Pentair Plc :PNR-US: Earnings Analysis: Q4, 2016 By the Numbers : March 17, 2017

Pentair Plc reports financial results for the quarter ended December 31, 2016.

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

Highlights

  • Summary numbers: Revenues of USD 1,188.10 million, Net Earnings of USD 109.60 million.
  • Gross margins widened from 32.33% to 37.04% compared to the same period last year, operating (EBITDA) margins now 18.45% from 17.44%.
  • Year-on-year change in operating cash flow of -9.53% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Earnings growth from operating margin improvements as well as one-time items.

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

2016-12-31 2016-09-30 2016-06-30 2016-03-31 2015-12-31
Relevant Numbers (Quarterly)
Revenues (mil) 1188.1 1210.7 1733.3 1575.5 1760.7
Revenue Growth (%YOY) -32.52 -22 4.34 6.81 -2.32
Earnings (mil) 109.6 117.5 142.8 107.4 -452.3
Earnings Growth (%YOY) 124.23 2 -7.21 -9.14 -428.23
Net Margin (%) 9.22 9.71 8.24 6.82 -25.69
EPS 0.71 0.76 0.78 0.59 -2.47
Return on Equity (%) 10.18 11.03 13.85 10.62 -42.35
Return on Assets (%) 3.78 4.01 4.81 3.6 -14.75

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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 -32.52% 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 -1.87% and earnings by -6.72% 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 earnings growth was influenced by year-on-year improvement in gross margins from 32.33% to 37.04% as well as better cost controls. As a result, operating margins (EBITDA margins) rose from 17.44% to 18.45% compared to the same period last year. For comparison, gross margins were 34.43% and EBITDA margins were 17.69% in the last reporting 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 101.86, compared to last year’s level of 71.38 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 -9.53% 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 growth has also been influenced by the following factors: (1) Improvements in operating (EBIT) margins from 13.14% to 14.74% and (2) one-time items. The company’s pretax margins are now 10.55% compared to -24.36% for the same period last year.

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 operates as global water, fluid, thermal management, and equipment protection partner with industry leading products, services, and solutions. It operates through its segments: Valves and Controls, Process Technologies, Flow Technologies and Technical Solutions. The Valves and Controls segment designs, manufactures, markets and services valves, fittings, automation and controls and actuators. The Process Technologies segment designs, manufactures, markets and services innovative water system products and solutions to meet filtration, separation and fluid process management challenges in food and beverage, water, wastewater, swimming pools and aquaculture applications. The Flow Technologies segment designs, manufactures and markets products and services designed for the transfer and flow of clean water, wastewater and a variety of industrial applications. The Technical Solutions segment designs, manufactures, markets and services products that guard and protect some of the worlds sensitive electronics and electronic equipment, as well as heat management solutions designed to provide thermal protection to temperature sensitive fluid applications. The company was founded on September 28, 2012 and is headquartered in Manchester, the United Kingdom.

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