Ken Bockhorst started Brown Deer-based Badger Meter’s earnings call recently by suggesting supply chain and inflation would be mentioned a record number of times during the call.
He then turned to recognizing his employees’ efforts in a number of areas, including working with customers to manage priorities and expectations, redesigning parts to provide more sourcing flexibility, and continually managing logistics and collaborating to maximize customer deliveries.
Like many manufacturers, Badger Meter is facing supply chain challenges, particularly in electronic components and, following the deep freeze in Texas this past winter, plastic resins.
“The breadth of these challenges is greater than what we’ve experienced previously, but the playbook for addressing them is not new,” said Bockhorst, chairman, president and chief executive officer of Badger Meter.
Even with the challenges, the company was able to increase sales 13.3% from the same time in 2020 to $128.7 million for the third quarter. Earnings were up around 6.7% to $15.9 million as higher selling, engineering and administration costs cut into operating earnings.
Bob Wrocklage, chief financial officer at Badger Meter, said he was pleased with the company’s margin performance during the quarter as costs have been higher for brass, resins, freight and logistics.
Badger Meter’s inventory levels have also been higher as the company tries to capitalize on spot availability of some components and available capacity. Inventories ended the third quarter at $91.8 million, about $1 million from the end of the second quarter and $10 million since the start of the year.
Accounts receivable have also trended higher, from $64 million at the end of the second quarter to $73.7 million at the end of the third. They started the year at $61.7 million
Some customers are “understandably” deferring payments on partial shipments, Wrocklage said.
“We believe these are transitory repercussions of the current environment,” he said of the inventory and receivables trends.
While supply issues for semiconductors have received a significant amount of attention, Bockhorst said Badger Meter has faced more broad-based challenges when it comes to sourcing electronic components in general.
He also noted the deep freeze in Texas had caused issues with availability and inflation on resins the company uses.
“Availability is starting to get better on the resin side, but inflation is still real there,” he said.
Even when Badger Meter can find the parts and materials it needs, there’s still a question of whether logistics vendors can get them delivered.
“You might think you’ve got components showing up today and then all of the sudden maybe they don’t for a few days,” Bockhorst said.
Analysts asked Badger Meter executives to quantify what kind of productivity losses the company has suffered because of the sourcing and logistics challenges. Wrocklage said the issue is not as simple as losing production because parts are not available.
“I would think of it more as not necessarily lost production but more the dog paddling under the surface that has to occur to sort of reorder and rejuxtapose production prioritization,” he said.
While many companies are facing labor challenges on top of supply chain issues, Bockhorst said Badger Meter is doing well on that front.
“We’re not having labor related challenges,” he said. “Our labor workforce is here doing a great job knocking things out.”
Badger Meter did grow its top line despite the challenges and its backlog grew too. Bockhorst said these factors are supportive of continued growth in the fourth quarter and into 2022.
“Our orders and awards are not being cancelled but simply shifting to the future,” Bockhorst said.