01—Abstract
Summary
Summary of the 10-Q filed July 27, 2022. Cited figures are marked; the original filing is the authoritative source.
Garmin Ltd. reported a decrease in net sales and net income for the second quarter and first half of fiscal year 2022 compared to the prior year periods.
While overall net sales saw a slight 1%a increase for the first half, the second quarter experienced a 6% decline. This was primarily driven by a significant drop in the Fitness segment, partially offset by robust growth in the Outdoor segment. The company noted ongoing economic headwinds such as inflation, rising interest rates, and a strengthening U.S. Dollar as contributing factors to these results and expects these challenges to persist.
Despite the revenue pressures, Garmin maintained a relatively stable gross margin, aided by a favorable product mix in the Outdoor segment, although this was partially offset by increased freight costs and foreign currency fluctuations. Operating expenses, particularly in Research and Development (R&D) and Selling, General, and Administrative (SG&A) expenses, increased both in absolute terms and as a percentage of revenue, impacting overall profitability.
The company also highlighted its ongoing investment in Auto OEM programs, which are currently operating at a loss. Garmin ended the period with a strong liquidity position, holding approximately $2.9 billionb in cash, cash equivalents, and marketable securities.
02—Key points
Key Highlights
- Net sales decreased by 6% year-over-year in Q2 2022 to $1.24 billion, but increased by 1% for the first half of 2022 to $2.41 billion.
- Net income for Q2 2022 decreased by 19% to $257.9 million, and for the first half of 2022, it decreased by 13% to $469.5 million.
- The Fitness segment experienced a significant decline in net sales (-34% in Q2 and -32% in H1), while the Outdoor segment showed strong growth (+18% in Q2 and +32% in H1).
- Consolidated gross margin remained relatively stable year-over-year in Q2 but decreased by 160 basis points in H1, impacted by higher freight costs and foreign currency translation.
- Operating expenses increased as a percentage of revenue in both Q2 and H1, driven by higher SG&A and R&D spending.
- The company recognized substantial foreign currency losses, particularly in Q2, due to the strengthening U.S. Dollar against major global currencies.
- Garmin has initiated a $300 million share repurchase program, with approximately $269 million remaining available as of June 25, 2022.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q2 FY2022, Garmin Ltd kept $0.21.
- Revenue$1.24B100.0%
- Cost of revenue−$512.0M41.3%
- Gross profit$728.8M58.7%
- Operating costs−$436.1M35.1%
- Operating income$292.7M23.6%
- Interest, other & tax−$34.9M2.8%
- Net income$257.9M20.8%
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2022filed July 27, 2022Financial Statements
Q2 FY2022 against Q2 FY2021
| Line item | Q2 FY2022Q2 FY2021 | Change |
|---|---|---|
| Revenue | $1.24B$1.33B | −6.5% |
| Cost of Revenue | $512.01M$546.05M | −6.2% |
| Gross Profit | $728.83M$780.85M | −6.7% |
| R&D Expenses | $201.52M$186.02M | +8.3% |
| SG&A Expenses | $191.21M$180.72M | +5.8% |
| Operating Expenses | $436.09M$409.68M | +6.4% |
| Operating Income | $292.74M$371.17M | −21.1% |
| Net Income | $257.87M$317.00M | −18.7% |
| EPS (Basic) | $1.34$1.65 | −18.8% |
| EPS (Diluted) | $1.33$1.64 | −18.9% |
| Shares Outstanding (Basic) | 193.07M192.15M | +0.5% |
| Shares Outstanding (Diluted) | 193.45M192.87M | +0.3% |
05—Questions
Frequently Asked Questions
What were the main drivers of the revenue decline in the second quarter of 2022?
The revenue decline in the second quarter of 2022 was primarily driven by a 34% decrease in the Fitness segment, attributed to lower sales of advanced wearables and cycling products. Additionally, the Marine segment faced supply chain constraints, and the Auto segment saw declines in both consumer and OEM products. These decreases were partially offset by strong demand for adventure watches in the Outdoor segment and growth in Aviation.
How is Garmin managing the impact of macroeconomic headwinds like inflation and currency fluctuations?
Garmin acknowledges the intensifying headwinds from inflation, rising interest rates, and a strengthening U.S. Dollar. While these factors are impacting profitability, particularly through foreign currency losses and pressure on gross margins, the company is working to mitigate these effects. A favorable product mix in the Outdoor segment helped offset some of these impacts in Q2. The company also reported significant foreign currency losses in Q2 due to the U.S. Dollar's strength against other major currencies, which impacted results.
What is the outlook for the Auto OEM segment?
The Auto OEM segment experienced an operating loss in the current quarter (Q2 2022) and for the first half of 2022. Garmin expects this trend to continue through 2022 as the company continues to invest in certain auto OEM programs. This segment contributed to the overall decline in the Auto category's revenue and profitability.
How is Garmin's liquidity and capital position?
Garmin maintains a strong liquidity position, with approximately $2.9 billion in cash, cash equivalents, and marketable securities as of June 25, 2022. The company believes its existing cash reserves and operating cash flow are sufficient to meet its short- and long-term working capital needs, capital expenditures, dividend payments, share repurchases, and potential strategic acquisitions.
06—Continue