01—Abstract
Summary
Summary of the 10-Q filed August 5, 2009. Cited figures are marked; the original filing is the authoritative source.
Garmin Ltd. reported a notable decline in net sales for the second quarter and first half of 2009 compared to the prior year, primarily driven by a significant slowdown in the automotive/mobile and aviation segments due to prevailing macroeconomic conditions.
Despite the revenue contraction, the company demonstrated improved gross profit margins across most segments, signaling effective cost management and favorable product mix shifts in certain areas. Operating income also declined year-over-year, impacted by reduced sales and increased R&D investments, although operating margins showed improvement on a percentage basis. The company maintained a strong liquidity position with a substantial increase in cash and cash equivalents driven by robust operating cash flow.
Garmin also managed its inventories effectively, reducing levels while maintaining adequate stock. While facing revenue challenges in key segments, Garmin continues to invest in product innovation, evidenced by increased R&D spending.
02—Key points
Key Highlights
- Net sales decreased by 26.6% for the 13-week period ended June 27, 2009, and by 29.8% for the 26-week period ended June 27, 2009, compared to the prior year periods.
- Gross profit margin improved year-over-year, increasing by 680 basis points to 52.6% in Q2 2009 and by 270 basis points to 49.5% in the first half of 2009.
- Operating income for the 13-week period decreased by 16.5% and for the 26-week period by 37.5% compared to the prior year.
- Net cash provided by operating activities significantly increased to $555.7 million for the first half of 2009, up from $280.2 million in the prior year.
- Cash and cash equivalents increased to $958.9 million as of June 27, 2009, from $696.3 million as of December 27, 2008.
- Research and development expenses increased by 5.0% for the quarter and 7.9% for the first half of 2009, reflecting continued investment in product innovation.
- The company declared an annual cash dividend of $0.75 per share, payable in December 2009.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q2 FY2009, Garmin Ltd kept $0.24.
- Revenue$669.1M100.0%
- Cost of revenue−$317.5M47.5%
- Gross profit$351.6M52.5%
- Operating costs−$152.5M22.8%
- Operating income$199.2M29.8%
- Interest, other & tax−$37.3M5.6%
- Net income$161.9M24.2%
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2009filed August 5, 2009Financial Statements
Q2 FY2009 against Q2 FY2008
| Line item | Q2 FY2009Q2 FY2008 | Change |
|---|---|---|
| Revenue | $669.10M$911.67M | −26.6% |
| Cost of Revenue | $317.49M$494.54M | −35.8% |
| Gross Profit | $351.61M$417.13M | −15.7% |
| R&D Expenses | $56.25M$53.60M | +5.0% |
| SG&A Expenses | $62.19M$66.70M | −6.8% |
| Operating Expenses | $152.46M$178.63M | −14.6% |
| Operating Income | $199.15M$238.50M | −16.5% |
| Net Income | $161.87M$256.09M | −36.8% |
| EPS (Basic) | $0.81$1.20 | −32.5% |
| EPS (Diluted) | $0.81$1.19 | −31.9% |
| Shares Outstanding (Basic) | 200.30M213.76M | −6.3% |
| Shares Outstanding (Diluted) | 200.85M215.57M | −6.8% |
05—Questions
Frequently Asked Questions
What is the primary driver of the decrease in net sales?
The primary driver of the decrease in net sales is the challenging macroeconomic environment, which has particularly impacted the automotive/mobile and aviation segments. This has led to reduced demand and volume declines across these and other segments.
How has Garmin managed its profitability despite declining sales?
Garmin has improved its gross profit margins by focusing on cost reductions, including lower cost of goods sold as a percentage of revenue, and favorable shifts in product mix. The company also benefited from efforts to reduce advertising expenses and manage SG&A costs, although R&D expenses increased to support product innovation.
What is the company's cash position and how is it being managed?
Garmin's cash position is strong, with cash and cash equivalents increasing significantly to $958.9 million as of June 27, 2009. This increase is supported by robust cash flow from operations. The company's investment policy focuses on preserving capital, maintaining liquidity, and maximizing yield while prioritizing safety.
What is the outlook for future investments and capital allocation?
Garmin expects to fund future capital expenditures, working capital requirements, share repurchases, and dividends through existing cash balances and operating cash flow. The company is committed to investing in product innovation, as evidenced by the increase in R&D expenses.
06—Continue