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Why Is Pentair (PNR) Up 3% 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 nearly 3% in that time frame, underperforming 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 its most recent earnings report in order to get a better handle on the important drivers.

Pentair  Beats on Q4 Earnings; Sales Miss Estimates

Pentair reported fourth-quarter 2016 adjusted earnings of $0.78 per share, a 11.4% decline from $0.88 in the year-ago quarter. Earnings, however, beat the Zacks Consensus Estimate of $0.73.

Including one-time items, the company reported earnings of $0.60 per share, up 3.4% from $0.58 in the year-ago quarter.

Net sales decreased 8% year over year to $1.118 billion and also fell short of the Zacks Consensus Estimate of $1.21 billion. Excluding the unfavorable impact of currency translation, core sales declined 7%.

Cost of sales fell 12.7% to $748 million in the quarter from $856.5 million in the year-ago quarter. Gross profit in the reported quarter was $440 million, up 1.7% from $432.5 million in the prior-year quarter. Gross margin expanded 340 basis points (bps) year over year to 37% in the quarter.

Selling, general and administrative expenses climbed 7% year over year to $251 million. Research and development expenses rose 3% to $27 million. Adjusted operating income went down 11% to $204 million from $228 million in the year-ago quarter. Operating margin contracted 50 bps to 17.2%.

Segmental Performance

Sales from the Water Quality Systems segment inched up 1.7% year over year to $371 million. Operating earnings increased 2.5% to $83 million.

The Flow & Filtration Solutions segment reported revenues of $314 million, down 11.3% from the year-earlier quarter. Segment operating earnings were down 10.6% year over year to $36.2 million.

Revenues in the Technical Solutions segment fell 11.7% to $507 million. Operating earnings declined 20.8% year over year to $103 million.

Financial Update

At the end of 2016, Pentair had cash and cash equivalents of $238.5 million, up from $126 million at the end of 2015. Cash flow from operations came in at $702 million in 2016 compared with $597.7 million in 2015.

Free cash flow from continuing operations for full-year 2016 was $609 million compared with $511 million in 2015. Pentair paid dividends of $0.34 per share in fourth-quarter 2016. In Dec 2016, Pentair approved a 3% hike in the annual cash dividend rate for 2017 to $1.38.  

2016 Performance

Pentair reported adjusted earnings per share of $3.05 in 2016, down 7.8% from $2.83 per share recorded in the prior year. Earnings beat the Zacks Consensus Estimate by a penny. Including one-time items, the bottom line came in at $2.47, down 13.8% from $2.17 recorded in 2015.

Revenues grew 6% year over year to $4,890 million from $4,616 million in 2015. Revenues missed the Zacks Consensus Estimate of $5,093 million.

Guidance

Pentair initiated its 2017 guidance. The company expects adjusted EPS in the range of $3.45–$3.55 on the back of revenues of approximately $4.7 billion. It also guided first-quarter 2017 adjusted EPS of approximately $0.61. The company projects first-quarter revenue to be approximately $1.14 billion, which would be down approximately 4% on a reported and core basis compared to first-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 two downward revisions for the current quarter.

Pentair PLC. Price and Consensus

 

Pentair PLC. Price and Consensus | Pentair PLC. Quote

VGM Scores

At this time, Pentair's stock has an average Growth Score of 'C', however its Momentum is doing a bit better with a 'B'. Charting a somewhat similar path, the stock was allocated a grade of 'C' on the value side, putting it in the middle 20% for this investment strategy.

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

Our style scores indicate that the stock is more suitable for momentum investors than value and growth investors.

Outlook

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


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