Badger Meter (BMI 0.95%) stock jumped 10.7% on Thursday, following the water technology specialist's release of better-than-expected results for the first quarter of 2023. Investors' delight is attributable to both revenue and earnings easily surpassing Wall Street's expectations.
A nearly 11% post-earnings move in either direction isn't uncommon among tech stocks and other stocks that tend to be volatile. But such an upward move is relatively unusual -- and thus, particularly noteworthy -- for a long-established, stable, dividend-paying industrial company.
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Badger Meter's key numbers
| Metric | Q1 2022 | Q1 2023 | Change YOY |
|---|---|---|---|
| Revenue | $132.4 million | $159.1 million | 20% |
| GAAP operating income | $18.9 million | $25.0 million | 32% |
| GAAP net income | $14.4 million | $19.4 million | 35% |
| GAAP earnings per share (EPS) | $0.49 | $0.66 | 35% |
Data source: Badger Meter. GAAP = generally accepted accounting principles. YOY = year over year.
Wall Street was looking for EPS of $0.55 on revenue of $143.6 million. So the company sped by both expectations.
Badger Meter generated cash of $18 million running its operations during the quarter. It has a healthy balance sheet, ending the quarter with cash and cash equivalents of $128.3 million and no long-term debt.
What happened with Badger Meter in the quarter?
- Water utility sales grew 20% year over year, driven by continued strong adoption of the company's cellular advanced metering infrastructure (AMI) solution and higher water meter volumes. The acquisition of Syrinix (covered below) also contributed to sales growth.
- Flow instrumentation product sales rose 22% year over year, with "strong order demand across the water-focused end markets and improving supply chain dynamics," the company said in the earnings release.
- The company completed the acquisition of Syrinix at the beginning of the year for $18 million. CEO Kenneth Bockhorst opined in the earnings release that this acquisition extends the company's "differentiated smart water offerings with pressure monitoring and leak detection capabilities."
- It had record backlog at the end of the quarter, which is impressive, given its strong and record-high sales in the quarter.
What the CEO had to say
Here's part of CEO Bockhorst's comment in the earnings release:
We generated an all-time high quarterly revenue total in the first quarter, delivering 20% sales growth reflective of favorable industry fundamentals, healthy demand for our innovative smart water solutions, and outstanding execution on the part of our employees and supply base [...]. This, in turn, led to operating profit margin improvement, which also benefited from structural mix improvement, value-based pricing, stabilization of inflationary pressures and selling, engineering and administration (SEA) leverage.
2023 outlook
In the earnings release, the company offered a positive 2023 outlook, though provided no specific numbers. It said that "demand trends in our markets remain healthy" and "supply chain relief and steadying inflationary headwinds, along with solid operational execution, lay the foundation for margin resilience for the balance of 2023."
Worth a spot on your watch list
Badger Meter stock deserves at least a place on most investors' watch lists. Its operations heavily (though not exclusively) fall within one of my favorite broad groups -- water. This is a space with solid long-term growth potential because climate change is causing fresh water to become increasingly scarce in the United States and across the world.
Not only have shares easily outperformed the S&P 500 so far this year, but they've also done so over the mid, long, and very-long terms. Moreover, shares pay a modest dividend, which is currently yielding about 0.7%.
