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01/10 16:56
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call reveals mixed sentiments: strong free cash flow and strategic investments in growth are positive, but concerns about SG&A expenses, price/cost issues, and potential sales decline offset these. The Q&A highlights management's reluctance to provide specific guidance, adding uncertainty. Overall, the lack of clear guidance and potential risks balance out the positives, leading to a neutral sentiment.
Total Sales $238 million in Q2 2025, an increase of 10% year-over-year or 5% excluding $10 million in sales from SmartCover. The increase was driven by higher sales of meters, BEACON Software as a Service, water quality, and remote monitoring solutions.
Utility Water Product Line Sales Increased 11% year-over-year or 6% excluding SmartCover. Growth was attributed to higher sales of core products despite moderating growth due to a difficult comparison with the prior year.
Flow Instrumentation Product Line Sales Essentially flat year-over-year as lower demand in certain market applications offset modest growth in water-related end markets.
Operating Earnings Increased 8% year-over-year to $44.9 million. Operating margins decreased by 40 basis points to 18.8% from 19.2% due to structural mix benefits and cost pressures.
Gross Margins Expanded 170 basis points to 41.1% in Q2 2025 from 39.4% in the prior year quarter. The increase was driven by operational excellence initiatives and price increases, partially offset by tariff-related cost pressures.
SEA Expenses Increased by $9.1 million year-over-year to $52.9 million, primarily due to the SmartCover acquisition and higher personnel costs to support growth.
Income Tax Provision Increased to 24.5% in Q2 2025 from 23.8% in the prior year, reflecting changes in tax rates.
Consolidated EPS $1.17 in Q2 2025, up from $1.12 in the prior year quarter, driven by higher earnings.
Primary Working Capital as a Percent of Sales 21.8% as of June 30, 2025, consistent with the prior quarter and 200 basis points better than a year ago.
Free Cash Flow Increased 19% year-over-year to $40.6 million, driven by higher earnings and working capital improvements.
BlueEdge: Launched last year, BlueEdge unifies a suite of products and solutions for water and wastewater systems. New features include the Field App for utility field personnel and Cobalt, which uses machine learning for advanced insights. The ACE tradeshow showcased these solutions, including SmartCover, highlighting their evolution beyond the meter.
SmartCover: SmartCover contributed over $10 million in sales in its first full quarter under Badger Meter's ownership. It is now integrated into the BlueEdge portfolio, enhancing its market presence and operational capabilities.
Sales Growth: Total sales increased by 10% year-over-year to $238 million, with utility water product line sales up 11%. Excluding SmartCover, sales growth was 5%.
AMI Projects: Several AMI projects wrapped up in Q2, but new projects are in hand. Sequential sales are expected to decline in Q3, though year-over-year growth excluding SmartCover is anticipated.
Gross Margins: Gross margins improved to 41.1% in Q2, up from 39.4% in the prior year, driven by technology adoption and operational excellence initiatives. However, sequential decline occurred from Q1's 42.9%.
Free Cash Flow: Free cash flow increased 19% year-over-year to $40.6 million, supported by higher earnings and better working capital management.
Sustainability: Badger Meter exceeded and raised its greenhouse gas intensity reduction targets, as highlighted in its 2024 Sustainability Report.
SmartCover Integration: Integration of SmartCover is on track, with progress in leveraging resources and identifying go-to-market opportunities within the BlueEdge suite.
Macroeconomic trade and policy uncertainty: The company faces ongoing macroeconomic trade and policy uncertainties, which could impact its operations and financial performance.
Tariff-related cost pressures: The company is experiencing tariff-related cost pressures, including recent spikes in copper prices due to tariff concerns, which could affect profitability.
Supply chain and manufacturing footprint: The trade environment remains fluid, and the company must manage its supply chain and manufacturing footprint to mitigate tariff-related exposures.
Sequential sales decline in Q3 2025: The company expects a sequential decline in sales in Q3 2025 due to the timing of new AMI project starts and the completion of several AMI projects in Q2 2025.
Integration of SmartCover acquisition: The integration of SmartCover presents challenges in achieving anticipated sales and cost synergies, as well as leveraging resources effectively.
Uneven business nature: The business is inherently uneven due to utility replacement cycles, project deployment schedules, and project phase-ins and phase-outs, which could lead to variability in financial performance.
Revenue Growth: Despite the moderation in sales, the company expects year-over-year sales growth, excluding SmartCover. High single-digit revenue growth over the long term is anticipated, supported by enduring favorable industry fundamentals, customer demand trends, project awards, and RFP activity.
Sales Projections: Absolute sales are expected to decline sequentially in the third quarter of 2025 due to the timing of new AMI project starts replacing completed ones. However, year-over-year sales growth is still expected.
Gross Margins: The normalized gross margin range of 38% to 40% remains unchanged despite recent performance above 40%. Ongoing operational excellence initiatives and price increases are expected to mitigate cost pressures.
SmartCover Integration: The company remains on track to deliver anticipated sales and cost synergies from the SmartCover acquisition, with progress in leveraging resources and identifying go-to-market opportunities.
BlueEdge Solutions: Momentum in the BlueEdge portfolio is expected to continue, with increasing customer interest in solutions beyond the meter, enhancing the company's competitive positioning in the water management industry.
Long-Term Industry Trends: The company remains confident in the strong long-term secular trends fueling growth in the water industry, emphasizing the critical nature of its core products and solutions for utility and industrial customers.
Dividend Growth: The company has been paying a dividend that has grown in line with earnings for over 3 decades.
The earnings call summary and Q&A reveal a mixed sentiment. While there are positive aspects like expected year-over-year sales growth, stable credit quality, and strategic M&A opportunities, there are also concerns about slightly lower revenue and loan growth guidance, and management's avoidance of specifics on certain financial aspects. The stable ACL coverage and expected improvements in deposit mix provide some stability. Overall, the sentiment is neutral, with no strong catalysts for significant stock price movement in either direction.
The earnings call shows strong financial performance with a 10% increase in EPS, robust free cash flow, and positive gross margin trends. SmartCover's growth and optimistic future profitability add to the positive outlook. While there are concerns about uneven project timing and lack of specific guidance, management's confidence in achieving high single-digit growth and strategic capital allocation, including potential buybacks, supports a positive sentiment. The Q&A further highlights strong demand and growth in key segments, reinforcing the positive outlook.
The earnings call reveals mixed sentiments: strong free cash flow and strategic investments in growth are positive, but concerns about SG&A expenses, price/cost issues, and potential sales decline offset these. The Q&A highlights management's reluctance to provide specific guidance, adding uncertainty. Overall, the lack of clear guidance and potential risks balance out the positives, leading to a neutral sentiment.
The earnings call shows strong financial performance, with increased free cash flow and EPS. However, supply chain challenges, tariff exposure, and increased material costs pose significant risks. The Q&A section reveals management's uncertainty about tariff impacts and cautious pricing strategies. Despite competitive pressures, the company maintains a strong position. The positive financials are offset by economic uncertainties and potential cost increases, leading to a neutral sentiment. The absence of market cap data limits the prediction's precision.
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