Garmin Ltd. Q1 FY2025 earnings call

Management Statement and Operational Highlights

• Cliff Pemble noted consolidated revenue increased 11% to $1.54 billion, a new first quarter record, with three segments achieving double-digit growth. Gross and operating margins were 57.6% and 21.7% respectively. Updated full-year 2025 guidance reflects first quarter results and trade environment. Discussed tariffs, with assumptions including 10% baseline tariff on non-US manufactured products and 145% incremental tariff on China imports. Foreign exchange benefits partially offset tariff impacts.
• Doug Boessen reviewed first quarter financial results: revenue $1,535 million, 11% increase; gross margin 57.6%; operating income $333 million, 12% increase. Updated guidance: revenue ~$6.85B, gross margin ~58.5%, operating margin ~24.8%, pro forma EPS ~$7.80.

Segment Performance

• Fitness: Revenue increased 12% to $385 million, contributing approximately 25.03% of consolidated revenue. Gross margin 57%, operating income $78 million.
• Outdoor: Revenue increased 20% to $438 million, contributing ~28.5% of consolidated revenue. Gross margin 64%, operating income $129 million.
• Aviation: Revenue increased 3% to $223 million, contributing ~14.53% of consolidated revenue. Gross margin 75%, operating income $48 million.
• Marine: Revenue decreased 2% to $319 million, contributing ~20.78% of consolidated revenue. Gross margin improved to 58%, operating income $87 million.
• Auto OEM: Revenue increased 31% to $169 million, contributing ~11.01% of consolidated revenue. Gross margin 18%, operating loss narrowed to $9 million.

Guidance

• Estimates revenue of approximately $6.85 billion, up from previous guidance of $6.8 billion, primarily due to net favorable foreign currency impacts partially offset by modest demand weakening.
• Expect gross margin to be approximately 58.5%, 20 basis points lower than previous guidance, with ~$100 million increased cost from tariffs mostly offset by foreign currency benefits and mitigations.
• Anticipate operating margin approximately 24.8% compared to previous guidance of 25%, and pro forma effective tax rate 16.5% unchanged from prior expectations, resulting in pro forma earnings per share of approximately $7.80.

Risks

• Dynamic global trade environment with higher tariffs and complex trade structures, affecting global supply chains. Approximately 25% of revenue generated in US from non-US manufactured products, with assumptions of 10% baseline tariff and 145% incremental tariff on China imports.
• Weakened US dollar relative to other currencies benefits revenue and margin but trade environment creates headwinds and uncertainty. Potential modest reduction in demand due to trade environment impact on consumers.

Question and Answer

Q: In the prepared remarks, you talked about a modest demand reduction assumed in the outlook. Are you observing any indications of potential demand pulling at your customers as they possibly attempt to build inventory to de-risk the volatile tariff situation?

A: At this point, we have not seen any indications of weakness. Demand for our products and registrations (sell-through) has been very strong. No indication of retailers stocking or overstocking products.

Q: Can you share more color on if we think short-term, what type of mitigation tools are you prioritizing to limit the impact of tariffs? And bigger picture or longer-term, does the current tariff landscape get you to rethink your supply and assembly exposure?

A: In terms of mitigations, everything is on the table. We're considering all options, evaluating case by case. Sourcing actions are in progress. In terms of global footprint, a global footprint is a benefit right now. We would not expect a big shift in overall global footprint and vertical integration strategy.

Q: How are you thinking about the relative performance across the geographies? The Americas obviously grew, but EMEA continues to really outperform. Any thoughts on the dynamics contributing to the relative performance levels?

A: Geographies reflect where the biggest markets are for some segments. In Americas, lower growth in Marine and Aviation segments influence. In EMEA, strong performance especially on wearables. Auto OEM growth in Europe from Poland factory at BMW.