Shares in water technology and pool products company Pentair (PNR -1.02%) surged by 10.7% in early morning trading on Tuesday. This kind of performance might be expected in the current environment, whereby merely maintaining full-year guidance is a major positive.
In addition, management served notice that its transformational initiatives are working and continuing to expand profit margins even as sales declined.
Pentair's transformation continues
Going into 2025, the investment thesis around the stock this year was based on two ideas. First, lower interest rates might spur the housing market, increasing discretionary spending on pools and residential and commercial fluid and water treatment systems. Second, the company's transformational initiatives would bear fruit.
Unfortunately, the former isn't helping much, and the ongoing uncertainty around tariffs continues to pressure its end markets. However, the good news is that the initiatives -- a series of continuing productivity enhancements aimed at optimizing pricing, rationalizing its operational footprint, and focusing on its key products for its key customers -- are working.
While total and core sales declined 1% in the first quarter of 2025 compared to the same period last year, Pentair's return on sales (RoS) increased from 21.4% to 24%, and management continues on track to hit its target RoS of 26% by 2026.
Image source: Getty Images.
Where next for Pentair
Management maintained its full-year adjusted earnings per share (EPS) target of $4.65 to $4.80 as it raised prices to offset increased costs due to tariffs. It's an excellent result, and the underlying improvement in margins increases the upside potential for the stock if the tariff situation improves with the signing of trade deals that President Donald Trump is working on to improve conditions for U.S. exporters.
