10-QPeriod: Q3 FY2017

GARMIN LTD Quarterly Report for Q3 Ended Jul 1, 2017

Filed August 2, 2017For Securities:GRMN

Summary

Garmin Ltd. reported a solid second quarter for 2017, demonstrating resilience and strategic growth across its diverse segments. Total revenue saw a modest increase of 1% year-over-year for the thirteen-week period, reaching $816.9 million. This growth was driven primarily by a significant 46% surge in the Outdoor segment, largely due to advancements in the wearable technology sector, and a 15% increase in Aviation. Despite these gains, the Auto segment experienced a 15% decline, reflecting the continued contraction of the Personal Navigation Device (PND) market, and the Fitness segment also saw a 15% decrease, attributed to shifts in the basic activity tracker market and product introduction timing. Financially, Garmin showcased strong profitability with operating income increasing by 1% to $203.4 million, and net income rising by approximately 6% to $171.0 million. The company maintained robust gross margins, which expanded by 150 basis points to 58% for the quarter, underscoring effective cost management and a favorable product mix. For the first half of the year, net sales grew 1% to $1.46 billion, with net income soaring by 64% to $408.8 million, benefiting from a significant tax benefit. The company's balance sheet remains strong, with a healthy cash position and effective management of its investments, positioning it well for future growth and strategic initiatives.

Financial Highlights

52 data points
Beta

Revenue

$816.88M

59.3% Gross Margin

Net Income

$176.98M

21.7% Net Margin

EPS (Diluted)

$0.94

Total Assets

$4.84B

Cash & Equivalents

$891.40M

Free Cash Flow

$282.51M

Financial Statements
Beta
Revenue$816.88M
Cost of Revenue$313.72M
Gross Profit$484.13M
R&D Expenses$129.63M
SG&A Expenses$101.79M
Operating Expenses$263.88M
Operating Income$173.65M
Net Income$176.98M
EPS (Basic)$0.94
EPS (Diluted)$0.94
Shares Outstanding (Basic)187.62M
Shares Outstanding (Diluted)188.49M

Key Highlights

  • 1Total net sales for the quarter increased by 1% to $816.9 million, compared to $811.6 million in the prior year period.
  • 2The Outdoor segment experienced robust growth, with net sales up 46% year-over-year, driven by wearable technology.
  • 3Aviation segment sales increased by 15%, indicating strong performance in that sector.
  • 4The Auto segment continued to decline, with sales down 15%, reflecting the ongoing contraction of the PND market.
  • 5Gross profit increased by 3% to $477.9 million, and gross margin improved by 150 basis points to 58%.
  • 6Net income for the quarter rose by 6% to $171.0 million, from $161.1 million in the prior year period.
  • 7The company reported a substantial 64% increase in net income for the first half of 2017, reaching $408.8 million, partly due to a significant income tax benefit.

Frequently Asked Questions

Garmin's segments showed mixed performance. The Outdoor segment was a strong performer with a 46% increase in net sales, and Aviation saw a 15% increase. However, the Auto segment declined by 15%, and the Fitness segment also decreased by 15%. Marine sales saw a slight decrease of 3%.

The significant increase in net income for the first half of 2017 was largely due to a substantial income tax benefit of $168.8 million recognized from the revaluation of deferred tax assets. Excluding this and other discrete tax items, the effective tax rate increased, but the overall net income showed strong growth.

Inventory levels increased compared to the previous year, with a significant portion being finished goods. This increase appears to be a strategic move in anticipation of new product introductions in the latter half of 2017 and potentially to manage longer lead times for certain raw materials. Investors should monitor inventory turnover and obsolescence reserves in future filings.

Garmin maintained a strong liquidity position with $859.6 million in cash and cash equivalents and $1.5 billion in marketable securities as of July 1, 2017. The company generated $263.8 million in cash from operating activities during the first half of 2017 and used $18.7 million in investing activities, primarily for acquisitions and capital expenditures. Financing activities resulted in a net outflow of $248.9 million, primarily due to dividends paid and share repurchases.