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Garmin Reports Strong First Quarter 2016 Sales

The following excerpt is from the company's SEC filing.

Garmin Ltd. (Nasdaq: GRMN – News) today announced results for the first quarter ended March 26, 2016.

Highlights in the quarter include:

Total revenue of $624 million, growing 7% over the prior year, with outdoor, fitness, aviation and marine collectively growing 17% over the year ago quarter and contributing 69% of total revenue

Gross and operating margins of 54.5% an d 16.6%, respectively

GAAP EPS of $0.46 and Pro forma EPS

of $0.49 for first quarter 2016

Completed the acquisition of DeLorme, the pioneer of the inReach® series of affordable two-way satellite communication devices for the consumer adding both device and recurring service revenue to our outdoor segment

Started shipments of recently announced activity trackers including the vívoactive® HR with Garmin Elevate™ wrist heart rate technology and the vívofit® 3 with an industry leading one year battery life

(in thousands,

13-Weeks Ended

except per share data)

Mar 26,

Mar 28,

Yr over Yr

2015

Change

Net sales

624,040

585,394

195,599

219,226

Fitness

142,418

130,994

Outdoor

96,827

72,815

Aviation

106,316

98,062

Marine

82,880

64,297

Gross profit %

Operating profit %

GAAP diluted EPS

Pro forma diluted EPS

(1) See attached table for reconciliation of non-GAAP measures including pro forma diluted EPS

(2) Action camera related net sales for the 13-weeks ended March 28, 2015 have been recast from the Outdoor segment to the Auto segment to conform to the current year presentation.

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

We started out 2016 strong with total revenue growth of 7% led by robust double digit growth in our marine and outdoor segments, and high single digit growth in our fitness and aviation segments,”

said Cliff Pemble, president and chief executive officer (CEO) of Garmin Ltd

“With the majority of the year still ahead of us, we recognize that there are many challenges and uncertainties yet to be encountered.

We will continue to focus on innovation and execution to deliver compelling products to the markets we serve.”

Fitness:

The fitness segment posted revenue growth of 9% in the quarter reflecting strong growth of our Garmin Elevate™ wrist heart rate technology products within our activity tracker and running categories, somewhat offset by lower multisport revenues. On a year-over-year basis, gross margin and operating margin declined to 51% and 12%, respectively. The gross margin decline was driven by product mix within the quarter. The operating margin decline reflects the continued investment in advertising and research and development to support our long-term goals in the segment. Our recently launched vívoactive HR and vívofit 3 are shipping and we feel we are well positioned with our 2016 product roadmap.

Outdoor:

The outdoor segment posted robust revenue growth of 33% driven by the strength of our fēnix® line of wearables as well as our dog products. Our recently introduced Approach® S20 and G10, and TruSwing™ have brought new energy to our golf product line in a challenging industry. Gross and operating margins were down from a year ago, but remained strong at 61% and 29%, respectively, and resulted in a 17% increase in operating income. Within the quarter, we completed the DeLorme acquisition and will see a full quarter of sales contribution beginning in the second quarter. With the strong start to 2016 we are poised to execute our plan of continued innovations within the outdoor markets.

Marine:

The marine segment posted robust revenue growth of 29% on the strength of our chartplotter and fish finder product lines. Gross margins declined year-over-year to 53% while operating margin increased to 12% as we leveraged our operating investments resulting in strong operating income growth of 125%. Our recently launched GPSMap® 8400/8600 are the largest plotters we have produced at 17-, 22-, and 24-inch displays and have a resolution of 1920 x 1280, which is the highest screen resolution available on the market. We remain focused on innovation and product portfolio expansion throughout 2016.

Aviation:

The aviation segment posted revenue growth of 8% in the quarter with both OEM and aftermarket contributing to revenue improvement. Both the gross margin and operating margin were strong at 74% and 29%, respectively, and improved compared to the year ago quarter resulting in a 16% increase in operating income. During the quarter we were chosen to provide the avionics to two lifesaving organizations, with the AirEvac’s fleet of Bell helicopters and the U.S. Forest Service’s fleet of Sherpa aircraft. In addition, we introduced two new products for the experimental aviation market bringing quality audio and additional backup displays to the cockpit. We will continue to invest in new products and aircraft certifications for both OEM and aftermarket customers.

The auto segment posted a revenue decline of 11% primarily due to the ongoing PND market contraction and headwinds caused by additional revenue deferrals. Gross and operating margins were 44% and 9%, respectively. We began shipping the Garmin Drive line of PND devices with good initial customer response. Within OEM, we experienced strong growth of our infotainment business within the APAC and Middle East regions, and we delivered production release software for the new 2017 Mercedes E-class.

