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Itron (ITRI) Misses on Q3 Earnings and Revenues, Shares Fall

Shares of Itron, Inc.ITRI lost over 6% yesterday after the company reported its third-quarter 2015 results. Adjusted earnings of 43 cents per share, although up around 10.3% year over year, lagged the Zacks Consensus Estimate of 54 cents. The year-over-year growth can be primarily attributed to better performance at the Electricity segment.

Including one-time items, viz. amortization of intangibles, restructuring charges, acquisition related expenses and goodwill impairment; the company reported earnings of 33 cents per share, a surge of about 73.7% from 19 cents per share posted in the year-ago quarter.

Itron Inc. (ITRI) - Earnings Surprise | FindTheCompany

Operational Update

Total revenues declined 5.5% to $469 million from $496 million in the third quarter of 2014. Revenues also fell short of the Zacks Consensus Estimate of $478 million. Unfavorable foreign currency exchange rates hit revenues by around $46 million. Excluding the impact of foreign currency, revenues increased 4% year over year driven by an improvement in sales at the Electricity segment.

Cost of goods sold went down 6.8% to $322 million from $345.7 million in the prior-year quarter. Gross profit decreased 2.5% year over year to $147 million. Gross margin declined 90 basis points (bps) to 31.3% in the reported quarter.

Adjusted operating expenses declined 6.5% year over year to $115 million. Changes in foreign currency exchange rates had a favorable impact of $11 million in the quarter. Excluding this, expenses were up by $3 million owing to increased product development investments and higher general and administrative expenses associated with severance costs.

Itron's adjusted operating income increased to $32 million from $28 million in the year-ago quarter, primarily owing to a better performance at the Electricity segment, which was however partly offset by higher tax rate stemming from a valuation allowance applied to deferred tax assets in Brazil.

Segment Performance

Electricity Segment: Net sales at the Electricity Segment went up 1.4% year over year to $206.4 million. The segment reported adjusted operating income of $9.6 million against an operating loss of $4.9 million in the year-ago quarter.

Gas Segment: The segment's sales went down 8.5% year over year to $136.6 million. Adjusted operating income for the quarter was $17 million, down 34% from the year-ago quarter.

Water Segment: The Water Segment reported sales of $126 million in the quarter, down 12.3% from $143.7 million in the prior-year quarter. The segment reported adjusted operating profit of $16 million versus $21.5 million in the year-ago quarter.

Financial Position

Itron ended the quarter with cash and cash equivalents of $109.5 million compared with $112.4 million as of 2014-end. The company generated cash flow from operations of $20 million for the nine months ended Sep 30, 2015, compared with $116.5 million in the comparable prior-year period.

The debt-to-capitalization ratio was 37.5% as of Sep 30, 2015 as against 31.2% as of Dec 31, 2014. Free cash flow through the first nine months of 2015 was a negative $13.2 million compared with a positive $84.5 million in the first nine months of 2014. The decline was primarily due to lower earnings and increased inventory levels.

During the quarter, Itron repurchased 382,403 shares at an average price of $31.62 per share. As of Sep 30, 2015, the company had repurchased 655,178 shares at an average price of $33.57 per share under its $50 million share repurchase authorization initiated in Feb 2015.

On Nov 3, Itron was selected by the City of Grand Prairie Water Utility to upgrade its water metering and customer service systems. Over the next four years, the utility will install Itron's smart water solution - including professional services and cloud-based analytics - to increase operational efficiencies, enhance customer empowerment and more effectively manage the delivery of water.

Bookings and Backlog

Itron had bookings of $337 million in the quarter. The company reported twelve-month backlog of $727 million and total backlog of $1.2 billion.

Restructuring

Itron remains focused on rigorously executing its restructuring initiatives. The company has already implemented over 50% of workforce reductions under the restructuring plan and expects to complete 70% of the same by the end of 2015. These reductions will deliver more than $15 million in annualized savings beginning in 2016. Itron is executing the plan as scheduled and is on track to complete the same by the end of 2016, so as to deliver a total of $40 million in annualized savings beginning in 2017.

Guidance

Itron expects to achieve its mid-teens EBITDA margin target by 2017.

Itron is optimistic about strong customer opportunities entailing smarter endpoints, software analytics and services. The company unveiled its plans for the next generation communications system for energy and water customers. Itron will have a single open standards-based network and application platform for electricity, gas and water utilities with OpenWay Riva, facilitating the company to deliver an industry-leading multi-purpose network.

Further, Itron's new chief operating officer Tom Deitrich will assess its manufacturing and supply chain strategies and R&D efficiency with the goal of identifying additional operational and financial improvements.

Our View

We believe Itron is likely to benefit from its consistent focus on lowering costs through restructuring actions. Moreover, a strong backlog, new contracts, flexible business operations and expansion in emerging markets are likely to drive long-term growth. However, business challenges and economic uncertainty in different geographic regions, especially EMEA, pose headwinds.

Currently, Itron carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the same sector are Agilent Technologies Inc. A , ACI Worldwide, Inc. ACIW and Ambarella, Inc. AMBA . All these stocks carry a Zacks Rank #2 (Buy).

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AGILENT TECH (A): Free Stock Analysis Report

ITRON INC (ITRI): Free Stock Analysis Report

ACI WORLDWIDE (ACIW): Free Stock Analysis Report

AMBARELLA INC (AMBA): 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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