Garmin Ltd. (Nasdaq: GRMN ‐ news) today announced strong fourth quarter results including revenue and earnings per share growth for the period ended December 26, 2009.
Fourth Quarter 2009 Financial highlights:
• Total revenue of $1.059 billion, up 1% from $1.048 billion in fourth quarter 2008
• Automotive/Mobile segment revenue decreased 2% to $812 million
• Outdoor/Fitness segment revenue increased 24% to $149 million
• Aviation segment revenue decreased 4% to $64 million
• Marine segment revenue increased 2% to $34 million
• North America and Asia experienced year‐over‐year revenue growth while Europe declined slightly:
• North America revenue was $768 million compared to $761 million, up 1%
• Europe revenue was $246 million compared to $251 million, down 2%
• Asia revenue was $45 million compared to $36 million, up 25%
• Gross margin improved to 45.9% compared to 41.1% in fourth quarter 2008
• Operating margin improved to 27.6% compared to 22.6% in fourth quarter 2008
• Diluted earnings per share increased 77% to $1.38 from $0.78 in fourth quarter 2008; pro forma earnings per share increased 54% to $1.43 from $0.93 in the same quarter in 2008. (Pro forma earnings per share excludes the impact of foreign currency translation gain or loss.)
• Generated $232 million of free cash flow in fourth quarter 2009 and paid the 2009 annual dividend of $0.75 per share for a cash and marketable securities balance of just under $1.9 billion.
Fiscal Year 2009 Financial highlights:
• Total revenue of $2.95 billion, down 16% from $3.49 billion in 2008
• Automotive/Mobile segment revenue decreased 19% to $2.05 billion
• Outdoor/Fitness segment revenue increased 10% to $469 million
• Aviation segment revenue decreased 24% to $246 million
• Marine segment revenue decreased 13% to $177 million
• North America and Europe experienced a slowdown in revenues:
• North America revenue was $1.97 billion compared to $2.34 billion, down 16%
• Europe revenue was $824 million compared to $1.01 billion, down 18%
• Asia revenue was $150 million compared to $145 million, up 3%
• Gross margin improved to 49.0% compared to 44.5% in 2008
• Operating margin improved to 26.7% from 24.7% in 2008
• Diluted earnings per share increased 1% to $3.50 from $3.48 in fiscal year 2008; pro forma EPS increased 3% to $3.53 from $3.42 in fiscal year 2008. (Pro forma earnings per share excludes the impact of foreign currency translation gain or loss and the 2008 gain on sale of TeleAtlas N.V. shares.)
• Generated over $1 billion of free cash flow in 2009.
Business highlights:
• Achieved full year earnings per share growth driven by outstanding operational execution allowing for gross margin and operating margin expansion of 450 and 200 basis points respectively, as well as a lower effective tax rate.
• Sold 6.6 million units in the fourth quarter of 2009 driven by PND unit growth in both North America and Asia.
• Reported 49% sequential revenue growth in the automotive/mobile segment as the PND category continued to be popular with consumers during the holiday season.
• Continued to be the world‐wide PND market share leader with independent market share research indicating that we have expanded our leadership position in the North American PND market to approximately 60% share. We maintained a PND market share of approximately 20% in Europe.
• Accelerated revenue growth in the outdoor/fitness segment as our fitness products proved to be a hot category in the fourth quarter.
• Continued to innovate across our product portfolio with enhanced offerings for motorcycle enthusiasts, mariners and golfers to further our competitive position in each of these markets.
• Received supplemental type certification from the Federal Aviation Administration on our GTS traffic series which represents a new product category for our aviation business and an opportunity for revenue growth.
• Introduced two next generation smartphone products recently at Mobile World Congress in Barcelona to be available in 2nd quarter.
Executive overview from Dr. Min Kao, Chairman and Chief Executive Officer:
“We saw strengthening trends in both revenues and units during the fourth quarter and are pleased to deliver year‐over‐year revenue and earnings per share growth in the quarter. While revenues grew 1% year‐over‐year, our margin improvements allowed us to post 54% pro forma earnings per share growth. We are very pleased with these results and our execution in what is a traditionally tough quarter due to aggressive pricing.
Looking at the full year results, a significant highlight is the gross and operating margin expansion that was achieved in a period of declining revenues. Full year gross margins increased 450 basis points while operating margins increased 200 basis points. These results continue to demonstrate the agility of our vertically integrated organization and the determination of our associates to deliver the best possible results in spite of the challenging macroeconomic environment. We should also highlight the strong cash flow generation in 2009. The free cash flow generation of over $1 billion further strengthens our debt‐free balance sheet and offers us more flexibility than many of our competitors.

