Pentair Reports Solid Third Quarter 2011 Results

- Third quarter sales increased 15 percent to $891 million

- Reported EPS of $0.51; Adjusted EPS of $0.58, up 5 percent

- Generated free cash flow of $70 million in the quarter

- Updated full year reported EPS outlook to a range of $2.26 to $2.29; adjusted EPS outlook of $2.44 to 2.47, up 22 to 24 percent

All financial information and period-to-period references are on a continuing operations basis unless otherwise noted. Reconciliations of GAAP to Non-GAAP measures are in the attached financial tables.

Oct 26, 2011, 07:00 ET from Pentair, Inc.

MINNEAPOLIS, Oct. 26, 2011 /PRNewswire/ -- Pentair, Inc. (NYSE: PNR) announced third quarter 2011 sales of $891 million, an increase of 15 percent from the same quarter last year.  These results reflected growth across both segments, Water and Technical Products, including 11 percentage points from the acquisition of Norit's Clean Process Technologies (CPT) and 2 percentage points from favorable foreign currency.  Earnings per diluted share from continuing operations (EPS) were $0.51 in the third quarter 2011.  Third quarter 2011 results included restructuring charges of $2 million, or approximately $0.02 of EPS, related to repositioning actions in its Water business.  Adjusting to exclude acquisition related costs and restructuring charges, third quarter 2011 EPS was $0.58, an increase of 5 percent over the same quarter last year.  

"We had another solid quarter with balanced top-line growth and good margin performance across our businesses," said Randall J. Hogan, Pentair chairman and chief executive officer.  "Growth investments continued to yield positive results with fast growth regions up 22 percent in the quarter, before including the CPT acquisition.  Innovation, expanded distribution and improved operating performance helped to drive solid global demand across our end markets. The CPT results reflected strong double digit sales growth from a year ago, demonstrating the strength of its membrane technology and systems expertise in water and beverage solutions."

"Solid price realization of 2 percent in the quarter combined with productivity more than offset inflation. The year-over-year margin decline reflected the negative impact of the CPT acquisition and related intangible amortization and acquisition related costs, as we anticipated.  We expect to drive sequential CPT margin improvement through a combination of volume leverage, lean-driven efficiencies, as well as repositioning efforts that are already underway," added Hogan.  

The company reported third quarter operating income of $93 million compared to $91 million in the prior year quarter.  Adjusting to exclude acquisition related costs and restructuring charges, operating income increased 11 percent to $101 million and the company achieved operating margins of 11.3 percent compared to 11.7 percent of a year ago, reflecting the impact of the CPT acquisition.  Pricing combined with productivity gains more than offset inflation across both Water and Technical Products.  Third quarter 2011 results included the benefit of a lower effective tax rate, largely resulting from the CPT acquisition and a favorable geographic mix.  

Free cash flow was $70 million in the third quarter, resulting in $188 million through the first three quarters of 2011.  The company said it expects to achieve free cash flow of approximately $250 million for the full year 2011.

THIRD QUARTER BUSINESS HIGHLIGHTS

Water sales grew 20 percent year-over-year to $615 million, including 17 percentage points from the CPT acquisition and a two-percentage point favorable impact from foreign currency.  Year-over-year sales growth was negatively impacted by approximately 6 percentage points due to sales in 2010 related to the Gulf Intracoastal Waterway (GIWW) project.  Within the five Water global businesses, the third quarter sales performances were as follows:

  • Residential Flow sales were up 15 percent versus the prior year quarter, led by double-digit growth in U.S. residential de-watering products and the agricultural business.
  • Residential Filtration sales were up 5 percent, as the benefit from new products and increased penetration in fast growth regions offset softness in the U.S. market.      
  • Pool sales were up 14 percent driven by strong demand for energy efficient pool products and expanded distribution.
  • Engineered Flow sales were down 32 percent due to lower U.S. municipal sales largely related to the prior year benefit from GIWW, while commercial and industrial pumps sales increased year-over-year.  The year-over-year impact of GIWW resulted in 28 percentage points of the decline.    
  • Filtration Solutions sales increased 141 percent year-over-year, reflecting a 133-percentage point or $89 million benefit from the CPT acquisition.  The remaining 8 percentage points of growth mainly reflected increased sales in foodservice and desalination.  

Water's third quarter reported operating income totaled $60 million.  Excluding the acquisition related costs and restructuring charges included in the Water segment, third quarter operating income increased 15 percent to $67 million while operating margins decreased 40 basis points to 11 percent, reflecting the negative 100 basis point impact from the CPT acquisition.  Pricing and productivity improvements more than offset the negative impact from inflation and continued growth investments.

