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Badger Meter (BMI) Posts Record Q1 Earnings; Stock Gains

Badger Meter Inc.’s BMI first-quarter 2016 earnings per share surged 90% year over year to a record 55 cents. Earnings also surpassed the Zacks Consensus Estimate of 44 cents, resulting in a positive earnings surprise of 25%. Moreover, revenues crossed the $100 million threshold on the back of a substantial year-over-year improvement in sales of both residential and commercial municipal water products. Shares of Badger Meter inched up 0.43% following the earnings announcement.

Badger Meter’s fourth-quarter sales soared 20% to an all-time high of $100.6 million from $83.6 million in the year-ago quarter. Revenues also outpaced the Zacks Consensus Estimate of $94 million. Sales of both residential and commercial municipal water products increased in the quarter. This included initial sales as part of the company’s new three-year contract with American Water Works Company, Inc. AWK. A milder winter also played an important role in driving sales, as it spurred a few customers to start the spring meter replacement programs in the first quarter instead of the second quarter.

Moreover, strong sales were witnessed in the company’s latest products. Sales of the E-Series Ultrasonic meters more than doubled over the prior-year quarter. Sales of ORION cellular technology, which is part of the company’s successful BEACON Advanced Metering Analytics (AMA) solution, increased more than four folds. However, this was somewhat offset by a decline in flow instrumentation product sales due to continued weakness in the oil and gas market, and lower order levels.

Cost and Margins

Cost of sales increased 15% year over year to $61.6 million. Gross profit in the quarter was $39 million, up 30% from $30 million in the prior-year quarter. Gross margin was 38.8%, up 280 basis points (bps) from 36% a year ago. This was driven by increased sales volumes, which resulted in higher manufacturing utilization.

Selling, engineering and administration expenses increased 14% year over year to $26 million. Operating income surged 82% to $12.8 million from $7 million in the year-ago quarter. Consequently, operating margin expanded 430 bps to 12.7%.

Financial Position

Badger Meter reported cash and cash equivalents of $9.9 million at the end of the first quarter, up from $8.1 million at 2015 end. Receivables of around $59 million at the end of the quarter were higher than $56 million as of Dec 31, 2015. Inventories were $76 million at the year end, compared with $79 million as of Dec 31, 2015. The debt-to-total capitalization ratio was 20% at the quarter end, compared with 24% as of 2015 end.

Moving forward, Badger Meter is optimistic about growth opportunities from new products as well as those currently under development. The company also stands to benefit from strong fundamentals over the long term. Badger Meter’s focus on helping water utilities and customers to conserve water will drive additional sales in the future.

Headquartered in Milwaukee, WI, Badger Meter provides liquid flow measurement products and control technology. It also serves water and gas utilities, municipalities and industrial customers worldwide. The company’s products, which are developed both internally and in collaboration with other technology companies, are used for a wide variety of applications related to water, oil and chemicals.

At present, Badger Meter has a Zacks Rank #3 (Hold). A couple of better-ranked stocks in the sector are Briggs & Stratton Corporation BGG and Global Brass and Copper Holdings, Inc. BRSS. Both the stocks carry a Zacks Rank #2 (Buy).

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AMER WATER WORK (AWK): Free Stock Analysis Report
 
BADGER METER (BMI): Free Stock Analysis Report
 
BRIGGS & STRATT (BGG): Free Stock Analysis Report
 
GLOBAL B&C HLD (BRSS): Free Stock Analysis Report
 
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