Garmin Ltd. (GRMN)

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Garmin Ltd. (GRMN)

Q4 2008 Earnings Call Transcript

February 23, 2009 11:00 am ET


Kerri Thurston – Manager, IR

Kevin Rauckman – CFO and Treasurer

Clifton Pemble – President and COO


Reik Read – Robert W. Baird & Co., Inc.

Vivek Arya – BAS-ML

Paul Coster – JPMorgan

Tavis McCourt – Morgan Keegan

Jeff Rath – Canaccord Adams

Yair Reiner – Oppenheimer & Co.

Jeff Evanson – Dougherty & Company LLC

Jonathan Goldberg – Deutsche Bank North America

Joe Spack [ph] – RBC Capital Markets (US)

Amir Rozwadowski – Barclays Capital

Jim Duffy – Thomas Weisel Partners

Thomas Lee – Goldman Sachs

J. B. Groh – D. A. Davidson & Co.

John Bright – Avondale Partners LLC

Ben Bollin – Cleveland Research Company

James Faucette – Pacific Crest Securities


Kerri Thurston

Good morning. We would like to welcome you to Garmin Limited's fourth 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 March 23, 2009. 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 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, future demand for our products, and objectives are forward-looking. 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, and our quarterly report on Form 10-Q.

Attending 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, and Andrew Etkind, General Counsel. 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 Kevin.

Kevin Rauckman

Thanks, Kerri. Thank you for joining us this morning on a short notice. Before we get into the details of our Q4 earnings, I want to provide a brief explanation of why we issued our earnings this morning rather than on Wednesday. During our final review of the Q4 results, we found certain adjustments for sales programs and price protections that puts our earnings per share results below our earlier stated guidance. We elected to immediately announced our Q4 earnings and accelerated our conference call by two days in order to accomplish this. At this point, I would like to turn the call over to Clif to provide our business update this morning.

Clifton Pemble

Thank you, Kevin. Good morning.

As you read from our press release this morning, Garmin announced fourth-quarter results with strong margins, increasing market share and significant reductions in our inventories. Financial highlights from 2008 include revenue growth of 10% to almost $3.5 billion with revenue growth in almost all segments of the business. This represents Garmin’s 18th consecutive year of revenue growth. A significant highlight for 2008 is our gross margin performance of 44.5% which is down just 150 basis points from 2007. Our 2008 operating margin was 24.7% which is a 380 basis points decline from 2007 that exceeded our earlier expectations. Bill of material cost reductions helped offset most of the PND price declines that occurred during the year.

Exuding foreign currency, our earnings per share fell 3% to $3.69 per share, which includes the gain from the share of our tender of our Tele Atlas shares. Throughout 2008, we maintained our strong cash position, with free cash flow generation of $743 million, which was enhanced by the significant reduction in inventory during the quarter. This cash flow allowed us to fund our stock repurchase plan, pay a $0.75 per share dividend, and remain a debt free company.

Some notable business highlights for the year include while we await the final fourth-quarter market reports, we believe that we have expanded our world wide leadership position in the PND market from 35% in Q3 of 2008. We believe our share approximated 50% in North America and greater than 20% in Europe. As a reminder, on a worldwide basis, our market share was about 30% in 2007. Consolidated shipments were almost 17 million units for the full year resulting in a year-over-year growth of 38% across all of our business segments. Unit growth was led by our automobile segment with full-year growth of 45%.

Turning next to segment highlights, in the automotive and mobile segment, our revenues grew 8% for the year driven by continued unit growth and moderating price declines when compared to 2007. We experienced unit growth of 62% in North America for the full-year although it slowed significantly in the second half. European PND growth for the full year was 16%. This unit growth was offset by an ASP decline of 26% which is down from the 35% decline we experienced in 2007.

For the full year, revenues from our outdoor fitness segment grew 26%, which outperformed our expectations thanks to our strong line up of new products and specific strength in the fitness market. We also saw growth in our aviation segment build again in the first half of 2008 which was much stronger. Revenues grew 10% in 2008 as shipments to new and existing OEM partners offset weaknesses in the portable and retrofit markets. And finally marine revenues grew 1% in 2008 as this segment continues to be affected by high fuel prices that were present earlier in the year and economic conditions which had slowed the entire marine industry. Given how hard the marine industry has been hit by the economic downturn, our ability to generate growth in this segment is attributed to the strength of our product portfolio and our market share gains throughout the year.

As the economic crisis continues to play out, we realize that 2009 will be one of the most difficult years in our history. In the automotive segment, we estimate that units will be flat in 2009 on a global basis due to the reduced levels of consumer spending and increased levels of penetration, particularly in Europe. We are focused on managing our business appropriately in light of these market realities. Our strong margins and significant reduction of inventory in the fourth quarter validate our ability to use vertical integration to appropriately scale our business in real-time. We also anticipate that ASP declines will moderate in 2009 as additional competitors exit the market and retail channel inventories decline resulting in less margin pressure.

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