Technical Products delivered third quarter 2011 sales of $276 million, an increase of 6 percent versus the prior year quarter, including a three-percentage point favorable impact from foreign currency.    

  • Solid global demand drove double-digit growth across many of the end markets served, including industrial, commercial, general electronics and energy, partially offset by an expected decline in communications.  
  • Sales in the U.S were relatively flat year-over-year, reflecting the softness in communications.  Fast growth regions were up 29 percent, led by China and Latin America, due to distribution gains and expanded product offerings.  

Technical Products' third quarter reported operating income totaled $49 million, up 14 percent compared to $43 million in the same quarter last year.  Third quarter 2011 operating margins increased to 17.6 percent, an increase of 130 basis points when compared to the prior year quarter.  Strong pricing and productivity gains, more than offset the negative impact from inflation and continued growth investments.

OUTLOOK

The company provided its fourth quarter 2011 EPS guidance of $0.57 to $0.60.  Excluding the acquisition related costs and restructuring charges, the company expects an adjusted fourth quarter 2011 EPS in the range of $0.59 to $0.62, an increase of 20 to 27 percent from the prior year quarter, on an estimated sales growth of 17 to 19 percent.  

The company expects full year 2011 reported EPS to be in the $2.26 to $2.29 range, including approximately $0.18 of acquisition related costs and restructuring charges.  Excluding these costs, the company expects full year 2011 adjusted EPS in the range of $2.44 to $2.47.  This represents an increase of 22 to 24 percent compared to 2010 EPS on expected full year 2011 sales of approximately $3.5 billion, up approximately 15 percent compared to the prior year.  

"I'm pleased with the performance and progress we've made in 2011," added Hogan. "We enter the fourth quarter with solid price realization, fast growth region momentum and accelerated productivity efforts.  Despite challenges in a few end markets, we continue to grow the top-line, expand margins and position Pentair for continued success in 2012 and beyond."

EARNINGS CONFERENCE CALL

Pentair Chairman and CEO Randall J. Hogan and Chief Financial Officer John L. Stauch will discuss the company's performance and third quarter 2011 results and 2011 outlook on a two-way conference call with investors and a live audio webcast at 9 a.m. Eastern today.  Reconciliation of non-GAAP financial measures are set forth in the attachments to this third quarter 2011 earnings release and the third quarter 2011 earnings conference call presentation, both of which can be found at Pentair's web site (www.pentair.com).  Related financial charts and certain other information to be discussed on the conference call will be available on the company's website shortly before the conference call.  The webcast and presentation will be archived at the same site following the conclusion of the conference call.

CAUTION CONCERNING FORWARD-LOOKING STATEMENTS

Any statements made about the company's anticipated financial results are forward-looking statements subject to risks and uncertainties such as our ability to integrate the CPT acquisition successfully; the magnitude, timing and scope of recovery from the global economic downturn or any potential future downturn; the strength of housing and related markets; the risk that expected benefits from restructuring and other cost reduction plans may not be fully realized, or may take longer to realize than expected; foreign currency effects; material inflation outpacing our productivity and pricing actions; retail, commercial and industrial demand; increased risks associated with operating foreign businesses; product introductions; pricing and other competitive pressures; and the company's ability to achieve its long-term strategic operating goals, as well as other risk factors set forth in our SEC filings. Forward-looking statements included herein are made as of the date hereof, and the company undertakes no obligation to update publicly such statements to reflect subsequent events or circumstances. Actual results could differ materially from anticipated results.

ABOUT PENTAIR, INC.

Pentair (www.pentair.com) is a global diversified industrial company headquartered in Minneapolis, Minnesota. Its Water Group is a global leader in providing innovative products and systems used worldwide in the movement, treatment, storage and enjoyment of water. Pentair's Technical Products Group is a leader in the global enclosures and thermal management markets, designing and manufacturing thermal management products and standard, modified, and custom enclosures that protect sensitive electronics and the people that use them. With 2010 revenues of $3.0 billion, Pentair employs over 15,000 people worldwide.

