Pentair Reports Third Quarter Sales Growth of 17 Percent and Net Income Per Diluted Share From Continuing Operations of $0.55

-- Reports third quarter sales up 17 percent year-over-year to $774 million, with double digit growth in both Water and Technical Products

-- Operating margins improved year-over-year to 11.7 percent

-- Diluted earnings per share from continuing operations (EPS) of $0.55, up 45 percent year-over-year on GAAP basis; up 31 percent when compared to adjusted third quarter 2009 EPS

-- Updated full-year 2010 EPS guidance to a range of $1.93 to $1.98 from previous guidance of $1.86 to $1.96 per share

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

Oct 26, 2010, 07:00 ET from Pentair, Inc.

MINNEAPOLIS, Oct. 26 /PRNewswire-FirstCall/ --  Pentair, Inc. (NYSE: PNR) today reported third quarter 2010 revenue of $774 million and net income from continuing operations attributable to Pentair, Inc. of $55 million, or $0.55 per share.  This compares to $0.38 of EPS in the third quarter last year.  Adjusting third quarter 2009 for restructuring items, year-over-year adjusted EPS increased 31 percent.  

Total company sales increased 17 percent to $774 million, compared with $663 million in the third quarter of 2009.  Both Water and Technical Products grew sales double-digits with broad-based growth across geographies and most key end-markets served.  The company delivered third quarter operating income of $91 million, up 36 percent year-over-year or up 23 percent compared to adjusted third quarter 2009 operating income.  Overall, operating margins for the third quarter increased 50 basis points to 11.7 percent when compared to adjusted third quarter 2009 operating margins, driven mostly by revenue growth.  

The company generated free cash flow of $79 million for the quarter, with year-to-date free cash flow performance of $207 million, which is $5 million greater than the same period of a year ago.  The company said it is on track to achieve free cash flow of greater than $225 million for the full year 2010.

"Third quarter results were solid, with broad-based top-line growth across our portfolio of businesses and geographies," said Randall J. Hogan, Pentair chairman and chief executive officer.  "Our performance reflects focused execution on our growth and productivity initiatives and underscores the strength of our brands, channels and geographies."  

"We are encouraged by the continued strength in the industrial end markets and robust growth in emerging markets, while the U.S. residential end market continues its modest recovery.  We continue to generate strong cash flows and invest in product innovation and expanding our presence in key emerging markets to fuel further growth," Hogan continued.

THIRD QUARTER BUSINESS HIGHLIGHTS

Water sales grew 11 percent year-over-year to $513 million, including an unfavorable one-percentage point impact from foreign exchange.  Within Water, U.S. sales grew 14 percent led by strong sales in municipal pumps, pool equipment and agriculture.  In emerging markets, water grew 13 percent led by 18 percent growth in Latin America and sales almost doubling in India.  Within the five Water global business units, the third quarter sales were as follows:    

  • Residential Flow sales were up 1 percent versus the year-ago quarter, as robust growth in the agricultural business helped offset a modest decline in U.S. residential pumps.  
  • Residential Filtration sales were up 9 percent due to expanded distribution in emerging markets and product innovations across all markets.
  • Pool sales were up 10 percent as the U.S. business continued to grow faster than the market due to dealer expansion and demand for energy-efficient Eco-Select products.  
  • Engineered Flow sales were up 35 percent reflecting strong municipal pump sales driven by the Gulf Intracoastal Waterway project in New Orleans.  Commercial business declines continued, reflecting a weak commercial market.
  • Filtration Solutions sales were up 10 percent led by strong global sales and expanded distribution in Food Service and the Energy market, which helped offset lower municipal project sales.    

Water's third quarter reported operating income totaled $58 million, up 10 percent as compared to $53 million in the same period last year.  When compared to third quarter 2009 adjusted operating income of $56 million, third quarter 2010 operating margins decreased by 70 basis points to 11.4 percent.  Higher than expected material costs due to inflation and mix, along with lower pricing drove margins lower year-over-year.  The benefits from volume growth and productivity continued to offset reinstated employee benefits and growth investments.  

Technical Products delivered third quarter 2010 sales of $261 million, an increase of 30 percent versus the year-earlier period. Sales grew 32 percent, excluding the impact of foreign exchange, driven by solid demand across all key markets.  

  • Industrial, communications and general electronics all posted strong double digit sales, while the commercial business grew for the second sequential quarter.
  • The U.S. had strong growth, with sales up 35 percent year-over-year, while Western European geographies grew in the low teens.  Emerging markets were up 38 percent in total, led by robust growth in China.  

Technical Products' third quarter reported operating income totaled $43 million, up 75 percent compared to $24 million in the same quarter last year.  When compared to third quarter 2009 adjusted operating income of $29 million, third quarter 2010 operating margins increased 190 basis points to 16.3 percent.  Volume growth, productivity, and slightly higher pricing more than offset the negative impact from inflation, reinstated employee benefits and growth investments.  

