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With the opening of the manufacturing facility in Suzhou Industrial Park, Itron, Inc. (ITRI - Analyst Report) reached a new milestone fortifying its presence in the emerging markets of China. The facility will be providing residential water meters, industrial water meters and residential heat meters to the Chinese market and worldwide.
The heat meters manufactured by Itron are aimed at achieving energy reduction objectives supporting one of the goals of Chinese government’s Five Year Plan. Accomplishing the targets entails decreasing energy consumption by 16% compared with the 2010 levels and 32% compared with the 2005 levels.
As per the Five Year Plan, Itron intends to install initial smart grid constructions and interactive service systems before 2015. The Suzhou facility will also be designing and producing Ultramaxx, the next-generation heat meters.
The water meters will meet the objective of reducing water wastage along with giving valuable information to the water providers on managing their water resources more efficiently. These water meters will cater to the needs of residential along with commercial and industrial users.
Both the objectives of energy reduction and water management require precise and consistent data, which will be provided by the meters produced by Itron. According to the company, the meters are intended to provide the Chinese customers with radical assistance helping them to meet business challenges.
The decision of expanding footprint in the Chinese market is in line with the restructuring and manufacturing activities that Itron had planned in 2011. The company intended to increase its focus on the energy and water technology platforms that could be used in other products worldwide leveraging its development efforts. As per the plan, the company aimed at strengthening its focus on Latin America as well as Asia Pacific regions.
According to the company, the restructuring activities will result in savings up to $15 million in 2012. By the end of 2013, Itron expects cost savings at the annualized run rate of $30 million.
However, the restructuring activities will reduce the company’s global manufacturing facilities either by closing or consolidating the projects. It will curtail its manufacturing facilities by one-third of the total global facilities.
Moreover, Itron expects pre-tax restructuring charges in the range of $75-$80 million; of which it expects to pay a considerable portion throughout 2012 and the first half of 2013. Therefore, operating expenses will increase, creating margin headwinds in 2012 and in the first half of 2013.
Further, Itron faces tough competition from a large number of companies offering similar products, systems, and services. Some of its well-known competitors include General Electric Company (GE - Analyst Report), Cooper Industries Ltd. and Badger Meter Inc. (BMI - Analyst Report).
The shares of Itron retain a short-term Zacks #3 Rank (Hold). Currently, we maintain a long-term “Neutral” recommendation on the stock.