Badger Meter Beats on Q4 Earnings


Badger Meter Inc. (BMI) reported record fourth-quarter 2013 earnings per share of 44 cents, up 12.8% year over year, which outperformed the Zacks Consensus Estimate of 43 cents. However, the stock price fell around 1.4% and closed at $48.34 on Feb 5, as despite record revenues in fiscal 2013, earnings declined 12.8% to $1.70. Lower sales of higher-margin industrial products, increase in expensive water meters sales and lower-margin sales at Elster affected gross margin and earnings in 2013.

Net sales increased 9% year over year to $81 million in the reported quarter. The results came ahead of the Zacks Consensus Estimate of $80 million. The growth was aided by higher sales of residential and commercial municipal water products, partly offset by decrease in industrial and specialty product sales.

Revenues for 2013 increased 4.5% year over year to record $334 million. Revenues were in line with the Zacks Consensus Estimate of $334 million. Badger Meter's EPS for full-year 2013 declined 12.8% year over year to $1.70. However, full-year earnings beat the Zacks Consensus Estimate of $1.69.

Costs and Margins

Cost of sales increased 14% year over year to $52 million. Gross profit in the quarter was $29 million, up from $28.8 million in the prior-year quarter. However, gross margin contracted 300 basis points (bps) to 35.8%, due to product mix and lower sales of higher-margin industrial products.

Selling, engineering and administration expenses decreased 6.9% year over year to $18.6 million due to continuing cost reduction initiatives. Operating income increased 17.4% to $10.3 million from $8.8 million in the year-earlier quarter. Consequently, the operating margin expanded 100 bps to 12.8%.

Financial Position

Badger Meter ended 2013 with cash and cash equivalents of $7.6 million, up from $6.5 million in 2012. Receivables increased to $50 million as of Dec 31, 2013 from $45.6 million as of Dec 31, 2012. Inventories as of Dec 31, 2013 were $61 million, flat from Dec 31, 2012.

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.

Recently, the company expanded its E-Series ultrasonic meters with a polymer version. It is a cost-effective alternative to the stainless steel version. The E-Series continue to be widely accepted by customers outside North America as well. In addition, the introduction of ORION SE, the first simultaneous drive-by fixed-network product, will also help to meet growing customer needs.

Last week, Badger Meter launched its new BEACON Advanced Metering Analytics (:AMA) system which 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 costly 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.

However, higher construction costs, labor shortage, adverse effects of sequestration and the strained global economic scenario may affect the performance of Badger Meter, going forward.

Headquartered in Milwaukee, Wisconsin, 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 Newport Corp. (NEWP), Watts Water Technologies, Inc. (WTS) and MTS Systems Corporation (MTSC). While Newport sports a Zacks Rank #1 (Strong Buy), Watts Water and MTS Systems carry a Zacks Rank #2 (Buy).

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