Garmin (GRMN) Q2 2026 earnings call transcript

Good morning. We would like to welcome you to Garmin Limited 2nd Quarter 2026 earnings call. Please note that the earnings press release and related slides are available at Garmin's Investor Relations site on the internet at www. garmin. com slash investors. An archive of the webcast and related transcript will also be available on our website. This earnings call includes projections and other forward-looking statements regarding Garmin Limited and its business. Any statements regarding our future financial position, revenues, segment growth rates, earnings, gross margins, operating margins, future dividends or share of purchases, market shares, product introductions, foreign currency, tariff impacts, future demand for our products and plans and objectives are forward-looking statements. The forward-looking events and circumstances discussed in this earnings call may not occur and actual results could differ materially as a result of risk factors affecting Garmin.

Information concerning these risk factors is contained in our form 10k filed with the Securities and Exchange Commission. Presenting on behalf of Garmin Limited this morning are Cliff Pemble, President and Chief Executive Officer and Doug Besson, Chief Financial Officer and Treasurer. At this time, I would like to turn the call over to Cliff Pemble.

Thank you, Terry, and good morning, everyone. As announced earlier today, Garmin achieved another quarter of record-breaking financial results. In a continuation of the positive trends we've been experiencing over the long term. Consolidated revenue increased 11% to $2.02 billion. We experienced robust expansion in consolidated growth and operating margins, the majority of which is attributable to favorable product mix. Margins also benefited from a $21 million tariff refund recognized in the second quarter. Even when excluding this benefit, our gross margin performance was impressive by any historical comparison. Reflecting the strength of our product lines, our vertically integrated business model, and exceptional execution by our global team.

Operating income increased 30% to $616 million, and Performa EPS increased 29% to $2.81. Our first half performance exceeded expectations and gives us confidence to raise our full year 2026 guidance. We now expect 2026 revenue of approximately $8.05 billion, and Performa EPS of $10 per share. Services have been an area of strategic focus in recent years with each business segment pursuing unique opportunities to grow service revenue over the long term. We recently announced the strategic acquisition of training peaks and train heroic, which are leading endurance and strength training platforms connecting coaches to athletes who wish to maximize the impact of their training effort. We are very excited to welcome the training peaks and train heroic teams to our fitness segment, and look forward to all that we can accomplish together.

Doug will discuss our financial results in greater detail in a few minutes, but first I'll provide a few remarks on the performance of each business segment. Starting with fitness, revenue increased 25% to $787 million, a new second quarter record driven by growth across all product categories led by continued strong demand for advanced wearables. Gross and operating margins expanded to 64% and 37% respectively, resulting in operating income of $277 million. During the quarter, we launched the Forerunner 70, bringing comprehensive running features and a bright AMOLED display to our entry level running lineup, and the Forerunner 170 with additional running and training features. We also released our global annual global running and cycling data report that provides insights into the fitness activities of our customers and their athletic performance.

More recently, we announced the circus smart band, a screenless wearable that offers rich wellness and fitness insights without requiring a subscription, which further expands the addressable market for our wellness devices. The fitness segment has achieved outstanding performance over the long term. We are very pleased with these results and continue to expect the fitness segment will be the strongest contributor to 2026 from Solidated Growth.

Moving to outdoor revenue decreased 2% to $483 million, primarily due to consumer auto and adventure watch product categories. Gross and operating margins expanded to 69% and 34% respectively, resulting in operating income of $164 million. The segment delivered improved profitability in operating income growth through favorable product mix and discipline execution. We recently expanded our golf lineup with the launch of the approach Z10, a compact laser rangefinder that sends precise distances to compatible devices, bringing a high fidelity experience to gain play. We also published our annual trends in golf data report, highlighting that participation in the sport is up and players are improving in nearly every shot category.

Looking forward, we expect to achieve stronger revenue performance in the back half of 2026 due to the timing of product launches, resulting in improved, full year growth when compared to 2025. Looking next at aviation revenue increased 8% to $269 million, reflecting growth in both OEM and aftermarket product categories.

Gross and operating margins were 75% and 27% respectively, resulting in operating income of $72 million. For the 11th consecutive year, we were named Best Supplier the Year by Embraer, who recognized us for outstanding performance as a supplier of electrical and electronic systems or their fee non-business jets. This recognition validates the long-term investments we have made to create innovative products and build strong relationships with our customers.

During the quarter, we launched the D2 Mach 2 Pro, our first aviator smartwatch with in-reach technology. We recently announced Access, an all-new family of highly integrated and scalable cockpit display solutions for a broad range of certified and experimental aircraft models.

Access combines navigation, communication, and audio functions into a single platform, reducing installation time, complexity, and cost while delivering a modern cockpit experience.

Access reflects decades of Garmin innovation and sets a new standard for integrated flight displays. We are very pleased with the performance of aviation during the first half of the year and expect to achieve continued growth throughout the remainder of the year.

