10-QPeriod: Q2 FY2013

GARMIN LTD Quarterly Report for Q2 Ended Jun 29, 2013

Filed August 7, 2013For Securities:GRMN

Summary

Garmin Ltd. reported mixed results for the quarter ended June 29, 2013, with a 3% year-over-year decrease in net sales to $696.6 million. This decline was primarily driven by a 12% drop in the automotive/mobile segment, which now represents 50% of total revenue. Despite the top-line decrease, the company saw positive sales growth in its Outdoor, Marine, and Aviation segments, signaling a strategic shift away from its historically dominant automotive business. Profitability also faced pressure, with operating income down 17% to $170 million and net income decreasing 7% to $172.5 million. This was largely due to a lower gross profit margin, particularly in the automotive/mobile and marine segments, and a significant 20% increase in research and development expenses as Garmin invests in future product development across its various segments. The company maintained a strong balance sheet with over $1.2 billion in cash and marketable securities, and initiated a $300 million share repurchase program, indicating confidence in its financial health and future prospects.

Financial Highlights

50 data points
Beta

Revenue

$696.56M

55.1% Gross Margin

Net Income

$172.49M

24.8% Net Margin

EPS (Diluted)

$0.88

Total Assets

$4.60B

Cash & Equivalents

$1.08B

Free Cash Flow

$186.19M

Financial Statements
Beta
Revenue$696.56M
Cost of Revenue$312.92M
Gross Profit$383.64M
R&D Expenses$96.23M
SG&A Expenses$88.04M
Operating Expenses$213.75M
Operating Income$169.89M
Net Income$172.49M
EPS (Basic)$0.88
EPS (Diluted)$0.88
Shares Outstanding (Basic)196K
Shares Outstanding (Diluted)196K

Key Highlights

  • 1Net sales decreased by 3% year-over-year to $696.6 million for the 13-week period ended June 29, 2013.
  • 2The Automotive/Mobile segment experienced a significant 12% decline in net sales, though it still represents 50% of total revenue.
  • 3Growth was observed in the Outdoor (6%), Marine (7%), and Aviation (16%) segments, indicating diversification.
  • 4Operating income decreased by 17% to $169.9 million, impacted by lower gross margins and increased R&D spending.
  • 5Net income for the quarter fell by 7% to $172.5 million.
  • 6Research and Development expenses increased by 20% to $96.2 million, reflecting investment in new product development.
  • 7The company maintained a strong liquidity position with $1.23 billion in cash and cash equivalents and $1.62 billion in marketable securities.

Frequently Asked Questions

The primary driver of the revenue decline was the Automotive/Mobile segment, which saw a 12% decrease in net sales compared to the prior year's quarter. This segment's performance significantly impacted the overall top-line results.

Garmin holds a substantial portfolio of marketable securities classified as available-for-sale. In the first half of 2013, the company recorded unrealized, non-cash losses of $41.0 million due to market declines, primarily in mortgage-backed securities and obligations of states and political subdivisions, driven by an increase in Treasury Bond yields. However, Garmin believes these losses are not other-than-temporary and has the ability to hold these securities until maturity or recovery.

Garmin has a commitment to returning capital to shareholders. This is demonstrated by its consistent dividend payments, which have progressively increased, and the initiation of a $300 million share repurchase program announced in February 2013. As of June 29, 2013, the company had repurchased $13.4 million of its shares under this program.

Garmin is actively growing its other segments to diversify its revenue. The company reported positive year-over-year sales growth in its Outdoor (6%), Marine (7%), and Aviation (16%) segments during the quarter. This indicates a strategic effort to reduce reliance on the automotive market and capitalize on growth opportunities in other specialized areas.