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Pentair (PNR) Down 3.7% Since Earnings Report: Can It Rebound?

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About a month has gone by since the last earnings report for Pentair plc (PNR - Free Report) . Shares have lost about 3.7% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? 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 catalysts.

Pentair Posts In-Line Q2 Earnings, Updates 2017 View

Pentair reported second-quarter 2017 adjusted earnings of $1.00 per share, up 13.6% from the year-ago quarter. Earnings came in line with the Zacks Consensus Estimate. The figure also came ahead of management’s guidance range of $0.97–$0.99.

Including one-time items, the company reported earnings of $0.37 per share, down 49% from $0.73 recorded in the year-ago quarter.

Net sales decreased 3% year over year to $1.265 billion. The figure marginally missed the Zacks Consensus Estimate of $1.269 billion. Excluding the unfavorable impact of currency translation, core sales declined 3%.

Cost of sales declined 4.6% to $782 million in the quarter from $819.4 million recorded in the year-ago quarter. Gross profit in the reported quarter was $483.2 million, up 0.3% from $481.8 million recorded in the prior-year quarter. Gross margin expanded 120 basis points (bps) year over year to 38.2% in the quarter.

Selling, general and administrative expenses dropped 3.2% year over year to $241.7 million. Research and development expenses remained flat year over year at $28.7 million. Adjusted operating income went up 6% to $255 million from $241 million recorded in the year-ago quarter. Operating margin advanced 170 bps to 20.2%.

Segmental Performance

Sales from the Water Quality Systems segment edged down 1% year over year to $753.7 million. Operating earnings increased 4.8% to $161 million.

The Electrical segment reported revenues of $513.2 million, down 5% from the year-earlier quarter. Segment operating earnings were up 1% year over year to $112.8 million.

Financial Update

Pentair had cash and cash equivalents of $177.8 million at the end of second-quarter 2017 compared with $238.5 million at the end of 2016. The company recorded cash from operations of $210.9 million for the six-month period ended Jun 30, 2017, compared with $320.9 million recorded in the comparable period last year.

Free cash flow usage was $177 million for the six-month period ended Jun 30, 2017, compared with $264.5 million in the prior-year period. Pentair paid dividends of $0.345 per share in second-quarter 2017. In Dec 2016, Pentair approved a 3% hike in the annual cash dividend rate for 2017 to $1.38.

During the second quarter, Pentair successfully completed the previously announced sale of its Valves & Controls business, and with the proceeds reduced its debt by approximately $3 billion.

Pentair previously announced that its board of directors had unanimously approved a plan to separate into it two publicly-traded companies. Significant work is underway on all activities leading to the separation of its Water and Electrical businesses. The separation is expected to occur through a tax-free spin-off of Electrical segment by Pentair to its shareholders in second-quarter 2018.

Guidance

Pentair updated its full-year 2017 adjusted EPS guidance to $3.50 on the back of revenues of $4.9 billion. It also guided third-quarter 2017 adjusted EPS guidance range of $0.91–$0.93. The company expects third-quarter 2017 revenue to be approximately $1.22 billion, up approximately 1% on a reported and core basis compared to third-quarter 2016 revenue. Pentair is targeting to deliver full-year free cash flow of 100% of adjusted net income.

How Have Estimates Been Moving Since Then?

Analysts were quiet during the past month as none of them issued any earnings estimate revisions.

Pentair PLC. Price and Consensus

 

Pentair PLC. Price and Consensus | Pentair PLC. Quote

VGM Scores

At this time, the stock has an average Growth Score of C, while Momentum is lagging a lot with an F. 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.

Based on our scores, the stock is equally suitable for value and growth investors.

Outlook

The stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.




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