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Garmin Reports Solid Third Quarter 2013 Results and Raises Full Year Outlook



  Garmin Reports Solid Third Quarter 2013 Results and Raises Full Year Outlook

Business Wire

SCHAFFHAUSEN, Switzerland -- October 30, 2013

Garmin Ltd. (Nasdaq: GRMN) today announced results for the fiscal quarter
ended September 28, 2013. Highlights in the quarter include:

  * Total revenue of $644 million in third quarter 2013 with
    non-automotive/mobile segments of outdoor, fitness, aviation and marine
    delivering 50% of total revenues and growing 12% over the year ago quarter
  * Operating margin of 24% with 65% of operating profit from
    non-automotive/mobile segments
  * Introduced the VIRB™ and VIRB Elite action cameras, offering unique
    features available only through the integration with Garmin products and
    sensors
  * Announced the Edge^® Touring cycling computer and updates to our popular
    Forerunner^® GPS running watches
  * Generated $205 million of free cash flow in third quarter 2013

                                                  
(in thousands,      13-Weeks Ended                 39-Weeks Ended
except per share                          Yr                                 Yr
data)               Sept 28,   Sept 29,   over     Sept 28,     Sept 29,     over
                                          Yr                                 Yr
                    2013       2012       Change   2013         2012         Change
Net sales           $643,637   $672,376   -4%      $1,872,156   $1,947,127   -4%
Automotive/Mobile   322,520    384,393    -16%     919,810      1,055,786    -13%
Outdoor             101,350    105,572    -4%      284,372      283,230      0%
Aviation            83,459     72,857     15%      251,970      221,676      14%
Fitness             81,007     64,788     25%      237,660      217,815      9%
Marine              55,301     44,766     24%      178,344      168,620      6%
                                                                              
Gross profit %      55%        53%                 54%          55%
                                                                              
Operating profit    24%        24%                 21%          23%
%
                                                                              
Pro forma diluted   $0.69      $0.74      -7%      $1.86        $2.18        -15%
EPS ^(1)
                                                                              

Note: YTD 2012 results include one-time royalty fee benefit of $21 million
recorded in second quarter 2012 impacting gross margin.
(1) See table on final page for reconciliation of GAAP EPS to pro forma
diluted EPS
 

Executive Overview from Cliff Pemble, President and Chief Executive Officer:

“Stronger than expected revenue performance continued in the third quarter
with fitness and marine delivering exceptional growth,” said Cliff Pemble,
president and chief executive officer of Garmin Ltd. “In addition, the gross
and operating margins were strong as we effectively controlled operating
expenses. This resulted in $0.69 of pro forma EPS. Given these third quarter
results, we are increasing our full year pro forma EPS guidance to $2.40 -
$2.45.”

Outdoor:

The outdoor segment posted a revenue decline of 4% in the quarter as we were
unable to replicate our strong third quarter 2012 results. Gross and operating
margins within the segment remained strong at 69% and 44%, respectively.
During the quarter, we introduced our latest outdoor product family, the VIRB
action cameras. The VIRB and VIRB Elite bring new features to the action
camera market including color displays, GPS, extended battery life, fitness
sensor integration, and ability to control the camera through a range of
existing Garmin devices. We anticipate that this new offering and others
coming in fourth quarter will accelerate growth in our outdoor segment.

Fitness:

The fitness segment posted revenue growth of 25% in the quarter as our full
portfolio of products sold well, led by the Vector power meter and Edge
cycling computers. While gross margins declined 370 basis points from the
prior year due to the product mix, operating margins were consistent due to
the strong revenue growth. In the third quarter, we announced the Forerunner
220 and 620, which will begin delivery in the fourth quarter. Consumer
interest in these new running watches is strong due to the exciting new form
factor, color display, and ground-breaking new features such as running
dynamics and wireless connectivity. We also began shipment of the Edge
Touring, designed for navigating by bike, and our first product specifically
targeting this unique subset of the cycling community.

Aviation:

The aviation segment posted revenue growth of 15% in the quarter as both OEM
and aftermarket contributed to revenue improvement. OEM growth continues to be
driven by market share gains in the business jet and helicopter markets, as
well as increased content with existing OEM partners. The gross and operating
margins in aviation improved year-over-year to 71% and 28%, respectively.
While near-term results have been positive, the industry remains challenging
and this has been further intensified by the furloughs imposed at the FAA
causing short-term delays in certifications and shipments. Though this may
create headwinds in the fourth quarter, we continue to be excited about our
long-term market share opportunities and will increase our research and
development investment accordingly.

