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Why Is Badger Meter (BMI) Up 3.8% Since Last Earnings Report?

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It has been about a month since the last earnings report for Badger Meter (BMI - Free Report) . Shares have added about 3.8% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Badger Meter due for a pullback? 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 drivers.

Badger Meter Q3 Earnings Beat Estimates, Revenues Fall

Badger Meter reported mixed third-quarter 2019 results as net earnings increased year over year but revenues declined.

Net Income

GAAP earnings for the reported quarter were $12.7 million or 44 cents per share compared with $2.9 million or 10 cents per share in the year-ago quarter. The healthy year-over-year improvement in the bottom line, despite lower revenues, was primarily driven by efficient working capital management.

Adjusted earnings were 44 cents per share compared with 46 cents in the year-earlier quarter. The bottom line surpassed the Zacks Consensus Estimate by 2 cents.

Revenues

Net sales declined to $108.6 million from $110.6 million in the year-ago quarter as customers largely deferred orders awaiting the company’s next-gen technologies, notably ORION and LTE-M radio products. The top line was on par with the consensus estimate of $109 million.

Municipal water utility domestic market was up 2%, driven by adoption of smart metering solutions. International municipal water utility sales declined as there were no repeat orders from Middle East as exhibited in the prior-year quarter. Global municipal water sales declined 3% and flow instrumentation witnessed growth of 1% due to a broad lineup of industrial products across various markets.

Other Details

Gross profit was $41.7 million, down from $43.9 million in the year-earlier quarter. Third-quarter gross margin was 38.4%, primarily driven by positive product and regional sales mix, as well as moderating price dynamics and discrete warranty provision outside North America, with favorable brass input costs. Operating earnings were $16.4 million or 15.1% of sales compared with respective tallies of $15.7 million or 14.2% of sales in the year-earlier quarter.

Selling, engineering and administration expenses were $25.2 million compared with $28.2 million in the prior year, primarily due to lower incentive compensation and effective cost-control measures.

Cash Flow & Liquidity

During the quarter, Badger Meter generated $20.2 million of net cash from operations compared with $14.7 million a year-ago. This raised net cash flow for the first nine months of 2019 to $61.1 million from $39.9 million in the prior-year period, primarily due to improved working capital management. Free cash flow was about $19.1 million, up 50% from the prior-year quarter. As of Sep 30, 2019, the company had a cash balance of $37.7 million with $4.4 million of short-term debt.

Moving Forward

Badger Meter continues to witness strong momentum in its business as profit margins continue to benefit from positive sales mix and continuous improvement activities across all aspects — global operations and supply chain, working capital and inventory management. This is supported by the ample capacity to execute disciplined and strategic acquisitions.

Customer demand is anticipated to be the crux of product and technology roadmap, with positive municipal spending trends and competitive share and positioning. Mergers and acquisitions and Sales, Inventory and Operations Planning capabilities are likely to provide potential technology extensions and opportunities in the future.

From a macro perspective, the company will continue to monitor the environment as trade and other contingencies appear to be taking a toll on consumer sentiment and overall industrial demand.

How Have Estimates Been Moving Since Then?

Estimates review followed an upward path over the past two months.

VGM Scores

At this time, Badger Meter has a nice Growth Score of B, a grade with the same score on the momentum front. However, the stock was 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Badger Meter has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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