What happened

On a day when the markets are rising, shares of Itron (NASDAQ:ITRI) are headed in the other direction. As of 11:15 a.m. EDT, Itron's stock is down 27.6%, recovering slightly from having fallen as much as 31.3% earlier in the day.

Besides its second-quarter 2021 earnings report, the company's updated guidance for the remainder of 2021 is leaving investors unenthusiastic about the stock today.

A person sits at a table and looks at a laptop.

Image source: Getty Images.

So what

Falling short of analysts' expectation that the company would book $535.9 million on the top line, Itron reported sales of $489 million for Q2 2021. According to management, the shortfall in revenue is largely attributable to "semiconductor shortages for components commonly used in industrial and automotive applications." The bottom of the income statement didn't provide much solace; the company reported adjusted earnings per share of $0.28 -- 42% lower than the $0.48 analysts estimated Itron would report.

What's troubling investors more today, however, is probably the company's downwardly revised guidance. Whereas the company had previously forecast 2021 revenue of approximately $2.28 billion, it now expects to report sales of about $2.1 billion. Similarly, it sees a less robust bottom line than it had previously thought. Adjusted EPS for 2021 is now expected to be $1 to $1.50 -- sharply lower than the initial guidance of $2.30 to $2.70.

Now what

While Itron didn't provide the revenue and earnings figures investors had expected, there were some encouraging details in the report. For one, the company ended Q2 2021 with a record backlog of $3.5 billion. While the company will surely have problems executing on the orders with the constrained semiconductor supply continuing to be an issue, the increase in the backlog is a lot better than a dwindling backlog. The most auspicious detail, though, is likely found on the cash flow statement. During the second quarter, Itron reported free cash flow of $64 million -- a drastic turnaround from the negative $10 million in free cash flow the company reported during the same period last year. This helped the company shore up its balance sheet and reduce its net leverage ratio from 3.8 at the end of Q2 2020 to 1.6 at the end of Q2 2021.

Today's sell-off -- though unsurprising -- seems shortsighted. With a stronger balance sheet, Itron seems well positioned to weather the current challenges, and long-term investors may want to dig in deeper now that they have a chance to pick up shares at a much more attractive price.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.