Garmin - First Look at the Numbers

So now that everyone knows the basics about looking at a financial statement (HINT: see previous blog if this is not you), lets talk about the numbers for Garmin. For reference, here is the link to their annual report (page 63 is what we're referring to)

Net Sales

Lets look at the net sales for Garmin from 2001 - 2005. For analysis purposes we'll start sales at 2001. Here's the summary:

Company	Net Sales	Percent Increase in Net Sales
GRMN (2001)	369,119,000	0.00%
GRMN (2002)	465,144,000	26.01%
GRMN (2003)	572,989,000	23.19%
GRMN (2004)	762,549,000	33.08%
GRMN (2005)	1,027,773,000	34.78%

Note that the calculation for the increase percentage is simply the following:
((Current Year - Previous Year) / Previous Year)

Those numbers impress me. A company that can sustain that type of growth rate over that period of time is doing an excellent job at increasing sales each year. It's difficult to say how long the company can continue to sustain this type of sales growth. Obviously it has to stop at some time (and that's usually where you'll see the stock price start to level out). So far 2006 is looking good and I think they can continue at least through 2007. There is still a lot of room for growth in this area.

Net Earnings

Now lets look at the net earnings for Garmin from 2001 - 2005.

Company	Net Earnings	Percent Increase in Net Earnings
GRMN (2001)	113,448,000	0.00%
GRMN (2002)	142,797,000	25.87%
GRMN (2003)	178,634,000	25.10%
GRMN (2004)	205,700,000	15.15%
GRMN (2005)	311,219,000	51.30%

The first question that comes to my head when I look at these numbers is what the hell happened in 2004? One obvious thing is that the other income section was negative for 2004 (Lost 15 million dollars). Page 59 of the 2004 annual report explains that the majority of this other income loss was due to foreign currency exchange losses. This type of thing tends to happen with currency rate movements but still isn't something you want to see a company consistently reporting.

Page 62 also explains that an additional 47 million dollars was spent on an expansion of the Kansas facility. Removing that 47 million dollar expansion from the total costs and expenses would move the net earnings increase for 2004 to 41.46% and reduce the 2005 earnings increase to 23.16%. Kind of amazing what a facility expansion can do to your company. The point is re-iterated in the 2005 statement on page 74 of the 2005 report where they state "Capital expenditures in 2005 totaled $27.1 million, a decrease of $51.0 million from fiscal 2004". Spending less on facility expansion in 2005 greatly improved the net earnings for that year. When you look at the big picture of net earnings over these 5 years you can't help but be impresses (hence the reason from 2002-2006 garmin stock has risen 447% vs the S&P500 return of 20%).

A Random Tidbit

When earning numbers are released, one of the key motivations that moves a stock either up or down is how well the new numbers relate to it's previous numbers. For example, how does the Net Earnings for this quarter/year compare to the same number from the previous quarter/year. At times, this number comparison by the market can be a very emotional knee jerk type reaction. A smart investor could use the somewhat emotional reaction from the market to move a stock based on this number to their advantage.

Companies are going to have tough quarters. Deals don't get closed, supply problems impact delivery, ... whatever it is, it's going to happen, and the company's stock will most likely be punished for it. As long as it's a good company, and whatever caused the earnings miss has been corrected, you can almost guarantee that the companies next earning number will be much higher then the previously reported one. A great example of this can be seen if you go and look at Garmin stock history after it's 2004 earnings report vs it's stock history after the 2005 earnings report. As we proved above, the net earnings can be explained by looking a bit deeper into the financial reports but that didn't stop the market from punishing the stock after 2004 and rewarding them after the 2005 report. Sure would have been nice to buy the stock around March of 2005.