Schnitger Corporation

Trimble and Hexagon – mixed picture

It was a very busy week of earnings and economic news as global markets tried to figure out how the budget situation in the US would play out. In general, though their share prices were dragged down by larger economic news, engineering software company reports were very good, highlighting double digit growth in new license revenue and growing momentum in many industries. Two companies with one foot in the engineering software market also announced results, Trimble and Hexagon.

Trimble reported revenue of $407 million in Q2, up 22% over a year ago in what is generally seen as he beginnings of a rebound in the global building industry. The company’s Engineering & Construction division reported revenue of $237 million, up 26%, with "growth in all regions and particular strength in North America and Europe." These results do not include a contribution from Tekla, since that acquisition closed in July, after the end of the second quarter. However, Trimble did say that "Tekla results in the first half of 2011 reinforced the sense of recovery. Revenue was up approximately 19%. Its outlook for the second half reflects continuing momentum. Particularly encouraging is that Tekla’s construction-focused activities, which constitute three quarters of the business, were up approximately 26% in the first half." Trimble also said that the "collaboration between Trimble’s existing BIM 5D businesses and Tekla is underway. We anticipate significant short and long term leverage from the combined activities."

Trimble guided to revenue or around $410 million in Q3 2011, including a contribution of about $20 million from Tekla.

After the somewhat startlingly good news from Trimble, Hexagon mixed results were a bit of a surprise and sent shares down sharply in trading on the Stockholm stock exchange. Hexagon reported total revenue of €544 million, up 13% excluding the Intergraph acquisition and up 55% as reported.

CEO Ola Rollén said that “organic growth was primarily driven by the emerging markets and by the engineering and energy-related segments” but that Geosystems, Hexagon’s largest business area, at 36% of group sales reported organic growth of just 1% as the Chinese government dramatically cut investment in its high-speed rail line in Q2.

Acquired growth, of what Hexagon sometimes calls “structural” growth and we call Intergraph, was also mixed. Mr. Rollén said that Intergraph PP&M did very well in Q2 but Intergraph SG&I basically saw no growth. Intergraph appears to have reported revenue of about €165 million in Q2. One interesting problem that he intends to fix: Intergraph prices global contracts in US Dollars, which is problematic when the Dollar depreciates as it has recently. He intends to reprice deals to be in local currencies, but acknowledges that this could “take some time”,

Mr. Rollén told investors that he sees continued macro-economic uncertainty but remains confident that Hexagon’s business mix was diverse enough that the company should continue to grow in the second half of the year.

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