Trimble Navigation’s (TRMB) fourth-quarter 2013 earnings of 40 cents exceeded the Zacks Consensus Estimate by 7 cents.
Despite softness in some markets, Trimble’s solid portfolio (enhanced by acquisitions), strong market position and strategic partnerships will continue to drive both revenues and earnings over the next few quarters.
Revenues
Trimble’s fourth-quarter revenues of $599.2 million were up 7.7% sequentially and 16.2% year over year and exceeded the company’s guided range of $560–$580 million. Fourth-quarter revenues were also above the Zacks Consensus Estimate of $565.0 million. The revenues in the last quarter were driven by strong performance in the Engineering and Construction (E&C), Sales Solutions and Mobile Solutions (TMS) segments.
Trimble has also made a number of acquisitions in the recent months, which are helping it to build a strong product portfolio and position itself in markets with better growth prospects.
Revenues by Segment
The Engineering and Construction (E&C) E&C, Field Solutions (TFS), Mobile Solutions (TMS) TMS and Advanced Devices (AD) segments generated 56.0%, 18%, 20% and 6% of the total revenue, respectively.
E&Cunit revenues of $331.1 million were up 6.6% sequentially and 23.0% year over year. The year-over-year increase was attributable to positive impact from acquisitions, two important agreements with AECOM and Caterpillar, and heavy civil building construction products due to a revival in the U.S. residential and commercial market. The most important markets within E&C are heavy and highway, large-scale commercial, smaller-scale commercial and housing as well as survey instruments.
Of these, heavy civil, though continuing to grow, is currently under pressure due to Australian recession, the lack of European investment and the absence of a solution to the U.S. Highway funding. However, the survey instruments business is seeing growth which is expected to continue in 2014 as well.
TFSrevenues of $111.1 million were up 11.6% sequentially and 2.8% year over year. The lower-than-expected year-over-year growth was due to weaker sales of Geographical Information System (GIS) solutions, partially offset by growth in agricultural solutions sales.
Management expects the agricultural business revenues to grow at a double-digit rate, driven by the expansion in the new product categories and a higher rate of product introductions.
TMS revenues of $125.9 million were up 10.8% sequentially and 20.4% from the comparable quarter of 2012. While the core business contributed to growth in the last quarter, most of the increase was on the back of acquisitions especially in the transportation and logistics market.
The AD segment was down 5.3% sequentially and 7.8% from the year-ago quarter to $31.1 million. The weak performance was due to lower sales of embedded and timing devices.
Margins
Trimble’s gross margin for the quarter was 53.3%, up 30 basis points (bps) sequentially and 360 bps year over year. The increase was due to a favorable mix. Acquisitions are adding software to the portfolio, in turn, positively impacting the gross margin.
Trimble reported operating expenses of $252.1 million, up 8.7% sequentially and 11.5% from the year-ago quarter. As a percentage of sales, all expenses research and development, sales and marketing, and general and administrative) decreased from the year-ago quarter. As a result, the operating margin was 11.2%, down 10 bps sequentially but up 530 bps year over year.
Net Income
Pro-forma net income was $104.72 million or 40 cents compared to $65.86 million in the year-ago quarter. Pro-forma estimate in the last quarter excludes restructuring charges, amortization of intangibles and 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, the company recorded a net profit (for Trimble shareholders) of $60.0 million (23 cents per share) compared with $54.5 million (21 cents per share) in the previous quarter and a net profit of $33.2 million (13 cents per share) in the comparable prior-year quarter.
Balance Sheet
Inventories were up 5.3% sequentially to $254.3 million. Accounts receivables were $337.9 million, down from $361.6 million in the prior quarter. Days sales outstanding (DSOs) were down from around 59 days to 55 days.
Trimble generated $136.0 million of cash from operations, up from $106.4 million in the prior quarter. The cash position at quarter-end decreased $25.2 to $147.2 million in the last quarter. Long-term debt at quarter-end stood at $652.1 million, down from $703.9 million in the third quarter.
Guidance
Management expects first-quarter revenues in the range of $610–$630 million, while the Zacks Consensus Estimate for revenues is pegged at $616 million. Earnings on a GAAP basis are expected in the range of 23 cents–26 cents per share and on a non-GAAP basis within 40 cents–43 cents per share. The calculation of non-GAAP earnings per share excludes one-time charges such as amortization of intangibles of $40.0 million, anticipated acquisition costs of $3.0 million and stock-based compensation of $10.0 million. The tax rate is expected in the range of 19%–21%, while share count is likely to be 264.0 million.
Summary
Trimble is seeing much stronger construction markets and a few of its businesses have started witnessing normal seasonality. Additionally, management’s 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. However, quite a significant amount of its business, whether directly or indirectly, is dependent on government spending in the U.S., which could weigh on the shares, at least in the near term.
Trimble has a Zacks Rank #3 (Hold). Other stocks that have been performing well and are worth a look include Melco Crown Entertainment Limited (MPEL), Mistras Group, Inc. (MG) and Garmin Ltd. (GRMN). All of these sport a Zacks Rank #1 (Strong Buy).
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