Badger Meter Inc. (BMI) reported its first quarter results delivering an EPS of 22 cents, a decline from 36 cents during the year-ago period, falling well behind the Zacks Consensus Estimate of 43 cents.
Badger Meter also reported net sales of $57.4 million; decreasing from $61.8 million in the year-ago quarter and far below the Zacks Consensus Estimate of $69 million. Increase in the sales of manually read water meters and specialty products were not sufficient to offset lower sales of automatic meter reading (AMR) and advanced metering infrastructure (AMI) technology products.
Cost and Margins
Cost of sales as reported by the company was $36.9 million versus $38.6 million in the prior-year quarter. Gross margin as reported by the company was 35.6%, down 200 basis points from 37.6% in the year-earlier quarter. The margin was negatively impacted by the persistent increase in copper and other commodity costs and higher selling manually read water meters having lower margins than the company’s AMR and AMI technology products.
Selling, engineering and administration expenses rose to $15.2 million in the quarter from $14.5 million in the year-ago quarter. Operating income as reported by the company decreased to $5.2 million from $8.7 million in the year-earlier quarter.
Financial Update
Cash and cash equivalents as reported by the company were $2.3 million as of March 31, 2011, down from $3.1 million as of December 31, 2010.
Outlook
According to management, the decision-making process in the municipal water market regarding the potential spending cutbacks at the local, state and federal levels is very slow. Moreover, some of the loyal customers are also waiting for the company’s new Badger ORION SE two-way fixed network system.
The company is looking forward to strong orders and margins as it moves in to the second quarter. The company’s long-term prospects of business remain positive, driven by water conservation and customers’ need for decision making, enabling them to further increase productivity and revenue.
Peer pressure
Badger Meter competes with Itron Inc. (ITRI) and Roper Industries Inc. (ROP). Both the companies are yet to release their first quarter results. However, during the last quarter, Roper reported a 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 that there is an adequate number of suppliers in the market. However, this could expose the company’s business to significant risks 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 # 4 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.
BADGER METER (BMI): Free Stock Analysis Report
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