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Pentair Offers 2016 View; Shares Fall on Segmental Concerns

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On Dec 17, Pentair plcPNR provided full-year guidance for 2016 as well as reaffirmed outlook for 2015. Shares fell around 2.8% on Friday as the company highlighted the challenges currently faced by its Valve & Control segment that are likely to persist in the near term. Further, low oil prices , unfavorable foreign exchange and softness in industrial and infrastructure verticals will continue to weigh on Pentair's results.

Pentair affirmed fourth-quarter 2015 adjusted earnings per share ("EPS") in the range of $1.03-$1.05, down 10-12% year over year. The company also maintained its full-year 2015 adjusted EPS outlook within $3.84-$3.86, which represents a decrease of 9% from 2014 adjusted EPS of $4.23.

Notably, Pentair initiated full-year 2016 outlook with an adjusted EPS range of $4.05-$4.25, which represents an increase of 5-10% from the mid-point of 2015 adjusted EPS outlook. The company guided 2016 sales at approximately $6.6 billion; an increase of 3%, comprising a 6% positive contribution from acquisitions compared with estimated 2015 sales. However, 2016 sales will include a 2% decline in core sales and a 1% foreign exchange headwind compared with 2015 sales.

Pentair expects to generate over $750 million in free cash flow or approximately 100% of adjusted net income in 2016. The company is poised to benefit from the integration of ERICO. Further, the Food & Beverage and Residential & Commercial verticals continue to show favorable prospects. Pentair will also remain focused on modification of its organizational structure.

Further, the company will continue to aggressively manage its cost structure and drive productivity to counter the near-term challenges. However, Pentair remains wary about its Valves & Controls segment which is facing constant issues in the various industries served.

Pentair's Valves & Controls segment constituted 34% of total revenue for the year ended Dec 31, 2014. Valves & Controls products are used in many applications including chemical, petrochemical, oil & gas, power generation, mining, food & beverage, pulp & paper and wastewater. However, Pentair anticipates most of its energy-related businesses to remain challenged in 2015, given the slump in oil prices.

In addition, Pentair's core orders declined 12% in the third quarter of 2015 in Valve & Control segment, as orders were down in three of the four sub-verticals. Currency translation continues to produce a negative impact. Amid global economic uncertainty, customers continue to re-evaluate existing projects in their pipelines, and therefore, the company does not expect orders to improve during 2015.

Pentair currently carries a Zacks Rank #3 (Hold).

Better-ranked stocks in the industrial products sector include Lakeland Industries Inc. LAKE , John Bean Technologies Corporation JBT and Energy Recovery, Inc. ERII . All these stocks carry a Zacks Rank #2 (Buy).

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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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