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Why Is Trimble (TRMB) Up 9.3% Since Last Earnings Report?

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Zacks Equity Research
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It has been about a month since the last earnings report for Trimble Navigation (TRMB). Shares have added about 9.3% in that time frame, outperforming the S&P 500.

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

Trimble Q3 Earnings and Revenues Trump Estimates

Trimble Inc. reported third-quarter 2020 non-GAAP earnings of 60 cents per share, which beat the Zacks Consensus Estimate by 39.5%. Notably, the bottom line improved 15.4% sequentially and 25% year over year.

Per management, non-GAAP revenues increased 1% year over year to $792.8 million.

Further, the company’s GAAP revenues were $792.1 million, which surpassed the Zacks Consensus Estimate by 10.1%. Also, the figure was up 1% year over year and 7.9% from the prior quarter.

The top line was driven by strength in overall demand environment. Further, strong segmental performance aided the results.

Product revenues (58.3% of GAAP revenues) totaled $461.4 million, up 0.6% on a year-over-year basis. Services revenues (20.3% of revenues) were $160.7 million, down 4.3% year over year. Subscription revenues (21.5% of revenues) improved 8.2% from the year-ago quarter to $170 million.

Trimble continues to anticipate persistent headwinds in the global economy owing to the coronavirus pandemic. Consequently, the company has refrained from providing its guidance for the fourth quarter and the balance of 2020.

Nevertheless, its cost-control strategies are expected to drive profitability in the near term. Further, the company’s acquisition strategy remains a major positive and is likely to aid in the stock rebound in the long haul.

Segments in Detail

Buildings and Infrastructure: This segment generated sales of $317.4 million, accounting for 40.1% of the company’s non-GAAP revenues. The figure increased 2.5% on a year-over-year basis.

Geospatial: Sales from this segment were $165.6 million, accounting for 20.9% of total revenues. The figure increased 6.8% from the year-ago quarter, primarily driven by higher sales to OEM customers.

Resources and Utilities: The segment generated sales of $150.6 million, accounting for 19% of total revenues. The figure increased 24.4% on a year-over-year basis. The company experienced growth in the utilities business for the reported quarter, which was a positive.

Transportation: Sales from this segment were down 19.7% from the year-ago quarter to $159.2 million. Notably, the figure made up 20.1% of total revenues. Sluggishness in the transportation sector was a concern.

Metrics Details

For the third quarter, the company’s deferred revenues were up 20% on a year-over-year, driven by organic and acquisition-related growth. Also, backlog was $1.2 billion, up more than 10% from the year-ago period.

Operating Details

For the third quarter, non-GAAP gross margin came in at 58.8%, expanding 180 basis points (bps) year over year.

Adjusted operating expenses accounted for 34.6% of non-GAAP revenues, contracting 180 bps from the year-ago quarter. The decrease was due to structural actions and temporary factors related to the COVID-19 pandemic.

Consequently, non-GAAP operating margin came in at 24.2%, which expanded 360 bps year over year.

Balance Sheet

At the end of third-quarter 2020, cash and cash equivalents were $184 million, down from $196.4 million at the end of second-quarter 2020. Inventories were $318.5 million, down from $338.6 million in the previous quarter.

Long-term debt was $1.39 billion at third quarter-end compared with $1.76 billion at second quarter-end.

Further, the company generated $181 million of cash from operations compared with $147 million in the previous quarter.

Trimble generated free cash flow of $165 million for the reported quarter.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month.

VGM Scores

At this time, Trimble has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Following the exact same course, 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 D. 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. It comes with little surprise Trimble has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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