Trimble Navigation Will Rebound Eventually

Sep.29.09 | About: Trimble Navigation (TRMB)

Trimble Navigation (NASDAQ:TRMB) provides advanced positioning product solutions to commercial and government customers worldwide. The company uses global positioning systems (GPS) and robotic optical surveying instruments that incorporate GPS, optical, laser, radio, or cellular communication technologies for various applications including engineering and construction, agriculture and mobile workers who can employ advanced technologies to improve efficiencies and provide advanced uses of collected data. Engineering and construction is the largest customer segment, which is hurting sales.

With a Return on Capital Employed of 35% and an Earnings Yield of 3.2% Trimble is no longer a value investing opportunity. However, they offer a quality balance sheet and a free cash flow yield of 5.3% and free cash flow margin of 19%. The company’s trailing P/E ratio is 34, though the Enterprise Value to Free Cash Flow ratio of 17 demonstrates the strength of their underlying business. Once there is a rebound in the engineering and construction industry, Trimble should see their revenues turn around.

For the quarter ending July 3, 2009 revenues were down 23% to $290.1 million from $377.8 million in the second quarter of 2008. Operating margin fell to 9.9% for the quarter down from 16.7% as the company was unable to keep expenses in line with declining revenues.

Key Drivers and Barriers


The drivers of Trimble's business are:

1. The growing need to reduce costs of businesses that use equipment to navigate during their operation.

2. The new applications of navigation technology used in all types of business.

3. Demand for data that can be collected during the operation of a machine while performing other tasks.


The important barriers Trimble has created to protect its market position are:

1. The proprietary technology embedded in their products.

2. The company hold approximately 791 U.S. issued and enforceable patents and approximately 119 non-U.S. patents.


The current slowdown and recession in the United States is negatively hurting sales of Trimble's products, especially in the engineering and construction sector. The new spending by the government on infrastructure projects has the potential to increase activity in the engineering and construction industry. The company is highly dependent on the rebound of the engineering and construction sector..

As a small company they depend on specialized technologies that depend on Global Positioning Satellites and laser guidance. Should there be any substantive change in this technology, Trimble could face significant losses.


For the third quarter of 2009 Trimble expects revenue in the range of $275 million plus or minus five percent. At a point estimate of $275 million in revenue, Trimble expects third quarter 2009 GAAP earnings per share of $0.13 and non-GAAP earnings per share of $0.25. Non-GAAP guidance for the third quarter of 2009 excludes the amortization of intangibles of $13.3 million related to previous acquisitions, the anticipated impact of stock-based compensation expense of $4.5 million and $1.3 million in anticipated restructuring charges. Both GAAP and non-GAAP earnings per share assume a 28 percent tax rate and 122.5 million shares outstanding.

Other Considerations

No stock repurchases were executed in the first quarter 2009.

The Bottom Line

Based on the fundamentals of Trimble and its dependence on the engineering and construction industry, it makes sense to be sure the engineering and construction industry is poised to rebound. Then look to buy on dips in the price.