Marine:

The marine segment posted revenue growth of 24% in the quarter driven
primarily by strong demand for our chartplotters. Unfortunately, the pricing
environment for marine electronics has become more competitive, which is
putting pressure on gross margins. This is a challenging industry dynamic but
we managed operating expenses effectively in the quarter allowing us to
generate operating income. We will continue to focus on innovation that will
drive market share gains, while closely managing costs to improve long-term
profitability.

Auto/Mobile:

The automotive/mobile segment posted a revenue decline of 16% as PND sales
continued to decline as forecast. We anticipate PND volumes will continue to
decline 20% globally in 2014 and are managing our business accordingly. Gross
and operating margins in the quarter were 46% and 17%, respectively, as the
segment remains highly profitable even while we continue to invest in research
and development efforts related to long-term OEM opportunities. We look
forward to seeing evidence of our success with the launch of Garmin navigation
in some 2014 Mercedes Benz models.

Additional Financial Information:

Total operating expenses in the quarter were $201 million, a 1% increase from
the prior year. Decreased spending in advertising was driven primarily by
lower cooperative advertising, which is directly related to sales. This was
offset by growing research and development investment in each of our segments
while selling, general and administrative expenses were constant. We continue
to invest in research and development to foster both near-term and long-term
revenue growth opportunities.

The effective tax rate in third quarter 2013 was 15.7%, excluding the $52
million impact of reserve releases associated with specific uncertain tax
positions offset by the Taiwan surtax due to this release of reserves,
compared to 13.7% in the prior year due to changes in income mix by tax
jurisdiction, as well as reduced tax incentives in Taiwan.

In the third quarter, we generated $205 million of free cash flow which
continues to fund our quarterly dividend and share repurchase activity, which
totaled $14 million in the current quarter. We ended the quarter with cash and
marketable securities of almost $2.8 billion.

2013 Guidance Update:

                   2013 Update     Prior
Revenue            $2.5 - $2.6 B   $2.5 - $2.6 B
Gross Margin       53 - 54%        53 - 54%
Operating Income   ~ $530 M        ~ $500 M
Operating Margin   ~ 21%           ~ 20%
Tax Rate           16%             15%
EPS (Pro Forma)    $2.40 - $2.45   $2.30 - $2.40
                                  

We have increased our 2013 guidance to reflect the strong third quarter
performance. We now anticipate operating income of approximately $530 million
partially offset by a higher effective tax rate resulting in a pro forma EPS
range of $2.40 - $2.45.

Webcast Information/Forward-Looking Statements:

The information for Garmin Ltd.’s earnings call is as follows:

When:      Wednesday, October 30, 2013 at 10:30 a.m. Eastern
Where:     http://www.garmin.com/aboutGarmin/invRelations/irCalendar.html
How:       Simply log on to the web at the address above or call to listen in
           at 888-389-5997

An archive of the live webcast will be available until December 27, 2013 on
the Garmin website at www.garmin.com. To access the replay, click on the
Investor Relations link and click over to the Events Calendar page.

This release includes projections and other forward-looking statements
regarding Garmin Ltd. and its business. Any statements regarding the Company’s
estimated earnings and revenue for fiscal 2013, the Company’s expected segment
revenue growth rate, margins, new products to be introduced in 2013 and the
Company’s plans and objectives are forward-looking statements. The
forward-looking events and circumstances discussed in this release may not
occur and actual results could differ materially as a result of risk factors
affecting Garmin, including, but not limited to, the risk factors that are
described in the Annual Report on Form 10-K for the year ended December 29,
2012 filed by Garmin with the Securities and Exchange Commission (Commission
file number 0-31983). A copy of Garmin’s 2012 Form 10-K can be downloaded from
http://www.garmin.com/aboutGarmin/invRelations/finReports.html.

Garmin, Edge, Approach and Forerunner are registered trademarks and VIRB and
G5000 are trademarks of Garmin Ltd. or its subsidiaries.  All other brands,
product names, company names, trademarks and service marks are the properties
of their respective owners. All rights reserved.

