The outdoor segment posted revenue growth of 16% in the quarter as our golf product portfolio continued to perform well, along with dog tracking and training systems. We expect our latest golf introduction, the Approach S3 – a touchscreen GPS golf watch, to further our market share gains in this popular category.
The fitness segment posted revenue growth of 26% in the quarter as the much anticipated Forerunner 910XT, designed for multi-sport operation, began to ship. We believe the fitness category remains under-penetrated at both the high-end and low-end, which represent significant growth opportunities going forward. We intend to continue to innovate in both running and cycling to drive broader adoption of GPS technology across the price spectrum.
The aviation segment posted revenue growth of 5% as the retrofit market continues to be strong, while the OEM market recovery lags. Our focus continues to be on investment to achieve our long-term strategic initiatives of expanding our presence in the business jet and helicopter markets where we have a number of certifications underway. While our investment in these new opportunities grows, we remain committed to retaining our strong market share in the single engine and turboprop markets as well. These existing relationships are critical to us and are expected to provide another opportunity for growth when these OEM markets begin to recover.
In the marine segment, revenues grew 9% year-over-year and 30% sequentially as warm weather signaled an early start to the marine season. The boating industry is again showing signs of recovery but much uncertainty remains with high fuel prices and continued tight credit for luxury items. As we have previously highlighted, this will be a year of investment and thus, reduced operating margins. This near-term investment should deliver revenue growth, along with margin expansion, in 2013.
Looking finally at the auto/mobile segment, we posted revenue growth of 6% as we continued to gain market share in the PND category. Though pleased with the first quarter results, we do not expect PND revenue to continue to grow year over year due to industry-wide declines. However, we remain focused on our goals of market leadership and profitability in the PND market as evidenced by the stabilization of our ASPs and market share gains.
We were excited to announce our first factory installed auto OEM relationship with Suzuki in April. This represents a significant milestone for Garmin as we build relationships and credibility in this industry. The Suzuki infotainment system offers enhanced features and our intuitive user interface which we believe will set a benchmark for the quality and ease-of-use that Garmin can deliver.”
Financial Overview from Kevin Rauckman, Chief Financial Officer:
“We posted our second straight quarter of revenue and operating income growth, as trends across many of our segments continued to be positive,” said Kevin Rauckman, chief financial officer of Garmin Ltd. “The year has started well for us. We are now tasked with continuing the positive sales momentum and market share gains while also focusing on profitability.
Gross margin for the overall business was 51% in the first quarter improving from 47% in the prior year largely driven by the automotive/mobile segment, where gross margin improved to 39%, partially driven by the amortization of previously deferred high margin revenues, a reduced per unit deferral rate as discussed in the Company’s 10K for December 31, 2011 filed with the Securities and Exchange Commission and product mix. Segment mix contributed to the overall strong gross margin. The strong automotive/mobile and fitness gross margins were partially offset by a 500 basis point decline in marine gross margin due to product mix shifting toward fish finders and low-priced marine handhelds.
Operating margin for the overall business improved to 16% when compared with 15% in the year-ago quarter with the gross margin improvement partially offset by an increase in operating expenses as a percentage of sales. Total operating expenses increased $30 million year-over-year and by 250 basis points as a percent of sales. Advertising and research and development expense increased by $4 million and $9 million, respectively, as we continue to invest for future growth. Marine and aviation research and development increased 31% and 15%, respectively, as long-term OEM opportunities are funded. Other selling, general and administrative costs increased by $17 million on a year-over-year basis. The increase was primarily due to acquisitions made in the second half of 2011. As in prior years, we believe that the first quarter will represent the low point for operating margins and with increased sales volumes during the remainder of the year, profitability levels are expected to improve.
Our tax rate in the first quarter was 12.8% compared to 1.5% in the first quarter of 2011 when we benefitted from the release of reserves related to the expiration of certain statutes for Garmin Europe. We expect the 2012 full year tax rate to be approximately 13%.
Free cash flow generation continued to be strong with $116 million generated in the quarter. We had a cash and marketable securities balance of over $2.5 billion at the end of the quarter. We intend to continue to fund our quarterly dividend and future acquisitions with our strong cash position.”
Dividend Update
As announced in February, the Board will recommend to the shareholders
for approval at the annual meeting to be held on June 1, 2012 a cash
dividend in the amount of $1.80 per share (subject to possible
adjustment based on the total amount of the dividend in Swiss Francs as
approved at the annual meeting) payable in quarterly installments.
