Garmin Ltd. reported earnings on a pro-forma basis rose 7.1 percent to $98.6 million, or 52 cents a share, from $92.1 million, or 49 cents, a year ago. Wall Street was expecting 45 cents a shares.

Highlights for the first quarter 2017 include:

  • Total revenue of $639 million, growing 2 percent over the prior year, with marine, outdoor, aviation and fitness collectively growing 12 percent over the prior-year quarter and contributing 75 percent of total revenue
  • Gross margin improved to 58.3 percent compared to 54.5 percent in the prior year quarter
  • Operating margin improved to 18.2 percent compared to 16.6 percent in the prior-year quarter
  • Operating income grew 12 percent
  • GAAP EPS was $1.26 and pro forma EPS was 52 cents
  • Began shipping the Fēnix 5 adventure watch series, with three watch designs appealing to a broader range of wrist sizes and style preferences
  • Launched the Forerunner 935 multi-sport watch, and introduced the Vívosmart 3 with all-day stress tracking.

“We continued our trend of consolidated revenue growth led by double digit growth in our marine, outdoor and aviation segments,” said Cliff Pemble, president and chief executive officer of Garmin Ltd. “The fitness segment declined slightly due to the rapidly maturing market for basic activity trackers. However, demand for advanced wearables remains strong. Our product development pipeline is robust and we look forward to launching compelling new products throughout the remainder of the year.”

Marine
The marine segment posted robust revenue growth of 26 percent, driven by its solid lineup of chartplotters, fishfinders and entertainment products. Gross margin increased year over year to 57 percent, with product mix shifting toward new products with higher-margin profiles. Operating margin improved to 17 percent, resulting in 76 percent operating income growth. During the first quarter of 2017, Garmin started shipping its new touchscreen and keyed chartplotter combo offerings in its GPSMap product line, with positive customer reception. Garmin remains focused on innovations and achieving market share gains within the inland fishing category.

Outdoor
During the first quarter of 2017, the outdoor segment grew 20 percent, with significant contributions from wearable devices. Gross margin improved to 63 percent while operating margin improved to 30 percent, resulting in 24 percent operating income growth. Garmin began shipping its Fēnix 5 adventure watch series late in the first quarter, as well as the new Garmin branded InReach handhelds.

Aviation
The aviation segment posted solid first-quarter revenue growth of 16 percent, primarily driven by growth in aftermarket products. Gross and operating margins were strong at 74 percent and 31 percent, respectively, resulting in 27 percent operating income growth. During the quarter, Garmin began shipping the G1000 NXi, the next generation integrated flight deck, expanded the market for its ADS-B products with the European Aviation Safety Agency certification of the GTX 345 and continued to enhance its portfolio of safety enhancing products with the G5, a cost-effective solution for electronic flight instruments. Garmin will continue to focus on ADS-B and other global regulatory mandate opportunities that exist and gaining market share in the OEM market.

Fitness
During the first quarter of 2017, the fitness segment posted a revenue decline of 3 percent, driven by lower volume in basic activity trackers partially offset by growth in its advanced wearables with GPS. Gross and operating margins increased year over year to 56 percent and 13 percent, respectively, resulting in an 11 percent growth in operating income. During the first quarter Garmin launched the Forerunner 935, its most advanced multi-sport watch with performance monitoring tools, and introduced the Vívosmart 3, an ultra-slim smart activity tracker with wrist based heart rate and innovative all-day stress tracking. While the market for basic activity trackers has matured rapidly over the past year, Garmin continues to see opportunities within the advanced wearable with GPS category and is confident in its product roadmap for the remainder of 2017.

Auto
The auto segment recorded a revenue decline of 19 percent in the first quarter of 2017, primarily due to the ongoing PND market contraction partially offset by growth in its Auto OEM product lines. Gross margin remained constant at 44 percent, while operating margin declined year over year to 4 percent. During the first quarter of 2017, Garmin began shipping the next-generation Drive series PNDs, offering expanded safety and driver awareness features with WiFi capability, and introduced the Dash Cam 45 and 55, offering a high-quality recording in a compact form factor.

Additional Financial Information
Total operating expenses in the quarter were $256 million, an 8 percent increase from the prior year. Research and development increased 13 percent, driven by aviation and advanced wearable products in fitness and outdoor. Selling, general and administrative expenses increased 7 percent, driven primarily by legal-related expenses and information technology costs. Advertising was relatively flat year over year.

In the first quarter of 2017, Garmin reported a $150 million income tax benefit. Excluding the $169 million income tax benefit due to the revaluation of certain Switzerland deferred tax assets, its pro forma effective tax rate for the first quarter of 2017 was 21.3 percent compared to an effective tax rate of 18.1 percent in the prior year. The year-over-year increase in the pro forma effective tax rate is primarily due to the company’s election in February 2017 to align certain Switzerland corporate tax positions with evolving international tax initiatives.

In the first quarter of 2017, Garmin generated $95 million of free cash flow (see attached table for reconciliation of this non-GAAP measure). Garmin continued to return cash to shareholders with its quarterly dividend of approximately $96 million and its share repurchases activity, which totaled approximately $28 million in the first quarter of 2017. Garmin has approximately $47 million remaining in the share repurchase program authorized through December 31, 2017, and expects to repurchase company stock as business and market conditions warrant. Garmin ended the quarter with cash and marketable securities of approximately $2.3 billion.

As announced in February 2017, the Board will recommend to the shareholders for approval at the annual meeting to be held on June 9, 2017 a cash dividend in the total amount of $2.04 per share (subject to possible adjustment based on the total amount of the dividend in Swiss Francs as approved at the annual meeting), payable in four equal installments on dates to be approved by the Board.

2017 Guidance
Garmin is maintaining its 2017 guidance of approximately $3.02 billion of revenue and approximately $2.65 of pro forma EPS.

Photo courtesy Garmin