Badger Meter, Inc. BMI reported solid fourth-quarter 2021 results, with both the bottom line and top line surpassing their respective Zacks Consensus Estimate. Robust water quality acquisition-related sales, backlog conversion and record order momentum across its diverse portfolio of innovative water solutions on the back of a healthy demand environment drove its performance. Also, recovering market trends despite widespread supply chain shortages and delays acted as a tailwind.
Net earnings in the reported quarter were $17.3 million or 59 cents per share compared with $13.1 million or 45 cents per share in the year-ago quarter. The year-over-year improvement can be primarily attributed to higher revenues. The bottom line surpassed the Zacks Consensus Estimate by 15 cents.
Net earnings in 2021 came in at $60.9 million or $2.08 per share compared with $49.3 million or $1.69 per share in 2020.
Badger Meter, Inc. Price, Consensus and EPS Surprise
With robust momentum, quarterly net sales increased to $135.7 million from $112.3 million in the year-ago quarter. The 20.8% rise was primarily due to solid order rates, driven by accelerated adoption of innovative digital water technologies among customers. Improved demand for flow instrumentation across industrial end markets despite certain macroeconomic challenges played a crucial role as well. The top line beat the consensus mark of $127 million.
In 2021, total revenues were $505.2 million compared with $425.5 million in 2020. Utility water sales soared 23.4% owing to the water quality acquisitions of s::can and Analytical Technologies, Inc (“ATi”), fueled by strong order activity and backlog conversion. This was partly offset by intermittent supply chain disruptions. Also, backlog recovery post COVID-19 lockdown, strength in ORION Cellular endpoint sales, strategic value-based pricing initiatives, favorable sales mix of high-end products and services along with higher BEACON Software-as-a-Service (SaaS) revenues acted as major tailwinds.
With strong order momentum, the company’s record annual sales exceeded the $500 million milestone. However, Badger Meter’s production output continues to be affected by inflation dynamics and widespread supply chain disruptions resulting from electronic component shortages and logistics challenges. Flow instrumentation sales grew 8.9% year over year with stabilizing global order trends. Recovering demand environment across the varied water and industrial end markets and applications played a major role as well.
Gross profit was $54.8 million, up 24.4% from $44.1 million in the year-earlier quarter. The gross margin was 40.4%, up 120 basis points. The upside was primarily driven by higher SaaS revenues with favorable product sales and acquisition mix. Value-based pricing actions drove the margin. Operating earnings were $22.9 million or 16.8% of sales compared with respective tallies of $17 million and 15.1% in the year-earlier quarter.
Selling, engineering, and administration expenses were $32 million compared with $27.1 million in the prior-year quarter. The year-over-year increase was mainly driven by the water quality acquisitions, including the related intangible asset amortization and higher compensation expenses. Pandemic-impacted expenses such as travel also returned to more normalized levels.
Cash Flow & Liquidity
In 2021, Badger Meter generated $87.5 million of net cash from operating activities compared with $89.6 million a year ago. Thanks to adequate financial flexibility and strong earnings conversion, the company is well-positioned to fund capital allocation priorities and address the attractive long-term growth opportunities with greater flexibility.
As of Dec 31, 2021, the company had $87.2 million of cash and cash equivalents with $82.1 million of total current liabilities compared with the respective tallies of $72.3 million and $68 million a year ago.
With the gradual stabilization of overall end-market activities post lockdown, Badger Meter’s near-term outlook remains bullish. It expects to witness a solid backlog and bid pipeline on the back of increasing orders in the forthcoming quarters. This will eventually help the company ensure the smooth functioning of business operations with strong profitability.
Thanks to recovering macro trends and value-based pricing efforts, the company continues to expand its portfolio of smart water solutions while driving their adoption. The company continues to tackle increasing inflationary cost pressures across the business.
Although logistics challenges serve as a prime headwind, effective sourcing strategies and supply chain management are expected to enhance Badger Meter’s operational agility. It remains committed to delivering critical products and services to its diversified customer base during this hour of crisis.
Despite a challenging price/cost environment, Badger Meter is well poised to enable strategic, tuck-in mergers and acquisitions to provide differentiated offerings across global markets with a healthy liquidity position. The company is focused on investing in digital solutions that operationalize real-time data and utilize remote solutions to reduce overall costs and enhance efficiency, thereby addressing holistic water system requirements.
Customer demand is predicted to be the crux of the product and technology roadmap. Continued R&D investments with inventory planning capabilities and backlog conversion are likely to provide potential opportunities in the future.
Zacks Rank & Stocks to Consider
Badger Meter currently has a Zacks Rank #3 (Hold).
Some better-ranked stocks in the broader industry are Allied Motion Technologies Inc. AMOT, salesforce.com, inc. CRM and Progress Software Corporation PRGS, each sporting a Zacks Rank #1 (Strong Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Allied Motion Technologies’ next-year earnings has been revised 10.1% upward over the past 60 days.
Allied Motion Technologies delivered a trailing four-quarter earnings surprise of 46.2%, on average. It has returned 16.6% in the past year. AMOT has a long-term earnings growth expectation of 10%.
The Zacks Consensus Estimate for salesforce.com’s current-year earnings has been revised 6.4% upward over the past 60 days.
salesforce.com delivered a trailing four-quarter earnings surprise of 44.2%, on average. Although it has lost 5.7% in the past year, CRM has a long-term earnings growth expectation of 16.8%.
The Zacks Consensus Estimate for Progress Software’s current-year earnings has been revised 3.9% upward over the past 60 days.
Progress Software delivered a trailing four-quarter earnings surprise of 26.8%, on average. The stock has returned 9.8% in the past year. PRGS has a long-term earnings growth expectation of 2%.
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