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Itron's (ITRI) Q2 Earnings Beat Estimates, Revenues Up Y/Y

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Itron, Inc. (ITRI - Free Report) delivered second-quarter 2018 non-GAAP earnings of 51 cents beating the Zacks Consensus Estimate by 2 cents. The figure soared a whopping 292.3% on a sequential basis but declined 28.2% year over year.

Revenues came in $585.9 million, which grew 16.4% from the year-ago quarter but decreased 3.5% sequentially. The figure also missed the Zacks Consensus Estimate of $591.1 million.

Itron’s bookings were $579 million, up 39.2% year over year. The company’s backlog came in at $3.1 billion, increasing a whopping 93.7%, year over year. Further, its 12-month backlog came in at $1.4 billion, up 62.8% from year-ago quarter.

Year-over-year top-line growth was driven by strengthening product portfolio and improving demand for the company’s products. Further, the buyout of Silver Spring Network also contributed well and aided growth.

Additionally, progress in stabilization of the global supply chain remained a positive. However, it is still a headwind for the company and will remains so till it stabilizes. Further, lower standard meter shipment during the quarter was an obstacle to revenue growth.

Coming to the price performance, shares of Itron have lost 11.1% on a year-to-date basis against the industry’s gain of 3.3%.



Segment in Detail

Itron reports in the following four organized segments:

Electricity: The company generated $250.6 million revenues (42.8% of total revenues) from this segment, up marginally 0.1% from the year-ago quarter. Non-GAAP operating margin was 12.1% in this segment, expanding 120 basis points (bps) year over year. This segment witnessed strong contributions from services but suffered from unfavorable product mix. Further, the margins of the segment benefited from low operating expenses.

Gas: Revenues from this segment came in $137 million (23.4% of total revenues), down 1.2% year over year. The company witnessed sluggish contributions from both products and services. Further, the non-GAAP operating margin contracted 590 bps from the year-ago quarter to 10.4%, due to higher input costs.

Water: This segment generated $124.6 million revenues (21.3% of total revenues), surging 9.3% year over year. This can be attributed to positive contributions from Riva projects in North America and Australia. Moreover, strong momentum across the water communication space of North America and improving performance in Latin America remained positive. Further, strong bookings and backlogs contributed well to the revenues of this segment. Non-GAAP operating margin was 6.3% which contracted 1020 bps due to unfavorable product mix and higher pricing.

Networks: This segment generated $73.6 million revenues (12.5% of total revenues) in the second quarter. The segment became operative with the acquisition of Silver Spring Networks which contributed well. Without the contributions from this segment, the total revenues of Itron would have exhibited marginal growth of 1.8% from the year-ago quarter. Robust performance of North America Network and outcome solutions drove the results further within this segment. However, the segment reported operating loss of $2.9 million.

Itron, Inc. Price, Consensus and EPS Surprise

Itron, Inc. Price, Consensus and EPS Surprise | Itron, Inc. Quote

Operating Details

For the second quarter, Itron’s gross margin was 30.1%, which contracted 530 bps from the prior-year quarter. This was due to increasing costs and inefficiencies related to supply chain.

Non-GAAP operating margin came in 7.5%, contracting 320 bps from the year-ago quarter.

Non-GAAP operating expenses were $132.5 million, up 6.7% year over year. This increase was due to inclusion of departmental expenses related to acquisitions.

Balance Sheet and Cash Flows

As of Jun 30, 2018, cash and cash equivalents totaled $162.9 million compared with $143.9 million as of Mar 31, 2018. Accounts receivables were nearly $443.4 million, decreasing from $481.4 million in the previous quarter.

Itron generated $41.3 million cash from operations compared with $24.4 million used in the previous quarter. Further, the figure was up from $30.2 million in the year-ago quarter.

Moreover, the company generated free cash flow of $29.4 million, up from $17.4 million in prior-year quarter.

Guidance

For 2018, Itron raised guidance of revenues from $2.33-$2.43 billion to $2.425-$2.475 billion. The Zacks Consensus Estimate for revenues is pegged at $2.42 billion.

However, the company revised the guidance for non-GAAP earnings downward from $2.95-$3.35 per share to $2.75-2.90 per share The Zacks Consensus Estimate is projected at $2.97 per share.

Zacks Rank and Stocks to Consider

Itron currently carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the broader technology sector are Adobe Systems (ADBE - Free Report) , Verint Systems (VRNT - Free Report) and Micron Technology (MU - Free Report) . All the three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Adobe Systems, Verint and Micron is pegged at 16.2%, 10% and 8.18%, respectively.

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