A month has gone by since the last earnings report for Badger Meter (BMI Quick QuoteBMI - Free Report) . Shares have added about 8.4% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Badger Meter due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Badger Meter Q2 Earnings & Revenues Miss Estimates

Badger Meter reported unimpressive second-quarter 2020 results, with net earnings and revenues falling year over year.

Net Income

Quarterly net earnings for the reported quarter were $9.5 million or 33 cents per share compared with $11.4 million or 39 cents per share in the year-ago quarter. The year-over-year deterioration in the bottom line can be primarily attributed to lower revenues. Also, the bottom line missed the Zacks Consensus Estimate by 3 cents.

Revenues

Quarterly net sales declined to $91.1 million from $103.5 million in the year-ago quarter. The 12% revenue contraction was primarily due to lower demand stemming from the COVID-19 pandemic. Nevertheless, the company witnessed a favorable mix of high-end products and services along with higher BEACON service revenues. The top line lagged the consensus mark of $100 million.

Municipal water sales fell 9%, mainly due to widespread lockdown in the United States due to the coronavirus outbreak. To add to that, backlog volumes surged due to supply chain challenges, manufacturing disruptions and employee absenteeism. However, the company continued to witness higher demand for new technology products and solutions like ORION Cellular LTE-M radios and ultrasonic meter technology. Flow instrumentation declined 22% due to sluggish demand for industrial products across various industrial end markets, particularly due to COVID-19 outbreak.

Other Details

Gross profit was $35.9 million, down 11% from $40.3 million in the year-earlier quarter. However, gross margin was 39.3%, up 40 basis points (bps) year over year. The upside was primarily driven by favorable sales mix and cost-reduction initiatives with price cost dynamics. Operating earnings were $12.7 million or 13.9% of sales compared with respective tallies of $15 million and 14.5% in the year-earlier quarter.

Selling, engineering and administration expenses came in at $23.2 million compared with $25.2 million in the prior-year quarter. The decline was primarily due to cost-reduction actions. However, it was partially offset by business optimization investments.

Cash Flow & Liquidity

During the first six months of fiscal 2020, Badger Meter generated $52.3 million of net cash from operations compared with $40.9 million in the prior-year quarter, driven by strong earnings conversion. Free cash flow came in at $20.1 million compared with $20.8 million in the prior-year quarter. With a stable free cash flow, the company’s performance was backed by an effective working capital management. As of Jun 30, the company had $85.2 million in cash and equivalents with $4.5 million of short-term debt.

Moving Forward

Despite the slowdown of overall activity in end markets amid COVID-19 pandemic, Badger Meter continues to remain optimistic related to its near-term outlook. With macroeconomic conditions stabilizing gradually, the Milwaukee, WI-based controls products manufacturer has undertaken several temporary cost-saving initiatives to mitigate the impact of declining sales on profitability. Consequently, this helped the company to ensure smooth functioning of business operations. Some of these initiatives include reduced work hour furloughs and executive salary reductions. Moreover, with discretionary spend controls, Badger Meter continues to deliver critical products and services to customers during this hour of crisis.

Badger Meter is well positioned to emerge from this unprecedented calamity owing to robust liquidity position and strong bid pipeline. Impressively, the company has been conducting Rapid Response Team meetings to monitor customer feedback and logistics with response to dynamic government recommendations. For additional financial flexibility, the company has $125 million under revolving credit facility to fund capital allocation priorities. Customer demand is anticipated to be the crux of product and technology roadmap, with competitive share and positioning. The company is focused on launching new products in 2020. Continued R&D investments and probable tuck-in M&A opportunities with inventory planning capabilities are likely to provide potential opportunities in the future.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month.

VGM Scores

At this time, Badger Meter has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. However, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Badger Meter has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.