“We achieved record first quarter revenue with double digit consolidated growth led by strong growth in our outdoor, fitness, aviation and marine segments,” said Cliff Pemble, president and chief executive officer of Garmin Ltd. “Both the outdoor and fitness segments delivered solid, double digit revenue growth, and we remain confident in our wearable product offerings. We are pleased with our first quarter results and look forward to launching new, compelling products throughout the remainder of the year.”
Outdoor:
During the first quarter of 2018, the outdoor segment grew 24% with significant contributions from our fēnix® adventure line of wearables. Gross margin improved to 65% while operating margin remained strong at 30%, resulting in operating income growth of 27%. We introduced the tactix® Charlie, a tactical themed GPS wearable, and began shipping the Descent™ dive watch, bringing an attractive design to underwater adventurers. Looking forward, we remain focused on opportunities in wearables and other product categories within the outdoor market.
Fitness:
During the first quarter of 2018, the fitness segment posted revenue growth of 20% primarily driven by our advanced wearables. Gross and operating margins increased year-over-year to 58% and 20%, respectively, resulting in an operating income growth of 81%. During the first quarter, we started shipping our first GPS running watch with integrated music and Garmin Pay contactless payments. We recently introduced the Edge® 130, a compact GPS cycling computer, the Edge 520 Plus, an advanced cycling computer, and the Varia™ RTL510 rearview radar. Both computers allow cyclists to plan and download their route in advance and brings connectivity to riders. The updated Varia radar enhances the safety features from the first generation and the new design easily mounts to most road-use bikes. Even though the market for basic activity trackers has continued to rapidly mature, we continue to see opportunities for advanced wearables within the fitness segment.
Aviation:
The aviation segment posted solid first quarter revenue growth of 19%. Gross and operating margins were strong at 75% and 33%, respectively, resulting in operating income growth of 25%. During the quarter, we started delivering the G500/600 TXi flight decks including the G500H TXi helicopter variant. We continue to invest in upcoming certifications with our OEM partners, and ongoing aftermarket opportunities.
Marine:
The marine segment posted revenue growth of 9% driven by our recent Navionics® acquisition. Gross margin increased year-over-year to 59%, while operating margin declined to 12%. During the first quarter of 2018, we introduced the GCV 20 ultra-high definition scanning sonar that delivers higher resolution imaging at greater depths. Additionally, we were selected as the exclusive marine electronics supplier to the Independent Boat Builders, Inc., the industry’s largest purchasing cooperative network of leading boat brands. We remain focused on innovations and achieving market share gains within the inland fishing category.
Auto:
The auto segment recorded a revenue decline of 12% in the first quarter of 2018, primarily due to the ongoing PND market contraction somewhat offset by growth in certain niche product lines. Gross and operating margins were 43% and 2%, respectively. During the quarter, we announced a new generation dēzl™ 780, with built in Wi-Fi® and dash cam capabilities bringing advanced safety features and alerts to the trucking industry. Looking forward, we are focused on disciplined execution to bring desired innovation to the market and to optimize profitability in this segment.
Additional Financial Information:
Total operating expenses in the quarter were $284 million, an 11% increase from the prior year. Research and development increased 16% driven by the incremental costs associated with acquisitions, investments in the outdoor and fitness segments for the development of advanced wearable products and continued innovation in the aviation segment. Selling, general and administrative expenses increased 15% driven primarily by personnel related expenses and incremental costs associated with acquisitions. Advertising expenses decreased 20% year over year primarily due to reduced media spending and lower cooperative advertising.
The effective tax rate in the first quarter of 2018 was 16.0% compared to the pro forma effective tax rate of 21.2% (see attached table for reconciliation of this non-GAAP measure) in the prior year quarter. The decrease in the effective tax rate is primarily due to the benefits from the U.S. tax reform and the impact of the release of reserves.
In the first quarter of 2018, we generated $188 million of free cash flow (see attached table for reconciliation of this non-GAAP measure). We continued to return cash to shareholders with our quarterly dividend of approximately $96 million. We ended the quarter with cash and marketable securities of approximately $2.4 billion.
As announced in February 2018, the Board will recommend to the
shareholders for approval at the annual meeting to be held on June 8,
2018 a cash dividend in the total amount of $2.12 per share (subject to
adjustment in the event that the Swiss Franc weakens more than 35%
relative to the USD), payable in four equal installments on dates to be
approved by the Board.
