Garmin Ltd. (GRMN) Cash Flow Statement

The OCF/NI ratio of 0.62 in 2026Q2 is the lowest in the ten-quarter series, driven by a $194.5M working capital outflow, which contrasts with the 1.32 ratio in the prior quarter when working capital contributed $128.9M. This volatility suggests that earnings quality is stable but that cash conversion is heavily influenced by seasonal inventory and receivable build-ups, particularly in the second quarter. Investors should monitor whether these swings smooth out over the full year, as the cumulative conversion appears healthy.

The sequential decline in FCF margin is primarily due to a seasonal working capital outflow and higher capex, not a deterioration in underlying profitability. Over the last four quarters, FCF totaled approximately $1.4B, representing a margin of around 20%, which comfortably exceeds net income of $1.9B, indicating high cash generation. This trajectory suggests that the company's cash flow is more than sufficient to fund its capital allocation priorities.

The jump in capex intensity to 6.3% in 2026Q2 is notable, but it is still modest compared to typical hardware manufacturers, reflecting Garmin's focus on software and design. The absolute capex of $127.8M is the highest in the series, suggesting possible investment in manufacturing capacity or tooling for new product launches. Given the company's strong FCF, this increased investment appears manageable and may support future growth.

The second quarter typically shows a working capital outflow as inventory builds ahead of the third-quarter sales peak, and 2026Q2's outflow is the largest in the series. This pattern is consistent with prior years, where Q2 also saw outflows, but the magnitude has increased, possibly indicating higher inventory levels for new product launches. The company's ability to manage payables and receivables will be key to smoothing cash flow, but the current swings appear to be within normal seasonal bounds.

In 2026Q2, buybacks turned positive at $86.4M, a significant shift from the net issuance seen in the prior three quarters, while dividends grew to $202.4M, up from $144.0M a year earlier. This suggests management is increasingly confident in cash generation and is returning more capital to shareholders. The combined payout ratio on FCF is roughly 55%, leaving ample room for continued increases or strategic investments.

The small cumulative gap between OCF and net income suggests that accruals are minimal and that reported earnings are largely backed by cash. This is a positive signal for earnings quality, especially when compared to peers like GoPro and Sonos, which have negative FCF margins. The slight shortfall in OCF relative to net income is likely due to timing differences in working capital, but the overall trend indicates that Garmin's profitability is cash-generative.