 
Garmin Ltd. And Subsidiaries
Condensed Consolidated Statements of Income (Unaudited)
(In thousands, except per share information)
                                                                 
                           13-Weeks Ended            39-Weeks Ended
                           Sept 28,     Sept 29,     Sept 28,     Sept 29,
                           2013         2012         2013         2012
Net sales                  $643,637     $672,376     $1,872,156   $1,947,127
                                                                   
Cost of goods sold         290,748      313,321      859,494      882,501     
                                                                   
Gross profit               352,889      359,055      1,012,662    1,064,626
                                                                   
Advertising expense        26,251       30,102       77,983       91,952
Selling, general and       86,462       86,402       260,769      275,763
administrative expense
Research and development   88,427       82,489       272,349      242,510     
expense
Total operating expense    201,140      198,993      611,101      610,225     
                                                                   
Operating income           151,749      160,062      401,561      454,401
                                                                   
Other income (expense):
Interest income            8,435        7,987        25,512       26,278
Foreign currency gains     (822     )   (6,364   )   18,280       (16,124    )
(losses)
Other                      1,438        942          3,666        5,064       
Total other income         9,051        2,565        47,458       15,218      
(expense)
                                                                   
Income before income       160,800      162,627      449,019      469,619
taxes
                                                                   
Income tax (benefit)       (26,869  )   22,279       192          56,510      
provision
                                                                   
Net income                 $187,669     $140,348     $448,827     $413,109    
                                                                   
Net income per share:
Basic                      $0.96        $0.72        $2.30        $2.12
Diluted                    $0.96        $0.72        $2.29        $2.11
                                                                   
Weighted average common
shares outstanding:
Basic                      195,325      194,912      195,488      194,834
Diluted                    196,300      196,161      196,312      196,171
                                                                              

                                                                 
Garmin Ltd. And Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, except share information)
                                                                   
                                                   (Unaudited)
                                                   Sept 28,       December 29,
                                                   2013           2012
Assets
Current assets:
Cash and cash equivalents                          $1,068,700     $1,231,180
Marketable securities                              134,253        153,083
Accounts receivable, net                           475,707        603,673
Inventories, net                                   416,725        389,931
Deferred income taxes                              67,437         68,785
Deferred costs                                     56,749         53,948
Prepaid expenses and other current assets          225,067        35,520      
Total current assets                               2,444,638      2,536,120
                                                                   
Property and equipment, net                        413,675        409,751
                                                                   
Marketable securities                              1,594,144      1,488,312
Restricted cash                                    252            836
Noncurrent deferred income tax                     94,734         93,920
Noncurrent deferred costs                          39,625         42,359
Other intangible assets, net                       221,979        232,597
Other assets                                       14,179         15,229      
Total assets                                       $4,823,226     $4,819,124  
                                                                   
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable                                   $151,798       $131,263
Salaries and benefits payable                      63,064         55,969
Accrued warranty costs                             34,639         37,301
Accrued sales program costs                        36,487         57,080
Deferred revenue                                   255,830        252,375
Accrued royalty costs                              34,285         71,745
Accrued advertising expense                        16,862         25,192
Other accrued expenses                             73,241         69,806
Deferred income taxes                              63             332
Income taxes payable                               44,060         32,031
Dividend payable                                   263,704        175,932     
Total current liabilities                          974,033        909,026
                                                                   
Deferred income taxes                              3,516          2,467
Non-current income taxes                           121,091        181,754
Non-current deferred revenue                       166,165        193,047
Other liabilities                                  917            1,034
                                                                   
Stockholders' equity:
Shares, CHF 10 par value, 208,077,418 shares
authorized and issued; 195,221,791 shares
outstanding at September 28, 2013 and              1,797,435      1,797,435
195,591,854 shares outstanding at December 29,
2012
Additional paid-in capital                         87,377         72,462
Treasury stock                                     (100,912   )   (81,280    )
Retained earnings                                  1,701,823      1,604,625
Accumulated other comprehensive income             71,781         138,554     
Total stockholders' equity                         3,557,504      3,531,796   
Total liabilities and stockholders' equity         $4,823,226     $4,819,124  
                                                                              

