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Tickers in this Article: ROP, BMI, ITRI
Badger Meter Inc. (BMI) has reported second-quarter earnings per share (EPS) of 52 cents, flat with the year-ago quarter and falling short of the Zacks Consensus Estimate of 54 cents.

Total revenue surged 9% on a year-over-year basis to $82 million in the quarter, missing the Zacks Consensus Estimate of $86 million. The acquisition of Racine Federated, Inc., added to the sales while lower sales of ORION radio transmitters for natural gas meters due to the completion of a large contract in 2011 was a partial offset.

Costs and Margins

Cost of sales increased 8% to $51.7 million in the reported quarter.  Gross profit improved 11% to $30 million in the quarter from $27.2 million in the prior-year quarter. Gross margin expanded 60 basis points year over year to 37.9% reflecting the addition of higher-margin products from Racine Federated as well as lower copper costs and a favorable product mix.

Selling, engineering and administration expenses increased 23% to $18.8 million in the quarter also due to the acquisition of Racine Federated and increased investments in research & development and higher incentive accruals. Operating income declined 8% to $11.3 million from $12.2 million in the year-earlier quarter. Consequently, operating margins contracted 240 basis points to 13.9% in the quarter.

Financial Position

As of June 30, 2012, cash and cash equivalents amounted to $6.5 million compared with $6.6 million as of March 31, 2012. Receivables as of remained flat at $51 million as of June 30, 2012 compared with March 31, 2012 end. Inventories increased to $61 million as of June 30, 2012 from $57.9 million as of March 31, 2012.

Earlier, in November 2011, Badger Meter management had authorized the repurchase of up to $30 million of common stock over a period of two years, which was completed in the second quarter. During the quarter, the company repurchased 888,000 shares of common stock at an average price of $33.78 per share.

Our Take

The acquisition of Racine Federation, along with previously acquired Cox Flow Measurement and Remag, is expected to boost the flow measurement business globally. The acquisitions broadened the product range and customer base for Badger Meter. The company's new products, including the ORION SE advanced metering analytics system and the electronic E-Series meter, are being well received by customers.

The company will continue to benefit from customer preference for the cost effective automatic meter reading (AMR) technology as well as growing interest in advanced metering analytics (AMA). However, continued uncertainty in municipal spending and increasing raw material costs remain concerns. The company currently retains a Zacks #1 Rank (short-term Strong Buy recommendation).

Milwaukee, Wisconsin-based Badger Meter provides liquid flow measurement products and control technologies to utilities and industrial customers. Presently, Badger Meter's product lines fall into two broad categories - water applications and specialty applications. Badger Meter competes with Itron Inc. (ITRI) and Roper Industries Inc. (ROP).

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