Trimble (TRMB) Up 3% Since Earnings Report: Can It Continue?

It has been about a month since the last earnings report for Trimble Navigation Ltd. TRMB. Shares have added about 3% in that time frame, outperforming the market.

Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Trimble Beats on Q3 Earnings and Revenues

Trimble’s third-quarter 2017 earnings of 39 cents surpassed the Zacks Consensus Estimate by a couple of cents. Also, earnings increased 20.7% year over year.

During the third quarter, Trimble completed the acquisitions of Müller-Elektronik and 10-4 Systems. These acquisitions will extend the company’s capabilities in serving its customers in the agriculture and transportation business. These acquisitions will be accretive to earnings in 2018.

 

Also, the company’s initiatives toward lowering the cost structure to another framework, along with increased adoption of technology in the agricultural market, product enhancements and international expansion should see it through the current market environment.

 

Revenues

 

Trimble’s second-quarter revenues came in at $670 million, reflecting an increase of 1.2% sequentially and 14.7% year over year. Also, revenues came in above the Zacks Consensus Estimate of $660 million and within the company’s guided range of $645-$675 million.

 

Revenues by Segment

 

In the beginning of first-quarter 2017, the company changed its reporting segments. The results are based on these four new segments — Buildings and Infrastructure, Geospatial, Resources and Utilities and Transportation segments.

 

The quarter’s Buildings and Infrastructure revenues of $214.5 million increased 13.0% year over year. Geospatial revenues of $169.7 million increased 6.0% year over year. Resources and Utilities segment revenues increased 31.0% from the year-ago period to $114.4 million, while Transportation revenues were $171.4 million, reflecting an increase of 16.0% year over year.

 

Margins

 

Trimble’s pro forma gross margin was 56.1%, down 80 basis points (bps) year over year. The decrease was due to an unfavorable mix of products in some businesses.

 

Trimble’s adjusted operating expenses of $252.5 million increased 14.0% year over year. Operating margin was 18.4%, down 60 bps year over year.

 

Net Income

 

Pro forma net income was $99.6 million compared with $84.0 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.

 

On a GAAP basis, Trimble recorded net profit (for Trimble shareholders) of $55.7 million (22 cents per share) compared with $39.2 million (15 cents) a year ago.

 

Balance Sheet

 

Trimble exited the third quarter with cash and cash equivalents of approximately $409.2 million compared with $486.1 million in the prior quarter. Inventories were $254.7 million, up from $223.3 million in the last quarter. Accounts receivables were $407.2 million, up from $395.3 million in the previous quarter.

 

Cash flow from operations was $310.0 million against $145.8 million in the prior quarter.

 

During the third quarter, the company also repurchased approximately 2.2 million shares for approximately $84 million. Trimble still has $19 million remaining under its current share repurchase authorization.

 

Q4 Guidance

 

Management expects fourth-quarter revenues in the range of $655-$685 million. The Zacks Consensus Estimate stands at $646.6 million.

 

Earnings per share are expected within 16-20 cents on a GAAP basis and within 34-38 cents on a non-GAAP basis. The Zacks Consensus Estimate is pegged at 35 cents.

 

The calculation of non-GAAP earnings per share excludes the amortization of intangibles worth $40 million that includes the effect of previous acquisitions, anticipated acquisition costs of $3 million, the anticipated impact of stock-based compensation expense of $21 million and restructuring charges worth $2 million. The projected GAAP and non-GAAP figures take into consideration a tax rate of 16% and 23%, respectively.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed an upward trend in fresh estimates. There has been one revision higher for the current quarter.

VGM Scores

At this time, Trimble's stock has an average Growth Score of C. However, its Momentum is doing a bit better with a B. The stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is more suitable for momentum investors than those looking for value and growth.

Outlook

While estimates have been broadly trending upward for the stock, the magnitude of these revisions has been net zero. Notably, the stock has a Zacks Rank #3 (Hold). We expect in-line returns from the stock in the next few months.

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