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Badger Meter's (BMI) Q2 Earnings Beat on Record Revenues

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Badger Meter, Inc. (BMI - Free Report) reported promising results for the second-quarter 2018. The company registered both record revenues and adjusted earnings, driven by higher domestic municipal sales of its flagship products and increased international sales, notably in the Middle East.

Net Income

On a GAAP basis, net income for the reported quarter came in at $6.2 million or 21 cents per share compared with $10.6 million or 36 cents per share in the year-ago quarter. The year-over-year decrease in GAAP earnings was due to higher pension and post-retirement costs.

Adjusted net income increased 15.8% year over year to $12.3 million or 42 cents per share, achieving a record-high tally. The figure beat the Zacks Consensus Estimate of 40 cents.

Badger Meter, Inc. Price, Consensus and EPS Surprise

Revenues

Quarterly revenues increased 9.1% year over year to an all-time high of $113.6 million. The improvement was driven by significant growth in sales of E-Series Ultrasonic water meters and ORION Cellular endpoint radios, as customers moved toward advanced metering infrastructure fixed network systems. In addition, domestic sales of flow instrumentation products increased in its target markets, driven by improvements in the oil and gas, petrochemical and water and wastewater industries.

The top line surpassed the Zacks Consensus Estimate of $111 million.

Operating Metrics

Cost of sales rose 14.3% year over year to $72.1 million. Gross profit came in at $41.5 million, up 1.1% from $41.1 million in the year-earlier quarter. However, gross profit margin was 36.5% compared with 39.4% in the year-ago quarter, due to higher healthcare expenses, rise in brass costs and increase in mix of lower margin international water meter sales.

Selling, engineering and administration expenses were up 3.9% to $25.2 million from $24.2 million in the prior-year quarter, primarily due to higher healthcare expenses, higher selling costs and continued investments in research and development.  

Operating income dipped 2.9% to $16.4 million from $16.8 million recorded a year ago.

Financial Position

As of Jun 30, 2018, Badger Meter had a cash balance of $12.1 million and short-term current debt of $42.4 million.

Outlook

Management remains positive about the second half of the year backed by a number of reasons like a sizable backlog, continued interest in flagship products and the recent moderating of copper prices. It expects many of the strategic initiatives from 2018 to contribute to the company’s solid performance in 2019.

Opportunities for 2019 and beyond include Phyn — a joint venture between Belkin International, Inc. and Uponor Corporation — which utilizes Badger Meter’s D-Flow ultrasonic technology in a smart water monitoring system for residential use. The company’s ORION Cellular products will be ready with LTE-M chips in the first quarter of 2019.  

Furthermore, inclusion in AT&T’s Smart City Alliance, a framework created by AT&T Inc. (T - Free Report) , will allow Badger Meter to explore new ways for its smart water solutions to join forces with industry-leading cellular networks. (Read more: Badger Meter Teams Up with AT&T Smart City Alliance)

Zacks Rank & Stocks to Consider

Badger Meter currently has a Zacks Rank #4 (Sell). Better-ranked stocks in the industry include Allied Motion Technologies Inc. (AMOT - Free Report) , sporting a Zacks Rank #1 (Strong Buy) and Transcat, Inc. (TRNS - Free Report) , carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.               

Allied Motion has a long-term earnings growth expectation of 7%. It exceeded earnings estimates twice in the trailing four quarters with an average positive surprise of 20.1%.

Transcat has a long-term earnings growth expectation of 8%. It exceeded earnings estimates twice in the trailing four quarters with an average positive surprise of 30.8%.

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