Garmin’s operating income jumps 34% and it raises its full-year outlook (NYSE: GRMN)

What happened

Garmin Ltd. (NYSE: GRMN) reported record third-quarter operating income of $612 million, up 34% from the prior-year quarter, and raised its full-year 2026 guidance.

Revenue for the quarter ended Sept. 26 hit a record $1.99 billion, up 12%. Pro forma earnings per share rose 39% to $2.76 from $1.99. GAAP earnings per share were $2.80.

Garmin now expects full-year revenue of about $8.15 billion and pro forma EPS of $10.80. CEO Cliff Pemble tied the raise to "the results we have achieved so far and the momentum we are experiencing as we enter the important holiday selling season."

Key numbers

Metric	Latest	Change	Source
Revenue, third quarter	$1.99 billion	from $1.77 billion, +12%	SEC 8-K, Exhibit 99.1
Operating income, third quarter	$612 million	from $456.8 million, +34%	SEC 8-K, Exhibit 99.1
Gross margin	63.3%	from 59.1%, +4.2 percentage points	SEC 8-K, Exhibit 99.1
Operating margin	30.8%	from 25.8%, +5.0 percentage points	SEC 8-K, Exhibit 99.1
Pro forma diluted EPS	$2.76	from $1.99, +39%	SEC 8-K, Exhibit 99.1
Free cash flow, third quarter	$293 million	from $425 million, -31.0%	Calculated from SEC 8-K

Read more: Garmin (GRMN) company research

Where the profit came from

Gross margin widened to 63.3% from 59.1% a year earlier. Operating margin rose to 30.8% from 25.8%. Garmin said margins were higher in every segment. Operating expenses rose 10% to $646 million, half the pace of the 20% gain in gross profit.

Outdoor led, with revenue up 20% on adventure watches and $233 million of operating income at a 39% operating margin. Fitness revenue rose 16% on wearables demand, with $231 million of operating income at a 33% margin.

Marine revenue also rose 16%, led by sonar. Its operating income climbed 90.3% to $94 million from $49.4 million a year earlier.

Aviation revenue rose 5%, mostly from OEM product categories, with a 78% gross margin and $66 million of operating income. Auto OEM revenue fell 20%, mainly on domain controllers. The segment lost $12 million at the operating line, against a loss of $16.7 million a year earlier.

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Why it matters

OptimistFi has argued that Garmin can compound value if its purpose-built products keep earning premium hardware margins in consumer, aviation and marine niches. Operating income grew far faster than revenue, and margins rose in all five segments. That strengthens the view.

Part of the gain will not repeat. The release credits favorable segment mix, lower product cost and about $33 million in refunds of previously paid tariffs.

Guidance points the same way. It assumes a 61.0% gross margin for the year, below the 61.8% Garmin earned in the first 39 weeks. That implies a lower margin in the final quarter. The assumed 29.0% operating margin compares with 28.8% for the first 39 weeks.

A lower tax rate also helped earnings. The effective rate was 18.1% against 21.2% a year earlier. The release credits expected U.S. deductions under tax legislation enacted in 2025 that took effect in 2026. Guidance assumes a 16.5% rate for the year.

Cash flow and inventory

Cash generation did not keep pace with earnings. Operating cash flow was $394 million against $486 million a year earlier. Free cash flow was $293 million against $425 million, a 31.0% drop. Purchases of property and equipment rose to $100.6 million from $60.5 million.

Inventories stood at $2.25 billion on Sept. 26, up 27.1% from $1.77 billion at Dec. 27, 2025. Cash and marketable securities were about $4.1 billion.

Garmin paid a $202 million dividend in the quarter and repurchased $41 million of its shares. About $407 million remains under the $500 million repurchase program, which runs through December 2028.

What's next

Garmin will pay the next dividend installment of $1.05 per share on Dec. 24 to holders of record on Dec. 11. Shareholders approved a $4.20 per share dividend in four equal installments. The board expects the last on March 26, 2027, with a March 12, 2027 record date.

The next test is Garmin's next quarterly report, which will show how the year finished against the raised guidance. Margins that hold without tariff refunds would support the case. A gross margin below the guided level, or inventory outrunning sales, would weaken it.

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