Mixed Bag for Itron - Analyst Blog

By Zacks Equity Research,

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Itron, Inc. ( ITRI ) has reported first quarter of 2012 results, delivering adjusted earnings per share ( EPS ) of 91 cents, an 8% drop from 99 cents in the year-earlier quarter. Adjusted earnings also fell short of the Zacks Consensus Estimate of 93 cents per share. The earnings shortfall was mainly due to escalating operating expenses in the quarter.

Including amortization expenses, restructuring costs and acquisition related expenses, EPS in the quarter was 63 cents compared with 66 cents in the year-ago quarter.

Total revenue during the quarter inched up 1% to $571.6 million compared with $563.7 million in the prior-year quarter driven by growth at both the Energy and Water segments. However, changes in foreign currency exchange rates had an unfavorable impact on revenues of $13 million.

Total revenue comfortably surpassed the Zacks Consensus Estimate of $546 million. Growth at the Energy segment was mainly due to increased smart gas module shipments in North America and increased electric product shipments in Europe and Asia-Pacific. More meter shipments in Latin America and Europe drove growth at the Water segment.

Cost and Margins

Costs of goods sold increased 3% to $388 million from $379 million in the year-ago quarter. Gross profit declined 1% to $183 million from $185 million in the prior-year quarter. However, gross margin contracted 80 basis points to 32%. Excluding the impact of a gain from a recovery of a warranty claim in the year-ago quarter, gross margin expanded 70 basis points.

Adjusted operating expenses increased 8% to $129 million in the quarter. Expenses increased due to sales and marketing initiatives at the Energy and Water segments, increased product research and development at the Energy segment and higher corporate general and administrative costs, including acquisition-related expenses related to the SmartSynch acquisition which is anticipated to close in early May.

Adjusted operating profit was $54.3 million versus $65.7 million in the year-earlier quarter. Including one-time items, operating income decreased to $39.6 million in the reported quarter from $50.1 million in the year-ago quarter.

Financial Position

As of March 31, 2012, cash and cash equivalents increased to $154.4 million from $133.1 million as of December 31, 2011. Cash from operations increased to $54 million in the quarter from $36 million in the year-ago comparable period. The debt-to-capitalization ratio as of March 31, 2012 improved to 31% from 33% as of December 31, 2010.

During the quarter, Itron repurchased 282,090 shares of its common stock at an average price of $37.56 per share. The company has repurchased approximately 1.1 million shares of Itron common stock at an average price of $36.20 per share since inception of the program, representing 2.7% of total shares outstanding as of October 2011.

Our Take

Itron's acquisition of SmartSynch, a smart grid solutions provider that uses cellular network for communications, will enable it to strengthen its position in the integrated cellular network market and provide customers with a wider choice across the smart metering spectrum. The complementary technology of Itron and SmartSynch can be used in areas where RF mesh networks are not available or are unaffordable.

Moreover, SmartSynch's technology will cater to the demand of full cellular smart-grid network deployments, like the 1.9 million electric residential and commercial & industrial meter end-point deployment at Consumers Energy.

The restructuring initiatives adopted by the company in the manufacturing segment in order to reduce cost and increase efficiency will enable Itron to seize international global opportunities more efficiently. However, the charges associated with the restructuring may put pressure on margins through 2012 and the first half of 2013. We currently have a Zacks #3 Rank (short-term Hold recommendation) on the stock.

Itron provides leading technology to the global energy and water industries. It is a world leader in intelligent metering, data collection and utility software solutions, with nearly 8,000 utilities worldwide relying on its technology to optimize the delivery and use of energy and water. It competes with the likes of General Electric Co. ( GE ) and Roper Industries Inc. ( ROP ).

GENL ELECTRIC ( GE ): Free Stock Analysis Report
ITRON INC ( ITRI ): Free Stock Analysis Report
ROPER INDS INC ( ROP ): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
Referenced Stocks: EPS , GE , ITRI , ROP

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