Garmin Ltd. reported second-quarter earnings slid 36.% to $161.9 million, or 81 cents a share, from $256.1 million, or $1.19, a year ago. Total revenue of $669 million, down 27% from $912 million in second quarter 2008. Outdoor/Fitness segment revenue decreased 9.
In other segments, automotive/Mobile segment revenue decreased 31% to $437 million, Aviation segment revenue decreased 28% to $64 million
and Marine segment revenue decreased 15% to $60 million.
North America and Europe continued to experience year-over-year revenue declines while Asia improved. North America revenue was $436 million compared to $576 million, down 24%. Europe revenue was $198 million compared to $307 million, down 36%. Asia revenue was $35 million compared to $29 million, up 21%.
Gross margin improved to 52.6% compared to 45.8% in second quarter 2008 and 44.9% in first quarter 2009. Operating margin was up to 29.8% compared to 13.3% in first quarter 2009 and 26.2% in second quarter of 2008.
Pro forma EPS decreased 12% to 83 cents a share from 94 cents in the same quarter in 2008. (Pro forma EPS excludes the impact of foreign currency translation gain or loss and the 2008 gain on sale of TeleAtlas N.V. shares).
Generated $246 million of free cash flow in second quarter 2009 for a cash and marketable securities balance of over $1.5 billion.
Year-to-Date 2009 Financial highlights:
Total revenue of $1.11 billion, down 30% from $1.58 billion year-to-date 2008.
- Automotive/Mobile segment revenue decreased 36% to $697 million
- Outdoor/Fitness segment revenue decreased 1% to $188 million
- Aviation segment revenue decreased 30% to $123 million
- Marine segment revenue decreased 23% to $98 million
All geographic areas experienced a slowdown in revenues:
- North America revenue was $702 million compared to $988 million, down 29%
- Europe revenue was $340 million compared to $517 million, down 34%
- Asia revenue was $64 million compared to $71 million, down 10%
Diluted earnings per share decreased 44% to $1.05 from $1.86 in year-to-date 2008; pro forma EPS decreased 33% to $1.08 from $1.60 in year-to-date 2008. (Pro forma EPS excludes the impact of foreign currency translation gain or loss and the 2008 gain on sale of TeleAtlas N.V. shares).
- Posted sequential revenue growth of 53% with all segments showing improved revenues and margins as the first quarter seems to have represented the low point of declining revenue caused by the global economic crisis.
- Reported 68% sequential revenue growth in the automotive/mobile segment with sequential gross margin and operating margin improvement of 12.3% and 22.6%, respectively, as pricing, cost, and volumes improved.
- Sold 3.7 million units in the second quarter of 2009, with PND unit growth in both North America and Asia.
- Continued to lead in world-wide PND market share. Independent market share research indicates that we have expanded our leadership position in the North American PND market with approximately a 57% share, which is up sequentially from 53% in first quarter. We maintained a market share of approximately 20% in Europe.
- Introduced new marine products including chartplotters, autopilot, VHF radios and radars to further our penetration into larger boats and OEM markets.
- Delivered our new fitness device lineup including the Forerunner® 310XT and FR 60 fitness watch. Delivered new mapping content for outdoor products in North American and Europe which helped to boost demand for devices and content sales.
Executive overview from Dr. Min Kao, Chairman and Chief Executive Officer:
“While the macroeconomic conditions continue to dampen consumer demand, we are encouraged by the 53% sequential improvement in revenues in the second quarter. We are also pleased with the solid margins and earnings in the quarter achieved by the various initiatives that we have taken to improve productivity, reduce expenses and utilize the strength of our balance sheet.
The automotive/mobile segment continued to show sell-through growth on a unit basis in both the North American and Asian markets and Garmin maintained its strong global market leadership position. The sequential improvement in pricing and margins in the quarter were on target with our expectations entering the quarter. We intend to continue to position ourselves to take advantage of the ongoing demand for portable navigation devices by delivering innovative solutions to the consumer. Our recently introduced 1200, 1300 and 1400 nüvi®series which offer affordable navigation solutions in a sleek form factor with pedestrian capabilities have been well received, and we continue to expand the utility of in-vehicle navigation through the introduction of our first product designed specifically for the trucking market.
The outdoor/fitness segment has been our most resilient business in this down economy. However, after nine consecutive quarters of revenue growth, we experienced a revenue decline of 9% in the second quarter as we faced difficult comparables from the second quarter of 2008 when we launched a number of new products. We continue to believe that solid long-term potential exists in this segment. We expect the deliveries of our new feature-rich OregonTM 550t and DakotaTM line of handhelds in the outdoor market, and Forerunner 310XT and the FR 60 line of fitness products will assist us in seeing steady revenues and margins in future quarters.
The aviation industry continues to struggle due to the lingering effects of the economic crisis, and we do not anticipate significant growth until overall market conditions show consistent stabilization. We did recently introduce new products and features to the aviation community at the annual Oshkosh air show that clearly continue our technological leadership in the avionics industry. These announcements included: the GTS family of products which brings traffic advisory services to the cockpit, the G500 which is an affordable retrofit option, and the G3X which is designed for experimental and light sport aircraft (our first offering to this market). At a time when many competitors have reduced research and development spending and new product introductions, Garmin continues to invest and innovate gaining market share and being positioned to grow as the aviation industry recovers.
The marine segment posted strong sequential growth at 58% as we entered the boating season. While the general marine market was down as much as 40%, we were able to significantly outperform the market on the strength of our marine product lineup. We were pleased with the revenue level and the margins that the business was able to deliver in the quarter. As we look toward the back half of the year, we are excited to deliver new navigation, communication and radar products that should further our growing position in the marine industry. While we do not expect to post growth until the macroeconomic conditions improve, we do expect that year-over-year declines will continue to improve throughout the year.”
Financial overview from Kevin Rauckman, Chief Financial Officer:
“We are pleased with our financial results for the second quarter given the tough economic conditions facing the consumer today,” said Kevin Rauckman, Chief Financial Officer of Garmin Ltd. “While our revenue and pro forma earnings per share during the quarter fell 27% and 12% respectively on a year-over-year basis, we posted strong sequential growth in both metrics and continued to manage the business exceptionally well allowing for significant margin expansion.
Gross margin for the overall business in the second quarter was 52.6% with all four segments posting year-over-year margin improvement. The automotive/mobile segment gross margin was much improved at 45% compared to 39% in the second quarter of 2008. Improvement was driven by sequential average selling price growth, foreign currency fluctuations and continued benefit from material cost reductions. Gross margin for the other three segments also improved when compared with the year-ago quarter with outdoor/fitness increasing most significantly from 57% to 68% as we took advantage of the product mix, stable prices and material cost reductions.
Operating margin increased from 13.3% to 29.8% in the current quarter on a sequential basis and from 26.2% in the year-ago quarter. The sequential operating margin expansion occurred across all segments as revenues grew sequentially and operating costs declined as a percent of sales. Total operating expenses decreased by $26 million on a year-over-year basis. We reduced advertising expenses by $24 million, or 42%, and other selling, general and administrative expenses by $5 million, or 7%. Research and development costs increased by $3 million, or 5%, when compared to the year-ago quarter as we continue to hire engineers to support our product initiatives.
We also generated $246 million of free cash flow in the second quarter of 2009, resulting in a cash and marketable securities balance of just over $1.5 billion at the end of the quarter.”
The Garmin Board of Directors has approved an annual cash dividend of $0.75 per share. The dividend is payable to shareholders of record on December 1, 2009 and will be paid on December 15, 2009.