Pentair Contacts:

Sara Zawoyski

Vice President, Investor Relations

Tel.: (763) 656-5575

E-mail: sara.zawoyski@pentair.com

Betsy Day

Corporate Communications Manager

Tel.: (763) 656-5537

E-mail: betsy.day@pentair.com

Pentair, Inc. and Subsidiaries

Condensed Consolidated Statements of Income (Unaudited)

Three months ended

Nine months ended

October 1,

October 2,

October 1,

October 2,

In thousands, except per-share data

2011 

2010 

2011 

2010 

Net sales

$

890,546 

$

773,735 

$

2,590,994 

$

2,276,915 

Cost of goods sold

618,484 

537,193 

1,782,137 

1,578,503 

Gross profit

272,062 

236,542 

808,857 

698,412 

% of net sales

30.6%

30.6%

31.2%

30.7%

Selling, general and administrative

159,068 

128,854 

462,260 

392,787 

% of net sales

17.9%

16.7%

17.8%

17.3%

Research and development

20,091 

16,865 

58,095 

51,075 

% of net sales

2.3%

2.2%

2.3%

2.2%

Operating income

92,903 

90,823 

288,502 

254,550 

% of net sales

10.4%

11.7%

11.1%

11.2%

Other (income) expense:

Equity income of unconsolidated subsidiaries

(574)

(347)

(1,481)

(1,806)

Net interest expense

17,373 

8,953 

41,311 

27,049 

% of net sales

2.0%

1.2%

1.6%

1.2%

Income from continuing operations before income taxes

  and noncontrolling interest

76,104 

82,217 

248,672 

229,307 

Provision for income taxes

24,050 

26,488 

76,447 

75,937 

effective tax rate

31.6%

32.2%

30.7%

33.1%

Income from continuing operations

52,054 

55,729 

172,225 

153,370 

Gain on disposal of discontinued operations, net of tax

— 

549 

— 

1,666 

Net income before noncontrolling interest

52,054 

56,278 

172,225 

155,036 

Noncontrolling interest

962 

1,228 

3,880 

3,584 

Net income attributable to Pentair, Inc.

$

51,092 

$

55,050 

$

168,345 

$

151,452 

Net income from continuing operations attributable to Pentair, Inc.

$

51,092 

$

54,501 

$

168,345 

$

149,786 

Earnings per common share attributable to Pentair, Inc.

Basic

Continuing operations

$

0.52 

$

0.55 

$

1.71 

$

1.53 

Discontinued operations

— 

0.01 

— 

0.01 

Basic earnings per common share

$

0.52 

$

0.56 

$

1.71 

$

1.54 

Diluted

Continuing operations

$

0.51 

$

0.55 

$

1.69 

$

1.51 

Discontinued operations

— 

— 

— 

0.01 

Diluted earnings per common share

$

0.51 

$

0.55 

$

1.69 

$

1.52 

Weighted average common shares outstanding

Basic

98,472 

98,298 

98,228 

98,105 

Diluted

99,802 

99,514 

99,759 

99,326 

Cash dividends declared per common share

$

0.20 

$

0.19 

$

0.60 

$

0.57 

Pentair, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)

October 1,

December 31,

October 2,

In thousands

2011 

2010 

2010 

Assets

Current assets

Cash and cash equivalents

$

52,665 

$

46,056 

$

56,995 

Accounts and notes receivable, net

556,688 

516,905 

490,221 

Inventories

459,916 

405,356 

410,072 

Deferred tax assets

61,411 

56,349 

50,991 

Prepaid expenses and other current assets

147,568 

44,631 

48,555 

Total current assets

1,278,248 

1,069,297 

1,056,834 

Property, plant and equipment, net

394,922 

329,435 

327,602 

Other assets

Goodwill

2,516,692 

2,066,044 

2,070,911 

Intangibles, net

619,262 

453,570 

461,378 

Other

73,319 

55,187 

56,033 

Total other assets

3,209,273 

2,574,801 

2,588,322 

Total assets

$

4,882,443 

$

3,973,533 

$

3,972,758 

Liabilities and Shareholders' Equity

Current liabilities

Short-term borrowings

$

29,705 

$

4,933 

$

4,180 

Current maturities of long-term debt

1,194 

18 

37 

Accounts payable

281,448 

262,357 

266,416 

Employee compensation and benefits

117,538 

107,995 

100,626 

Current pension and post-retirement benefits

8,733 

8,733 

8,948 

Accrued product claims and warranties

43,920 

42,295 

40,783 

Income taxes

26,283 

5,964 

22,202 

Accrued rebates and sales incentives

45,231 

33,559 

39,066 

Other current liabilities

163,550 

80,942 

90,286 

Total current liabilities

717,602 

546,796 

572,544 

Other liabilities

Long-term debt

1,317,454 

702,521 

673,265 

Pension and other retirement compensation

190,221 

209,859 

219,463 

Post-retirement medical and other benefits

26,933 

30,325 

28,506 

Long-term income taxes payable

23,891 

23,507 

23,857 

Deferred tax liabilities

228,737 

169,198 

147,772 

Other non-current liabilities

79,489 

86,295 

93,681 

Total liabilities

2,584,327 

1,768,501 

1,759,088 

Shareholders' equity

2,298,116 

2,205,032 

2,213,670 

Total liabilities and shareholders' equity

$

4,882,443 

$

3,973,533 

$

3,972,758 

Days sales in accounts receivable (13 month moving average)

