Garmin Reports Solid Q4 but Outlook Underwhelming

Garmin GRMN posted a relatively solid fourth quarter given currency headwinds, reporting revenue in line with our forecast and earnings per share surpassing our model. However, management guided for a weaker outlook for the year than we were bracing for, partially due to less of a recovery from fitness segment normalization than we were expecting. This has long-term implications, in our view, as we think it indicates that pandemic habits have been easier to break than once expected, moderating the overall TAM. As a result, we are lowering our fair value estimate to $129 from $140 per share. Nonetheless, with shares hovering near $98 per share, narrow-moat Garmin’s shares remain appealing through our eyes. We remind investors that while Garmin’s fitness segment is substantial in size, we do not see it and the auto segment as contributing to Garmin’s narrow moat. Instead, we view outdoor, aviation, and marine as Garmin’s moaty crown jewels, and thus, we found it comforting that these segments held up the best in 2022, posting record full-year revenue.

Fourth-quarter revenue totaled to $1.3 billion, marking a 6% decrease year over year as weakness in fitness and auto won out over strength in aviation, marine, and outdoor. Across the board, the strong U.S. dollar was a headwind to revenue. Fitness revenue declined by 28% year over year across all its categories given a normalization in the cycling market compared with the early pandemic boom and tough competition in wearables. As a reminder, fitness is Garmin’s second largest segment—after outdoor, which posted moderate revenue growth of 3% year over year. Nonetheless, Garmin’s aviation segment was a bright spot, growing revenue by 27% year over year thanks to healthy activity in both the aftermarket and OEM.