Itron Inc. (ITRI) had a bit of a rollercoaster week. Shares surged 23% to $104.51 on Tuesday after the company reported better-than-expected second-quarter adjusted earnings and raised its full-year profit outlook. But by Wednesday morning, the stock was trading lower as investors took a closer look at the revenue picture.
The numbers tell a story of a company that's getting more profitable even as its top line shrinks. Adjusted EPS came in at $1.59, well above the $1.29 analysts were looking for. But revenue fell 7.2% year over year to $562.9 million, missing the $566.1 million estimate. That's the kind of mixed bag that makes markets do a double take.
Earnings and Margins
On a GAAP basis, diluted EPS slipped to $1.19 from $1.47 a year ago, while adjusted EPS edged down from $1.62. Net income attributable to Itron dropped 22% to $53.3 million, weighed down by lower interest income and a higher effective tax rate.
But here's where it gets interesting: adjusted gross margin expanded by a whopping 460 basis points to 41.4%. That's thanks to a favorable product and customer mix, operational efficiencies, and cost discipline. Adjusted operating income rose 8% to $89.1 million, and adjusted EBITDA increased 8% to $96.8 million. GAAP operating income was nearly flat at $76.1 million, as higher gross profit was offset by increased operating expenses, including acquisition-related amortization.
Segment Performance
Itron's three main segments showed very different trajectories. Device Solutions revenue dipped 1.2% to $111.4 million, but its adjusted operating margin jumped to 28.3% from 22.6%. Networked Solutions, the biggest segment, saw revenue fall 17% to $339.2 million due to project deployment timing and lower volumes. Yet its adjusted operating margin improved to 33% from 29.6%.
Outcomes was the star, with revenue up 13.3% to $96.4 million, driven by higher services revenue. Its adjusted operating margin expanded to 21.3% from 18.4%. And Resiliency Solutions, a newer segment, contributed $15.8 million in revenue with a 27.7% adjusted operating margin.
Bookings and Cash Flow
Bookings totaled $550 million in the quarter, and backlog stood at a hefty $4.4 billion. Annual recurring revenue grew 21% to $417 million, which is a good sign for future stability. Operating cash flow was $88.1 million, and free cash flow came in at $81.5 million. Itron ended the quarter with $745 million in cash and cash equivalents and $1.61 billion in debt.
Outlook
Looking ahead, Itron expects third-quarter adjusted EPS of $1.50 to $1.60, right around the $1.54 consensus. But revenue guidance of $590 million to $600 million falls short of the $607.7 million estimate. For the full year, the company raised adjusted EPS guidance to $6.30-$6.50 from $5.75-$6.25, well above the $5.96 estimate. Revenue guidance was narrowed to $2.37 billion-$2.41 billion from $2.35 billion-$2.45 billion, compared with the $2.388 billion estimate.
So the profit picture is improving, but the top line is still uneven. That's probably why shares were down 4.91% at $101.76 on Wednesday. Investors love a good earnings beat, but they also want to see revenue growth, and Itron isn't quite delivering that yet.
