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Expanded Itron launches up to $110M restructuring, eyes tax reform benefits

After closing its $830 million acquisition of Silver Spring Networks Inc. in January, smart grid technology supplier Itron Inc. has launched a new restructuring initiative to make the most of its expanded enterprise, which also includes demand-response specialist Comverge, and convert its burgeoning business into more profitable opportunities.

Announced Feb. 28, the up to $110 million restructuring plan targets annual savings of $45 million to $50 million by optimizing Itron's supply chain, manufacturing and product development, with most of the pretax charges hitting the books in the first quarter of 2018. The company did not say how many employees could be affected but noted that most of the charges would go toward severance and termination benefits.

"The restructuring plan we announced today underscores our continued commitment to business predictability, profitability and growth," CEO Philip Mezey told analysts on a conference call discussing the company's fourth-quarter 2017 and full-year results. Scheduled for completion by the end of 2020, the plan, together with synergies from Itron's acquisitions, support the company's aim to push its profits "beyond mid-teens EBITDA," he added, the company's targeted profit "run rate" by the end of 2018.

Itron entered this year with a backlog of roughly $3 billion, including $1.2 billion from Silver Spring. Itron's preacquisition backlog of $1.75 billion, up 6% from the end of 2016, included $1.1 billion in its electricity business. The company has contracts to supply smart meters, distributed energy management systems, analysis software, and other products and services to major utilities including Avangrid Inc., Duke Energy Corp., National Grid plc, Pepco Holdings LLC and Xcel Energy Inc. Gas and water products and services make up the remainder of the backlog, which does not include an additional $325 million of recently contracted business, the CEO said.

As it restructures, Itron expects to harness additional benefits from federal tax reform, CFO Joan Hooper added, citing a "beneficial impact" from the company's anticipated non-GAAP effective tax rate in 2018 of 28%, down from 35%. Itron, nevertheless, absorbed a $30 million charge in the fourth quarter of 2017 to recognize the tax law's estimated impact on its deferred tax assets, she said.

Itron is targeting adjusted earnings per share of $2.95 to $3.35 in 2018 on revenues of $2.33 billion to $2.43 billion, after posting adjusted income of $3.06 per share in 2017 on $2.02 billion in revenues.