Badger Meter Reports Second Quarter 2020 Results
Badger Meter, Inc. (NYSE: BMI) today reported results for the second quarter ended June 30, 2020.
Second Quarter 2020 Highlights
"I am proud of the response of our employees globally to the unprecedented and far-reaching impact of COVID-19, both to them personally and to our company. While April was certainly a challenging month, with 95% of the US on some type of stay-at-home order, we saw improving levels of municipal water demand off of that bottom in the ensuing months, while flow instrumentation demand has remained sluggish. The cost actions we took in the quarter allowed us to preserve profitability and cash flow despite the rapid demand disruption. Our primary focus continues to be on serving customers while protecting the health, safety and well-being of our employees and all our constituencies," said Kenneth C. Bockhorst, Chairman, President and CEO of Badger Meter.
Second Quarter Operating Results
Municipal water sales declined 9% from the comparable prior year quarter, with improving order demand from the month of April low point which corresponded to the widespread lock-down of activity across the US. Backlog increased as orders exceeded sales in the quarter, the result of modest manufacturing interruptions which limited output at certain of our manufacturing facilities. Existing project installation schedules remained largely on track, and demand for ultrasonic meter technology and ORION Cellular LTE-M radios continued to gain traction. As expected, sales of flow instrumentation products were more significantly impacted and were 22% lower year-over-year, with weak demand throughout the quarter across the array of end markets served.
Operating margins of 13.9% were 60 basis points below the prior year's 14.5%, representing decremental margins on the sales decline of approximately 20%. During the quarter, the company proactively implemented cost containment actions, including reductions in discretionary spending, a hiring freeze, reduced work hour furloughs and executive salary reductions to mitigate the impact of the sales decline on profitability and cash flows.
Gross profit margins were strong at 39.3%, a 40 basis point increase over the prior year's 38.9%. Despite lower manufacturing output, the benefit of cost actions as well as favorable sales mix and price cost dynamics, contributed to the gross margin improvement.
Selling, engineering and administration ("SEA") expenses in the second quarter of 2020 of $23.2 million were down from the prior year's $25.2 million as a result of the cost reduction actions taken, partially offset by business optimization investments. The tax rate of 24.3% was modestly higher than the prior year's 23.8%.
"In summary, I am pleased with the resilience of our financial performance in relation to the economic severity of this unprecedented crisis," stated Bockhorst. "The level of commitment with which our organization collectively responded to this pandemic, responsibly working to enact and support protocols and other measures to keep all of us safe while serving our customers in critical and essential industries, is commendable."
"As we finish the second quarter and look to the back half of the year and beyond, we remain optimistic about our long term opportunities for growth. Our backlog and bid funnel remain healthy, and interest in our solutions is strong. However, we remain cognizant of the fact that while economic activity is improving, data and market sentiment suggest the potential for a protracted recovery as coronavirus-related disruption and uncertainty may weigh on demand, supply chain and manufacturing output, as well as municipal budgets moving forward.
Given this uncertainty, we will remain nimble and focused on what we can control, keeping the health and safety of our employees, customers and other constituencies at the heart of every decision we make. We are committed to driving innovation forward, even in these challenging times, with the launch of new product offerings, including our recently released E-Series Ultrasonic Plus with integrated valve, which allows water utilities to remotely restrict water flow. Our operations teams are adapting manufacturing processes to increase output while optimizing safety. We are managing cash flow and working capital, with $85.2 million of cash on the balance sheet as of June 30, 2020 and $125 million in revolving credit available to fund capital allocation priorities. Finally, our M&A posture remains measured and we will continue pursuing strategic, tuck-in acquisitions at reasonable valuations."
Bockhorst concluded, "I am continually impressed by how our sales, service and office staff around the globe embraced new ways of working to increase productivity while reducing expenses, and how our operations and supply chain teams were able to respond despite the broad-based economic disruption caused by the virus. This reinforces the resilience of our business model, our offerings and our culture as we protect the world's most precious resource."
Conference Call and Webcast Information
Badger Meter management will hold a conference call to discuss the company's second quarter 2020 results today, Thursday July 16, 2020 at 10:00 AM Central/11:00 AM Eastern time. The call and related presentation can be accessed via webcast through the Investor section of our website or by dialing 1-833-921-1631 (US) or 1-236-714-2109 (International) and entering the passcode 6378486. The webcast will be archived on the company's website until its next earnings release.
Safe Harbor Statement
Certain statements contained in this news release, as well as other information provided from time to time by Badger Meter, Inc. (the "company") or its employees, may contain forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those statements. Potential factors that could affect such forward-looking statements include the duration, severity and geographic spread of the COVID-19 pandemic, government actions to address or mitigate the impact of the COVID-19 pandemic, and the potential negative impacts of COVID-19 on the global economy, the company's operations and those of our customers and suppliers. In addition, the company's results are subject to general economic conditions, variation in demand from customers, continued market acceptance of new products, the successful integration of acquisitions, competitive pricing and operating efficiencies, supply chain risk, material and labor cost increases, tax reform and foreign currency risk. See the company's Form 10-K filed with the Securities and Exchange Commission for further information regarding risk factors, which are incorporated herein by reference. Badger Meter disclaims any obligation to publicly update or revise any forward-looking statements as a result of new information, future events or any other reason.
About Badger Meter
Badger Meter is an innovator in flow measurement, control and communications solutions, serving water utilities, municipalities, and commercial and industrial customers worldwide. The company's products measure water, oil, chemicals, and other fluids, and are known for accuracy, long-lasting durability and for providing valuable and timely measurement data. For more information, visit www.badgermeter.com.
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