Itron Inc. (ITRI) announced that the company will henceforth operate through two operating segments – Energy and Water. The new structure will strategically align Itron’s global operations with its markets and will aid the company in meeting its near- and long-term goals.
Management believes this reorganization will help the company in augmenting its revenue, expanding its global presence, broadening its product portfolio and streamlining operations. The move will improve operational efficiencies through a range of near- and long-term actions, including unifying back-office IT and financial systems, allowing Itron to automate processes for faster decision making, while building upon global systems that will substantially bring down operating expenses over time.
The company has been reporting, till date, via two operating segments – Itron North America and Itron International. The Itron North America segment generated the majority of its revenue in the United States and Canada.
The business roughly contributed 52% of Itron’s total revenues in 2010. The segment offered meters and data collection and communication systems for electric, gas, and water utilities, which include advanced metering infrastructures (AMI) and automated meter reading (AMR) systems and a wide range of utility software and services.
The Itron International segment generated the majority of its revenues in Europe, and the balance primarily in South Africa, South America, and Asia/Pacific. The segment contributed roughly 48% of Itron’s total revenues in 2010. Its product and service portfolio was as diverse as electricity, gas, water, and heat meters, AMR and AMI systems, software and services.
Itron delivered EPS of 95 cents in its fourth quarter, falling short of the Zacks Consensus Estimate of $1.03. Including one-time items, EPS in the quarter increased five fold to 65 cents benefiting from robust sales in North America. For fiscal 2010, Itron’s adjusted EPS was a record $3.89.
Revenues surged 30% year over year to a record $621 million in the fourth quarter, well above the Zacks Consensus Estimate of $574 million, mainly driven by higher shipments of smart meters and modules in North America. Fiscal 2010 revenues upped 34% year over year to an all-time high of $2.26 billion.
Itron expects revenues to range between $2.15 billion and $2.30 billion in fiscal 2011 and adjusted EPS to lie 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%. The Zacks Consensus Estimate for Itron is currently pegged at $4.20 for 2011, within the company’s guided range.
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 AMI and AMR markets hold the maximum growth potential. Moreover, ongoing projects with giant water and waste producers of the U.S. and the U.K. will help the company gain more clout and brand reorganization while at the same time expand its hold in the market.
The new segment alignment would further streamline operations for Itron. However, we are wary of competitive threats from giant companies, larger exposure to the European market and long sales cycles that may adversely affect 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.
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