Financial overview from Kevin Rauckman, Chief Financial Officer:
"Clearly we are pleased with our financial results for the second quarter, and look forward to a strong second half of 2007," said Kevin Rauckman, chief financial officer of Garmin Ltd. "Our revenue and earnings per share during the quarter grew 72% and 75% respectively, exceeding our expectations. Excluding the impact of foreign exchange, EPS for the quarter grew 82%, from $0.55 to $1.00.
Gross margin for the overall business remained strong in the second quarter, rising 50 basis points from the year-ago quarter. The automotive/mobile segment gross margin improved during the quarter as PND pricing declined more slowly than we expected. Gross margin for the other three segments declined slightly when compared with the year-ago quarter. However, marine margin improved substantially relative to the previous two quarters as new product releases pushed up gross margin. Our outdoor/fitness gross margin also improved sequentially as we began shipping new products toward the end of the quarter.
Operating margin improved 140 basis points from the year-ago quarter. This improvement was primarily driven by strength in gross margin combined with operating leverage as revenues outpaced the increase in expenses during the quarter. Sequentially, operating margin expanded within all four of our business segments as we continued to roll out new products. While we are pleased with the margin improvements, they reflect a less aggressive PND pricing environment than we had anticipated combined with favorable cost reductions during the quarter. However, we anticipate a more significant price compression during the second half of 2007.
We also generated $154 million of free cash flow in the second quarter of 2007, resulting in a cash and marketable securities balance of nearly $1.1 billion at the end of the quarter."
Fiscal 2007 Outlook
We remain optimistic about the future success of our business and our ability to serve customers and distributors around the world. With this in mind, we are updating our guidance as follows:
-- We anticipate overall revenue to exceed $2.8 billion in 2007, and
earnings per share to exceed $3.15.
-- We anticipate segment revenue growth rates for our automotive/mobile,
aviation, marine, and outdoor/fitness segments to be 80%, 30%, 20%, and
-- We anticipate operating margins to be approximately 27% for the full
-- Our effective tax rate should remain approximately 13%
The Garmin Board of Directors has approved an annual cash dividend of $0.75 per share, an increase of $0.25 per share. The dividend is payable to shareholders of record on August 15, 2007, and will be paid on September 14, 2007.
Net income (earnings) per share, excluding foreign currency
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 translation gain or loss results from translation into New Taiwan dollars at the end of each reporting period of the significant cash and marketable securities, receivables and payables held in U.S. dollars by the company's Taiwan subsidiary. Such translation is required under GAAP because the functional currency of this subsidiary is New Taiwan dollars. However, there is minimal cash impact from such foreign currency translation and management expects that the Taiwan subsidiary will continue to hold the majority of its cash, cash equivalents and marketable securities in U.S. dollars. Accordingly, earnings per share before the impact of foreign currency translation gain or loss allows an assessment of the company's operating performance before the non-cash impact of the position of the U.S. dollar versus the New Taiwan dollar, which permits a consistent comparison of results between periods.
The following table contains a reconciliation of GAAP net income per share
to net income per share excluding the impact of foreign currency translation
gain or loss.
Garmin Ltd. And Subsidiaries
Net income per share, excluding FX
(in thousands, except per share information)
13-Weeks Ended 26-weeks Ended
June 30, July 1, June 30, July 1,
2007 2006 2007 2006
Net Income (GAAP) $214,377 $123,286 $354,237 $210,800
Foreign currency (gain)/loss,
net of tax effects $5,289 ($2,499) ($6,187) $3,793
Net income, excluding FX $219,666 $120,787 $348,050 $214,593
Net income per share (GAAP):
Basic $0.99 $0.57 $1.64 $0.97
Diluted $0.98 $0.56 $1.62 $0.96
Net income per share, excluding FX:
Basic $1.02 $0.56 $1.61 $0.99
Diluted $1.00 $0.55 $1.59 $0.98
Weighted average common shares
Basic 216,380 216,818 216,298 216,594
Diluted 219,078 219,344 218,925 218,868