Trimble Navigation's CEO Discusses Q4 2011 Results - Earnings Call Transcript

Trimble Navigation Limited ( TRMB)

Q4 2011 Earnings Call

February 2, 2012 4:30 p.m. ET

Executives

Willa McManmon – Director, Investor Relations
Steven Berglund – President and Chief Executive Officer
Rajat Bahri – Chief Financial Officer

Analysts

Michael Cox - Piper Jaffray

Andrea James - Dougherty & Company

Ajit Pai - Stifel Nicolaus

Jonathan Ho - William Blair & Company

Jonathan Goldberg - Deutsche Bank

Ryan Connors - Janney Montgomery

Tavis McCourt - Morgan Keegan

Jeff Rath - Canaccord Adams

Eli Lustgarten - Longbow Research

Alex Blanton - Clear Harbor Asset Management

Presentation

Operator

Good afternoon. My name is Marvin and I will be your conference operator today. At this time I would like to welcome everyone to the Q4 and Year End 2011 Conference Call. (Operator instructions) I’ll now hand the call over to our host, Ms. Willa McManmon. Ma’am, you may begin.

Willa McManmon

Thank you. Good afternoon.

Before we begin, I’d like to remind you that the forward-looking statements made in today’s call and the subsequent Q&A 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-Ks and 10-Qs or other documents filed with the Securities and Exchange Commission.

During this call, we will refer to a press release. The press release and additional financial statements are posted on our website at www.trimble.com. The non-GAAP measures discussed in the call are reconciled to GAAP measures in the tables to our press releases.

I will now turn the call over to Steve Berglund, our CEO and Rajat Bahri, our CFO.

Steve Berglund

Good afternoon. Fourth quarter results demonstrated the momentum which was evident throughout 2011. Its momentum is carrying us into 2012 and enables us to expect another strong year, subject to the strong positionality of the euro crisis and its effects on the world economy.

At the beginning of 2011 we anticipated revenue growth for the year in the neighborhood of 20% based on a combination of strong organic growth combined with incremental effects of acquisitions. We assumed we would not see a robust economic recovery during 2011 and, in particular, we assumed we would not see a recovery in the commercial and residential construction markets.

Overall, the environment provided us with no meaningful negative surprises aside from a slower than anticipated market in China. We exceeded our original expectations with annual revenue growth of 27%, largely because our acquisition activity during the year was higher than originally expected.

Entering 2012 our snapshot view is quite similar to a year ago. With our natural forecasting limitations which result from our characteristic of being a book and burn business, we believe our existing portfolio of businesses should once again generate total year revenue growth in the neighborhood of 20%.

This is a combination of strong organic growth topped by the full year of active acquisitions already made. The most significant difference between the two years is the higher level of economic uncertainty created by the euro crisis, which is not unique to Trimble. If the crisis is resolved early, it could remove uncertainty and enhance the outlook. If it lurches along, it creates significant uncertainty and could impair investment decisions in Europe. If it ends in a collapse in the euro it will have worldwide significance.

2011 reflected progression within all the Trimble strategic themes. We expanded our international reach, particularly in the emerging markets by adding development, manufacturing and sales capabilities. We actively pursued our longstanding strategy of moving away from sensors and products towards a focus on higher-value, industry-specific solutions.

The beneficial long-term impact of the higher-value content is seen in the aggregate gross margin of the Company, which has expanded by 3.4 percentage points from 2006 to 2011 reflecting the increased bundling of hardware, software and service. We also continue to both deepen and broaden our technology base in support of the solutions focus. This is reflected in the increasing software content in our products with more than 60% of our technical personnel currently engaged in software development.

The quarterly performance for the three most strategically and important segments, E&C, Field Solutions and Mobile Solutions was again strong. E&C reflected organic growth and heavy in highway and survey instruments, as well as the Tekla acquisition. These improvements in E&C were delivered in spite of a still dormant commercial and residential construction market in the U.S. and most parts of Europe.

Slower sales in China related to the recent problems specific to railway construction and generally more deliberate decision-making process across Europe. In a positive context and in contrast to the last four years, there's at least some discussion in the U.S. of the possibility of increased activity in the commercial and residential construction market later in the year.

The field solutions segment again demonstrated strong year-to-year growth with contributions from agriculture, GIS, and acquisitions. Agricultural performance reflects the attractiveness of our solutions within the backdrop of a relatively strong agricultural economy around the world. In the quarter, agriculture provided two pieces of evidence supporting the viability of the company trend towards greater value-added solutions.

The first was the growth in the relatively new product categories of flow controls and information management, which grew by approximately 85% in the quarter year-over-year. The second was the press release announcing Trimble's new relationship with US Sugar. This is significant because it demonstrates that there is additional [untapped] growth available to us by providing targeted solutions to specific large agricultural segments and also because U.S. Sugar's vision transcends any particular farm operation and is centered on the connected farm, which is central to Trimble's strategy.

Read the rest of this transcript for free on seekingalpha.com