Garmin Ltd. reported sales in the fourth quarter came in well ahead of Wall Street expectations as sales surged 48 percent in its Marine segment, 40 percent in Outdoor, and 26 percent in Fitness. Continued double-digit growth was forecast for the three segments for 2021.
In the quarter ended December 26, companywide sales improved 22.6 percent to $1.35 billion, topping Wall Street’s consensus estimate of $1.18 billion.
On an adjusted basis, net earnings improved 35.3 percent to $333.4 million, or $1.73 from $246.4 million, or $1.29, a year ago. Results far exceeded Wall Street’s consensus estimate of $1.39.
On a reported basis, which includes the impact of foreign currency gains and discrete tax items, earnings were $333.5 million, or $1.73, against $360.8 million, or $1.89, a year ago.
Gross margin in the quarter improved 50 basis points to 58.5 percent.
Total operating expense rose 15.6 percent to $419.7 million but declined as a percent of sales to 31.1 percent from 32.9 percent a year ago. Research and development increased 23 percent, primarily due to engineering personnel costs and other expenses related to auto OEM programs. SG&A expenses increased 15 percent, driven primarily by information technology costs and personnel-related expenses. Advertising decreased 2 percent.
For the year, consolidated revenue reached $4.19 billion, an 11 percent increase. Adjusted EPS was $5.14, representing 16 percent growth over the prior year.
On a conference call with analysts, Cliff Pemble, Garmin’s president and CEO, said the pandemic created many new opportunities for Garmin as interest in Health, Fitness and Active lifestyles surged.
“We were well-positioned to seize these opportunities with a strong product lineup,” said Pemble. “Our vertically integrated business model gave us the flexibility to meet rapidly changing demands. During this crisis, we maintained our focus on R&D, which allowed us to introduce many innovative new products throughout the year.”
Fitness Segment Sales Expand 26 Percent
The Fitness segment’s revenue grew 26 percent in the fourth quarter to $470.8 million, driven by strong demand for advanced wearables and cycling products. Gross margin and operating margins were 53 percent and 27 percent, respectively, resulting in a 75 percent operating income growth. For the year, sales improved 26 percent to $1.32 billion; and operating income jumped 66 percent to $318.9 million.
During the quarter, Garmin launched the Tacx Boost, an indoor trainer that features a magnetic brake, realistic ride-feel and manual resistance control for cyclists of all levels.
“During the year, we launched innovative new wearables and cycling products such as the Venue SQ, Forerunner 745 and the next generation of Edge Cycling Computers,” said Pemble. “Looking forward, we are well-positioned to capitalize on the broader trends in Health and Fitness. We plan to leverage our recent acquisition of Firstbeat to offer products with unique health and fitness features. Also, we intend to capitalize on the trends in indoor cycling with our strong lineup of Tacx products.”
For 2021, Fitness segment revenues are projected to increase approximately 10 percent.
Outdoor Segment Revenues Boosted By Adventure Watches
Revenue from the Outdoor segment grew 40 percent in the quarter to $411.9 million, led by strong demand for adventure watches. Gross margin and operating margins were 66 percent and 43 percent, respectively, resulting in a 55 percent operating income growth. Sales rose 23 percent to $1.13 billion for the year, and operating earnings gained 32 percent to $441.1 million.
During the year, Pemble noted that the Outdoor segment added solar charging technology to a broad range of its Phoenix and Instinct model, extending its lead in low-power technology and “further differentiating ourselves in the highly competitive smartwatch market.”
“Looking forward, we expect the broader trends and Outdoor to continue,” added Pemble.” We plan to leverage this opportunity by offering compelling products that maximize the enjoyment of outdoor activity and adventure.”
During the fourth quarter, Garmin launched the Mk2i Dive Watch and T1 Tank Transmitter, adding air integration to its dive electronics lineup.
Pemble added, “We believe that inReach will continue to grow as more people appreciate the convenience and life-saving potential of two-way remote communication. Our recent acquisition of GEOS, a critical provider of emergency monitoring and incident response services, allows us to expand its scale and improve service levels for our growing base and reach new customers.”
The Outdoor segment is expected to see growth of approximately 10 percent in 2021.
Marine Segment Gains Led By Chartplotters
The Marine segment’s revenue grew 48 percent in the quarter to $171.6 million, led by Chartplotters. Gross margin and operating margins were 56 percent and 24 percent, respectively, resulting in 92 percent operating income growth. In the year, Marine’s sales grew 29 percent to $657.8 million. Operating earnings jumped 60 percent to $175.7 million.
“The segment delivered another year of impressive results as the pandemic created an opportunity for people to rediscover boating and fishing,” said Pemble. He noted that Garmin’s Marine business was named Supplier Of The Year by Independent Boat Builders Incorporated, Manufacturer Of The Year by the National Marine Electronics Association, and recently recognized as one of the Top 10 most innovative marine companies by Sounding Straight Only, a B2B publication for the recreational boating industry.
Among Marine’s recent innovations, the mid-range GPSMAP Chartplotter series was updated with higher-resolution displays and more processing power, and the new Striker Vivid series launched with enhanced color depth in an entry-level fishfinder. For 2021, the Marine segment is expected to show growth of approximately 15 percent.
Said Pemble, “We anticipate that interest in boating and fishing will remain strong. Many boatbuilders are sold out of 2021 models, and our retail partners are preparing for another year of strong growth.”
In its non-sports-related segments, sales in Aviation were down 15 percent in the year to $622.8 million and off 19 percent in the quarter. Sales in the Auto segment declined 16 percent to $460.3 million in 2020 while gaining 11 percent in the quarter.
For 2021, Garmin expects revenue of approximately $4.6 billion, representing a gain of about 10 percent year-over-year. Aviation and Auto are both expected to show around 5 percent growth. Full-year pro forma EPS is expected to be approximately $5.15, which is about even with $5.14 for 2020.
Asked about the potential sales impact of the rollout of the COVID-19 vaccine and the possible resultant uptick in travel and leisure activities, Pemble said, “I think that’s still a highly speculative thing that nobody knows the answer to. I believe that any normalization will take time as we’ve been in this situation for about a year and people have adjusted their lifestyles. And consequently, some of their priorities probably have changed, probably permanently. And it remains to be seen how much the vaccine makes people feel free to do those kinds of activities. There’s still a lot of guidance coming out that the vaccines help, but they don’t necessarily ensure that people won’t get sick or couldn’t infect someone else. So these are all things that people are still processing. It’s early, and we believe that the trends that we’ve been seeing in the business over the past year are solid and will continue.”
Photos courtesy Garmin
