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Analyst Blog

Badger Meter Inc. (BMI - Free Report) reported third-quarter 2013 earnings per share (EPS) of 63 cents, managing to surpass the Zacks Consensus Estimate of 61 cents and increase 1.6% from 62 cents earned in the year-ago quarter.
The year-over-year growth was led by the ongoing cost reduction initiatives that resulted in lesser selling, engineering and administration expenses and a lower effective tax rate.

Operational Update

Net sales increased 6.7% year over year to $93 million in the reported quarter. The results were ahead of the Zacks Consensus Estimate of $89 million. The growth was aided by higher sales of residential and commercial municipal water products partly offset by a decrease in industrial and specialty product sales.

Costs and Margins

Cost of sales increased 13.4% year over year to $59.9 million. Gross profit fell 3% to $33 million from $34 million in the prior-year quarter. Gross margin contracted 380 basis points to 35.6%, driven by an increase in costs related to the industry shift toward more expensive lead-free brass as well as product mix.

Selling, engineering and administration expenses decreased 4.9% year over year to $19 million due to continuing cost reduction initiatives. Operating income decreased 1.7% to $13.9 million from $14 million in the year-earlier quarter. Consequently, operating margin contracted 100 basis points to 15%.

Financial Position

As of Sep 30, 2013, cash and cash equivalents amounted to $4.6 million compared with $6.5 million as of Dec 31, 2012. Receivables increased to $56 million as of Sep 30, 2013 from $45.6 million as of Dec 31, 2012. Inventories decreased to $54.4 million as of Sep 30, 2013, from $61 million as of Dec 31, 2012.

Our Take

Badger Meter will continue to benefit from Elster business and the ongoing economic recovery. In addition, replacement demand is expected to recover and drive growth in water meter. Moreover, Badger Meter will be benefited by improved volumes in both its municipal and industrial product lines.

New product development is a key element of Badger Meter‘s growth strategy and the company will continue to invest in new products and product enhancements to meet growing customer needs.

On the flip side, the ongoing global economic weakness along with subdued growth for automation sales may affect the performance of Badger Meter, moving forward.

Headquartered in Milwaukee, Wisconsin, Badger Meter provides liquid flow measurement products and control technologies serving water and gas utilities, municipalities and industrial customers worldwide. The company’s products, which are developed both internally and in collaboration with other technology companies, are used in a wide variety of applications, including water, oil and chemicals.

Badger Meter currently retains a Zacks Rank #3 (Hold). Thermon Group Holdings, Inc. (THR - Free Report) also belongs to the same industry and holds a Zacks Rank #2 (Buy). Badger Meter’s peers, such as Nanometrics Inc. (NANO - Free Report) and Roper Industries Inc. (ROP - Free Report) are yet to announce their third quarter results.