By Thomas J. Ryan

Powered by its Marine, Fitness and Outdoor segments, Garmin Ltd. reported sales rose 19 percent and adjusted earnings climbed 25.5 percent in the third quarter ended September 26. Garmin also updated its full-year guidance with an outlook well above Wall Street estimates.

Among its segments, Marine led the way with sales ahead 54 percent to $165.4 million. Gross and operating margins were 61 percent and 31 percent respectively, resulting in operating income growth of over 150 percent.

Clifton Pemble, Garmin’s president and CEO, said on a conference call with analysts that the Marine segment saw growth across multiple product categories led by strong demand for chartplotters. He said, “There are two key factors driving these results: first, the market is expanding as new customers embrace boating and fishing; second, our strong lineup of products and game-changing technologies are driving market share gains. We continue to be recognized for our innovation and achievements in the Marine industry.”

He noted that for the sixth consecutive year, the National Marine Electronics Association named Garmin Manufacturer of the Year and the brand received four Products of Excellence Awards. Garmin was also recognized as one of the Top 10 most innovative Marine companies by Soundings Trade Only.

Pemble said the company anticipates that interest in boating and fishing will remain strong even in the colder months.

“Marine is historically very seasonal,” said Pemble. “In normal times, we would expect that the market would slow down in Q3 and into Q4 and then ramp up again when the New Year arrives. This is anything but an ordinary year. We thought boating activity continuing to take place throughout Q3 and demand for our products was very strong, not just in the selling sense, but also in sell-through at our retailers. It’s an extraordinary year as people take advantage of time on the water. And as we look at Q4, the retailer enthusiasm around marine products, and the plans that they have for promotions, are very strong. We should also see a very strong Q4 for marine unlike we’ve seen in past years as well.”

Fitness Segment Boosted By Advanced Wearables And Cycling Products
The Fitness segment revenue increased 35 percent to $328.4 million. Gross and operating margins were 54 percent and 27 percent respectively resulting in operating income growth of 75 percent over the prior year.

“The pandemic continues to highlight the importance of living a healthy life, and our Fitness segment benefited from this trend,” said Pemble.

During the quarter, Garmin launched the Forerunner 745 expanding the features offered in its mid-tier multi-sport product range. Also launched was the Clipboard, an app that facilitates team training and performance monitoring using Garmin devices. In the Advanced Wellness category, Garmin launched the Venu Sq, an entry-level smartwatch that combines daily wear style with activity tracking and health monitoring features.

Pemble added, “Looking forward, we expect a broader trend in fitness and wellness to continue. We plan to leverage our recent acquisition of Firstbeat to offer products with unique health, wellness and fitness features.”

He also said Garmin intends to capitalize on the indoor cycling opportunity with Tacx, the Dutch maker of trainers, water bottles and tools acquired early last year. Tacx is ramping up production at a new facility and beginning to tap growth into the North American market.

Said Pemble, “Our response from the customers on Tacx has been very strong. We have a lot of backlog for those products, and we’re working hard to fill those especially as we look toward the winter season as people are going to be in more. The Tacx facility, the new production facility, is a big part of our plan to take advantage of that and expanding our distribution especially in the Americas and Asia for those products.”

Outdoor Segment Boosted By Adventure Watches
The Outdoor segment’s revenue increased 30 percent to $334.8 million with strength in all major categories led by strong demand for adventure watches. Gross and operating margins were 67 percent and 44 percent, resulting in 40 percent operating income growth.

Pemble said the segment benefited from increased consumer interest in outdoor activities led by the Fenix and Instinct lines.

“We launched new versions of those products with solar-charging technology, which is a unique differentiator for Garmin,” said Pemble. “And those products were very popular in the quarter as we sold into the channel, and they’re starting to sell through now. But we do see strength across other categories, basically everything that involves adventure and outdoor activity especially golf. Golf is very strong as well. And we felt very good about the performance of our categories in the quarter.”

Pemble also noted that inReach, a technology that provides emergency and communication services in places where cellphones don’t work, recently facilitated over 5,000 SOS incidents since its launch in 2011. The technology was recently added to Garmin’s popular Montana series.

Pemble added, “Looking forward, we expect the broader trends in outdoor to continue. We plan to leverage this opportunity by offering unique products that maximize the enjoyment of outdoor activity and adventure.”

In its other two segments, Auto revenue decreased 6 percent to $129.4 million while its Aviation segment revenue decreased 19 percent to $151.1 million.

Total companywide revenue was $1.1 billion, a 19 percent year-over-year increase. Results were well above Wall Street’s consensus estimate of $893.6 million.

Gross margins eroded to 60.2 percent from 60.7 percent while operating margins improved to 28.6 percent from 28.0 percent.

On a reported basis, earnings rose 37.5 percent to $313.4 million, or $1.63 a share, from $227.9 million, or $1.19, a year ago. Excluding special items from each period, Pro-forma earnings were up 25.5 percent to $304.0 million, or $1.58, from $242.3 million, or $1.27, a year ago. Wall Street’s consensus estimate has been $1.00.

Looking ahead, Garmin said it expects full-year 2020 revenue of approximately $4.0 billion, up 6.4 percent from $3.76 billion a year ago. Garmin had pulled its guidance earlier in the year due to uncertainties created by the pandemic.

Growth in the Marine segment, up 25 percent; Fitness, 20 percent; and Outdoor, 15 percent; is expected to be partially offset by declines in Auto, down 17 percent; and Aviation, 20 percent. Garmin said it expects its full-year Pro-forma EPS to be approximately $4.70 based on gross margin of approximately 59.0 percent, operating margin of approximately 24.0 percent and a full-year Pro-forma effective tax rate of approximately 10.0 percent. Wall Street’s consensus target had been $4.07 in EPS on sales of $3.75 billion.

Asked about inventory levels, Pemble said product available in some stronger active lifestyle categories “has been fairly tight” as cutbacks were made when the pandemic first arrived. He added, “Since that time, we’ve been working hard to ramp back up to the levels needed to fill demand. I think we’re doing OK, but the backlogs are very strong for us right now. We’re working hard to fill those.”

Photo courtesy Garmin