Garmin Ltd. (GRMN)
Q3 2012 Earnings Call
October 31, 2012, 10:30 am ET
Kerri Thurston - Director, Investor Relations
Cliff Pemble - President & COO
Kevin Rauckman - CFO & Treasurer
Ameet Prabhu - RBC
Simona Jankowski - Goldman Sachs
Yair Reiner - Oppenheimer
John Bright - Avondale Partners
Charlie Anderson - Dougherty & Company
Scott Sutherland - Wedbush Securities
Andrew Spinola - Wells Fargo
James Faucette - Pacific Crest Securities
Previous Statements by GRMN
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» Garmin Limited Management Discusses Q3 2011 Results - Earnings Call Transcript
I would now like to turn the call over to your host, Kerri Thurston. Please go ahead.
Thank you, and good morning, everyone. We would like to welcome you to Garmin Limited’s Third quarter 2012 earnings call. Before we begin, we would like to send our warmest thoughts to all those on the East Coast that have been and will continue to be affected by Sandy. The Garmin family has made contributions to several organizations which are seeking with relief efforts throughout the region.
Looking now at the quarter please note that a copy of the press release concerning this earning’s call is available at Garmin’s Investor Relations site on the internet at garmin.com/stock. Additionally, this call is being broadcast live on the Internet. Note that this webcast does include slides, which can be viewed during the call via our website and an archive of the webcast will be available until December 31st. A transcript will be available on the website under the Events calendar tab.
This earnings call includes projections and other forward-looking statements regarding Garmin Limited. Any statements regarding our future financial position, revenues, earnings, market shares, product introductions, future demand for our products and objectives are forward-looking statements. The forward-looking events and circumstances discussed in this earning’s 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 year ended December 31, 2011, filed with the SEC.
Attending today's call on behalf of Garmin Limited, are Dr. Min Kao, Chairman and Chief Executive Officer; Cliff Pemble, President and Chief Operating Officer and Kevin Rauckman, Chief Financial Officer and Treasurer. The presenters for this morning’s call are Cliff and Kevin.
At this time, I’ll like to turn the call over to Cliff.
Thank you, Kerri, and good morning, everyone. As we announced earlier this morning, Garmin delivered revenue growth and strong margin performance, resulting in proforma EPS growth in the third quarter. Consolidated revenues increased 1% year-over-year to $672 million driven by gains in the Outdoor and Aviation segments.
Our traditional markets of Aviation, Marine, Outdoor and Fitness contributed 43% of the total revenue mix and 59% of the total operating income for the quarter. Gross margins improved to 53% in the quarter. Operating margins also improved to 24% from 22% in the prior year as operating expenses were essentially flat.
Revenue growth combined with improved margins resulted in both operating income and proforma EPS growth. Operating income for the quarter grew 9% to $160 million while proforma EPS was $0.74, a 4% improvement over the prior year.
We sold approximately 3.7 million units in the quarter, which is up 7% year-over-year as Auto OEMs and Outdoor volumes increased. In light of our third quarter results, we are increasing our full year proforma EPS guidance. We now expect our EPS to fall in the range $2.75 on the low end to $2.90 on the high end. Kevin will provide additional insights later.
Next, I’ll walk you through the financial and strategic highlights for each segment. In the Marine segment, revenue declined 7% driven by weak conditions outside of the Americas particularly in the European market. In contrast, we experienced modest growth in the Americas. Favorable product mix led to higher gross margin and gross profit, which more than offset the impact of lower sales.
Our high end boat market continues to struggle due to weak economic conditions around the world. We anticipate these conditions will persist in to 2013, dampening the near-term growth prospects in the Marine market.
However, we are not allowing the poor conditions to distract us from our growth strategy in the segment. In the third quarter, we announced the acquisition of Nexus Marine, giving us an immediate presence in the sailing instrumentation market, where Nexus is a highly respected brand. Additionally, we continue to invest in new product development in order to gain share and to better position ourselves for growth when economic conditions improve.
In Aviation, we posted revenue growth of 3% as improved OEM deliveries offset weakness in retrofit and portable products. As we have highlighted in prior quarters, operating margin is trending below historical norms as we invest in aircraft certification programs that will reach the market in 2013 and beyond. We currently have six announced cockpits slated for delivery in the coming year which will generate new revenue and growth for the future.
Note that this morning’s past release mentions five programs that will be completed in 2013. With the recent announcements factored in, the number is now six.
During the quarter, we announced two additional cockpit wins that highlight the progress we are making to expand our presence in the OEM market. Just this week, Cessna announced that our G5000 integrated flight deck has been chosen for the upgraded Citation Sovereign. And early in the quarter, we announced a new relationship with AgustaWestland, who selected a G1000H for updated 119 model helicopter. Both the Sovereign and the 119 are scheduled for certification in 2013.