Garmin Ltd. (Nasdaq: GRMN) beat Wall Street’s earnings estimates for the third quarter and raised its outlook for the fiscal year thanks to strong growth at its fitness, outdoor, marine and aviation segments.
The company reported revenue at the four segments grew 24 percent compared with the third quarter of 2015, enabling it to grow total revenue by 6 percent to $722 million.
Other highlights from the quarter included:
- Gross margin expanded to 56.2 percent compared to 53.3 percent in the prior-year quarter, and operating margin expanded to 22.1 percent compared to 18.5 percent in the prior-year quarter
- GAAP EPS was 66 cents, a 5 percent improvement over the prior-year quarter, and pro forma EPS(1) was 75 cents, a 47 percent improvement over the prior-year quarter
- Garmin launched the Vivofit Jr., its first wearable and companion mobile application designed for kids, and the Fēnix Chronos. Also launched was the Virb Ultra 30, an ultra HD 4K/30fps action camera.
“Our strong year continued in the third quarter of 2016, reporting solid results with four of our five business segments delivering double digit sales growth and increased profitability,” said Cliff Pemble, president and CEO of Garmin Ltd. “We are excited to see the continued positive customer reception of our fitness and outdoor wearables. Aviation and marine also achieved impressive double-digit growth on strong product offerings. We are maintaining our focus on innovation, diversification and market expansion to drive further growth opportunities in all business segments. Given the strong revenue and margin performance in the third quarter, we are raising our revenue and EPS guidance for the full year.”
Fitness
The fitness segment posted strong revenue growth of 32 percent in the quarter driven by wrist heart rate wearable devices and cycling. Gross margin increased year-over-year to 55 percent, while operating margin improved to 24 percent resulting in a 68 percent growth in operating income. During the quarter, Garmin began shipping both the recently announced Forerunner 35, bringing Garmin Elevate wrist based heart rate technology to an affordable, sleek, easy-to-use GPS device, and Vivofit Jr., our first kid inspired activity tracker featuring a comfortable design, one+ year battery life and a parent controlled mobile app created to help motivate kids to stay active.
Outdoor
The outdoor segment achieved strong revenue growth of 28 percent driven primarily by wearable devices. Gross margin increased year-over-year to 63 percent, while operating margin improved to 35 percent resulting in a 32 percent increase in operating income. Garmin recently launched its Fēnix Chronos line, crafted from premium jeweler’s grade materials to suit every style without sacrificing the rugged multisport capabilities customers have come to recognize within our fēnix line.
Marine
The marine segment posted solid third quarter revenue growth of 12 percent driven by its lineup of chart plotters, fish finders, and entertainment systems. Gross margin increased year-over-year to 57 percent, while operating margin improved to 15 percent resulting in operating income growth of 80 percent. For the second year in a row Garmin was recognized as the Manufacturer of the Year by the NMEA (National Marine Electronics Association), winning awards across a broad range of product categories. Garmin also received the prestigious IBEX award in the OEM Electronics category with our well received, Fantom marine radar series.
Aviation
The aviation segment posted solid revenue growth of 14 percent in the quarter despite ongoing softness in the overall aviation market. The performance was driven by growth in both OEM and Aftermarket sales, which was led by demand for Automatic Dependent Surveillance Broadcast (ADS-B) systems. Gross margin was 75 percent and operating margin improved to 28 percent, resulting in operating income growth of 28 percent. During the quarter, Garmin received certification and made its first delivery of the G5000 integrated flight deck for the Beechjet 400A/Hawker 400XP aircraft.
Auto
The auto segment recorded revenue decline of 21 percent, primarily due to the ongoing PND market contraction and headwinds caused by additional revenue deferrals associated with certain auto OEM products. Gross margin improved to 44 percent, and operating margin was consistent year-over-year at 12 percent.
Additional Financial Information
Total operating expenses in the quarter were $246 million, a 4 percent increase from the prior year. Research and development investment increased 10 percent, with growth primarily focused on aviation and active lifestyle products in fitness and outdoor. Advertising decreased 11 percent, driven primarily by year-over-year decreases in auto. Selling, general and administrative expense increased 3 percent, but improved as a percent of sales.
2016 Guidance
Based on the performance in the first three quarters of 2016, Garmin updated its full year guidance. It now anticipates revenue of approximately $2.95 billion, driven primarily by a stronger outlook for all of our segments except auto. The company anticipates full year pro forma EPS of approximately $2.65 based on gross margin of approximately 55 percent, operating income of approximately $580 million and a full year effective tax rate of approximately 18.5 percent.
Photo courtesy Garmin