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Pentair Ltd. (PNR - Analyst Report) reported third-quarter 2013 adjusted earnings of 86 cents per share, up 25% from the year-ago quarter. The results beat the Zacks Consensus Estimate by a penny. The year-over-year increase was driven by recovery of the residential market in North America and global food and beverage market, partially offset by a weaker Australian economy.

Earnings were at the upper end of the company’s guidance range of 83 to 87 cents. On a reported basis, earnings came in at 85 cents per share compared with 31 cents in the prior-year quarter. Both quarters’ earnings include acquisition related expenses, repositioning costs and certain tax items.

Operational Update

Net sales declined 2% year over year to $1.8 billion. The results managed to surpass the Zacks Consensus Estimate of $1.9 billion. Adjusted operating income jumped 15% to $249 million from the year-ago quarter. Operating margin increased 210 basis points to 13.6%.

Segment Performance

Net sales in the Water & Fluid Solutions segment amounted to $814 million, up 1% year over year.  Segment adjusted operating profit rose 28% to $109 million from $86 million in the year-ago quarter.

The Valves & Controls segment reported revenues of $612 million, down 1% from the year-ago quarter. Adjusted operating earnings were $80 million, a 15% increase from the prior-year quarter. Backlog declined 1% year over year to $1.4 billion.

Revenues in the Technical Solutions segment decreased 8% year over year to $406 million. However, adjusted operating profit grew 4% to $84 million from the year-ago quarter.

Financial Update

As of Sep 28, 2013, Pentair had cash and cash equivalents of $238 million, down from $261 million as of Dec 31, 2012. Total debt of the company increased to $2.6 billion as of Sep 28, 2013 from $2.5 billion as of Dec 31, 2012.

Total cash flow provided by operating activities was $630 million for the nine month period ended Sep 28, 2013, compared with $247 million in the comparable period last year. Free cash flow in the reported quarter was $206 million.

Outlook

Pentair narrowed its adjusted earnings per share guidance from $3.15 - $3.25 to $3.19 - $3.21 for the full-year 2013. The company lowered sales outlook from $7.5 billion to $7.4 billion for 2013. Pentair also expects to generate free cash flow in excess of 100% of net income in 2013.

Moreover, Pentair predicts fourth-quarter 2013 adjusted earnings per share in the range of 83 to 85 cents per share. Fourth-quarter revenue is expected to be approximately $1.8 billion. The company expects synergies from repositioning actions and functional standardization efforts to the tune of $120 million for the full year of 2013 and $42 million in the fourth quarter.

Pentair anticipates strong double-digit adjusted EPS growth for the full year. The adoption of Pentair Integrated Management System (PIMS) in the Flow Control businesses will help in margin expansion. However, overall economic uncertainty and ongoing European weakness continue to act as headwinds for the company.

Pentair delivers industry-leading products, services and solutions for fulfilling customers’ diverse needs related to water and other fluids, thermal management and equipment protection. Pentair employs more than 30,000 people worldwide.

Pentair currently retains a short-term Zacks Rank #3 (Hold).

Other stocks in the industrial products sector currently performing well include Rexnord Corp. (RXN - Analyst Report) and AO Smith Corp. (AOS - Snapshot Report) both with Zacks Rank #1 (Strong Buy), and EnerSys (ENS - Snapshot Report) carrying a Zacks Rank #2 (Buy).

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