Garmin, Ltd. reported sales declined 4 percent in the third quarter ending September 24, dragged down by an 18 percent slide in the fitness segment. Second-quarter earnings topped Wall Street estimates and Garmin lifted its full-year EPS outlook on an improving margin outlook.

2022 Third Quarter Highlights

  • Consolidated revenue of $1.14 billion, a 4 percent decrease compared to the prior year quarter, was unfavorably impacted by approximately $70 million due to the year-over-year strengthening of the U.S. Dollar relative to other major currencies;
  • Gross margin expanded to 58.8 percent (58.4 percent in Q221), and operating margin was 21.0 percent (23.7 percent in Q221);
  • Operating income was $239 million, a 15 percent decrease compared to the prior year’s quarter; 
  • GAAP EPS was $1.09, down 19 percent from $1.34 a year ago. Pro forma EPS was $1.24, down 12 percent from $1.41 a year ago; and
  • EPS of $1.24 topped consensus targets of $1.10. Revenues for the quarter of $1.14 billion were below the consensus estimate of $1.21 billion.

“Revenue was negatively impacted by the strengthening of the U.S. dollar, said Cliff Pemble, president and CEO. Despite this significant headwind, gross margin expanded and operating margin remained solid. Looking forward, we are lowering our revenue outlook for the remainder of the year consistent with the trends we are experiencing, while also raising our EPS guidance on an improving margin outlook. We believe that our strong lineup of innovative products and vertical integration strategy will allow us to remain strong in this challenging economic environment.”

  • Fitness
    Revenue from the fitness segment decreased 18 percent in the third quarter, primarily driven by lower revenue from its wellness and indoor cycling products. Gross and operating margins were 53 percent and 15 percent, respectively, resulting in $41 million of operating income. During the quarter, the company launched its first smart blood pressure monitor, the Index BPM, allowing a user to measure and track systolic and diastolic blood pressure at home or on the go. When paired with the Garmin Connect app, users can view their measurement history and trends alongside other health stats. Also, during the quarter, Garmin launched the Venu Sq 2, featuring an AMOLED display with nearly double the battery life of its predecessor.
  • Outdoor
    Revenue from the outdoor segment grew 5 percent in the third quarter primarily due to growth in adventure watches and inReach devices and services, partially offset by declines in other product lines. Gross and operating margins were 65 percent and 36 percent, respectively, resulting in $121 million of operating income. During the quarter, Garmin launched the inReach Messenger, shown lead photo, a communication-focused device with global two-way texting, location sharing and SOS capabilities.
  • Aviation
    Revenue from the aviation segment grew 4 percent in the third quarter driven by growth in multiple product lines, primarily in aftermarket. Gross and operating margins were 73 percent and 26 percent, respectively, resulting in $48 million of operating income. During the quarter, Garmin announced that Tactical Air has chosen the G3000 integrated flight deck to modernize the U.S. Department of Defense fleet of Navy and Marine Corps F-5 aircraft.
  • Marine
    Revenue from the marine segment decreased by 5 percent in the third quarter primarily due to the return of seasonality trends. Gross and operating margins were 56 percent and 23 percent, respectively, resulting in $45 million of operating income. During the quarter, Garmin launched the LiveScope XR System, bringing live-scanning sonar technology to deep water fishing allowing anglers to see real-time images of fish and structures up to 500 feet in front of or below the boat. It also launched the LiveScope Plus Ice Fishing Bundle, a portable solution for winter fishing.
  • Auto
    Revenue from the auto segment decreased by 2 percent during the third quarter as declines in our consumer products more than offset the growth in OEM programs. Gross margin was 40 percent, and Garmin recorded an operating loss of $16 million in the quarter driven by ongoing investments in auto OEM programs. During the quarter, the company announced that its Garmin Tread navigators had been selected by Arctic Cat, Inc. as standard equipment on select side-by-side vehicles beginning in the model year 2023.

Additional Financial Information
Total operating expenses in the third quarter were $431 million, a 4 percent increase over the prior year. Research and development increased by 5 percent primarily due to engineering personnel costs. SG&A expenses increased 7 percent driven primarily by personnel-related expenses and information technology costs. Advertising expenses decreased by 10 percent primarily due to lower cooperative advertising.

The effective tax rate in the third quarter was 4.3 percent compared to 5.9 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 an increase in U.S. tax deductions and credits.

In the third quarter of 2022, Garmin generated approximately $104 million of free cash flow. It paid a quarterly dividend of approximately $141 million and repurchased approximately $83 million of the company’s shares within the quarter, leaving approximately $186 million remaining as of September 24, 2022 in the share repurchase program authorized through December 29, 2023. Garmin ended the quarter with cash and marketable securities of approximately $2.7 billion.

2022 Fiscal Year Guidance
Based on its performance in the first three quarters of 2022, Garmin is adjusting its full-year guidance. It now anticipates revenue of approximately $4.85 billion, gross margin of 57.5 percent, operating margin of 20.7 percent, and a full-year effective tax rate of 8.0 percent resulting in EPS of approximately $4.95. 

Photo courtesy Garmin