E&C sector showed ‘slow growth’ during Q1
Trimble Navigation Ltd. Wednesday reported an 11 percent increase in first quarter revenue to $556.1 million and adjusted earnings of $97.9 million, or 38 cents a share. Earnings met analysts’ estimates but revenue was off Wall Street expectations by $21 million.
“Although our first quarter revenue was disappointing, we do not believe the fundamentals in our market have changed, and our long view of growth and profitability remains unchanged,” said CEO Steven Berglund during a phone call with investment analysts. “While our original expectation anticipated conservative buying behavior by our users as a result of economic uncertainties, we were further impacted by the direct and indirect effects of the U.S. sequester and severe weather conditions in Europe and North America which delayed both the agricultural and construction seasons.”
The Sunnyvale, Calif.-based, publicly traded (Nasdaq: TRMB) company, with $2 billion in 2012 revenue, saw its shares drop Wednesday more than 10 percent to $26.04. The company’s 52-week stock price ranges from $20.01 to $32.03. The company has a market capitalization of $6.7 billion and a P/E ratio of 35.46.
Trimble said the engineering and construction (E&C) sectors showed “slow growth” during the quarter. “Our overall expectation is that E&C will generate better results in the second half of the year,” Berglund said.
Revenue from the surveying sector was also down year-to-year, Trimble said. Meanwhile, Trimble’s GIS (geographic information system) business “will struggle through the entire year,” Berglund said. GIS integrates hardware, software, and data for capturing, managing, analyzing, and displaying all forms of geographically referenced information.
“We generally don’t talk much about GIS, but it is a comparable sizable business, quite profitable, but it is very much tied to government sources of funding … we have to assume that GIS will probably struggle for the year because I think funding sources, whether they be federal, state or local, are probably suspiciously absent for them.”
The company’s GIS sales to the U.S. government are as much as $55 million annually.
The company’s prospects in the agriculture sector gives it “real-time support for cautious optimism” because its services business, which sells correction signals for precision agriculture GPS receivers, is “currently spiking against any previous baseline” … “with pent-up demand surfacing as farmers return to the field.” Berglund said he expects agriculture to return to double-digit growth in the second half of the year.
Geographically, North America provided some growth but was limited by government spending in the late spring. Europe, China and Australia were all down year-to-year. China’s issues are related to the transition of governmental leadership and may be short-term. Australia’s are result of the mining recession. Europe’s problems relate to its ongoing economic challenges, although a harsh winter also impacted activity.
“The overall mood of the market seems to be in an in between state, expressing neither alarm nor much exuberance,” Berglund said. “Needless to say, the state is hard to quantify accurately. Given the ambiguity in the environment, we are taking cost containment steps to protect the financial model with the intention that core organic margins will improve under all foreseeable scenarios. Our basic franchise remains strong and will provide healthy growth over the long term. With the current environmental ambiguity, it is in some ways easier to predict three years out than it is three months out.”
Q1 2013 sales results (percentage of revenue by geography):
- 55 percent of revenue came from North America
- 24 percent from Europe
- 14 percent from Asia Pacific
- 7 percent from rest of world
Year-over-year growth by region:
- 15 percent in North America
- 2 percent in Asia Pacific
- 10 percent in Europe
- 3 percent in rest of world
