Garmin (GRMN) Up 10.2% Since Last Earnings Report: Can It Continue?

Core Insights - Garmin's Q2 2025 earnings exceeded expectations, with pro forma earnings of $2.17 per share, surpassing the Zacks Consensus Estimate by 10.7% and showing a 37% year-over-year improvement [2] - Net sales reached $1.81 billion, beating the Zacks Consensus Estimate by 4.4% and increasing by 20% compared to the previous year [2] Segment Performance - Outdoor Segment: Contributed 27% of net sales with $490.4 million, an 11% year-over-year increase, driven by adventure watches. Operating income was $158 million with a 32% margin [4] - Fitness Segment: Accounted for 33.4% of sales at $605.4 million, reflecting a 41% year-over-year increase due to demand for advanced wearables. Operating income was $198 million with a 33% margin [5] - Aviation Segment: Generated $249.4 million in sales, up 14% year-over-year, supported by OEM and aftermarket products. Operating income was $63 million with a 25% margin [6] - Marine Segment: Achieved $299.3 million in sales, a 10% increase year-over-year, led by chartplotters. Operating income was $63 million with a 21% margin [7] - Auto OEM Segment: Sales reached $170.2 million, marking a 16% year-over-year increase, but reported an operating loss of $10 million with a 6% gross margin [8] Financial Overview - Gross profit increased by 24% year-over-year to $1.07 billion, with a gross margin improvement of 150 basis points to 58.8% [9] - Operating expenses rose 14% to $595 million, while operating income grew 38% year-over-year to $472.3 million, with an operating margin expansion of 330 basis points to 26% [9] Cash Flow and Balance Sheet - As of June 28, 2025, Garmin held $2.59 billion in cash and marketable securities, down from $2.67 billion in the previous quarter [10] - Generated operating cash flow of $173 million and free cash flow of $127 million in Q2 2025 [10][11] Guidance and Outlook - Garmin raised its 2025 revenue guidance to $7.1 billion from $6.85 billion and pro forma EPS guidance to $8.00 from $7.80 [12] - The company expects a gross margin of 58.5% and an operating margin of 24.8% for 2025, with an increased effective tax rate forecast of 17.5% [13] - Estimates for Garmin have been trending upward, leading to a Zacks Rank 2 (Buy) indicating expected above-average returns in the coming months [16] Industry Context - Garmin operates within the Zacks Electronics - Miscellaneous Products industry, where competitor Flex reported revenues of $6.58 billion, a year-over-year increase of 4.1% [17] - Flex's expected earnings for the current quarter are $0.75 per share, reflecting a year-over-year change of 17.2% [18]