“We are experiencing challenging macroeconomic conditions, yet Garmin’s products continued to attract consumers, generating revenue growth and allowing us to expand our global leadership position in the industry during the third quarter. While most of our segments continue to grow, we are cognizant of the continued economic slowdown and business climate. As such, we are actively taking steps to manage our business appropriately. These include scaling our operations to better match current business conditions and changes to inventory planning that will allow us to reduce inventory levels by approximately $150 million by the end of the year. In addition, we will be more focused in our advertising spending as the economy and PND market change.
The strength of our product line-up in the automotive/mobile segment is unsurpassed and we were excited to introduce the new holiday products including the updates to our popular nüvi® 2x5 and nüvi® 7x5 series. These products deliver free lifetime traffic to the consumer through advertising sponsorships which is a first for the industry. The latest nüvi® 7x5 products also deliver lane assist which provides drivers with a clear illustration of what lies ahead on their route and 3-D views of buildings in some areas which further enhances the consumer experience.
Revenue in our outdoor/fitness segment continued to grow rapidly when compared to the year ago quarter due to the strength of our product line-up and an expanding fitness market. Specific growth drivers include the Colorado™ series, the Forerunner® 405, the Edge® 705, and the Oregon™ series, which was just released in the third quarter. We believe this category will continue to perform well during the holidays due to the gift appeal of both the outdoor and fitness products.
Our aviation segment continued to drive growth in the business during the quarter, though at a slower rate due to challenging macroeconomic conditions. Revenue contribution from our newly certified G600 and shipments of integrated cockpits to our new OEM partners, namely Cirrus and Embraer, have offset the slowdown in demand for portable and retrofit products and production cuts from our existing base of OEM partners.
Our marine segment saw declining revenue for the second straight quarter on a year-over-year basis due to the severe impact on this industry of macroeconomic conditions and high fuel prices. However, we continue to focus on innovation and on delivering a full suite of products to marine OEMs, including our new GHP10 autopilot which just recently began shipping and the VHF radios that were announced this month. Garmin’s diverse business composition allows us to endure the downturn in the boating industry while still making appropriate levels of research and development investment for the future.”
Financial overview from Kevin Rauckman, Chief Financial Officer:
“We were pleased with our financial results which were in-line with our expectations, as well as the overall demand for Garmin’s products during the third quarter given the economic conditions facing consumers,” said Kevin Rauckman, chief financial officer of Garmin Ltd. “Our revenue grew 19% during the quarter. Excluding the impact of foreign currency exchange, EPS for the quarter fell $0.02, from $0.89 to $0.87.
Gross margin for the overall business remained solid in the third quarter at 44.3%, a 150 basis point decline sequentially that can be primarily attributed to the weakening of the Euro against the US dollar. The automotive/mobile segment gross margin continued to be sound at 38% as PND pricing declines moderated and we continued to get benefit from material cost reductions and improved operating efficiencies. Gross margin for the aviation and outdoor/fitness segments remained on target when compared to our long-term targets at 65% and 63%, respectively. The gross margin for the marine segment fell to 49% as we entered into a slower marine season. We continue to believe that a 55% gross margin is a sustainable target for the marine segment long-term.
Operating margin fell 480 basis points from the year-ago quarter. The primary driver of year-over-year growth in operating expenses is the acquired European distributors but we plan to gain some operating leverage during fourth quarter as sales grow during the holiday season.
We also generated $202 million of free cash flow in the third quarter of 2008, resulting in a cash and marketable securities balance of just over $850 million at the end of the quarter. This equates to $4.12 of cash per basic share outstanding. This level of liquidity, along with our debt-free balance sheet, is an important competitive advantage in the current environment.”
Fiscal 2008 Outlook
While we believe Garmin is offering the most compelling and competitive
products in the marketplace, we also recognize that some markets are
slowing in these difficult economic times. Due to the continued
deterioration of the economic conditions, its impact on consumers
worldwide, and the continued weakening of the Euro against the US
dollar, we are revising our full-year guidance.