Garmin Ltd. third quarter 2006 total revenue was $408.0 million, up 62% from $251.3 million in third quarter 2005. The Outdoor/Fitness segment revenue increased 22% to $70.7 million in third quarter 2006 while the Marine segment revenue increased 12% to $40.6 million in third quarter 2006.
All geographic areas experienced significant growth with North America revenue at $264.7 million compared to $163.0 million, up 62%. Europe revenue was $120.0 million compared to $75.6 million, up 59% and Asia revenue was $23.3 million compared to $12.7 million, up 84%. Mix of revenue by region remained stable relative to the year-ago quarter.
Earnings per share increased 19% to 56 cents from 47 cents in 2005; excluding foreign exchange, EPS increased 52% to $0.50 from $0.33 in 2005.
Year-to-Date total revenue was $1.16 billion, up 64% from $708.5 million year-to-date in 2005. Outdoor/Fitness segment revenue increased 22% to $205.4 million year-to-date in 2006. Marine segment revenue increased 9% to $141.4 million year-to-date in 2006
All geographic areas experienced significant growth with North America revenue at $700.0 million compared to $449.7 million, up 56%. Europe revenue was $399.6 million compared to $223.3 million, up 79% and Asia revenue was $63.2 million compared to $35.5 million, up 78%.
Earnings per share increased 48% to $1.52 from $1.03 in the three quarters of 2005; excluding foreign exchange, EPS increased 57% to $1.48 from $0.94 in 2005
Business highlights:
-- Strong sales in automotive/mobile, outdoor/fitness and marine segments,
putting them on track to meet or exceed full year guidance for these
segments.
-- 1,227,000 units sold in the third quarter of 2006, up 73% from the same
quarter in 2005.
-- Delivered 8 new products in the quarter, with new products specifically
geared to enhance our positions in the automotive and marine markets
and to broaden our product offerings during the holiday season.
-- Our newest Taiwan manufacturing facility has six production lines fully
operational, bringing our total production lines in Taiwan to 20 and
our production capacity to approximately 6 million units annually. If
additional manufacturing lines were added to create a full capacity
configuration, the newest facility could bring our total production
volume to 11 million units annually.
-- Promotional programs secured during the third quarter for the holiday
season should drive solid fourth quarter sales. We continue to
increase our retail distribution, adding Sears this holiday season, and
U.S. inventories are in excellent shape to meet demand for our
products.
The company continued to devote more resources to advertising, marketing, and sales
activities across Europe, which resulted in greater brand awareness and
strong growth in the seasonally lower third quarter.
Dr. Min Kao, Chairman and Chief Executive Officer, said, “The third quarter was an exciting and challenging quarter for Garmin. We are pleased to have delivered 8 exciting and innovative new products, which have been well received by the market. We have prepared for the upcoming holiday season by increasing our inventory position, particularly in finished goods. We continue to experience strong sales of both new and existing automotive/mobile products, and look forward to a strong holiday season, spurred by consumer interest in our automotive/mobile and outdoor/fitness products, which are very popular at that time of year.
“We continued to experience triple digit growth in our automotive/mobile segment and improved market share both in Europe and the U.S., which demonstrates that our products continue to be well-positioned to take advantage of the growing demand for portable navigation devices in both of these important markets. We remain committed to the creation of innovative and feature-rich products which will allow us to broaden and deepen our penetration of the automotive/mobile market. With our popular nuvi(TM) and c- series product offerings, we hope to provide compelling, competitive features and useful content integrated into easy-to-use products that consumers will find attractive during the upcoming holiday season and beyond. We have the resources, 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 again grew faster than expected during the quarter, as response to our new Edge and ForeRunner products remained very positive. Fitness products in particular are popular during the holiday season, and we look forward to a seasonally strong performance in this category. 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 remains positive, and while the second quarter's typically strong marine buying season was muted due to high fuel prices and poor weather, the third quarter showed some solid improvement over the same quarter in 2005. We continue to believe the marine segment is positioned to meet our 2006 guidance for this segment.
“We believe the long-term opportunities in our aviation business will be excellent, and were pleased with the positive response generated by the many exciting new products introduced for delivery in 2007 during the Oshkosh Air Show in late July, including the G600 retrofit product, G900 kit plane avionics suite, and G1000 retrofit cockpit for King Air C90 aircraft. However, delay of the WAAS roll-out resulted in softer results for this segment in the third quarter 2006, and pushed revenue opportunities for this new technology into 2007.
“We remain focused on the continued expansion and development of our worldwide markets and distribution channels as we pursue our growth goals. We are pleased to have maintained 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 expand our distribution, improve our market position, and enhance our brand visibility in the rest of Europe.”
