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Itron (ITRI) Q2 Earnings & Revenues Lag Estimates, Fall Y/Y

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Itron, Inc. (ITRI - Free Report) reported second-quarter 2020 non-GAAP earnings of 3 cents per share, which missed the Zacks Consensus Estimate by 85.7%. Further, the bottom line declined 96.5% from the year-ago quarter and 94.7% sequentially.

Revenues were $509.6 million, which lagged the Zacks Consensus Estimate of $537 million. Further, the top line fell 19.7% year over year and 14.8% from the prior quarter.

The ongoing coronavirus pandemic, which led to weak performance of Device Solutions, Networked Solutions and Outcomes segments, impacted revenues negatively.

Manufacturing inefficiencies, softness in the demand environment and operational constraints as a result of COVID-19-led disruptions were also headwinds.

Moreover, product revenues were $438.9 million (86.1% of total revenues), down 22.4% year over year. Service revenues totaled $70.6 million (13.9%), which improved 2.3% from the year-ago quarter.

The company’s bookings were $390 million and the backlog totaled $2.9 billion at the end of the reported quarter.

Uncertainties related to COVID-19 are expected to remain headwinds in the days ahead.

Notably, the shares of the company have plunged 6.4% following the release of lower-than-expected second-quarter results.

On a year-to-date basis, Itron has lost 17.3% against the industry’s growth of 4.1%.

Nevertheless, new tenders and awards remain positives. Further, strengthening momentum across the company’s Riva distributed intelligence platform is likely to drive performance in the upcoming quarters.

Segments in Detail

Device Solutions: The company generated revenues of $129.2 million (25.3% of total revenues) from this segment, down 41% from the year-ago quarter owing to COVID-19 related delays.

Networked Solutions: Revenues from this segment were $324.5million (63.7% of total revenues), down 9% year over year due to COVID-19 led disruptions.

Outcomes: This segment generated revenues of $55.9 million (11% of total revenues), down 9% on a year-over-year basis due to sluggish software license revenues.

Itron, Inc. Price, Consensus and EPS Surprise

Itron, Inc. Price, Consensus and EPS Surprise

Itron, Inc. price-consensus-eps-surprise-chart | Itron, Inc. Quote

Operating Details

For the second quarter, Itron’s gross margin was 27.2%, which contracted 290 basis points (bps) on a year-over-year basis primarily due to manufacturing inefficiencies stemming from the COVID-19 pandemic.

Non-GAAP operating expenses were $118 million, down 7.7% year over year. This increase resulted from rising product development investment. As a percentage of revenues, the figure expanded 300 bps year over year to 23.2%.

Further, non-GAAP operating income was $20.3 million, down 67.8% from the prior-year quarter. Operating margin came in 3.9%, contracting 600 bps from the year-ago quarter.

Balance Sheet & Cash Flows

As of Jun 30, 2020, cash and cash equivalents totaled $544.8 million, down from $554.5million as of Mar 31, 2020. Accounts receivables were $411.2 million, down from $463.6 million in the prior quarter.

Long-term debt at the end of the second quarter stood at $1.32 billion compared with$1.33 billion at the end of first quarter.

Itron generated $6.9 million cash from operations in the second quarter compared with $18.9million in the prior quarter.

Moreover, the company generated free cash flow of ($9.6 million) against $6.3 million in the last quarter.

Outlook

The company’s guidance for 2020 remains suspended due to uncertainties related to coronavirus pandemic.

Itron anticipates free cash flow 2020 to be positive and expects operational improvements.

However, both earnings and revenues in the second half of 2020 are expected to be at par with the first half of 2020.

Nevertheless, the company does not expect any order cancellation in the second half of 2020. Further, normalizing trend in the Asia-Pacific region remains a positive.

Zacks Rank & Key Picks

Itron currently has a Zacks Rank #5 (Strong Sell).

Some better-ranked stocks in the broader technology sector are Dropbox (DBX - Free Report) , Asure Software, Inc. (ASUR - Free Report) and Analog Devices (ADI - Free Report) . While both Dropbox and Asure Software sport a Zacks Rank #1 (Strong Buy), Analog Devices carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Dropbox, Asure Software, and Analog Devices are scheduled to report earnings on Aug 6, Aug 10 and Aug 19, respectively.

Long-term earnings growth rate of Dropbox, Asure Software, and Analog Devices is pegged at 16.83%, 14% and 13.33%, respectively.

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