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Badger Meter (BMI) Down 7.5% Since Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for Badger Meter, Inc. (BMI - Free Report) . Shares have lost about 7.5% in that time frame.

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

Badger Meter Misses Q1 Earnings & Revenue Estimates

Badger Meter’s first-quarter 2018 earnings declined 13% year over year to 26 cents per share. In addition, earnings missed the Zacks Consensus Estimate of 39 cents.

Sales in the quarter increased 3.4% year over year to a record $105 million, but fell short of the Zacks Consensus Estimate of $109 million. The year-over-year upswing was driven by increased BEACON Advanced Metering Analytics revenues, and the recent D-Flow and Carolina Meter acquisitions. However, the company’s domestic municipal water-meter sales remained flat year over year in the quarter, partly due to delay in several expected orders affected by poor weather conditions.

Cost and Margins

Cost of sales rose 8.5% year over year to $68.3 million. Gross profit in the reported quarter came in at $36.7 million, down 4.9% from $38.7 million recorded in the year-earlier quarter. Gross margin came in at 35%, contracting 300 basis points (bps) from the year-ago quarter due to lower-volume impact on capacity-utilization costs, higher brass expenses and the Scottsdale shut-down costs.

Selling, engineering and administration expenses flared up 6.7% to $27 million from $25 million in the prior-year quarter due to acquisition expenses. Operating income dipped 26.5% to $10 million from $14 million recorded in the comparable quarter last year. Consequently, operating margin shrunk 390 bps to 9.5%.

Financial Position

Badger Meter reported cash and cash equivalents of $13.5 million at the end of first-quarter 2018, up from $11.2 million recorded at year-end 2017. The company recorded receivables of $63.4 million at the first-quarter end compared with $58.2 million as of Dec 31, 2017. Inventories were $85 million at the end of the reported quarter, which remained flat compared to the year-end 2017 tally.

Outlook

Badger Meter expects to benefit in 2018 on the back of strengthening E-Series ultrasonic water meters and the ORION Cellular endpoint radios. Further, positive sales momentum and the company’s actions regarding price increases remain catalysts for the second-quarter 2018 performance.

The company faced delay in orders due to adverse weather conditions in a number of key markets in the first quarter. However, it expects that these delayed orders will be shipped in the second and third quarters, consequently benefiting revenues. In addition, price increases on many products came into effect at the beginning of this year and will be fully realized over the next several quarters.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. There have been three revisions lower for the current quarter.

Badger Meter, Inc. Price and Consensus

 

Badger Meter, Inc. Price and Consensus | Badger Meter, Inc. Quote

VGM Scores

At this time, BMI has a subpar Growth Score of D, however its Momentum is doing a lot better with a B. However, the stock was also allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

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

The company's stock is suitable solely for momentum based on our styles scores.

Outlook

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




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