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Trimble (TRMB) Down 4.5% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research

It has been about a month since the last earnings report for Trimble Navigation (TRMB). Shares have lost about 4.5% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Trimble due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Trimble’s Earnings Lag Estimates, Revenues Up Y/Y in Q1

Trimble reported first-quarter 2019 non-GAAP earnings of 45 cents per share, missing the Zacks Consensus Estimate by 1 cent. The figure came in line compared with the year-ago quarter figure basis but decreased 6.2% sequentially.

Per the company, non-GAAP revenues increased 8% year over year and 1.5% on a sequential basis to $804.5 million. Moreover, the company’s GAAP revenues came in $801.6 million, up 8% from the prior-year quarter and 2% from the previous quarter.

The top line was primarily driven by strong performance of transportation and, buildings and infrastructures segments during the reported quarter.

Product revenues (60.9% of GAAP revenues) came in $488.4 million, down 1.9% on a year-over-year basis. Services revenues (19.9% of revenues) came in $159.2 million, up 23.6% year over year. Subscription revenues (19.2% of revenues) increased 33.2% from the year-ago quarter to $154 million.

We note that trade tensions and softness in China remained concerns for the company during the first quarter.

Nevertheless, the company’s acquisition strength remains a major positive and is likely to aid the stock to rebound in the long haul.

Segments in Detail

Buildings and Infrastructure: This segment generated $294.7 million sales, accounting for 36.6% of the company’s non-GAAP revenues, growing 29.7% on a year-over-year basis. Notably, strong performance by building and civil construction businesses of the company drove year-over-year sales in this segment. Further, continued benefits from e-Builder and Viewpoint buyouts contributed well. Moreover, growing subscription bookings aided the top-line growth within the segment.

Geospatial: Sales from this segment were $161.2 million, accounting for 20% of total revenues. The figure decreased 7.6%, compared with the year-ago quarter primarily owing to trade tensions between the United States and China. Macro-economic headwinds in China led to slowdown in OEM demand which impacted the top-line growth negatively within this segment.

Resources and Utilities: The segment generated sales of $159.5 million, accounting for 19.9% of total revenues. The figure was flat on a year-over-year basis. This segment was hurt by the ongoing trade dispute between the United States and China which resulted in sluggish spending by U.S. farmers. This in turn led to a weakened U.S. agriculture market. However, this was offset by growth in strong hold in other regions.

Transportation: Sales from this segment went up 2.8% to $189.1 million, accounting for 23.5% of total revenues. Robust performance by Trimble’s mapping, navigation and truck routing businesses drove the top-line within this segment.

Operating Details

In the first quarter, non-GAAP gross margin came in at 58%, expanding 90 bps year over year. The increase can be attributed to favorable product mix and strong cost control strategies.

Adjusted operating expenses accounted for 39% of non-GAAP revenues, expanding 100 bps compared with the year-ago quarter.

Non-GAAP operating margin came in at 19%, remaining flat year over year.

Balance Sheet & Cash Flow

As of Mar 30, 2018, cash and cash equivalents were $216.7 million, up from $172.5 million as of Dec 31, 2018. Inventories were $303.7 million, increasing from $298 million in the previous quarter.

Long-term debt was $1.65 billion at the end of first quarter, compared with $1.71 billion at the end of the fourth quarter.

Cash flow from operations was $147.6 million in the reported quarter, declining from $102 million in the last reported quarter.

Additionally, the company repurchased shares worth $40 million in the reported quarter.

Guidance

For second-quarter 2018, Trimble anticipates non-GAAP earnings between 52 cents and 56 cents per share.

The company expects non-GAAP revenues between $850 million and $880 million. Further, GAAP revenues are anticipated to lie within the range of $849 million to $879 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

At this time, Trimble has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Trimble has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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