Garmin reports Q3 revenue and EPS growth; raises guidance

Garmin Ltd. (Nasdaq: GRMN – News) announced Wednesday results for the third quarter ended Sep. 24, 2016.

Highlights for the third quarter 2016 include:

• Total revenue of $722 million, growing 6 percent over the prior year, with fitness, outdoor, marine and aviation collectively growing 24 percent over the prior year quarter and contributing 70 percent of total revenue;
• Gross margin expanded to 56.2 percent compared to 53.3 percent in the prior year quarter, and operating margin expanded to 22.1 percent compared to 18.5 percent in the prior year quarter;
• GAAP EPS was $0.66, a 5 percent improvement over the prior year quarter, and pro forma EPS(1) was $0.75, a 47 percent improvement over the prior year quarter; and
• Launched new product categories with the vívofit jr., our first wearable and companion mobile application designed for kids, and the fēnix Chronos, a luxury activity watch crafted with premium materials.

“Our strong year continued in the third quarter of 2016, reporting solid results with four of our five business segments delivering double digit sales growth and increased profitability,” said Cliff Pemble, president and chief executive officer (CEO) of Garmin Ltd. “We are excited to see the continued positive customer reception of our fitness and outdoor wearables. Aviation and marine also achieved impressive double-digit growth on strong product offerings. We are maintaining our focus on innovation, diversification and market expansion to drive further growth opportunities in all business segments.”

The marine segment posted solid third quarter revenue growth of 12 percent, driven by Garmin’s lineup of chart plotters, fish finders and entertainment systems. Gross margin increased year-over-year to 57 percent, while operating margin improved to 15 percent resulting in operating income growth of 80 percent. For the second year in a row, the National Marine Electronics Association (NMEA) recognized Garmin Garmin as the Manufacturer of the Year. The company won awards across a broad range of product categories. Garmin also received the IBEX award in the OEM Electronics category with its FantomTM marine radar series.

Total operating expenses in the quarter were $246 million, a 4 percent increase from the prior year. Research and development investment increased 10 percent, with growth primarily focused on aviation and active lifestyle products in fitness and outdoor. Advertising decreased 11 percent, driven primarily by year-over-year decreases in auto. Selling, general and administrative expense increased 3 percent, but improved as a percent of sales.

The effective tax rate in the third quarter of 2016 was 16.5 percent, down from 27.6 percent in the prior year quarter. The decrease in the effective tax rate is primarily due to projected income mix by jurisdiction compared to the prior year.

In the third quarter 2016, Garmin generated $199 million of free cash flow. The company continued to return cash to shareholders with its quarterly dividend of approximately $96 million and its share repurchase activity, which totaled approximately $20 million in the third quarter. Garmin has approximately $103 million remaining in the share repurchase program authorized through Dec. 31, 2016, and expects to repurchase as business and market conditions warrant. The company ended the quarter with cash and marketable securities of approximately $2.4 billion.

Based on Garmin’s performance in the first three quarters of 2016, the company is updating our full year guidance. The company now anticipates revenue of approximately $2.95 billion, driven primarily by a stronger outlook for all of its segments, except auto. Garmin anticipates its full-year pro forma EPS will be approximately $2.65 based on gross margin of approximately 55 percent, operating income of approximately $580 million and a full year effective tax rate of approximately 18.5 percent.

“Given the strong revenue and margin performance in the third quarter, we are raising our revenue and EPS guidance for the full year,” said Pemble.

An archive of the live webcast Garmin hosted on Wednesday, Oct. 26 will be available until Dec. 29, 2016 on the Garmin website at www.garmin.com. To access the replay, click on the Investor Relations link and click over to the Events Calendar page.