Trimble Beats by a Penny - Analyst Blog

Trimble Navigation's (TRMB) fourth quarter earnings beat the Zacks Consensus Estimate by a penny, or 2.0%.

Despite softness in some markets, Trimble's solid portfolio (enhanced by acquisitions), strong market position and strategic partnerships are expected to drive both revenues and earnings over the next few quarters. 

Revenues

Trimble's fourth quarter revenues of $515.5 million were up 2.1% sequentially and 18.5% year over year, exceeding the high end of the guided range of $503–$508 million.

Despite the persisting weakness in the U.S. commercial and residential construction markets, Trimble's business was not unduly impacted in the last quarter. Trimble has also made a number of acquisitions in recent months, which are helping to build its product portfolio and position the company in markets with better growth prospects.

Revenues by Segment

The Engineering and Construction (E&C), Field Solutions (TFS), Mobile Solutions (TMS) and Advanced Devices (AD) segments generated 52%, 21%, 20% and 7% of revenue, respectively.

E&C unit revenues of $269.1 million were down 6.3% sequentially and up 12.7% year over year. The year-over-year increase was attributable to higher sales of heavy and highway and building construction products, as well as the contribution from acquisitions. The most important markets within E&C are heavy and highway, large-scale commercial, smaller-scale commercial and housing. 

Of these, the survey instruments business is currently under pressure due to the European slowdown as well as increased caution at surveyors in the U.S. where economic uncertainty is leading them to postpone purchases.

TFS revenues of $108.1 million were up 5.0% sequentially and 13.2% from last year. The segment, was largely driven by the agricultural market and the rollout of the Connected Farm strategy. The agricultural business benefited from new value-added products and continued strength of the global agricultural economy. A flat GIS business and a contribution from acquisitions supported the strong growth from the year-ago quarter.

TMS revenues of $104.5 million were up 24.7% sequentially and 37.9% from the comparable quarter of 2011. While the core business contributed to growth in the last quarter, most of the increase was the impact of acquisitions. Trimble has been doing a lot of work here, disposing off non-focus areas and building a desired portfolio through successive acquisitions like TMW and ALK.

The company is now taking a more focused approach to target industries, such as forestry, construction supply, transportation and logistics, communications, environmental, field services and public safety.

The AD segment was up 10.0% sequentially and 34.3% from a year ago. The improved performance was on account of stronger sales of embedded and timing devices.

Revenues by Geography

North Americaremains the largest segment for Trimble, with a 55% revenue share. Revenues from the region were up 8.0% sequentially and 25.3% from the year-ago quarter, reflecting continued recovery in the market.

Approximately 22% of revenues came from Europe, which was down 2.3% sequentially and up 13.3% from last year.

The Asia/Pacific region accounted for 16% of Trimble's revenues in the fourth quarter, up 2.1% sequentially and 18.5% year over year attributable to the success of targeted programs in China and India, as well as acquisitions over the last few months.

The rest of the world contributed 8% of revenues, down 9.2% sequentially but up 5.3% year over year.

Margins

Trimble's gross margin for the quarter was 49.8%, down 233 basis points (bps) sequentially and 29 bps year over year. However, excluding one-time items, it was flattish compared to the year-ago quarter.

Trimble reported operating expenses of $226.1 million, up 13.4% sequentially and 19.6% from the year-ago quarter. The operating margin was 5.9%, down 669 bps sequentially and 72 bps year over year. All expenses (R&D, S&M and G&A) increased sequentially and year over year as a percentage of sales.

GAAP operating margins by segment were: E&C 14.6% (down 78 bps year over year), TFS 34.4% (down 130 bps), TMS 10.8% (up 289 bps) and the AD segment 18.5% (up 473 bps). Both TMS & AD segment margins saw significant expansion from the year-ago quarter.

Net Income

The pro forma net income was $65.9 million, or a 12.8% net income margin compared to $80.6 million, or 16.0% in the previous quarter and 60.9 million, or 14.0% net income margin in the prior-year quarter. The pro forma calculations in the last quarter exclude restructuring charges, amortization of intangibles and acquisition-related costs and other adjustments on a tax-adjusted basis. 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 fully diluted GAAP basis, the company recorded a net profit (for Trimble shareholders) of $33.2 million ($0.26 per share) compared to $53.4 million ($0.42 per share) in the previous quarter and a net profit of $29.4 million ($0.23 per share) in the comparable prior-year quarter.

Balance Sheet

Inventories were up 2.7% sequentially to $240.5 million. Days sales outstanding (DSOs) were down from around 58 to 57.

Trimble generated $96.8 million of cash from operations. The company spent $728.1 million on acquisitions, $54.1 million on capex and did not repurchase any shares in the last quarter. The cash position at quarter-end increased $15.9 million to $157.8 million. Long-term debt at quarter end stood at $873.1 million, up from $553.2 million in the third quarter.

Guidance

Management expects first quarter revenues of $575–$580 million. Earnings on a GAAP basis are expected to be 41-43 cents per share and on a non GAAP basis 74-76 cents per share. The one-time charges excluded for the calculation of non-GAAP EPS are intangibles amortization and acquisition expenses of $38.2 million and stock-based compensation of $9.2 million. The tax rate is expected to be in the range of 14–16% while share count is likely to be 130.0 million.

Summary

Trimble is seeing much stronger end markets and a few of its businesses have started seeing normal seasonality. Additionally, management initiatives, such as the lowering of the cost structure, strategic acquisitions, product enhancements and international expansion appear to be paying off. The softness in certain areas of the business is related to macro concerns and the nature of new business acquired and we are optimistic about its results going forward.

Trimble has a Zacks Rank #2 (Buy). Other stocks that are currently doing well include Bel Fuse Inc. (BELFB) and Esco Tech. Inc. (ESE). While Daktronics and Bel Fuse have a Zacks Rank #1 (Strong Buy), Esco and Siemens AG(SI) carry a Zacks Rank #2 (Buy).