“We continued our trend of consolidated revenue growth led by double digit growth in our marine, outdoor and aviation segments,” said Cliff Pemble, president and chief executive officer of Garmin Ltd. “The fitness segment declined slightly due to the rapidly maturing market for basic activity trackers. However, demand for advanced wearables remains strong. Our product development pipeline is robust and we look forward to launching compelling new products throughout the remainder of the year.”
Marine:
The marine segment posted robust revenue growth of 26% driven by our solid lineup of chartplotters, fishfinders and entertainment products. Gross margin increased year-over-year to 57% with product mix shifting toward new products with higher margin profiles. Operating margin improved to 17%, resulting in 76% operating income growth. During the first quarter of 2017, we started shipping our new touchscreen and keyed chartplotter combo offerings in our popular GPSMAP® product line, with positive customer reception. We remain focused on innovations and achieving market share gains within the inland fishing category.
Outdoor:
During the first quarter of 2017, the outdoor segment grew 20% with significant contributions from wearable devices. Gross margin improved to 63% while operating margin improved to 30%, resulting in 24% operating income growth. We began shipping our highly anticipated fēnix® 5 adventure watch series late in the first quarter as well as the new Garmin branded inReach handhelds.
Aviation:
The aviation segment posted solid first quarter revenue growth of 16%, primarily driven by growth in aftermarket products. Gross and operating margins were strong at 74% and 31%, respectively, resulting in 27% operating income growth. During the quarter, we began shipping the G1000® NXi, the next generation integrated flight deck, expanded the market for our ADS-B products with the European Aviation Safety Agency certification of the GTX 345 and continued to enhance our portfolio of safety enhancing products with the G5, a cost-effective solution for electronic flight instruments. We will continue to focus on ADS-B and other global regulatory mandate opportunities that exist and gaining market share in the OEM market.
Fitness:
During the first quarter of 2017, the fitness segment posted a revenue decline of 3% driven by lower volume in basic activity trackers partially offset by growth in our advanced wearables with GPS. Gross and operating margins increased year-over-year to 56% and 13%, respectively, resulting in an 11% growth in operating income. During the first quarter, we launched the Forerunner 935, our most advanced multisport watch with performance monitoring tools and introduced the vívosmart 3, an ultra-slim smart activity tracker with wrist based heart rate and innovative all-day stress tracking. While the market for basic activity trackers has matured rapidly over the past year, we continue to see opportunities within the advanced wearable with GPS category and are confident in our product roadmap for the remainder of 2017.
Auto:
The auto segment recorded revenue decline of 19% in the first quarter of 2017, primarily due to the ongoing PND market contraction partially offset by growth in our Auto OEM product lines. Gross margin remained constant at 44%, while operating margin declined year-over-year to 4%. During the first quarter of 2017, we began shipping the next generation Drive series PNDs, offering expanded safety and driver awareness features with WiFi capability, and introduced the Dash Cam 45 and 55, offering a high-quality recording in a compact form factor.
Additional Financial Information:
Total operating expenses in the quarter were $256 million, an 8% increase from the prior year. Research and development increased 13% driven by aviation and advanced wearable products in fitness and outdoor. Selling, general and administrative expenses increased 7% driven primarily by legal related expenses and information technology costs. Advertising was relatively flat year-over-year.
In the first quarter of 2017, we reported a $150 million income tax benefit. Excluding the $169 million income tax benefit due to the revaluation of certain Switzerland deferred tax assets, our pro forma effective tax rate for the first quarter of 2017 was 21.3% compared to an effective tax rate of 18.1% in the prior year. The year-over-year increase in the pro forma effective tax rate is primarily due to the Company’s election in February 2017 to align certain Switzerland corporate tax positions with evolving international tax initiatives.
In the first quarter of 2017, we generated $95 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 and our share repurchases activity, which totaled approximately $28 million in the first quarter of 2017. We have approximately $47 million remaining in the share repurchase program authorized through December 31, 2017, and expect to repurchase Company stock as business and market conditions warrant. We ended the quarter with cash and marketable securities of approximately $2.3 billion.
