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Will Elevated Costs Impair Pentair's (PNR) Q3 Earnings?

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Pentair plc (PNR - Free Report) is slated to report third-quarter 2018 results on Oct 23, before the market opens.

In the last reported quarter, Pentair’s adjusted earnings per share beat the Zacks Consensus Estimate by nearly 3%. Notably, the company delivered an average positive earnings surprise of 2.50% in the preceding four quarters.

Let’s see how things are shaping up prior to this announcement.

Pentair plc Price and EPS Surprise

 

Pentair plc Price and EPS Surprise | Pentair plc Quote

Key Factors to Consider

For the third quarter, Pentair guided adjusted EPS of 52 cents. The Zacks Consensus Estimate for earnings moved down roughly 22% over the last 90 days to 52 cents. In the quarter, Pentair’s segment income is anticipated to be flat, while Return on Sales (ROS) is expected to contract 50 basis points, mainly due to inflation, due to the impact of tariffs. Though the company has implemented price increases in the quarter under review,  the benefit will not be realized until fourth-quarter 2018.

Pentair projects revenues to be around $700 million in the third quarter, up around 1-2% on a reported basis and up 4-5% on a core basis, compared with third-quarter 2017. The Zacks Consensus Estimate for sales is pegged at $700 million. The guidance for the third quarter reflects the separation of its Electrical business in April 2018.

For segments, Pentair expects core sales for Aquatic Systems to be up 8-9%, for Filtration Solutions to be up 1-3% and for Flow Technologies to increase 2-3%.

In addition to the above, Pentair’s focus on investments, including technology upgrades, digital marketing campaigns, incremental sales resources and dealer tools will drive results in the September quarter. However, elevated costs pertaining to the separation of the Electrical business and the strengthening of the U.S. dollar might affect its performance.

Shares of the company have plummeted 45% in a year, significantly wider than the industry’s decline of roughly 12%.



 

Zacks Model

Our proven model does not show that Pentair is likely to beat earnings estimates this quarter. This is because a stock needs to have both — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Pentair has an Earnings ESP of -0.43% and carries a Zacks Rank #4 (Sell), which makes surprise prediction inconclusive.

As it is, we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks Poised to Beat Earnings Estimates

Here are some companies that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Tetra Tech, Inc. (TTEK - Free Report) has an Earnings ESP of +0.96% and a Zacks Rank #1. Its shares have gained 37% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.

Flowserve Corp. (FLS - Free Report) has an Earnings ESP of +1.72% and a Zacks Rank #2. The stock has gained 13% in a year’s time.

AptarGroup, Inc. (ATR - Free Report) has an Earnings ESP of +0.77% and a Zacks Rank #2. The company’s shares have been up 18% during the past year.

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