Garmin reports Q1: sales down 34%, EPS down 64%



Garmin reports Q1: sales down 34%, EPS down 64%
Garmin today announced its financial results for the first quarter of 2009. Total revenue was $437 million, down 34% year on year. Gross margin was 44.9% (48.2% in Q1 2008) and operating margin was cut in half on a year over year basis (13.3% against 26%). Earnings per share decreased 64% to $0.25 from $0.69 in the same quarter in 2008.

Garmin still generated $286 million of free cash flow in first quarter 2009 for a cash and marketable securities balance of over $1.2 billion.

Automotive/Mobile segment revenue decreased 43% to $260 million. Marine and aviation segment decreased 32% and 31% respectively. Outdoor and fitness was the only positive segment with a 13% increase to $80 million.

All geographies experienced a decline in revenue: 36% in North America, 32% in Europe and 33% in Asia.

Garmin's margin by segment (click to enlarge) - source Garmin
Garmin's margin by segment (click to enlarge) - source Garmin
Most challenging quarter since 2000
“The first quarter of 2009 represented Garmin’s most challenging quarter since becoming a public company in December 2000”, stated Garmin’s CEO Min Kao. “Macroeconomic factors have contributed to a significant slowdown in consumer discretionary spending which has been further exacerbated by ongoing channel inventory reductions by our retail partners in the PND industry. “

Min Kao is nevertheless not too pessimistic, at least with regards to the US PND market: “As we look specifically at the auto/mobile segment, we believe that inventory levels have reached their low point and that sell-in to the channel will begin to more closely follow sell-through trends in coming quarters. This is a promising factor given that sell-through trends in the United States have continued to show growth in the first quarter.” Indeed Garmin estimates that sell through grew about 20% in comparison to the first quarter last year. However, “The same cannot be said of Europe where sell-through has declined on a year-over-year basis”, he added.

According to CFO Kevin Rauckmann the profitability of the company will improve in the rest of the year: “We believe that this marks the low point for operating margins and with increased sales volumes during the remainder of the year, profitability levels will improve.”

Regarding the long-awaited Nuvifone nothing noticeable was learned from the management during the earnings conference call except that Garmin is not expecting to launch it this quarter. “We are focusing more on the second half of the year”, stated shyly Garmin’s COO Cliff Pemble.

This first quarter has been indeed a difficult one for Garmin, however, if we compare the $1.2 billion cash owned by the company to the €1.15 billion debt of its main rival TomTom, the situation is far to be desperate.

Wednesday, May 6th 2009


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