Trimble Navigation’s (TRMB) third quarter earnings exceeded the Zacks Consensus Estimate by 3 cents, or 6.8%. While GAAP earnings exceeded management expectations, non-GAAP earnings fell short.
However, despite softness in some markets, Trimble’s solid portfolio (enhanced by acquisitions), strong market position and strategic partnerships will continue to drive both revenue and earnings over the next few quarters.
Seasonality typically causes huge sequential fluctuations in both revenue and margins. As a result, management generally compares results on a year-over-year basis. We have included sequential comparisons, where required.
Revenue
Trimble’s third quarter revenue of $417.4 million was up 2.5% sequentially and 31.2% year over year, exceeding the high end of the guided range of $406-411 million (flat sequentially, up 28-29% year over year).
While the weakness in U.S. commercial and residential construction remains, 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 the product portfolio and position the company in markets with better growth prospects.
Revenue by Segment
E&C unit revenue of $241.1 million was up 1.9% sequentially and 27.2% year over year. E&C usually witnesses sequential strength in the first two quarters of the year and declines in the next two.
The most important markets within E&C are heavy and highway, large-scale commercial, smaller-scale commercial and housing in that order. Of these, the heavy and highway construction business remained very strong, with survey instruments and other areas of the business also showing some improvement.
SITECH channel development continued to progress, contributing to the performance in the last quarter. Commercial is improving very gradually in the U.S. and residential is likely to remain lumpy in the near term. There appears to be a growing awareness regarding the state of domestic infrastructure, which given the productivity enhancements offered by Trimble products could result in strong revenue growth in the future.
Infrastructure build-outs in emerging economies remain an attractive growth area (despite the fact that China was impacted by temporary issues in railway construction). The commercial and residential construction business in Europe remains weak. The last quarter’s results also benefited from the Tekla acquisition, which is a leader in the building information modeling (BIM) segment.
TFS revenue of $91.1 million was down 12.4% sequentially and up 35.5% from last year. The segment, which is largely driven by the agricultural market, is particularly weak in the second and third quarters, with revenue stabilizing in December and jumping up in March.
Therefore, results in the last quarter were in-line with normal seasonality. Trimble stated that the revenues in the last quarter were helped by both the agricultural and geographic information systems (“GIS”) sides of the business. The agricultural business was helped by new products and a strengthening of the global agricultural economy. Tekla also contributed to the TFS segment results.
TMS revenue of $58.1 million was up 44.4% sequentially and 54.1% from the comparable quarter of 2010. While the core business contributed to the growth in the last quarter, most of the increase was the impact fo acquisitions.
Trimble has been doing a lot of work here, disposing off non-focus areas and building a desired portfolio through successive acquisitions. 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 generated less than 7% of revenue, increasing 3.3% sequentially and 14.5% from a year ago. Segment results improved significantly in the last quarter, as Applanix products and integration of acquisitions contributed to results. Growing international exposure and new deal wins remain positives.
Revenue by Geography
North America remains the largest segment for Trimble, with a 51% revenue share. Revenue from the region was up 4.6% sequentially and 28.7% from the year-ago quarter, reflecting continued recovery in the market.
Approximately 24% of revenue came from Europe, which was down 1.6% sequentially and up 36.9% from last year. Trimble’s business was supported by a number of acquisitions here.
The Asia/Pacific accounted for 15% of Trimble’s revenue in the last quarter, declining 3.9% sequentially, but growing 15.7% year over year due 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 10% of revenue, up 13.9% sequentially and 64.0% year over year.
Margins
Trimble’s pro forma gross margin for the quarter was 53.5%, up 21 basis points (bps) sequentially and 123 bps year over year. Gross profit dollars grew 2.9% sequentially and 34.3% from last year.
Management stated that acquisitions are adding software to the portfolio, which is having a positive impact on the gross margin. The Mobile Solutions business also generated positive margins, and as management promised, the subscribers that were signed up at the beginning of the year started generating high-margin subcription revenue in the back half of the year.
Trimble reported operating expenses of $157.4 million that were up 9.6% sequentially and 32.1% from the year-ago quarter. The operating margin was 15.8%, down 222 bps sequentially and up 98 bps year over year. All expenses except cost of sales increased as a percentage of sales although S&M (up 133 bps) was the biggest driver. The year-over-year expansion in operating margin was on account of lower cost of sales, helped by lower G&A (as a percentage of sales) and offset by higher R&D and S&M.
The GAAP operating margins by unit were E&C 17.7% (down 217 bps sequentially), TFS 34.1% (down 684 bps), TMS 4.3% (up 1,098 bps) and the AD segment 14.6% (up 471 bps). Both TFS and TMS segment margins saw significant expansion from the year-ago quarter. TFS expanded 279 bps, while TMS expanded 453 bps. E&C and AD were down 162 bps and 256 bps, respectively.
The E&C operating margin in the last quarter was impacted by deferrals related to the Tekla acquisition. Tekla is expected to be accretive to Trimble’s results beginning in the first quarter of 2012. TMS gained from the impact of acquisitions, as well as the targeting of specific industry verticals.
Net Income
The pro forma net income was $59.2 million, or a 14.2% net income margin compared to $69.3 million, or 17.0% in the previous quarter and $46.4 million, or 14.6% 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 $28.7 million ($0.23 per share) compared to $54.7 million ($0.43 per share) in the previous quarter and a net profit of $32.8 million ($0.27 per share) in the prior-year quarter.
Balance Sheet
Inventories were flattish sequentially at $215.7 million, with annualized inventory turns going up from around 3.5X to around 3.6X. Days sales outstanding (DSOs) were up from around 58 to around 63.
Trimble generated $51.1 million of cash from operations, spending $666.8 million on acquisitions, $6.7 million on capex and did not repurchase any shares in the last quarter. The cash position at quarter-end dropped $111.6 million during the quarter to $138.3 million. The net debt position at quarter-end was $499.0 million, down from a net cash position of $122.6 million at the beginning of the quarter.
Guidance
Management expects first quarter revenue of $415-420 million (flat sequentially, up 28-30% year over year). Earnings on a GAAP basis are expected to be 20-22 cents per share and on a non GAAP basis, 47-49 cents per share.
The one-time charges excluded for the calculation of non-GAAP EPS are amortization of intangibles (approximately $29 million) and stock based compensation ($8 million). Both the GAAP and non GAAP EPS are after interest charges of around $3 million, using a tax rate of 9-11% and a share count of 127.0 million.
In 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 nature of new business acquired and we are optimistic its results going forward.
The Zacks Rank on Trimble shares is #1, implying a short-term Strong Buy recommendation.
TRIMBLE NAVIGAT (TRMB): Free Stock Analysis Report
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment