Garmin’s third quarter was its best on record by several measures, and it was also the quarter in which the company’s cash generation and its profit growth openly diverged. Revenue reached $1.99 billion, up 12.2% from the same quarter last year, operating income rose 33.9%, and adjusted earnings beat the analysts’ average estimate by 15.8%. Quarterly free cash flow, however, fell to $293.3 million from $425.1 million a year earlier, even as profit climbed.
Revenue growth cools within a strong multi-year trend
Measured against its own history, the growth rate is unremarkable: of the previous eight quarters, 5 grew faster than 12.2%. The three-year revenue compound annual growth rate is 14.2%, ahead of this quarter’s pace, while the five-year rate is 11.6%, behind it.
Fitness revenue rose 16%, led by wearables, and is now 35% of total sales, up from 34% a year ago. Outdoor revenue rose 20% on adventure-watch demand, including the newly launched fēnix 9 and fēnix 9 Pro. Marine revenue rose 16% on broad growth led by sonar. Aviation rose a more modest 5%. Auto OEM revenue fell 20%, which management attributed to a decline in domain controllers; the segment’s operating loss narrowed to $11.9 million from $16.7 million a year earlier.
Margins reach a new high, beating their own three-year average
Gross margin expanded 4.2 percentage points to 63.3%, from 59.1% a year ago. Operating margin reached 30.8%, up 5.0 percentage points from 25.8% a year ago and well above the 25.1% average of the previous 12 quarters. Net income rose 34.9% to $541.7 million, from $401.6 million, and was little changed from the second quarter. GAAP diluted earnings per share were 2.80, up 34.6% from 2.08 a year ago and flat on the second quarter.
Adjusted earnings beat the average estimate by 15.8%
Garmin’s adjusted (pro forma) diluted earnings per share, which strip out foreign-currency gains and discrete tax items, were $2.76, ahead of the analysts’ average estimate of $2.38, a beat of 15.8%, the 4th consecutive quarter in which reported earnings have exceeded that average. No consensus estimate for revenue was available for comparison this quarter.
Management raises full-year guidance for the second time this year
Citing nine months of record results and what chief executive Cliff Pemble called momentum heading into the holiday selling season, Garmin raised its full-year 2026 outlook. It now expects revenue of approximately $8.15 billion, up from the $8.05 billion it guided to in July, and pro forma earnings per share of $10.80, up from $10.00. The new targets assume a gross margin of 61.0%, up from 59.7% previously guided, and an operating margin of 29.0%, up from 27.0%. The full-year tax rate assumption was held at 16.5%.
Garmin’s free cash flow fell even as profit jumped
Operating cash flow in the quarter was $393.9 million, down 18.9% from $485.6 million a year earlier, and down 2.4% from the second quarter. After capital spending, free cash flow was $293.3 million, against $425.1 million in the third quarter of 2025. Capital expenditure alone rose to $100.6 million in the quarter from $60.5 million a year earlier, per the company’s cash-flow reconciliation.
The pattern holds over a full year, not just one quarter. Free cash flow over the trailing twelve months grew 10.2%, well behind net income’s 28.4% growth over the same period, and the trailing free-cash-flow margin slipped 0.6 percentage points to 18.6%. Trailing capital expenditure grew 81.5% year on year and now absorbs 5.3% of revenue.
Tariff refunds flatter the margin; memory chips may crimp the next one
That sits uneasily next to a quarter in which roughly $33 million of one-off tariff refunds added about 160 basis points to gross margin.
The margin gain moves Garmin’s modelled value more than this guidance raise does
Our discounted cash flow model uses Garmin’s trailing revenue growth of 13.6% as its base-case growth assumption. Lifting that growth assumption by 5 percentage points raises modelled value by 29.9%; cutting it by 5 points lowers it by 23.2%. Raising the discount rate by 1 percentage point lowers modelled value by 14.7%. Against those swings, the margin effect is smaller: each 1-percentage-point fall in free cash flow margin lowers modelled value by 5.1%, and the past year’s margin slippage, if it persists, lowers modelled value by 2.9%. The guidance raise matters mainly as a signal that growth and margin can hold together; on its own, neither a point of margin nor a modest guidance increase moves the model as much as a sustained change in growth would. These are model values under stated assumptions, not a comparison with the share price.
The December dividend and the holiday quarter are the next tests
Shareholders of record on December 11, 2026 will receive Garmin’s next quarterly dividend of $1.05 per share, which the company will pay out on December 24, 2026. Garmin ended the quarter with roughly $4.1 billion in cash and marketable securities, having paid a $202 million dividend and repurchased $41 million of stock during the quarter, leaving about $407 million in its $500 million buyback authorisation that runs through December 2028.
