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Trimble Navigation’s (TRMB - Analyst Report) first-quarter 2013 earnings were in line with the Zacks Consensus Estimate of 35 cents.

Revenues

Trimble’s first-quarter revenues of $556.1 million were up 7.9% sequentially and 10.7% year over year, missing the guided range of $575–$580 million in the quarter.

Strengthening in the 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 48%, 27%, 20% and 6% of the total revenue, respectively.

E&Cunit revenues of $266.9 million were down 0.8% sequentially but up 7.2% 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. Of these, the survey instruments business is currently under pressure due to unfavorable weather and economic uncertainties in Europe, political conditions in China and a mining recession in Australia, as well as increased caution regarding government purchases in the U.S.

TFSrevenues of $147.5 million were up 36.4% sequentially and were flat year over year. The sequential increase stems from typical seasonality, which is based on the advent of spring. Unfavorable weather and government sequestration-related uncertainties impacted revenues in this segment as well. Government spending has a significant impact on GIS sales. Therefore, the decline from last year was largely on account of uncertainties here. The agricultural business outside North America was up strong double-digits from the year-ago quarter. But the late spring delayed the sowing season, impacting sales in North America and also in Europe.

TMSrevenues of $110.2 million were up 5.4% sequentially and 40.5% 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. Trimble has been doing a lot of work here, disposing off non-focus areas and building a desired portfolio through successive acquisitions like TMW and ALK.

The AD segment was down 6.4% sequentially but up 14.9% from the year-ago quarter. The improved performance was on account of stronger sales of embedded and timing devices.

Revenues by Geography

North America remains the largest segment for Trimble, with a 55% revenue share. Revenues from the region were up 7.9% sequentially and 14.9% from the year-ago quarter, reflecting continued recovery in the market.

Approximately 24% of revenues came from Europe, which was up 17.7% sequentially and 10.7% from last year.

The Asia/Pacific region accounted for 14% of Trimble’s revenues in the first quarter, down 5.6% sequentially but up 3.3% year over year attributable to the success of targeted programs in China and India, as well as acquisitions over the last few months.

The rest of the world contributed 7% of the total revenue, down 5.6% sequentially and 3.1% year over year.

Margins

Trimble’s gross margin for the quarter was 51.6%, up 184 basis points (bps) sequentially but flat year over year. However, excluding one-time items, it was flattish compared to the year-ago quarter.

Trimble reported operating expenses of $230.5 million, up 1.9% sequentially and 15.6% from the year-ago quarter. The operating margin was 10.2%, up 427 bps sequentially but down 176 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 $90.0 million, or a 16.2% net income margin compared to $65.9 million, or 12.8% in the previous quarter and $80.8 million, or 16.1% 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 $49.8 million ( 19 cents per share) compared to $33.2 million ( 26 cents per share) in the previous quarter and a net profit of $50.8 million ( 20 cents per share) in the comparable prior-year quarter.

Balance Sheet

Inventories were up 8.3% sequentially to $260.6 million. Days sales outstanding (DSOs) were up from around 57 to 64.

Trimble generated $37.4 million of cash from operations. The company spent $65.2 million on acquisitions, $14.9 million on capex and did not repurchase any shares in the last quarter. The cash position at quarter-end decreased $14.2 million to $143.6 million. Long-term debt at quarter-end stood at $829.3 million, down from $873.1 million in the fourth quarter.

Guidance

Management expects second-quarter revenues of $575–$580 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 one-time charges excluded for the calculation of non-GAAP EPS are intangibles amortization and acquisition expenses of $39.1 million and stock-based compensation of $9.2 million. The tax rate is expected to be in the range of 16%–18% while share count is likely to be 260.0 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).

Other investments to consider at this point could be the following technology stocks with positive Zacks Rank and a positive Earnings Expected Surprise Prediction or ESP (Read: Zacks Earnings ESP: A Better Method):

Aol Inc. (AOL - Snapshot Report) with an ESP of +3.03% and a Zacks Rank #2 (Buy)

Facebook (FB - Analyst Report) with an ESP of +12.50% and a Zacks Rank #2 (Buy)

Applied Materials Inc.(AMAT - Analyst Report) with an ESP of +7.69% and a Zacks Rank #2 (Buy)

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