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Trimble Navigation Beats Q3 Earnings & Revenue Estimates

Trimble Navigation’s TRMB third-quarter 2015 earnings easily beat the Zacks Consensus Estimate. Earnings were up 14.6% sequentially but down 16.2% from the year-ago quarter.

Trimble Navigation Limited Inc. (TRMB) - Earnings Surprise | FindTheCompany

The year-over-year decrease was due to lower gross margin, which was impacted by reduced volumes and increased hardware mix in some businesses.

Revenues

Trimble’s third quarter revenues of $562.3 million were down 4% sequentially and 3.8% year over year. Revenues however surpassed the Zacks Consensus Estimate of $552.0 million and were above the company’s guided range of $535 million–$560 million.

Persistent poor conditions in the agriculture market, oil price decline and lower agriculture revenues continue to negatively impact revenues. But growth from acquisitions and divestitures of approximately 1% partially offset the decline.

Another important factor affecting revenues was a sharp decline in sales in Brazil (as expected) and China due to economic uncertainties.

However, revenues from Europe were flat on a year-over-year basis although  agriculture and parts of the Transportation and Logistics businesses were strong.

Revenues by Segment

The Engineering and Construction (E&C), The Field Solutions (TFS), The Mobile Solutions (TMS) and Advanced Devices (AD) segments generated 58%, 13%, 23% and 6% of total revenue, respectively.

E&C unit revenues of $326.4 million were down 3.6% sequentially and 4.6% year over year. In this quarter, Building construction,Geospatial revenues and Heavy Civil revenues were particularly impacted by exchange rates, partially offset by acquisitions.The net effect of acquisitions and divestitures added approximately 1% to revenues year over year.

TFS revenues of $73.5 million were down 15.6% sequentially and 17.2% year over year. On a constant currency basis, the segment was down approximately 14% due to weakness in the agriculture and the GIS businesses. Acquisitions added 3%.

TMS revenues of $131.6 million were up 2.6% sequentially and 8.6% year over year.  Acquisitions added 2%. Within the segment, the Transportation and Logistics business was up aided by continued strength in both the Mobile and Enterprise businesses.

The AD segment was down 3.4% from the last quarter and 3.1% from the year-ago quarter to $30.8 million.

Margins

Trimble’s gross margin was 57.2%, up 134 basis points (bps) sequentially but down 43 bps year over year. The year-over-year decrease was due to reduced volumes and the hardware mix in some businesses. However, these were largely offset by benefits from a higher mix of software subscription revenues.

Trimble reported operating expenses of $229.5 million, down 5.2% sequentially and 0.3% year on year. Operating margin was 16.4%, up 185 bps sequentially but down 190 bps year over year. Operating margin was negatively impacted by lower revenues, acquisitions and foreign exchange.

Net Income

Pro-forma net income was $61.7 million compared with $75.7 million in the year-ago quarter. The pro-forma estimate excludes restructuring charges, amortization of intangibles, gain on an equity sale, litigation charges, 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 $37.0 million (14 cents per share) compared with $34.0 million (13 cents) in the previous quarter and $11.8 million (4 cents) in the year-ago quarter.

Balance Sheet

Trimble exited the third quarter with cash and cash equivalents of approximately $123.6 million compared with $129.0 million in the prior quarter. Inventories were $271.4 million, down from $280.8 million in the last quarter. Accounts receivables were $345.5 million, down from $355.5 million in the earlier quarter. Days sales outstanding (DSOs) were up from around 55 days to 56 days.

During the quarter, the company repurchased 8.2 million shares of Trimble common stock for $154.6 million.

Guidance

Management expects fourth quarter revenues in the range of $520 million–$550 million. The Zacks Consensus Estimate stands at 610 million.

Earnings per share on a GAAP basis are expected in the range of 1–8 cents and on a non-GAAP basis within 19-26 cents. The Zacks Consensus Estimate stands at 22 cents.

The calculation of non-GAAP earnings per share excludes the amortization of intangibles of $40 million related to previous acquisitions, anticipated acquisition costs of $3 million, the anticipated impact of stock-based compensation expense of $14 million, and $3 million in anticipated restructuring charges. The GAAP guidance assumes a tax rate of 25% while the non-GAAP guidance assumes a tax rate of 24%. Both GAAP and non-GAAP earnings per share guidance assumes approximately 253 million shares outstanding.

Summary

Trimble reported encouraging third quarter 2015 results with both the top line and the bottom line exceeding the Zacks Consensus Estimates.

The company’s Mobile Solutions segment is benefiting from growth in transportation and logistics. The company expects the performance to continue through the remainder of 2015 and into 2016.

Its Field Services business is seeing softness due to weakness in agriculture sales, which it expects to improve leading into 2016.

Consistent with what we have heard thus far from other companies, Trimble is seeing improving trends in the construction market. The company’s initiatives to lower the cost structure and make strategic acquisitions, combined with the increasing adoption of technology in the agricultural market, product enhancements and international expansion should see it through the current tough environment.

However, the negative impact of exchange rates, declining oil prices, European uncertainties, weak economic environment in China and continued weakness in Brazil, Russia and Australia remain concerns.

Currently, Trimble has a Zacks Rank #3 (Hold).

However, better-ranked stocks in the technology sector include Facebook, Inc. FB, Expedia EXPE and JD.com, Inc. JD. All these stocks sport a Zacks Rank #1 (Strong Buy).

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