Additional Financial Information:

Total operating expenses in the quarter were $236 million, a 2% increase from the prior year. Research and development investment increased 2%, with growth primarily focused on aviation and active lifestyle products in fitness and outdoor. Advertising increased 16%, driven primarily by a year-over-year increase in fitness advertising to support wearables. Selling, general and administrative expense decreased by 3%, driven primarily by a decrease in year-over-year litigation related costs.

The effective tax rate in the first quarter of 2016 was 18.1% compared to an effective tax rate of 12.3% in the prior year. The increase in the effective tax rate is primarily due to projected income mix by jurisdiction compared to the prior year.

We continued to return cash to shareholders with our quarterly dividend of approximately $97 million and our share repurchase activity, which totaled approximately $20 million in the first quarter. We have $149 million remaining in the share repurchase program authorized through December 31, 2016, and expect to repurchase as business and market conditions warrant. We ended the quarter with cash and marketable securities of about $2.3 billion.

As announced in February, the Board will recommend to the shareholders for approval at the annual meeting to be held on June 10, 2016 a cash dividend in the total amount of $2.04 per share (subject to possible adjustment based on the total amount of the dividend in Swiss Francs) payable in quarterly installments.

2016 Guidance:

We are maintaining the guidance issued in February of approximately $2.82 billion of revenue and approximately $2.25 of pro forma EPS as our performance thus far is consistent with our expectations.

Webcast Information/Forward-Looking Statements:

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

Wednesday, April 27, 2016 at 10:30 a.m. Eastern

Where:

http://www.garmin.com/en-US/company/investors/events/

Simply log on to the web at the address above or call to listen in at 855-757-3897

An archive of the live webcast will be available until June 23, 2016 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 that are commonly identified by words such as “would,” “may,” “expects,” “estimates,” “plans,” “intends,” “projects,” and other words or phrases with similar meanings. Any statements regarding the Company’s GAAP and pro forma estimated earnings, EPS and revenue for fiscal 2016, the Company’s expected segment revenue growth rates, margins, currency movements, expenses, pricing, new products to be introduced in 2016 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 and uncertainties 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 26, 2015 filed by Garmin with the Securities and Exchange Commission (Commission file number 0-31983). A copy of Garmin’s 2015 Form 10-K can be downloaded from

http://www.garmin.com/aboutGarmin/invRelations/finReports.ht...

Garmin, the Garmin logo, the Garmin delta, Approach, GPSMap, vívoactive, vívofit and fēnix

are trademarks of Garmin Ltd. or its subsidiaries and are registered in one or more countries, including the U.S.; Garmin Drive, Garmin Elevate, and TruSwing are trademarks of, or exclusively licensed to, 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.

Investor Relations Contact:

Media Relations Contact:

Teri Seck

Ted Gartner

913/397-8200

investor.relations@garmin.com

media.relations@garmin.com

Garmin Ltd. And Subsidiaries

Condensed Consolidated Statements of Income (Unaudited)

(In thousands, except per share information)

Cost of goods sold

284,190

241,272

339,850

344,122

Advertising expense

32,233

27,672

95,610

98,750

Research and development expense

108,204

106,002

236,047

232,424

Operating income

103,803

111,698

Other income (expense):

Interest income

Foreign currency (losses)

(4,839

(44,264

Total other income (expense)

(35,502

Income before income taxes

107,547

76,196

Income tax provision

19,455

Net income

88,092

66,793

Net income per share:

Diluted

Weighted average common shares outstanding:

189,497

191,762

189,651

192,341

Condensed Consolidated Balance Sheets

Dec 26,

Assets

Current assets:

Cash and cash equivalents

857,679

833,070

Marketable securities

198,147

215,161

Accounts receivable, net

408,283

531,481

Inventories, net

517,767

500,554

Deferred costs

50,861

49,176

Prepaid expenses and other current assets

96,396

81,645

Total current assets

2,129,133

2,211,087

Property and equipment, net

448,967

446,089

1,279,799

1,343,387

Restricted cash

Noncurrent deferred income tax

117,467

116,518

Noncurrent deferred costs

39,663

38,769

Intangible assets, net

306,303

245,552

Other assets

88,731

97,730

Total assets

4,410,324

4,499,391

Liabilities and Stockholders' Equity

Current liabilities:

Accounts payable

137,162

178,905

Salaries and benefits payable

75,862

70,601

Accrued warranty costs

31,407

30,449

Accrued sales program costs

49,236

67,613

Deferred revenue

154,965

164,982

Accrued royalty costs

25,737

30,310

Accrued advertising expense

20,185

33,547

Other accrued expenses

75,217

74,926

Income taxes payable

14,524

21,674

Dividend payable

96,425

192,991

Total current liabilities

680,720

865,998

Deferred income taxes

60,915

56,210

Non-current income taxes

103,035

101,689

Non-current deferred revenue

126,731

128,731

Other liabilities

Stockholders' equity:

