Itron (ITRI) Down 8.7% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Itron (ITRI). Shares have lost about 8.7% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Itron due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Itron's Q1 Earnings & Revenues Beat Estimates

Itron delivered first-quarter 2019 non-GAAP earnings of 70 cents per share beating the Zacks Consensus Estimate by 27 cents. The figure improved significantly from 13 cents in the year-ago quarter but declined from 88 cents in the previous quarter.

Revenues came in $614.58 million, which grew 1.2% from the year-ago quarter and 4.7% sequentially. The figure surpassed the Zacks Consensus Estimate of $590 million.

The top line was driven by robust performance of network solution segment of the company. Further, strong customer demand remained a major positive. Additionally, strengthening supply chain environment contributed to the first-quarter results.

Product and services revenues accounted for 88.7% and 11.3% of total revenues. While product revenues improved 1.4% from the year-ago quarter, services revenues declined 0.5%.

The company’s bookings were $473 million, down 15.1% year over year. The company’s backlog came in at $3 billion, decreasing 3.2%, year over year. Further, its 12-month backlog came in at $1.4 billion, which remained flat year over year.

Nevertheless, the company remains optimistic about its supply chain optimization strategy and strong focus toward enhancing operation efficiency.

Segment in Detail

Device Solutions: The company generated $221.8 million revenues (36.1% of total revenues) from this segment, down 11.1% from the year-ago quarter. This was primarily owing to decline in the EMEA volumes during the reported quarter. Further, operating margin within this segment contracted 380 bps year over year. Nevertheless, the company witnessed improvement in supply chain scenario and enhanced performance by book and ship business.

Networked Solutions: Revenues from this segment came in $336.4 million (54.7% of total revenues), increased 11.3% year over year. This was driven by growing customer deployments and robust performance in North America AMI market. Notably, operating margin expanded 190 bps year over year on the back of benefits from integration synergies.

Outcomes: This segment generated $56.4 million revenues (9.2% of total revenues), up 1.6% on a year-over-year basis. The company witnessed strengthening recurring managed service offerings and persistent growth in North America deployments, which in turn drove the segment’s top line. Further, operating margin came in 18.5% against a loss of 1.2% in the year-ago quarter. This can be attributed to benefits from Silver Spring Networks buyout and favorable product mix.

Operating Details

For the first quarter, Itron’s gross margin was 30.5%, which expanded 90 bps from the prior-year quarter. This can be attributed to favorable product mix and robust higher-margin software sales.

Non-GAAP operating expenses were $130.6 million, down 14.1% year over year. This decrease resulted from strong restructuring and integration initiatives.

Non-GAAP operating margin came in 9.2%, expanding significantly 460 bps from the year-ago quarter. This was driven by robust Networked Solutions and Outcomes segments.

Balance Sheet and Cash Flows

As of Mar 31, 2019, cash and cash equivalents totaled $110.8 million compared with $120.2 million as of Dec 31, 2018. Accounts receivables were $473.1 million, increasing from $437.2 million in the previous quarter.

Itron generated $24.9 million cash from operations compared with $42.4 million generated in the previous quarter.

Moreover, the company generated free cash flow of $13.5 million, up from $24.9 million in prior quarter.

Guidance

For second-quarter 2019, management expects earnings and revenues to be flat or slightly down on a sequential basis.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -5.03% due to these changes.

VGM Scores

At this time, Itron has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

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 #2 (Buy). We expect an above average return from the stock in the next few months.

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