Trimble Second Half Expected to Show Improvement

Trimble’s disappointing fiscal first-quarter results fell shy of consensus expectations for both revenue and EPS. The difficult quarter largely imitated the first quarter of 2013, where the company’s field solutions business struggled, this time in agriculture, and as Trimble faced macroeconomic headwinds, particularly in Russia. Aside from the field solutions segment, E&C, mobile solutions, and advanced solutions delivered combined revenue growth of 14% or better year-over-year.

The company is taking a cautionary view on agriculture, given the impact of weather and higher inventories of big-ticket machinery, which had a noticeable effect on the company’s results. Management guidance reflects a larger range of potential outcomes as a result of the uncertainty in agriculture, with a stronger second half of the year anticipated by management. While the stock is likely to open lower, based on the disappointing results and weaker performance in agriculture, we believe the company has reset the bar to more conservative and achievable levels for 2014.

The company does not expect any shift in its competitive position and continues to invest for growth over the long term. In our view, there is still risk associated with continued headwinds in the agriculture business, but we continue to believe Trimble is well positioned to benefit from further penetration of broader software, analytics, and services-oriented solutions. Revenue of $604.7 million (8.7% growth year-over-year) was below Street consensus expectations for $618.2 million.

Pro forma earnings per share of $0.39 (3.0% growth year-over-year) were $0.02 below our estimate and $0.03 below the Street consensus. Management’s second-quarter guidance fell below Street consensus for both revenue ($28.5 million shortfall at the midpoint) and pro forma earnings per share ($0.05 lower than expected at the midpoint). Key Points (−) Agriculture business affected by weather and higher machinery inventories.