PREVIEW-Weak spending by utilities may weigh on Itron Q3 profit

* What: Itron Inc Q3 results

* When: Oct. 28

* Near-term concerns remain, analysts bullish on long term

* Not expecting company to give out Q4, 2010 outlook

Oct 27 (Reuters) - Power meter maker Itron Inc ITRI.O is likely to report third-quarter profit below market expectations, hurt by tardy spending by utilities on smart-grid projects.

Utilities have cut down on spending as they are awaiting approval of projects that may qualify for stimulus funding.

Itron, which makes electricity, gas and water meters, has seen its sales getting deferred due to the lackluster spending.

Of the proposed projects, the smart-grid -- which aims to make existing power grids more efficient -- is gaining a lot of investor interest due to the scale of the project.

President Barack Obama on Tuesday announced $3.4 billion in grants to help build a “smart” electric grid meant to trim utility bills. The money will pay for about 18 million smart meters. [ID:nN27121152]

The project entails deployment of these smart meters and power line devices that automatically isolate transmission faults and increase power flow.

Analyst Carter Shoop of Deutsche Bank expects the company to report third-quarter profit below estimates as fast deployments of advanced metering infrastructure (AMI) -- which are meant to help decrease peak loads and billed to be deployed on the smart grid -- are not enough to offset weak sales of automated meter reading (AMR).

The company has been missing analysts’ earnings expectations for the last three quarters, due to weakness in the North American market and customers uncertainty over stimulus funds.

For the third quarter, analysts on average expect the company to earn 52 cents a share, on revenue of $419.9 million, according to Thomson Reuters I/B/E/S.

Analysts are optimistic about the company’s long-term growth prospects, but have near-term concerns.

They expect Itron’s business to be challenging in the near term as they do not see any surge in replacement spending by utilities.

Near term, things are in a bit of flux with a lot of the AMI smart grid applications still pending, analyst Vijay Singh of Janco Partners Inc said.

OpenWay, which is Itron’s smart metering solution, helps utilities better manage limited energy supplies.

Stimulus funds are an important part of Itron’s story, analysts said. However, they expect release of money to be gradual.


Analysts are not expecting the company to provide any outlook for the fourth quarter or for 2010.

“We think investors will look through the second half of 2009 results and increasingly focus on 2011 estimates, and the potential for accelerated AMI deployments following stimulus awards,” analyst Shoop said.

Analysts said 2010 will be a “transition year” for the company as utilities in North America gradually migrate toward smart meters and AMI systems from AMRs.

More visibility is expected in the second half of next year, Janco Partners’ Singh said.

Industry experts and company executives are expecting the appetite for investments in green technologies, also referred to as cleantech, to see a significant pickup as early as this fall, with continued improvement through 2010. [ID:nN17375981]

“Ramping AMI shipments and incremental AMI wins will provide catalysts for the stock over the next few quarters,” analyst Stephen Sanders of Stephens Inc said.

Analyst Paul Clegg of Jefferies & Co expects Itron to see significant increase in earnings for fiscal 2010.

“As the European economy starts to recover, you will see increased spending on meters,” Clegg said. Europe accounted for about 50 percent of Itron’s revenue in 2008. (Reporting by Bhaswati Mukhopadhyay in Bangalore; Editing by Ratul Ray Chaudhuri)