October 26, 2010
Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of water equipment specialist Pentair (NYSE: PNR ) slid more than 10% in intraday trading as investors reacted to the company's third-quarter earnings report.
So what: After a bit of a bottom-line dip due to recessionary pressures, Pentair is hoping to continue bouncing back and deliver on long-term objectives that include a 15% after-tax ROIC and a 100% conversion of net income to free cash flow. The third quarter definitely showed a continued rebound as sales advanced 17% from last year while earnings per share jumped 45%. The $0.55 in earnings per share that Pentair posted topped Wall Street's expectations.
Now what: It was when the company looked ahead to next quarter that investors started to get concerned. For the fourth quarter, Pentair is expecting earnings per share between $0.42 and $0.47, which not only is unimpressive when stacked against 2009's fourth quarter, but is also below what analysts' had their hearts set on. Management chalked the soft guidance up to rising costs, both from materials and employees, but also said that, looking even further ahead, its own pricing and productivity should not only offset these cost pressures, but help the company "sustain accelerated growth."
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