Garmin Ltd. — Q3 2021 Form 10-Q
Reporting period: 13 weeks ended September 25, 2021; year-to-date figures cover 39 weeks. Comparative periods ended September 26, 2020. Amounts below are in U.S. dollars unless noted.
Business context and results
Garmin develops and sells wireless and GPS-enabled products across fitness, outdoor, aviation, marine, consumer auto, and auto OEM. Management said fitness, outdoor, and marine continued to benefit from consumer demand shifts, while aviation and auto trends improved during 2021. COVID-19 and related supply-chain disruption continued to affect operations.
| Metric | Q3 2021 | Q3 2020 | 39 weeks 2021 | 39 weeks 2020 |
|---|---|---|---|---|
| Net sales | $1,192m (+7%) | $1,109m | $3,591m (+27%) | $2,835m |
| Gross profit / margin | $696m / 58% | $668m / 60% | $2,118m / 59% | $1,690m / 60% |
| Operating income / margin | $283m / 24% | $317m / 29% | $904m / 25% | $683m / 24% |
| Net income | $259m (-17%) | $313m | $796m (+21%) | $659m |
| Diluted EPS | $1.34 | $1.63 | $4.13 | $3.44 |
| Operating cash flow | Not separately provided | Not separately provided | $843m | $699m |
Financial position, cash flow, and material changes
- At September 25, cash and cash equivalents were $1.639bn and marketable securities totaled $1.599bn, or about $3.238bn combined. Management said existing cash and operating cash flows should meet projected needs.
- Current assets were $4.009bn and current liabilities $1.374bn; current ratio was approximately 2.9. Total assets were $7.571bn and shareholders’ equity $5.855bn.
- The balance sheet presents no borrowings or other debt line item. Garmin reported no off-balance-sheet arrangements.
- Year-to-date investing cash outflow was $312m, including $188m of property and equipment purchases and $16m for acquisitions. Financing cash outflow was $345m, primarily dividends of $363m.
- Inventory increased to $1.114bn from $762m at year-end 2020. Management cited $301m more cash paid for inventory year over year, partly offset by stronger collections.
- Q3 revenue growth was led by marine (+25%), aviation (+19%), and fitness (+4%); outdoor declined 3%. For the first 39 weeks, all segments grew, with fitness and outdoor each up 26% and marine up 40%.
Outlook, risks, and unusual items
- No consolidated numeric earnings or revenue guidance is provided in the supplied filing text. Management expected supply-chain challenges—including component shortages, longer lead times, cost fluctuations, and logistics constraints—to continue through at least calendar year-end 2021.
- Higher freight costs were the principal stated cause of lower consolidated gross margin: down 180 basis points year over year in Q3 and 60 basis points year to date. Auto OEM product mix and its lower gross-margin trend were expected to persist through 2021 and beyond.
- Auto OEM recorded a $35m Q3 operating loss and a $91m loss for the first 39 weeks. Management expected losses to continue through 2021, citing lower gross margins and higher program-related expenses.
- Q3 other expense included $15m of foreign-currency losses, versus $10m of gains a year earlier. Year-to-date foreign-currency losses were $31m, and lower fixed-income yields reduced interest income.
- The year-to-date effective tax rate rose to 11.3% from 7.5%, mainly because fewer uncertain-tax-position reserves were released. Q3 rate was 5.9%, versus 6.9% a year earlier.
- Open purchase orders and other commitments were approximately $1.424bn; the filing notes these may include authorizations that are not binding obligations. Management did not believe aggregate legal contingencies presented a reasonably possible material loss, while noting outcomes cannot be predicted with certainty.
- COVID-19-related risks include demand volatility, supply availability and cost, logistics, facility disruption, inventory obsolescence, and possible effects on margins and operations. Management cautioned that the pandemic’s duration and impact remain uncertain.
Investor verification priorities
- Monitor whether supply constraints and elevated freight costs ease, and whether the inventory build converts into sales without obsolescence or further working-capital pressure.
- Track auto OEM program economics, including operating losses, gross margin, and engineering costs, against management’s stated expectation of continued pressure.
- Assess whether segment demand—particularly fitness, outdoor, and marine—sustains beyond pandemic-driven behavior shifts, and whether aviation and auto recovery continues.
- Review foreign-exchange exposure, marketable-securities valuations, and the impact of tax-rate changes on earnings.
- Confirm cash generation, capital spending, dividends, and the nature and timing of the approximately $1.424bn commitments.