On Feb 6, 2015, we issued an updated research report on Itron, Inc. (ITRI). The provider of integrated system solutions to energy and water industries will be negatively impacted by slower replacement meter markets, rebalancing of electricity business as well as macro headwinds in Europe. Currency fluctuation and intensified competition will also hurt growth.
On Nov 4, 2014, Itron reported third-quarter earnings of 39 cents per share, which declined 40% year over year affected by a higher tax rate, increased professional fees and higher variable compensation.
Notably, slower replacement meter markets ahead of planned grid upgrades as well as macro headwinds in Europe are negatively impacting the Electricity and Gas segments. In 2014, as a part of rebalancing its electricity business, Itron began phasing out its presence in certain low-margin, non-strategic areas. This had a negative impact of $40 million on 2014 revenues. In 2015, further actions will impact revenues by an additional $40 million to $50 million.
In the third quarter, Itron announced restructuring actions for the Electricity segment that will lead to pre-tax restructuring charges of $65 million to $75 million. The company expects to record the major portion of these charges in the fourth quarter of 2014. Savings from these actions are expected to follow through in 2016, with no benefits expected in 2015. Hence, 2015 is going to be a transition year for the Electricity segment with not much of an improvement expected in profitability.
Currency is expected to be a headwind in the fourth quarter and in 2015. Itron estimates that a 5 cent reduction in the rate of euro translates to a negative $20 million impact on its annual revenues. Decline in the Brazilian real will also adversely affect its revenues.
Itron could face intensified competition in the AMI space, particularly in North America. Additionally, political unrest and macroeconomic issues have slowed the pace of smart metering projects internationally. Moreover, delay in contracts and rising expenses could affect the company’s growth, going forward.
In addition, Itron’s estimates have witnessed downward revision over the last 90 days. The Zacks Consensus Estimate for 2014 and 2015 decreased roughly 1.8% to $1.61 per share and 4% to $2.13 per share, respectively.
Itron will report fourth-quarter earnings on Feb 11, 2015.
Stocks that Warrant a Look
Better-ranked stocks in the same industry include Cognex Corporation (CGNX), Advent Software, Inc. (ADVS) and Alcatel-Lucent (ALU). All these stocks carry a Zacks Rank #2 (Buy).
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