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Garmin’s third-quarter results were impressive, and its gross profit margin reached a new high. However, rising memory prices and disappearing inventory bonuses have led to concerns that profits will be under pressure next year and its share price has fallen.
Garmin’s third-quarter profit was better than expected and it raised its full-year outlook, but its share price fell nearly 6% on Wednesday. Low-priced memory inventory is being slowly used up, and new purchase costs are rising, which could reduce gross profit margins next year. Increasing stocking will also attract more funds, which has become the focus of the market.
Garmin’s third-quarter revenue rose 12% to US$1.99 billion, with adjusted net earnings per share of US$2.76, better than expected US$2.39; Gross profit margin reached 63.3%, a record high. However, it also benefited from low-priced memory inventory, the depreciation of the New Taiwan Dollar and approximately US$33 million in tariff refunds, and this may not be sustainable.
Garmin CEO Clifton Pemble said the price of new memory purchases is much higher than last year, and overall gross profit margin is expected to return to the historical range in 2027, but he did not give specific figures. He also did not rule out price increases and said adjusting selling prices is a tool to deal with rising costs.
To ensure supply, Garmin increased inventory of some components and made advance payments to suppliers. Inventories rose 27% from the end of last year to about US$2.3 billion, and the full-year free cash flow estimate fell to US$1.1 billion from about US$1.4 billion.
The test of this earnings report is that although demand is strong, the benefits of low-priced inventory will fade. Whether Garmin can maintain profitability through selling price, product mix and supply chain arrangements has attracted more market attention than single-quarter results.
Summary FAQ
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Although profits and the outlook are better than expected, the market is more concerned about the risk of rising costs as low-cost memory stocks run out. Investors are worried about a decline in gross profit margins next year, so they first expressed skepticism about future profits.
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Gross profit margin in the third quarter reached 63.3%, a record high, partially due to lower priced memory inventory, the depreciation of the New Taiwan Dollar and approximately US$33 million in tariff refunds. These factors may not reappear in the future.
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Garmin is ensuring supplies by increasing component inventory and paying suppliers in advance, and is considering raising prices. However, inventory has increased 27% since the end of last year to approximately US$2.3 billion, and full-year free cash flow has also been revised upward to US$1.1 billion.
