Itron Beats Q1 Earnings Estimates - Analyst Blog

Itron, Inc. ITRI reported first-quarter 2014 adjusted earnings of 31 cents per share, which was flat year over year. The reported figure surpassed the Zacks Consensus Estimate of 26 cents.

Including one-time items such as amortization, restructuring and acquisition-related expenses, the compan y reported a loss per share of 1 cent as compared with earnings of 6 cents per share in the year-ago quarter. In addition, the reported quarter included a goodwill impairment charge in the Electricity segment.

Operational Update

Total revenue increased 6% year over year to $475 million and came ahead of the Zacks Consensus Estimate of $442 million. Favorable product mix and higher volumes primarily drove the rise in revenues.

Cost of goods sold went up 4% year over year to $320 million. Gross profit rose 10% to $154.5 million from $140.1 million in the year-ago quarter. Consequently, gross margin increased 120 basis points (bps) to 32.5%, aided by the favorable impact of product mix and increased volumes, particularly in the Gas and Water segments.

Adjusted operating expenses increased 5.2% year over year to $132 million. Adjusted operating profit increased 53% year over year to $23 million. Itron reported an operating profit of $4.5 million in the reported quarter compared with $2.3 million in the year-ago quarter.

Segment Performance

Electricity Segment: Net sales at the Energy Segment increased 2.5% year over year to $180 million compared with the year-ago quarter. However, the segment reported an adjusted operating loss of $15.9 million for the quarter compared with a loss of $14.0 million in the year-ago quarter.

Gas Segment: The segment's sales rose 6.7% year over year to $146 million. Adjusted operating income for the quarter was $28.1 million, up 29% from $21.8 million in the year-ago quarter.

Water Segment: The Water Segment reported sales of $148.5 million in the quarter, up 10% from $134.9 million in the prior-year quarter. Adjusted operating income for the quarter was $23.4 million, a 46% jump from $16.1 million in the year-ago quarter.

Financial Position

As of Mar 31, 2014, cash and cash equivalents amounted to $146.3 million versus $124.8 million as of Dec 31, 2013. Cash flow from operating activities was $66.8 million in the reported quarter, compared with $0.6 million in the prior-year quarter.

The debt-to-capitalization ratio was 28.6% as of Mar 31, 2014 against 30.3% as of Dec 31, 2013. Free cash flow in the reported quarter was $58 million, an improvement from negative $14 million in the first quarter of 2013, mainly due to higher operating income and decreased working capital primarily related to accounts payable and lower capital expenditures.

During the quarter, the company repurchased 75,203 shares for $2.9 million. The repurchases were made under the $50 million share repurchase program authorized by the board of directors for a 12-month period beginning Mar 2013.

Itron also announced its board's authorization of a new share repurchase program of up to $50 million for a 12-month period beginning from Mar 8, 2014.

Bookings and Backlog

Itron had bookings of $745 million in the quarter with a book-to-bill ratio of 1.6x. Total backlog increased 30% year over year and came in at $1.3 billion at the quarter-end.

Guidance

Itron expects acquisition of new business to generate over $80 million of the incremental revenues by the end of 2016, with the growth beginning to materialize in 2015.  Increased revenues will drive earnings before interest, taxes, depreciation and amortization (EBITDA) by 300 to 400 bps.

In addition, Itron's continuous focus on cost reduction and efficiency improvement will likely benefit the electricity segment. The company is also targeting to increase the levels of outsourced printed circuit board assembly, which will help to reduce costs by $10 million annually. Itron's continuous investment to boost the long-term growth potential of all three businesses will also be accretive going forward.

Our View

We believe that Itron will benefit from its consistent focus on lowering costs and capital expenditure. Moreover, a strong backlog, new contracts, flexible business operations and expansion in emerging markets are likely to drive long-term growth.

Liberty Lake, WA-based Itron Inc., along with its subsidiaries, is one of the principal technology providers to energy and water industries worldwide. It produces electricity, gas, water and heat meters, data collection and utility software solutions as well as various other associated metering products. The company provides its services to residential, commercial and industrial customers, along with transmission and distribution customers.

Itron currently carries a Zacks Rank #3 (Hold). A better-ranked stock in the electrical test equipment sector is Ametek Inc. AME, which has a Zacks Rank #2 (Buy).

Peer Performance

Agilent Technologies' A first-quarter fiscal earnings per share of 67 cents beat the Zacks Consensus Estimate by a penny. Efficient expense management and a stronger mix aided results.

Teradyne Inc. TER reported first-quarter 2014 earnings of 11 cents per share, which surpassed the Zacks Consensus Estimate of 7 cents.