The automotive/mobile segment continued to show improvement in the fourth quarter with revenues declining 2% on a year-over-year basis driven by slowing price declines offset by unit growth in North America and Asia. Margins improved in the segment allowing for a 16% increase in operating income from $162.9 million in the fourth quarter of 2008 to $188.4 million in the fourth quarter of 2009. We recognize that this is a competitive, maturing market segment and are therefore predicting flat to slightly declining revenues for the PND category in 2010. Going forward we will focus our efforts on market share retention in the North American market, gaining market share in Europe through ongoing product innovation, and taking advantage of emerging markets in Eastern Europe, Asia, and Latin America. In addition, we will continue to concentrate on profitability in the segment as shown in our 2009 results. Finally, while disappointed by sales of the nuvifone products to date, we are excited to be launching two next generation smartphones in the first half of 2010 and feel these devices will be well‐positioned in this competitive market.
The outdoor/fitness segment continued to be strong, posting year-over-year revenue growth of 24% with exceptionally strong gross and operating margins. Because of the strong margin performance, the segment contributed 27% of our operating income in the quarter. We hope to build on the strength of the segment in 2010 by offering innovative new products with improved form factors, utility, and functionality, as well as additional points of distribution. Specifically in the fitness market, the growing international market offers ongoing opportunities for expanded distribution and penetration.
The aviation segment began to stabilize in the fourth quarter with a year-over-year revenue decline of 4%. Our retrofit business did show year-over-year improvement in the quarter but OEM recovery continues to lag overall macroeconomic improvements. In 2010, we plan to continue to expand our addressable market allowing us to grow revenues. One example is our recent product announcements targeting the helicopter market. We will also continue investing in advanced integrated cockpit systems which will enable us to serve additional aircraft categories in the future.
The marine segment posted fourth quarter revenue growth of 2% over the same quarter of last year. While the growth was small, we remain pleased with our relative performance against the overwhelming downturn experienced across the entire marine industry. As we look forward to 2010, we are excited to be offering the most innovative and advanced marine electronics. Our recently introduced 7-inch touchscreen chartplotters allow us to deliver technology to the entry-level boater that was previously reserved for the luxury market. Our new 6000 and 7000 series with G-Motion technology represents a breakthrough in marine mapping graphics and will appeal to larger boats and yachts. Throughout the coming year, we will continue to build our position in the segment through innovation and enhanced product utility.”

Financial overview from Kevin Rauckman, Chief Financial Officer:

“Our financial results for the fourth quarter highlight our commitment to a business plan focused on price discipline and profitability, which allowed us to deliver strong year‐over‐year earnings per share growth,” said Kevin Rauckman, Chief Financial Officer of Garmin Ltd. “As revenue stabilized on a year‐over‐year basis, we continued our strong operational performance and posted pro forma earnings per share growth of 54%.
Gross margin for the overall business in the fourth quarter was 46% with all segments posting yea-‐over-year margin improvement. The automotive/mobile segment gross margin improved to 39%, a 290 basis point improvement from the fourth quarter of 2008. Improvement was driven by moderation in year- over-year average selling price decline and continued benefit from material cost reductions offset by a reserve associated with handset inventory. Gross margins for the outdoor/fitness and marine segments also improved materially when compared with the year‐ago quarter from 56% to 69% and 52% to 65%, respectively. The gains were driven by product mix and material cost reductions.
Operating margin for the overall business increased to 28% in the current quarter from 23% in the year‐ago quarter. The operating margin improvement occurred in all segments, excluding aviation, driven by the gross margin improvements and improved revenue leverage in automotive/mobile and outdoor/fitness. Total operating expenses were up slightly on a year-over-year basis with growth in research and development offset by lower advertising and other selling, general and administrative costs. We reduced advertising expenses by $9 million, or 14%, while other selling, general and administrative expenses decreased by $12 million, or 15%. Research and development costs increased by $21 million, or 43%, when compared to the year-ago quarter as we continue to hire engineers to support our accelerated investment in new product initiatives.
We generated $232 million of free cash flow in the fourth quarter of 2009 and over $1 billion for the full year, resulting in a cash and marketable securities balance of just under $1.9 billion at the end of the quarter.”
Share Repurchase Program
On February 12, our board of directors authorized the Company to repurchase up to $300M of the company’s shares as market and business conditions warrant through December 31, 2011. The previous $300M share repurchase plan expired on December 31, 2009. The repurchases may be made from time to time on the open market at prevailing market prices or in negotiated transactions off the market. The Company continues to view the stock repurchase as an appropriate use of cash given the long‐term growth prospects of the Company, ongoing free cash flow generation and the need to maintain adequate cash reserves for strategic acquisitions.
2010 Guidance
20092010 Range
Revenue $2.9 B$2.9 - $3.1B
Gross Margin 49% 46-48%
Operating Income $786M $675 - $725 M
Operating Margin 27% 23% - 24%
Earnings per Share (Pro Forma)$3,53 $2,75 - $3,15
We expect revenue growth in 2010 in the range of 0 - 5% driven primarily by our outdoor/fitness, marine and aviation segments, as well as new revenue generated by the nüvifone and OEM opportunities. We anticipate both gross and operating margins to decline from the excellent margins generated in 2009 but at a much slower rate than had been earlier anticipated. The margin declines will be primarily driven by an ongoing price decline of approximately 10% in the PND industry and increasing research and development investment across our segments. These factors and an anticipated increase in the effective tax rate result in a forecasted 2010 earnings per share decline of 11-22% based on the strong results in 2009.