Badger Meter (BMI 0.95%) stock gained 3% on Thursday, following the smart-water technology specialist's release of better-than-expected results for the third quarter of 2023. The quarter's revenue and earnings both easily exceeded Wall Street's expectations.
Badger Meter has been pumping out strong results all year, and investors have been rewarded. Although shares have fallen from their all-time high set in August 2022, they're still solidly outperforming the market in 2023. Year to date through Oct. 19, they've returned 28%, compared the the S&P 500 index's return of 12.9%.
The stock's long-term performance is even more impressive. It's returned 495% over the 10-year period through Oct. 19, crushing the S&P 500's return of 115%. Moreover, it's also outperforming a couple of the high-flying big tech stocks, including Facebook parent Meta Platforms (up 477%).
Badger Meter's key numbers
| Metric | Q3 2022 | Q3 2023 | Change YOY |
|---|---|---|---|
| Revenue | $148 million | $186.2 million | 26% |
| GAAP operating income | $23.9 million | $31.4 million | 31% |
| GAAP net income | $17.9 million | $26.0 million | 45% |
| GAAP earnings per share (EPS) | $0.61 | $0.88 | 44% |
Data source: Badger Meter. GAAP = generally accepted accounting principles. YOY = year over year.
Wall Street was looking for EPS of $0.81 on revenue of $179.1 million. So the company raced by both expectations.
Gross margin was 39.1%, up slightly from 38.9% in the year-ago period. Operating profit margin expanded to 16.9% from 16.1% in the year-ago period.
The company generated cash of $31 million running its operations during the quarter, up 32% from the year-ago period. It has a solid balance sheet, ending the quarter with cash and cash equivalents of $162.9 million and no long-term debt.
What happened with Badger Meter in the quarter?
- Utility sales surged 31% year over year, driven primarily by strong growth across the company's offerings of digital smart-water solutions. This includes continued "robust adoption of cellular AMI [advanced metering infrastructure] solutions ... as well as increased meter volumes," the company said. Sales also got a boost from supply chain improvements and the acquisition of smart-water tech company Syrinix in January 2023.
- Sales of flow instrumentation products rose 2% year over year, driven by "steady demand" across the company's water-focused end markets including wastewater and heating, ventilation, and air conditioning (HVAC).
- In August, the company announced a 20% increase in its annual dividend rate. This marks its 31st consecutive annual increase.
What the CEO had to say
Here's part of CEO Kenneth Bockhorst's statement in the earnings release:
Our third quarter results once again demonstrated the value of our differentiated smart-water solution offerings and strength of our execution, yielding 26% sales growth and record EPS in the quarter. We delivered 80 basis points of operating margin improvement as well as robust cash flow which continues to fuel our capital allocation priorities including the recent 20% annual dividend increase. ... We believe we are well positioned, given our order momentum, elevated backlog, leading technologies, execution track record, positive market dynamics and the strength of our people.
Worth a spot on your watch list
Management doesn't provide guidance, but Bockhorst said in the earnings release that it expects continued "strong sales and operating performance" in the fourth quarter. Among other signs, the company's "elevated backlog" suggests continued robust growth.
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:
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.
