Trimble Navigation CEO Discusses Q2 2012 Results - Earnings Call Transcript

Trimble Navigation (TRMB)

Q2 2012 Earnings Call

August 1, 2012 04:30 PM ET


Willa McManmon - Director, IR

Steve Berglund - President & CEO

Rajat Bahri - CFO


Jonathan Ho - William Blair

Jonathan Goldberg - Deutsche Bank

Brett Wong - Piper Jaffray

Richard Valera - Needham

Paul Coster - JP Morgan

Eli Lustgarten - Longbow Security

Andrea James - Dougherty & Company



Good afternoon my name is Marvin and I will be your conference operator today. (Operator Instructions). I will now hand the call over to our host, Ms. Willa McManmon. Ma'am you may begin.

Willa McManmon

Thank you for joining us. I am here today with Steve Berglund, our President and CEO and Rajat Bahri, our CFO. Before we begin, I would 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 including the competitive nature of the market place, the condition of the worldwide economy and other factors detailed in the Company's Form 10-K and 10-Qs or other documents filed with the Securities and Exchange Commission.

With that I will turn the call over to Steve Berglund.

Steve Berglund

Good afternoon, second quarter results remained on track despite a more challenging environment. Coming into the quarter we anticipated slower European demand and a non-favorable exchange rate environment. In addition, to the already low level of activity in residential and commercial construction. The change that occurred within the quarter was the intensifying North American drought which had some impact on agricultural sales. Despite these pressures our results remain above the expectations established at the beginning of the year. All acquisitions boasted overall revenue growth, organic growth remained strong and exchange adjusted was in the mid-teens.

Margins also continued to improve a non-GAAP operating margins for above 20% for the second consecutive quarter. We currently expect year-to-year revenue growth in the third quarter of around 19%, while the nominal growth rate is lower than the first half rate because of acquisition effects. We generally expect underlying performance to remain consistent with the first half. This expectation is based on two assumptions, one is that the euro centered crisis remains relatively contained to Europe and does not transform into a major macroeconomic contingent scenario. And the others that uncertainty related to the euro and the U.S. election doesn’t freeze investment decision makers into activity as they await greater clarity.

Our markets remain workable although the other states robustness are variable across product categories and across regions. Engineering and construction performance is currently being driven by heavy highway products which are demonstration strong growth as adoption rates of technology accelerate. Commercial and residential construction is not a meaningful source of growth although the picture on future prospects seems to be gradually brightening in North America.

Survey in other GeoSpatial products from the second quarter did not match the growth of the first quarter although we expect growth will improve in the second half. Our expectations for E&C on the second half assume a similar scenario to the first half with strong, heavy and high demand at generally negative environment in Europe, no meaningful recovery in North American, residential and commercial construction and generally workable conditions in other regions.

With this solution segment generated meaningful growth with the contributions from both agriculture and acquisitions. GIS was comparably flat because of revenue recognition of deferrals. Agricultural results held up despite the severe drought conditions in North America. While North America continued to produce credible year-to-year growth, we saw much stronger growth rates in agriculture in South America, Russia and China. While North America is still our most significant region, the strong performance from other regions partially mitigates the exposure to the effects the drought may have on North American demand.

Other mitigating effects included diversifying product line. For example, information management products while still generating relatively low revenue grew over 40% year-to-year. Our expectations for the field solution segment in the third quarter are shaped around drought related uncertainty and the affect in farm confidence and aggregate demand.

Given the forecast uncertainty we have established an outlook that is quite conservative against historical standards. At the same time we expect other elements of the segment to provide upsize which allow us to maintain an overall positive expectation. We also expect any drought effects to be of comparatively short duration without lasting effects on the farm economy and do not expect them to affect normal seasonal buying patterns as long as weather patterns assume a more normal patter later in the year.

The mobile solution segment continues to make a major contribution to the year-to-year improvement in Trimble quarterly results. Although the revenue increase continues to be dominated by the PeopleNet acquisition, we are seeing revenue and profitability contributions from other businesses within the segment as well.

Key to the improvement is the redirection of portfolio towards vertical markets which allow competitive differentiation, a higher value proposition and higher gross margins. Our third quarter mobile solutions outlook assumes continued workmanlike progression in the segment, combining revenue growth and significant year-over-year margin expansion. Short of a serious economic dislocation this segment should be more resistant to the effects of any macroeconomic recession scenario because decisions to make commercial plays more productive our long-term investment decisions, they are tend to be made independently of the economic cycle.

Looking forward to the next six months, we have no particularly original insight as to what may happen at the macroeconomic level worldwide, we are generally taking a conservative view and are selectively constraining costs. Our planning basically assumes the world remains is current muddling through status for some time with Europe on the sidelines and the U.S. producing relatively and it may grow up.

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