                                                                 
Garmin Ltd. And Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
                                                   39-Weeks Ended
                                                   Sept 28,       Sept 29,
                                                   2013           2012
Operating Activities:
Net income                                         $448,827       $413,109
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation                                       36,840         40,025
Amortization                                       23,629         21,192
(Gain)/Loss on sale of property and equipment      41             (17        )
Provision for doubtful accounts                    1,023          2,786
Deferred income taxes                              2,851          (7,384     )
Unrealized foreign currency losses/(gains)         (17,273    )   24,974
Provision for obsolete and slow moving             15,965         3,795
inventories
Stock compensation expense                         15,608         26,364
Realized gains on marketable securities            (2,963     )   (1,647     )
Changes in operating assets and liabilities, net
of acquisitions:
Accounts receivable                                128,098        103,039
Inventories                                        (44,337    )   (44,761    )
Other current and non-current assets               (18,329    )   14,051
Accounts payable                                   21,936         (20,271    )
Other current and non-current liabilities          (60,719    )   (63,839    )
Deferred revenue                                   (22,613    )   35,277
Deferred cost                                      (57        )   (8,561     )
Income taxes payable                               (48,256    )   (28,098    )
Net cash provided by operating activities          480,271        510,034
                                                                   
Investing activities:
Purchases of property and equipment                (41,325    )   (26,881    )
Proceeds from sale of property and equipment       65             25
Purchase of intangible assets                      (1,574     )   (5,174     )
Purchase of marketable securities                  (716,226   )   (1,004,021 )
Redemption of marketable securities                578,464        735,521
Advances under loan receivable commitment          (173,708   )   -
Change in restricted cash                          584            (59        )
Acquisitions, net of cash acquired                 (5,686     )   (4,010     )
Net cash used in investing activities              (359,406   )   (304,599   )
                                                                   
Financing activities:
Dividends paid                                     (263,857   )   (253,386   )
Purchase of treasury stock under share             (26,926    )   -
repurchase plan
Purchase of treasury stock related to equity       (7,430     )   (6,542     )
awards
Proceeds from issuance of treasury stock related   13,620         10,971
to equity awards
Tax benefit from issuance of equity awards         411            1,810       
Net cash used in financing activities              (284,182   )   (247,147   )
                                                                   
Effect of exchange rate changes on cash and cash   837            1,625
equivalents
                                                                   
Net increase/(decrease) in cash and cash           (162,480   )   (40,087    )
equivalents
Cash and cash equivalents at beginning of period   1,231,180      1,287,160   
Cash and cash equivalents at end of period         $1,068,700     $1,247,073  
                                                                              

                                                                                
Garmin Ltd. And Subsidiaries
Revenue, Gross Profit, and Operating Income by Segment (Unaudited)
                                       
              Reporting Segments
                                                     Auto/
              Outdoor      Fitness      Marine       Mobile         Aviation     Total
                                                                                  
13-Weeks
Ended
Sept 28,
2013
                                                                                  
Net sales     $101,350     $81,007      $55,301      $322,520       $83,459      $643,637
Gross         $69,471      $49,328      $27,265      $147,866       $58,959      $352,889
profit
Operating     $44,107      $26,493      $4,118       $53,848        $23,183      $151,749
income
                                                                                  
13-Weeks
Ended
Sept 29,
2012
                                                                                  
Net sales     $105,572     $64,788      $44,766      $384,393       $72,857      $672,376
Gross         $72,420      $41,885      $28,572      $166,007       $50,171      $359,055
profit
Operating     $48,384      $21,219      $8,378       $65,165        $16,916      $160,062
income
 
                                                                                  
39-Weeks
Ended
Sept 28,
2013
                                                                                  
Net sales     $284,372     $237,660     $178,344     $919,810       $251,970     $1,872,156
Gross         $184,333     $149,368     $91,550      $410,348       177,063      $1,012,662
profit
Operating     $110,538     $76,026      $16,089      $134,324       $64,584      $401,561
income
                                                                                  
39-Weeks
Ended
Sept 29,
2012
                                                                                  
Net sales     $283,230     $217,815     $168,620     $1,055,786     $221,676     $1,947,127
Gross         $186,574     $142,045     $105,205     $476,761       $154,041     $1,064,626
profit
Operating     $118,032     $76,016      $35,584      $170,208       $54,561      $454,401
income
                                                                                  

                                                                      
Garmin Ltd. And Subsidiaries
Revenue by Geography (Unaudited)
                                                                        
