Garmin Reports Strong Revenue & Pro Forma EPS Growth in Third Quarter 2014

In the third quarter, we generated $202 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 $92 million and our share repurchase activity which totaled $79 million in the current quarter. We have now fully executed the $300 million share repurchase plan and have returned approximately 100% of our forecasted 2014 free cash flow to shareholders via the dividend and share repurchase. As we have done in recent years, we will reassess our capital return strategy in conjunction with our 2015 guidance in February 2015. We currently have almost $2.8 billion of cash and marketable securities allowing us a significant level of flexibility to utilize our balance sheet to continue to generate long-term shareholder value.

2014 Guidance:

Due to our continued strong results in the third quarter, we are revising our guidance to reflect our outlook for the remainder of the year. We now anticipate revenues of approximately $2.85 billion, the high end of our prior guidance, with gross and operating margins of 56% and 24%, respectively. Given the full year effective tax rate of 17%, we forecast pro forma EPS of approximately $3.10. As indicated last quarter, our guidance anticipates promotional pricing for the holiday season, as well as higher spending in marketing and advertising to support new product categories, resulting in slightly lower margins in the fourth quarter.

Webcast Information/Forward-Looking Statements:

The information for Garmin Ltd.’s earnings call is as follows:

  When:   Wednesday, October 29, 2014 at 10:30 a.m. Eastern
Where:

http://www.garmin.com/aboutGarmin/invRelations/irCalendar.html

How: Simply log on to the web at the address above or call to listen in at 888-312-9865
 

An archive of the live webcast will be available until December 24, 2014 on the Garmin website at www.garmin.com. To access the replay, click on the Investor Relations link and click over to the Events Calendar page.

This release includes projections and other forward-looking statements regarding Garmin Ltd. and its business. Any statements regarding the Company’s estimated earnings and revenue for fiscal 2014, the Company’s expected segment revenue growth rate, margins, new products to be introduced in 2014 and the Company’s plans and objectives are forward-looking statements. The forward-looking events and circumstances discussed in this release may not occur and actual results could differ materially as a result of risk factors affecting Garmin, including, but not limited to, the risk factors that are described in the Annual Report on Form 10-K for the year ended December 28, 2013 filed by Garmin with the Securities and Exchange Commission (Commission file number 0-31983). A copy of Garmin’s 2013 Form 10-K can be downloaded from http://www.garmin.com/aboutGarmin/invRelations/finReports.html.

Garmin, Approach, Alpha, VIRB, Forerunner and Fusion are registered trademarks and fēnix, vívosmart, and Connect IQ are trademarks of Garmin Ltd. or its subsidiaries. All other brands, product names, company names, trademarks and service marks are the properties of their respective owners. All rights reserved.

 
Garmin Ltd. And Subsidiaries
Condensed Consolidated Statements of Income (Unaudited)
(In thousands, except per share information)
       
13-Weeks Ended 39-Weeks Ended
Sept 27, Sept 28, Sept 27, Sept 28,
  2014     2013     2014     2013
Net sales $ 706,283 $ 643,637 $ 2,067,352 $ 1,872,156
 
Cost of goods sold   308,037     290,748     893,788     859,494
 
Gross profit 398,246 352,889 1,173,564 1,012,662
 
Advertising expense 33,112 26,251 92,457 77,983
Selling, general and administrative expense 90,632 86,462 272,914 260,769
Research and development expense   98,998     88,427     293,567     272,349
Total operating expense   222,742     201,140     658,938     611,101
 
Operating income 175,504 151,749 514,626 401,561
 
Other income (expense):
Interest income 9,344 8,435 28,781 25,512
Foreign currency gains (losses) (12,703 ) (822 ) (20,266 ) 18,280
Other   517     1,438     707     3,666
Total other income (expense)   (2,842 )   9,051     9,222     47,458
 
