Garmin Ltd. (GRMN) Earnings & Analysis

Latest quarter

Garmin reported Q3 FY2026 revenue of $2.0 billion, up 12.2% from $1.8 billion a year earlier. Revenue missed the consensus by 0.15%, although both the reported figure and estimate rounded to $2.0 billion. Adjusted earnings per share of $2.76 beat the $2.38 consensus by 16.0%; diluted earnings per share were $2.80, compared with $2.08 a year earlier.

The company attributed fitness growth primarily to wearable demand and outdoor growth to adventure watches. Aviation and marine revenue also grew, while auto OEM revenue declined primarily because of domain controllers. CEO Clif Pemble said fitness revenue rose 16% to $694 million and outdoor revenue rose 20% to $597 million.

Garmin’s gross margin rose to 63.3% from 59.1%, and its operating margin rose to 30.8% from 25.8%. The filing attributed the gross-margin increase primarily to segment mix, lower product costs and approximately $33 million in tariff refunds. Free cash flow fell to $293.3 million from $425.1 million; CFO Doug Boessen attributed the decrease primarily to higher inventory and prepayments to secure components, partly offset by improved operating results.

Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.

What management said on the call

CEO Clif Pemble said Garmin was working to catch up with initial demand for its Circa smartband and Fenix watches. He said product registrations had outpaced shipments into sales channels, suggesting some channel destocking ahead of the holiday season, while Garmin had a backlog to fill for the fourth quarter.

Discussing competition in wearables, Pemble described an established market and said Garmin was continuing to develop product features and sensors for health and fitness users. He said Connect+ had grown faster than the underlying segments that can use it and had exceeded Garmin’s expectations, with customers also signing up to use it with Circa.

On margins, Pemble said Garmin had benefited from memory bought at lower prices, while new supplies were being purchased at higher current prices. He said pricing was one tool Garmin could consider to mitigate costs, alongside its vertical integration and scale. In the prepared remarks, he said the company was also holding more critical components and sometimes making prepayments to secure supplies.

CFO Doug Boessen said those prepayments were negotiated with memory suppliers case by case to secure future supply. He said the reduction in Garmin’s full-year free-cash-flow estimate was primarily due to higher inventory and prepayments. Pemble said a new facility was on track to begin producing products in the first quarter of 2027, adding that existing volumes had reached capacity.

Looking ahead, Pemble expects fourth-quarter outdoor growth to continue, primarily driven by the Fenix 9 series, while auto OEM revenue declines year over year at a rate consistent with Q3. Asked about the timing of the next Mercedes-Benz domain-controller program, he said he could not give a precise timeline but expected it to ramp earlier rather than later in 2027, following the customer’s requirements.

Guidance

Garmin raised its FY2026 revenue guidance to approximately $8.15 billion from $8.05 billion and its pro forma EPS outlook to $10.80 from $10.00. The company now expects gross margin of 61.0%, up from 59.7%, and operating margin of 29.0%, up from 27.0%.

Garmin lowered its FY2026 free-cash-flow estimate to $1.1 billion from $1.4 billion and its capital-expenditure estimate to $500.0 million from $550.0 million. For 2027, Pemble expects consolidated gross margin to return to a historical range, primarily because of higher memory costs.