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Badger Meter Misses on Q4 Earnings Despite Record Sales

Badger Meter Inc. 's BMI fourth quarter earnings per share declined 10% year over year to 38 cents and were also short of the Zacks Consensus Estimate of 47 cents, resulting in a negative earnings surprise of 19%. Earnings were hurt by a non-cash pension settlement charge of 3 cents per diluted share, as well as a higher tax rate. Nevertheless, Badger Meter's price gained 1% since the company reported fourth-quarter 2015 results on Feb 4 due to record sales and improved operating margins.

Badger Meter's fourth-quarter sales increased 7% to an all-time high of $96 million from $89 million in the year-ago quarter. Revenues also outpaced the Zacks Consensus Estimate of $91 million. Sales of both residential and commercial municipal water products increased in the quarter. Strong sales were witnessed in the company's latest products, including E-Series Ultrasonic meters, which increased 85% year over year while sales of ORION Cellular endpoints grew more than six times. However, this was somewhat offset by a decline in flow instrumentation product sales.

Cost and Margins

Cost of sales increased 5% year over year to $61.3 million. Gross profit in the quarter was $34 million, up from $31 million in the prior-year quarter. Gross margin was 36%, which increased 140 basis points (bps) from 34.6% a year ago.

Selling, engineering and administration expenses increased 10% year over year to $25 million. Operating income increased 17% to $9.5 million from $8 million in the year-earlier quarter aided by strong operational execution. Consequently, operating margin expanded 80 bps to 9.9%.

Financial Position

Badger Meter reported cash and cash equivalents of $8 million at the end of 2015, up from $6.7 million at 2014 end. Receivables of around $56 million at the end of 2015 were higher than $54 million as of Dec 31, 2014. Inventories were at $76 million at year end compared with $71 million as of Dec 31, 2014. The debt-to-total capitalization ratio was 23.5% at 2015 end. The company also increased the quarterly cash dividend for the 23rd consecutive year.

Full Year Performance

Badger Meter reported earnings per share of $1.80 in 2015, down 13% from $2.06 per share in 2014. Earnings fell short of the Zacks Consensus Estimate of $1.88. Revenues increased 4% year over year to $3.78 billion, ahead of the Zacks Consensus Estimate of $3.12 billion.

Guidance

Badger Meter has recently been awarded a three-year contract to supply its complete portfolio of water meters and meter reading solutions to American Water Works Company, Inc. AWK .The large order makes the company optimistic about 2016.

Badger Meter is confident about its growth opportunities from new products and those currently under development. The company will also benefit from strong fundamentals over the long term. Badger Meter's 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, municipalities and industrial customers worldwide. The company's products, which are developed both internally and in collaboration with other technology companies, are used in a wide variety of applications related to water, oil and chemicals.

At present, Badger Meter has a Zacks Rank #4 (Sell). Some better-ranked stocks in the sector include Nanometrics Incorporated NANO and Albany International Corp. AIN . Both the stocks carry a Zacks Rank #2 (Buy).

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AMER WATER WORK (AWK): Free Stock Analysis Report

BADGER METER (BMI): Free Stock Analysis Report

NANOMETRICS INC (NANO): Free Stock Analysis Report

ALBANY INTL A (AIN): 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.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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