(Itron earnings story updated for Thursday trading)

NEW YORK ( TheStreet) -- Smart grid stock bellwether Itron ( ITRI) trounced the Street expectations in its after-market earnings report on Wednesday, with earnings per share of 98 cents on revenue of $569 million.

The Street was looking for 72 cents per share on $500 million in revenue from Itron.

Itron shares were up more than 8% in after-hours trading on Wednesday and it's off to the races with the smart grid stocks on Thursday, with shares racing ahead near 10% and surpassing average trading volume within an hour of the market open, with more than 600,000 shares traded.

"We are having a fantastic year with record financial results, strong bookings and record backlog," said Itron CEO Malcolm Unsworth.

The big earnings beat was a much needed one for the smart grid stock. Itron shares have suffered mightily this year -- down 15%. Last Thursday, in particular, shares slumped 7% after its competitor Esco ( ESE) announced that it was in the lead spot to win a coveted contract from Southern California Gas.

The Itron CEO said in the earnings release, "There were some disappointments with recent contract awards in North America. As we look forward, we are actively pursuing a variety of activities to enhance our competitive position in these areas."

Itron shares were up more than $5 on Thursday morning, erasing the losses from last week's headline disappointment when Esco announced its negotiations with Southern California Gas. Itron shares had fallen from over $62 to under $55 on the news last week, and on Thursday morning were above $63.

North America revenue of $303 million for the second quarter was 112% higher than the same quarter 2009. The increase in revenues in 2010 was primarily driven by higher shipments of OpenWay meters and modules -- 1.2 million -- in the deal that Itron has with Detroit Edison.

International revenue of $266 million for the second quarter of 2010 was 2% lower than the same quarter last year, but the depreciation of the euro in the second quarter was the primary culprit.

Itron also announced two relatively small deals in New Mexico ahead of its earnings.

Steve Charest, analyst at Divine Capital, said the deals announced earlier in Wednesday and the earnings don't make up for the disappointment of the So Cal Gas loss, but shipping 1.2 million meters in the Detroit Edison deal, and the overall level of bookings in the quarter was impressive.

The big earnings beat from Itron doesn't answer questions about the future, though. The Divine Capital analyst said his longer-term concern is not about getting orders in, but getting some "home runs with base hits in between." The New Mexico deal announced on Wednesday was more like a base hit or two.

Additionally, Itron is going to have to prove that it can maintain healthy profit margins, in the opinion of the Divine Capital analyst. Costs are coming down with the improvements in smart meter manufacturing and Itron's gross margins in this quarter were driven by scale, and came down again. "They had higher margins than I expected, but only because of volume and absorbing their business overhead."

Itron gross margins of 31% for the second quarter were lower than 2009 gross margins of 32.2%.

North American gross margins of 34% were lower than the 2009 gross margins of 34.9%.

Itron said the decline in gross margins was primarily due to increased shipments of our higher cost first generation OpenWay meters and increased service revenues, which have lower margin.

In international, gross margins of 27.5% for the quarter were lower than 2009 gross margins of 30.7% due to increased warranty expense.

-- Written by Eric Rosenbaum from New York.

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