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Badger Meter (BMI)
Q1 2013 Earnings Call
April 17, 2013 11:00 am ET
Richard E. Johnson - Chief Financial Officer, Senior Vice President of Finance and Treasurer
Richard A. Meeusen - Chairman, Chief Executive Officer and President
Ryan M. Connors - Janney Montgomery Scott LLC, Research Division
Richard C. Eastman - Robert W. Baird & Co. Incorporated, Research Division
Chip Moore - Canaccord Genuity, Research Division
Previous Statements by BMI
» Badger Meter Management Discusses Q4 2012 Results - Earnings Call Transcript
» Badger Meter Inc. Q4 2009 Earnings Call Transcript
» Badger Meter Inc. Q3 2009 Earnings Call Transcript
Richard E. Johnson
Thank you very much, Rachel. Good morning, everyone, and welcome to Badger Meter's first quarter conference call. I want to thank all of you for joining us. As usual, I will begin by stating that we will make a number of forward-looking statements on our call today. Certain statements contained in this presentation, as well as other information provided from time to time by the company or its employees, may contain forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those in these forward-looking statements. Please see yesterday's earnings release for a list of words or expressions that identify such statements and the associated risk factors.
Let me reiterate some of our guidelines. For competitive reasons, we do not comment on specific individual product line profitability other than in general terms, nor do we disclose components of cost of sales, for example, copper. More importantly, we continue our practice of not providing specific guidance on future earnings. We believe specific guidance does not serve the long-term interest of our shareholders.
Yesterday after the market closed, we released our first quarter earnings for 2013. As you saw, sales for the 3 months ended March 31, 2013, decreased $4.4 million or 5.8% to $71.8 million compared to $76.2 million in the same period last year. The decrease was due to lower sales of both municipal and industrial products, although the industrial product show an increase year-over-year because last year we had only 2 months of the Racine Federated product lines in our results. This year we had 3 months of sales.
Municipal water sales represented 65.1% of sales for the first quarter of 2013. These sales decreased $5.5 million or 10.5% from $52.3 million in the first quarter of last year to $46.8 million in this year's first quarter. Our municipal water business has always been very seasonal, primarily due to the fact that many utilities slow down or even stop meter replacement activity during the winter months, causing our first and fourth quarters to usually be weaker than our second and third quarters. During the winter month, snow cover causes difficulty in locating pit meters. Excessive snow can also cause some utilities to divert funds and crews from meter replacement to snow removal activities.
Recently, we were able to obtain snow-cover statistics from the Rutgers University Global Snow Lab. We found a strong correlation between first quarter snow cover data and our first quarter municipal water meter sales, noting that increased first quarter snow cover resulted in lower first quarter sales and vice versa. The decrease in this year's first quarter municipal water meter sales followed that pattern. The snow cover in the contiguous 48 states was 22% below normal last year, but 15% above normal this year. We believe that this unusual 47% increase in snow cover was a primary contributor to our weaker first quarter. We saw a similar pattern in 2011, when first quarter snow cover was 25% above normal and our municipal water sales were also down in that quarter. Often these weather events cause delays in meter orders, with a weaker first quarter followed by a stronger second quarter as we saw in 2011. Similarly, we also expect to see a stronger second quarter this year.
In addition, we look at states that were hard hit by Hurricane Sandy and found that sales were down nearly 30% in those states. We attribute this to the current focus on repairing and replacing infrastructure in the communities affected by the hurricane. The meters will come later.
And so while sales of residential meters were down nearly 10% and commercial meter sales are down almost 17%, both compared to 2012's first quarter, we don't believe that this is anything more than our normal lumpiness. And it is likely that other lingering factors, such as continuing concerns over municipal budgets, now more due to sequestration concerns, and housing starts also played a role, but we truly believe weather was the main culprit for the sales decline quarter-over-quarter.
Industrial flow products represented 36% of sales for the first 3 months of 2013. As I noted, these sales did increase by $0.5 million or 2.3% to $22 million from $21.5 million last year. The increase was solely due to including an extra month of the Racine product sales in the results. On a comparable basis, industrial product sales on average are down 13%, 14%, which we find to be similar to other industrial manufacturers who are seeing an overall weakness in industrial orders.
Specialty products -- specialty applications represented 4.3% of sales for the first quarter of 2013. These sales increased $600,000 in the first quarter to $3 million from $2.4 million in the same period last year. Again, included in this group is the concrete product line from Racine, which has 3 months this year versus 2 months last year.