“2016 was a remarkable year of growth driven by strong sales in our outdoor, fitness, marine, and aviation segments,” said Cliff Pemble, president and Chief Executive Officer of Garmin Ltd. “Entering 2017, we see additional growth opportunities ahead and we are well positioned to seize these opportunities with a strong lineup of great products.”
Outdoor:
The outdoor segment grew 46% in the quarter with significant contributions from wearable devices combined with growth in all other product categories and the contribution of DeLorme products. Gross margin remained strong at 61% while operating margin was relatively flat at 33%, resulting in 42% operating income growth. We recently announced our fēnix® 5 series with three different designs all featuring Garmin Elevate™ wrist heart rate technology and our QuickFit™ band replacement system: the fēnix 5S is perfect for smaller wrists without sacrificing multisport functionality, the fēnix 5X includes preloaded wrist-based mapping, and the compact fēnix 5 is feature-packed with an all-new industrial design. We expect outdoor to continue to be a growth segment in 2017 as we leverage opportunities in wearables and other product categories in the segment.
Fitness:
The fitness segment posted strong revenue growth of 20% in the quarter driven by wearables with Garmin Elevate™ wrist heart rate technology. Gross margin increased year-over-year to 52% with operating margin of 17%, resulting in a 15% growth in operating income. The recently launched vívofit jr. was well received by retailers and customers during the holiday quarter and we see additional growth potential for wearables designed specifically for children. We believe fitness will be our largest revenue contributor in 2017, and enter the year confident in our product lineup.
Marine:
The marine segment posted strong fourth quarter revenue growth of 19% driven by our solid lineup of chart plotters and fish finders. Gross margin decreased year-over-year to 52% due to product mix, while operating margin improved to 4%. In the quarter, we introduced new touchscreen and keyed chartplotter combo offerings in our popular GPSMAP® product line, many with built-in sonar, and new radar and entertainment offerings. We expect marine to continue to be a growth segment in 2017 as we focus on market share gains and new product innovations.
Aviation:
The aviation segment posted solid revenue growth of 13% in the quarter with growth contributions from both OEM and aftermarket. Gross and operating margins were 77% and 28%, respectively. During the quarter, we received FAA installation approval for our helicopter ADS-B offerings, supported Cirrus in the certification and initial deliveries of the SF 50 light jet, and Textron Airland announced our selection as the avionics provider for the Scorpion light attack aircraft. We continue to invest in upcoming certifications with our numerous OEM partners, as well as ongoing opportunities for long-term market share gains.
Auto:
The auto segment recorded revenue decline of 17% in the quarter, primarily due to the ongoing PND market contraction. Gross margin remained constant at 42%, while operating margin declined year-over-year to 9%. At the recent CES show we announced our next generation Drive series PNDs, which offer expanded safety and driver awareness features and WIFI capability that enhances the process of updating maps and other content stored on the device. During the quarter, we were chosen as a Tier 1 infotainment hardware supplier for BMW affirming recent investments in our OEM program.
Additional Financial Information:
Total operating expenses in the quarter were $311 million, a 16% increase from the prior year. Advertising increased 19%, driven by year-over-year increases in the fitness and outdoor segments to support wearables. Research and development and selling, general and administrative expenses increased 22% and 9%, respectively, due primarily to recent acquisitions and an additional week in our fourth quarter 2016.
The effective tax rate in the fourth quarter of 2016 was 19.0%, an increase from 13.2% in the prior year quarter. The year-over-year increase in the fourth quarter 2016 tax rate is primarily due to the recording of a full year of the U.S. research and development tax credit in the fourth quarter of 2015 versus being spread over four quarters in 2016.
In the fourth quarter of 2016, we generated $165 million of free cash flow (see attached table for reconciliation of this non-GAAP measure). We continued to return cash to shareholders through dividends and share repurchases. As a result of the additional week in the fourth quarter 2016, two quarterly dividends were recorded totaling approximately $192 million and we repurchased approximately $28 million of Company stock. We have approximately $75 million remaining in the share repurchase program which was extended through December 31, 2017, and expect to repurchase Company stock as business and market conditions warrant. We ended the quarter with cash and marketable securities of approximately $2.3 billion.
2017 Guidance:
