Resource management provider Itron (NASDAQ:ITRI) beat Wall Street’s revenue expectations in Q4 CY2024, with sales up 6.2% year on year to $612.9 million. On top of that, next quarter’s revenue guidance ($615 million at the midpoint) was surprisingly good and 6.2% above what analysts were expecting. Its non-GAAP profit of $1.35 per share was 29% above analysts’ consensus estimates.
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Itron (ITRI) Q4 CY2024 Highlights:
Company Overview
Founded by a small group of engineers who wanted to build a more efficient way to read utility meters, Itron (NASDAQ:ITRI) offers energy and water management products for the utility industry, municipalities, and industrial customers.
Inspection Instruments
Measurement 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 Growth
Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can have short-term success, but a top-tier one grows for years. Unfortunately, Itron struggled to consistently increase demand as its $2.44 billion of sales for the trailing 12 months was close to its revenue five years ago. This wasn’t a great result and is a tough starting point for our analysis.
Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Itron’s annualized revenue growth of 16.6% over the last two years is above its five-year trend, suggesting its demand recently accelerated.
Itron also breaks out the revenue for its most important segments, Product and Service, which are 86.9% and 13.1% of revenue. Over the last two years, Itron’s Product revenue (measurement and control equipment) averaged 19.8% year-on-year growth while its Service revenue ( project management, installation, consulting) averaged 2.5% growth.
This quarter, Itron reported year-on-year revenue growth of 6.2%, and its $612.9 million of revenue exceeded Wall Street’s estimates by 1.7%. Company management is currently guiding for a 1.9% year-on-year increase in sales next quarter.
Looking further ahead, sell-side analysts expect revenue to remain flat over the next 12 months, a deceleration versus the last two years. This projection doesn't excite us and suggests its products and services will face some demand challenges.
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Operating Margin
Itron was profitable over the last five years but held back by its large cost base. Its average operating margin of 2.8% was weak for an industrials business.
On the plus side, Itron’s operating margin rose by 11.3 percentage points over the last five years.
This quarter, Itron generated an operating profit margin of 10.2%, up 1.7 percentage points year on year. The increase was encouraging, and since its operating margin rose more than its gross margin, we can infer it was recently more efficient with expenses such as marketing, R&D, and administrative overhead.
Earnings Per Share
We track the long-term change 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 is profitable.
Itron’s EPS grew at a solid 11.1% 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 Itron’s quality of earnings can give us a better understanding of its performance. As we mentioned earlier, Itron’s operating margin expanded by 11.3 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 analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.
For Itron, its two-year annual EPS growth of 124% was higher than its five-year trend. We love it when earnings growth accelerates, especially when it accelerates off an already high base.
In Q4, Itron reported EPS at $1.35, up from $1.23 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’s full-year EPS of $5.63 to shrink by 11.9%.
Key Takeaways from Itron’s Q4 Results
We were impressed by Itron’s optimistic full-year EPS guidance, which blew past analysts’ expectations. We were also excited its revenue, EPS, and EBITDA outperformed Wall Street’s estimates. Zooming out, we think this was a good quarter with some key areas of upside. The stock traded up 9.5% to $101.50 immediately after reporting.
Itron had an encouraging quarter, but one earnings result doesn’t necessarily make the stock a buy. Let’s see if this is a good investment. What happened in the latest quarter matters, but not as much as longer-term business quality and valuation, when deciding whether to invest in this stock. We cover that in our actionable full research report which you can read here, it’s free .