Trimble Navigation’s TRMB second-quarter 2015 earnings of 25 cents beat the Zacks Consensus Estimate by a penny. Also, earnings were up 4.2% sequentially but down 40.5% from the year-ago quarter.
The quarter was impacted by notable weakness in Trimble’s agriculture business. This combined with a strengthening U.S dollar and declining oil prices affected earnings.
Revenues
Trimble’s second-quarter revenues of $585.8 million were up 0.5% sequentially but down 8.8% year over year. Revenues missed the Zacks Consensus Estimate of $590.0 million but were within the company’s guided range of $570 million–$600 million.
During the quarter, the year over year shortfall in revenues was attributed to FX (negatively impacting revenues by approximately 4%), combined with oil price decline and lower agriculture revenues. But growth from acquisitions of approximately 3% partially offset the decline.
Also, the combination of divestitures and the closure of contractual agreements negatively impacted revenues by approximately 2% year over year.
Another important factor affecting revenues was a sharp decline in sales in Brazil (as expected) and China due to economic uncertainties. Revenues declined over 25% in the two countries as against over 10% growth in the prior quarter.
However, European core revenue, excluding exchange rate and non-recurring effects, increased on a year-over year basis.
Revenues by Segment
The Engineering and Construction (E&C), The Field Solutions (TFS), The Mobile Solutions (TMS) and Advanced Devices (AD) segments generated 58%, 15%, 22% and 5% of total revenue, respectively.
E&C unit revenues of $338.5 million were up 13.1% sequentially but down 8.0% year over year. In this quarter, construction was particularly impacted by exchange rates, which adversely affected revenues by around 5%, partially offset by growth from acquisitions.
The heavy civil construction business continued to be negatively impacted by FX, prior revenue recognition events and a JV contract completion.
TFS revenues of $87.1 million were down 24.5% sequentially and 24.0 % year over year. The year-over-year decrease was due to weaker sales in agricultural solutions and weakness in the GIS business. Also, adverse impact of currency translation, which was approximately 5% impacted revenues.
The weakness in the agriculture business was worse than expected due to continuous issue with OEMs.
TMS revenues of $128.3 million were flat sequentially but up 4% year over year. This was the best performing segment this quarter driven by growth in transportation and logistics business. The growth in transportation and logistics business was led by continued strength in both the mobile and enterprise businesses.
The AD segment was down 19.8% from the last quarter and 13% from the year-ago quarter to $31.9 million.
Margins
Trimble’s gross margin was 55.9%, down 77 basis points (bps) sequentially and 251 bps year over year. The decrease was due to reduced agriculture sales, unfavorable product mix and FX headwinds.
Trimble reported operating expenses of $242.1 million, down 1.4% sequentially but up 2.2% year on year. Operating margin was 14.5%, up 6 bps sequentially and down 696 bps year over year. The impact of currency translation on company operating margins was small. A large cost base in Europe and other countries mitigated the impact on operating income.
Net Income
Pro-forma net income was $64.5 million or 25 cents compared with $112.4 million or 41 cents in the year-ago quarter. The pro-forma estimate excludes restructuring charges, amortization of intangibles, gain on an equity sale, litigation charges, 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, Trimble recorded a net profit (for Trimble shareholders) of $25.8 million (10 cents per share) compared with $34.0 million (13 cents) in the previous quarter and $78.1 million (29 cents) in the year-ago quarter.
Balance Sheet
Trimble exited the second quarter with cash and cash equivalents of approximately $129.0 million compared with $146.0 million in the prior quarter. Inventories were $280.8 million, up from $276.0 million in the last quarter. Accounts receivables were $355.5 million, down from $383.0 million in the earlier quarter. Days sales outstanding (DSOs) were down from around 60 days to 55 days.
During the quarter, the company repurchased 2.5 million shares of Trimble common stock for $60.0 million.
Guidance
Management expects third-quarter revenues in the range of $535 million–$560 million.The Zacks Consensus Estimate stands at 610 million.
Earnings per share on a GAAP basis are expected in the range of 1–18 cents and on a non-GAAP basis within 19-26 cents. The Zacks Consensus Estimate stands at 30 cents.
The calculation of non-GAAP earnings per share excludes one-time charges such as amortization of intangibles worth $41.0 million, anticipated acquisition costs of $3.0 million and stock-based compensation of $13.0 million and anticipated restructuring charges of $4.0 million. The GAAP tax rate is expected to be 28% while non-GAAP tax rate is likely to be 24%. Share count is projected to be 261.0 million.
Summary
Trimble reported mixed second quarter 2015 results with the bottom line exceeding the Zacks Consensus Estimate but the top line missing the same.
The company’s Mobile Solutions segment is witnessing growth due to growth in transportation and logistics. The company expects the performance to continue to through the remainder of 2015 and into 2016.
Its Field Services business is witnessing softness due to weakness in agriculture sales, which it expects to improve leading into 2016.
Trimble is witnessing improving trends in the construction market. The company’s initiatives, such as lowering cost structure, strategic acquisitions, increasing adoption of technology in the agricultural market, product enhancements and international expansion appear to be encouraging.
However, the negative impact of exchange rates, declining oil prices, European uncertainties, weak economic environment in China and continued weakness in Brazil, Russia and Australia remain concerns.
Currently, Trimble has a Zacks Rank #4 (Sell).
However, some better-ranked stocks include Groupon, Inc. GRPN, Amazon.com Inc. AMZN and GigOptix, Inc. GIG. All of them sport a Zacks Rank #1 (Strong Buy).
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