Why Is Itron (ITRI) Down 29.3% Since Last Earnings Report?

A month has gone by since the last earnings report for Itron (ITRI). Shares have lost about 29.3% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Itron 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 Q4 Earnings and Revenues Beat Estimates

Itron reported fourth-quarter 2019 non-GAAP earnings of 72 cents per share, which beat the Zacks Consensus Estimate by 33.4%. However, the bottom line was down 18.2% from the year-ago quarter and 30.8% sequentially.

Revenues came in at $628.4 million, which surpassed the Zacks Consensus Estimate by 5.2%. Further, the top line improved 7% year over year or 8% on a constant-currency basis. The figure was also up 0.6% from the prior quarter.

The top line was driven by robust performance of the company’s Networked Solutions segment.

However, weak performance by Device Solutions and Outcomes segments remained concerns.

Further, product revenues were $556.6 million (88.6% of total revenues), up 7.7% year over year. Service revenues came in $71.8 million (11.4%), which improved 2.1% from the year-ago quarter.

The company’s bookings were $767 million and the backlog came in at $3.2 billion at the end of the reported quarter.

The company remains optimistic regarding its strategic investments toward product innovation that will continue to drive customer momentum in the near term as well as the long run.

Segments in Detail

Device Solutions: The company generated $206.1 million revenues (32.8% of total revenues) from this segment, down 9% from the year-ago quarter. This was primarily owing to decline in smart spec shipment volumes in the EMEA region during the reported quarter. Moreover, declining volumes offset the impact of strong performance in the water and gas markets.

Networked Solutions: Revenues from this segment came in $368.7 million (58.7% of total revenues), improved 21% year over year. This can primarily be attributed to solid demand for connected devices in North America. Further, shift in the timing of certain customer deployments in the fourth quarter, which were scheduled for the current quarter, drove the segment’s revenues.

Outcomes: This segment generated $53.6 million revenues (8.5% of total revenues), down 1% on a year-over-year basis. The company witnessed one-time customer adjustment that impacted the segment’s top line. Moreover, this negated accelerating services revenues in North America.

Operating Details

For the fourth quarter, Itron’s gross margin was 28.2%, which contracted 190 basis points (bps) on a year-over-year basis due to unfavorable product mix.

Non-GAAP operating expenses were $128.04 million, up 2.4% year over year. This decrease resulted from strong restructuring initiatives.

Further, non-GAAP operating margin came in 7.4%, contracting 90 bps from the year-ago quarter. This was attributable to rising product development investment.

Balance Sheet & Cash Flows

As of Dec 31, 2019, cash and cash equivalents totaled $149.9 million, up from $140.9 million as of Sep 30, 2019. Accounts receivables were $472.9 million, up from $468.5 million in the previous quarter.

Itron generated $45 million cash from operations in the fourth quarter compared with $50 million in the third quarter.

Moreover, the company generated free cash flow of $29 million, down from $32 million in the last quarter.

2020 Guidance

For 2020, management expects non-GAAP earnings within the range of $3.35-$3.85 per share.

Further, the company expects revenues between $2.475 million and $2.575 billion.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review.

VGM Scores

At this time, Itron has a subpar Growth Score of D, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. Notably, Itron has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.