Financial overview from Kevin Rauckman, Chief Financial Officer: “We are pleased with our financial results for the third quarter and the year to date, and look forward to a strong holiday season during the fourth quarter,” said Kevin Rauckman, chief financial officer of Garmin Ltd. “Our revenue and earnings per share during the quarter grew 62% and 19% respectively, and grew 64% and 48% respectively year to date in 2006, exceeding our expectations. Excluding the impact of foreign exchange, EPS for the quarter grew 52%, from $0.33 to $0.50. Automotive/mobile segment quarterly revenues increased 147% compared to the prior year, and 168% year- to-date. New product introductions drove strong third quarter sales for our outdoor/fitness segment, with increases of 22% for both the quarter and year- to-date. Marine revenues grew 9% year-to-date, and aviation revenues were up 1% year-to-date in comparison to last year.
“Gross margin improved in our outdoor/fitness, marine, and automotive/mobile segments and declined in our aviation segment when compared with the year-ago quarter. Operating margin improved in our outdoor/fitness and auto/mobile segments and declined in our marine and aviation segments when compared with the year-ago quarter. Total operating margin of 29.7% for the third quarter of 2006 fell 140 basis points when compared to the previous quarter, and 420 basis points compared to the year-ago quarter. These results were better than expected. We are especially pleased with the strength of our automotive/mobile segment operating margins, as they increased 150 basis points to 25.0% during the period.
“We also generated $97.9 million of free cash flow in the third quarter of 2006, resulting in a cash and marketable securities balance of $888 million at the end of the quarter.”
Fiscal 2006 Outlook
Management stated, “We remain optimistic about the future success of our business as we continue to bring new products to the market and we look forward to the remainder of the holiday selling season. General business expectations for fiscal 2006 are updated as follows:
-- We anticipate overall revenue to exceed $1.68 billion in 2006, and
earnings per share, excluding any foreign currency translation impact,
to exceed $2.04. We assume our 2006 effective tax rate will be
approximately 15.5% and estimate an earnings per share impact of $0.04
in 2006 due to the effects of implementing FAS123®.
-- We anticipate revenue growth rates within our outdoor/fitness, marine,
and aviation segments to be 20 percent, 10 percent, and flat,
respectively, in 2006. We expect short-term margins within these
segments to be relatively stable despite the possibility of quarter-to-
quarter variability due to product mix and the timing of new product
introductions.
-- We anticipate automotive/mobile revenue growth of greater than 140
percent in 2006, with declining operating margins due to product mix
and a continued transition toward mass market levels.
-- We continue to look forward to introducing approximately 70 new
products in 2006. Nearly 60 new products have already been delivered
year to date in 2006.
-- We will continue to evaluate our production needs and increase the
production capacity of our new Taiwan manufacturing facility as we see
fit throughout the remainder of 2006 and into 2007 to support strong
growth within our automotive/mobile, outdoor/fitness, and marine
segments.
-- We will maintain our increased focus on the development of European
opportunities; growth will be supported with our new, larger European
headquarters and distribution center, and continued focus and
commitment of resources to build distribution and enhance awareness of
the Garmin brand.
-- We recently introduced an expanded fourth quarter advertising campaign
in the U.S. and Europe. Our goal is to maintain our U.S. leadership
and continue to expand our European market share in the face of growing
competition.
Garmin Ltd. And Subsidiaries
Condensed Consolidated Statements of Income (Unaudited)
(In thousands, except per share information)
13-Weeks Ended 39-Weeks Ended
September 30, September 24, September 30, September 24,
2006 2005 2006 2005
Net sales $407,997 $251,329 $1,162,776 $708,477
Cost of goods sold 209,137 121,877 584,843 335,846
Gross profit 198,860 129,452 577,933 372,631
Selling, general and
administrative
expenses 47,489 24,180 140,167 77,790
Research and
development expense 30,399 20,116 82,105 54,862
77,888 44,296 222,272 132,652
Operating income 120,972 85,156 355,661 239,979
Other income (expense):
Interest income 9,622 4,726 25,464 13,115
Interest expense (2) (3) (14) (46)
Foreign currency 14,874 36,388 10,386 23,784
Other 70 (140) 3,507 158
24,564 40,971 39,343 37,011
Income before
income taxes 145,536 126,127 395,004 276,990
Income tax provision 22,558 23,637 61,226 52,905
Net income $122,978 $102,490 $333,778 $224,085
Net income per share:
Basic $0.57 $0.48 $1.54 $1.04
Diluted $0.56 $0.47 $1.52 $1.03
Weighted average common
shares outstanding:
Basic 216,317 215,690 216,502 216,428
Diluted 218,866 217,860 218,878 218,318