Turning to the marine segment, revenue increased 14% to $341 million, with growth across multiple product categories. Gross and operating margins expanded to 61% and 29% respectively, resulting in operating income of $100 million. The primary driver of margin expansion was the tariff refund recognized during the quarter, although product margins improved even when excluding this benefit. During the quarter, we launched the Garmin Signal VHF marine radio, which offers a color touchscreen and new features to enhance communication on the water. We recently announced the next-generation LiveScope 2 sonar system, which offers improved range and clarity over previous LiveScope systems. LiveScope 2 received the best electronics award at the recent ICAST trade show, validating our superior LiveScope technology, and further separating us from others in the market.

We are pleased with performance of marine during the first half of the year and believe we are on track to achieve full-year growth that is consistent out of the prior year. And moving finally to the auto OEM segment, revenue increased 1% to $172 million, with growth primarily driven by domain controllers. Gross and operating margins were 22% and 2% respectively. The gross margin expansion was primarily due to year-to-day cost recoveries that were recognized as revenue during the quarter. Operating income was positive on a gap accounting basis at $3 million in the quarter, driven by improved gross profit and lower research and development expenses. While we're excited about the positive quarter, we are expecting revenue to decline and the return to an operating loss in the back half of 2026, leading up to the launch of our next major program with Mercedes-Benz in 2027.

Wrapping up, I'm very proud of what our profitability invested in innovation completed a strategic acquisition and introduced new products across nearly every segment of our business. As we look to the second half of 2026, our product portfolio is strong and we are confident in the opportunities that lie ahead. We believe our success is driven by our commitment to create products that are essential to our customers and supporting them with industry leading quality and reliability in innovation.

That concludes my remarks. Next, Doug, we'll walk you through additional details of our financial results. Doug?

Thanks, Cliff. Good morning, everyone. Again, by reviewing our second quarter financial results, we provide comments on the balance sheet, cash flow statement, taxes, and updated guidance. Close to revenue of $2 billion, $22 million per second quarter, representing 11% increase year-to-year. Close margin was 62.4%, 360 basis point increase from the prior year quarter. Increase was primarily driven by favorable product mix and tariff refunds for approximately $21 million. Operating expense, percentage of sales, 32%, 80 basis point decrease.

Operating income increased 30% to $616 million, operating margin expanded to 30.4%, 40 basis point increase, credit prior year quarter. Our GAP EPS was challenged 80 cents, performing EPS, 1081 cents.

Next, look at our second quarter revenue by segment and geography. In the second quarter, we achieved consolidated delta digit growth, led by the fitness segment with 25% growth, followed by a marine segment with 14% growth. By geography, we achieved growth in all three regions, led by 13% growth in EMEA, followed by 12% growth in Americas, since 7% growth, and APAC. Looking next, operating expenses. Research and development expense increased $27 million, approximately 10%. Less uni expenses increased $25 million, approximately 8%. Cruces were primarily driven by personnel-related expenses. If you highlight on the balance sheet, cash flow statement, and taxes, then the quarter would cash, mark those securities, approximately $4.4 billion. Count receivable, increase both year-to-year, and sequentially, to approximately $1.2 billion, by the seasonally strong sales in the second quarter.

Inventory increase year-to-year sequentially to approximately $2 billion. During the second quarter of 2026, we generated free cash flow of $276 million, $148 million increase from prior quarter.

CAP expenditures for second quarter of 2026 for $120 million, approximately $82 million higher in a prior quarter. We expect full year, 2026 free cash flow to be at approximately $1.4 billion, with CAP expenditures approximately $550 million. During the second quarter of 2026, we paid dividends of approximately $202 million, and purchased $43 million of company stock. At quarter end, we had approximately $448 million remaining, a share of purchase program, authorized through December, 2028. Put an effective tax rate of 16.8 percent, pay to 16.5 percent in prior quarter. Increase in effective tax rate, primarily due to income mix by jurisdictions. Turning next to our full-year guidance, based on our performance during the first half of 2026, our positive outlook for the remainder of the year, we now estimate revenue of approximately $8.05 billion.

We prepared our previous guidance the $7.9 billion. As a result of year-day performance, we have increased our gross margin estimate to approximately 59.7 percent, 220 base went higher than our previous guidance, and as 100 base points higher than the full year 2025 gross margin. Year-day results have not been significantly impacted by higher memory costs. However, we do expect higher memory costs impact a second half, which has been factored into our full-year gross margin guidance.

Updated gross margin guidance does not include any additional benefit related to tariff refunds. Sides of benefit are already recorded in second quarter. We expect for operating margin to be approximately 27 percent, 150 basis points higher than our previous guidance. Also, we expect to reform effective tax rate of 16.5 percent, but our previous guidance is 16 percent. Increases due to income mix by jurisdiction. Expected performance earns for share approximately 10 dollars, put our previous guidance, now that was 35 cents. To include our form remarks, Rebecca, can you please open the line for Q&A?

Yeah. Thank you, Eric. And good morning. In terms of circa and the features, what we're trying to communicate there is that circa comes with all of the features that people have expected and get in any garment wearable on garment connect. They can certainly add the additional features of connect plus, including the AI and the nutrition tracking and other features that we'll add in the future. I think our main point and one of the things that we felt was a unique differentiator for us is the fact that our product is so richly featured right out of the box compared to competitors. In terms of other form factors, I won't comment specifically on our product roadmap. But as we demonstrated over time, we tend to move into categories and explore new things.

