Badger Meter Inc. (BMI) reported its second quarter results delivering an EPS of 52 cents per share compared with a penny more in the previous-year quarter. This represents a decrease of 1.9%. The EPS also outperformed the Zacks Consensus Estimate of 46 cents.
Total revenue increased 1.2% on a year-over-year basis to $75.1 million in the quarter. Sales were mainly driven by increased sales of specialty products including Badger ORION radio transmitters for natural gas meters and Research Control valves.
Costs and Margins
Cost of sales increased slightly to $47.9 million in the reported quarter from $47.3 million in the year-earlier quarter. Gross profit also rose slightly to $27.2 million in the quarter from $27.0 million in the prior-year quarter. However, gross margin declined 20 basis points year over year to 36.4%.
Selling, engineering and administration expenses increased to $14.9 million in the quarter from $14.0 million in the year-ago quarter. However, operating income declined slightly to $12.3 million from $13.0 million in the year-earlier quarter, thereby contracting operating margins by 120 basis points year over year.
Financial Position
As of June 30, 2011 cash and cash equivalents amounted to $4.3 million compared with $3.1 million as of December 31, 2010. Receivables as of June 30, 2011, soared to $45.6 million from $40.4 million as of December 31, 2010. Inventories declined slightly to $47.2 million as of June 30, 2011, from $48.3 million as of December 31, 2010, indicating a positive sign.
Outlook
Management remains optimistic about the future of the company; as long as the fundamental drivers remain intact. It believes that the short-term slowdown in the municipal water market and fewer housing starts will show a positive trend in future. The company possesses a well established customer base, comprehensive product line and new ORION SE technology, which position the company well for the future.
Our Take
Badger Meter is over-dependent on single suppliers for most of its products, though we admit that there is an adequate number of suppliers in the market. However, this strategy could expose the company to supply-side risks even when economic conditions stabilize.
Another point of concern for the company is the fluctuating foreign exchange market and other regulatory acts and rules imposed by governments from time to time. Badger Meter is also facing rising costs due to increased manufacturing of more technical products.
Badger Meter competes with Itron Inc. (ITRI) and Roper Industries Inc. (ROP). Both the companies are yet to release their first quarter results. We currently have a Zacks # 3 Rank (short-term Hold recommendation) on the stock.
Milwaukee, Wisconsin-based Badger Meter provides liquid flow measurement products and control technologies to utilities and industrial customers. Presently, Badger Meter’s product lines fall into two broad categories – water applications and specialty applications.
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