Pentair plc (PNR) reported fourth-quarter 2014 adjusted earnings of $1.06 per share, up 23% year over year and ahead of the Zacks Consensus Estimate of $1.03 per share. The improvement was driven by robust margin expansion as well strong internal execution.
Earnings came within the company’s guidance range of $1.02 to $1.04. Including one-time items, earnings stood at 74 cents versus 81 cents in the year-ago quarter.
Operational Update
Net sales dipped 2% year over year to $1.8 billion due to unfavorable impact of currency translation. Excluding the impact of currency translation, core sales grew 2% in the quarter. Revenues fell short of the Zacks Consensus Estimate of $1.87 billion as well as management's guidance of $1.86 billion.
Cost of sales decreased 3% to $1.16 billion in the fourth quarter from $1.2 billion in the year-ago quarter. Gross profit in the reported quarter was $641 million, up 2% compared with $630 million in the prior-year quarter. Gross margin expanded 120 basis points (bps) year over year to 35.6% in the quarter.
Adjusted operating income increased 10% to $274 million from $249 million in the year-ago quarter. Operating margin increased 160 bps to 15.2%.
Segmental Performance
Net sales in the Valves & Controls segment amounted to $613 million, down 6% year over year. Sales in the Energy vertical (60% of the segment sales) decreased 3%. Sales to the oil & gas industry decreased 5%, while sales to the power and mining industry remained flat. Sales in the Industrial vertical (balance 40% of the segment’s sales) increased 1%. Segment operating profit rose 30% to $103 million from $79 million in the year-ago quarter.
The Process Technologies segment reported revenues of $480 million, up 2% from the year-ago quarter. Sales in the Residential & Commercial vertical increased 5%. Sales in the Food & Beverage vertical also went up 7%. Segment operating earnings remained flat year over year at $67 million.
Sales from the Flow Technologies segment decreased 6% year over year to $250 million. Sales in the Residential & Commercial vertical increased 1%. However, the Infrastructure, Industrial and Food & Beverage verticals posted respective declines of 13%, 10% and 6%. Operating earnings, however, increased 5% year over year to $26 million.
Revenues in the Technical Solutions segment grew 3% year over year to $465 million. Sales in the industrial vertical increased 6% and in the Residential & Commercial vertical grew 11%. In addition, sales increased 12% in the Energy vertical. Operating profit increased 7% year over year to $106 million from $99 million in the year-ago quarter.
Fiscal 2014 Performance
Pentair reported adjusted earnings of $3.78 per share, up 24% year over year. Earnings outpaced the Zacks Consensus Estimate of $3.75 as well as management’s guidance of $3.72–$3.74. Including special items, earnings in fiscal 2014 was at $3.18 compared with $2.50 in the prior fiscal year.
Pentair’s sales edged up 1% to $7.04 billion, falling short of both the Zacks Consensus Estimate of $7.121 billion as well as management’s guidance of $7.1 billion.
Financial Update
As of Dec 31, 2014, cash and cash equivalents were $110 million, down compared with $256 million as of Dec 31, 2013. The company recorded cash flow from operating activities of $1 billion in fiscal 2014, compared with $931 million in the prior fiscal. Free cash flow was $889 million in fiscal 2014 compared with $767 million in fiscal 2013.
Total debt of the company increased to $3 billion as of Dec 31, 2014 from $2.55 billion as of Dec 31, 2013. The company’s debt-to-total-capital ratio stood at 39% as of Dec 31, 2014, compared with 29% as of Dec 31, 2013.
In Dec 2014, Pentair announced that its board of directors has approved a 16% increase in its annual dividend to $1.28 from $1.10. This marks the 39th consecutive year of dividend increase.
Guidance
Pentair lowered its fiscal 2015 EPS guidance from the previous range of $4.20 – 4.35 to $4.10 – $4.25, citing unfavorable impact of foreign currency translation. Compared with the fiscal 2014 adjusted EPS of $3.78, this reflects an annual growth of 8% to 12%. Fiscal 2015 sales are projected at $6.9 billion, lower than $7.039 billion in fiscal 2014.
Pentair also initiated its first-quarter fiscal 2015 guidance. The company expects EPS in the range of 75 to 77 cents on the back of revenues of approximately $1.6 billion
Pentair will benefit from improvement in the North American residential market and the industrial vertical, synergies from the Tyco merger and share repurchases. However, lower orders in the Valve & Control segment, weakness in infrastructure and energy verticals, and soft agriculture markets remain headwinds.
Pentair delivers industry-leading products, services and solutions to meet diverse needs of customers related to water and other fluids, thermal management and equipment protection.
Pentair currently carries a Zacks Rank #3 (Hold). Some better-ranked in the industrial products sector include Advanced Emissions Solutions, Inc. (ADES), Casella Waste Systems Inc. (CWST) and Perma-Fix Environmental Services Inc. (PESI). All these stocks carry a Zacks Rank #2 (Buy).
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