“We achieved record second quarter revenue and profits with three of our five segments delivering strong double-digit revenue growth rates,” said Cliff Pemble, president and chief executive officer of Garmin Ltd. “We are very pleased with the results we have delivered thus far, giving us the confidence to raise our full year 2019 revenue and EPS guidance.”
Aviation:
Revenue in the aviation segment grew 20% in the quarter with contributions from both the aftermarket and OEM categories. Gross and operating margins came in at 75% and 36%, respectively, resulting in 27% operating income growth. Aftermarket systems and ADS-B solutions contributed to our positive results and we continue to capitalize on ADS-B opportunities ahead of the December 31, 2019 mandate deadline. During the quarter, we achieved certification of the G5000® integrated flight deck for the Citation Excel and XLS, bringing modernization to this family of aircraft. We recently announced the availability of the G1000® NXi integrated flight deck retrofit for additional aircraft models and continue to see strong customer demand and appreciation for this upgrade program.
Marine:
Revenue from the marine segment grew 13% in the quarter, driven by strong demand for our chartplotters and PanoptixTM LiveScopeTM sonars. Gross and operating margins improved to 61% and 28%, respectively, resulting in strong operating income growth. Fusion®, a Garmin brand and worldwide leader in marine entertainment, was selected by Independent Boat Builders, Inc. to supply audio entertainment to their 19-member network. We recently announced our entry into the freshwater trolling motor market with Force. This quiet, powerful and efficient trolling motor has quickly earned accolades in the industry, winning the coveted Best of Show at the recent ICAST, sportfishing trade show.
Fitness:
Revenue from the fitness segment grew 12% in the quarter driven by strength in running and contributions from Tacx, our recent acquisition. Gross and operating margins were 54% and 20%, respectively. During the quarter we began shipping the Tacx cycling and accessory products, strengthening our cycling portfolio. Tacx® smart trainers provide a highly realistic ride simulation allowing riders to continue their training regardless of the weather conditions. We also launched our refreshed line of Forerunners, providing both smartwatch features and enhanced running dynamics for all runners.
Outdoor:
Revenue from the outdoor segment grew 4% in the quarter with growth driven by our golf and inReach® product offerings. Gross and operating margins remained strong at 64% and 34%, respectively. During the quarter, we began shipping the MARQTM luxury watch. In addition, we experienced strong demand for golf wearables and the InstinctTM adventure watch. We also refreshed several of our handheld offerings, including the new GPSMAP® 66i, combining Garmin’s GPS capability with inReach satellite communication capabilities.
Auto:
The auto segment declined 13% in the quarter, due to the ongoing PND market contraction. Gross and operating margins improved to 48% and 16%, respectively. During the quarter, we announced the Garmin OverlanderTM, an all terrain GPS navigator specifically designed to fit the needs of the growing overlanding community. We also announced the DriveSmartTM 65 with built-in Alexa personal assistant, bringing easy voice-controlled functionality to drivers, and the RV785, with a built-in dash cam to record and save video.
Additional Financial Information:
Total operating expenses in the quarter were $319 million, a 4% increase from the prior year. Research and development expenses increased 5%, primarily due to engineering personnel costs. Selling, general and administrative expenses increased 7% driven primarily by personnel related expenses and incremental costs associated with acquisitions. Advertising decreased 5%, driven primarily by lower expense in the Auto segment.
The effective tax rate in the second quarter of 2019 was 18.9% compared to 19.4% in the prior year quarter.
In the second quarter of 2019, we generated $80 million of free cash flow (see attached table for reconciliation of this non-GAAP measure). We continued to return cash to shareholders with our quarterly dividend of approximately $108 million. We ended the quarter with cash and marketable securities of approximately $2.4 billion.
2019 Guidance (2):
Based on our strong performance in the first half of 2019, we are updating our full year guidance. We now anticipate revenue of approximately $3.6 billion driven by higher expectations for our aviation, marine and auto segments. Our outlook for the fitness and outdoor segments is unchanged. We anticipate our full year pro forma EPS will be approximately $3.90 based on a gross margin of about 59.5%, operating margin of about 23.2% and an unchanged full year pro forma effective tax rate of about 16.5%.
2019 Guidance |
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Updated |
Prior |
|
| Revenue | ~$3.6B | ~$3.5B |
| Gross Margin | ~59.5% | ~59.5% |
| Operating Margin | ~23.2% | ~22.7% |
| Tax Rate | ~16.5% | ~16.5% |
| EPS | ~$3.90 | ~$3.70 |
| (2) See attached discussion on Forward-looking Financial Measures | ||
2019 Revenue Growth Estimates |
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Segment |
Updated |
Prior |
| Aviation | ~17% | ~10% |
| Fitness | ~13% | ~13% |
| Marine | ~12% | ~10% |
| Outdoor | ~10% | ~10% |
| Auto | ~(15%) | ~(18%) |
Webcast Information/Forward-Looking Statements:
The information for Garmin Ltd.’s earnings call is as follows:
When: |
Wednesday, July 31, 2019 at 10:30 a.m. Eastern |
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Where: |
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| How: |
Simply log on to the web at the address above or call to listen in at 855-757-3897 |
