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Why Is Pentair (PNR) Up 2.5% Since the Last Earnings Report?

Zacks Equity Research

It has been about a month since the last earnings report for Pentair PLC PNR. Shares have added about 2.5% in that time frame, outperforming the market.

Will the recent positive trend continue leading up to the stock’s next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Pentair Beats on Q1 Earnings and Revenue Estimates

Pentair reported first-quarter 2017 adjusted earnings of $0.65 per share, a 6.6% increase from the year-ago quarter. Earnings also beat the Zacks Consensus Estimate of $0.61.

Including one-time items, the company reported earnings of $0.44 per share, down 12% from $0.50 recorded in the year-ago quarter.

Net sales decreased 1% year over year to $1.184 billion. However, the figure surpassed the Zacks Consensus Estimate of $1.141 billion. Excluding the unfavorable impact of currency translation, core sales declined 1%.

Cost of sales advanced 0.3% to $761 million in the quarter from $758.7 million in the year-ago quarter. Gross profit in the reported quarter was $422.3 million, down 2% from $431.3 million recorded in the prior-year quarter. Gross margin contracted 50 basis points (bps) year over year to 35.7% in the quarter.

Selling, general and administrative expenses inched up 1.6% year over year to $253.9 million. Research and development expenses rose 5.3% to $30 million. Adjusted operating income went up 3% to $184 million from $182 million in the year-ago quarter. Operating margin expanded 20 bps to 15.5%.

Segmental Performance

Sales from the Water Quality Systems segment climbed 2.6% year over year to $682.9 million. Operating earnings increased 14.6% to $116 million.

The Electrical segment reported revenues of $502.2 million, down 4.3% from the year-earlier quarter. Segment operating earnings were down 8.2% year over year to $103.5 million.

Financial Update

Pentair had cash and cash equivalents of $238 million at the end of first-quarter 2017 compared with $238.5 million at the end of 2016. The company recorded cash used for operating activities of $88.7 million in the reported quarter compared with cash usage of $17.7 million recorded in the prior-year quarter.

Free cash flow usage in first-quarter 2017 was $112 million compared with cash flow usage of $45 million in the year-ago quarter. Pentair paid dividends of $0.345 per share in first-quarter 2017. In Dec 2016, Pentair approved a 3% hike in the annual cash dividend rate for 2017 to $1.38.

Pentair previously announced that it has entered into a Share Purchase Agreement to sell its Valves & Controls business to Emerson Electric for $3.15 billion, subject to certain customary adjustments. The results of the Valves & Controls business, which were previously reported as a stand-alone reporting segment, have been presented as discontinued operations for all periods.

Guidance

Pentair reaffirmed its full-year 2017 adjusted EPS guidance range of $3.45–$3.55. The company raised the outlook for full-year revenues to approximately $4.8 billion from the prior view of $4.7 billion. It also guided second-quarter 2017 adjusted EPS guidance range of $0.97–$0.99. The company projects second-quarter revenues to be approximately $1.24 billion, which would be down approximately 5% on a reported and core basis compared to second-quarter 2016 revenues.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed a downward trend in fresh estimates. There have been six downward revisions for the current quarter compared to one upward.

Pentair PLC. Price and Consensus

 

Pentair PLC. Price and Consensus | Pentair PLC. Quote

VGM Scores

At this time, Pentair's stock has a poor Growth Score of 'F', a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of 'D' on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of 'F'. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate investors will probably be better served looking elsewhere.

Outlook

Estimates have been broadly trending downward for the stock. The magnitude of these revisions also indicates a downward shift. Interestingly, the stock has a Zacks Rank #3 (Hold). We are expecting an in line return from the stock in the next few months.


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