Garmin, Ltd. reported sales declined 6 percent in the second quarter ended June 25, pulled down by a 34 percent drop in the fitness segment. Garmin reduced its guidance for the year, with earnings being impacted by the strengthening of the U.S. dollar, high inflation, and rising interest rates.

Highlights for the second quarter of 2022 include:

  • Consolidated revenue of $1.24 billion, a 6 percent decrease compared to the strong, pandemic-driven prior year quarter;
  • The year-over-year strengthening of the U.S. dollar relative to other major currencies unfavorably impacted consolidated revenue by approximately $57 million;
  • Gross and operating margins were 58.7 percent and 23.6 percent, respectively;
  • Operating income of $293 million, a 21 percent decrease compared to the prior year’s quarter;
  • GAAP EPS was $1.33 and pro forma EPS was $1.44;
  • Celebrated a milestone of more than 25,000 integrated flight deck deliveries;
  • Launched the Forerunner 955 Solar and Edge 1040 Solar, its first fitness devices with integrated solar charging capability; 
  • Entered a new product category with the launch of its dēzl headset for professional truck drivers;
  • Garmin auto OEM was awarded the Technology and Development Award by Yamaha at its annual global conference.

Executive Overview from Cliff Pemble, President and CEO
“Revenue declined during the second quarter, driven primarily by underperformance in our fitness segment. Markets continue to normalize following two years of pandemic-driven growth, and we also face additional headwinds, including the relentless strengthening of the U.S. Dollar, high inflation, and rising interest rates. While we must adjust expectations, we believe that our lineup of innovative products and strategy of diversification will allow us to remain strong in an evolving economic environment.”

Fitness
Revenue from the fitness segment decreased 34 percent in the second quarter, with declines across all categories led by its advanced wearables and cycling products. Gross and operating margins were 49 percent and 9 percent in the quarter, respectively, resulting in a $23 million operating income. During the quarter, Garmin launched its refreshed line of Forerunners, including the Forerunner 955 with solar charging capability, which provides up to 20 days of battery life in smartwatch mode, premium training features and a new touchscreen interface. Garmin also launched the Forerunner 255, adding triathlon support and recovery insights to the series. Also, during the quarter, Garmin released the Edge 1040 Solar cycling computer featuring solar charging and multi-band GNSS technology, providing more accurate positioning in challenging ride environments such as dense urban areas or under deep tree cover.

Outdoor
Revenue from the outdoor segment grew 18 percent in the second quarter, primarily due to demand for its adventure watches. Gross and operating margins were 66 percent and 40 percent, respectively, resulting in $154 million operating income. During the quarter, Garmin announced the tactix 7, a smartwatch with tactical, performance and wrist-based navigation features.

Aviation
Revenue from the aviation segment grew 13 percent in the second quarter, driven by growth in both OEM and aftermarket categories. Gross and operating margins were 72 percent and 30 percent, respectively, resulting in $62 million in operating income. During the quarter, Garmin delivered the 750th integrated flight deck upgrade for King Air aircraft. Garmin also achieved EASA approval for the GFC 600H flight control system for AS350 helicopters.

Marine
Revenue from the marine segment decreased 7 percent in the second quarter primarily due to supply chain constraints that limited its ability to satisfy the demand for its products. Gross and operating margins were 57 percent and 28 percent, respectively, resulting in $69 million in operating income. During the quarter, Garmin introduced the Echomap UHD2 Chartplotter series bringing best-in-class sonar and built-in wireless networking to its 5- and 7-inch combo units. Garmin also launched the quatix 7 smartwatch featuring an always-on touchscreen display, Chartplotter control and anchor drag alarm.

Auto
Revenue from the auto segment decreased 6 percent during the second quarter, driven by both OEM and consumer products. Gross margin was 40 percent, and Garmin recorded an operating loss of $15 million in the quarter, driven by ongoing investments in auto OEM programs. During the quarter, Garmin launched its first dēzl headset offering high-quality audio and up to 50 hours of continuous talk time. This premium over-the-road trucking headset is engineered for audio excellence in noisy cab environments.

Additional Financial Information
Total operating expenses in the second quarter were $436 million, a 6 percent increase over the prior year. Research and development increased 8 percent, primarily due to engineering personnel costs. Selling, general and administrative expenses increased 6 percent, driven primarily by personnel-related expenses and information technology costs. Advertising was relatively flat to the prior-year quarter.

The effective tax rate in the second quarter was 7.6 percent compared to 14.8 percent in the prior-year quarter. The year-over-year decrease in the effective tax rate is primarily due to income mix by jurisdiction and increased U.S. tax deductions and credits.

In the second quarter of 2022, Garmin generated approximately $5 million of free cash flow. Garmin paid a quarterly dividend of approximately $129 million and repurchased approximately $31 million of the company’s shares, leaving approximately $269 million remaining in the share repurchase program authorized through December 29, 2023. Garmin ended the quarter with cash and marketable securities of approximately $2.9 billion.

2022 Fiscal Year Guidance
Based on its performance in the first half of 2022, Garmin adjusted its full-year guidance. Garmin now anticipates revenue of approximately $5.0 billion and pro forma EPS of $4.90 based on a gross margin of 56.7 percent, operating margin of 20.0 percent, and a full-year effective tax rate of 8.5 percent. Previously, Garmin expected sales of approximately $5.5 billion and pro forma EPS of $5.90.

Photo courtesy Garmin