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Pentair Bets on New Products, Business Restructuring Efforts

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On Nov 6, we issued an updated research report on Pentair plc PNR. The company will gain from launch of new products, acquisitions and investments in sync with its growth initiatives of advancing pool growth, and accelerating residential and commercial water treatment.


Sound Q3 Results


Pentair delivered third-quarter 2018 adjusted earnings of 54 cents per share, up around 10% from the year-ago quarter’s tally. Further, the figure beat management’s previous guidance and the Zacks Consensus Estimate of 52 cents.


Upbeat Fiscal 2018 Guidance


Pentair revised 2018 adjusted earnings per share guidance to around $2.33 from the previous expectation of roughly $2.31 driven by improved operating performance in the third quarter and the impact of share repurchases. This marks the second consecutive quarter that the company has raised guidance. This can be attributed to healthy end markets and continued execution across its portfolio. Sales for the year are now projected at $2.96 billion, up from the previous guidance of $2.95 billion. Revenues are expected to be up 4% and 5% on a reported and core basis over 2017, respectively.


Restructuring Initiatives to Aid Margins


During fiscal 2017 and the first nine months of fiscal 2018, Pentair underwent certain business restructuring initiatives aimed at reducing fixed cost structure and began realigning business. These actions will contribute to aid growth in 2018 and 2019. Further, productivity improvement and price hikes implemented to combat higher input costs will aid results.


Poised for Long-Term Growth Post Electrical Business Separation


Pentair has completed the separation of its Electrical business, which is now nVent Electric plc NVT. Pentair is now operating as a leading global water company focused on smart and sustainable solutions. With well-recognized brands, attractive margin profiles, strong free cash flow generation prospects and opportunities, both the companies are poised for long-term sustainable growth.


The company has reduced debt levels with the cash received as part of the nVent spin-off. Pentair’s long-term debt has gone down to $799 million as of Sep 30, 2018 from $1.4 billion as of Dec 31, 2018. With strong free cash flow expected for the remainder of the year and low-debt levels, the company is well positioned to invest in the business along with strategically exploring tuck-in or bolt-on acquisition targets. These buyouts are in sync with its key growth initiatives of advancing pool growth, and accelerating residential and commercial water treatment.


Investment in Business, Products to Fuel Growth


Pentair plans to make incremental investments in the Aquatic Systems business in order to improve growth rate. The company intends to expand aftermarket product offering and expand presence in the rapidly growing automation space. The company continues to increase its new product introductions, inclusive of smart technologies, and has launched two new automation systems. Less than 10% of the 5 million installed in-ground pools currently have some form of automation system, consequently representing ample opportunities for growth. Further, there are many other energy efficient products in areas like lighting, heating and cleaning that present significant runway for growth. The company’s investments include technology upgrades, digital marketing campaigns, incremental sales resources, dealer tools, and working on value propositions and alternative channel support.


Pentair also plans to accelerate residential and commercial filtration. The company is a leader in residential water treatment components. The company intends to enhance dealer loyalty in the business similar to its previous success in pool business. The majority of water treatment dealers are not affiliated by brand and consequently an opportunity exists to drive higher demand of its products through a loyal dealer network. The company also has plans to expand in China and Southeast Asia.


Pentair belongs to the Zacks Manufacturing - Thermal Products industry along with other players like John Bean Technologies Corporation JBT and Zebra Technologies Corporation ZBRA.


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