Shares, CHF 10 par value, 208,077 shares authorized and issued;

189,193 shares outstanding at March 26, 2016 and 189,722 shares outstanding at December 26, 2015

1,797,435

Additional paid-in capital

70,413

62,239

Treasury stock

(434,346

(414,637

Retained earnings

2,018,609

1,930,517

Accumulated other comprehensive income

(14,864

(30,428

Total stockholders' equity

3,437,247

3,345,126

Total liabilities and stockholders' equity

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

Operating Activities:

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation

13,078

12,280

Amortization

Loss on sale or disposal of property and equipment

Provision for doubtful accounts

(1,080

(3,647

Unrealized foreign currency (gain) loss

(5,412

47,877

Provision for obsolete and slow moving inventories

Stock compensation expense

Realized gain on marketable securities

Changes in operating assets and liabilities:

130,036

129,448

(18,873

(56,897

Other current and non-current assets

(3,937

(11,537

(45,515

(25,957

Other current and non-current liabilities

(31,606

(73,408

(12,337

(29,870

(2,496

(8,733

Net cash provided by operating activities

129,387

81,655

Investing activities:

Purchases of property and equipment

(13,908

(18,143

Proceeds from sale of property and equipment

Purchase of intangible assets

(1,716

Purchase of marketable securities

(151,070

(254,741

Redemption of marketable securities

237,464

308,751

Change in restricted cash

Acquisitions, net of cash acquired

(62,137

(12,632

Net cash provided by investing activities

23,177

Financing activities:

Dividends paid

(96,566

(91,964

Purchase of treasury stock under share repurchase plan

(19,796

(16,260

Purchase of treasury stock related to equity awards

Proceeds from issuance of treasury stock related to equity awards

Tax benefit from issuance of equity awards

Net cash used in financing activities

(116,273

(107,668

Effect of exchange rate changes on cash and cash equivalents

(22,044

Net increase (decrease) in cash and cash equivalents

24,609

(24,880

Cash and cash equivalents at beginning of period

1,196,268

Cash and cash equivalents at end of period

1,171,388

Net Sales, Gross Profit, and Operating Income by Segment (Unaudited)

Reporting Segments

13-Weeks Ended March 26, 2016

58,932

72,294

44,149

86,144

78,331

27,885

16,573

10,293

18,566

30,486

13-Weeks Ended March 28, 2015

49,064

83,075

35,513

104,959

71,511

23,770

34,638

22,544

26,180

(3) Action camera related operating results for the 13-weeks ended March 28, 2015 have been recast from the Outdoor segment to the Auto segment to conform to the current year presentation.

Net Sales by Geography (Unaudited)

Americas

317,957

305,261

225,728

208,351

80,355

71,782

EMEA - Europe, Middle East and Africa; APAC - Asia Pacific

Non-GAAP Financial Information

Pro Forma net income (earnings) per share

Management believes that net income per share before the impact of foreign currency translation gain or loss and income tax adjustments that materially impact the effective tax rate, as discussed below, is an important measure. The majority of the Company’s consolidated foreign currency gain or loss result from balances involving the Euro and the Taiwan Dollar and from the exchange rate impact of the significant cash and marketable securities, receivables and payables held in a currency other than the functional currency at one of the Company’s subsidiaries. However, there is minimal cash impact from such foreign currency gain or loss. The Company’s income tax expense is periodically impacted by material net releases of reserves primarily related to completion of audits and/or the expiration of statutes effecting prior periods. Thus, reported income tax expense is not reflective of the income tax expense that is incurred related to the current period earnings.

The net release of other uncertain tax position reserves, amounting to approximately $3.8 million and $5.3 million in first quarter 2016 and 2015, respectively, have not been included as pro forma adjustments in the following presentation of pro forma net income as such amounts have been considered immaterial, tend to be more recurring in nature and are comparable between periods. Accordingly, earnings per share before the impact of foreign currency translation gain or loss and income tax adjustments that materially impact the effective tax rate permits a consistent comparison of the Company’s operating performance between periods.

Net income per share (Pro Forma)

(in thousands, except per share information)

Net Income (GAAP)

Foreign currency loss, net of tax effects

38,801

Net income (Pro Forma)

92,055

105,594

Net income per share (GAAP):

Net income per share (Pro Forma):

Diluted (GAAP)

Free cash flow

Management believes that free cash flow is an important financial measure because it represents the amount of cash provided by operations that is available for investing and defines it as operating cash flow less capital expenditures for property and equipment.

Free Cash Flow

(in thousands)

Less: purchases of property and equipment

115,479

63,512

The above information was disclosed in a filing to the SEC. To see the filing, click here.

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Other recent filings from the company include the following:

Garmin Ltd. releases salary data. CEO sees compensation rise 14% - April 25, 2016
Other preliminary proxy statements - April 14, 2016