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Itron (ITRI) Down 12.7% Since Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for Itron, Inc. (ITRI - Free Report) . Shares have lost about 12.7% 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 its most recent earnings report in order to get a better handle on the important drivers.

Itron Q1 Earnings In Line, Revenues Beat Estimates

Itron reported first-quarter 2018 adjusted earnings of 13 cents per share, which declined around 77% year over year. Earnings came in line with the Zacks Consensus Estimate. The year-over-year earnings decline resulted from the elevated supply-chain transition costs, higher component and commodity prices, and product mix.

Including one-time items, the company posted loss of $3.74 cents per share compared with earnings of 40 cents reported in the prior-year quarter.

Total revenues increased around 27% year over year to $607 million, driven by increased sales of smart electric and gas solutions in Europe, accelerated deliveries of OpenWay Riva solutions in the Americas and stellar performance in the new Networks segment. The top line also surpassed the Zacks Consensus Estimate of $570 million.

Operational Updates

Cost of goods sold climbed 34% to $427 million from $320 million in the year-earlier quarter. Gross profit increased 14% year over year to $180 million. Gross margin contracted 340 basis points (bps) year over year to 29.6% due to soaring costs associated with global supply-chain transitions, higher component and commodity costs, and product mix.

Adjusted operating expenses flared up 27.7% year over year to $152 million. Itron posted adjusted operating income of $28 million compared with $39 million recorded in the year-ago quarter. Operating margin shrunk 340 bps to 4.6% in the quarter.

Segment Performance

Itron completed the acquisition of Silver Spring Networks in January 2018, which operates and reports as the new Itron Networks segment. Thus, Itron will report under the new structure, comprising four segments, now on.

Electricity Segment: Net sales in the Electricity segment increased 6% year over year to $252 million in the first quarter, driven by higher managed services revenues, product revenue growth in the Europe, Middle East and Africa (EMEA) region and strong Riva demand in North America. The segment reported operating income of $20 million, increased from $19 million reported in the prior-year quarter.

Gas Segment: The segment’s sales grew 11% year over year to $138 million, which stemmed from smart solution deliveries in the EMEA. Operating income came in at $16 million, which plunged 32% year over year.

Water Segment: The Water segment’s sales of $131.2 million were up 14% from the $114.6 million reported in the year-earlier quarter, backed by increased smart solution deliveries in North America and the Asia-Pacific regions, and higher residential demand in Latin America. The segment reported operating profit of $6 million, which decreased significantly from $11 million in the year-ago quarter.

Networks Segment: Net sales in the Networks segment came in at $86 million in the first quarter. The segment’s revenues were led by deployments in North America and accelerating international adoption of new solutions. The segment reported operating loss of $0.2 million.

Financial Update

Itron reported cash and cash equivalents of $144 million at the end of the first quarter, down from $176 million recorded at the end of 2017. The company used $24 million of cash in operating activities during the quarter compared with cash inflow of $63 million posted in the prior-year period.

Free cash flow was down $42 million as of Mar 31, 2018, compared with positive $54 million as of Mar 31, 2017. The decreases primarily resulted from cash outlays for acquisition and integration-related expenses, and timing of working capital.

Bookings and Backlog

In the quarter under review, Itron’s bookings totaled $557 million. The company’s backlog came in at $3.1 billion and increased a massive 94%, year over year. Also, its 12-month backlog came in at $1.4 billion, up 71% from first-quarter 2017. The Networks segment added $1.4 billion and $337 million to the total and 12-month backlog, respectively.

How Have Estimates Been Moving Since Then?

Since the earnings release, investors have witnessed a downward trend in fresh estimates. There have been four revisions lower for the current quarter. In the past month, the consensus estimate has shifted downward by 17% due to these changes.

Itron, Inc. Price and Consensus

VGM Scores

At this time, ITRI has a poor Growth Score of F, however its Momentum is doing a lot better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 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.

Zacks' style scores indicate that the company's stock is suitable for value and momentum investors.

Outlook

Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Interestingly, 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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