61 

60 

59 

Days inventory on hand (13 month moving average)

83 

82 

82 

Days in accounts payable (13 month moving average)

72 

71 

68 

Pentair, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)

Nine months ended

October 1,

October 2,

In thousands

2011 

2010 

Operating activities

Net income before noncontrolling interest

$

172,225 

$

155,036 

Adjustments to reconcile net income to net cash provided by (used for) operating activities

Gain on disposal of discontinued operations

— 

(1,666)

Equity income of unconsolidated subsidiaries

(1,481)

(1,806)

Depreciation

49,079 

43,141 

Amortization

29,807 

19,742 

Deferred income taxes

4,445 

4,866 

Stock compensation

14,695 

16,598 

Excess tax benefits from stock-based compensation

(3,137)

(2,193)

Loss on sale of assets

702 

166 

Changes in assets and liabilities, net of effects of business acquisitions and dispositions

Accounts and notes receivable

22,657 

(36,216)

Inventories

15,633 

(49,822)

Prepaid expenses and other current assets

(26,380)

(1,476)

Accounts payable

(45,759)

60,162 

Employee compensation and benefits

(12,334)

21,600 

Accrued product claims and warranties

115 

6,556 

Income taxes

18,045 

18,013 

Other current liabilities

46,924 

15,493 

Pension and post-retirement benefits

(23,636)

(15,197)

Other assets and liabilities

(21,041)

(3,754)

Net cash provided by (used for) operating activities

240,559 

249,243 

Investing activities

Capital expenditures

(53,063)

(42,981)

Proceeds from sale of property and equipment

139 

340 

Acquisitions, net of cash acquired

(733,105)

— 

Other

(441)

(1,232)

Net cash provided by (used for) investing activities

(786,470)

(43,873)

Financing activities

Net short-term borrowings

24,772 

1,975 

Proceeds from long-term debt

1,370,423 

493,821 

Repayment of long-term debt

(771,793)

(624,007)

Debt issuance costs

(8,973)

(50)

Excess tax benefits from stock-based compensation

3,137 

2,193 

Stock issued to employees, net of shares withheld

11,788 

7,861 

Repurchases of common stock

(12,785)

(2,786)

Dividends paid

(59,669)

(56,584)

Net cash provided by (used for) financing activities

556,900 

(177,577)

Effect of exchange rate changes on cash and cash equivalents

(4,380)

(4,194)

Change in cash and cash equivalents

6,609 

23,599 

Cash and cash equivalents, beginning of period

46,056 

33,396 

Cash and cash equivalents, end of period

$

52,665 

$

56,995 

Free cash flow

Net cash provided by (used for) operating activities

$

240,559 

$

249,243 

Capital expenditures

(53,063)

(42,981)

Proceeds from sale of property and equipment

139 

340 

Free cash flow

$

187,635 

$

206,602 

Pentair, Inc. and Subsidiaries

Supplemental Financial Information by Reportable Business Segment (Unaudited)

First Qtr

Second Qtr

Third Qtr

Nine Months

In thousands

2011 

2011 

2011 

2011 

Net sales to external customers

Water Group

$

515,368 

$

631,994 

$

614,557 

$

1,761,919 

Technical Products Group

274,905 

278,181 

275,989 

829,075 

Consolidated

$

790,273 

$

910,175 

$

890,546 

$

2,590,994 

Intersegment sales

Water Group

$

455 

$

316 

$

426 

$

1,197 

Technical Products Group

999 

1,559 

1,755 

4,313 

Other

(1,454)

(1,875)

(2,181)

(5,510)

Consolidated

$

— 

$

— 

$

— 

$

— 

Operating income (loss)

Water Group

$

56,528 

$

84,521 

$

59,608 

$

200,657 

Technical Products Group

48,087 

48,261 

48,611 

144,959 

Other

(18,438)

