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Itron: Subtraction By Addition?

Mar. 07, 2018 3:09 PM ETItron, Inc. (ITRI)3 Comments
EQInvestor profile picture


  • Q4 results "beat" but raise earnings quality red flags, a recurring theme with ITRI.
  • Strategic shift to growth through acquisitions raises risk profile.
  • Legacy business showing negative organic growth.

Q4 Results Beat on Lumpy Revenue Recognition

Itron (NASDAQ:ITRI) recently reported its Q4 and full-year 2018 results. Revenue of $551 million exceeded consensus estimates calling for $533 million, driving adjusted non-GAAP EPS of $1.01 per share, which also exceeded consensus estimates of $0.93. The company also guided for FY 2018 revenue and non-GAAP EPS of $2.38 billion and $3.15, respectively, at the midpoint, relative to consensus estimates of $2.4 billion and $3.19, respectively, according to Seeking Alpha.

On the surface, the Q4 reported results seemed to constitute a pretty nice beat. But, as seems to be a recurring theme with ITRI, there were some red flags around the quality of earnings delivered in this report. The following chart depicts recent trending in Itron's revenue recognition dynamics: specifically, the relationship between the amount of revenue the company recognizes versus the amount it defers until future periods.

Revenue Recognition

The table shows that in the most recently reported quarter, the amount of revenue deferred fell precipitously in relation to prior quarters. The less revenue that is deferred equates to more revenue recognized, and the impact to Q4 revenue easily accounts for the entire $18 million margin by which the company exceeded analysts' estimates for Q4 revenue.

Importantly, it is arguably not significant whether the company was intentionally 'massaging' this number, or if there is a legitimate shift in revenue recognition methodology, perhaps in connection with the recently enacted new accounting standard. The important thing is that this dynamic did not appear to be incorporated into analysts' estimates, and it served as a non-recurring benefit to boost Q4 reported results. This will only make for more difficult comps as we head into future quarters.

Acquisition Spree Amid Organic Stagnation

Amid the top line stagnation that ITRI has experienced over recent years, the company has embarked upon

This article was written by

EQInvestor profile picture
I am a US-based investor focused on uncovering both long and short opportunities with specific insights through the lens of earnings quality analysis. I am a CFA charterholder and a CPA with professional experience in accounting, equity research, and corporate finance. http://eqinvestor.blogspot.com/

Analyst’s Disclosure: I am/we are short ITRI. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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