Badger Meter, Inc. BMI reported mixed third-quarter 2019 results as net earnings increased year over year but revenues declined. However, the better-than-expected earnings boosted investor confidence in the stock as reflected in 10.1% rise in shares, which closed at $56.54 as of Oct 17, 2019.
GAAP earnings for the reported quarter were $12.7 million or 44 cents per share compared with $2.9 million or 10 cents per share in the year-ago quarter. The healthy year-over-year improvement in the bottom line, despite lower revenues, was primarily driven by efficient working capital management.
Adjusted earnings were 44 cents per share compared with 46 cents in the year-earlier quarter. The bottom line surpassed the Zacks Consensus Estimate by 2 cents.
Badger Meter, Inc. Price, Consensus and EPS Surprise
Badger Meter, Inc. price-consensus-eps-surprise-chart | Badger Meter, Inc. Quote
Net sales declined to $108.6 million from $110.6 million in the year-ago quarter as customers largely deferred orders awaiting the company’s next-gen technologies, notably ORION and LTE-M radio products. The top line was on par with the consensus estimate of $109 million.
Municipal water utility domestic market was up 2%, driven by adoption of smart metering solutions. International municipal water utility sales declined as there were no repeat orders from Middle East as exhibited in the prior-year quarter. Global municipal water sales declined 3% and flow instrumentation witnessed growth of 1% due to a broad lineup of industrial products across various markets.
Gross profit was $41.7 million, down from $43.9 million in the year-earlier quarter. Third-quarter gross margin was 38.4%, primarily driven by positive product and regional sales mix, as well as moderating price dynamics and discrete warranty provision outside North America, with favorable brass input costs. Operating earnings were $16.4 million or 15.1% of sales compared with respective tallies of $15.7 million or 14.2% of sales in the year-earlier quarter.
Selling, engineering and administration expenses were $25.2 million compared with $28.2 million a year ago, primarily due to lower incentive compensation and effective cost-control measures.
Cash Flow & Liquidity
During the quarter, Badger Meter generated $20.2 million of net cash from operations compared with $14.7 million a year-ago. This raised net cash flow for the first nine months of 2019 to $61.1 million from $39.9 million in the prior-year period, primarily due to improved working capital management. Free cash flow was about $19.1 million, up 50% from the prior-year quarter. As of Sep 30, 2019, the company had a cash balance of $37.7 million with $4.4 million of short-term debt.
Badger Meter continues to witness strong momentum in its business as profit margins continue to benefit from positive sales mix and continuous improvement activities across all aspects — global operations and supply chain, working capital and inventory management. This is supported by the ample capacity to execute disciplined and strategic acquisitions.
Customer demand is anticipated to be the crux of product and technology roadmap, with positive municipal spending trends and competitive share and positioning. Mergers and acquisitions and Sales, Inventory and Operations Planning capabilities are likely to provide potential technology extensions and opportunities in the future.
From a macro perspective, the company will continue to monitor the environment as trade and other contingencies appear to be taking a toll on consumer sentiment and overall industrial demand.
Zacks Rank & Stocks to Consider
Badger Meter currently has a Zacks Rank #3 (Hold).
A few better-ranked stocks in the broader industry are Keysight Technologies, Inc. KEYS and Advantest Corporation ATEYY, sporting a Zacks Rank #1 (Strong Buy) and Woodward, Inc. WWD, carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Keysight Technologies delivered average positive earnings surprise of 18.9% in the trailing four quarters. It has long-term earnings growth expectation of 10%.
Advantest Corporation pulled off average positive earnings surprise of 27.5% in the trailing four quarters, beating estimates twice. It has long-term earnings growth expectation of 15.5%.
Woodward delivered average positive earnings surprise of 20.1% in the trailing four quarters. It has long-term earnings growth expectation of 12.1%.
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