Garmin Ltd. (Nasdaq: GRMN) has announced results for the fourth quarter and fiscal year ended Dec. 30, 2017.
“2017 was our second full year of sales and operating income growth driven by strong sales in our outdoor, aviation and marine segments,” said Cliff Pemble, president and chief executive officer of Garmin Ltd. “Entering 2018, we see additional growth opportunities ahead and we believe that we are well positioned to seize these opportunities with a strong lineup of products.”
The marine segment posted strong fourth quarter revenue growth of 24 percent driven by our updated lineup of chartplotters and fishfinders, as well as contributions from our recently acquired Navionics product line. Gross margin improved to 55 percent.
During the fourth quarter, we recorded a one-time accrual for a litigation settlement resulting in an operating loss in the marine segment of 13 percent. During the fourth quarter, we began shipping our new connected offerings in our popular ECHOMAP and STRIKER product lines enabling connectivity through our new ActiveCaptain mobile app.
We expect marine to be a growth segment in 2018 as we focus on market share gains and new product innovations.
Highlights for the fourth quarter 2017 include:
- Total revenue of $888 million, growing 3 percent over the prior year quarter, with outdoor, fitness, marine, and aviation collectively growing 9 percent over the prior year quarter, and contributing 78 percent of total revenue
- Gross margin improved to 56.2 percent compared to 54.7 precent in the prior year quarter
- Operating margin improved to 20.2 percent compared to 18.6 percent in the prior year quarter
- Operating income of $179 million, representing growth of 12 percent
- GAAP EPS was $0.73 for the fourth quarter, representing growth of 2 percent and pro forma EPS was $0.79 for fourth quarter 2017, representing growth of 9 percent
- Began shipping our updated marine ECHOMAPand STRIKER products bringing connectivity to the water
Highlights for the fiscal year 2017 include:
- Total revenue of $3,087 million, growing 2 percent over the prior year, with outdoor, fitness, marine, and aviation collectively growing 9 percent over the prior year, and contributing 76 percent of total revenue
- Gross and operating margins of 57.8 percent and 21.7 percent, respectively, both improving from 2016 levels
- Operating income of $669 million, representing 7 percent growth
- GAAP EPS was $3.68 and pro forma EPS was $2.94
- Shipped over 15 million units and over 188 million since inception
- Completed the acquisition of Navionics S.p.A., a privately-held worldwide provider of electronic navigational charts and mobile applications for the marine industry
Total operating expenses in the quarter were $320 million, a 3 percent increase from the prior year.
Research and development investment increased 3 percent, due to engineering personnel costs and the Navionics acquisition partially offset by the additional week of expense in 2016.
Selling, general and administrative expenses increased 13 percent, due primarily to litigation related costs and the Navionics acquisition.
The effective tax rate in the fourth quarter of 2017 was 23.1 percent. The pro forma effective tax rate in the fourth quarter of 2017 was 20.9, compared to an effective tax rate of 19 percent in the prior year quarter. The increase in the pro forma effective tax rate is primarily due to the company’s election to align certain Switzerland corporate tax positions with evolving international tax initiatives and the impact of the release of reserves partially offset by income mix by tax jurisdiction.
In the fourth quarter of 2017, we generated $144 million of free cash flow and returned cash to our shareholders with our quarterly dividend of $96 million. We ended the quarter with cash and marketable securities of approximately $2.3 billion.
We currently expect 2018 revenue of approximately $3.2 billion as growth in marine, outdoor and aviation is partially offset by ongoing declines in the PND market.
We currently expect our full year pro forma EPS will be approximately $3.05 based upon gross margin of approximately 58.5 percent, operating margin of approximately 21 percent and a full year pro forma effective tax rate of approximately 19 percent.