Badger Meter Inc .'s BMI third-quarter 2016 earnings per share rose 3.4% year over year to 30 cents. However, earnings fell short of the Zacks Consensus Estimate of 33 cents. Softening of order input early in the third quarter, flat year-over-year domestic municipal water sales affected its top line. Shares of Badger Meter slumped 7% following the earnings announcement.
Badger Meter's third-quarter sales declined 3% to a record low of $96.3 million, falling well short of the Zacks Consensus Estimate of $106 million. A softening of order input early in the third quarter led to the fall in sales.
Sales declined in both residential as well as commercial water meters and related technologies. Much of the decrease can be attributed to lower sales in the Middle East. However, substantial increase in sales was witnessed in the company's latest products line - BEACON Advanced Metering Analytics (AMA) solution with ORION cellular technology and E-Series Ultrasonic meters. This offset lower sales of flow instrumentation products, due to weak industrial markets.
Cost and Margins
Cost of sales decreased 9% year over year to $57.6 million. Gross profit in the quarter was $38.6 million, up 7% from $36 million in the prior-year quarter. Gross margin was 40.1%, up 380 basis points (bps) from 36.3% a year ago. This was driven by lower costs and margin contributions from Badger Meter's company-owned distribution network.
Selling, engineering and administration expenses rose 10% year over year to $24.7 million chiefly due to higher employee incentives and benefit costs. Operating income inched up 2% to $13.9 million from $13.6 million in the year-ago quarter. Consequently, operating margin expanded 80 bps to 14.5%.
Badger Meter reported cash and cash equivalents of $10.7 million at the end of the third quarter, up from $8.1 million at year-end 2015. For the nine-month period ended Sep 30, 2016 the company generated $40.2 million in cash from operations compared to $25.8 million in the prior-year comparable period. The debt-to-total capitalization ratio was 16.5% at the end of the quarter as against 23.5% at year-end 2015.
Receivables of around $58 million at the end of the quarter were higher than $56 million as of Dec 31, 2015. Inventories were $82 million at the end of the quarter compared with $79 million as of Dec 31, 2015.
BADGER METER Price, Consensus and EPS Surprise
Badger Meter's year-to-date sales, earnings and earnings per share have increased substantially, driven primarily by record first and second-quarter performance. The company anticipates a fourth quarter in line with the prior year. This would result in a strong 2016 for Badger Meter.
Moving forward, Badger Meter will benefit from new products. The company also stands to gain from strong fundamentals over the long term. Its focus on helping water utilities and customers to conserve water will drive additional sales in the future.
Headquartered in Milwaukee, WI, Badger Meter provides liquid-flow measurement products and control technology. It also serves water and gas utilities to municipalities and industrial customers worldwide. The company's products, which are developed both internally and in collaboration with other technology companies, are used for a wide variety of applications related to water, oil and chemicals.
At present, Badger Meter has a Zacks Rank #3 (Hold). Some better-ranked stocks in the same sector are Casella Waste Systems Inc. CWST , Harsco Corp. HSC and Owens-Illinois, Inc. OI . Casella Waste Systems delivered an average positive earnings surprise of 90% in the last four quarters. The company sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here .
Harsco also sports Zacks Rank #1 and has delivered an average positive earnings surprise of 40% in the past four quarters. Owens-Illinois, another Zacks Rank #1 stock, has an average positive earnings surprise of 3.03% in the past four quarters.
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