10-QPeriod: Q1 FY2009

GARMIN LTD Quarterly Report for Q1 Ended Mar 28, 2009

Filed May 6, 2009For Securities:GRMN

Summary

Garmin Ltd. reported a significant decline in its financial performance for the first quarter ended March 28, 2009, compared to the same period in the previous year. Net sales decreased by 34.2% to $436.7 million, driven primarily by a sharp downturn in the automotive/mobile segment, which saw a 42.6% drop in revenue. The aviation and marine segments also experienced considerable declines, while the outdoor/fitness segment showed resilience with a 13.5% increase in sales. This revenue contraction led to a substantial decrease in profitability. Gross profit fell by 38.8%, and operating income dropped by 66.4%. Net income for the quarter was $48.5 million, a 67.2% decrease from the prior year's $147.8 million. Despite the challenging market conditions, the company maintained a strong liquidity position, with cash and cash equivalents increasing to $922.3 million. Garmin also continued its share repurchase program, buying back $1.8 million worth of shares during the quarter.

Financial Highlights

25 data points
Beta

Revenue

$436.70M

44.9% Gross Margin

Net Income

$48.54M

11.1% Net Margin

EPS (Diluted)

$0.24

Cash & Equivalents

$922.33M

Free Cash Flow

$299.42M

Financial Statements
Beta
Revenue$436.70M
Cost of Revenue$240.70M
Gross Profit$196.00M
R&D Expenses$55.03M
SG&A Expenses$59.78M
Operating Expenses$138.04M
Operating Income$57.96M
Net Income$48.54M
EPS (Basic)$0.24
EPS (Diluted)$0.24
Shares Outstanding (Basic)200.35M
Shares Outstanding (Diluted)200.72M

Key Highlights

  • 1Net sales declined significantly by 34.2% year-over-year to $436.7 million, heavily impacted by a 42.6% decrease in the Automotive/Mobile segment.
  • 2Net income dropped sharply by 67.2% to $48.5 million, or $0.24 per diluted share, compared to $147.8 million, or $0.67 per diluted share, in the prior year's quarter.
  • 3Gross profit margin decreased by 330 basis points to 44.9%, primarily due to margin compression in the Automotive/Mobile segment.
  • 4Operating income saw a substantial decrease of 66.4% to $58.0 million, resulting in a lower operating margin of 13.3% from 26.0% in the prior year.
  • 5The Outdoor/Fitness segment was a bright spot, with net sales increasing by 13.5% and operating income growing by 47.6%.
  • 6The company maintained a strong cash position, with cash and cash equivalents increasing to $922.3 million from $696.3 million at the end of the previous year.
  • 7Garmin repurchased $1.8 million of its common stock under its authorized share repurchase program.

Frequently Asked Questions

The primary driver of the revenue decline was the Automotive/Mobile segment, which experienced a 42.6% drop due to factors like price protection credits offered to retail partners, retailers reducing inventory levels, and the broader impact of global macroeconomic conditions. The Aviation and Marine segments also saw significant declines (30.8% and 32.1%, respectively), while the Outdoor/Fitness segment was a positive contributor with a 13.5% sales increase.

Profitability was significantly impacted by the revenue decline. Gross profit decreased by 38.8% and gross margin fell by 330 basis points, largely due to margin pressure in the Automotive/Mobile segment. Consequently, operating income dropped by 66.4%, and net income fell by 67.2% year-over-year.

Garmin maintained a strong liquidity position. Cash and cash equivalents increased to $922.3 million. Net cash provided by operating activities was robust at $299.4 million, which was sufficient to fund investing activities ($66.0 million used) and financing activities ($1.7 million used), including share repurchases. The company expects its current cash and cash flow to be sufficient to meet its obligations through fiscal year 2009.

Garmin is involved in several patent infringement lawsuits, including cases with Encyclopaedia Britannica and SP Technologies. While the company believes its claims are without merit and intends to defend vigorously, it acknowledges that an unfavorable outcome could have a material adverse effect on its operating results, liquidity, or financial position. However, management believes that the ultimate outcome of other legal actions arising in the ordinary course of business will not have a material adverse effect.