This instrument company will report earnings on August 5. Currently, analysts expect EPS of $0.38 on revenues of $702.09 million.
Trimble Inc. (TRMB)
From Dow Theory Forecasts
Trimble brings the “internet of things” concept to the industrials, energy, and utilities segments, by connecting physical objects, such as bulldozers and trackers, to the digital world. This lets customers track their equipment and create data models that boost efficiency.
Trimble epitomizes our focus on companies generating solid growth at a decent price. Trimble is a Buy and a Long-Term Buy.
Trimble supplies data-analytics services and automation equipment for a broad range of markets, including agriculture, construction, energy, trucking, and utilities. Some of these pockets are battling recessionary headwinds. But given management’s track record for breaking into new markets, we believe Trimble can keep finding broader uses for its technology.
North America accounts for 55% of sales, while Europe represents Trimble’s second-largest market at 28% of sales. Customers include Caterpillar (CAT) and Paccar (PCAR), though Trimble’s client base is diversified, with no single company accounting for more than 10% of sales.
For the 12 months ended March, the company increased per-share profits 6%, revenue 3%, cash from operations 8%, and free cash flow 7% to $522 million. In recent years, Trimble’s more-profitable businesses, services (21% of sales) and subscription (20%), have driven operating growth.
As a result, operating profit margins and return on equity are on the rise. Management says subscription utilization levels have held strong during the coronavirus pandemic. The pipeline for new sales remains solid, though conversions have slowed in recent months. Meanwhile, the hardware business is benefiting from new applications, such as crime-scene scanners, and higher adoption rates for equipment such as bulldozers.
Still, growth will prove challenging in coming quarters, with both earnings per share and sales projected to fall in the July, October, and January quarters. But analyst estimates are trending higher. And management anticipates continued widening of profit margins due to growth of the subscription business and lower fixed costs for hardware as Trimble switches to contract manufacturing. Additionally, the slowdown for operating momentum should be brief.
Analysts expect Trimble to return to growth in the March 2021 quarter, with profits up 17% next year on 9% higher revenue.
Trimble tends to use aggressive accounting practices, resulting in a large number of adjustments to reported earnings—increasing the risk of a nasty surprise for investors. However, the company’s operating cash flow routinely exceeds net income, which somewhat eases our concerns.
Accounting risks and near-term headwinds appear to be reflected in Trimble’s stock price. The shares trade at 22 times trailing earnings, below their three-year median of 40. At 26 times estimated current-year profits, the stock offers a 16% discount to the median for S&P 1500 electronic equipment stocks.
Richard Moroney, CFA, Dow Theory Forecasts, dowtheory.com, 800-233-5922, July 27, 2020