Garmin's revenue for Q1 2004 increased 28% to $158.3 million from $123.8 million in the year-ago quarter. Net income was $34.7 million, or 32 cents diluted earnings per share, compared to $41.5 million or 38 cents diluted earnings per share in the year-ago quarter. First quarter net income included a $7.6 million foreign currency loss as a result of a weaker U.S. dollar compared to the Taiwan dollar. Excluding the effects of foreign currency, diluted EPS for the quarter was 37 cents compared to 39 cents in the year-ago quarter, meeting the high end of management's guidance of 35 cents to 37 cents.
“We are pleased to announce another quarter of solid revenue growth. Demand for our products continues strong, driven by increased demand primarily within our automotive and PDA product lines,” said Dr. Min Kao, CEO of Garmin Ltd. “The consumer segment recorded a 30 percent growth in revenues during this quarter. New and innovative products have generated excitement in our core markets, and our new product pipeline is robust. Our StreetPilot 2620, GPSMap 60C, Fishfinder 250C, and the recently announced GPSMap 296 are just a few of the products we have introduced which provide consumers with many options for navigation — on land, by sea or in the sky. We also look forward to receiving our first G1000 aviation certification in the second quarter of 2004.”
Consumer revenue for the first quarter totaled $123.5 million — a 30% growth compared to the first quarter of 2003. In addition, aviation revenue totaled $34.8 million — a 22 percent increase compared to the year-ago quarter. Total units sold for the quarter increased to 478,000 from 446,000 — representing an increase of 7 percent.
Revenue increased across all geographic regions during the first quarter of fiscal 2004 when compared to the year-ago quarter:
-- North America revenue was $107.3 million compared to $85.3 million, up
26 percent.
-- Europe revenue was $43.9 million compared to $33.5 million, up 31
percent.
-- Asia revenue was $7.1 million compared to $5.0 million, up 42 percent.
“We are pleased with the quarter's overall financial performance,” said Kevin Rauckman, chief financial officer of Garmin Ltd. “Our consumer business has now logged its tenth consecutive quarter of year-over-year revenue growth in excess of 20%. Our aviation business is poised to grow with the certification of the G1000. The many new products to be released in the first half of 2004 will provide us with the opportunity for strong growth in the second half of the year. We also generated $34.5 million of free cash flow (defined as operating cash less capital expenditures for property, plant, and equipment) for the quarter, resulting in a cash and marketable securities balance of $530.6 million at the end of the March 2004 quarter.” Free cash flow is an important measure because management uses it as a measure of the company's quality of earnings and its ability to reinvest in the business.
“We are also pleased to report that our Oracle ERP implementation continues to progress. Our offices in Taiwan, Europe, and the Cayman Islands are now 'live', and we anticipate the remaining implementation activities in the U.S. to wrap up in the second quarter.”
Gross Margins
Gross margins were meaningfully lower in the first quarter of 2004 at 51%, falling from 60% in the first quarter of 2003. Drivers of this margin change were:
-- Manufacturing cost increases,
-- Product transition costs as a number of old products were phasing out
pending the delivery of new and updated products, and
-- Product mix changes, as a higher number of popular products with lower
margins sold well in the quarter.
“While we expect to experience each of these gross margin drivers from time to time, the reality that all three happened in the same quarter has impacted margins in the first quarter,” said Rauckman. “We are pleased that significant anticipated new product introductions have allowed us to transition from a number of older products, and that competitive pricing pressure was not a significant factor in our gross margin results.”
Second Quarter and Fiscal 2004 Outlook
The company estimates that its diluted EPS for the second fiscal quarter of 2004, excluding effects for foreign currency, will be in the range of $0.44 to $0.48 on revenues of $173 million to $180 million.
For fiscal year 2004, the company now expects higher revenue than previously communicated (earlier guidance was $660 million to $690 million), but lower gross margins (earlier guidance was 55% to 57%). In addition to the ten products just introduced, many of the thirty-five additional new products are expected to be released during the second quarter. Product mix during this period of transition is expected to be a major factor on gross margins. As a result, the company will not update full year estimates until the conclusion of the second quarter.
Share Repurchase Program
The company's board of directors approved a share repurchase program authorizing the company to purchase up to 3.0 million shares of Garmin Ltd. as market and business conditions warrant. The purchases may be made from time to time on the open market or in negotiated transactions in compliance with the SEC's Rule 10b-18. The timing and amounts of any purchases will be determined by the company's management depending on market conditions and other factors deemed relevant. The share repurchase authorization expires on April 30, 2006.
“This action reflects our confidence in Garmin's long-term growth potential. We currently have cash in excess of our requirements and, under current market conditions, the authorization of the share repurchase program will give us the flexibility to be able to buy back our shares at attractive levels,” said Dr. Min Kao, CEO and co-chairman of Garmin Ltd.
Foreign Currency Translation — Non-GAAP Measures
Management believes that earnings per share before the impact of foreign currency translation gain or loss is an important measure. The majority of the company's consolidated foreign currency translation gain or loss results from translation into New Taiwan dollars at the end of each reporting period of the significant cash and marketable securities held in U.S. dollars by the company's Taiwan subsidiary. Such translation is required under GAAP because the functional currency of this subsidiary is New Taiwan dollars. However, there is minimal cash impact from such foreign currency translation and management expects that the Taiwan subsidiary will continue to hold the majority of its cash, cash equivalents and marketable securities in U.S. dollars. Accordingly, earnings per share before the impact of foreign currency translation gain or loss allows an assessment of the company's operating performance before the non-cash impact of the position of the U.S. dollar versus the New Taiwan dollar, which permits a consistent comparison of results between periods.
Garmin Ltd. And Subsidiaries
Condensed Consolidated Statements of Income
(In thousands, except per share information)
13-Weeks Ended
(Unaudited)
March 27, March 29,
2004 2003
Net sales $158,329 $123,788
Cost of goods sold 77,878 49,133
Gross profit 80,451 74,655
Selling, general and administrative expenses 16,642 13,593
Research and development expense 14,220 8,796
30,862 22,389
Operating income 49,589 52,266
Other income/(expense) (A) (5,721) 830
Income before income taxes 43,868 53,096
Income tax provision 9,212 11,602
Net income $34,656 $41,494
Net income per share:
Basic $0.32 $0.38
Diluted $0.32 $0.38
Weighted average common
shares outstanding:
Basic 108,197 107,948
Diluted 109,182 108,693
