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Pentair (PNR) Beats Q3 Earnings, Q4 Guidance Disappoints

Zacks Equity Research

Pentair plc PNR reported third-quarter 2016 adjusted earnings of 78 cents per share, an improvement of around 11% from 70 cents in the year-ago quarter and beat the Zacks Consensus Estimate of 73 cents.

Including one-time items, the company reported earnings of 64 cents per share, surging 23% from 52 cents in the year-ago quarter.

Net sales, increased 9% year over year to $1.211 billion, but fell short of the Zacks Consensus Estimate of $1.24 billion. Excluding the unfavorable impact of currency translation and positive contribution from acquisitions, core sales declined 2%.

Cost of sales grew 7% to $770 million in the quarter from $718 million in the year-ago quarter. Gross profit in the reported quarter was $441 million, up 11.7% from $395 million in the prior-year quarter. Gross margin expanded 90 basis points (bps) year over year to 36.4% in the quarter.

Selling, general and administrative expenses increased 5% year over year to $228 million. Research and development expenses rose 20% to $30 million. Adjusted operating income went up 15% to $216 million from $188 million in the year-ago quarter. Operating margin enhanced 110 bps to 17.9%.

Segmental Performance

Sales from the Water Quality Systems segment rose 2% year over year to $329 million. Operating earnings increased 15% to $70 million.

The Flow & Filtration Solutions segment reported revenues of $343 million, down 6% from the year-ago quarter. Segment operating earnings slumped 7% year over year to $50 million.

Revenues in the Technical Solutions segment jumped 26% to $543 million. Operating earnings surged 18% year over year to $119.6 million.

Financial Update

Pentair had cash and cash equivalents of $170.9 million at the end of third-quarter 2016 compared with $126 million at the end of 2015. Cash flow from operations came in at $460 million for the nine-month period ended Sept 30, 2016 compared with $355 million in the comparable year-ago period.

Free cash flow from continuing operations for the nine-month period ended Sept 30, 2016 was $389 million compared with $291.8 million in the prior-year period. The company anticipates delivering full year free cash flow of approximately 100% of adjusted net income in 2016. As of quarter end, Pentair’s long term debt dropped to $4.4 billion from $4.7 billion as of Dec 31, 2015.

Pentair had previously announced on Dec 8, 2015 that its Board of Directors had approved a 5% hike in the company`s regular annual cash dividend rate for 2016 to $1.34 from $1.28. This marks the 40th consecutive year that Pentair has raised its dividend.

Guidance

Pentair expects adjusted earnings per share of approximately $3.00 in 2016. Sales are projected at $4.9 billion, up approximately 7% on a reported basis and down approximately 1% on a core basis.

Further, the company initiated its fourth-quarter 2016 guidance. The company expects EPS to be around 73 cents, down approximately 17% year over year on an adjusted basis. Revenues are projected at around $1.22 billion, down both 6% on a reported basis as well as core basis compared to fourth-quarter 2015 revenues.

Other Updates

Pentair had previously announced that it entered into a Share Purchase Agreement to sell its Valves & Controls business to Emerson Electric Co. EMR for $3.15 billion in cash, subject to certain customary adjustments. The result of the Valves & Controls business, which was previously disclosed as a stand-alone reporting segment, is now considered as discontinued operations for all periods presented. The company anticipates completing the sale of the business at the end of this year or early next year.

PENTAIR PLC Price, Consensus and EPS Surprise

 

PENTAIR PLC Price, Consensus and EPS Surprise | PENTAIR PLC Quote

Zacks Rank

Pentair currently carries a Zacks Rank #4 (Sell). Some better-ranked stocks in the same sector are Worthington Industries, Inc. WOR and Harsco Corp. HSC. Worthington Industries delivered an average positive earnings surprise of 20.13% in the last four quarters. The company sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Harsco also sports Zacks Rank #1 and has delivered an average positive earnings surprise of 89.75% in the past four quarters.

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