It has been about a month since the last earnings report for Itron (ITRI). Shares have added about 18% 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 the most recent earnings report in order to get a better handle on the important drivers.
Itron Q1 Earnings and Revenues Lag Estimates
Itron reported first-quarter 2020 non-GAAP earnings of 57 cents per share, which missed the Zacks Consensus Estimate by 3.4%. Further, the bottom line declined 18.6% from the year-ago quarter and 20.8% sequentially.
Revenues came in at $598.4 million, which lagged the Zacks Consensus Estimate by 3.6%. Further, the top line declined 2.6% year over year or 1% on a constant-currency basis. The figure was also down 4.8% from the prior quarter.
The coronavirus pandemic, which impacted the revenues by $29 million, remained a major headwind. The outbreak led to missed shipments and logistic delays, consequently, impacting the company’s operations in the quarter review.
This led to weak performance of Device Solutions and Outcomes segments, which led to the top-line decline.
Nevertheless, the company witnessed year-over-year growth in Networked Solutions segment despite coronavirus-induced disruptions.
Further, product revenues were $528.1 million (88.3% of total revenues), down 3.1% year over year. Service revenues came in at $70.3 million (11.7%), which improved 0.8% from the year-ago quarter.
The company’s bookings were $418 million and the backlog totaled $3 billion at the end of the reported quarter.
The company has withdrawn full-year 2020 guidance owing to uncertainties related to the coronavirus pandemic.
Further, Itron is witnessing some deferred investments on a temporary basis primarily due to COVID-19. Moreover, the company has stopped production in some of its manufacturing units due to coronavirus-induced shutdown situation.
Additionally, the company is encountering suspension of deployments by local and regional governments in certain regions on account of COVID-19.
The company remains optimistic regarding its strategic investments toward product innovation that is likely to drive customer momentum in the near term as well as the long run.
Further, Itron’s initiatives to combat coronavirus pandemic remain noteworthy.
Segments in Detail
Device Solutions: The company generated $202.3 million revenues (33.8% of total revenues) from this segment, down 8.8% from the year-ago quarter owing to COVID-19 related delays.
Networked Solutions: Revenues from this segment came in $340.8 million (57% of total revenues), up 1.3% year over year. This can primarily be attributed to strength in AMI deployments in North America, which offset the impact of COVID-19 delays.
Outcomes: This segment generated $55.3 million revenues (9.2% of total revenues), down 1.9% on a year-over-year basis due to unfavourable timing of customer projects.
For the first quarter, Itron’s gross margin was 28.7%, which contracted 180 basis points (bps) on a year-over-year basis primarily due to manufacturing inefficiencies and unfavourable product mix. Moreover, COVID-19-related headwinds hurt gross profit by $10 million.
Non-GAAP operating expenses were $133 million, up 1.9% year over year. This increase resulted from rising product development investment.
Further, non-GAAP operating margin came in 6.4%, contracting 280 bps from the year-ago quarter. This was attributable to rising product development investment.
Balance Sheet & Cash Flows
As of Mar 31, 2020, cash and cash equivalents totaled $554.5 million, up from $149.9 million as of Dec 31, 2019. Accounts receivables were $463.6 million, down from $472.9 million in the prior quarter.
Long-term debt at the end of the first quarter stood at $1.3 billion, up from $932.5 million at the end of fourth quarter.
Itron generated $18.9 million cash from operations in the first quarter compared with $45 million in the fourth quarter.
Moreover, the company generated free cash flow of $6.3 million, down from $29 million in the last quarter.
For second-quarter 2020, management expects non-GAAP loss within the range of 10-30 cents per share.
Further, the company anticipates revenues between $475 million and $500 million.
Also, free cash flow is expected in the band of ($85)-($70) million.
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 -243.18% due to these changes.
Currently, Itron has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Following the exact same course, 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 A. 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. It's no surprise Itron has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
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