01—Abstract
Summary
Summary of the 10-Q filed October 31, 2018. Cited figures are marked; the original filing is the authoritative source.
Garmin Ltd. reported a solid increase in revenue for the third quarter and the first nine months of 2018, primarily driven by strong performance in its Outdoor, Fitness, Marine, and Aviation segments.
Despite a continued decline in the Auto segment, particularly in Portable Navigation Devices (PNDs), the company's diversification across multiple product categories and markets has offset this weakness. Profitability showed improvement in the third quarter, with operating income and net income rising year-over-year, supported by improved gross margins and effective expense management. The company maintains a strong liquidity position with significant cash and marketable securities, enabling continued investment in product development, strategic acquisitions, and shareholder returns through dividends.
For the first nine months of 2018, while overall net income saw a decrease compared to the prior year (largely due to a significant tax benefit realized in 2017), the underlying operational performance remains robust. The company's strategic focus on innovation and expanding its presence in high-growth areas like wearables and aviation continues to yield positive results. Investors should note the ongoing shift in revenue mix away from traditional PNDs towards more diverse and often higher-margin product categories, indicating a successful adaptation to market trends.
02—Key points
Key Highlights
- Total net sales increased by 8% for the third quarter of 2018 compared to the prior year, reaching $810.0 million, driven by strong growth in Outdoor, Fitness, Marine, and Aviation segments.
- Operating income for the third quarter increased by 13% to $196.0 million, with operating margin improving to 24% from 23% in the prior year quarter.
- Net income for the third quarter rose by 22% to $184.2 million, or $0.97 per diluted share, compared to $151.1 million, or $0.80 per diluted share, in the prior year.
- Despite an overall revenue increase, the Auto segment saw a 16% decline in the third quarter, attributed to the continued contraction of the PND market.
- The company generated $701.8 million in cash from operating activities for the first nine months of 2018, a significant increase from $462.6 million in the same period of 2017, bolstered by working capital improvements.
- Garmin ended the period with a strong balance sheet, holding $1.06 billion in cash and cash equivalents and $1.47 billion in marketable securities as of September 29, 2018.
- The company adopted new accounting standards for revenue recognition (ASC Topic 606) using the full retrospective method, which resulted in restated prior period financial information for comparative purposes.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q3 FY2018, Garmin Ltd kept $0.23.
- Revenue$810.0M100.0%
- Cost of revenue−$329.3M40.6%
- Gross profit$480.7M59.4%
- Operating costs−$284.8M35.2%
- Operating income$196.0M24.2%
- Interest, other & tax−$11.7M1.4%
- Net income$184.2M22.7%
04—Financials
Financial Highlights
Figures from 10-QQ3 FY2018filed October 31, 2018Financial Statements
Q3 FY2018 against Q3 FY2017
| Line item | Q3 FY2018Q3 FY2017 | Change |
|---|---|---|
| Revenue | $810.01M$816.88M | −0.8% |
| Cost of Revenue | $329.26M$313.72M | +5.0% |
| Gross Profit | $480.75M$484.13M | −0.7% |
| R&D Expenses | $138.98M$129.63M | +7.2% |
| SG&A Expenses | $114.67M$101.79M | +12.6% |
| Operating Expenses | $284.79M$263.88M | +7.9% |
| Operating Income | $195.96M$173.65M | +12.8% |
| Net Income | $184.21M$176.98M | +4.1% |
| EPS (Basic) | $0.98$0.94 | +4.3% |
| EPS (Diluted) | $0.97$0.94 | +3.2% |
| Shares Outstanding (Basic) | 188.80M187.62M | +0.6% |
| Shares Outstanding (Diluted) | 190.00M188.49M | +0.8% |
05—Questions
Frequently Asked Questions
What was the primary driver for the revenue growth in Q3 2018?
Revenue growth in Q3 2018 was primarily driven by strong performance in the Outdoor (13% increase), Fitness (14% increase), Marine (28% increase), and Aviation (17% increase) segments. These segments collectively contributed significantly to the overall 8% increase in net sales.
Why did the Auto segment's revenue decline?
The Auto segment's revenue decreased by 16% primarily due to the ongoing market contraction for Portable Navigation Devices (PNDs). This segment's performance continues to be impacted by evolving consumer preferences and technological shifts.
How did the adoption of new accounting standards affect the financial reporting?
Garmin adopted ASC Topic 606, Revenue from Contracts with Customers, using the full retrospective method. This means prior period financial statements presented in this report have been restated to reflect the new standard. The adoption mainly impacted revenue and deferred revenue/cost recognition within the auto segment, generally accelerating recognition. The company also adopted other new accounting standards related to financial instruments and cash flow classification, which did not have a material impact.
What is the company's outlook on its liquidity and cash position?
Garmin maintains a strong liquidity position, with approximately $2.5 billion in cash and marketable securities as of September 29, 2018. The company expects its existing cash balances and cash flow from operations to be sufficient to fund its capital expenditures, working capital requirements, dividends, strategic acquisitions, and share repurchases.
06—Continue