The outdoor/fitness segment posted strong year-over-year revenue growth of 15% in the fourth quarter with gross and operating margins consistent with the solid results delivered throughout 2010. The strong margin performance allowed the segment to contribute $251 million of operating income in 2010. Beginning in the first quarter of 2011, we will report the financial results of the outdoor and fitness segments separately. We are excited about the innovative products that we will be delivering in both the outdoor and fitness segments this year. The launch of the GTU 10 brings Garmin into the tracking market with an affordably priced solution for a variety of applications and provides incremental revenue opportunity in the outdoor business. In the fitness category, we are well positioned as the leader in the GPS- enabled running market offering products designed to meet the needs of both the elite athlete and the value-conscious runner or cyclist. Our fitness product development pipeline is full of exciting offerings that will be announced during the course of the year.
The aviation segment posted fourth quarter revenue growth of 10% as both our OEM and retrofit business improved. For the full year, operating margins improved to 28% and the segment contributed $72 million of operating income. In 2011, we will be focused on expanding our presence in the Part 25 high-end business jet market. This will provide long-term sustainable growth for our aviation segment with revenue contribution beginning in 2013. Recovery in the aviation segment has continued to lag the broader economy but we anticipate improvement in 2011 that will drive revenue growth.
The marine segment posted fourth quarter revenue growth of 9% over the same quarter of last year enabling us to deliver 12% growth for the full year. With full year improvement in margins, the segment contributed $67 million of operating income in 2010. As we look forward to 2011, we are excited to be launching Garmin marine electronics with a growing number of OEM partners including Volvo Penta, Bavaria Yachts, Tiara Yachts and Chaparral. In addition, we have refreshed our fishfinder line-up for the spring season. Throughout the coming year, we will continue to build our position in the segment through innovation and OEM relationships that offer long-term growth.”
Financial overview from Kevin Rauckman, Chief Financial Officer:
“Our financial results for the quarter and the year highlight our commitment to diversifying our business through continued investment and growth in outdoor/fitness, marine, aviation and auto OEM,” said Kevin Rauckman, Chief Financial Officer of Garmin Ltd. “These segments provided over $390 million of operating income in 2010, or 61% of the total operating income, and will continue to grow in 2011 and beyond.
Gross margin for the overall business in the fourth quarter was 45% which represents only a slight decline from the fourth quarter 2009 level of 46%. The automotive/mobile segment gross margin declined to 35%. The decline is partially related to an increasing mix of units bundled with lifetime maps, premium traffic and connected services, for which a portion of the high margin revenue and costs must be deferred. Average selling price (ASP) declines have continued to moderate, excluding the impact of deferred revenue, and we expect the trend to continue in 2011. Gross margins for the outdoor/fitness, aviation and marine segments all remained strong at 66%, 70% and 63%, respectively.
Operating margin for the overall business was 22% in the current quarter as research and development and selling, general and administrative costs increased as a percentage of sales over the year ago quarter. Operating margin, excluding the impact of deferred revenues and costs, was 25%. Total operating expenses were up slightly on a year-over-year basis with growth in selling, general and administrative costs offset by lower advertising expenses. We reduced advertising expenses by $9 million, or 17%, while other selling, general and administrative expenses increased by $9 million, or 12%. The increase in selling, general and administrative costs was driven by legal settlements and fees that are one-time in nature. Research and development costs were flat compared to the year ago quarter.
We generated $175 million of free cash flow in the fourth quarter of 2010 and $738 million for the full year. This cash generation funded significant returns to our shareholders through a $1.50 per share dividend in April 2010 and stock repurchases throughout the year. The resulting cash and marketable securities balance was over $2.0 billion at the end of the year.”
The Board intends to recommend to the shareholders for approval at the annual meeting to be held on June 3, 2011 a cash dividend in the amount of $2.00 per share (of which, $1.60 will be paid in the Company’s 2011 fiscal year and subject to possible adjustment based on the total amount of the dividend in Swiss Francs as approved at the annual meeting) payable in four installments as follows: $0.80 on June 30, 2011 to shareholders of record on June 15, 2011, $0.40 on September 30, 2011 to shareholders of record on September 15, 2011, $0.40 on December 30, 2011 to shareholders of record on December 15, 2011 and $0.40 on March 30, 2012 to shareholders of record on March 15, 2012.
|Revenue||$2.4 – 2.5 B|
|Gross Margin||50 – 51%|
|Operating Income||$500 – 560 M|
|Operating Margin||21 – 22%|
|EPS (Pro Forma)||$2.25 – 2.50|