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Resource management provider Itron (NASDAQGS:ITRI) reported results ahead of analysts' expectations in Q2 CY2024, with revenue up 12.6% year on year to $609.1 million. Guidance for next quarter's revenue was also better than expected at $595 million at the midpoint, 1.6% above analysts' estimates. It made a non-GAAP profit of $1.21 per share, improving from its profit of $0.53 per share in the same quarter last year.
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Itron (ITRI) Q2 CY2024 Highlights:
- Revenue: $609.1 million vs analyst estimates of $599.3 million (1.6% beat)
- EPS (non-GAAP): $1.21 vs analyst estimates of $0.96 (26.4% beat)
- Revenue Guidance for Q3 CY2024 is $595 million at the midpoint, above analyst estimates of $585.6 million
- EPS (non-GAAP) Guidance for Q3 CY2024 is $1.15 at the midpoint, above analyst estimates of $0.93
- EPS (non-GAAP) Guidance for the full year is $4.55 at the midpoint, beating analysts' estimates by 12.8%
- Gross Margin (GAAP): 34.6%, up from 32.1% in the same quarter last year
- Free Cash Flow of $44.61 million, up 30.6% from the previous quarter
- Market Capitalization: $4.74 billion
Founded by a small group of engineers who wanted to build a more efficient way to read utility meters, Itron (NASDAQGS:ITRI) offers energy and water management products for the utility industry, municipalities, and industrial customers.
Inspection InstrumentsMeasurement and inspection instrument companies may enjoy more steady demand because products such as water meters are non-discretionary and mandated for replacement at predictable intervals. In the last decade, digitization and data collection have driven innovation in the space, leading to incremental sales. But like the broader industrials sector, measurement and inspection instrument companies are at the whim of economic cycles. Interest rates, for example, can greatly impact civil, commercial, and residential construction projects that drive demand.
Sales GrowthExamining a company's long-term performance can provide clues about its business quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Itron struggled to generate demand over the last five years as its sales were flat. This is a tough starting point for our analysis.
We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Itron's annualized revenue growth of 11.8% over the last two years is above its five-year trend, suggesting its demand recently accelerated. Itron recent history stands out, especially when considering many similar Inspection Instruments businesses faced declining sales because of cyclical headwinds.
Itron also breaks out the revenue for its most important segments, Product and Service, which are 87.5% and 12.5% of revenue. Over the last two years, Itron's Product revenue (measurement and control equipment) averaged 15.1% year-on-year growth while its Service revenue ( project management, installation, consulting) averaged 1.9% growth.
This quarter, Itron reported robust year-on-year revenue growth of 12.6%, and its $609.1 million of revenue exceeded Wall Street's estimates by 1.6%. The company is guiding for revenue to rise 6.1% year on year to $595 million next quarter, slowing from the 33.2% year-on-year increase it recorded in the same quarter last year. Looking ahead, Wall Street expects sales to grow 2.7% over the next 12 months, a deceleration from this quarter.
Operating MarginOperating margin is a key measure of profitability. Think of it as net income–the bottom line–excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.
Itron was profitable over the last five years but held back by its large expense base. It demonstrated lousy profitability for an industrials business, producing an average operating margin of 2.1%.
On the bright side, Itron's annual operating margin rose by 7.8 percentage points over the last five years
This quarter, Itron generated an operating profit margin of 10.6%, up 4.1 percentage points year on year. This increase was encouraging, and since the company's operating margin rose more than its gross margin, we can infer it was recently more efficient with expenses such as sales, marketing, R&D, and administrative overhead.
EPSWe track the long-term growth in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company's growth was profitable.
Itron's EPS grew at an astounding 22% compounded annual growth rate over the last five years, higher than its flat revenue. This tells us management responded to softer demand by adapting its cost structure.
Diving into the nuances of Itron's earnings can give us a better understanding of its performance. As we mentioned earlier, Itron's operating margin expanded by 7.8 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its higher earnings; taxes and interest expenses can also affect EPS but don't tell us as much about a company's fundamentals.
Like with revenue, we also analyze EPS over a more recent period because it can give insight into an emerging theme or development for the business. For Itron, its two-year annual EPS growth of 98.6% was higher than its five-year trend. We love it when earnings growth accelerates, especially when it accelerates off an already high base.
In Q2, Itron reported EPS at $1.21, up from $0.53 in the same quarter last year. This print easily cleared analysts' estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Itron to perform poorly. Analysts are projecting its EPS of $4.16 in the last year to shrink by 1.9% to $4.08.
Key Takeaways from Itron's Q2 Results We were impressed by how significantly Itron blew past analysts' EPS expectations this quarter. We were also glad it raised its full-year revenue and EPS guidance, which exceeded Wall Street's estimates. Overall, we think this was a really good quarter that should please shareholders. The stock traded up 6.4% to $110 immediately following the results.
