Shares of Pentair Ltd. PNR slid 1.9% and closed at $64.46 yesterday after the company lowered its earnings and revenue guidance for first-quarter fiscal 2015. The company lowered its outlook citing the negative impacts of a stronger dollar, slower-than-expected oil and gas shipments, decrease in global capital spending and inventory de-stocking.
Pentair curtailed its first-quarter sales outlook to $1.48 billion from the previous projection of $1.6 billion. The company also trimmed its earnings per share guidance for the quarter to 65 cents from the earlier range of 75 to 77 cents. However, Pentair will take necessary actions in the second quarter to drive growth in 2015 and beyond.
Pentair anticipates sales to remain challenging in the upcoming quarter due to uncertainties surrounding the significant and rapid decline in oil prices. Apart from the drop in oil prices, economic uncertainty and currency volatility also led to the guidance cut.
Pentair’s fourth-quarter 2014 adjusted earnings improved 23% year over year led by robust margin expansion as well strong internal execution, though net sales dipped 2% to $1.8 billion due to unfavorable impact of currency translation. Pentair remains cautious about factors specific to each of major end-markets which may negatively affect the capital spending plans of its customers and resulting in lower sales volumes.
Oil & gas trends remain volatile, particularly in upstream applications where Pentair expects continued pressure from declining oil prices which will affect its Energy vertical. Given low inflationary environment, projects are being released at a slower pace which will hurt growth. Valves growth will also likely remain under pressure in 2015.
Pentair will benefit from improvement in the North American residential market and the industrial vertical, synergies from the Tyco merger and share repurchases. However, the current economic environment will result in continued price volatility for raw materials. Power and mining demand trends are also weak. Moreover, short cycle risk in technical solutions, strong competition and pricing risk 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 stocks in the industrial products sector include AO Smith Corp. AOS, Astec Industries, Inc. ASTE and Berry Plastics Group, Inc. BERY. All these stocks carry a Zacks Rank #2 (Buy).
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