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Badger Meter's (BMI) Q3 Earnings Beat on Top-Line Growth

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Badger Meter, Inc. (BMI - Free Report) reported healthy third-quarter 2021 results, with both the bottom line and top line surpassing their respective Zacks Consensus Estimate. Solid demand environment, record order momentum across its diverse portfolio of innovative water solutions, and recovering market trends post the lockdown in the face of widespread supply chain shortages and delays boosted its performance. In response to the solid results, shares of the Milwaukee, WI-based controls products manufacturer jumped 2.9% to close at $103.65 on Oct 15.

Net Income

Net earnings in the reported quarter were $15.9 million or 54 cents per share compared with $14.9 million or 51 cents per share in the year-ago quarter. The year-over-year improvement can be primarily attributed to higher revenues. The bottom line surpassed the Zacks Consensus Estimate by 6 cents.

Badger Meter, Inc. Price, Consensus and EPS Surprise

Badger Meter, Inc. Price, Consensus and EPS Surprise

Badger Meter, Inc. price-consensus-eps-surprise-chart | Badger Meter, Inc. Quote

Revenues

With robust momentum, quarterly net sales increased to $128.7 million from $113.6 million in the year-ago quarter. The 13.3% rise was primarily due to solid order rates, driven by accelerated adoption of innovative digital water technologies among customers. Improved demand for flow instrumentation across industrial end markets despite certain macroeconomic challenges played a crucial role as well. The top line beat the consensus mark of $123 million.

Utility water sales rose 12.2% owing to the water quality acquisitions of s::can and Analytical Technologies, Inc (“ATi”), fueled by strong order activity. This was partly offset by supply chain disruptions. Also, backlog recovery post COVID-19 lockdown, strength in ORION Cellular endpoint sales, strategic value-based pricing initiatives, favorable sales mix of high-end products and services along with higher BEACON Software-as-a-Service (SaaS) revenues acted as major tailwinds.

The company witnessed another quarter of record-high order backlog, owing to manufacturing disruptions from electronic component shortages and logistics challenges. Flow instrumentation sales grew 18.5% year over year with stabilizing global order trends. Solid demand environment across the varied water and industrial end markets and applications played a major role as well.

Other Details

Gross profit was $51.2 million, up 13.7% from $45 million in the year-earlier quarter. The gross margin was 39.8%, up 20 basis points. The upside was primarily driven by higher SaaS revenues with favorable product sales and acquisition mix. Value-based pricing actions drove the margin as well. Operating earnings were $19.4 million or 15.1% of sales compared with respective tallies of $19.5 million and 17.2% in the year-earlier quarter.

Selling, engineering, and administration expenses were $31.7 million compared with $25.5 million in the prior-year quarter. It included the benefit of lower travel and other pandemic-impacted expense reductions. The increase was also driven by the inclusion of s::can and ATi water quality acquisitions.

Cash Flow & Liquidity

During the first nine months of 2021, Badger Meter generated $62.8 million of net cash from operations compared with $73.7 million in the prior-year period. Free cash flow in the quarter declined 27.2% to $13.9 million due to higher working capital and transitory repercussions of the current supply chain environment. Thanks to adequate financial flexibility and strong earnings conversion, the company is well-positioned to fund capital allocation priorities with greater credit availability.

As of Sep 30, the company had $67 million of cash and cash equivalents with $75.9 million of total current liabilities.

Going Forward

With the gradual stabilization of overall end-market activities post lockdown, Badger Meter’s near-term outlook remains bullish. It expects to witness a solid backlog and bid pipeline on the back of increasing orders in the forthcoming quarters. This will eventually help the company to ensure the smooth functioning of business operations with strong profitability.

Thanks to recovering macro trends and value-based pricing efforts, the company continues to expand its portfolio of smart water solutions while driving their adoption. The company continues to tackle increasing inflationary cost pressures across the business.

Although logistics challenges serve as a prime headwind, effective sourcing strategies and supply chain management are expected to enhance Badger Meter’s operational agility. It remains committed to delivering critical products and services to its diversified customer base during this hour of crisis.

Despite a challenging price/cost environment, Badger Meter is well poised to enable strategic, tuck-in mergers and acquisitions to provide differentiated offerings across global markets with a healthy liquidity position. The company is focused on investing in digital solutions that operationalize real-time data and utilize remote solutions to reduce overall costs and enhance efficiency, thereby addressing holistic water system requirements.

Customer demand is predicted to be the crux of the product and technology roadmap. Continued R&D investments with inventory planning capabilities and backlog conversion are likely to provide potential opportunities in the future.

Zacks Rank & Stocks to Consider

Badger Meter currently has a Zacks Rank #4 (Sell).

Some better-ranked stocks in the broader industry are Ooma, Inc. (OOMA - Free Report) , SeaChange International, Inc. (SEAC - Free Report) , and Bruker Corporation (BRKR - Free Report) . While Ooma sports a Zacks Rank #1 (Strong Buy), SeaChange International and Bruker carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Ooma delivered a trailing four-quarter earnings surprise of 55.2%, on average.

SeaChange International delivered a trailing four-quarter earnings surprise of 28.9%, on average.

Bruker delivered a trailing four-quarter earnings surprise of 19.1%, on average.

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