Garmin Ltd. — Q2 2022 Form 10-Q
Reporting period: 13 weeks ended June 25, 2022; first-half comparisons cover 26 weeks. Amounts below are in U.S. dollars; financial statement figures are converted from thousands to millions. Garmin provides GPS-enabled devices and applications across fitness, outdoor, aviation, marine, consumer auto, and auto OEM markets.
Financial performance
| Metric | Q2 2022 | Q2 2021 | First half 2022 | First half 2021 |
|---|---|---|---|---|
| Net sales | $1,240.8m | $1,326.9m | $2,413.5m | $2,399.2m |
| Gross profit / margin | $728.8m / 58.7% | $780.9m / 58.9% | $1,391.3m / 57.6% | $1,422.4m / 59.3% |
| Operating income / margin | $292.7m / 23.6% | $371.2m / 28.0% | $521.3m / 21.6% | $620.8m / 25.9% |
| Net income | $257.9m | $317.0m | $469.5m | $537.0m |
| Diluted EPS | $1.33 | $1.64 | $2.43 | $2.78 |
| Operating cash flow | — | $265.5m | $598.0m |
Q2 revenue fell 6% year over year and net income declined $59.1m. First-half revenue edged up 1%, while net income declined $67.6m. First-half cash used in investing activities was $397.2m, mainly reflecting net purchases of marketable securities; financing activities used $257.0m. Cash, cash equivalents and restricted cash fell $410.7m in the half to $1,088.1m.
At June 25, Garmin held approximately $2.9bn of cash, cash equivalents and marketable securities, including $1.8bn of marketable securities at fair value. Current assets were $4.1bn and current liabilities $1.6bn. No borrowings are presented on the balance sheet. The company said existing cash and operating cash flow should meet projected short- and long-term requirements.
Business changes and segment results
- Q2 outdoor sales rose 18% to $381.9m, led by adventure-watch demand; aviation rose 13% to $204.7m.
- Fitness sales fell 34% to $272.1m, primarily on declines in advanced wearables and cycling products. Marine fell 7% to $242.8m, with supply constraints limiting sales; auto fell 6% to $139.3m.
- First-half outdoor sales increased 32% to $766.5m; aviation rose 7% and marine 5%. Fitness declined 32%. Total unit sales fell in both Q2 and the first half, despite first-half revenue growth, primarily due to segment and product mix.
- Q2 operating income fell 21%; first-half operating income fell 16%. Higher operating expenses and, in the first half, lower gross margin weighed on results. The auto category recorded operating losses of $15.3m in Q2 and $35.3m in the first half; auto OEM losses were $24.5m and $48.3m, respectively.
Liquidity, capital allocation and notable items
- First-half operating cash flow fell to $265.5m from $598.0m, primarily because inventory purchases rose as Garmin sought to increase supply coverage and mitigate lead times. Inventory was $1.45bn at quarter-end, up from $1.23bn at year-end.
- Garmin declared a $2.92-per-share dividend, recorded as a $564.5m payable; $258.2m of dividends were paid in the first half. It authorized up to $300m of share repurchases through December 29, 2023, and had repurchased $30.6m by quarter-end.
- Q2 foreign-currency losses were $22.4m, versus $7.3m a year earlier; first-half losses were $25.9m versus $15.6m. The company attributed the losses mainly to U.S. dollar strength. First-half accumulated other comprehensive income swung from $117.8m to a $70.6m loss, including currency translation and unrealized securities losses.
- About 91% of available-for-sale securities were in an unrealized loss position; gross unrealized losses were $93.0m. Management attributed declines largely to economic conditions rather than credit losses, reported no credit-loss allowance, and said it did not intend or expect to need to sell before recovery.
Outlook, risks and contingencies
The filing provides no specific revenue or earnings guidance. Management expected inflation, higher interest rates, U.S. dollar strength, component shortages, longer lead times, cost fluctuations, and logistics constraints to persist through at least year-end 2022. It cited lingering COVID-19 effects and Russia’s invasion of Ukraine, while stating the conflict had not materially affected Garmin directly and related exposure was limited. Management expects auto OEM operating losses to continue through 2022 as it invests in certain programs.
Management stated that it did not believe material losses from legal and other contingencies were reasonably possible based on information then known, while noting outcomes cannot be predicted with certainty. The filing reports no material changes to previously disclosed risk factors or market-risk exposures. Management concluded disclosure controls were effective.
Most important facts for investors to verify
- Whether fitness demand and marine supply constraints improve, and whether outdoor growth continues.
- Inventory levels, working-capital cash use, and progress in resolving component and logistics constraints.
- Effects of currency movements and interest rates on operating margins, foreign-exchange results, and securities valuations.
- Duration and scale of auto OEM losses and investment spending.
- Dividend installment timing, repurchase pace, and liquidity after capital returns and purchase commitments.