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Pentair cuts forecast; to shed 1,600 jobs - Update

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Thursday, diversified operating company Pentair, Inc.(PNR) lowered its fourth-quarter and fiscal 2008 adjusted earnings forecast sharply, due to wider than expected impact of sluggish demand in global markets and consumer spending on the company's orders and sales volumes. The company also provided first quarter and fiscal 2009 earnings outlook, which are significantly lower than analysts' estimates. Pentair also said it would cut about 1600 positions, or about 10% of workforce, as part of its aggressive cost reduction actions.

Thursday, another diversified machinery company, Ingersoll-Rand Co. Ltd (IR), announced a sharp cut in fourth-quarter and full year 2008 adjusted earnings from continuing operations.

Minnesota-based Pentair currently expects fourth-quarter adjusted income from continuing operations between $39 million and $42 million, or $0.40 and $0.42 per share. Previously, the company expected adjusted earnings per share in the range of $0.52 to $0.55.

On average, nine analysts polled by First Call/Thomson expect the company to post earnings of $0.52 per share for the quarter, with expectations ranging between $0.50 and $0.56 per share. Analysts' estimates typically exclude special items.

Including adjustments of about $17 million or $0.17 per share, fourth-quarter income from continuing operations are expected to be in the range of $22 million to $25 million or $0.23 to $0.25 per share.

Pentair anticipates fourth-quarter sales to be approximately $770 million, lower than previous forecast of about $840 million. Nine Street analysts expect revenues of $849.54 million for the quarter.

The company noted that the anticipated reduction of $70 million in sales is due to sharp volume declines in its Technical Products business as well as certain industrial, commercial and residential Water businesses.

For the year 2008, the company expects adjusted earnings from continuing operations to be between $218 million to $221 million, or $2.19 and $2.21 per share, lower than earlier estimates earnings of $2.28 to $2.31 per share. Street analysts expect earnings of $2.29 per share.

On a reported basis, including adjustments of about $41 million or $0.42 per share, full-year income from continuing operations is projected to be in the range of $259 million to $262 million, or $2.61 to $2.63 per share.

peer Ingersoll-Rand now expects fourth-quarter adjusted earnings from continuing operations in a range of $0.20 to $0.30 per share, compared to earlier forecast of $0.55 to $0.75 per share. Analysts expect the company to earn $0.60 per share.

For the full-year, Ingersoll-Rand now expects preliminary adjusted earnings from continuing operations to be in the range of $3.00 - $3.10 per share, compared to prior forecast of $3.35 - $3.55 per share. Wall Street expects $3.36 per share. The company said it had lower than expected revenues in all of its business segments, primarily due to softer North American and sharply declining Western European markets. The strengthening of the U.S. dollar against the Euro also amplified the year-over-year revenue decline.

Pentair noted that quarterly 2009 earnings results are expected to improve sequentially as it realizes the benefits of its cost actions and the benefit of 2% to 3% net material deflation. However, first-quarter results are estimated to be down significantly from last year, as restructuring related expenses will be at their peak, volume in pool business is expected to decline approximately 25%, and the expected benefit from materials deflation will not yet be realized in operating results.

Going ahead, for the first quarter, earnings per share are estimated to be in the range of $0.30 to $0.35, while sales for the period are expected to decline 10%. Analysts expect earnings of $0.52 per share, on sales of $843.03 million. In the previous year, the company had recorded earnings of $0.53 per share on sales of $840.40 million.

For the fiscal year 2009, Pentair expects earnings per share in the range of $1.70 to $2.00 with sales expected to decline in the range of 8% to 10%. Street analysts expect earnings of $2.17 per share, while sales are estimated by analysts to drop 2.1% year-over-year to $3.38 billion.

The company said it expects full-year 2009 free cash flow to be at least 100 percent conversion of net income.

Pentair also said it started to take aggressive cost actions at the beginning of the third quarter in preparation for a slowing economy. The company said it is accelerating restructuring actions, instituting a freeze on hiring and annual salary increases, reducing indirect costs and adjusting capital expenditure levels, in response to global economic conditions that declined more quickly and intensely than forecasted.

In aggregate, the company anticipates that the actions taken in 2008 would result in the reduction of about 1,600 positions representing over 10% of company headcount and would yield more than $75 million in reduced costs. By the end of 2009, the company is closing fifteen facilities when compared to year-end 2007.

PNR closed Wednesday's regular trading session at $24.89, down $0.04, on a volume of 795 thousand shares. In the past 52 weeks, shares traded in a broad range of $18.42 - $41.00.

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