10-QPeriod: Q1 FY2015

GARMIN LTD Quarterly Report for Q1 Ended Mar 28, 2015

Filed April 29, 2015For Securities:GRMN

Summary

Garmin Ltd. reported mixed financial results for the first quarter ended March 28, 2015. While total net sales remained relatively flat year-over-year at $585.4 million, the company experienced notable shifts across its business segments. Growth in the Fitness, Marine, and Aviation segments partially offset declines in the Outdoor and Auto segments. The company demonstrated improved gross profit margins, rising to 59% from 57% in the prior year's comparable quarter, driven by better cost of goods sold management and favorable product mix in certain segments. However, operating income saw a decrease of 7% to $111.7 million, primarily due to increased operating expenses, particularly in Research & Development (R&D) and Selling, General & Administrative (SG&A) expenses. A significant factor impacting profitability was a substantial foreign currency loss of $44.3 million due to adverse U.S. Dollar movements against the Euro and Taiwan Dollar, contrasting with a gain in the prior year. This led to a considerable decrease in net income, down 44% to $66.8 million, or $0.35 per diluted share.

Financial Highlights

50 data points
Beta

Revenue

$585.39M

58.8% Gross Margin

Net Income

$66.79M

11.4% Net Margin

EPS (Diluted)

$0.35

Total Assets

$4.54B

Cash & Equivalents

$1.17B

Free Cash Flow

$63.51M

Financial Statements
Beta
Revenue$585.39M
Cost of Revenue$241.27M
Gross Profit$344.12M
R&D Expenses$106.00M
SG&A Expenses$98.75M
Operating Expenses$232.42M
Operating Income$111.70M
Net Income$66.79M
EPS (Basic)$0.35
EPS (Diluted)$0.35
Shares Outstanding (Basic)191.76M
Shares Outstanding (Diluted)192.34M

Key Highlights

  • 1Net sales were flat year-over-year at $585.4 million, with mixed performance across segments: Fitness (+31%), Marine (+7%), and Aviation (+2%) grew, while Outdoor (-10%) and Auto (-11%) declined.
  • 2Gross profit increased by 4% to $344.1 million, with gross profit margin improving to 59% from 57% in the prior year's quarter, driven by better cost management.
  • 3Operating expenses increased by 10% to $232.4 million, with R&D and SG&A expenses seeing significant increases, impacting operating income.
  • 4A substantial foreign currency loss of $44.3 million in Q1 2015, compared to a gain in Q1 2014, significantly impacted profitability.
  • 5Net income decreased by 44% to $66.8 million ($0.35 per diluted share) from $118.8 million ($0.61 per diluted share) in the prior year.
  • 6The company announced a new $300 million share repurchase program authorized through December 31, 2016, with approximately $283.7 million remaining as of March 28, 2015.
  • 7Garmin reported no material changes in market risks (foreign currency, interest rate) compared to its prior annual report.

Frequently Asked Questions

The primary driver for the significant decrease in net income was a substantial foreign currency loss of $44.3 million incurred in the first quarter of 2015. This contrasts with a foreign currency gain in the same period of the prior year and heavily impacted the company's bottom line. Additionally, increased operating expenses, particularly in R&D and SG&A, and a decline in net sales in key segments like Auto also contributed.

Garmin's sales performance varied by segment. The Fitness segment saw robust growth of 31%, followed by Marine at 7% and Aviation at 2%. However, the Outdoor segment experienced a 10% decline, and the Auto segment, which remains the largest portion of revenue, decreased by 11% compared to the prior year's quarter.

The company generated $81.7 million in cash from operating activities, an increase of $10.5 million compared to the prior year, primarily due to favorable foreign currency adjustments and deferred revenue/costs. Investing activities provided $23.2 million, mainly from increased net redemptions of marketable securities. Financing activities used $107.7 million, largely for dividend payments and share repurchases. Garmin believes its current cash balances and operating cash flow are sufficient to meet future capital expenditures, working capital needs, and other cash requirements.

Garmin is involved in several legal proceedings, including patent infringement lawsuits and class action claims related to product defects. While the company believes these claims are without merit and intends to defend them vigorously, an unfavorable outcome in any of these matters could have a material adverse effect on its operating results, liquidity, or financial position. The company's management does not currently expect the results of these proceedings to have a material adverse effect in aggregate.