Pentair plc PNR has been benefiting from increased demand for swimming pools as consumers continue to enhance their at-home quality of life by investing in pools. Focus on expanding digital transformation, innovation, technology and brand building, as well as making acquisitions in the areas of the pool and residential and commercial water treatment, will continue to stoke growth. However, cost inflation and supply chain disruptions will likely dent the company’s performance in the near term.
Segments Poised to Grow on Strong Residential Demand
Pentair has been witnessing strong demand for swimming pools as consumers stayed home amid the pandemic, which triggered the desire to invest in their backyards. The company continues to gain from this momentum in the current year as consumers continue to enhance their at-home lifestyle by investing in pools. Several builders are reporting backlogs well into the next year. Apart from pool construction, demand for pool maintenance remains strong. Considering that nearly 80% of the Consumer Solutions segment serves residential markets, this trend bodes well for the segment.
In first-quarter of 2021, Industrial & Flow Technologies segment returned to growth for the first time in five quarters, driven by strong performance in residential and recovery in commercial and industrial businesses. This segment has been performing well ever since.
Margin Expansion to Drive Growth
During second-quarter 2021, Pentair launched a Transformation program to accelerate growth and drive margin expansion. The program, structured in multiple phases, is expected to drive operational efficiency, streamline processes, and reduce complexity while meeting financial objectives. It will also utilize automation to increase productivity. The company is projecting at least 300 basis points of margin expansion by 2025 through the program.
Innovation, Acquisitions to Expand Water Treatment Solutions
Pentair is investing in digital transformation, innovation and technology and acquisitions in the high-growth areas of the pool and residential and commercial water treatment, which is commendable. In line with this, the company acquired Aquion, Inc. and Pelican Water Systems in 2019. In December 2020, it completed the buyout of Rocean to expand core water treatment solutions in the residential and commercial water business. In May 2020, Pentair acquired all the assets of Ken’s Beverage, Inc, which provides the company a valuable national direct service network to expand the commercial water treatment business. This October, it completed the Pleatco acquisition, which not only adds strong aftermarket filtration products to its flagship Pool business but also to the Industrial Filtration business.
Upbeat 2021 Guidance
Pentair expects earnings per share (EPS) in the current year between $3.34 and $3.40. The mid-point of the range indicates year-over-year growth of 35%. Sales growth for the year is projected in the range of 22-23% on a reported basis. The company’s productivity improvement efforts and price increases implemented to counter the impact of cost inflation are likely to aid margins. Segment income guidance is expected to be up 32% to 34%.
Cost Inflation, Supply Chain to Erode Margin
Pentair has been witnessing inflationary increases due to high demand and tight supply of raw materials such as metals, resins and electronics, along with increased logistics costs. Even though pricing actions and productivity improvements will …….