Trimble Navigation's third-quarter 2013 earnings of 36 cents exceeded the Zacks Consensus Estimate by 3 cents.

Revenues

Trimble's third-quarter revenues of $556.5 million were down 3.4% sequentially but up 10.3% year over year and at the lower end of the guided range of $555 million-$565 million. The revenues in the last quarter was impacted by inconsistent market conditions and weak investments due to increased caution regarding government purchases in the U.S, partially offset by the strengthening U.S. commercial and residential construction markets.

Trimble has also made a number of acquisitions in the recent months, which are helping it to build a strong product portfolio and position itself in markets with better growth prospects.

Revenues by Segment

The Engineering and Construction (E&C), Field Solutions (TFS), Mobile Solutions (TMS) and Advanced Devices (AD) segments generated 56.0%, 18%, 20% and 6% of the total revenue, respectively.

E&C unit revenues of $310.6 million were down 0.9% sequentially but up 8.1% year over year. The year-over-year increase was attributable to positive impact from acquisitions, higher sales in survey and heavy civil building construction products due to a revival in the residential and commercial market. The most important markets within E&C are heavy and highway, large-scale commercial, smaller-scale commercial and housing as well as survey instruments. Of these, the survey instruments business is currently under pressure due to unfavorable weather and economic uncertainties in Europe and political conditions in China.

BIM-enabled tools are gaining traction as commercial and residential markets in the U.S. improve slowly. Trimble believes that it will witness strength in these markets in 2014.

TFS revenues of $99.5 million were down 14.2% sequentially and 3.4% year over year. Weaker sales of Geographical Information System (GIS) solutions and unfavorable weather impacted revenues in this segment partially offset by growth in agricultural solutions sales.

Management expects the agricultural business revenues to grow at a double-digit rate, driven by the expansion in the new product categories and a higher rate of product introductions.

TMS revenues of $113.6 million were down 1.7% sequentially but up 35.5% from the comparable quarter of 2012. While the core business contributed to growth in the last quarter, most of the increase was on the back of acquisitions especially in the transportation and logistics market.

The AD segment was up 4.4% sequentially and 7.0% from the year-ago quarter to $32.9 million. The improved performance was on account of stronger sales of radio frequency identification (RFID) components and subsystems.

Margins

Trimble's gross margin for the quarter was 53.0%, up 50 basis points (bps) sequentially and 90 bps year over year. The sequential increase was due to a favorable mix.

Trimble reported operating expenses of $232.0 million, down 2.3% sequentially but up 16.4% from the year-ago quarter. As a percentage of sales, all expenses (R&D, S&M and G&A) increased from the year-ago quarter. As a result, the operating margin was 11.3%, flat sequentially but down 130 bps year over year.

Net Income

Pro-forma net income was $94.3 million compared to $80.6 million in the year-ago quarter. The pro-forma estimate in the last quarter excludes restructuring charges, amortization of intangibles and acquisition-related costs and other adjustments on a tax-adjusted basis but includes stock-based compensation. Our pro-forma estimate may not match management's presentation due to the inclusion/exclusion of some items that were not considered by management.

On a GAAP basis, the company recorded a net profit (for Trimble shareholders) of $54.5 million (21 cents per share) compared with $54.6 million (21 cents per share) in the previous quarter and a net profit of $53.4 million (21 cents per share) in the comparable prior-year quarter.

Balance Sheet

Inventories were down 6.6% sequentially to $241.5 million. Accounts receivables were $361.6 million, up from $356.3 million in the prior quarter. Days sales outstanding (DSOs) were up from around 56 days to 59 days.

Trimble generated $106.4 million of cash from operations. The cash position at quarter-end decreased $7.1 million to $122.0 million in the last quarter. Long-term debt at quarter-end stood at $703.9 million, down from $789.6 million in the first quarter.

Guidance

Management expects fourth-quarter revenues in the range of $560 million-$580 million. Earnings on a GAAP basis are expected in the range of 17 cents-21 cents per share and on a non GAAP basis 35 cents-39 cents per share. The calculation of non-GAAP earnings per share excludes one-time charges such as amortization of intangibles of $42.0 million, anticipated acquisition costs of $3.5 million and stock-based compensation of $9.3 million. The tax rate is expected in the range of 16%-18%, while share count is likely to be 261.5 million.

Summary

Trimble is seeing much stronger construction markets and a few of its businesses have started witnessing normal seasonality. Additionally, management's initiatives, such as the lowering of the cost structure, strategic acquisitions, product enhancements and international expansion appear to be paying off. The softness in certain areas of the business is related to macro concerns and the nature of new business acquired.

However, quite a significant amount of its business, whether directly or indirectly, is dependent on government spending in the U.S., which has become uncertain, at least in the near term. This could weigh on the shares.

Trimble has a Zacks Rank #3 (Hold). Other stocks that have been performing well and are worth a look include Melco Crown Entertainment Ltd , Kemper Corp. and Microchip Technology. All these stocks carry a Zacks Rank #1 (Strong Buy).