The outdoor/fitness segment posted revenue growth of 28% in the quarter on the heels of 10% growth during 2009. We are excited about the global growth we have experienced for our well-respected products and will continue to build on these successes. Around the globe and across the segment, we will continue to invest and innovate in this opportunity-rich market.
The aviation segment posted revenue growth of 12% as the retrofit market improved on a year-over-year basis. While we are pleased with this result, recovery in the aviation market will generally lag that of the overall economy. We continue to invest to achieve our strategic initiatives of expanding our presence and long-term growth opportunities in the business jet, helicopter and experimental aircraft markets.
In the marine segment, revenues grew 9% year-over-year and 22% sequentially as the marine season approached. The industry is showing signs of recovery and we are well positioned as boaters prepare for the upcoming season. We are also pleased to see our fully-networked marine electronics being integrated in the helm of boats and yachts this spring.
As we look toward the second quarter, we are launching new portable navigation devices, outdoor/fitness devices, and marine chartplotters. These products will provide a catalyst for improved sales and profitability levels in the second quarter and include:
- The nüvi® 3700 series, the thinnest PND in the market, making it ideal for both auto and pedestrian navigation and featuring nüRoute with trafficTrends™ and myTrends™ for the most efficient routing.
- The Garmin-Asus Garminfone™ A50 in partnership with T-Mobile for distribution in the United States and with O2 for distribution in Germany, as well as the nüvifone™ A10 with KPN in the Netherlands with additional carriers to follow.
- The Forerunner® 110 providing an even more affordable price point in our very popular Forerunner line-up.
- The GPSMAP 700 series, a mid-range chart plotter featuring a 7” widescreen touch screen display offering all of the key functionality that value oriented customers are looking for.”
Financial overview from Kevin Rauckman, Chief Financial Officer:
“While top line results for the first quarter reflect some excess inventory challenges at retailers in the PND category, we still expect to achieve our full-year forecast previously provided for both revenues and EPS,” said Kevin Rauckman, chief financial officer of Garmin Ltd. “This is a result of a number of trends that we experienced in first quarter 2010. Sell-through of PNDs in the North American market grew and ASPs increased during the first quarter. Outdoor/fitness, aviation and marine delivered solid results with strong first quarter revenues and margins.
Gross margin for the overall business was 54% in the first quarter with year-over-year margin improvement in all segments excluding marine. The strong margin performance was partially driven by a refined warranty estimate that contributed 510 basis points on a consolidated basis.
Operating margin for the overall business increased to 19% when compared with 13% in the year-ago quarter with gross margin improvement partially offset by increased operating expenses. Total operating expenses increased $10 million year-over-year or by 260 basis points as a percent of sales. We reduced advertising expense by 25% primarily due to reduced cooperative advertising. Other selling, general and administrative costs and research and development costs increased by $8 million and $7 million, respectively, on a year-over-year basis. The research and development investment highlights our ongoing commitment to product innovation and long-term growth strategies. Similarly to 2009, 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.
We continued to generate strong free cash flow with $196 million generated in the quarter. We had a cash and marketable securities balance of approximately $2.0 billion at the end of the quarter. A portion of this cash was used to pay a $1.50 per share dividend to our shareholders in April and we will continue to put the cash to work through share repurchases and potential acquisitions.”
Raymarine Acquisition Announcement
On April 28, 2010, Garmin announced a cash offer of 15 pence per share to acquire all the shares of Raymarine plc. This offer provides total consideration to Raymarine shareholders of approximately £12.5 million and implies an enterprise value of approximately £107.4 million when considering Raymarine’s most recently reported net debt of £94.9 million. This offer remains subject to shareholder acceptance and regulatory approvals, but Garmin expects to obtain the necessary merger control approvals.
Non-GAAP Measures
Pro Forma Net income (earnings) per share
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 gain or loss
results from transactions 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 gain or loss is
required under GAAP because the functional currency of the subsidiaries
differs from the currency in which various assets and liabilities are
held. However, there is minimal cash impact from such foreign currency
gain or loss. 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.
