01—Abstract
Summary
Summary of the 10-Q filed July 29, 2015. Cited figures are marked; the original filing is the authoritative source.
Garmin Ltd. reported net sales of $773.8 milliona for the thirteen weeks ended June 27, 2015, a slight decrease of 1% compared to the same period in 2014.
This modest decline was largely attributed to unfavorable foreign currency exchange rates, which impacted revenues by an estimated $59 millionb. Despite the top-line softness, the company saw robust growth in its Marine segment (+41%) and solid performance in Fitness and Outdoor segments. However, the Auto segment experienced a significant contraction (-15%), a key area of focus for potential investors.
Profitability saw a considerable decrease, with operating income falling 24% to $166.7 millionc and net income declining 24% to $137.8 million year-over-year for the quarter. This was driven by a lower gross profit margin (down 300 basis points) and increased operating expenses, particularly in advertising and R&D, which were strategically increased to support new product introductions and innovation. While the company faces currency headwinds and shifts within its product segments, the continued investment in R&D signals a commitment to future growth and diversification.
02—Key points
Key Highlights
- Net sales for the quarter were $773.8 million, a 1% decrease year-over-year, significantly impacted by a strong U.S. Dollar which reduced reported revenues by an estimated $59 million.
- The Marine segment showed exceptional growth, with net sales increasing by 41% due to new product introductions and acquisitions.
- The Auto segment continued to decline, with net sales down 15% year-over-year, reflecting lower PND volumes and amortization of deferred revenue.
- Gross profit decreased by 6% to $419.3 million, and gross profit margin compressed by 300 basis points to 54%, driven by lower margins in the Fitness and Auto segments.
- Operating income declined by 24% to $166.7 million, and net income decreased by 24% to $137.8 million, reflecting margin compression and increased operating expenses.
- Research and Development expenses increased by 11% to $109.2 million, indicating continued investment in product innovation.
- The company maintained a strong liquidity position with $938.2 million in cash and cash equivalents and $199.0 million in marketable securities as of June 27, 2015.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q2 FY2015, Garmin Ltd kept $0.18.
- Revenue$773.8M100.0%
- Cost of revenue−$354.6M45.8%
- Gross profit$419.3M54.2%
- Operating costs−$252.6M32.6%
- Operating income$166.7M21.5%
- Interest, other & tax−$28.9M3.7%
- Net income$137.8M17.8%
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2015filed July 29, 2015Financial Statements
Q2 FY2015 against Q2 FY2014
| Line item | Q2 FY2015Q2 FY2014 | Change |
|---|---|---|
| Revenue | $773.83M$777.85M | −0.5% |
| Cost of Revenue | $354.58M$333.36M | +6.4% |
| Gross Profit | $419.25M$444.49M | −5.7% |
| R&D Expenses | $109.24M$98.40M | +11.0% |
| SG&A Expenses | $97.55M$92.41M | +5.6% |
| Operating Expenses | $252.59M$225.73M | +11.9% |
| Operating Income | $166.66M$218.75M | −23.8% |
| Net Income | $137.75M$181.98M | −24.3% |
| EPS (Basic) | $0.72$0.94 | −23.4% |
| EPS (Diluted) | $0.72$0.93 | −22.6% |
| Shares Outstanding (Basic) | 191.10M194K | +98522.1% |
| Shares Outstanding (Diluted) | 191.60M195K | +98179.1% |
05—Questions
Frequently Asked Questions
What was the primary reason for the decline in net sales?
The primary reason for the decline in net sales was the unfavorable impact of foreign currency exchange rates, particularly the strengthening U.S. Dollar, which reduced reported revenues by an estimated $59 million for the quarter.
How did the different business segments perform?
The Marine segment was a standout performer with a 41% increase in net sales. The Fitness and Outdoor segments also saw modest revenue growth. However, the Auto segment experienced a significant 15% decline in net sales.
What is the company doing to address declining profitability?
Garmin is increasing its investment in Research and Development by 11% to drive future product innovation and is strategically increasing advertising spend in key growth areas like Fitness and Marine to support new product introductions. However, these investments, coupled with margin pressures, have impacted current profitability.
What is the company's financial health regarding cash and liquidity?
Garmin maintains a strong liquidity position, with $938.2 million in cash and cash equivalents and $199.0 million in marketable securities as of June 27, 2015. The company expects its current cash and cash flow from operations to be sufficient to meet its future capital expenditures, working capital needs, dividend payments, and strategic acquisitions.
06—Continue