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Trimble's Q2 Earnings Beat Estimates by a Penny - Analyst Blog

By: Zacks.com
Posted: 7/31/2013 12:20:00 PM
Referenced Stocks: AMD;ISIL;MCHP;TMS;TRMB

Trimble Navigation 's ( TRMB ) second-quarter 2013 earnings of 35 cents beat the Zacks Consensus Estimate by a penny.

Revenues

Trimble's second-quarter revenues of $576.3 million were up 3.6% sequentially and 11.3% year over year, within the guided range of $575-$580 million.

Strengthening U.S. commercial and residential construction markets helped Trimble's business in the last quarter. 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), Field Solutions (TFS), Mobile Solutions (TMS) and Advanced Devices (AD) segments generated 54%, 20%, 20% and 5% of the total revenue, respectively.

E&C unit revenues of $313.4 million were up 17.5 % sequentially and 10.3% year over year. The year-over-year increase was attributable to higher sales of heavy and highway and building construction products due to a revival in the 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, the survey instruments business is currently under pressure due to unfavorable weather and economic uncertainties in Europe, political conditions in China and increased caution regarding government purchases in the U.S.

BIM-enabled tools are gaining traction as commercial and residential markets in the U.S. improve slowly. Trimble believes that it will witness strength in these markets at the end of 2013 and in 2014.

TFS revenues of $115.9 million were down 21.4% sequentially and 6.1% year over year. Unfavorable weather and government sequestration-related uncertainties impacted revenues in this segment. Government spending has a significant impact on GIS sales. The agricultural business outside North America was up in strong double-digits from the year-ago quarter. But the unusual weather condition delayed the sowing season, impacting sales in North America and also in Europe.

TMS revenues of $115.5 million were up 4.9% sequentially and 41.9% from the comparable quarter of 2012. While the core business contributed to growth in the last quarter, most of the increase was the impact of acquisitions specially in the transportation and logistics market.

The AD segment was down 0.4% sequentially but up 10.0% from the year-ago quarter. The improved performance was on account of stronger sales of military and RFID components and subsystems.

Revenues by Geography

North America remains the largest segment for Trimble, with a 56% revenue share. Revenues from the region were up 5.5% sequentially and 13.4% from the year-ago quarter, reflecting continued recovery in the market.

Approximately 23% of revenues came from Europe, which was down 0.7% sequentially but up 22.0% from last year.

The Asia/Pacific region accounted for 14% of Trimble's revenues in the second quarter, up 3.6% sequentially but down 8.3% year over year.

The rest of the world contributed 7% of the total revenue, up 3.6% sequentially and 11.3% year over year.

Margins

Trimble's gross margin for the quarter was 52.5%, up 88 basis points (bps) sequentially and 75 bps year over year.

Trimble reported operating expenses of $237.5 million, up 3.1% sequentially and 13.8% from the year-ago quarter. The operating margin was 11.3%, up 111 bps sequentially but down 12 bps year over year. All expenses (R&D, S&M and G&A) decreased sequentially as a percentage of sales. However, R&D increased significantly from last year although other expenses were flattish.

Net Income

Pro forma net income was $91.8 million or a 15.9% net income margin compared to $90.0 million or 16.2% in the previous quarter and $85.3 million or 16.5% net income margin in the year-ago 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 GAAP basis, the company recorded a net profit (for Trimble shareholders) of $54.6 million (21 cents per share) compared to $49.8 million (19 cents per share) in the previous quarter and a net profit of $53.7 million (21 cents per share) in the comparable prior-year quarter.

Balance Sheet

Inventories were down 0.7% sequentially to $258.7 million. Days sales outstanding (DSOs) were down from around 64 to 56.

Trimble generated $172.0 million of cash from operations. The company spent $179.0 million on acquisitions, $39.4 million on capex and did not repurchase any shares in the last quarter. The cash position at quarter-end decreased $14.5 million to $129.1 million. Long-term debt at quarter-end stood at $789.6 million, down from $829.3 million in the first quarter.

Guidance

Management expects third-quarter revenues in the range of $555-$565 million. Earnings on a GAAP basis are expected to be 18 cents-20 cents per share and on a non GAAP basis 36 cents-38 cents per share. The calculation of non-GAAP EPS excludes one-time charges such as amortization of intangibles of $42.0 million and stock-based compensation of $9.3 million. The tax rate is expected to be in the range of 16%-18% while share count is likely to be 261.0 million.

Summary

Trimble is seeing much stronger construction 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 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 has become uncertain, at least in the near term. This could weigh on the shares. 

Trimble has a Zacks Rank #3 (Hold). Semiconductor stocks that are worth considering include Advanced Micro Devices ( AMD ), Microchip Technology Inc. ( MCHP ) and Intersil Corp. ( ISIL ), all carrying a Zacks Rank #2 (Buy).



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