Garmin Lifts Outlook On Q3 Beat

Article From：SGB Media

 

 

Garmin, Ltd. raised its guidance for the year as third-quarter results topped expectations. Among segments, fitness sales grew 26 and Outdoor advanced 7 percent while Marine declined 7 percent.

 

Highlights for the third quarter 2023 include:

 

Consolidated revenue of $1.28 billion, a 12 increase compared to the prior year quarter and ahead of Wall Street’s consensus estimate of $1.21 billion.

Gross margin and operating margin were 57.0 percent and 21.2 percent.

Operating income was $270 million, a 13 increase compared to the prior year quarter

GAAP EPS of $1.34 and pro forma EPS of $1.41, representing 14 growth in pro forma EPS over the prior year quarter. Wall Street’s consensus estimate was $1.29. 

The raised outlook also reflects the acquisition of JL Audio.

 

Cliff Pemble, president and chief executive officer, said, “We delivered outstanding performance in the third quarter with double-digit percentage growth in revenue, operating income, and earnings. Looking ahead, we are well positioned for the holiday selling season with a strong lineup of innovative products which gives us confidence to raise our outlook for the remainder of the year.”

 

Segment performance includes:

 

Fitness: Revenue from the fitness segment grew 26 in the third quarter with growth across all categories led by strong demand for wearables. Gross and operating margins were 54 and 21, respectively, resulting in $75 million of operating income. During the quarter, Garmin introduced the Venu 3 smartwatch family in two sizes, and the Vívoactive 5 with AMOLED display. Garmin also announced the expansion of its ECG App to additional smartwatches. This FDA-cleared and “clinically validated” app lets customers record an ECG and check for signs of atrial fibrillation from the smartwatch.

Outdoor: Revenue from the outdoor segment grew 7 in the third quarter with growth across multiple categories led by adventure watches. Gross and operating margins were 62 and 31, respectively, resulting in $136 million of operating income. During the quarter, Garmin launched the Tactix 7 AMOLED Edition, which expands its offering of wearables with AMOLED displays. The smartwatch includes a night vision-compatible flashlight and up to 31 days of battery life. Garmin recently announced the MARQ Carbon collection featuring a watch case and bezel inlay machined from an engineered material called Fused Carbon Fiber.

Aviation: Revenue from the aviation segment grew 5 in the third quarter driven by growth in OEM product categories. Gross and operating margins were 75 and 25, respectively, resulting in $49 million of operating income. During the quarter, Garmin announced additional certifications for its GFC 500/600 autopilot for more aircraft models. Garmin announced a long-term agreement to provide G3000 integrated flight decks to BETA Technologies for its all-electric aircraft.

Marine: Revenue from the marine segment decreased 7 in the third quarter with declines across multiple categories partially offset by contributions from JL Audio. Gross and operating margins were 52 and 13, respectively, resulting in $24 million of operating income. During the quarter, Garmin launched the GPSMAP 9000 series in multiple sizes including the 27-inch GPSMAP 9227.

Auto OEM: Revenue from the auto OEM segment grew 59 during the third quarter primarily due to increased shipments of domain controllers. Gross margin was 21 and the operating loss narrowed to $14 million in the quarter. During the quarter, domain controller deliveries continued to ramp up across the BMW lineup. Garmin also experienced strong growth in the infotainment category with contributions from Yamaha Motorsports and Honda motorcycles.

Additional Financial Information

Total operating expenses in the third quarter were $458 million, a 6 increase over the prior year. Research and development increased 6 primarily due to engineering personnel costs. SG&A expenses increased 6 driven primarily by personnel-related expenses and information technology costs. Advertising expenses increased 7 primarily due to higher cooperative advertising spend.

 

The effective tax rate in the third quarter was 8.0. Excluding $2 million of income tax expense due to the revaluation of certain deferred tax assets associated with a state tax rate change, its pro forma effective tax rate in the third quarter of 2023 was 7.2 compared to 4.3 in the prior year quarter. The year-over-year increase in the pro forma effective tax rate is primarily due to income mix by jurisdiction.

 

In the third quarter of 2023, Garmin generated strong operating cash flows of $357 million and free cash flow(1) of $312 million. Garmin paid a quarterly dividend of approximately $140 million and repurchased approximately $9 million of the Company’s shares within the quarter, leaving approximately $18 million remaining as of September 30, 2023, in the share repurchase program authorized through December 29, 2023. Including the funding of the strategic acquisition of JL Audio, Garmin ended the quarter with cash and marketable securities of approximately $2.8 billion.   

 

2023 Fiscal Year Guidance

Based on its performance in the first three quarters of 2023 and the closing of the acquisition of JL Audio, Garmin is adjusting its full-year guidance. It now anticipates revenue of approximately $5.150 billion (previously, approximately $5.05 billion) and pro forma EPS of $5.25 ( previously, $5.15) based on gross margin of 56.7 (Previously, 57.2 percent), operating margin of 19.8 percent (previously, 20.0 percent) and a full year pro forma effective tax rate of 8.5. This expected pro forma EPS of $5.25 includes approximately $0.05 of dilutive impact related to newly acquired JL Audio.