Income before income taxes 172,662 160,800 523,848 449,019
 
Income tax provision (benefit)   319,496     (26,869 )   369,882     192
 
Net income (loss)   ($146,834 ) $ 187,669   $ 153,966   $ 448,827
 
Net income (loss) per share:
Basic ($0.76 ) $ 0.96 $ 0.79 $ 2.30
Diluted ($0.76 ) $ 0.96 $ 0.79 $ 2.29
 
Weighted average common
shares outstanding:
Basic 192,239 195,325 193,700 195,488
Diluted 192,239 196,300 194,763 196,312
 
 
Dividends declared per share $ 1.92 $ 1.80
 
Garmin Ltd. And Subsidiaries    
Condensed Consolidated Balance Sheets
(In thousands)
     
(Unaudited)
Sept 27, December 28,
  2014       2013  
Assets
Current assets:
Cash and cash equivalents $ 1,154,558 $ 1,179,149
Marketable securities 151,366 149,862
Accounts receivable, net 478,722 564,586
Inventories, net 466,482 382,226
Deferred income taxes 59,186 69,823
Deferred costs 52,113 57,368
Loan receivable - 137,379
Prepaid expenses and other current assets   59,058     55,243  
Total current assets 2,421,485 2,595,636
 
Property and equipment, net 431,753 414,848
 
Marketable securities 1,453,047 1,502,106
Restricted cash 293 249
Noncurrent deferred income tax 84,345 88,324
Noncurrent deferred costs 35,272 41,157
Other intangible assets, net 221,566 219,494
Other assets   21,603     17,789  
Total assets $ 4,669,364   $ 4,879,603  
 
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 144,882 $ 146,582
Salaries and benefits payable 67,496 59,794
Accrued warranty costs 26,543 26,767
Accrued sales program costs 38,699 50,903
Deferred revenue 210,621 256,908
Accrued royalty costs 52,558 64,538
Accrued advertising expense 23,480 19,448
Other accrued expenses 77,157 65,657
Deferred income taxes 6,823 989
Income taxes payable 197,846 38,043
Dividend payable   277,378     175,675  
Total current liabilities 1,123,483 905,304
 
Deferred income taxes 36,073 1,758
Non-current income taxes 135,911 140,933
Non-current deferred revenue 136,025 171,012
Other liabilities 1,459 890
 
Stockholders' equity:
Shares, CHF 10 par value, 208,077 shares authorized and issued;
191,227 shares outstanding at September 27, 2014
and 195,150 shares outstanding at December 28, 2013 1,797,435 1,797,435
Additional paid-in capital 92,144 79,263
Treasury stock (350,063 ) (120,620 )
Retained earnings 1,649,727 1,865,587
Accumulated other comprehensive income   47,170     38,041  
Total stockholders' equity   3,236,413     3,659,706  
Total liabilities and stockholders' equity $ 4,669,364   $ 4,879,603  
 
Garmin Ltd. And Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
    39-Weeks Ended
Sept 27,   Sept 28,
  2014     2013  
Operating Activities:
Net income $ 153,966 $ 448,827
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 35,860 36,840
Amortization 19,705 23,629
(Gain) loss on sale of property and equipment (742 ) 41
Provision for doubtful accounts 778 1,023
Deferred income taxes 55,235 2,851
Unrealized foreign currency loss (gain) 22,610 (17,273 )
Provision for obsolete and slow moving inventories 21,051 15,965
Stock compensation expense 18,988 15,608
Realized loss (gain) on marketable securities 685 (2,963 )
Changes in operating assets and liabilities:
Accounts receivable 74,323 128,098
Inventories (107,273 ) (44,337 )
Other current and non-current assets 1,528 (18,329 )
Accounts payable (3,209 ) 21,936
Other current and non-current liabilities (1,997 ) (60,719 )
Deferred revenue (80,712 ) (22,613 )
Deferred cost 11,136 (57 )
Income taxes payable   155,762     (48,256 )
Net cash provided by operating activities 377,694 480,271
 
