Garmin Reports Record Second Quarter Revenues on Strength of Automotive/Mobile and Outdoor/Fitness Segments
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CAYMAN ISLANDS, July 30 -- Garmin Ltd. today announced a record quarter ended June 28, 2008.
Second Quarter 2008 Financial highlights:
-- Total revenue of $912 million, up 23% from $742 million in second
quarter 2007
-- Automotive/Mobile segment revenue increased 24% to $632 million in
second quarter 2008
-- Outdoor/Fitness segment revenue increased 54% to $119 million in
second quarter 2008
-- Aviation segment revenue increased 15% to $90 million in second
quarter 2008
-- Marine segment revenue decreased 11% to $71 million in second quarter
2008
-- North America and Europe continued to experience growth:
-- North America revenue was $576 million compared to $455 million,
up 27%
-- Europe revenue was $307 million compared to $257 million, up 19%
-- Asia revenue was $29 million compared to $31 million, down 6%
-- Gross margin remained solid at 45.8% compared to 48.2% in first
quarter 2008 and 50.5% in second quarter 2007
-- Operating margin was up 20 basis points sequentially to 26.2% in first
quarter 2008 and was down compared to 32.5% in second quarter of 2007
-- Diluted earnings per share increased 21% to $1.19 from $0.98 in second
quarter 2007; excluding foreign exchange, EPS increased 18% to $1.18
from $1.00 in the same quarter in 2007. EPS includes $0.25 related to
a gain of $66 million from the tender of our Tele Atlas N.V. shares.
Year-to-Date 2008 Financial highlights:
-- Total revenue of $1.58 billion, up 28% from $1.23 billion year-to-date
2007
-- Automotive/Mobile segment revenue increased 31% to $1.08 billion in
year-to-date 2008
-- Outdoor/Fitness segment revenue increased 38% to $190 million in
year-to-date 2008
-- Aviation segment revenue increased 17% to $175 million in year-to-date
2008
-- Marine segment revenue increased 4% to $127 million in year-to-date
2008
-- All geographic areas experienced growth:
-- North America revenue was $988 million compared to $777 million,
up 27%
-- Europe revenue was $517 million compared to $405 million, up 28%
-- Asia revenue was $71 million compared to $53 million, up 34%
-- Diluted earnings per share increased 15% to $1.86 from $1.62 in
year-to-date 2007; excluding foreign exchange, EPS increased 18% to
$1.87 from $1.59 in year-to-date 2007. EPS includes $0.27 related to
a gain of $72 million from the tender of our Tele Atlas N.V. shares.
Business highlights:
-- Strong sales in our automotive/mobile, aviation, and outdoor/fitness
segments put them on track for double-digit revenue growth again in
2008.
-- 3.9 million units sold in the second quarter of 2008, up 54% from the
same quarter in 2007; year-to-date units sold increased 64% from the
same period in 2007.
-- Independent market share research indicates that we have expanded our
leadership position in the North American PND market with
approximately 55% share, which is up sequentially from 43% in first
quarter. We maintained a market share of approximately 20% in Europe.
Garmin continues to lead in world-wide PND market share.
-- We have begun work to expand our principal North American aviation
production facility in Olathe, Kansas with expected completion in Q4
2009.
-- Targeted advertising and promotional programs for the spring season
drove solid second quarter sales. We also announced our title
sponsorship of Team Garmin/Chipotle which competed in the Tour de
France using the Edge(R) 705.
-- Completed the acquisition of our Belgian/Luxembourg and Finnish
distributors in second quarter, and announced our intent to acquire
our distributors in Austria and Portugal. These activities are part of
our ongoing efforts to further improve our market share in Europe.
-- Repurchased 5.2 million shares of GRMN in the second quarter.
Executive overview from Dr. Min Kao, Chairman and Chief Executive Officer:
"Despite the challenging macro economic conditions, Garmin experienced another quarter of growth in 2008 and continues to demonstrate our solid leadership position in the industry. Our strength in the automotive/mobile segment in the face of a slowing economy demonstrated that our products continue to be well-positioned to take advantage of the ongoing demand for portable navigation devices. The latest nuvi(R) 2x5 products delivered during the second quarter provide yet more features for cost-conscious consumers including picture navigation and compatibility with MSN Direct's real time content service. We also delivered the high-end nuvi(R) 800 series in the second quarter which offers industry-leading speech recognition in the personal navigation sector. Our nuvi(R) product offerings continue to support our strategy of extensive market segmentation, drawing in customers with compelling, competitive features, and useful content integrated into easy-to-use products at many attractive price points. We believe this approach will continue to garner growing market share and drive strong results throughout the remainder of 2008. Although we continue to earn industry-leading market share, the sector is not growing as rapidly as earlier anticipated and consumers appear to be more cost-conscious than ever; therefore, we will be lowering our full year revenue growth expectations.
Revenue in our outdoor/fitness segment grew rapidly when compared to the year ago quarter due to the strength of our product introductions in the quarter including the Colorado(TM) series, the Forerunner(R) 405 and the Edge(R) 705. We look forward to increased sales generated by our recently announced title sponsorship of Team Garmin/Chipotle which just completed the Tour de France, as well as our new Oregon(TM) series which provides rugged and durable touch screen products to the outdoor market. We still see considerable growth opportunities for this segment during the second half of 2008 and are raising revenue growth estimates accordingly.
