Pentair Plc :PNR-US: Earnings Analysis: Q1, 2017 By the Numbers : April 27, 2017

Pentair Plc reports financial results for the quarter ended March 31, 2017.

We analyze the earnings along side the following peers of Pentair Plc – IDEX Corporation, Crane Co. and Dover Corporation (IEX-US, CR-US and DOV-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 1,183.50 million, Net Earnings of USD 80.70 million.
  • Gross margins widened from 31.60% to 35.68% compared to the same period last year, operating (EBITDA) margins now 17.30% from 15.39%.
  • Year-on-year change in operating cash flow of -606.67% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Earnings decline largely a result of non-operational activity, pretax margins improved from 8.58% to 8.75%.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2017-03-31 2016-12-31 2016-09-30 2016-06-30 2016-03-31
Relevant Numbers (Quarterly)
Revenues (mil) 1183.5 1188.1 1210.7 1733.3 1575.5
Revenue Growth (%YOY) -24.88 -32.52 -22 4.34 6.81
Earnings (mil) 80.7 109.6 117.5 142.8 107.4
Earnings Growth (%YOY) -24.86 124.23 2 -7.21 -9.14
Net Margin (%) 6.82 9.22 9.71 8.24 6.82
EPS 0.48 0.71 0.76 0.78 0.59
Return on Equity (%) 7.48 10.18 11.03 13.85 10.62
Return on Assets (%) 2.76 3.78 4.01 4.81 3.6

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Market Share Versus Profits

Revenues History
Earnings History

PNR-US‘s change in revenue this period compared to the same period last year of -24.88% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that PNR-US is holding onto its market share. Also, for comparison purposes, revenues changed by -0.39% and earnings by -26.37% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Leader, Earnings Focus, Laggard, Revenues Focus

Earnings Growth Analysis

The company’s year-on-year earnings decline did not come as a result of a contraction in gross margins or because of any cost control issues. Both gross margins and operating margins (EBITDA) margins actually improved over this time frame. Gross margins went from 31.60% to 35.68%, while operating margins improved from 15.39% to 17.30% over this period. For comparison, gross margins were 37.04% and EBITDA margins 18.45% in the immediate last period.

Gross Margin Versus EBITDA Margin

Quadrant label definitions. Hover to know more

Differentiated; Low Cost, Commodity; Low Cost, Commodity; High Cost, Differentiated; High Cost

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

PNR-US‘s gross margin improvement has not produced any big difference in its working capital. Working capital days are currently 101.66, compared to last year’s level of 81.80 days. This leads Capital Cube to conclude that the improvements in gross margins are likely from operating decisions and not trade-offs with the balance sheet.

Gross Margin Versus Working Capital Days

Quadrant label definitions. Hover to know more

Customer Financed, Cash Starved, Supplier Financed, Cash Rich

Cash Versus Earnings – Sustainable Performance?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

PNR-US‘s change in operating cash flow of -606.67% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.

Operating Cash Flow Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Cash Flow based Earnings, Likely Non-cash Earnings, Low Cash Flow Base, Likely Undeclared Earnings

Margins

The company’s earnings decline is largely a result of non-operational activity. As a matter of fact, the company showed increases in operating (EBIT) and pretax margins. EBIT margins improved from 10.87% to 13.46% and pretax margins widened from 8.58% to 8.75%.

EBIT Margin Versus PreTax Margin

Quadrant label definitions. Hover to know more

Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables
EBIT Margin History
PreTax Margin History

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Company Profile

Pentair Plc engages in the business of industrial manufacturing. It specializes in equipment protection to water, fluid, and in thermal management. It operates through the following segments: Water Quality Systems, Flow & Filtration Solutions and Technical Solutions. The Water Quality Systems segment designs, manufactures, markets and services innovative water system products and solutions for filtration and fluid management solutions for food and beverage, water, swimming pools and aquaculture applications. The Flow & Filtration Solutions segment designs, manufactures, markets and services solutions for the filtration, separation, flow and fluid management in agriculture, food and beverage processing, water supply and disposal and a variety of industrial applications. The Technical Solutions segment designs, manufactures, markets and services products that guard and protect some of sensitive electrical and electronic equipment, as well as heat management solutions designed to provide thermal protection to temperature sensitive fluid applications, engineered electrical, and fastening products for electrical, mechanical and civil applications. The company was founded by Murray Harpole, Vern Stone, Vincent Follmer, Leroy Nelson, and Gary Ostrand on August 31, 1966 and is headquartered in Manchester, the United Kingdom.

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