Garmin Takes Unplanned Detour

Updated from 10:41 a.m. EST

Garmin (GRMN) surprised analysts by beating fourth-quarter estimates thanks to strong holiday sales, but cautious remarks about growing competition from the likes of TomTom sent initially upbeat investors scurrying from its shares.

The Cayman Islands-based digital-navigation-device-maker predicted that earnings will top $4.40 a share in 2008 on revenue of more than $4.5 billion. Analysts currently expect full-year earnings of $4.40 a share with a top line of $4.26 billion.

On a conference call, though, Chief Financial Officer Kevin Rauckman said Garmin anticipates competitive pricing to pressure its automotive and mobile segment this year.

President and Chief Operating Officer Cliff Pemble called the just-completed quarter "the best in our history" during the same call, but he also forecast that 2008 "will present increased challenges from competitors."

Still, Pemble noted that the company would continue to unveil new location-based devices and will look to possible acquisitions to maintain growth.

Even so, Garmin's stock, up more than 5% earlier, reversed course and was lately lower by 4.6% at $66.34.

Traders at first applauded Garmin after the company said its fourth-quarter net income surged to $307.3 million, or $1.39 a share, a 70% jump from year-ago levels. Excluding items, Garmin's earnings rose to $1.31 a share from 87 cents last year. That handily beat the Thomson Financial average estimate of $1.11 a share.

Garmin said revenue for the quarter nearly doubled to $1.22 billion from the year-ago quarter, with strong holiday demand for the company's navigation devices. Revenue from North America, Garmin's largest market, soared 113% to $836 million.

"Garmin experienced an exciting fourth quarter, which brought a strong finish to fiscal 2007," Chairman and CEO Dr. Min Kao said in a prepared statement. "The strong holiday season demand we experienced clearly demonstrated that our products are well-positioned to take advantage of the growing interest in portable navigation devices. Independent market research indicates we have maintained a strong leadership position in North America, and our market position in Europe continues to improve as well."

The quarterly earnings beat was Garmin's fifth in a row, and the company has now topped expectations eight out of the last nine quarters. However, shares have fallen more than 30% over the last four months.

In a note to clients, Oppenheimer analyst Yair Reiner said that Garmin's fourth-quarter and financial outlook for 2008 should push the stock back into a near-term range of $70 to $80 a share.

"We look for the stock to have a strong relief rally in the coming days," said Reiner. "Though guidance is only slightly ahead of the current consensus, investors had begun to heavily discount the possibility of downward revisions."

Reiner warned, however, that a consumer recession or continued price competition from TomTom or GPS-enabled smartphones could cut into Garmin's growth.

Along with its earnings, Garmin also said its board has approved a stock buyback program covering up to 5 million shares.

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