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Itron (ITRI) Down 3.7% Since Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Itron, Inc. (ITRI - Free Report) . Shares have lost about 3.7% in that time frame.

Will the recent negative trend continue leading up to its next earnings release, or is ITRI due for a breakout? 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.

Itron Tops Q4 Earnings & Revenues, Guides for 2018

Itron reported fourth-quarter 2017 adjusted earnings of $1.01 per share, which increased 48.5% year over year and surpassed the Zacks Consensus Estimate of 94 cents. The improvement reflects higher operating income and lower tax expenses related to tax audit settlements.

Including one-time items, the company posted earnings per share of 5 cents compared with 30 cents in the prior-year quarter.

Total revenues increased around 11% year over year to $551 million driven by strong smart solution business and managed services. The top line also came ahead of the Zacks Consensus Estimate of $536 million.

Operational Updates

Cost of goods sold was up 11% to $339 million from $311 million in the year-earlier quarter. Gross profit increased11.4% year over year to $174.8 million. Gross margin expanded 10 basis points (bps) year over year to 31.7% driven by higher volume and mix of smart solutions, primarily in the Electricity segment, offsetting lower gross margins in the Gas and Water segments.

Operating expenses increased 1.3% year over year to $127.6 million. Itron posted adjusted operating income of $55 million compared with $45 million in the year-ago quarter. Operating margin advanced 90 bps to 10% in the quarter.

Segment Performance

Electricity Segment: Net sales at the Electricity segment increased 20% year over year to $293.7 million in fourth-quarter 2017 courtesy of higher smart solution deliveries, primarily in North America and Europe, Middle East and Africa (EMEA) regions. The segment reported operating income of $41.9 million, which improved significantly from $17.2 million in the comparable quarter last year.

Gas Segment: The segment’s sales climbed 2% year over year to $138.9 million owing to a favorable impact from changes in foreign currency exchange rates. Operating income came in at $16.4 million, which declined 9% year over year.

Water Segment: The Water segment’s sales of $118 million were up 3% from $114 million in the year-earlier quarter. The segment reported operating profit of $4.3 million, which decreased significantly from $8.6 million in the year-ago quarter.

2017 Performance

In 2017, Itron reported adjusted earnings per share of $3.06, up 20.5% year over year. The bottom line also exceeded the Zacks Consensus Estimate of $2.99. Including one-time items, the company reported earnings per share of $1.45 compared with 82 cents in the prior year.

Revenues in 2017 inched up 0.2% year over year to $2,018 million compared with $2,013 million reported last year. The top line outpaced the Zacks Consensus Estimate of $2,006 million.

Financial Update

Itron recorded cash and cash equivalents of $176.3 million as of Dec 31, 2017, up from $133.6 million as of Dec 31, 2016. Cash flow from operations came in at $191 million in 2017 compared with $116 million in 2016. Free cash flow was $61 million for the fourth quarter, higher than $21 million recorded in the comparable period last year.

Bookings and Backlog

In the quarter under review, Itron’s bookings totaled $811 million. The company’s backlog came in at $1.8 billion and increased 6% year over year. Also, its 12-month backlog came in at $931 million, up 22% from the fourth-quarter 2016 level.

Guidance

For 2018, Itron anticipates adjusted earnings per share in the range of $2.95-$3.35. It also expects revenues will be in the band of $2.33-$2.43 billion. For first-quarter 2018, the company estimates adjusted earnings per share between 10 cents and 15 cents. Revenues are projected in the range $575-$600 million. Additionally, Itron confirmed that the Silver Spring Networks acquisition might be accretive to gross margin in 2018, and boost its EPS and adjusted EBITDA in 2019.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. There has been one revision lower for the current quarter. Last month, the consensus estimate has shifted downward by 78.2% due to these changes.

Itron, Inc. Price and Consensus

 

VGM Scores

At this time, ITRI has a strong Growth Score of A, though it is lagging a lot on the momentum front with an F. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

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

Our style scores indicate that the stock is more suitable for growth investors than value investors.

Outlook

Estimates have been broadly trending downward for the stock and the magnitude of this revision indicates a downward shift. Notably, ITRI has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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