigation devices in the quarter, up from 1.8 million in the preceding three months and meeting the average forecast of 2.2 million given in a Reuters poll of 10 analysts.

Its earnings before interest and tax (EBIT) rose to 133 million euros ($189 million) from 93 million in the second quarter, ahead of the average analyst forecast of 116 million.

The company's gross margins rose 4 percentage points from the second quarter to 49 percent, while analysts had on average expected a decline to 43 percent.

"The biggest improvement came from re-engineering efforts. The 'One' is now in its third generation, the new 'Go' range is also more cost-effective to manufacture," Goddijn said. "Some components came down, others were strengthening a little bit."

Outlook Raised

TomTom raised its full-year forecasts and now expects to ship 9 million to 10 million units worldwide for revenue of between 1.7 billion and 1.8 billion euros.

The global market, in its infancy just a few years ago, is estimated to be worth $4.2 billion this year and to grow to $12.8 billion by 2010, according to market research firm iSuppli.

TomTom remained tight-lipped on speculation it may have to raise its offer for Tele Atlas after the world's largest cell phone maker Nokia offered to pay $8.1 billion for Navteq , the only other digital map maker with a global scope.

"I think we made a fair offer for those shares at a full price," Goddijn said.

TomTom is offering to pay 21.25 euros per Tele Atlas share, but Tele Atlas were trading at around 23.09 euros on Wednesday, signaling investors hope for a sweetened bid or a counteroffer.