Garmin Ltd. second quarter 2006 revenue was $432.5 million, up 64% from $264.5 million in second quarter 2005. Outdoor/Fitness segment revenues increased 24% to $71.1 million; Marine segment revenues decreased 3% to $50.1 million in second quarter 2006. Earnings per share increased 65% to $1.12 from 68 cents in 2005; excluding foreign exchange, EPS increased 59% to $1.10 from 69 cents in 2005.
All geographic areas experienced significant growth – North America revenue was $232.6 million compared to $154.0 million, up 51%; Europe revenue was $177.8 million compared to $97.4 million, up 83%; Asia revenue was $22.1 million compared to $13.1 million, up 69%.
Mix of revenue continues to shift, with revenue from Europe and revenue from automotive/mobile segments continuing to become a larger piece of the total company.
Garmin shareholders approved a two-for-one stock split with an effective date of August 15, 2006. All per share amounts reported here are on a pre-split basis, unless otherwise noted.
Year-to-Date 2006 total revenue of $754.8 million, up 65% from $457.1 million in the first half of 2005. Outdoor/Fitness segment revenue increased 22% to $134.8 million in the first half of 2006. Marine segment revenue increased 7% to $100.8 million in the first half of 2006.
All geographic areas experienced significant growth – North America revenue was $435.3 million compared to $286.7 million, up 52 percent; Europe revenue was $279.7 million compared to $147.7 million, up 89 percent; Asia revenue was $39.8 million compared to $22.8 million, up 75 percent.
Earnings per share increased 74% to $1.93 from $1.11 in the first half of 2005; excluding foreign exchange, EPS increased 62% to $1.96 from $1.21 in 2005.
-- Strong sales in automotive/mobile and outdoor/fitness segments, putting them on track to meet or exceed full year guidance. -- 1,281,000 units sold in the second quarter of 2006, up 81% from the same quarter in 2005. -- Delivered 15 new products in the quarter, with many new products to enhance our positions in the automotive and marine markets. -- Completed facilities upgrades, began production, and preparing to add additional manufacturing lines at our new Taiwan manufacturing facility. -- Expanded advertising campaign in the U.S. strengthened our leadership position in the face of growing competition, as demonstrated by our greater than 50% market share. -- Continued to devote more resources to advertising, marketing, and sales activities across Europe, which resulted in greater brand awareness and strong growth, particularly for portable navigation devices (PND's). -- Experienced strong and growing interest in our GPS-based Edge and Forerunner fitness lines and outdoor units with expandable memory, which drove higher than expected growth for this segment. -- Initial positive response to our new marine segment product offerings was somewhat dampened during the quarter by poor weather conditions and higher fuel prices experienced by our marine customers.
Executive overview from Dr. Min Kao, Chairman and Chief Executive Officer:
“The second quarter was another exciting quarter for Garmin. We are pleased to have delivered 15 exciting and innovative new products. These products, which include many automotive/mobile and marine products, have been well received by the market. We continue to experience strong sales of both new and existing automotive/mobile products, and look forward to additional new product introductions — particularly in the automotive/mobile and aviation segments — scheduled for delivery in the second half of 2006.
“We continued to experience triple digit growth in our automotive/mobile segment, which demonstrates that our products continue to be well-positioned to take advantage of the growing demand for portable navigation devices both in the U.S. and in Europe. Through continuous innovation, we work to broaden and deepen our automotive/mobile product offerings to provide compelling, competitive features and attractive content integrated into easy-to-use products like the popular nuvi(TM) and c-series. We have the focus and commitment to continue our leadership position in the rapidly expanding U.S. automotive market through 2006 and continue to grow our European brand awareness and market share as well.
“Our outdoor/fitness segment grew faster than expected during the quarter as response to our new Edge and ForeRunner products remained very positive. Solid growth in both our automotive/mobile and outdoor/fitness segments has positioned us to exceed our earlier 2006 guidance for these segments.
“Response to our new marine product offerings has been very positive, although success in this segment has been somewhat dampened by poor weather and higher fuel prices experienced by our marine customers during the typically strong marine buying season. We continue to believe the marine segment is well-positioned to meet our 2006 guidance for this segment.
“We remain very optimistic with the long-term opportunities we see in our aviation business, and were pleased to announce several exciting new general aviation product offerings at the opening of the Oshkosh Air Show in late July. However, the delay of certain OEM programs and the delay in some of our aviation product introductions will result in softer results for this segment in 2006. With these factors in mind, we have revised our 2006 guidance for this segment accordingly.
