Trimble Navigation (
) may well face head winds in its key agriculture business this
year as low commodity prices threaten to eat into farmers'
That shouldn't stop the maker of Global Positioning System
gear and other location technologies from reaping the benefits of
a strong market position and generating solid gains in its
engineering and construction business, analysts say.
Trimble has evolved from offering simple GPS-based positioning
devices to providing advanced software and data subscription
products to improve equipment accuracy and efficiency in farming,
construction and other industries.
Its lineup includes products that automate large industrial
machines such as tractors and bulldozers, surveying instruments,
integrated systems that track fleets of vehicles and workers
while providing real-time analytics to the back office, and
software solutions that connect all aspects of a construction
site or farm.
The agriculture part of the business generates about 25% of
Trimble's revenue and 30% of its overall profit, says Ryan
Connors, an analyst at Janney Montgomery Scott.
Down On The Farm
Here's where the head wind comes in: Farmers' income levels
are a function of commodity prices, and after hitting record
levels in 2012 and 2013, prices of commodities such as corn have
"declined pretty substantially," Connors says.
"As lower commodity prices impact farmers' income levels this
will create a head wind for their business this year," he
Still, Connors expects Trimble's agriculture business to
continue to grow, though likely a "little more slowly" than last
"I think sales will hold up relatively well," he added.
"Farmers are still in an adoption cycle of technology. Even in a
down market for agriculture as a whole, farmers continue to
accelerate the implementation of technology. That remains a
powerful growth driver for Trimble."
Trimble has capitalized on a trend called precision farming,
which is the use of GPS-enabled devices and software to improve
farm efficiency and productivity.
Through its offerings in this area, the company helps farmers
with every step of the farming process, including land
preparation, then the planting, nutrient and pest management, and
harvesting phases of a crop cycle. Trimble provides manual and
automated navigation guidance for tractors and other farm
equipment used in spraying, planting, cultivation and
The company offers operations management tools with its
Connected Farm platform, which allows information exchange across
an entire farm.
Trimble's ability to integrate GPS or other location
technologies with application software that boosts productivity
has helped the company's advantage, analysts say.
That advantage is reflected in its track record: Trimble has
posted double-digit profit gains in all but two of the past 15
quarters. It is expected to keep up that growth level. Analysts
surveyed by Thomson Reuters expect first-quarter earnings, to be
reported on May 6, to rise 11% to 42 cents a share.
That would follow a solid showing in the fourth quarter.
Trimble reported EPS minus items of 43 cents, up 48% from a year
earlier and 6 cents above analyst forecasts. Revenue rose 16% to
$599.2 million, ahead of views for $567.4 million.
Connors estimates that first-quarter earnings will come in at
43 cents a share, ahead of the consensus of 42 cents a share.
"I think the tone and guidance for the remainder of the year
will be very positive as well," he said.
Connors is upbeat about Trimble's prospects for the
construction side of its business, which he says represents about
50% of overall profit and similar in sales.
"Construction is starting to move into an up cycle,
particularly nonresidential, which is getting set to hit its
stride," he said. "So where it has a head wind in agriculture, I
believe it has a very nice tailwind in construction, which is
coming off a bottom of a cycle."
And, he adds, "just like in agriculture, there's also an
adoption of technology taking place" on the part of construction
At Trimble, the engineering and construction segment's
software and technology capabilities include advanced civil
engineering alignment, design and data preparation software for
advanced surveying, geospatial data collection and analysis, and
an application-specific field and office software component.
One example is the Connected Site, which comprises offerings
that integrate the construction process, including the ability to
track equipment and perform remote machine diagnostics.
Needham & Co. analyst Richard Valera says first-quarter
results "should be at least solid relative to their guidance and
"We think the strong recent performance of the stock probably
anticipates pretty decent results and guidance," he said.
Still, Valera was "concerned about the macro agricultural
cycle" heading into 2014, given the fact that commodity prices
"appear to have peaked in 2012 and 2013."
And 2014 is expected to be a "down year" for the agriculture
equipment market made by companies such asDeere & Co. (
), he says.
While Trimble's sales aren't directly correlated with farm
equipment sales, there's "some correlation," he adds.
"For the first half of the year, Trimble is set up pretty
well," he said. "The thing they have going for them is their
comparisons will be easy with last year."
But the second half of the year is a different story: "For the
second half of the year, the market for agriculture equipment in
unit sales is expected to see a pretty solid decline, and
Trimble's comparisons will be significantly tougher."
Trimble is the third-largest firm by market capitalization in
IBD's Electronic-Miscellaneous Products industry group,
) andKyocera (