(23,360)

(15,316)

(57,114)

Consolidated

$

86,177 

$

109,422 

$

92,903 

$

288,502 

Operating income as a percent of net sales

Water Group

11.0%

13.4%

9.7%

11.4%

Technical Products Group

17.5%

17.3%

17.6%

17.5%

Consolidated

10.9%

12.0%

10.4%

11.1%

First Qtr

Second Qtr

Third Qtr

Nine Months

In thousands

2010 

2010 

2010 

2010 

Net sales to external customers

Water Group

$

478,038 

$

549,318 

$

512,587 

$

1,539,943 

Technical Products Group

228,975 

246,849 

261,148 

736,972 

Consolidated

$

707,013 

$

796,167 

$

773,735 

$

2,276,915 

Intersegment sales

Water Group

$

517 

$

427 

$

442 

$

1,386 

Technical Products Group

703 

1,047 

1,154 

2,904 

Other

(1,220)

(1,474)

(1,596)

(4,290)

Consolidated

$

— 

$

— 

$

— 

$

— 

Operating income (loss)

Water Group

$

42,138 

$

75,954 

$

58,457 

$

176,549 

Technical Products Group

33,098 

37,990 

42,605 

113,693 

Other

(11,635)

(13,818)

(10,239)

(35,692)

Consolidated

$

63,601 

$

100,126 

$

90,823 

$

254,550 

Operating income as a percent of net sales

Water Group

8.8%

13.8%

11.4%

11.5%

Technical Products Group

14.5%

15.4%

16.3%

15.4%

Consolidated

9.0%

12.6%

11.7%

11.2%

Pentair, Inc. and Subsidiaries

Reconciliation of the GAAP "As Reported" year ending December 31, 2011 to the "Adjusted" non-GAAP

excluding the effect of 2011 adjustments (Unaudited)

Total Pentair

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

Year

In thousands, except per-share data

2011

2011

2011

2011

2011

Net sales

$               790,273

$               910,175

$                      890,546

$880,000 - $900,000

approx       $  3.5B

Operating income - as reported

86,177

109,422

92,903

98,000 - 102,000

approx  386 - 390M

  % of net sales

10.9%

12.0%

10.4%

11% - 11.5%

approx 11%+

Adjustments:

   CPT deal related costs

1,709

6,136

   Restructuring

2,079

   Inventory step-up and customer backlog

197

5,256

5,798

approx                2,000

approx                 23M

Operating income - as adjusted

88,083

120,814

100,780

100,000 - 104,000

approx  409 - 413M

  % of net sales

11.1%

13.3%

11.3%

11% - 11.5%

approx 12%

Net income from continuing operations attributable

   to Pentair, Inc. - as reported

50,541

66,712

51,092

56,000 - 60,000

approx 225 - 229M

   Adjusments net of tax

1,287

8,803

6,561

approx            2,000

approx            18M

Net income from continuing operations attributable

   to Pentair, Inc. - as adjusted

51,828

75,515

57,653

58,000 - 62,000

approx 243 - 247M

Continuing earnings per common share attributable to Pentair, Inc. - diluted

Diluted earnings per common share - as reported

$                     0.51

$                     0.67

$                            0.51

$0.57 - $0.60

$2.26 - $2.29

Adjustments

0.01

0.08

0.07

0.02

0.18

Diluted earnings per common share - as adjusted

$                     0.52

$                     0.75

$                            0.58

$0.59 - $0.62

$2.44 - $2.47

Pentair, Inc. and Subsidiaries

Reconciliation of the GAAP "As Reported" year ending December 31, 2011 to the "Adjusted" non-GAAP

excluding the effect of 2011 adjustments (Unaudited)

Water

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

Year

In thousands

2011

2011

2011

2011

2011

Net sales

$               515,368

$                    631,944

$                      614,557

$620,000 - $635,000

approx      $2.4B

Operating income - as reported

56,528

84,521

59,608

68,000 - 73,000

269 - 274M

  % of net sales

11.0%

13.4%

9.7%

approx 11-11.5%

approx 11-11.5%

Adjustments:

   Restructuring

1,955

   Inventory step-up and customer backlog

197

5,256

5,798

approx               2,000

approx              15M

Operating income - as adjusted

56,725

89,777

67,361

70,000 - 75,000

284 - 289M

  % of net sales

11.0%

14.2%

11.0%

approx 11.5%

approx 11.5-12%

SOURCE Pentair, Inc.



RELATED LINKS

http://www.pentair.com