Pentair (PNR) Q1 Earnings Top, Provides View Post Separation
Pentair plc PNR delivered first-quarter 2018 adjusted earnings of 88 cents per share, up 35% from the year-ago quarter. Earnings came ahead of the Zacks Consensus Estimate of 83 cents as well as management’s guidance of 81-83 cents. The company is on track for the separation into two industry-leading pure-play Water and Electrical companies on Apr 30 that will enhance shareholder value and allow both companies to focus on their independent strategies. Including one-time items, the company reported earnings of 58 cents per share, up 32% from 44 cents recorded in the year-ago quarter.
Net sales went up 7% year over year to $1.27 billion. The figure outpaced the Zacks Consensus Estimate of $1.25 billion. Excluding the impact of currency translation and acquisitions, core sales improved 4%.
Cost of sales climbed 6% to $808 million in the quarter from $761 million recorded in the year-ago quarter. Gross profit in the reported quarter was $462 million, up 9% from $422 million recorded in the prior-year quarter. Gross margin expanded 70 basis points (bps) year over year to 36.4% in the quarter.
Selling, general and administrative expenses flared up 11% year over year to $280 million. Research and development expenses remained flat at $30 million. Adjusted segment operating income increased 13% to $210 million from $186 million recorded in the year-ago quarter. Operating margin advanced 90 bps to 16.6%.
Pentair plc Price, Consensus and EPS Surprise
Pentair plc price-consensus-eps-surprise-chart | Pentair plc Quote
Segmental Performance
Sales from the Water Quality Systems segment rose 7% year over year to $732 million. Operating earnings increased 14% to $133 million.
The Electrical segment reported revenues of $539 million, up 7% from the year-earlier quarter. Segment operating earnings inched up 2% year over year to $106 million.
Financial Update
Pentair had cash and cash equivalents of $908 million at the end of first quarter 2018 end, a substantial improvement from $113 million recorded at the end of 2017. The company used cash from operations of $167 million in the reported quarter compared with $89 million recorded in the prior-year quarter.
Pentair stated that it expects to complete the previously announced tax-free spin-off of its Electrical business to its shareholders on Apr 30, 2018.
On Dec 5, 2017, the company announced that its Board of Directors approved a 1% hike in the company's annual cash dividend for 2018 to $1.40. The year 2018 will mark the 42nd consecutive year that Pentair has increased dividend.
Guidance
Pentair expects adjusted earnings per share between $2.25 and $2.30 for fiscal 2018. Sales are projected at $2.96 billion, up 3-4% on a reported and core basis over 2017.
Pentair initiated second-quarter adjusted earnings per share guidance range of 67-69 cents. Sales is expected to be around $0.79 billion, up 4 to 5% on a reported basis and up 3-4% on a core basis compared with second-quarter 2017. Both the guidance ranges reflect the anticipated separation of its Electrical business, nVent Electric plc, on Apr 30, 2018.
Pentair has underperformed the industry with respect to price performance over the past year. The stock has gained 16%, while the industry recorded growth of 29%.
Zacks Rank & Key Picks
Pentair currently carries a Zacks Rank #3 (Hold).
Better-ranked stocks in the same space include Axon Enterprise, Inc. AAXN, H&E Equipment Services, Inc. HEES and Alarm.com Holdings, Inc. ALRM. All three stocks flaunt a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Axon Enterprise has an expected long-term earnings growth rate of 25%. Its shares have appreciated 88% in a year’s time.
H&E Equipment Services has an expected long-term earnings growth rate of 14%. The company’s shares have gained 72% over the past year.
Alarm.com Holdings has an expected long-term earnings growth rate of 16%. Its shares have gained 35% over the past year.
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