Shares of Itron, Inc. ITRI lost around 1.2% and closed at $35.27, a day after the company reported disappointing first-quarter 2015 results on May 4. Adjusted earnings per share slumped 35.5% to 20 cents in the quarter from 31 cents in the prior-year quarter, mainly due to unfavorable impact of foreign currency exchange rates. Earnings also trailed the Zacks Consensus Estimate of 30 cents.
Including one-time items, such as amortization, restructuring and acquisition-related expenses, the company reported earnings of 13 cents per share, contrary to a loss of 1 cent in the year-ago quarter.
Operational Update
Total revenue declined 5.6% to $448 million from $474.8 million in the year-ago quarter. Revenues, however, beat the Zacks Consensus Estimate of $429 million. Changes in foreign currency exchange rates unfavorably impacted revenues for the quarter.
Excluding the impact of foreign currency, revenues increased 4% year over year. Improvement was driven by growth in the Electricity segment, which offset a decrease in the Gas segment. The Water segment was consistent with the prior-year period.
Cost of goods sold went down to $310 million from $320 million in the prior-year quarter. Gross profit also decreased 10.6% year over year to $138 million. Gross margin decreased 170 basis points (bps) to 30.8%, primarily due to unfavorable product mix and increased warranty expense in the Gas and Water segments, partially offset by improved performance in Electricity.
Adjusted operating expenses declined to $119.8 million from $131.9 million in the year-ago quarter. Adjusted operating profit decreased 21.7% year over year to $18 million. Including one-time items, Itron’s operating income increased to $13.5 million in the quarter from $4.5 million in the year-ago quarter.
Segment Performance
Electricity Segment: Net sales at the Electricity Segment increased 7.6% year over year to $193.8 million. The segment reported adjusted operating income of $6 million unlike an operating loss of $15.9 million in the year-ago quarter.
Gas Segment: The segment’s sales went down 14.4% year over year to $125 million. Adjusted operating income for the quarter was $16 million, down 42.8% from $28 million in the year-ago quarter.
Water Segment: The Water Segment reported sales of $129 million in the quarter, down 13% from $148.5 million in the prior-year quarter. Adjusted operating income for the quarter was $9.8 million, which plunged 58% from $23 million in the year-ago quarter.
Financial Position
Itron ended the quarter with cash and cash equivalents of $118 million versus $112.4 million as of 2014-end. The company reported cash used in operating activities of $3.9 million during first-quarter 2015 compared to cash flow of $66.8 million in the prior-year quarter.
The debt-to-capitalization ratio was 35.8% as of Mar 31, 2015 as against 31.2% as of Dec 31, 2014. Free cash flow in the reported quarter was negative $13 million compared with a positive $58 million in the first quarter of 2014. Free cash flow in the reported quarter was impacted by a number of significant cash payments, including tax payments, settlement of a legal matter, variable compensation disbursements and restructuring payments.
In Jan 2015, Itron repurchased 335,251 shares for about $132.8 million. The repurchases were made under the $50 million 2014 share repurchase plan. On a cumulative basis, the company repurchased approximately 1.2 million shares under this plan.
In Feb 2015, Itron’s board authorized a new plan to repurchase up to $50 million shares during a 12-month period. During the quarter, the company repurchased 84,000 shares for $30.6 million under the 2015 plan.
On May 4, Itron announced that it will work with Eletrobras, a major Brazilian electric utility and the largest power utility in Latin America, to modernize its electric grid. Eletrobras will implement Itron’s OpenWay Riva solution – the first-of-its-kind technology featuring adaptive communications technology and distributed computing power to support new smart grid applications on Cisco’s IPv6 network.
Itron also announced that John Holleran, the company’s executive vice president (EVP) and chief operating officer (COO) will be departing Itron effective the end of 2015. The company is conducting a search for candidates to fill his positions. In the interim, Holleran will continue as EVP and COO of the company.
Bookings and Backlog
Itron had bookings of $424 million in the quarter. Total backlog increased 40% year over year and came in at $1.4 billion at the quarter-end.
Guidance
Itron earlier expected that it would incur restructuring charges of $65 million to $75 million to deliver approximately $40 million in annual cost savings by the end of 2016. During the first quarter, the company lowered its total cost estimates by $5.4 million and now expects total charges of approximately $60 million. This reflects a small reduction in the number of employees affected due to voluntary resignations and reassignments.
Itron is in the midst of substantially transforming its operations through the transformation of its business process, including product portfolio and market segment rationalization, manufacturing and supply chain efficiencies and standardization as well as consolidation of global administrative systems, processes and teams.
In the Electricity segment, the company’s focus on three initiatives including smart metering backlog growth, exit from non-strategic businesses and sustainable cost structure reductions will drive growth.
The Gas segment will also improve with its transition to smart technologies. The company envisions strong growth opportunities in North America and EMEA and targeted areas of growth in the Asia Pacific and Latin American regions.
In addition to backlog and revenue growth, Itron’s key milestones in the near term involve product cost improvement on EMEA smart meters, increased smart volumes and factory efficiencies in EMEA and the U.S.
Our View
Itron will benefit from its consistent focus on lowering costs through restructuring actions. Moreover, a strong backlog, new contracts, flexible business operations and expansion in emerging markets are likely to drive long-term growth. However, business challenges, economic uncertainty in different geographic regions, especially EMEA, remain headwinds.
Liberty Lake, WA-based Itron Inc., along with its subsidiaries, is one of the principal technology providers to energy and water industries worldwide. It produces electricity, gas, water and heat meters, data collection and utility software solutions as well as various other associated metering products. The company provides its services to residential, commercial and industrial customers, along with transmission and distribution customers.
Itron currently carries a Zacks Rank #5 (Strong Sell). Stocks to consider in the electrical test equipment sector include Teradyne Inc. TER, Analog Devices, Inc. ADI and Alliance Fiber Optic Products Inc. AFOP. All these stocks carry a Zacks Rank #1 (Strong Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Be the first to comment