Garmin Reports First Quarter 2009 Results

Our aviation and marine segments also struggled in the quarter as both industries face significant challenges in 2009. In the aviation segment, we will focus on stabilizing our sales and margins in this business and continuing to gain market share through certification of our G1000 and penetration of the G600 as a retrofit solution. On the marine front, we did see a sequential increase as the marine season approaches but this seasonal increase was not at a level experienced in the past. We continue to gain market share as an OEM partner but these gains are not enough to offset the industry-wide declines. Again, we will focus our efforts on gaining market share and bringing to bear the most innovative products in both of these segments so we are well-positioned for growth when the industries begin to recover.

The outdoor/fitness segment posted growth of 13% in the quarter driven by the ongoing channel penetration and market share gains of our fitness products. We continue to build on the strength of our brand in this category and a growing base of loyal customers and are planning exciting new product introductions in the second quarter.

As we turn to the second quarter, we have an array of new portable navigation and outdoor/fitness devices becoming available, including:

  • The nüvi® 1200 and 1300 series, as well as the 1490T, which offer a new ultra-thin design and pedestrian navigation enabled through optional CityXplorer™ maps
  • The Approach™, Garmin’s first branded handheld designed specifically for the golfer targets a new segment of sports enthusiasts
  • The Forerunner® 405CX, which offers increased accuracy in heart rate-based calorie computation and improved comfort as requested by our loyal customers
  • The Forerunner® 310XT designed with the triathlete in mind, a waterproof multi-sport solution with improved design and usability

We expect that these products, along with further steps to reduce costs, will help us to see improvement to our profitability levels in the second quarter. As always, we remain committed to taking appropriate steps to reduce costs while maintaining our aggressive approach to the development of new products and technology.”

Financial overview from Kevin Rauckman, Chief Financial Officer:

“Our financial results for the first quarter clearly reflect the difficult end markets we are facing but we remain focused on generating improved results from the top line to the bottom line over the remainder of 2009,” said Kevin Rauckman, chief financial officer of Garmin Ltd. “Our revenue and earnings per share during the first quarter fell 34% and 64% respectively. Revenue in the outdoor/fitness segment increased 13% over first quarter of 2008 and was the only segment to post revenue growth compared to the prior year. Auto/mobile, aviation and marine segment revenues declined 43%, 31% and 32%, respectively.

Gross margin for the overall business remained stronger than we had anticipated at 45% as the lower margin auto/mobile segment contributed less revenue in the quarter. The auto/mobile segment margin fell to 32% when compared to 43% in the first quarter of 2008, as the average selling price was negatively impacted by price protection credits offered to our retail partners and significant channel inventory reductions. This was offset by increasing gross margins in our aviation, outdoor/fitness and marine segments due to improved product mix and steady pricing. Outdoor/fitness margins improved most dramatically to 61% in first quarter compared to 53% in the year-ago quarter, while aviation improved 500 basis points to 69%.

Operating margin for the overall business declined 12.7% when compared with the year-ago quarter to 13.3% driven largely by the decreased revenues in our auto/mobile segment in the first quarter of 2009. Total operating expenses decreased $56 million on a sequential basis. We reduced advertising expense by almost 40% and held other selling, general and administrative costs flat when compared to the year-ago quarter which was beneficial but it could not offset the steep decline in revenues. We will continue to evaluate our expenses closely in these categories and will take further actions as needed. Research and development costs increased by $5 million or 11% when compared to the year-ago quarter. This is a result of our continued commitment to product innovation and long-term growth strategies. Operating margins declined in all segments excluding outdoor/fitness where we continue to experience growth. We believe that this marks the low point for operating margins and with increased sales volumes during the remainder of the year, profitability levels will improve.

We maintained our strong cash flow generation and cash position. We generated $286 million of free cash flow in the first quarter of 2009, resulting in a cash and marketable securities balance of $1.2 billion at the end of the quarter. This strong cash flow generation is attributable to ongoing balance sheet improvements in both accounts receivable and inventories.”

Non-GAAP Measures

Net income (earnings) per share, excluding foreign currency

Management believes that net income per share before the impact of foreign currency translation gain or loss is an important measure. The majority of the Company’s consolidated foreign currency translation gain or loss results from translations involving the Euro, the British Pound Sterling and the Taiwan Dollar at the end of each reporting period of the significant cash and marketable securities, receivables and payables held in U.S. dollars by the various subsidiaries. Such translation is required under GAAP because the functional currency of the subsidiaries differs from the currency in which various assets and liabilities are hold. However, there is minimal cash impact from such foreign currency translation. Accordingly, earnings per share before the impact of foreign currency translation gain or loss allow an assessment of the Company’s operating performance before the non-cash impact of the position of the U.S. Dollar versus other currencies, which permits a consistent comparison of results between periods.

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