Yesterday Garmin reported their third-quarter 2016 results, which were better than expected and showed an increase in consolidated revenues of 6% to $722 million. Four of Garmin's business lines increased in aggregate by almost 25%, these being the fitness, outdoor, marine and aviation product ranges. The fifth product, automobiles, showed a decline of 21%. Overall, Garmin expanded its gross margin to over 56% and widened the operating margin to 22%, but the automobiles line shows a gross margin of 44% and an operating profit of 12%. These numbers are holding the company back because the automobiles division accounts for some 30% of total company revenue; but has been under intense pressure for most of the decade as the influx of smartphones and cars equipped with onboard navigation has hurt sales. As part of the results, Garmin updated its guidance for the full year, revising up its growth figures for the fitness, outdoors, marine and aviation divisions but still expecting a full year decline in automobile revenue by 17%. In other words, Garmin's non-auto products are outperforming its expectations set three months ago. The company is now forecasting full year revenue of $2.95 billion, up from the previous estimate of $2.9 billion, with an increase of operating income from $550 million to $580 million.
Whilst the overall numbers make for interesting reading, investors are particularly interested in the trend showing how the company is becoming increasingly less reliant on the automobile sector. During the quarter, Garmin launched a number of new products but the only automobile one is a dashcam unit. Elsewhere, it released the Forerunner 35 and vívofit jr fitness devices, plus the fēnix Chronos premium smartwatch. For 2015, the automobile division accounted for 39% of total revenue: Garmin's change in focus is helping drive profits. Increased excitement in how Garmin has and is set to continue to change its business has pushed the stock price to a one year high because investors believe there is more to come.
Looking to the fitness activity tracker market, Garmin may have enjoyed success but is still trailing the market leader, Fitbit, although it outsells Jawbone. However, the company sells more wearable devices than any Android Wear manufacturer and more than Samsung. In an emerging and difficult market the company has significantly grown market share. With a recognisable brand and some sharp looking products, it appears that investors recognize the potential in the company.