Our aviation segment continued to drive growth in the business during the quarter, as positive response to our G1000(R) cockpit continued. We were pleased to announce our relationship with Cirrus Design Corp. in the second quarter and look forward to the substantial growth this offers to our aviation segment. This cockpit win is especially important as we are starting to see lower aircraft production levels and weaker demand for our aftermarket and portable products. While we believe our aviation segment will continue to grow in the second half of 2008, we will be reducing the full year revenue guidance due to the macroeconomic conditions facing this segment, specifically high fuel prices.
Garmin's delivery of revolutionary new marine products and cartography had sheltered us from the general downturn that the marine industry had faced throughout 2007 and the first quarter of 2008 but the second quarter saw revenues decline in this segment as fuel prices and the economy kept boaters away from new purchases. We believe that our products are the best in the market today and look forward to building relationships with the OEMs in the marine segment. However, we now believe the marine segment will be flat year-over-year as we continue to face high fuel prices and soft consumer spending."
Financial overview from Kevin Rauckman, Chief Financial Officer:
"We are pleased with our financial results for the second quarter given the economic conditions facing the consumer electronics segment," said Kevin Rauckman, chief financial officer of Garmin Ltd. "Our revenue and earnings per share during the quarter grew 23% and 21% respectively. Excluding the impact of foreign exchange, EPS for the quarter grew 18%, from $1.00 to $1.18.
Gross margin for the overall business remained strong in the second quarter at 45.8%. The automotive/mobile segment gross margin continued to be sound at 39% as PND pricing declines moderated and we continued to get benefit from material cost reductions and improved operating efficiencies. Gross margin for the other three segments remained solid when compared with the year-ago quarter with aviation and outdoor/fitness increasing as we took advantage of the strength of the product offerings delivered to the market over the past year.
Operating margin grew 20 basis points sequentially but did show a decline of 630 basis points from the year-ago quarter. The sequential operating margin expansion occurred within the outdoor/fitness and aviation segments as we continued to roll out new products. Our auto/mobile operating margin performance reflects the price declines in PND offset by favorable cost reductions during the quarter. During the second half of 2008, we anticipate that PND margins will fall further but not as significantly as earlier anticipated due to the better than expected pricing environment.
We also generated $34 million of free cash flow in the second quarter of 2008, resulting in a cash and marketable securities balance of just over $1.0 billion at the end of the quarter."
Fiscal 2008 Outlook
While we remain optimistic about the future success of our business based on growing demand for navigational products and our leadership position in the industry, we recognize that macroeconomic conditions and high fuel prices have had an impact on our growth. With this in mind, we are updating our guidance as follows:
-- We anticipate overall revenue to be $3.9 billion in 2008, and earnings
per share of $4.13 (excluding FX) including the $0.27 related to the
tender of our Tele Atlas N.V. shares.
-- We anticipate segment revenue growth rates for our automotive/mobile,
outdoor/fitness, and aviation segments to be 25%, 30%, and 15%,
respectively. We remain optimistic regarding our long-term growth
opportunities in the marine segment but due to the macroeconomic
conditions and high fuel prices are now forecasting revenues to be
flat in 2008.
-- We anticipate operating margins to be approximately 25% for the full
year 2008.
-- Our effective tax rate should remain approximately 19%.
Nuvifone Update
The nuvifone will not be available in fourth quarter as previously announced. While we had hoped to have carrier launches in the fourth quarter, we have found that meeting some of the carrier specific requirements will take longer than anticipated. We remain pleased with carrier interest in the device and are working toward making necessary design changes to meet their requirements. We anticipate launching the product during the first half of 2009.
Dividend and Share Repurchase Program
As previously announced on June 6, 2008, the Garmin Board of Directors approved an annual cash dividend of $0.75 per share. The dividend is payable to shareholders of record on December 1, 2008, and will be paid on December 15, 2008.
During the second quarter, the Company was able to repurchase 5.2 million shares. The shares represented 3.6 million to complete the 5.0 million share repurchase program authorized by the board of directors in February 2008. In addition, the Company repurchased 1.6 million shares during the quarter under a Rule 10b5-1 plan based on the June 2008 board of directors' authorization to repurchase 10.0 million shares. Subsequent to the close of the quarter, the Company repurchased the remaining 3.4 million shares under a Rule 10b5-1 plan. This leaves an additional 5.0 million shares to be repurchased as market and business conditions warrant.
Non-GAAP Measures Net income (earnings) per share, excluding foreign currency
Management believes that net income per share before the impact of foreign currency translation gain or loss is an important measure. The majority of the company's consolidated foreign currency translation gain or loss results from translation into New Taiwan dollars at the end of each reporting period of the significant cash and marketable securities, receivables and payables held in U.S. dollars by the company's Taiwan subsidiary. Such translation is required under GAAP because the functional currency of this subsidiary is New Taiwan dollars. However, there is minimal cash impact from such foreign currency translation and management expects that the Taiwan subsidiary will continue to hold the majority of its cash, cash equivalents and marketable securities in U.S. dollars. Accordingly, earnings per share before the impact of foreign currency translation gain or loss allows an assessment of the company's operating performance before the non-cash impact of the position of the U.S. dollar versus the New Taiwan dollar, which permits a consistent comparison of results between periods.
