A month has gone by since the last earnings report for Itron (ITRI). Shares have added about 2.2% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Itron due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Itron delivered second-quarter 2018 non-GAAP earnings of 51 cents beating the Zacks Consensus Estimate by 2 cents. The figure soared a whopping 292.3% on a sequential basis but declined 28.2% year over year.
Revenues came in $585.9 million, which grew 16.4% from the year-ago quarter but decreased 3.5% sequentially. The figure also missed the Zacks Consensus Estimate of $591.1 million.
Itron’s bookings were $579 million, up 39.2% year over year. The company’s backlog came in at $3.1 billion, increasing a whopping 93.7%, year over year. Further, its 12-month backlog came in at $1.4 billion, up 62.8% from year-ago quarter.
Year-over-year top-line growth was driven by strengthening product portfolio and improving demand for the company’s products. Further, the buyout of Silver Spring Network also contributed well and aided growth.
Additionally, progress in stabilization of the global supply chain remained a positive. However, it is still a headwind for the company and will remains so till it stabilizes. Further, lower standard meter shipment during the quarter was an obstacle to revenue growth.
Segment in Detail
Itron reports in the following four organized segments:
Electricity: The company generated $250.6 million revenues (42.8% of total revenues) from this segment, up marginally 0.1% from the year-ago quarter. Non-GAAP operating margin was 12.1% in this segment, expanding 120 basis points (bps) year over year. This segment witnessed strong contributions from services but suffered from unfavorable product mix. Further, the margins of the segment benefited from low operating expenses.
Gas: Revenues from this segment came in $137 million (23.4% of total revenues), down 1.2% year over year. The company witnessed sluggish contributions from both products and services. Further, the non-GAAP operating margin contracted 590 bps from the year-ago quarter to 10.4%, due to higher input costs.
Water: This segment generated $124.6 million revenues (21.3% of total revenues), surging 9.3% year over year. This can be attributed to positive contributions from Riva projects in North America and Australia. Moreover, strong momentum across the water communication space of North America and improving performance in Latin America remained positive. Further, strong bookings and backlogs contributed well to the revenues of this segment. Non-GAAP operating margin was 6.3% which contracted 1020 bps due to unfavorable product mix and higher pricing.
Networks: This segment generated $73.6 million revenues (12.5% of total revenues) in the second quarter. The segment became operative with the acquisition of Silver Spring Networks which contributed well. Without the contributions from this segment, the total revenues of Itron would have exhibited marginal growth of 1.8% from the year-ago quarter. Robust performance of North America Network and outcome solutions drove the results further within this segment. However, the segment reported operating loss of $2.9 million.
For the second quarter, Itron’s gross margin was 30.1%, which contracted 530 bps from the prior-year quarter. This was due to increasing costs and inefficiencies related to supply chain.
Non-GAAP operating margin came in 7.5%, contracting 320 bps from the year-ago quarter.
Non-GAAP operating expenses were $132.5 million, up 6.7% year over year. This increase was due to inclusion of departmental expenses related to acquisitions.
Balance Sheet and Cash Flows
As of Jun 30, 2018, cash and cash equivalents totaled $162.9 million compared with $143.9 million as of Mar 31, 2018. Accounts receivables were nearly $443.4 million, decreasing from $481.4 million in the previous quarter.
Itron generated $41.3 million cash from operations compared with $24.4 million and $32.4 in the previous quarter and the year-ago quarter, respectively. Further, the figure was up from $30.2 million in the year-ago quarter.
Moreover, the company generated free cash flow of $29.4 million, up from $17.4 million in prior-year quarter.
For 2018, Itron raised guidance of revenues from $2.33-$2.43 billion to $2.425-$2.475 billion.
However, the company revised the guidance for non-GAAP earnings downward from $2.95-$3.35 per share to $2.75-2.90 per share.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
Currently, Itron has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Itron has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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