Garmin Reports Strong Second Quarter 2013 Results and Maintains Full Year Outlook

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Garmin Reports Strong Second Quarter 2013 Results and Maintains Full Year Outlook

SCHAFFHAUSEN, Switzerland--(BUSINESS WIRE)-- Garmin Ltd. (NAS: GRMN) today announced results for the fiscal quarter ended June 29, 2013. Highlights in the quarter include:

  • Total revenue of $697 million in second quarter 2013 with traditional segments of outdoor, fitness, aviation and marine delivering 51% of total revenues and growing 8% over the year ago quarter
  • Operating margin of 24% with 64% of operating profit from traditional segments
  • Continued to gain global market share in the PND industry
  • Introduced the Monterra™, an Android™ powered outdoor GPS, supporting 3rd party applications for outdoor professionals and enthusiasts
  • Announced the expansion of our relationships with Volkswagen and MINI, providing factory- or dealer-installed solutions for the compact car market
  • Generated $186 million of free cash flow in second quarter 2013
(in thousands,   13-Weeks Ended     26-Weeks Ended
except per share data) June 29,     June 30,     Yr over Yr June 29,     June 30,   Yr over Yr
2013 2012 Change 2013 2012 Change
Net sales $696,563 $718,154 -3% $1,228,520 $1,274,751 -4%
Automotive/Mobile 344,701 392,124 -12% 597,290 671,393 -11%
Outdoor 106,856 100,496 6% 183,022 177,659 3%
Aviation 88,042 75,932 16% 168,511 148,819 13%
Fitness 84,216 81,812 3% 156,653 153,026 2%
Marine 72,748 67,790 7% 123,044 123,854 -1%
Gross profit % 55% 59% 54% 55%
Operating profit % 24% 28% 20% 23%
Pro forma diluted EPS (1) $0.76 $0.98 -22% $1.16 $1.43 -19%
Note: 2012 results include one-time royalty fee benefit of $21 million impacting gross margin.
(1) See table on final page for reconciliation of GAAP EPS to Pro forma diluted EPS

Executive Overview from Cliff Pemble, President and Chief Executive Officer:

"The second quarter of 2013 was highlighted by stronger than expected revenue performance across all segments," said Cliff Pemble, president and chief executive officer of Garmin Ltd. "We were particularly pleased to generate revenue growth in each of our traditional markets. While our performance was strong in second quarter and we believe that the outlook for growth in 2013 for the traditional markets is positive, we also anticipate that declines in the PND market will continue to be a significant headwind. Third quarter will be particularly challenging as we compare against a period of strong prior year sell-in driven by the timing of new product introductions and end-of-life promotions. Given these factors, we are maintaining our full year revenue and EPS guidance. Longer term, our primary focus remains innovation that is expected to fuel sustained revenue and EPS growth."


The outdoor segment posted revenue growth of 6% in the quarter with our golf and dog tracking and training portfolios driving growth. Gross and operating margins within the segment remained strong at 66% and 42%, respectively. During the quarter, we introduced our latest outdoor handheld, the Monterra. This product is Android powered giving the user access to thousands of applications including those targeting outdoor enthusiasts. In addition, the Monterra includes WiFi connectivity, an FM radio and NOAA weather radio.


The fitness segment posted revenue growth of 3% in the quarter as our latest cycling products, the Edge® 510 and 810, and the Forerunner® 10 sold well. While gross and operating margins were consistent with our expectations at 65% and 35%, respectively, this is a decline from the prior year due to the product mix shifting toward lower priced devices. In the second half of 2013, we anticipate delivering a number of new products to the market, including the Vector power meter, which are expected to accelerate revenue growth.


The aviation segment posted revenue growth of 16% in the quarter as both OEM and aftermarket contributed to revenue improvement. OEM growth was driven by market share gains in the business jet and helicopter markets, as well as increased content with existing OEM partners. The gross margin in aviation was stable year-over-year at 70% while operating margins declined to 23% due to accelerated research and development spending in the quarter. Though we have experienced some delays in the avionics certifications with our business jet partners, we have passed significant milestones in recent weeks and remain confident in our ability to generate 10-15% revenue growth in the segment.


The marine segment posted revenue growth of 7% in the quarter driven by the delivery of the new products that had been previously delayed. These deliveries included the GPSMAP® 8000 series glass helms and the 7" GPSMAP and echoMAP combination chartplotter and fishfinder, both of which have been well-received by the industry and are helping us regain market share in the category. With new product deliveries improving product mix in the second quarter, we returned to profitability in the segment with gross and operating margins of 56% and 20%, respectively. We recognize the importance of continued innovation and are working diligently on 2014 product introductions that will further our market share opportunity.


The automotive/mobile segment posted a revenue decline of 12% as declining PND sales were partially offset by growth with our OEM partners. We continue to anticipate PND volumes declining 20% globally. Gross and operating margins in the quarter were 45% and 18%, respectively. This was a decline from 51% and 22% in the prior year primarily related to the $21 million royalty benefit recognized in second quarter 2012.

We do continue to innovate within the segment and have been encouraged by the strong sell-through of the recently released nüvi® 2700 series products. In addition, we have begun to ship the fleet 590, targeting a new market segment in which we hope to gain share.

