Garmin Ltd. reported fourth-quarter earnings grew 34 percent on an adjusted basis as sales climbed 23 percent. The growth was led by gains of 48 percent in the Marine segment, 40 percent in Outdoor and 26 percent in Fitness.
Highlights for fourth-quarter 2020 include:
- Total revenue of $1.35 billion, a 23 percent increase over the prior-year quarter, led by robust growth in the Marine, Fitness and Outdoor segments;
- Gross margin of 58.5 percent compared to 58.0 percent in the prior-year quarter;
- Operating margin improved to 27.5 percent compared to 25.1 percent in the prior-year quarter;
- Operating income of $371 million, increasing 34 percent over the prior-year quarter;
- GAAP EPS was $1.73 and pro forma EPS was $1.73, representing 34 percent growth in pro forma EPS over the prior-year quarter;
- Added pregnancy tracking to Garmin Connect, providing innovative new tools for women who want to remain fit and healthy during pregnancy;
- Expanded its reach in the recreational Diving market with the launch of the new Descent Mk2i, its first dive watch featuring air integration in combination with the T1 tank transmitter;
- Garmin Autoland was named one of 2020’s greatest innovations by Popular Science and won a Top Flight Award from Aviation International News; and
- Recently announced the acquisition of substantially all the assets of GEOS Worldwide Limited, a provider of emergency monitoring and response services for customers worldwide.
Earnings of $1.73 exceeded Wall Street’s consensus estimate had been $1.39. Revenue for the quarter came in at $1.35 billion versus the consensus estimate of $1.18 billion.
Highlights for the fiscal year 2020 include:
- Fifth consecutive year of revenue and operating income growth;
- Record consolidated revenue of $4.19 billion, an 11 percent increase;
- Gross margin of 59.3 percent compared to 59.5 percent in the prior year;
- Operating margin of 25.2 percent consistent with the prior year;
- Record operating income of $1.05 billion, increasing 11 percent over the prior year; and
- GAAP EPS was $5.17 and pro forma EPS was $5.14, representing 16 percent growth over the prior year pro forma EPS.
Cliff Pemble, President and CEO, said, “In a year filled with unimaginable challenges, Garmin delivered record revenue and profits. Strong demand for active lifestyle products fueled our growth, and we expect these trends to continue into 2021. I am very proud of what we have accomplished in 2020 and look forward to the opportunities and challenges of the new year.”
Revenue from the Fitness segment grew 26 percent in the fourth quarter driven by strong demand for advanced wearables and cycling products. Gross margin and operating margins were 53 percent and 27 percent, respectively, resulting in 75 percent operating income growth. During the quarter, Garmin launched the Tacx Boost, an easy-to-use indoor trainer that features a magnetic brake, realistic ride-feel and manual resistance control for cyclists of all levels.
Revenue from the Outdoor segment grew 40 percent in the fourth quarter across all categories led by strong demand for adventure watches. Gross margin and operating margins were 66 percent and 43 percent, respectively, resulting in 55 percent operating income growth. During the quarter, Garmin launched the Mk2i dive watch and T1 tank transmitter adding air integration to its lineup of dive electronics.
Revenue from the Aviation segment declined 19 percent in the fourth quarter due to fewer shipments to OEM customers and reduced contributions from ADS-B products. The gross margin and operating margins were 73 percent and 21 percent, respectively. During the quarter, Garmin introduced smart rudder bias technology into GFC 600 autopilot systems for select twin-engine aircraft, providing control assistance to the pilot in the event of an engine failure.
Revenue from the marine segment grew 48 percent in the fourth quarter across multiple categories led by chartplotters. Gross margin and operating margins were 56 percent and 24 percent, respectively, resulting in 92 percent operating income growth. Garmin said it recently updated its mid-range GPSMAP Chartplotter series with higher-resolution displays and more processing power, and Garmin launched the new StrikerTM Vivid series with enhanced color depth in an entry-level fishfinder.
Revenue from the Auto segment grew 11 percent during the fourth quarter primarily driven by OEM programs and growth in consumer specialty categories. Gross margin was 42 percent, and Garmin recorded an operating loss of $12 million in the quarter driven by investments in OEM programs. It recently introduced the RV 1090 GPS navigator with a 10-inch high-resolution touchscreen display, which further expands its reach in the growing market for recreational vehicles.
Additional Financial Information
Total operating expenses in the fourth quarter were $420 million, a 16 percent increase over the prior year. Research and development increased by 23 percent, primarily due to engineering personnel costs and other expenses related to auto OEM programs. Selling, general and administrative expenses increased 15 percent, driven primarily by information technology costs and personnel-related expenses. Advertising decreased 2 percent.
The effective tax rate in the fourth quarter was 14.8 percent. Excluding $11 million of income tax expense due to the revaluation of certain Switzerland deferred tax assets associated with Switzerland tax reform, its pro forma effective tax rate in the fourth quarter of 2020 was 12.0 percent compared to 15.5 percent in the prior-year quarter. The decrease in the pro forma effective tax rate is primarily due to the migration of intellectual property ownership from Switzerland to the United States.
In the fourth quarter of 2020, Garmin generated approximately $387 million of free cash flow and paid a quarterly dividend of approximately $117 million. Garmin ended the quarter with cash and marketable securities of approximately $2.98 billion.
Garmin said it expects full-year 2021 revenue of approximately $4.6 billion with growth in all segments. Among segments, growth targets include Fitness, 10 percent; Outdoor, 10 percent; Aviation, 5 percent; Marine, 15 percent; and Auto, 5 percent.
Garmin expects full-year pro forma EPS to be approximately $5.15 based on a 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 10.5 percent.
Photo courtesy Garmin