And so our product roadmap is very rich, and I would expect that we'll see additional new product in the future just like you've always seen from us.

With regards and margin, I would say that it's never our strategy to go backwards. But that said, everyone is facing higher costs, especially in the area of memory. And so we recognize that's a headwind. We're going to use the same playbook with memory as we did with tariffs and in managing the business and trying to provide outstanding performance. So we don't rule anything out and we'll continue to leverage everything we have in our toolbox to be able to mitigate the cost of memory. In terms of mix, I think it is somewhat of a generic term. You know, on the obvious side of that, it's when we release new products in our families that come out at higher margins.

And so when those new products start to become a greater part of the overall sales mix, we see higher margins in the segments because of that. And then there's also some improvements in the basic product cost side of things as well that we've been able to achieve through our vertical integration and leveraging our scale.

Thank you.

I just wanted to ask follow up on the cost there. You talked about memory chips briefly. You guys obviously put up a strong margin performance in 2Q, but can you just talk about how to think about price cost as we move into the second half? And you have higher memory chip costs, but if there's any other raw materials or other buckets to keep in mind? I think we've benefited from having a strategic inventory of memory that we've been using throughout the year. So the higher costs that are in the market today have not yet impacted our financials. We do expect that to start to impact this in the back half and we've included that in our guidance.

But in terms of other components, I think everything's under pressure right now. We're seeing far less attention in some of those other component categories, far less movement. But I think everything is certainly under pressure because of the AI demand. But again, we're managing that the same way we managed any other ripple in the dynamics. Again, I would call people's attention to our response around the tariffs and how we've been able to manage the business to be able to provide outstanding performance.

Yeah, so we do expect back half revenue to decline versus 2025 as we've reached the peak of our BMW volumes. And we are on track and preparing for the launch of the next major program with Mercedes Benz in 2020 to early 2027 as those products start to come off of our production line. So we expect 2027 would be a year that that auto again would again return to cross.

Okay, good morning. I'm sorry. I think the line was a little garbled when you mentioned the partnership.

Yeah, the Truman partnership and that has been a great new distribution channel for our products. And we don't quantify results by customer, but it was a great way to expand our reach, especially for people that want to purchase a high quality wearable using HSA funds.

Well, it's early days and in terms of traditional synergies, we're really not thinking about any of those. The synergies we're thinking about in training peaks and train heroic really has to do with our product line and the ability to offer what I would call a 360 degree experience for our customers. We're using our devices as they record information that is then loaded into the training platform and coaches are able to review that and provide recommendations, which then modifies the behaviors of the users. So we feel like a fantastic thing to achieve to be able to give a full experience to our customers of training and improvement.

Thank you.

Well, I think it is demand and supply driven, but definitely ahead of anything that we had imagined. We had expected that we would receive a good reception to that product when we introduced it. We had discussions with retailers and things in advance and they all were very excited about it. But the actual result once we announced the product was very strong ahead of our expectations. So we will be chasing back orders for a while, but it is early days. But in the first few days of registration tracking, it was very, very strong. So the product is already getting out to customers.

Yeah. So Thailand is on track and we're in probably the most intense part of our capital expenditures to be able to build and equip that facility. We expect it to be finished towards the end of the year and we'll start utilizing it in early 2027. Initially, we're building the product or the site out in phases. And so our first phase is about 400,000 square feet. But it can in total has a potential of doubling our capacity across all of Garmon. So we have a lot of room to grow there. The cost structure is probably the same or even slightly less than what we have globally right now. But in general, we're doing this out of the ability to differentiate and kind of give us additional manufacturing options as we diversify our business.

Thank you.

Thanks, Ivan.

We had a good reception to primacy. We hosted large groups of home audio installers and custom audio outfitters in our facility down in Miramar, Florida. And we had a very good reception to that and very good reviews from them coming out of that. It is a specialty product, highly specialty product. And so it's going to take some time to really see the pull through of that, but the initial reactions and the feedback we got from people was strong.

The reception to access is very strong. There's really nothing else like it out on the market. And it has basically been designed to address the ability to lower installation costs to simplify for both OEMs and home builders. And to provide a level of integration that they just didn't have access to before. So we're very excited about that. And we think it really resets the bar in terms of integrated flight displays.

Thank you.

Yeah, I think business aviation continues to be strong. As you know, OEMs are sitting on pretty much record backlogs as they work through those. So there doesn't appear to be an excess capacity issue. Customers still want these vehicles and appreciate them for what they do. And so the OEM side of things has been going very well. The aftermarket side has been resilient and strong, even despite some of the bumps that we've seen in the near term with fuel prices and things like that. But good used airplanes are things that people invest in and they add equipment to.

No, really no changes at all. We see things kind of moving as they have been.

Thank you.

Thanks to all of you for joining us today. Doug and I are available for call box, and we hope you have a great rest of your day. Bye.