The stock of Badger Meter (BMI 0.95%) jumped 7.8% on Thursday, following the smart water technology specialist's release of better-than-expected results for the second quarter of 2023. The quarter's revenue and earnings both easily exceeded Wall Street's expectations.
This significant post-earnings gain isn't a one-off happening. Shares surged 10.7% following the company's release of first-quarter results. As I wrote at that time, an upward move of that magnitude "is relatively unusual -- and thus, particularly noteworthy -- for a long-established, stable, dividend-paying industrial company."
As for the dividend, it's modest and currently yields about 0.6%. Nonetheless, even a modest dividend, when reinvested, can make a significant difference over time in an investor's total return.
Image source: Getty Images.
Badger Meter's key numbers
| Metric | Q2 2022 | Q2 2023 | Change YOY |
|---|---|---|---|
| Revenue | $137.8 million | $175.9 million | 28% |
| GAAP operating income | $22.1 million | $29.5 million | 33% |
| GAAP net income | $16.7 million | $22.5 million | 35% |
| GAAP earnings per share (EPS) | $0.57 | $0.76 | 33% |
Data source: Badger Meter. GAAP = generally accepted accounting principles. YOY = year over year.
Wall Street was looking for EPS of $0.65 on revenue of $156.9 million. So the company sped by both expectations.
Gross margin was 39.5%, down slightly from 39.7% in the year-ago period and flat with the prior quarter's 39.5%. Operating profit margin expanded to 16.8% from 16% in the year-ago period.
The company generated cash of $22.8 million running its operations during the quarter, up 16% from the year-ago period. It has a solid balance sheet, ending the quarter with cash and cash equivalents of $141.8 million and no long-term debt.
What happened with Badger Meter in the quarter?
- Utility sales surged 32% year over year, driven by continued strong adoption of the company's cellular advanced metering infrastructure (AMI) and higher water meter volumes, both for residential and commercial applications. An improvement in supply chain dynamics and the acquisition of smart water tech company Syrinix at the beginning of the year also contributed to sales growth.
- Sales of flow instrumentation products rose 6% year over year, driven by the company's water-focused end markets including wastewater and HVAC.
What the CEO had to say
Here's part of CEO Kenneth Bockhorst's statement in the earnings release:
As our record second quarter results demonstrate, Badger Meter continues to benefit from the adoption of our differentiated smart water solutions, favorable market conditions and sound execution. In addition to our record sales performance, we delivered strong operating profit margin expansion, record EPS and solid cash flow. Another quarter of book-to-bill above one points to resilient demand within our markets, and we are confident in our ability to continue to capitalize on the constructive industry fundamentals.
Outlook for the remainder of 2023
Badger Meter doesn't provide guidance, as in expectation ranges for revenue and earnings, but management provides a general and broad outlook. In the earnings release, Bockhorst said, "Based on first half results, it's clear we are on track for yet another year of exceptional performance."
Worth a spot on your watch list
I continue to believe that Badger Meter stock deserves at least a place on most investors' watch lists. As I wrote in last quarter's earnings article, the water sector has "solid long-term growth potential because climate change is causing fresh water to become increasingly scarce in the United States and across the world."
Along with climate change -- which makes increasing water-delivery efficiency and reducing water losses more important than ever -- other demand drivers for smart water solutions include aging infrastructure, increased regulation, and workforce retirements and shortages at water utilities.
