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Itron Stays Neutral

Zacks Equity Research

We reiterate our Neutral recommendation on Itron Inc.(ITRI), one of the principal technology providers to the energy and water industries worldwide. The company produces electricity, gas, water, and heat meters, data collection and utility software solutions along with various other associated metering products for residential, commercial and industrial (C&I), and transmission and distribution (T&D) customers.

Itron released its fourth quarter and fiscal 2011 financial results on February 15, 2012. The company’s adjusted earnings increased 25.2% to $1.19 per share, surpassing the Zacks Consensus Estimate of $1.00. Revenues increased 4% to $642.5 million beating the Zacks Consensus Estimate of $587 million. 

The company expects revenues in the range of $2.1 billion to $2.3 billion for 2012. EPS is projected in the range of $3.80 to $4.20.

Itron decided to restructure its manufacturing operations for increasing efficiency and lowering manufacturing cost. The process of reorganization would entail closure of projects and consolidation of several of its manufacturing facilities. The company will either close or sell six of its manufacturing facilities and reduce operations in several other units.

The company’s plan to restructure nearly one-third of the 31 global manufacturing locations will curtail global workforce by 7.5% and help the company achieve annualized cost savings of $15 million in 2012 from streamlining; projected to grow to $30 million in 2013.

However, the reorganizing operations would incur pre-tax restructuring charges in the range of $75-$80 million; of which the company expects to pay a considerable portion throughout 2012 and the first half of 2013. Therefore, operating expenses will increase, creating margin headwinds in 2012 and first half of 2013.

Itron faces tough competition from a large number of companies offering similar products, systems, and services. Some of its well-known competitors include General Electric Company (GE), Cooper Industries Ltd. (CBE) and Badger Meter Inc. (BMI).

We currently have a long-term Neutral recommendation on Itron. The stock retains a short-term Zacks #3 Rank (Hold).

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