Trimble Navigation Misses Q3 Earnings on Lower Volumes

Trimble Navigation’s (TRMB) third-quarter 2014 earnings of 30 cents missed the Zacks Consensus Estimate by 4 cents. The decrease in profitability was due to broad-based weakness in the majority of Trimble’s businesses, particularly the agriculture business. Also, lower gross margins and higher expenses impacted earnings growth in the quarter.

Revenues

Trimble’s third-quarter revenues of $584.8 million were down 8.9% sequentially but up 5.1% year over year. However, third-quarter revenues were below the company’s guided range of $590–$600 million and also missed the Zacks Consensus Estimate of $604.0 million. The lower revenues were due to weak performance in all the reporting segments, especially agriculture business.

Revenues by Segment

The Engineering and Construction (E&C), Field Solutions (:TFS), Mobile Solutions (:TMS) and Advanced Devices (AD.TO) segments generated 59%, 15%, 21% and 5% of total revenue, respectively.

E&C unit revenues of $342.3 million were down 7% sequentially but up 10.2% year over year. The most important markets within E&C are heavy and highway, large-scale commercial, small-scale commercial and housing as well as survey instruments.

The year-over-year increase was attributable to ongoing improvement in the U.S. residential and commercial market, partially offset by some weakness seen in Europe and outside the U.S. Also, the use of advanced technology, including computerized design tools, estimating software, scheduling software, geospatial instruments, machine control and on-site alignment tools, have led to the growth of E&C business. Management believes that the recent acquisitions, including the Manhattan Software and Gehry Technologies, along with product development will aid revenue growth, going forward.

TFS revenues of $88.8 million were down 22.4% sequentially and 10.7% year over year. The decrease was due to weaker sales in agricultural solutions, partially offset by growth in Geographical Information System (GIS) solutions.

Though management expects agricultural business revenues to remain weak in the near term, it expects strong growth over the long term, driven by expansion in the new product categories and more product introductions.

TMS revenues of $121.2 million were down 1.4% sequentially but up 6.7% from the comparable year-ago quarter.

While core business contributed to growth, strong sales in the transportation and logistics market led to the year-over-year growth.

The AD segment was down 11.5% sequentially and 0.9% from the year-ago quarter to $32.6 million. The sequential decrease was due to weakness in several businesses in the portfolio.

Margins

Trimble’s gross margin for the quarter was 54.2%, down 100 basis points (bps) sequentially but up 120 bps year over year. The sequential decrease was due to an unfavorable mix.

Trimble reported operating expenses of $305.7 million, up 18.8% sequentially and 31.7% year on year. As a percentage of sales, all three expenses, research & development, sales & marketing and general & administrative expenses increased. As a result, the operating margin was 1.9%, down 1,320 bps sequentially and 940 bps year over year. Also, operating income was negatively impacted by acquisition effects, including the impact of noncash write-downs on pre-acquisition deferred revenues.

Net Income

Trimble Navigation Limited Inc - Earnings Surprise | FindTheBest

Pro-forma net income was $79.5 million or 30 cents compared with $94.0 million or 36 cents in the year-ago quarter. Pro-forma estimate in the third quarter excludes restructuring charges, amortization of intangibles, gain on an equity sale, 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 $11.8 million (4 cents per share) compared with $77.8 million (29 cents) in the previous quarter and a net profit of $54.5 million (21 cents) in the year-ago quarter.

Balance Sheet

Inventories were up 1.3% sequentially to $278.0 million. Accounts receivables were $358.5 million, down from $379.8 million in the prior quarter. Days sales outstanding (DSOs) were up from around 54 days to 56 days.

Trimble generated $95.9 million of cash from operations, down from $131.2 million in the prior quarter. Total debt (long-term plus short-term) at quarter-end stood at $646.7 million, down from $655.9 million in the second quarter.

Guidance

Management expects fourth-quarter revenues in the range of $560–$590 million, while the Zacks Consensus Estimate for revenues is pegged at $636 million. Earnings per share for the coming quarter on a GAAP basis are expected in the range of 9–15 cents and on a non-GAAP basis within 26–32 cents. The Zacks Consensus Estimate for earnings is pegged at 38 cents. The calculation of non-GAAP earnings per share excludes one-time charges such as amortization of intangibles worth $39.0 million, anticipated acquisition costs of $4.0 million and stock-based compensation of $12.0 million. The tax rate is expected in the range of 21–23%, while share count is likely to be 264.0 million.

Summary

Trimble is witnessing improving trends in the domestic construction market. The company’s initiatives, such as lowering the cost structure, strategic acquisitions, product enhancements and international expansion appear to be encouraging. However, its agriculture business is seeing a slowdown and a few of its businesses are experiencing normal seasonality. Though the softness in certain areas of business is related to macro concerns and the nature of new business acquired, the weakness in the agricultural business could hamper revenue growth and profit margins, going forward.

Nevertheless, improving trends in the domestic construction market and increasing adoption of technology in the agricultural market remain the secular growth drivers.

Currently, Trimble has a Zacks Rank #3 (Hold). Other stocks that have been performing well and are worth a look include NeoPhotonics Corporation (NPTN), Texas Instruments (TXN) and Inphi Corporation (IPHI). All these stocks carry a Zacks Rank #2 (Buy).

Read the Full Research Report on TXN
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Read the Full Research Report on NPTN
Read the Full Research Report on IPHI


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