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Pentair (PNR) Down 4.2% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for Pentair (PNR - Free Report) . Shares have lost about 4.2% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Pentair due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Pentair Q1 Earnings Meet, Sales Surpass Estimates

Pentair posted first-quarter 2019 adjusted earnings per share (EPS) of 43 cents, which met the Zacks Consensus Estimate. However, earnings were down 12% from the year-ago quarter’s figure of 49 cents and also fell short of the company’s guidance of 47-50 cents. Wet and cold weather delayed pool construction activities in several key markets, and impacted the higher-margin specialty agricultural spray business within the Flow Technologies segment.

Including one-time items, the company posted earnings of 30 cents per share compared with 32 cents reported in the year-ago quarter.

Net sales declined 6% year over year to $689 million. The figure surpassed the Zacks Consensus Estimate of $687 million.  Excluding the impact of acquisitions, divestitures and currency translation, core sales were down 4% in the reported quarter. Pentair’s earlier guidance of core sales growth was 4-5% year over year.

Cost of sales declined 5.4% to $453 million from $479 million in the year-ago quarter. Gross profit in the reported quarter was $236 million, down 7% from $253 million in the prior-year quarter.

Selling, general and administrative expenses amounted to $147 million, up from $142 million in the year-ago quarter. Research and development expenses went up 10% year over year to $21 million. Adjusted segmental operating income declined 16% year over year to $99 million.

Segmental Performance

Net sales in the Aquatic Systems segment declined around 8% year over year to $221 million. Operating earnings decreased 12.7% to $52 million.

Net sales in the Filtration Solutions segment totaled $239 million, down 5% from the prior-year quarter. Operating earnings remained flat at $34 million.

Net sales in the Flow Technologies segment totaled $229 million, down 5% from the year-earlier quarter. Segmental operating earnings declined 22% year over year to $30 million.

Financial Update

Pentair had cash and cash equivalents of $79 million as of Mar 31, 2019, up from $74.3 million as of Dec 31, 2018. The company used $257 million of cash in operations during the first quarter of 2019 compared with $194 million in the prior-year quarter.

Guidance

Considering the preliminary first-quarter results, on Apr 9, Pentair slashed earnings and sales guidance for the current year. The company reiterated adjusted EPS guidance of $2.30-$2.35. EPS, including special items, is expected to be $2.04-$2.09. Sales in 2019 will likely be up 1-2% on a reported basis and sales growth will be flat to up 1% on a core basis.

Pentair provided second-quarter 2019 adjusted earnings per share guidance at 63-66 cents. Sales in the quarter are anticipated to increase 1-2% on a reported basis and approximately flat to up 1% on a core basis compared with the prior-year quarter.

 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -8.32% due to these changes.

VGM Scores

Currently, Pentair has a poor Growth Score of F, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Pentair has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.


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