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Itron, Inc. (ITRI - Analyst Report) announced that it has collaborated with Russia-based leading thermal energy metering and associated services company, Teplocom Holding, to develop and market metering solutions technologies in Russia. The collaboration agreement was signed by both the parties during the Franco-Russian Intergovernmental Seminar, in the presence of both Prime Ministers, Dmitry Medvedev and Jean-Marc Ayrault.

The companies will work toward developing and marketing a thermal energy meter, which will constitute Teplocom’s calculator and Itron’s ultrasonic flow meter. Itron’s meter data management solution will also be customized to comply with Russian requirements. In addition, Teplocom’s products will be adapted to Itron’s data collection, data management and data utilization systems. Furthermore, according to the agreement, Itron’s products and solutions will be distributed through Teplocom Holding’s affiliates, Trade House and Energy Complex Integrator, in Russia.

Itron reported third-quarter 2012 adjusted earnings of 97 cents per share compared with 92 cents in the year-earlier quarter. Adjusted earnings surpassed the Zacks Consensus Estimate of 94 cents per share.

Total revenue during the quarter fell 18.1% to $504.1 million, lagging the Zacks Consensus Estimate of $525 million. The decline in revenues was mainly due to an unfavorable $35 million impact from foreign currency translation and a further $76 million from the completion of many OpenWay projects in North America. Moreover, higher revenues from the Water segment were offset by lower gas module shipments in North America and lesser shipments of Energy products in Asia Pacific.

The company expects to generate revenue in the range of $2.1 billion to $2.15 billion for 2012. It expects adjusted earnings to lie within the band of $3.60-$3.80 per share.

With increasing regulations mandating increasing energy efficiency, the Russian market is going through major changes, which call for high-end and multi-energy solutions. The Itron-Teplocom partnership will capitalize on the growing demand for high-end water and thermal energy metering products and systems in the Russian metering market.

Itron aims at upgrading its smart meter platform in the global arena. Recently, the company won the nation’s largest gas metering contract from Southern California Gas Company, a subsidiary of Sempra Energy (SRE - Analyst Report).

The company is undertaking a number of restructuring initiatives to increase its efficiency and lower manufacturing costs. It anticipates annualized cost savings of $15 million in 2012, which may further increase to $30 million in 2013.

But simultaneously, Itron expects to register associated pre-tax charges in the range of $75-$80 million, a major portion of which will be incurred in 2012.  Therefore, higher operating expenses are likely to create margin headwinds in 2012 and in the first half of 2013. Moreover, the competition of the OpenWay projects is expected to impact revenues negatively in the next three quarters.

Itron has a short-term Zacks #3 (Hold) Rank. We have a long-term Neutral recommendation on the stock.

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