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Trimble Inc. (TRMB)

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Trimble, Inc. (TRMB)

Q2 2017 Earnings Call

August 02, 2017 5:00 pm ET

Executives

Michael Leyba - Trimble, Inc.

Steven W. Berglund - Trimble, Inc.

Robert G. Painter - Trimble, Inc.

Analysts

Jonathan F. Ho - William Blair & Co. LLC

Jerry Revich - Goldman Sachs & Co. LLC

Paul Coster - JPMorgan Securities LLC

Kristen Owen - Oppenheimer & Co., Inc.

Brett W. S. Wong - Piper Jaffray & Co.

Richard Valera - Needham & Co. LLC

James E. Faucette - Morgan Stanley & Co. LLC

Rob W. Mason - Robert W. Baird & Co., Inc.

Presentation

Operator

Good afternoon. My name is Amanda, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Trimble Second Quarter 2017 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session.

Thank you. Mr. Michael Leyba, Director of Investor Relations, you may begin your conference.

Michael Leyba - Trimble, Inc.

Thanks, Amanda. Good afternoon, everyone, and thanks for joining us on the call. I'm here today with Steve Berglund, our CEO; and Rob Painter, our CFO. I would like to point out that our earnings release and the slide presentation supplementing today's call are available on our website at www.trimble.com, as well as within the webcast and we will be referring to the presentation today.

Turning to slide 2 of the presentation, I would like to remind you that the forward-looking statements made in today's call and the subsequent question-and-answer period are subject to risks and uncertainties. Trimble's actual results may differ materially from those currently anticipated due to a number of factors detailed in the company's Form 10-K and 10-Q or other documents filed with the Securities and Exchange Commission. The non-GAAP measures that we discuss in today's call are fully reconciled to GAAP measures in the tables from our press release.

With that, please turn to slide 3 for an agenda of the call today. First, Steve will start with an overview of the quarter. After that, Rob will take us through the remainder of the slides, including an in-depth review of the quarter and our guidance, and then we will go to Q&A.

With that, please turn to slide 4 and I will turn the call over to Steve.

Steven W. Berglund - Trimble, Inc.

Good afternoon. Our second quarter results reflected acceleration in our progression of the last year and a half and January did the best organic revenue growth since the second quarter of 2014. The reported revenue growth was 8.6% for the quarter and underlying organic growth was up over 9% without M&A and year-to-year exchange effects. This rebound has taken place without a recovery in agricultural and oil prices and reflects the portfolio changes, which have lessened our exposure to these two effects.

In addition to top line buoyancy, the quarter also demonstrated continuing control of the model with operating leverage of 42% for the quarter and 50% for the last 12 months. The better than expected performance provides validation of our earlier commentary for second half revenue growth, which is for strong single-digit organic growth with 5 or more points of additional inorganic growth.

The international market outlook remains generally favorable with some regional markets continuing to run hot. South American growth continues to be very robust driven by agricultural demand in Brazil and Argentina. Although, European Geospatial revenue was down, the remaining segments in aggregate grew double digits in the region in spite of year-to-year currency headwinds. Asia Pacific's revenue growth slowed in the quarter from the prior quarter, although Buildings and Infrastructure was up double digits.

The Middle East continues to be generally difficult with Geospatial down in the quarter and Buildings and Infrastructure up double digits. North American growth accelerated in the quarter on the strength of Transportation revenues, although Mexico continues to face challenges, presumably at least in part because of U.S. induced policy uncertainty. The environment in the U.S. remains relatively uncertain while awaiting policy outcomes on infrastructure spend, tax reform, and trade policy.

Any positive news in these categories would represent a potential net upside to the forecast. Expectations across the company segments remain generally upbeat both in terms of short and long-term revenue potential and competitive positioning.

Second quarter performance in the Buildings and Infrastructure segment exceeded our expectations and provided strong operating leverage with much of the revenue strength in the civil engineering business. This relative strength has been highlighted by the recent announcements and new OEM deals with Sumitomo, Komatsu and Yutong. While our current focus remains the end user, OEMs are an important element of our strategy as they provide machine platforms, which can be integrated into our information ecosystem.

The Resources and Utilities segment reflected healthy performance, particularly against the standard of the last two to three years, which have been dominated by the commodity pricing cycle. Agriculture, positioning services and forestry, all provided upside momentum in the quarter.

The agriculture business produced its best quarter since 2014 based in part and involved improvement in the North American market, the continued strong growth in Brazil and Argentina and OEM performance. The Müller acquisition early in the third quarter provide significant leverage and will be a central element in our variable rate application strategy, which is the next evolutionary step in using the combination of position and agricultural data to provide tangible benefits in the field.

Müller's historical focus has been on bringing intelligence into the farm implement and enabling it to operate seamlessly with other elements of the machine and information system. We anticipate that with the growing importance of the implement, the tractor will no longer automatically hold an exclusive central position as the source of intelligence and control within the total precision farming solution.

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