Badger Meter (BMI) Down 4.8% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Badger Meter (BMI). Shares have lost about 4.8% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Badger Meter due for a breakout? 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 Q4 Earnings Match Estimates, Revenues Up

Badger Meter reported healthy fourth-quarter 2019 results wherein net earnings and revenues increased year over year.

Net Income

GAAP earnings for the reported quarter were $12.3 million or 42 cents per share compared with $11.2 million or 39 cents per share in the year-ago quarter. The healthy year-over-year improvement in the bottom line was primarily attributable to higher revenues. In 2019, GAAP earnings improved to $47.2 million or $1.61 per share from $27.8 million or 95 cents per share in 2018 on lower pension and post-retirement costs.

Quarterly non-GAAP net earnings were $12.3 million or 42 cents per share compared with $11.6 million or 40 cents per share in the year-earlier quarter. The bottom line matched the Zacks Consensus Estimate.

Non-GAAP net earnings in 2019 improved to $47.2 million or $1.61 per share from $44.9 million or $1.54 per share a year ago. The improvement was mainly driven by higher executive retirement charges and pension termination settlement charges a year ago.

Revenues

Net sales increased to $107.6 million from $104.4 million in the year-ago quarter, driven by a favorable mix of high-end products and services with robust sales performance of mechanical meters and domestic municipal water. The top line surpassed the consensus estimate of $107 million. However, full-year 2019 revenues declined 2.1% to $424.6 million due to the absence of significant revenues from Middle East projects as exhibited in the prior year coupled with a halt in new product launches.

Global municipal water sales were up 8%, driven by adoption of smart metering solutions like ORION LTE-M and E-Series commercial meters. Flow instrumentation witnessed a decline of 11% due to a sluggish demand of industrial products, particularly in international markets. Robust demand of radio incorporated meters and a favorable sales mix drove mechanical meters’ performance in the reported quarter.

Other Details

Gross profit was $41.1 million, up from $40.2 million in the year-earlier quarter. Fourth-quarter gross margin was 38.2%, primarily driven by favorable product and sales mix, and higher BEACON service revenues with increased adoption of radio solutions and ultrasonic meters. Operating earnings were $16.3 million or 15.2% of sales compared with respective tallies of $14.8 million and 14.2% in the year-earlier quarter.

Selling, engineering and administration expenses were $24.8 million compared with $25.3 million in the prior year, primarily due to effective cost-control measures.

Cash Flow & Liquidity

In 2019, Badger Meter generated $80.7 million of net cash from operating activities compared with $60.4 million a year ago. The increase was primarily attributable to effective working capital management. In the year, free cash flow was $73.2 million, up from $51.7 million in 2018.

As of Dec 31, 2019, the company had a cash balance of $48.9 million with $4.5 million of short-term debt compared with the respective tallies of $13.1 million and $18.1 million a year ago.

Moving Forward

Badger Meter expects 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, despite probable higher brass costs. Markedly, it aims to emerge as a leading market player with customizable solutions across various metering and data analytics offerings.

Customer demand is anticipated to be the crux of product and technology roadmap, with positive municipal spending trends and competitive share and positioning. Ample R&D investments, probable merger and acquisition opportunities and sustainability efforts with sales, inventory and operations planning capabilities are likely to provide potential technology extensions and opportunities in the future.

How Have Estimates Been Moving Since Then?

Analysts were quiet during the last two month period as none of them issued any earnings estimate revisions.