OUTLOOK

The company provided its fourth quarter 2010 EPS guidance of $0.42 to $0.47, which is flat to down 11 percent when compared to adjusted fourth quarter 2009 EPS of $0.47.  The fourth quarter 2010 EPS includes a higher tax rate and four less selling days when compared to the same period of a year ago.  The company expects fourth quarter 2010 sales to be up mid single digits compared to the same period last year.

The company updated its full year 2010 EPS guidance to a range of $1.93 to $1.98, an increase of 31 to 35 percent versus full year 2009 adjusted EPS.  Full year 2010 sales are now expected to be around $3.0 billion and full year free cash flow is expected to be greater than $225 million.  

"Our updated full year 2010 guidance reflects sales growth of approximately 12 percent for the year and expected EPS growth in the 31 to 35 percent range, demonstrating the strength of our businesses and positive results from our focused execution on growth and productivity initiatives," said Hogan.

"The fourth quarter EPS guidance reflects continued strength in daily sales. We anticipate higher year-over-year costs in the fourth quarter related to material inflation, the reinstatement of the employee benefits and continued investments in innovation and selling capabilities.  Moving beyond the fourth quarter, we expect pricing and higher productivity to offset material inflation and we will continue to drive initiatives to sustain accelerated growth," Hogan added.

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 2010 results and 2010 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 2010 earnings release and the third quarter 2010 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 the magnitude, timing and scope of recovery from the global economic downturn; the strength of housing and related markets; the risk that expected benefits from our recent 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; product introductions; and pricing and other competitive pressures, 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 2009 revenues of $2.7 billion, Pentair employs approximately 13,500 people worldwide.

PENTAIR CONTACTS:

Sara Zawoyski

Vice President, Investor Relations

Tel.: (763) 656-5575

E-mail: sara.zawoyski@pentair.com

Pentair, Inc. and Subsidiaries

Condensed Consolidated Statements of Income (Unaudited)

Three months ended

Nine months ended

October 2,

September 26,

October 2,

September 26,

In thousands, except per-share data 

2010

2009

2010

2009

Net sales

$

773,735

$

662,665

$

2,276,915

$

1,990,217

Cost of goods sold 

537,193

455,698

1,578,503

1,417,539

Gross profit

236,542

206,967

698,412

572,678

% of net sales

30.6%

31.2%

30.7%

28.8%

Selling, general and administrative 

128,854

125,578

392,787

361,957

% of net sales

16.7%

18.9%

17.3%

18.2%

Research and development 

16,865

14,707

51,075

43,265

% of net sales

2.2%

2.2%

2.2%

2.2%

Operating income

90,823

66,682

254,550

167,456

% of net sales

11.7%

10.1%

11.2%

8.4%

Other (income) expense:

Equity (income) losses of unconsolidated subsidiaries 

(347)

135

(1,806)

691

Loss on early extinguishment of debt

4,804

Net interest expense

8,953

9,711

27,049

31,328

% of net sales

1.2%

1.5%

1.2%

1.6%

Income from continuing operations before income taxes 

  and noncontrolling interest 

82,217

56,836

229,307

130,633

Provision for income taxes

26,488

18,159

75,937

41,808

effective tax rate

32.2%

31.9%

33.1%

32.0%

Income from continuing operations 

55,729

38,677

153,370

88,825

Gain (loss) on disposal of discontinued operations, net of tax 

549

(85)

1,666

(153)

Net income before noncontrolling interest 

56,278

38,592

155,036

88,672

Noncontrolling interest  

1,228

1,644

3,584

2,531

Net income attributable to Pentair, Inc. 

$

55,050

$

36,948

$

151,452

$

86,141

Net income from continuing operations attributable to Pentair, Inc. 

$

54,501

$

37,033

$

149,786

$

86,294

Earnings per common share attributable to Pentair, Inc.

Basic

Continuing operations 

$

0.55

$

0.38

$

1.53

$

0.89

Discontinued operations 

0.01

0.01

Basic earnings per common share 

$

0.56

$

0.38

$

1.54

$

0.89

Diluted

Continuing operations 

$

0.55

$

0.38

$

1.51

$

0.88

Discontinued operations 

0.01

Diluted earnings per common share 

$

0.55

$

0.38

$

1.52

$

0.88

Weighted average common shares outstanding

Basic

98,298

97,496

98,105

97,495

Diluted

99,514

98,641

99,326

98,329

Cash dividends declared per common share 

$

0.19

$

0.18

$

0.57

$

0.54

Pentair, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)