Investing activities:
Purchases of property and equipment (54,829 ) (41,325 )
Proceeds from sale of property and equipment 748 65
Purchase of intangible assets (9,422 ) (1,574 )
Purchase of marketable securities (746,305 ) (716,226 )
Redemption of marketable securities 807,778 578,464
Proceeds from repayment (advances) on loan receivable 137,379 (173,708 )
Change in restricted cash (44 ) 584
Acquisitions, net of cash acquired   (18,871 )   (5,686 )
Net cash provided by (used in) investing activities 116,434 (359,406 )
 
Financing activities:
Dividends paid (268,023 ) (263,857 )
Purchase of treasury stock under share repurchase plan (241,460 ) (26,926 )
Purchase of treasury stock related to equity awards (11,274 ) (7,430 )
Proceeds from issuance of treasury stock related to equity awards 12,761 13,620
Tax benefit from issuance of equity awards   4,422     411  
Net cash used in financing activities (503,574 ) (284,182 )
 
Effect of exchange rate changes on cash and cash equivalents (15,145 ) 837
   
Net decrease in cash and cash equivalents (24,591 ) (162,480 )
Cash and cash equivalents at beginning of period   1,179,149     1,231,180  
Cash and cash equivalents at end of period $ 1,154,558   $ 1,068,700  
 
Garmin Ltd. And Subsidiaries
Revenue, Gross Profit, and Operating Income by Segment (Unaudited)
           
Reporting Segments
Auto/
Outdoor Fitness Marine Mobile Aviation Total
 
13-Weeks Ended Sep 27, 2014
 
Net sales $ 121,079 $ 116,171 $ 62,128 $ 307,558 $ 99,347 $ 706,283
Gross profit $ 79,227 $ 74,056 $ 31,510 $ 140,995 $ 72,458 $ 398,246
Operating income $ 51,382 $ 36,670 $ 5,452 $ 53,042 $ 28,958 $ 175,504
 
13-Weeks Ended Sep 28, 2013
 
Net sales $ 101,350 $ 81,007 $ 55,301 $ 322,520 $ 83,459 $ 643,637
Gross profit $ 69,471 $ 49,328 $ 27,265 $ 147,866 $ 58,959 $ 352,889
Operating income $ 44,107 $ 26,493 $ 4,118 $ 53,848 $ 23,183 $ 151,749
                         
 
39-Weeks Ended Sep 27, 2014
 
Net sales $ 311,123 $ 367,137 $ 195,911 $ 900,545 $ 292,636 $ 2,067,352
Gross profit $ 194,805 $ 236,204 $ 105,097 $ 422,379 215,079 $ 1,173,564
Operating income $ 110,345 $ 133,054 $ 26,919 $ 158,248 $ 86,060 $ 514,626
 
39-Weeks Ended Sep 28, 2013
 
Net sales $ 284,372 $ 237,660 $ 178,344 $ 919,810 $ 251,970 $ 1,872,156
Gross profit $ 184,333 $ 149,368 $ 91,550 $ 410,348 $ 177,063 $ 1,012,662
Operating income $ 110,538 $ 76,026 $ 16,089 $ 134,324 $ 64,584 $ 401,561
 
Garmin Ltd. And Subsidiaries
Revenue by Geography (Unaudited)
           
13-Weeks Ended 39-Weeks Ended
Sep 27, Sep 28, Yr over Yr Sep 27, Sep 28, Yr over Yr
2014   2013   Change   2014   2013   Change
Net sales $ 706,283 $ 643,637 10% $ 2,067,352 $ 1,872,156 10%
Americas 374,111 333,448 12% 1,090,267 1,002,796 9%
EMEA 260,830 245,659 6% 781,860 692,836 13%
APAC 71,342 64,530 11% 195,225 176,524 11%
 
EMEA - Europe, Middle East and Africa; APAC - Asia Pacific
 

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