Garmin Ltd. today announced second quarter results for the period ended June 26, 2010.
Second Quarter 2010 Financial highlights:
Total revenue of $729 million, up 9% from $669 million in second quarter 2009 with all segments posting growth:
Automotive/Mobile segment revenue increased 2% to $447 million
Outdoor/Fitness segment revenue increased 32% to $143 million
Aviation segment revenue increased 1% to $65 million
Marine segment revenue increased 23% to $74 million
All geographies contributed growth in second quarter 2010:
North America revenue was $455 million compared to $436 million, up 4%
Europe revenue was $226 million compared to $198 million, up 14%
Asia revenue was $48 million compared to $35 million, up 37%
Units shipped increased 8% year-over-year to 4.0 million units.
Gross margin was stable at 54% in the current quarter compared to 53% in second quarter 2009 and 54% in first quarter 2010
Operating margin declined slightly on a year-over-year basis to 28% compared to 30% in second quarter 2009 but improved sequentially from 19% in first quarter of 2010
Diluted earnings per share (EPS) decreased 17% to $0.67 from $0.81 in second quarter 2009; pro forma diluted EPS increased 2% to $0.85 from $0.83 in the same quarter in 2009. (Pro forma EPS excludes the impact of foreign currency transaction gain or loss.)
Free cash flow generation of $172 million in second quarter 2010 and payment of the 2010 annual dividend of $1.50 per share for a cash and marketable securities balance of over $1.8 billion.
Year-to-Date 2010 Financial highlights:
Total revenue of $1.16 billion, up 5% from $1.11 billion year-to-date 2009
Automotive/Mobile segment revenue decreased 4% to $668 million
Outdoor/Fitness segment revenue increased 30% to $245 million
Aviation segment revenue increased 6% to $131 million
Marine segment revenue increased 18% to $116 million
All geographic areas contributed revenue growth:
North America revenue was $709 million compared to $702 million, up 1%
Europe revenue was $360 million compared to $340 million, up 6%
Asia revenue was $91 million compared to $64 million, up 42%
Gross margin increased to 54% in 2010 compared to 50% in 2009
Operating margin increased on a year-over-year basis to 25% compared to 23% in 2009
Diluted EPS decreased 18% to $0.86 from $1.05 in year-to-date 2009; pro forma diluted EPS increased 14% to $1.23 from $1.08 in year-to-date 2009. (Pro forma EPS excludes the impact of foreign currency transaction gain or loss.)
Free cash flow generation of $369 million year-to-date.
Business highlights:
Posted strong gross margins of 54% as total company average selling price increased slightly.
Sold 4.0 million units in the second quarter of 2010, with unit growth in all business segments and all geographies.
Initiated early shipments of the nuvi® 3700 series which offers the most compelling form factor and feature set in the PND market today.
Delivered our new fitness device – the Forerunner® 110 fitness watch which has been met with high enthusiasm and strong demand.
Reported strong revenue and operating income growth in our marine segment as our momentum in both the after-market and with OEM partners has accelerated.
Completed our redomestication to Switzerland on June 28th.
Paid the 2010 annual dividend of $1.50 per share; representing a $299 million use of cash.
Repurchased 1.6 million shares of GRMN in the second quarter.
Executive overview from Dr. Min Kao, Chairman and Chief Executive Officer:
“In the second quarter, we delivered strong results including revenue growth of 9%, unit growth of 8% and pro forma EPS growth of 2% which provides a solid foundation as we enter the back half of 2010,” said Dr. Min Kao, chairman and chief executive officer of Garmin Ltd. “Based on our performance in the second quarter, we expect to deliver on our full year guidance for pro forma earnings per share. The growth in our outdoor/fitness and marine segments made a significant contribution to the quarter and we plan to build on that momentum.
The automotive/mobile segment posted growth in the second quarter as OEM and mobile initiatives contributed to the increase. Both pricing and margins in the quarter were on target with our expectations. PND pricing has shown signs of stabilizing with a decline of only 6% year-over-year, and cost reduction efforts largely offset the declines resulting in stable year-over-year margins. Late in the quarter, we began delivery of the 3700 series of nuvis and are excited by the initial reception from both our customers and consumers. In the quarter, we also launched the Garminfone A50 with T-Mobile and the nüvifone A10 with Optus in Australia. Sales of our smartphone product category contributed $27M in revenue during the quarter. While this was below our plan, we are working aggressively with T-Mobile and other carriers around the globe on the appropriate positioning and pricing of our devices in the competitive smartphone space.
