Trimble's (TRMB) Expenses Weigh on Q1 Earnings, Sales Top

Trimble Navigation’s TRMB first-quarter 2016 earnings of 21 cents missed the Zacks Consensus Estimate of 25 cents.

Earnings were impacted by lower gross margins and higher operating expenses associated with recent acquisitions.

Revenues

Trimble’s first-quarter revenues of $583.0 million were up 4.2% sequentially and 0.1% year over year. Revenues also came above the Zacks Consensus Estimate of $581.0 million and were within the company’s guided range of $565–$595 million.

Revenues by Segment

The Engineering and Construction (E&C), The Field Solutions (TFS), The Mobile Solutions (TMS) and Advanced Devices (AD) segments generated 53%, 18%, 23% and 6% of total revenue, respectively.

The quarter’s E&C unit revenues of $309.8 million were down 2.9% sequentially but up 3.5% year over year. TFS revenues of $106.0 million were up 33.5% sequentially but down 8.1% year over year.TMS revenues of $136.3 million were up 3.1% sequentially and 6.3% year over year.  The AD segment increased 6.6% from the last quarter but decreased22.4% from the year-ago period to $30.9 million.

Margins

Trimble’s pro-forma gross margin was 55.7%, down 98 basis points (bps) sequentially and 88 bps year over year. The sequential decrease was due to the hardware mix in some businesses.

Trimble’s adjusted operating expenses of $250.2 million increased 4.6% sequentially and 1.9% year on year. Operating margin was 12.8%, down 116 bps sequentially and 164 bps year over year due to headwinds related to acquisitions and foreign exchange.

Net Income

Pro-forma net income was $53.4 million compared with $63.3 million in the year-ago quarter. The pro-forma estimate excludes restructuring charges, amortization of intangibles, gain on an equity sale, litigation charges, 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 the company.

On a GAAP basis, Trimble recorded a net profit (for Trimble shareholders) of $19.7 million (8 cents per share) compared with $34.0 million (13 cents) a year ago.

Balance Sheet

Trimble exited the first quarter with cash and cash equivalents of approximately $174.7 million compared with $116.0 million in the prior quarter. Inventories were $255.5 million, down from $261.1 million in the last quarter. Accounts receivables were $377.8 million, up from $361.9 million in the earlier quarter.

Cash flow from operations was $113.2 million and capex was $4.9 million.

Guidance

Management expects second-quarter revenues in the range of $595–$625 million. The Zacks Consensus Estimate stands at $602 million.

Earnings per share are expected within 8–13 cents on a GAAP basis and within 26–31 centson a non-GAAP basis. The Zacks Consensus Estimate is pegged at 28 cents.

The calculation of non-GAAP earnings per share excludes the amortization of intangibles worth $40 million related to previous acquisitions, anticipated acquisition costs of $2 million, the anticipated impact of stock-based compensation expense of $14 million, and restructuring charges worth $4 million. The GAAP guidance assumes a tax rate of 27% and non-GAAP guidance assumes a tax rate of 24%.

Summary

Trimble is an OEM of GPS-based products and control systems. Trimble reported decent first-quarter 2016 results with top line surpassing the Zacks Consensus Estimate while the bottom line missing the same.

The company’s Mobile Solutions segment will continue to benefit from growth in Transportation and Logistics which is likely to improve further in 2016.

Trimble is seeing improving trends in the E&C market from improving heavy civil and buildings businesses. The company’s initiatives to lower the cost structure and make strategic acquisitions, combined with the increased adoption of technology in the agricultural market, product enhancements and international expansion should also see it through the current tough environment.

Currently, Trimble has a Zacks Rank #3 (Hold).Investors may consider stocks such as Advanced Micro Devices AMD, GigPeak, Inc. GIG and Broadcom Ltd. AVGO, each of which carries a Zacks Rank #2 (Buy).

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