Badger Meter Inc. (BMI) has reported its fourth-quarter adjusted EPS of 15 cents, a substantial decline from the 42 cents in the year-ago quarter, reflecting continued weakness in its municipal water business. The EPS also fell short of the Zacks Consensus Estimate of 28 cents.
The reported quarter noted expenses of 7 cents per share due to the acquisition of Racine Federation and pension curtailment cost. Including these items, EPS in the fourth quarter of 2011 were reported at 8 cents.
Total revenue also declined 6.4% on a year-over-year basis to $60.7 million in the quarter, hurt by the continued slowdown in spending due to uncertainties in the economy. However, lower sales in the municipal water market were slightly offset by higher sales of specialty products and industrial products.
The company witnessed increases in sales of electromagnetic, industrial flowmeters, Research control valves and concrete products in the reported quarter. Fourth quarter sales included sales of Remag AG, acquired in January 2011.
Fiscal 2011 Performance
For full-year 2011, adjusted EPS slumped 50% to $1.17 compared with $1.91 in 2010. The reported EPS fell short of the Zacks Consensus Estimate of $1.47. EPS for the full year 2011 excluded tax benefit and interest credit of 10 cents per share. Including these items, EPS was $1.27 for the full year 2011.
Total revenue, for fiscal 2011, declined 5% to $263 million from $277 million in 2010. Total revenue also missed the Zacks Consensus Estimate of $288 million.
Costs and Margins
Cost of sales increased 3% to $41.3 million in the reported quarter. Consequently, gross profit dipped to $19.4 million in the quarter from $24.6 million in the prior-year quarter. Gross margin declined 610 basis points year over year to 31.9% driven by reduced capacity utilization on lower sales.
Selling, engineering and administration expenses increased 16% to $17.4 million in the quarter. Operating income dropped to just $2.0 million from $9.7 million in the year-earlier quarter, thereby contracting operating margins to 3.3% year over year.
Financial Position
As of December 31, 2011, cash and cash equivalents amounted to $4.9 million compared with $3.1 million as of December 31, 2010. Receivables as of December 31, 2011 increased to $41.2 million from $40.4 million as of December 31, 2010. Inventories increased slightly to $49.4 million as of December 31, 2011 from $48.3 million as of December 31, 2010.
Earlier, in November, Badger Meter authorized to repurchase up to $30 million of common stock over a period of two years. It has paid more than $9 million in cash dividends to shareholders and has increased the quarterly dividend rate for the 19th consecutive year.
Our Take
The slowdown in municipal spending started early in 2011 as customers stretched their decision-making process driven by concerns regarding the economy. However, the increase in specialty products sales is a positive sign, indicative of an improving economy.
The acquisition of Racine Federation, along with the previously acquired Cox Flow Measurement and Remag, is expected to boost the flow measurement business globally. The acquisitions broadened the product range and customer base for Badger Meter. Further, it has also opened the door for future expansion in the global arena.
Badger Meter competes with Itron Inc. (ITRI) and Roper Industries Inc. (ROP). Badger Meter retains a Zacks #2 Rank (short-term “Buy” recommendation).
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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