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Trimble Inc. (TRMB)

Q3 2017 Results Earnings Conference Call

October 26, 2017 05:00 PM ET

Executives

Michael Leyba - Diretor, IR

Steve Berglund - CEO

Rob Painter - CFO

Analysts

Jerry Revich - Goldman Sachs

Jonathan Ho - William Blair

James Faucette - Morgan Stanley

Colin Rusch - Oppenheimer

Rob Mason - Baird

Presentation

Operator

Good afternoon. My name is Jona, and I will be your conference operator today. At this time, I’d like to welcome everyone to the Trimble Third 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. [Operator Instructions] Thank you.

I would now like to turn the call over to Mr. Michael Leyba. Sir, you may begin your conference.

Michael Leyba

Thanks, Jona. 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 two 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 three 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 four and I will turn the call over to Steve.

Steve Berglund

Good afternoon. Third quarter results came in at the high end of our expectations and continued to build on the growth moment of the last eight quarters. The goodness [ph] of the quarter can be encapsulated in three points. First, the relative strength was company-wide with all four reporting segments, reflecting meaningful year-to-year progression.

Second, if baseline is the organic performance of the businesses in place a year ago, our baseline performance for the quarter was strong with year-to-year organic revenue growth of over 10%, baseline non-GAAP operating margins of roughly 20% and baseline operating leverage of 27%, acquisitions added over 3 points of growth, but as expected they also diluted earnings in the short-term.

Third, regional performance was also positive. North America, Europe and South America were all up double digits, while Asia and the Middle East grew but at a slower rate. The improved performance in North America’s potentially meaningful because North America has been something of an underachiever for us and an improvement could accelerate the aggregate performance. This North American buoyancy is occurring in spite of continuing ambiguities about U.S. infrastructure spend, tax reform, and trade policy.

The most dramatic change year-to-year was in the Resources and Utilities segment, which reported a revenue increase of over 30%. Although, the five announced acquisitions year-to-date contributed to the growth, underlying year-to-year organic growth for the segment was double digits. The most significant acquisition, in fact, was Müller which was completed in July and is performing in line with our acquisition model and is generating positive market reactions. Although the acquisitions reduced segment profitability for the quarter, in part because of seasonality, we anticipate their effect to be additive over full year.

Transportation continues to demonstrate the highest organic growth in the Company with contributions from North America and Europe. Although external effects such as ELD mandate are providing some of the momentum, our continuing innovation and market penetration initiatives are driving current growth as well as providing the foundation for future expansion.

The Building and Infrastructure segment grew by over 13% in the quarter with significant margin expansion. The growth came from both the vertical and horizontal elements of the business. Perhaps the most encouraging elements of the quarter was the apparent market acceleration in North America. Beyond North America, the buoyancy in the segment was relatively widespread and global with double-digit growth in North America, South America, Asia and Europe.

Although we remain hopeful that the Washington centered discussions on infrastructure may lead to something, our expectations do not include any effect from a step-up in U.S. spending. We are encouraged that beyond the record, infrastructure discussions in Congress have acknowledged that any build out should incorporate technology to improve the technology to improve the outcomes. We are also encouraged by the tendency for some of the states to control their own destiny by initiating infrastructure programs without relying on federal funding. Finally, although, rebuilding the hurricane-impacted areas in the U.S. will undoubtedly have an impact, we do not expect it to be material.

The Geospatial segment demonstrated respectable revenue growth and year-to-year earnings improvement. Our results continue to be favorably influenced by new products and regional strength, particularly in North America and Europe. The last 12 months have been strong on innovation with the introduction of the SX10 late last year and the recent introduction of new Mechanical Total Stations, in both cases to strong market enthusiasm. Although, Geospatial is technically the most mature of the Trimble segments, we are demonstrating that innovation can drive incremental demand.

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