Garmin Ltd. reported fourth-quarter earnings that beat expectations and provided an upbeat outlook for 2020. All of Garmin’s business segments beat expectations, led by Fitness, up 34 percent; Marine and Aviation, both up 22 percent; and Outdoor, up 16 percent.
Highlights for the fourth quarter 2019 include:
- Total revenue of $1.102 billion, an 18 percent increase, with fitness, aviation, marine and outdoor collectively increasing 24 percent over the prior-year quarter;
- Gross margin of 58.0 percent compared to 58.9 percent in the prior-year quarter;
- Operating margin improved to 25.1 percent compared to 23.9 percent in the prior-year quarter;
- Operating income of $277 million, increasing 24 percent over the prior-year quarter;
- GAAP EPS was $1.89 and pro forma EPS(1) was $1.29, representing 26 percent growth over the prior-year quarter;
- The Force trolling motor and GPSMAP 86i were awarded the DAME design award at METSTRADE; and
- Selected by Ford to provide electric vehicle navigation software on the next-gen SYNC platform for the Mustang Mach-E.
Pro-forma EPS of $1.29 easily exceeded Wall Street’s consensus estimate of $1.05. Revenue $1.10 billion also topped consensus targets of $1.01 billion,
Highlights for fiscal year 2019 include:
- Record consolidated revenue of $3.758 billion, a 12 percent increase, with fitness, aviation, marine and outdoor collectively increasing 18 percent over the prior-year;
- Gross margin improved to 59.5 percent compared to 59.1 percent in the prior-year;
- Operating margin improved to 25.2 percent compared to 23.3 percent in the prior-year;
- Record operating income of $946 million, increasing 21 percent over the prior-year;
- GAAP EPS was $4.99 and pro forma EPS(1) was $4.45, representing 21 percent growth over the prior year;
- Selected by BMW AG as their lead design and production partner of infotainment modules for the BMW Group, validating Garmin as a Tier 1 supplier to the world’s most respected brands;
- Unveiled the Garmin Autoland system for general aviation, designed to safely land the aircraft in the event of a pilot’s incapacitation;
- Completed strategic acquisitions to strengthen its product portfolio including Tacx, a provider of indoor bike trainers;
- Launched the Fēnix 6X Pro Solar, its first wearable featuring solar harvesting technology; and
- Named one of America’s Top 5 Best Employers by Forbes.
“2019 was another exciting year of growth thanks to our strong lineup of products and unique innovations,” said Cliff Pemble, president and chief executive officer of Garmin Ltd. “We entered 2020 with a great lineup of recently introduced products with more on the way. We are excited about the future because each business segment offers unique growth opportunities for 2020 and beyond.”
Revenue from the fitness segment grew 34 percent in the fourth quarter to $372.5 million driven by strength in advanced wearables and contributions from Tacx. Gross margin and operating margins were 48 percent and 20 percent, respectively, resulting in 26 percent operating income growth. During the quarter, Garmin announced its support of the Runner’s Alliance, an initiative to fight harassment experienced by women while running.
Revenue from the aviation segment grew 22 percent in the fourth quarter to $193.1 million with contributions from both the aftermarket and OEM categories. Growth was broad-based across multiple product categories, with ADS-B being a major contributor. Gross margin and operating margins were 71 percent and 33 percent, respectively, resulting in 18 percent operating income growth. Garmin expanded the availability of the G1000 NXi upgrade adding both the King Air C90 and the Embraer Phenom 100 to its list of certified aircraft.
Revenue from the marine segment grew 22 percent in the fourth quarter to $115.8 million driven by its product lineup of Chartplotters, advanced sonars and the new Force trolling motor. Gross margin and operating margin improved to 60 percent and 19 percent, respectively, resulting in 154 percent operating income growth. During the quarter, Garmin expanded its flagship Chartplotter line-up with the new GPSMAP Plus series and the ECHOMAP UHD series.
Revenue from the outdoor segment grew 16 percent in the fourth quarter to $294.8 million with significant contributions from adventure watches. Gross margin and operating margins were 66 percent and 39 percent, respectively, resulting in 21 percent operating income growth. During the quarter, Garmin announced a global collaboration with World Central Kitchen, providing InReach satellite communication devices to help support disaster relief with worldwide emergency response efforts. Since its launch in 2011, Garmin inReach has provided remote communication and rescue facilitation in over 4,000 SOS incidents, demonstrating the crucial importance of satellite-based, two-way messaging.
The auto segment recorded a decline in revenue of 15 percent during the fourth quarter to $126.0 million, primarily due to the ongoing PND market contraction and lower year-over-year OEM sales. Gross margin and operating margins were 47 percent and 2 percent, respectively. At the recent Consumer Electronics Show, Garmin announced its new dual-lens Dash Cam Tandem that captures video both inside and outside of a vehicle.
Additional Financial Information
Total operating expenses in the fourth quarter were $363 million, an 11 percent increase over the prior year. Research and development increased 12 percent, primarily due to engineering personnel costs and incremental costs associated with acquisitions. Selling, general and administrative expenses increased 10 percent, driven primarily by personnel-related expenses and incremental costs associated with acquisitions. Advertising increased 13 percent, driven by higher spending in the fitness and outdoor segments.
In the fourth quarter of 2019, Garmin reported a $73 million income tax benefit. Excluding the $118 million income tax benefit due to the revaluation and step-up of certain Switzerland tax assets, its pro forma effective tax rate(1) in the fourth quarter of 2019 was 15.5 percent compared to 18.0 percent in the prior-year quarter. The decrease in the current quarter pro forma effective tax rate is primarily due to income mix by jurisdiction.
In the fourth quarter of 2019, Garmin generated approximately $208 million of free cash flow(1). Garmin ended the quarter with cash and marketable securities of approximately $2.6 billion.
2020 Guidance (2)
Garmin expects 2020 revenue of approximately $4.0 billion as growth in fitness, outdoor and marine to be partially offset by declines in the auto segment. By segment, 10 percent growth is expected in the Fitness, Outdoor and Marine segments. Flat growth is expected for Aviation and a 5 percent decline is expected in Auto. Garmin expects its full-year pro forma EPS will be approximately $4.60 based upon the gross margin of approximately 59.2 percent, operating margin of approximately 23.5 percent and a full year pro forma effective tax rate of approximately 10.0 percent. The expected year-over-year decrease in the pro forma tax rate is primarily due to the migration of intellectual property ownership from Switzerland to the United States.
Wall Street had been expecting 2020 EPS of $4.34, and revenue of $3.83 billion.
Photo courtesy Garmin