01—Abstract
Summary
Summary of the 10-Q filed August 7, 2013. Cited figures are marked; the original filing is the authoritative source.
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 milliona.
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 millionb 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 billionc in cash and marketable securities, and initiated a $300 million share repurchase program, indicating confidence in its financial health and future prospects.
02—Key points
Key Highlights
- Net sales decreased by 3% year-over-year to $696.6 million for the 13-week period ended June 29, 2013.
- The Automotive/Mobile segment experienced a significant 12% decline in net sales, though it still represents 50% of total revenue.
- Growth was observed in the Outdoor (6%), Marine (7%), and Aviation (16%) segments, indicating diversification.
- Operating income decreased by 17% to $169.9 million, impacted by lower gross margins and increased R&D spending.
- Net income for the quarter fell by 7% to $172.5 million.
- Research and Development expenses increased by 20% to $96.2 million, reflecting investment in new product development.
- The company maintained a strong liquidity position with $1.23 billion in cash and cash equivalents and $1.62 billion in marketable securities.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q2 FY2013, Garmin Ltd kept $0.25.
- Revenue$696.6M100.0%
- Cost of revenue−$312.9M44.9%
- Gross profit$383.6M55.1%
- Operating costs−$213.8M30.7%
- Operating income$169.9M24.4%
- Interest, other & tax$2.6M0.4%
- Net income$172.5M24.8%
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2013filed August 7, 2013Financial Statements
Q2 FY2013 against Q2 FY2012
| Line item | Q2 FY2013Q2 FY2012 | Change |
|---|---|---|
| Revenue | $696.56M$718.15M | −3.0% |
| Cost of Revenue | $312.92M$296.34M | +5.6% |
| Gross Profit | $383.64M$421.81M | −9.0% |
| R&D Expenses | $96.23M$80.30M | +19.8% |
| SG&A Expenses | $88.04M$99.25M | −11.3% |
| Operating Expenses | $213.75M$217.81M | −1.9% |
| Operating Income | $169.89M$204.01M | −16.7% |
| Net Income | $172.49M$185.90M | −7.2% |
| EPS (Basic) | $0.88$0.95 | −7.4% |
| EPS (Diluted) | $0.88$0.95 | −7.4% |
| Shares Outstanding (Basic) | 196K195K | +0.4% |
| Shares Outstanding (Diluted) | 196K196K | 0.0% |
05—Questions
Frequently Asked Questions
What was the main driver of the revenue decline in the quarter?
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.
How is Garmin managing its investment portfolio, and what is the impact of market fluctuations?
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.
What is Garmin's strategy regarding returning capital to shareholders?
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.
How is Garmin diversifying its revenue streams beyond the automotive segment?
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.
06—Continue