Itron Inc. (ITRI) delivered earnings per share (EPS) of 95 cents in its fourth quarter ended December 31, 2010, falling short of the Zacks Consensus Estimate of $1.03. Despite the earnings miss, the results benefited from robust sales in North America. Including one-time items, EPS in the quarter increased five fold to 65 cents.
Revenues surged 30% year over year to a record $621 million, well above the Zacks Consensus Estimate of $574 million, mainly driven by higher shipments of smart meters and modules in North America. The year-over-year increase included an $11.5 million unfavorable effect from changes in foreign currency exchange rates.
Cost & Margin Performance
Cost of revenues spiked 31% to $435 million in the quarter and, based on revenues, increased 60 basis points to 70%. Gross profit shot up 28% to $185.3 million whereas gross margin contracted 60 basis points to 29.9%.
Itron North America’s gross margin declined 130 basis points primarily due to a higher mix of low-margined OpenWay revenue, including installation services. Itron International’s gross margin declined 120 basis points year over year primarily due to special charges and higher material costs.
Total operating expenses (which comprise sales and marketing, product development, general and administrative expenses excluding amortization of intangibles) went up 9% to $141.7 million mostly due to increased compensation expense resulting from the reinstatement of bonus and profit sharing plans.
Based on revenues, operating expenses improved 440 basis points to 22.8%. Itron’s operating income bounced 184% to $43.7 million and operating margin soared 380 basis points to 7% in the quarter.
Bookings and Backlog
As of December 31, 2010, Itron’s total backlog was $1.6 billion and twelve-month backlog was $913 million. Bookings in the quarter were $581 million.
Fiscal 2010 Performance
For fiscal 2010, Itron’s adjusted EPS was a record $3.89. Including one-time items, EPS in the year was $2.56, a reversal from the loss of 6 cents per share in the prior year. Revenues upped 34% year over year to an all-time high of $2.26 billion.
Sneak Look Into 2011
Itron expects revenues to range between $2.15 billion and $2.30 billion in fiscal 2011 and adjusted EPS between $3.95 and $4.40. Itron’s outlook for 2011 is based on an assumption of a Euro to U.S. dollar exchange rate of $1.35, average shares outstanding of approximately 41.4 million and an effective tax rate between 27% and 29%.
Our Take
With the increasing demand for efficient and improved social welfare systems worldwide, Itron is expected to perform satisfactorily in the longer term. The advanced metering infrastructures (AMI) and automated meter reading (AMR) markets exhibit the maximum growth potential. Moreover, some ongoing projects with giant water and waste producers of the U.S. and the U.K will also help the company in getting more brand recognition, while at the same time expanding its hold in the market.
However, competitive threats from giant companies, larger exposure to the European market and long sales cycles may have adverse effects on its business. We currently have a Zacks #3 Rank (short-term Hold recommendation) on the stock.
Itron is a leading technology provider to the global energy and water industries. It is the world’s leading provider of intelligent metering, data collection and utility software solutions, with nearly 8,000 utilities worldwide relying on its technology to optimize the delivery and use of energy and water. Itron competes with General Electric Co. (GE), Roper Industries Inc. (ROP) and Schneider Electric SA.
