Badger (BMI) Meter Beats Earnings on Higher Municipal Sales


Shares of Badger Meter Inc. (BMI) gained 3% as the company reported record second-quarter 2014 earnings per share of 61 cents, up 39% year over year, which outperformed the Zacks Consensus Estimate of 59 cents driven by higher sales of municipal water products.

Net sales increased 8% year over year to $96 million in the reported quarter, in line with the Zacks Consensus Estimate. The growth was aided by higher sales of residential and commercial municipal water products, partly offset by decrease in industrial and specialty product sales.

Costs and Margins

Cost of sales increased 4% year over year to $61 million. Gross profit in the quarter was $34.8 million, up from $29.8 million in the prior-year quarter. Gross margin expanded 260 basis points (bps) to 36.4%.

Selling, engineering and administration expenses increased 5% year over year to $20.6 million. Operating income increased 40% to $14.2 million from $10.2 million in the year-earlier quarter. Consequently, the operating margin expanded 340 bps to 14.9%.

Financial Position

Badger Meter ended the quarter with cash and cash equivalents of $6.7 million, down from $7.3 million as of 2013 end. Receivables increased to $60.8 million as of Jun 30, 2014 from $50 million as of Dec 31, 2013. Inventories as of Jun 30, 2014 were $63 million, up from $61 million as of Dec 31, 2013.

Our Take

Badger Meter will continue to benefit from investment in research and development as well as the introduction of several new products. Innovation in product offering is a key element of Badger Meter‘s growth strategy.

Badger Meter is witnessing significant increases in sales of two municipal water products, introduced last year. Sales of ORION SE two-way fixed network meter reading systems and the new polymer version of the company’s E-Series line of ultrasonic meters for residential and commercial applications continue to ramp up as they gain market share. 

Badger Meter’s new BEACON Advanced Metering Analytics (:AMA) system made it the first major water meter company to provide water utilities with cost-effective cellular radio endpoints. BEACON AMA combines both fixed and cellular networks, thereby reducing the need for expensive infrastructure. It also has a longer battery life, along with a suite of sophisticated software that allows customers to view and manage their water usage activity.

Furthermore, the Elster business and the ongoing economic recovery will help to drive growth. Moreover, Badger Meter will be benefited by improved volumes in both its municipal and industrial product lines.

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 #3 (Hold). Investors interested in the same industry may consider stocks like Woodward, Inc. (WWD), Bruker Corporation (BRKR) and Sensata Technologies Holding NV (ST). While Woodward and Bruker sport a Zacks Rank #1 (Strong Buy), Sensata Technologies holds a Zacks Rank #2 (Buy).

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