Garmin Ltd. (GRMN)

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Garmin Ltd. (GRMN)

Q2 2008 Earnings Call

July 30, 2008, 11:00 am ET


Kerri Thurston - Investor Relation Officer

Cliff Pemble - President and Chief Operating Officer

Kevin S. Rauckman - Chief Financial Officer and Treasurer


Mark Sue - RBC Capital Markets

Amir Roslokowski - Lehman Brothers

Reik Read - Robert W. Baird

Paul Coster - JP Morgan

Yair Reiner - Oppenheimer & Company

Jonathan Goldberg - Deutsche Bank

Jeff Evanson - Dougherty Company

J. B. Groh - D. A. Davidson

Jeff Rath - Canaccord Adams

Peter Friedland - Soleil

Rob Sanderson - American Technology Research

Jim Duffy - Thomas Weisel



Good morning, my name is Bobby Jo and I will be your conference operator today. At this time, I would like to welcome everyone to the Q2 2008 Earnings Call for Garmin Limited. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions). Thank you.

Ms. Kerri Thurston, you may begin your conference.

Kerri Thurston - Investor Relation Officer

Good morning. We would like to welcome you to Garmin Limited's second quarter 2008 earnings call. Please note that a copy of the press release concerning this earnings call is available at Garmin's Investor Relations site on the Internet at

Additionally, this call is being broadcast live on the Internet. Please note that this webcast does include slides which can be viewed during this call. An archive of the webcast will be available until August 30, 2008. A telephone recording will be available two business days following this call, and a transcript of the call will be available on the website within 48 hours at under the Events Calendar tab.

This earnings call includes projections and other forward-looking statements regarding Garmin Limited and its business. Any statements regarding our future financial position, revenues, earnings, market shares, product introduction, and future demand for our products, and objectives are forward-looking statements.

The forward-looking events and circumstances discussed in this earnings call may not occur and actual results could differ materially as a result of risk factors affecting Garmin. Information concerning these risk factors is contained in our Form 10-K for the fiscal year ended December 29, 2007 filed with the Securities and Exchange Commission.

Attending this call on the behalf of Garmin Limited this morning are Dr. Min Kao, Chairman and Chief Executive Officer; Cliff Pemble, President and Chief Operating Officer; Kevin Rauckman, Chief Financial Officer and Treasurer. The presenters for this morning's call are Cliff Pemble and Kevin Rauckman.

At this time, I would like to turn the call over to Cliff Pemble.

Cliff Pemble - President and Chief Operating Officer

Good morning. As you've read from our press release this morning, Garmin achieved another record quarter of revenue. Financial highlights from Q1 include revenue growth of 23% to $912 million with double-digit growth in Automotive, Outdoor/Fitness, and Aviation.

Both North America and Europe experienced year-over-year revenue growth of 27% and 19% respectively. Gross margins for the quarter were 46%, which is down 2% sequentially and also down 5% year over year, but exceeded our earlier expectation. We also achieved strong operating margins of 26%.

Some notable business highlights for the quarter -- independent market research indicates we have strengthened our market share to 55% in North America and approximately 20% in Europe, which further solidifies our worldwide leadership position in the PND market.

Total unit shipments exceeded 3.9 million in the quarter, resulting in a year-over-year growth rate of 54%. Our Auto/Mobile segment growth continues to outpace overall market growth as brand awareness and product differentiation benefit Garmin.

The Outdoor/Fitness segment outperformed our expectations due to higher demand for new devices like the Edge and the Colorado series, along with a new Forerunner 405.

Finally, we completed the acquisition of our Belgian and Finnish distributors, the sixth and seven distributors acquired to date, in line with our strategy to improve European market share and presence.

As you have read in our press release, we continue to see challenges associated with macroeconomic conditions. Even in the face of weakening consumers spending, we were pleased to report double-digit revenue growth in three of our four business segment.

In Automotive and Mobile segment, revenues grew 24% as the market continues to expand and our products continue to gain market share. Aviation revenues grew 15% as the OEM market achieved strong growth that was offset by weakness in retrofit and portable products. Revenues from the Outdoor/Fitness segment grew 54% as customers embraced our compelling new products.

And finally, Marine revenues fell 11% year over year. Q2 of 2007 included pipeline sales of our new chart plotter lineup and thus was a tough comparison. But higher fuel prices and overall economic conditions weakened the entire higher marine industry and affected our results as well.

We would now like to update everybody regarding our view of in the current market and economy trends impacting Garmin's diverse business segments.

As has been widely discussed, the PND market is not growing as fast as in prior years as the market matures. However, the PND market remains one of the fastest growing categories with consumer electronics and we continue to see strong opportunities in the segment as the global market continues to expand, penetration rates climb, and replacement market begins to develop.

Garmin continues to experience strong market share in North America. According to (NPD), our market share averaged 55% during the quarter. Year over year we experienced a 25% decline in ASP, which is in line with our full year expectations, but less than that experienced in Q1, which as you recall was caused by channel clearing and competitors leaving the market.

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