Release Date: February 19, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Garmin Ltd (GRMN, Financial) reported a 23% increase in consolidated revenue to $1.82 billion, setting a new fourth-quarter record.
• The company achieved growth and record revenue in each of its five business segments.
• Operating income increased 52% year over year, with an operating margin expansion of over 500 basis points to 28%.
• Garmin Ltd (GRMN) proposed a 20% increase in its annual dividend to $3.60 per share, reflecting confidence in its strong results and positive outlook.
• The Fitness segment saw a 32% increase in revenue to $1.77 billion, with operating income more than doubling year over year.

Negative Points

• The Aviation segment experienced a 7% decrease in operating income due to increased R&D spending.
• The Auto OEM segment reported an operating loss of $39 million for the year, despite a 44% increase in revenue.
• Market conditions for major automakers have softened, impacting the revenue trajectory for the Auto OEM segment.
• The Marine segment's growth was primarily driven by the acquisition of JL Audio, with organic growth at 6%, indicating reliance on acquisitions for growth.
• The company's effective tax rate increased to 16.7% from 8.5% in the prior year due to changes in Switzerland's tax rate.

Q & A Highlights

Q: Can you elaborate on the key drivers for the Fitness segment's strong performance in 2024 and the growth forecast for 2025? A: Clifton Pemble, President and CEO, explained that the Fitness segment's performance was broad-based across many product lines, with significant market share gains and new customers, especially in wearables. For 2025, Garmin anticipates a 10% growth in the Fitness segment, driven by continued market share gains and new product introductions.

Q: The operating margin guidance for 2025 suggests lower leverage than usual. Can you explain the factors influencing this? A: Douglas Boessen, CFO, noted that while gross margins are expected to remain consistent, operating expenses as a percentage of sales are projected to increase by 30 basis points due to higher R&D investments. These investments are aimed at fostering growth and innovation through upcoming product launches.

Q: With the strong performance in EMEA, what factors are driving this success, and how do industrialized versus emerging markets play into this? A: Clifton Pemble attributed the success in EMEA to a stronger presence in the wearables and consumer market, where Garmin is a strong number two player. The region's dynamics differ from the Americas, where Garmin ranks third.

Q: Regarding the Auto OEM segment, how should we think about the margin profile and future growth, especially with new wins expected in 2027? A: Clifton Pemble stated that the Auto OEM segment aims for mid-teens gross margins and mid-single-digit operating margins. The segment has secured new business, including a significant win for 2027, which will support future growth and margin improvements.

Q: How does Garmin view the current consumer market backdrop, and what are the expectations for flagship product sell-through in the coming quarters? A: Clifton Pemble noted that the consumer market remains strong, with healthy retail channel inventory levels and robust product registrations. Garmin expects continued momentum for flagship products, supported by strong consumer interest.

Q: Can you discuss the impact of lower product costs across segments and whether there are structural changes contributing to this? A: Clifton Pemble highlighted that increased production volumes and efficiencies in the supply chain are driving lower product costs. There are no structural changes; the benefits are primarily due to scale.

Q: What is Garmin's exposure to tariffs, particularly with Taiwanese manufacturing and the BMW program? A: Clifton Pemble acknowledged potential exposure to tariffs but believes Garmin is well-positioned to minimize impacts due to its supply chain structure. Currently, there are no significant anticipated impacts included in the guidance.

Q: How are the new products, like the Approach golf simulator and Descent diving computer, performing in the market? A: Clifton Pemble stated that both products appeal to a broad range of customers, from enthusiasts to professionals. The Approach simulator is popular for its versatility, and the Descent computer attracts serious divers, including professionals.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.