Badger Meter Inc. (BMI) has delivered earnings of 42 cents per share in its fourth quarter ended December 31, 2010, rising a sharp 23.5% from 34 cents per share in the year-ago quarter and meeting the Zacks Consensus Estimate.
Increased sales of automatic meter reading (AMR) and advanced metering infrastructure (AMI) technology products, cost control measures, as well as price increases helped drive the favorable outcome though offset partially by higher copper costs. Results also reflect synergies from the acquisition of Cox Instruments LLC, of Scottsdale, Arizona, and its subsidiary, Flow Dynamics Inc.
Total revenue in the quarter jumped 14.9% to $64.8 million from $56.4 million in the year-ago period. The increase in sales reflected the addition of Cox Flow Measurement products and services in the second quarter, higher sales of products for residential water applications and the continued improvement in sales of specialty products, including the Badger ORION radio-frequency AMR system for gas meters.
Commercial sales were however flat for the quarter. Badger Meter’s revenue fell short of the Zacks Consensus Estimate of $67 million.
Operating Results
Cost of sales, as a percentage of revenue, improved 160 basis points year over year to 62% and selling, general, administrative and engineering expenses dipped 10 basis points year over year to 23.1%. Gross margin expanded 160 basis points to 38% as increased sales of higher-margin carrying specialty products offset higher copper prices. Operating margin also expanded 170 basis points to 14.9% in the quarter.
Fiscal 2010 Performance
Badger Meter’s EPS for fiscal 2010 was a record setting $1.91, perfectly in tune with the Zacks Consensus Estimate and up 7% from $1.79 in the prior year. Fiscal 2010 revenues posted a 10.5% year-over-year growth to reach $276.6 million but narrowly missed the Zacks Consensus Estimate of $278 million.
Financial Position
Badger Meter had cash and cash equivalents of $3 million as of December 31, 2010, down from $13 million as of December 31, 2009. The debt-to-capitalization ratio deteriorated to 7.1% as of December 31, 2010 from 5.2% as of December 31, 2009.
Fiscal 2010 marked Badger Meter’s eighteenth consecutive year of dividend increase. The company implemented a 2-cent hike in its quarterly dividend to 14 cents per share, or 56 cents per share on an annualized basis.
Badger Meter also announced the acquisition of Berne, Switzerland based Remag AG, in January 2011 for approximately $5 million in cash. Remag manufactures and distributes a line of precision flow measurement products for the global industrial market.
New Products
Badger Meter unveiled its groundbreaking new Advanced Metering Analytics system, the first system in the market created specifically for water and gas utilities that combines powerful analytics-based software with next-generation, two-way fixed network technology.
Peer Pressure
Badger Meter competes with Itron Inc.(ITRI) and Roper Industries Inc. (ROP). Itron is yet to release its fourth quarter and fiscal 2010 results. Roper recently reported fourth quarter 2010 EPS of $1.10, surpassing the Zacks Consensus Estimate of 99 cents and the prior-year figure of 77 cents driven by solid revenue growth and operating margin expansion.
Our Take
Badger Meter is over dependent on single suppliers for most of its products, although we admit there are an adequate number of suppliers in the market. However, this could expose the company’s business to a significant degree of risk even when economic conditions stabilize.
Another point of concern for the company is the fluctuating foreign exchange market and other regulatory acts and rules imposed by governments from time to time. Badger Meter is also facing rising costs due to increased manufacturing of more technical products. We currently have a Zacks #1 Rank (short-term Sell recommendation) on the stock.
Milwaukee, Wisconsin-based Badger Meter provides liquid flow measurement products and control technologies to utilities and industrial customers. Presently, Badger Meter’s product lines fall into two broad categories – water applications and specialty applications.
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