Trimble Navigation Beats Q2 Earnings on Increased Revenues

Zacks

Trimble Navigation’s (TRMB) second-quarter 2014 earnings of 42 cents beat the Zacks Consensus Estimate by 5 cents. The increase in profitability was driven by broad-based growth in the majority of Trimble’s businesses, partially offset by weakness in the agriculture business. Also, higher gross margins and solid execution aided earnings growth in the quarter.

Revenues

Trimble’s second-quarter revenues of $642.2 million were up 6.2% sequentially and 11.4% year over year. Also, second-quarter revenues were above the company’s guided range of $605–$630 million and beat the Zacks Consensus Estimate of $621.0 million. Revenues were driven by strong performance in the Engineering & Construction and Advanced Devices segments.

Revenues by Segment

The Engineering and Construction (E&C), Field Solutions (:TFS), Mobile Solutions (:TMS) and Advanced Devices (AD.TO) segments generated 57%, 18%, 19% and 6% of total revenue, respectively.

E&C unit revenues of $368.1 million were up 17.4% sequentially and 19% year over year. The most important markets within E&C are heavy and highway, large-scale commercial, small-scale commercial and housing as well as survey instruments.

The increase was attributable to continuing market penetration, with some improvement seen in Europe and ongoing improvement in the U.S. residential and commercial market. Also, the use of advanced technology, including computerized design tools, estimating software, scheduling software, geospatial instruments, machine control and on-site alignment tools, have led to the growth of E&C business.

TFS revenues of $114.5 million were down 1.2% sequentially and 17.2% year over year. The decrease was due to weaker sales in agricultural solutions, partially offset by growth in Geographical Information System (GIS) solutions.

Though management expects agricultural business revenues to remain weak in the near term, it expects strong growth over the long term, driven by expansion in the new product categories and a higher rate of product introductions.

TMS revenues of $122.9 million were up 6.4% sequentially and 3.6% from the comparable quarter of 2013. While core business contributed to growth, strong sales in the transportation and logistics market played the major role.

The AD segment was up 16.9% sequentially but down 4.8% from the year-ago quarter to $36.8 million. The sequential increase was due to strength in several businesses in the portfolio.

Margins

Trimble’s gross margin for the quarter was 55.2%, up 110 basis points (bps) sequentially and 270 bps year over year. The increase was due to a favorable mix. Acquisitions added software to the portfolio, in turn, positively impacting the gross margin.

Trimble reported operating expenses of $257.4 million, up 2.5% sequentially and 8.4% from the year-ago quarter. As a percentage of sales, research and development expense decreased from the year-ago quarter, while sales & marketing and general & administrative expenses increased. As a result, the operating margin was 15.1%, up 260 bps sequentially and 380 bps year over year.

Net Income
 

Pro-forma net income was $112.1 million or 42 cents compared with $92.1 million or 35 cents in the year-ago quarter. Pro-forma estimate in the second quarter excludes restructuring charges, amortization of intangibles, gain on an equity sale, acquisition-related costs and other adjustments on a tax-adjusted basis but includes stock-based compensation. Our pro-forma estimate may not match management’s presentation due to the inclusion/exclusion of some items that were not considered by management.

On a GAAP basis, Trimble recorded a net profit (for Trimble shareholders) of $77.8 million (29 cents per share) compared with $68.6 million (26 cents) in the previous quarter and a net profit of $54.6 million (21 cents) in the year-ago quarter.

Balance Sheet

Inventories were up 2.9% sequentially to $274.4 million. Accounts receivables were $379.8 million, down from $397.7 million in the prior quarter. Days sales outstanding (DSOs) were down from around 56 days to 54 days.

Trimble generated $131.2 million of cash from operations, up from $83.4 million in the prior quarter. Total debt (long-term plus short-term) at quarter-end stood at $655.9 million, down from $664.7 million in the first quarter.

Guidance

Management expects third-quarter revenues in the range of $590–$600 million, while the Zacks Consensus Estimate for revenues is pegged at $617 million. Earnings per share for the coming quarter on a GAAP basis are expected in the range of 19–24 cents and on a non-GAAP basis within 35–40 cents. The Zacks Consensus Estimate for earnings is pegged at 38 cents. The calculation of non-GAAP earnings per share excludes one-time charges such as amortization of intangibles worth $37.0 million, anticipated acquisition costs of $4.0 million and stock-based compensation of $11.0 million. The tax rate is expected in the range of 20–22%, while share count is likely to be 265.0 million.

Summary

Trimble is witnessing much stronger construction markets and a few of its businesses are experiencing normal seasonality. Additionally, management’s initiatives, such as lowering the cost structure, strategic acquisitions, product enhancements and international expansion appear to be paying off. However, quite a significant amount of its business, whether directly or indirectly, is dependent on government spending in the U.S. Though the softness in certain areas of business is related to macro concerns and the nature of new business acquired, improving trends in the domestic construction market and increasing adoption of technology in the agricultural market remain the secular growth drivers.

Currently, Trimble has a Zacks Rank #3 (Hold). Stocks that have been performing well and are worth a look include Analog Devices (ADI), Agilent Technologies (A) and Garmin Ltd. (GRMN). All these stocks carry a Zacks Rank #2 (Buy).

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