           13-Weeks Ended                    39-Weeks Ended
           Sept 28,   Sept 29,   Yr over     Sept 28,     Sept 29,     Yr over
                                 Yr                                    Yr
           2013       2012       Change      2013         2012         Change
Net sales  $643,637   $672,376   -4%         $1,872,156   $1,947,127   -4%
Americas   333,448    380,452    -12%        1,002,796    1,068,289    -6%
EMEA       245,659    224,642    9%          692,836      692,673      0%
APAC       64,530     67,282     -4%         176,524      186,165      -5%
                                                                        

EMEA - Europe, Middle East and Africa; APAC - Asia Pacific
 

Non-GAAP Financial Information

Management believes that net income per share before the impact of foreign
currency translation gain or loss and income tax adjustments that materially
impact the effective tax rate due to completion of tax audits and/or
expiration of statutes is an important measure. The majority of the Company’s
consolidated foreign currency gain or a loss result from transactions
involving the Euro, the British Pound Sterling and the Taiwan Dollar and from
the exchange rate impact of the significant cash and marketable securities,
receivables and payables held in U.S. dollars at the end of each reporting
period by the Company’s various non U.S. subsidiaries. Such gain or loss is
required under GAAP because the functional currency of the subsidiaries
differs from the currency in which various assets and liabilities are held.
However, there is minimal cash impact from such foreign currency gain or loss.
The Company’s income tax expense is periodically impacted by material reserve
releases related to completion of audits and/or the expiration of statutes
effecting prior periods. This is not reflective of the current effective tax
rate. The release of other uncertain tax position reserves, amounting to
approximately $10 million in the 2013 periods and $12 million in the 2012
periods, have not been included as pro forma adjustments in the following
presentation of pro forma net income as such amounts have been considered
immaterial, tend to be more recurring in nature and are comparable between
periods. Accordingly, earnings per share before the impact of foreign currency
translation gain or loss and income tax adjustments that materially impact the
effective tax rate due to completion of tax audits and/or expiration of
statutes permits a consistent comparison of the Company’s operating
performance between periods.

                                                                     
Garmin Ltd. And Subsidiaries
Net income per share (Pro Forma)
(in thousands, except per share information)
                                                                       
                                 13-Weeks Ended          39-weeks Ended
                                 Sept 28,     Sept 29,   Sept 28,     Sept 29,
                                 2013         2012       2013         2012
                                                                       
Net Income (GAAP)                $187,669     $140,348   $448,827     $413,109
Foreign currency (gain) /        $692         $5,493     ($15,475 )   $14,184
loss, net of tax effects
Income tax benefit due to
completion of tax audits         ($52,180 )   -          ($68,716 )   -
and/or expiration of statutes
Net income (Pro Forma)           $136,181     $145,841   $364,636     $427,293
                                                                       
Net income per share (GAAP):
Basic                            $0.96        $0.72      $2.30        $2.12
Diluted                          $0.96        $0.72      $2.29        $2.11
                                                                       
Net income per share (Pro
Forma):
Basic                            $0.70        $0.75      $1.87        $2.19
Diluted                          $0.69        $0.74      $1.86        $2.18
                                                                       
Weighted average common shares
outstanding:
Basic                            195,325      194,912    195,488      194,834
Diluted                          196,300      196,161    196,312      196,171
                                                                       

Management believes that free cash flow is an important financial measure
because it represents the amount of cash provided by operations that is
available for investing and defines it as operating cash flow less capital
expenditures for property and equipment.

                                                                   
Garmin Ltd. And Subsidiaries
Free Cash Flow
(in thousands)
                            
                             13-Weeks Ended            39-weeks Ended
                             Sept 28,     Sept 29,     Sept 28,     Sept 29,
                             2013         2012         2013         2012
                                                                     
Net cash provided by         $216,609     $164,901     $480,271     $510,034
operating activities
Less: purchases of           ($11,602 )   ($9,455  )   ($41,325 )   ($26,881 )
property and equipment
Free Cash Flow               $205,007     $155,446     $438,946     $483,153  

Contact:

Garmin Ltd.
Investor Relations:
Kerri Thurston, 913-397-8200
investor.relations@garmin.com
or
Media Relations:
Ted Gartner, 913-397-8200
media.relations@garmin.com
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