Sometimes the market looks past a messy earnings report and focuses on the bigger picture. That's exactly what happened with Pentair (PNR) on Tuesday.

The water treatment company reported second-quarter results that missed analyst estimates on both the top and bottom lines. Adjusted earnings came in at $1.14 per share, eight cents shy of the $1.22 consensus. Revenue fell 17% year over year to $932.6 million, also below the $958.1 million analysts were expecting.

The culprit? A massive inventory destocking in Pentair's Pool distribution channel, which knocked about $170 million off revenue. Higher interest rates and inflation have been squeezing pool demand, and channel partners are still working through excess stock.

But investors shrugged off the miss, sending shares up 3.26% to $65.23. The reason: a $1.4 billion acquisition that positions Pentair to ride the AI data center wave.

The Taco Deal: More Than Just Pumps

Pentair announced it would acquire Taco Group Holdings for roughly $1.4 billion. Taco makes smart water circulation solutions—think pumps, controls, and valves—that are increasingly critical for cooling systems in data centers. As AI workloads explode, data centers need more efficient cooling, and water-based systems are a key part of that equation.

The deal values Taco at about 10.5 times its estimated 2026 EBITDA, including roughly $165 million in tax benefits and about $30 million in expected annual cost synergies. Taco is projected to generate around $540 million in revenue in fiscal 2026, with adjusted EBITDA margins north of 20% once synergies kick in.

Pentair expects the acquisition to add 10 to 15 cents to adjusted earnings per share in fiscal 2027. That's a meaningful boost for a company that's been struggling with its Pool segment.

Segment Breakdown: Pool Sinks, Everything Else Swims

The Pool segment was the obvious weak spot. Sales there plummeted 42% to $246.6 million, and segment income fell 62% to $58 million. Return on sales cratered by 1,230 basis points to 23.4%. It's a tough environment for pool builders and suppliers, and Pentair is feeling the pain.

But the other two segments told a different story. The Flow segment, which includes pumps for industrial and commercial use, saw sales rise 5% to $263.7 million. Segment income jumped 27% to $70 million, and margins expanded 470 basis points to 26.5%.

The Water Solutions segment—which includes residential and commercial water treatment—saw sales dip 5% to $422 million, but segment income rose 17% to $126 million. Margins there improved 560 basis points to 30%, thanks to disciplined pricing and productivity gains.

So while the Pool business is dragging down the headline numbers, the rest of Pentair's operations are actually performing quite well. That's the kind of detail that gives investors confidence in the long-term story.

Cash Flow and Shareholder Returns

Pentair generated $572 million in operating cash flow and $553 million in free cash flow during the quarter. That's a lot of cash, and the company is putting it to work.

It paid a quarterly dividend of 27 cents per share, and has increased its dividend for 50 consecutive years—a track record that puts it in elite company. Another 27-cent dividend is payable Aug. 7 to shareholders of record as of July 24.

The company also repurchased 2 million shares for $150 million during the quarter. As of June 30, it still had $650 million left under its share repurchase authorization. At the end of the quarter, Pentair had $91.8 million in cash and cash equivalents.

Outlook: Lowered GAAP, Steady Adjusted

Pentair lowered its fiscal 2026 GAAP earnings guidance to a range of $3.86 to $4.06 per share, down from its prior forecast of $3.90 to $4.10. That's still well below the analyst consensus of $4.69.

But the company reaffirmed its adjusted EPS outlook of $4.60 to $4.80, compared with the consensus estimate of $4.88. It also maintained its sales guidance of $3.884 billion to $4.009 billion, versus analysts' estimate of $4.012 billion.

For the third quarter, Pentair expects adjusted EPS of $1.05 to $1.08, below the consensus estimate of $1.20. It forecast revenue of $960.7 million to $981.1 million, compared with analysts' estimate of $980.9 million.

The guidance suggests that the Pool headwinds aren't going away overnight. But the Taco acquisition gives Pentair a new growth engine that's tied to one of the hottest trends in tech: AI data centers. And that's a story the market is willing to buy.