“We continue to expand and develop our worldwide marketing and sales efforts as we pursue our growth goals. We are pleased to have significant market share in the U.S. and continue to work to enhance brand recognition and product placement at U.S. retailers. We have established strong presence in certain European countries, and are working hard to continue to improve our market position and enhance our brand visibility in the rest of Europe.”
Financial overview from Kevin Rauckman, Chief Financial Officer:
“We are very pleased with our financial results for the second quarter and the first half of 2006,” said Kevin Rauckman, chief financial officer of Garmin Ltd. “Our revenue and earnings per share during the quarter grew 64% and 65% respectively, and grew 65% and 73% respectively during the first half of 2006, exceeding our expectations. Automotive/mobile segment quarterly revenues increased over one and a half times compared to the prior year, and over 180% year-to-date. New product introductions in early 2006 drove strong sales for our outdoor/fitness segment, with increases of 24% for the quarter and 22% year-to-date. Marine revenues grew 7% year-to-date in the soft marine retail environment, and aviation revenues were up 3% year-to-date in comparison to last year, in the face of challenging year-over-year comparisons and certain OEM program and new product delays.
“Gross margin and operating margin improved in our outdoor/fitness and marine segments and declined in our automotive/mobile and aviation segments when compared with the year-ago quarter. Total operating margin of 31.1% for the second quarter of 2006 held steady at the Q1 2006 level, and fell 260 basis points compared to the year-ago quarter. These results were in line with our expectations.
“We also generated $64.4 million of free cash flow in the second quarter of 2006, resulting in a cash and marketable securities balance of $830.3 million at the end of the quarter.”
General business expectations for fiscal 2006 are updated as follows: Garmin anticipates overall revenue to exceed $1.6 billion in 2006, and earnings per share to exceed $3.90. The 2006 effective tax rate will be approximately 16% and estimate an earnings per share impact of $0.08 in 2006 due to the effects of implementing FAS123®. Revenue growth rates within outdoor/fitness, marine, and aviation segments to be 20%, 10%, and 10%, respectively, in 2006. Short-term margins within these segments will be relatively stable despite the possibility of quarter-to-quarter variability due to product mix and the timing of new product introductions.
Automotive/mobile revenue growth will be greater than 125% in 2006, with declining operating margins due to product mix and a continued transition toward mass market levels. The company continues to look forward to introducing over 70 new products in
2006. Nearly 50 new products have already been delivered in the first
half of 2006 in preparation for upcoming fall deliveries and the
Garmin will continue to increase the production capacity of our new Taiwan
manufacturing facility throughout the remainder of 2006 to support
strong growth within the automotive/mobile, outdoor/fitness, and
marine segments. Increased focus on the development of European opportunities; growth
will be supported with the acquisition of a larger European
headquarters and distribution center and continued focus and
commitment of resources to build and enhance awareness of the Garmin
Garmin shareholders approved the proposed two-for-one split of Garmin’s Common Shares at a Special Shareholders Meeting on July 21, 2006. As previously announced, the stock split record date is August 2, 2006 and the subdivision of each outstanding Common Share of a par value of $0.01 each into two Common Shares of a par value of $0.005 each will be effective August 15, 2006. The Garmin Board of Directors also previously approved a post-stock split annual cash dividend of $0.50 per share payable to shareholders of record on December 1, 2006. This dividend will be paid on December 15, 2006.
Garmin Ltd. And Subsidiaries Condensed Consolidated Statements of Income (Unaudited) (In thousands, except per share information) 13-Weeks Ended 26-Weeks Ended July 1, June 25, July 1, June 25, 2006 2005 2006 2005 Net sales $432,468 $264,497 $754,779 $457,148 Cost of goods sold 216,184 124,516 375,706 213,969 Gross profit 216,284 139,981 379,073 243,179 Selling, general and administrative expenses 54,915 33,093 92,678 53,611 Research and development expense 26,793 17,818 51,707 34,746 81,708 50,911 144,385 88,357 Operating income 134,576 89,070 234,688 154,822 Other income (expense): Interest income 8,538 4,487 15,843 8,389 Interest expense (5) (41) (12) (44) Foreign currency 2,958 (1,467) (4,488) (12,604) Other (167) 3 3,437 299 11,324 2,982 14,780 (3,960) Income before income taxes 145,900 92,052 249,468 150,862 Income tax provision 22,614 17,858 38,668 29,267 Net income $123,286 $74,194 $210,800 $121,595 Net income per share: Basic $1.14 $0.68 $1.95 $1.12 Diluted $1.12 $0.68 $1.93 $1.11 Weighted average common shares outstanding: Basic 108,409 108,368 108,297 108,347 Diluted 109,672 109,143 109,434 109,247