Garmin Ltd. reported a 12 percent increase in sales and strong operating income growth for the first quarter while withdrawing its fiscal 2020 guidance due to COVID-19 economic uncertainty. Segment sales in the quarter grew 24 percent in fitness, 22 percent in marine and 14 percent in outdoor.
Highlights for first quarter 2020 include:
- Total revenue of $856 million, a 12 percent increase, with fitness, marine, outdoor and aviation collectively increasing 17 percent over the prior-year quarter;
- Gross margin of 59.2 percent compared to 59.0 percent in the prior-year quarter;
- Operating margin improved to 20.7 percent compared to 19.8 percent in the prior-year quarter;
- Operating income of $177 million, increasing 17 percent over the prior-year quarter;
- GAAP EPS was 84 cents a share and pro forma EPS was 91 cents, representing 25 percent growth over the prior-year quarter;
- Strong balance sheet with no debt and $2.6 billion of cash and marketable securities;
- Garmin ADS-B solution selected for British Airways’ franchise partner SUN-AIR’s Dornier 328 aircraft;
- Recognized as an exceptional marine and aviation OEM supplier, winning several awards in the quarter;
- With the assistance of Panoptix LiveScope, Garmin sponsored anglers swept the top three spots at the 2020 Bassmaster Classic; and
- Withdrawing fiscal 2020 guidance due to economic uncertainty caused by the COVID-19 pandemic.
Executive Overview from Cliff Pemble, president and chief executive officer
“The first quarter of 2020 was remarkably strong continuing the momentum from last year,” said Cliff Pemble, president and chief executive officer of Garmin Ltd. “The economic uncertainty and impact on consumer behavior caused by the COVID-19 pandemic affect every business, and we are no exception. Accordingly, we are withdrawing our fiscal 2020 guidance. However, we are optimistic for the long term because the markets we serve and the products we offer are well-positioned to thrive in the future.”
Revenue from the fitness segment grew 24 percent in the first quarter driven by strength in advanced wearables and contributions from Tacx. Gross margin and operating margins were 50 percent and 14 percent, respectively, resulting in 71 percent operating income growth. Now more than ever, people are looking for tools that can help them live a healthy life.
Revenue from the marine segment grew 22 percent in the first quarter driven by its innovative chart plotters and advanced sonars. Gross margin and operating margins were 58 percent and 25 percent, respectively, resulting in 58 percent operating income growth. Boating is an active lifestyle pursuit that promotes family time, relaxation, and a sense of freedom.
Revenue from the outdoor segment grew 14 percent in the first quarter with significant contributions from adventure watches. Gross margin and operating margins were 64 percent and 27 percent, respectively, resulting in 12 percent operating income growth. Outdoor recreation is important for those who love adventure and exploring nature.
Revenue from the aviation segment grew 10 percent in the first quarter with contributions from multiple product categories. Gross margin and operating margins were 74 percent and 31 percent, respectively, resulting in 3 percent operating income growth. General aviation will play an important role in the future by offering transportation options that are secure, flexible, and convenient.
Revenue from the auto segment declined 17 percent during the first quarter, primarily due to the ongoing PND market contraction and lower year-over-year OEM sales. Gross margin was 47 percent with breakeven operating income. Personal transportation will remain an important part of the post-pandemic world.
Additional Financial Information
Total operating expenses in the first quarter were $329 million, a 10 percent increase over the prior year. Research and development increased 13 percent, primarily due to engineering personnel costs and incremental costs associated with acquisitions. Selling, general and administrative expenses increased 8 percent, driven primarily by personnel-related expenses and incremental costs associated with acquisitions. Advertising decreased 3 percent, driven by lower spending in the auto, outdoor and marine segments.
The effective tax rate in the first quarter of 2020 was 9.3 percent compared to 15.7 percent in the prior-year quarter. The decrease in the current quarter effective tax rate is primarily due to the migration of intellectual property ownership from Switzerland to the United States.
In the first quarter of 2020, Garmin generated approximately $185 million of free cash flow. Garmin continued to return cash to shareholders with its quarterly dividend of approximately $109 million. Garmin ended the quarter with cash and marketable securities of approximately $2.6 billion.
As announced in February 2020, the Board has recommended to the shareholders for approval at the annual meeting to be held on June 5, 2020, a cash dividend in the total amount of $2.44 per share (subject to adjustment if the Swiss Franc weakens more than 35 percent relative to the USD), payable in four equal installments on dates to be approved by the Board. The final $0.57 installment of the dividend approved at the 2019 annual meeting was paid on March 31, 2020 to shareholders of record as of March 16, 2020.
Garmin said it is withdrawing its fiscal 2020 guidance due to the rapid and unpredictable economic changes caused by the COVID-19 pandemic. Management expects to provide guidance once the trajectory of the economy and consumer behaviors are better understood.
Photo courtesy Garmin