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Pentair Beats on Q3 Earnings, Updates 2015 EPS Guidance

Pentair plcPNR reported third-quarter 2015 adjusted earnings of 97 cents per share, down 12.6% year over year. Earnings were a penny ahead of the Zacks Consensus Estimate and at the high end of the company's guidance of 94 cents to 97 cents.

Including one-time items, earnings were 63 cents, down 37% from $1.00 in the year-ago quarter.

Pentair Inc. - Earnings Surprise | FindTheBest

Operational Update

Net sales declined 12% year over year to $1.552 billion due to an unfavorable currency translation impact of 7% along with a 5% decline in core sales. Revenues also fell short of management's guidance of $1.6 billion and the Zacks Consensus Estimate of $1.606 billion.

Cost of sales decreased 11% to $1.01 billion in the third quarter from $1.13 billion in the year-ago quarter. Gross profit in the reported quarter was $540 million, down 14% from $625 million in the prior-year quarter. Gross margin contracted 70 basis points (bps) year over year to 34.8% in the quarter.

Adjusted operating income decreased 16% to $249 million from $296 million in the year-ago quarter. Operating margin decreased 70 bps to 16.1%.

Segmental Performance

Net sales in the Valves & Controls segment amounted to $441 million, down 28% year over year. Core sales fell 18% and unfavorable currency translation impact was of 10%. Backlog decreased 3% sequentially to $1.2 billion. Sales in the Energy vertical (60% of the segment sales) decreased 17%. Sales to the oil & gas industry decreased 17% and to the power industry declined 18%. Sales to the mining industry went down 30%. Sales in the Industrial vertical (balance 40% of the segment's sales) decreased 18%. Segment operating profit declined 48% to $56 million from $108 million in the year-ago quarter.

The Flow & Filtration Solutions segment reported revenues of $363 million, down 8% from the year-ago quarter as core sales declined 1% and negative foreign currency had an impact of 7%. Sales in the Residential & Commercial vertical decreased 5%, whereas sales in the Food & Beverage vertical increased 11%. Sales in the Infrastructure vertical increased 6% and in the Industrial vertical decreased 19%. Segment operating earnings declined 1% year over year to $53 million.

Sales from the Water Quality Systems segment decreased 1% year over year to $322 million as a 3% increase in core sales was offset by negative foreign currency translation impact of 4%. Sales in the Residential & Commercial vertical increased 4%. Sales in Food & Beverage verticals remained flat year over year. Operating earnings increased 8% to $61 million.

Revenues in the Technical Solutions segment declined 1% to $432 million. Core sales growth of 2% and contribution of 3% from acquisitions were offset by a negative impact of 6% from foreign currency translation. Sales in the Infrastructure vertical increased 17% while sales in both Energy and Residential & Commercial verticals grew 9% each. However, sales in the infrastructure vertical declined 1%. Operating earnings remained flat at $101 million.

Financial Update

As of Sep 30, 2015, cash and cash equivalents were $145 million, up from $110 million as of Dec 31, 2014. The company recorded cash inflow from operating activities of $403 million in the first nine months of 2015 compared with $688 million in the prior-year period.

Total debt of the company increased to $4.99 billion as of Sep 30, 2015 from $4.66 billion as of Dec 31, 2014. The company's debt-to-total-capital ratio was 52.4% as of Sep 30, 2015, compared with 39.2% as of Dec 31, 2014.

Guidance

Pentair updated its 2015 earnings per share guidance to a range of $3.84 to $3.86, up from the prior guidance of $3.80 to $3.90. The updated guidance excludes approximately 50 cents per share of non-cash amortization. Compared with the 2014 adjusted earnings per share of $4.23 (excluding 45 cents per share of non-cash amortization), this reflects an annual decline of around 9%. 2015 sales are projected at $6.4 billion, down approximately 9% year over year on a reported basis and down 4% on a core basis.

Pentair initiated its fourth-quarter 2015 guidance. The company expects earnings per share in the range of $1.03 to $1.05 on the back of revenues of approximately $1.7 billion. Earnings will decline approximately 10% to 12% year over year while revenues would be down approximately 3% on a reported basis and down 5% on a core basis, excluding the impact from foreign currency translation and acquisitions, compared with fourth-quarter 2014 revenues.

Pentair will continue to aggressively manage its cost structure and drive productivity to work through near-term challenges. It is also investing in its high-performing Technical Solutions and Water Quality Systems segments where it sees strategic organic and inorganic growth opportunities. Pentair's acquisition of ERICO will be highly accretive to 2016 earnings. However, Pentair's energy-related businesses will remain challenged through the rest of 2015, given the slump in oil prices . Moreover, a stronger US dollar, and weakness in the Valves and Controls segment will have a negative impact on Pentair's results.

Pentair currently carries a Zacks Rank #2 (Buy). Some other stocks worth considering in the industrial products sector include ACCO Brands Corporation ACCO , Global Brass and Copper Holdings, Inc. BRSS and Columbus McKinnon Corporation CMCO . All of these stocks carry a Zacks Rank #1 (Strong Buy).

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PENTAIR PLC (PNR): Free Stock Analysis Report

ACCO BRANDS CP (ACCO): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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