Pentair Tops Q3 Estimates Driven By Transformation Initiatives, Revises FY23 Outlook

Pentair PLC PNR reported a Q3 FY23 net sales decline of 4% Y/Y to $1.01 billion and a core sales decline of 7% Y/Y, beating the consensus of $992.1 million.

The gross margin expanded to 36.9% from 33.0%. Operating income rose 22% Y/Y to $180 million, and the operating margin expanded to 17.9% from 13.9% a year ago.

Industrial & Flow Technologies sales increased by 3% Y/Y to $400.2 million, Segment income of $78 million (+18% Y/Y), and ROS was 19.4%, an increase of 250 bps Y/Y.

Water Solutions sales were $299.4 million (+9% Y/Y), Segment income was $69 million (+40% Y/Y), and ROS was 23.0%, up 510 bps Y/Y.

Pool segment sales were $308.8 million (-21% Y/Y), Segment income was $91 million (-17% Y/Y), and ROS was 29.3%, up 130 bps Y/Y.

Adjusted EPS was $0.94 (-5% Y/Y), above the consensus of $0.87.

Operating cash flow was $162 million compared to $95 million in Q3 FY22. Free cash flow was $143 million compared to $72 million a year ago.

As previously announced on September 18, 2023, Pentair will pay a regular quarterly cash dividend of $0.22 per share on November 3, 2023, to shareholders of record on October 20, 2023.

"Our Q3 results surpassed our expectations and were driven largely by our diversified water portfolio and Transformation initiatives which contributed to significant margin expansion. This marks our sixth consecutive quarter of sales over $1 billion. In addition, our Manitowoc Ice acquisition continued to exceed our expectations," stated John L. Stauch, President and CEO.

Q4 FY23 Outlook: Pentair expects adjusted EPS of $0.82-$0.87, vs. the consensus of $0.92. It expects sales to be down ~3% to 4% Y/Y on a reported basis.

FY23 Outlook Revised: Pentair expects adjusted EPS of $3.70-$3.75 (prior $3.65-$3.75) vs. the consensus of $3.73. The company expects its sales guidance to be down approximately 1% on a reported basis (vs. -2% to flat earlier).

"We are updating our EPS guidance reflecting strong execution across all three segments while being mindful of the uncertainty across the global macroeconomic and geopolitical landscape. We are focused on investing in the long-term growth of Pentair and remain confident in our diversified water portfolio and Transformation initiatives," said Stauch.

Price Action: PNR shares are trading lower by 2.56% at $60.72 on the last check Tuesday.