Badger Meter Inc. (BMI) reported adjusted earnings per share of 48 cents in fourth-quarter 2014, up 9% year over year and ahead of the Zacks Consensus Estimate of 43 cents. Badger Meter’s shares gained 2.4% on the back of improved fourth-quarter earnings, record sales as well as record fiscal 2014 performance.
Including a $1.4 million one-time adjustment for the accounting related to National Meter during its first quarter of company ownership, earnings in the reported quarter were at 42 cents.
Fourth-quarter sales were a record $89 million, a 10% increase year over year and ahead of the Zacks Consensus Estimate of $85 million. Higher sales of residential municipal water products, particularly those with meter-reading technology, and flow instrumentation products led to the improvement.
Fiscal 2014 earnings were a record $2.20, up 29% from $1.70 in the prior fiscal, ahead of the Zacks Consensus Estimate of $2.07. Including the $1.4 million one-time adjustment for the accounting related to National Meter and charges incurred during the first quarter of approximately $1.7 million, related to due diligence and other transaction-related costs on a potential acquisition that was ultimately not pursued, earnings in fiscal 2014 was $2.20. Sales for the year set another record, improving 9% year over year to $365 million.
Costs and Margins
Cost of sales increased 12% year over year to $58.4 million. Gross profit in the quarter was $30.9 million, up from $29 million in the prior-year quarter. Gross margin contracted 120 basis points (bps) to 34.6%. Selling, engineering and administration expenses increased 22% year over year to $22.7 million. Operating income decreased 21% to $8 million from $10 million in the year-earlier quarter. Consequently, operating margin contracted 370 bps to 9.1%.
Financial Position
Badger Meter ended the year with cash and cash equivalents of $6.7 million, down from $7.3 million as of 2013-end. Receivables increased to $54 million as of Dec 31, 2014 from $50 million as of Dec 31, 2013. Inventories as of Dec 31, 2014 were $72 million, up from $61 million as of Dec 31, 2013.
Badger Meter announced a 5.6% increase in its quarterly dividend to 19 cents per share on Aug 8, 2014, increasing its dividend payment for the 22nd consecutive year. The new annual dividend rate is 76 cents per share. At fiscal 2014-end, Badger Meter had debt-to-total capitalization ratio of 26.2%
Our Take
Badger Meter will continue to benefit from the introduction of new products. In 2014, sales of ORION SE, Badger Meter’s two-way fixed network system, and the E-Series ultrasonic meter line more than doubled compared with 2013. The cost-effective, cellular-based BEACON Advanced Metering Analytics (AMA) system, introduced in Jan 2014 has also met with success. After ordering starter kits and conducting product trials, several cities plan to implement full rollouts of BEACON Advanced Metering Analytics that are expected to contribute to the company’s performance in 2015.
In addition, the company is committed to pursuing accretive acquisitions that will add new businesses and product lines. The acquisition of National Meter and Automation, Inc., closed on Oct 1, 2014, will add around $15 million of incremental revenues to Badger Meter (after eliminating intercompany sales). The acquisition will also help Badger Meter to serve the market more efficiently, providing benefits to customers and other distributors while aiding bottom-line growth.
The company expects the municipal channel to boost sales base given that U.S. replacement sales are expected to drive water meter growth consistently at a rate of 1—4% annually over the next 3—5 years. It is also anticipated that more unmetered communities will adopt metering in the future as conservation needs increase owing to population shifts. Further, automatic meter reading market will increase 10% in the near term, which should enhance Badger Meter's sales and earnings growth prospects. However, fluctuation in foreign exchange rates remains a headwind.
Headquartered in Milwaukee, WI, Badger Meter provides liquid flow measurement products and control technology. It also serves water and gas utilities, municipalities and industrial customers worldwide. The company’s products, which are developed both internally and in collaboration with other technology companies, are used in a wide variety of applications related to water, oil and chemicals.
Peer Performance
Roper Industries Inc.’s (ROP) adjusted earnings for the fourth quarter rose 12% year over year to $1.85 per share and beat the Zacks Consensus Estimate of $1.79 on the back of growth across all revenue segments. Earnings for 2014 increased 14% year over year to $6.42 per share.
Thermon Group Holdings, Inc. (THR) reported adjusted earnings of 48 cents per share for third-quarter fiscal 2015 (ended Dec 31, 2014). The bottom line reflected year-over-year growth of 29.7%, surpassing the Zacks Consensus Estimate of 35 cents per share.
At present, Badger Meter has a Zacks Rank #3 (Hold).
A better-ranked stock in the same industry is Nanometrics Incorporated (NANO) with a Zacks Rank #2 (Buy).
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