Additional Financial Information:

Total operating expenses in the quarter were $214 million, a 2% decrease from the prior year. Decreased spending in advertising and selling, general and administrative expenses was partially offset by growing research and development investment in each of our segments. As we have indicated in the past, we anticipate continued research and development investment to fuel both near-term and long-term revenue growth opportunities.

The effective tax rate in second quarter 2013 was 16.5% compared to 10.4% in the prior year due to changes in income mix by tax jurisdiction, as well as reduced tax incentives in Taiwan.

In the second quarter, we generated $186 million of free cash flow which funded our quarterly dividend of $88 million and share repurchase activity of $13 million. We ended the quarter with cash and marketable securities of $2.7 billion.

2013 Guidance Update:

      2013 Update     Prior
Revenue     $2.5 - $2.6 B     $2.5 - $2.6 B
Gross Margin     53 - 54%     53 - 54%
Operating Income     ~ $500 M     $480 - $500 M
Operating Margin     ~ 20%     19 - 20%
Tax Rate     15%     14%
EPS (Pro Forma)     $2.30 - $2.40     $2.30 - $2.40

Our 2013 guidance remains largely unchanged with operating income and operating margin trending toward the upper end of prior guidance offset by an anticipated 100 basis point increase in the effective tax rate.

Webcast Information/Forward-Looking Statements:

The information for Garmin Ltd.'s earnings call is as follows:



Wednesday, July 31, 2013 at 10:30 a.m. Eastern



Simply log on to the web at the address above or call to listen in at 888-487-0340

An archive of the live webcast will be available until August 30, 2013 on the Garmin website at To access the replay, click on the Investor Relations link and click over to the Events Calendar page.

This release includes projections and other forward-looking statements regarding Garmin Ltd. and its business. Any statements regarding the Company's estimated earnings and revenue for fiscal 2013, the Company's expected segment revenue growth rate, margins, new products to be introduced in 2013 and the Company's plans and objectives are forward-looking statements. The forward-looking events and circumstances discussed in this release may not occur and actual results could differ materially as a result of risk factors affecting Garmin, including, but not limited to, the risk factors that are described in the Annual Report on Form 10-K for the year ended December 29, 2012 filed by Garmin with the Securities and Exchange Commission (Commission file number 0-31983). A copy of Garmin's 2012 Form 10-K can be downloaded from

Garmin, Edge, Forerunner, GPSMAP and nüvi are registered trademarks and Monterra is a trademark of Garmin Ltd. or its subsidiaries.All other brands, product names, company names, trademarks and service marks are the properties of their respective owners. All rights reserved.

Garmin Ltd. And Subsidiaries
Condensed Consolidated Statements of Income (Unaudited)
(In thousands, except per share information)
13-Weeks Ended 26-Weeks Ended
June 29, June 30, June 29, June 30,
2013 2012 2013 2012
Net sales $ 696,563 $ 718,154 $ 1,228,520 $ 1,274,751
Cost of goods sold   312,923   296,341     568,747   569,180  
Gross profit 383,640 421,813 659,773 705,571
Advertising expense 29,483 38,258 51,732 61,849
Selling, general and administrative expense 88,039 99,246 174,307 189,362
Research and development expense   96,232   80,303     183,922   160,021  
Total operating expense   213,754   217,807     409,961   411,232  
Operating income 169,886 204,006 249,812 294,339
Other income (expense):
Interest income 8,179 8,620 17,077 18,291
Foreign currency gains (losses) 27,451 (7,771 ) 19,102 (9,760 )
Other   1,069   2,581     2,228   4,121  
Total other income (expense)   36,699   3,430     38,407   12,652  
Income before income taxes 206,585 207,436 288,219 306,991
Income tax provision   34,094   21,532     27,062   34,230  
Net income $ 172,491 $ 185,904   $ 261,157 $ 272,761  
Net income per share:
Basic $ 0.88 $ 0.95 $ 1.34 $ 1.40
Diluted $ 0.88 $ 0.95 $ 1.33 $ 1.39
Weighted average common
shares outstanding:
Basic 195,570 194,849 195,600 194,795
Diluted 196,300 196,261 196,338 196,232
Garmin Ltd. And Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, except share information)
June 29, December 29,
2013     2012
Current assets:
Cash and cash equivalents $ 1,083,490 $ 1,231,180
Marketable securities 142,582 153,083
Accounts receivable, net 484,246 603,673
Inventories, net 383,492 389,931
Deferred income taxes 63,241 68,785
Deferred costs 54,104 53,948
Prepaid expenses and other current assets   135,104     35,520  
Total current assets 2,346,259 2,536,120
Property and equipment, net 410,533 409,751
Marketable securities 1,475,761 1,488,312
Restricted cash 249 836
Noncurrent deferred income tax 95,411 93,920
Noncurrent deferred costs 37,830 42,359
Other intangible assets, net 220,531 232,597
Other assets   12,607     15,229  
Total assets $ 4,599,181   $ 4,819,124  
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 128,078 $ 131,263
Salaries and benefits payable 50,184 55,969
Accrued warranty costs 34,288 37,301
Accrued sales program costs 39,083 57,080
Deferred revenue 251,074 252,375
Accrued royalty costs
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