The outdoor/fitness segment maintained its strong pace of growth with all categories outdoor, golf, cycling and running contributing to the revenue growth. There are many products to be excited about in the segment but we are particularly excited about the contributions of our Dakota series of handhelds, Edge® 500 and Forerunner 110 which are bringing Garmin quality and features to an even more affordable price point. With these products, Garmin is offering a full range of solutions to meet almost every user’s needs which we believe will continue to fuel growth in the back half of the year and beyond.
The marine segment posted revenue growth of 23% as we took advantage of the continued recovery in the industry. We believe we are outperforming the market and gaining share on the strength of our chartplotters and networked solutions. The significant margin expansion both sequentially and year-over-year speaks to our strong execution in the segment. As we look toward the back half of the year, we are excited to continue to grow our OEM customer base with wins such as our recently announced partnership with Bayliner. As announced in July, Bayliner, a world leader in affordably-priced runabouts and cruisers, will be utilizing Garmin marine electronics in all navigation packages in the upcoming 2011 model year.
The aviation segment posted revenue growth of 1% as the retrofit and portable markets have continued to improve year-over-year. OEM production remains relatively flat and we still expect OEM recovery to lag that of the overall economy. Our strategic growth initiatives continue and the recent FAA certification of the G500H Helicopter Flight Display demonstrates our commitment to move aggressively into the helicopter market.”
Financial overview from Kevin Rauckman, Chief Financial Officer:
“Revenue growth in all segments and all geographies was a positive driver for our second quarter results,” said Kevin Rauckman, Chief Financial Officer of Garmin Ltd. “With revenue growth of 9%, we were able to deliver pro forma earnings per share growth of 2% during the quarter on a year-over-year basis. We posted strong double-digit growth in both outdoor/fitness and marine allowing those segments to contribute 31% and 16% of operating income respectively.
Gross margin for the overall business in the second quarter was 54% with auto/mobile and marine posting year-over-year margin improvement but all segments posting strong results. We did continue to benefit from refinement of our warranty estimate which contributed 290 basis points to gross margin across the segments. The marine segment gross margin was most improved at 66% compared to 59% in the second quarter of 2009. Improvement was driven primarily by product mix shifting toward our high-end chartplotters and networked marine solutions.
Operating margin increased in the second quarter to 28% from 19% on a sequential basis. The operating margin expansion occurred across all segments excluding aviation as revenues grew sequentially and operating costs declined as a percent of sales. Total operating expenses increased by $37 million on a year-over-year basis. We increased advertising and research and development expenses by $8 and $17 million, respectively. The increased research and development spending was across all four segments of our business. Other selling, general and administrative expenses increased by $12 million, or 19%, driven primarily by costs associated with our recent Swiss reorganization as well as increased product support and IT costs.
We generated $172 million of free cash flow in the second quarter of 2010. After paying the 2010 annual dividend of $1.50 per share, we had a cash and marketable securities balance of just over $1.8 billion at the end of the quarter.”
| Garmin Ltd. And Subsidiaries | ||||||||||||||||||||||||
| Condensed Consolidated Statements of Income (Unaudited) | ||||||||||||||||||||||||
| (In thousands, except per share information) | ||||||||||||||||||||||||
| 13-Weeks Ended | 26-Weeks Ended | |||||||||||||||||||||||
| June 26, | June 27, | June 26, | June 27, | |||||||||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||||||||||
| Net sales | $ | 728,765 | $ | 669,104 | $ | 1,159,833 | $ | 1,105,803 | ||||||||||||||||
| Cost of goods sold | 337,113 | 317,490 | 537,272 | 558,194 | ||||||||||||||||||||
| Gross profit | 391,652 | 351,614 | 622,561 | 547,609 | ||||||||||||||||||||
| Advertising expense | 42,440 | 34,023 | 59,841 | 57,248 | ||||||||||||||||||||
| Selling, general and administrative expense | 73,832 | 62,186 | 141,509 | 121,963 | ||||||||||||||||||||
| Research and development expense | 73,337 | 56,253 | 135,820 | 111,287 | ||||||||||||||||||||
| Total operating expense | 189,609 | 152,462 | 337,170 | 290,498 | ||||||||||||||||||||
| Operating income | 202,043 | 199,152 | 285,391 | 257,111 | ||||||||||||||||||||
| Interest income | 5,791 | 5,190 | 12,669 | 10,286 | ||||||||||||||||||||
| Foreign currency | (43,605 | ) | (4,836 | ) | (90,141 | ) | ||||||||||||||||||
