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Itron, Inc.’s (ITRI - Analyst Report) second-quarter 2012 adjusted earnings were $1.16 compared with $1.20 in the year-earlier quarter. Adjusted earnings surpassed the Zacks Consensus Estimate of 96 cents per share.

Including amortization expenses, restructuring costs and acquisition related expenses, earnings in the quarter were 79 cents per share compared with 84 cents in the year-ago quarter.

Total revenues during the quarter fell 5.4% to $579.1 million, although beating the Zacks Consensus Estimate of $565 million. The decline in revenues was attributable to the decrease in Gas revenues along with $35 million negative effect of foreign currency translation, partially offset by North American OpenWay project revenues and growth at the Water segment.

Cost and Margins

Cost of goods sold decreased 9.1% to $382.4 million. Gross profit increased 2.5% to $196.7 million. Consequently, gross margin expanded 270 basis points to 34%. The improvement was driven by lower warranty costs, OpenWay projects, product mix and lower production costs at the Energy and Water segments.

Adjusted operating expenses increased 3% to $129.6 million in the quarter. Expenses increased due to sales and marketing initiatives, ameliorated product development initiatives, partially offset by negative foreign currency translation.

Adjusted operating profit increased 1.5% to $67.2 million. Including one-time items, operating income decreased to $48 million in the reported quarter from $98 million in the year-ago quarter.

Financial Position

Cash and cash equivalents decreased to $102.8 million as of June 20, 2012, from $133.1 million as of December 31, 2011. Cash from operations increased to $92.4 million for the first six months of 2012 from $87.7 million in the year-ago comparable period. The debt-to-capitalization ratio remained flat at 33% as of June 30, 2012 compared with as of December 31, 2010.

During the quarter, Itron repurchased 419,600 shares of its common stock at an average price of $36.66 per share. The company has repurchased approximately 1.5 million shares of Itron common stock at an average price of $36.33 per share since the inception of the program, representing 3.7% of total shares outstanding as of October 2011.

Outlook

The company expects revenues to remain in the range of $2.1-$2.2 billion for 2012. Adjusted earnings are expected to lie within the band of $3.80-$4.00 per share for 2012.

Our Views

Itron has been significantly increasing its footprint in the global arena. It has partnered with Australia’s largest water utility, Sydney Water, to replace old meters with Itron’s high efficiency ones. It has strengthened its foothold in China with the opening of the manufacturing facility in Suzhou Industrial Park.

Itron 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 its strategy, the company aimed at strengthening its focus on Latin America as well as Asia Pacific regions.   

Itron faces competition from companies like General Electric Company (GE - Analyst Report), Cooper Industries Ltd. and Badger Meter Inc. (BMI - Analyst Report). Itron retains a short-term Zacks #3 Rank (Hold). We have a long-term Neutral recommendation on the stock.

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