10-QPeriod: Q3 FY2016

GARMIN LTD Quarterly Report for Q3 Ended Sep 24, 2016

Filed October 26, 2016For Securities:GRMN

Summary

Garmin Ltd. reported solid financial results for the quarter ended September 24, 2016, with total net sales increasing by 6% year-over-year to $722.3 million. This growth was driven by strong performances in the Fitness, Outdoor, and Marine segments, which saw revenue increases of 32%, 28%, and 12% respectively. Despite a 21% decline in the Auto segment, primarily due to the continued Personal Navigation Device (PND) market contraction, overall company revenue growth remained positive. Profitability also improved, with operating income rising 27% to $159.6 million and net income increasing by 4.9% to $125.1 million. The company demonstrated effective cost management, with cost of goods sold decreasing as a percentage of revenue and overall gross profit margin improving by 290 basis points. These results reflect Garmin's strategic diversification into wearable technology and other growing markets, successfully offsetting the challenges in its legacy Auto segment.

Financial Highlights

52 data points
Beta

Revenue

$722.25M

56.2% Gross Margin

Net Income

$125.05M

17.3% Net Margin

EPS (Diluted)

$0.66

Total Assets

$4.59B

Cash & Equivalents

$912.56M

Free Cash Flow

$199.45M

Financial Statements
Beta
Revenue$722.25M
Cost of Revenue$316.27M
Gross Profit$405.98M
R&D Expenses$116.45M
SG&A Expenses$96.96M
Operating Expenses$246.36M
Operating Income$159.62M
Net Income$125.05M
EPS (Basic)$0.66
EPS (Diluted)$0.66
Shares Outstanding (Basic)189K
Shares Outstanding (Diluted)189K

Key Highlights

  • 1Total net sales increased by 6% to $722.3 million for the 13-week period ended September 24, 2016, compared to the prior year.
  • 2Fitness segment revenue grew by 32% and Outdoor segment revenue increased by 28%, indicating strong demand in these wearable technology and outdoor recreation markets.
  • 3The Auto segment experienced a significant decline of 21% in net sales, attributed to the ongoing contraction of the PND market.
  • 4Gross profit increased by 12% to $406.0 million, with a corresponding improvement in gross profit margin to 56%, up from 53% in the prior year quarter.
  • 5Operating income saw a substantial increase of 27% to $159.6 million, reflecting improved revenue and margin management.
  • 6Net income for the quarter rose by 4.9% to $125.1 million, resulting in diluted earnings per share of $0.66, up from $0.63 in the prior year.
  • 7The company maintained a strong balance sheet with $912.6 million in cash and cash equivalents and $1.53 billion in marketable securities.

Frequently Asked Questions

Garmin's revenue growth in the third quarter of 2016 was primarily driven by strong performance in its Fitness and Outdoor segments, which saw significant increases of 32% and 28% respectively. The Marine segment also contributed positively with a 12% increase. These gains helped offset the decline in the Auto segment.

While the Auto segment revenue decreased by 21%, largely due to the shrinking Personal Navigation Device (PND) market, Garmin's overall net sales still grew by 6%. This resilience was due to the robust growth in other segments, particularly Fitness and Outdoor, demonstrating successful diversification. The company's operating income and net income also saw healthy increases, indicating effective management of the changing business landscape.

Garmin has an ongoing share repurchase program authorized up to $300 million, with $103.4 million remaining available as of September 24, 2016. The program, which expires on December 31, 2016, is used to repurchase shares as market and business conditions warrant, reflecting the company's commitment to returning value to shareholders.

The company reported a slight decrease in total unit sales but managed its inventories effectively, with inventory levels increasing at a slower pace than sales growth. The MD&A section notes a positive impact from inventories providing more cash in the first three quarters of 2016 due to reduced raw material purchases. Accounts receivable also provided a working capital benefit, though it was less than the prior year period, suggesting efficient management of collections and rebates.