10-QPeriod: Q3 FY2009

GARMIN LTD Quarterly Report for Q3 Ended Sep 26, 2009

Filed November 4, 2009For Securities:GRMN

Summary

Garmin Ltd. reported a significant improvement in profitability for the third quarter of 2009, with net income rising 26% year-over-year to $215.1 million, despite a 10.2% decline in net sales to $781.3 million. This earnings growth was primarily driven by a substantial increase in gross profit margin to 52.4%, up from 44.3% in the prior year's quarter, and effective cost management, including a reduction in advertising expenses. The company also saw strong operating income growth of 10.5% to $236.9 million, reflecting improved operational efficiency across its segments. For the first nine months of 2009, net sales decreased by 22.8% to $1.89 billion, leading to a 26.0% decline in net income to $425.5 million. However, the company's strategic focus on cost control and operational improvements allowed for an increase in year-to-date gross profit margin to 50.7%. Garmin maintained a healthy cash position, with $1.01 billion in cash and cash equivalents at the end of the period, and a strong operating cash flow of $848.6 million, indicating robust financial health despite challenging macroeconomic conditions affecting its automotive/mobile and aviation segments.

Financial Highlights

44 data points
Beta

Revenue

$781.25M

52.4% Gross Margin

Net Income

$215.13M

27.5% Net Margin

EPS (Diluted)

$1.07

Total Assets

$3.52B

Cash & Equivalents

$1.01B

Free Cash Flow

$292.87M

Financial Statements
Beta
Revenue$781.25M
Cost of Revenue$371.51M
Gross Profit$409.74M
R&D Expenses$55.51M
SG&A Expenses$71.50M
Operating Expenses$172.86M
Operating Income$236.88M
Net Income$215.13M
EPS (Basic)$1.07
EPS (Diluted)$1.07
Shares Outstanding (Basic)200.55M
Shares Outstanding (Diluted)201.60M

Key Highlights

  • 1Net income increased by 26% to $215.1 million in Q3 2009, despite a 10.2% year-over-year decline in net sales to $781.3 million.
  • 2Gross profit margin significantly improved to 52.4% in Q3 2009, compared to 44.3% in Q3 2008, demonstrating effective cost management and operational efficiencies.
  • 3Automotive/Mobile segment revenue saw a substantial decline of 12.9% in Q3 2009, significantly impacting overall sales performance.
  • 4Operating income grew by 10.5% to $236.9 million in Q3 2009, showcasing improved profitability even with lower sales.
  • 5Total cash and cash equivalents increased to $1.01 billion as of September 26, 2009, up from $696.3 million at the end of 2008, supported by strong operating cash flow.
  • 6Research and Development expenses increased by 5.2% year-over-year in Q3 2009, reflecting continued investment in product innovation.
  • 7The company successfully reduced its effective tax rate to 16.2% in Q3 2009, down from 19.0% in the prior year, due in part to the release of income tax reserves.

Frequently Asked Questions

The primary driver for Garmin's improved profitability in Q3 2009 was a significant expansion of its gross profit margin to 52.4%, up from 44.3% in the prior year. This was achieved through effective cost management, including reduced advertising expenses and favorable cost of goods sold, which more than offset a 10.2% decline in net sales. Increased operating income also contributed to the strong net income growth.

The Outdoor/Fitness and Marine segments showed positive revenue growth of 11.4% and 3.1% respectively in Q3 2009. However, the Automotive/Mobile segment experienced a significant decline of 12.9% in net sales, and the Aviation segment saw a substantial decrease of 28.6%. These declines were attributed to challenging macroeconomic conditions, particularly affecting the Automotive/Mobile segment.

Garmin maintained a strong liquidity position, with cash and cash equivalents increasing to $1.01 billion by the end of Q3 2009. The company generated substantial cash flow from operations ($848.6 million for the nine months ended September 26, 2009) and used a portion of its cash for investing activities, including the purchase of marketable securities. The company indicated its current cash and operational cash flow are expected to be sufficient to meet its financial needs through at least the end of fiscal 2010.

Despite a notable decline in overall net sales, Garmin demonstrated strong operational efficiency and profitability in Q3 2009. The company's ability to significantly improve gross margins and control operating expenses indicates resilience. The solid cash position and positive operating cash flow provide a cushion against market uncertainties, suggesting a stable financial outlook, although continued weakness in the automotive and aviation sectors presents ongoing challenges.