October 2,

December 31,

September 26,

In thousands

2010

2009

2009

Assets

Current assets

Cash and cash equivalents

$

56,995

$

33,396

$

50,214

Accounts and notes receivable, net

490,221

455,090

423,125

Inventories

410,072

360,627

366,416

Deferred tax assets

50,991

49,609

52,997

Prepaid expenses and other current assets

48,555

47,576

48,446

Total current assets

1,056,834

946,298

941,198

Property, plant and equipment, net

327,602

333,688

339,412

Other assets

Goodwill

2,070,911

2,088,797

2,127,082

Intangibles, net

461,378

486,407

506,837

Other

56,033

56,144

67,723

Total other assets

2,588,322

2,631,348

2,701,642

Total assets

$

3,972,758

$

3,911,334

$

3,982,252

Liabilities and Shareholders' Equity

Current liabilities

Short-term borrowings

$

4,180

$

2,205

$

16

Current maturities of long-term debt

37

81

98

Accounts payable

266,416

207,661

199,002

Employee compensation and benefits

100,626

74,254

78,225

Current pension and post-retirement benefits

8,948

8,948

8,890

Accrued product claims and warranties

40,783

34,288

33,179

Income taxes

22,202

5,659

24,302

Accrued rebates and sales incentives

39,066

27,554

27,989

Other current liabilities

90,286

85,629

95,367

Total current liabilities

572,544

446,279

467,068

Other liabilities

Long-term debt

673,265

803,351

814,857

Pension and other retirement compensation

219,463

234,948

264,472

Post-retirement medical and other benefits

28,506

31,790

32,019

Long-term income taxes payable

23,857

26,936

27,792

Deferred tax liabilities

147,772

146,630

153,984

Other non-current liabilities

93,681

95,060

102,924

Total liabilities

1,759,088

1,784,994

1,863,116

Shareholders' equity

2,213,670

2,126,340

2,119,136

Total liabilities and shareholders' equity

$

3,972,758

$

3,911,334

$

3,982,252

Days sales in accounts receivable (13 month moving average)

59

62

62

Days inventory on hand (13 month moving average)

82

90

92

Days in accounts payable (13 month moving average)

68

66

65

Pentair, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)

Nine months ended

October 2,

September 26,

In thousands

2010

2009

Operating activities

Net income before noncontrolling interest

$

155,036

$

88,672

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

(Gain) loss on disposal of discontinued operations

(1,666)

153

Equity (income) losses of unconsolidated subsidiaries

(1,806)

691

Depreciation

43,141

44,186

Amortization

19,742

22,054

Deferred income taxes

4,866

170

Stock compensation

16,598

13,092

Excess tax benefits from stock-based compensation

(2,193)

(754)

Gain on sale of assets

166

(177)

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

Accounts and notes receivable

(36,216)

46,718

Inventories

(49,822)

56,459

Prepaid expenses and other current assets

(1,476)

16,061

Accounts payable

60,162

(18,659)

Employee compensation and benefits

21,600

(17,883)

Accrued product claims and warranties

6,556

(8,565)

Income taxes

18,013

19,166

Other current liabilities

15,493

(9,699)

Pension and post-retirement benefits

(15,197)

(12,251)

Other assets and liabilities

(3,754)

747

Net cash provided by (used for) continuing operations

249,243

240,181

Net cash provided by (used for) operating activities of discontinued operations

(1,531)

Net cash provided by (used for) operating activities

249,243

238,650

Investing activities

Capital expenditures

(42,981)

(39,306)

Proceeds from sale of property and equipment

340

817

Divestitures

1,506

Other

(1,232)

(3,272)

 Net cash provided by (used for) investing activities

(43,873)

(40,255)

Financing activities

Net short-term borrowings

1,975

(16)

Proceeds from long-term debt

493,821

490,000

Repayment of long-term debt

(624,007)

(628,776)

Debt issuance costs

(50)

(50)

Excess tax benefits from stock-based compensation

2,193

754

Stock issued to employees, net of shares withheld

7,861

1,729

Repurchases of common stock

(2,786)

Dividends paid

(56,584)

(53,162)

 Net cash provided by (used for) financing activities

(177,577)

(189,521)

Effect of exchange rate changes on cash and cash equivalents

(4,194)

1,996

Change in cash and cash equivalents

23,599

10,870

Cash and cash equivalents, beginning of period

33,396

39,344

Cash and cash equivalents, end of period

$

56,995

$

50,214

Free cash flow

Net cash provided by (used for) continuing operations

$

249,243

$

240,181

Capital expenditures

(42,981)

(39,306)

Proceeds from sale of property and equipment

340

817

Free cash flow

$

206,602

$

201,692

Pentair, Inc. and Subsidiaries

Supplemental Financial Information by Reportable Business Segment (Unaudited)

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

Intercompany sales eliminations

(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

Unallocated corporate expenses and

  intercompany eliminations

(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

8.8%

13.8%

11.4%

11.5%

Technical Products

14.5%

15.4%

16.3%

15.4%

Consolidated

9.0%

12.6%

11.7%

11.2%

First Qtr

Second Qtr

Third Qtr

Nine Months

In thousands

2009

2009

2009

2009

Net sales to external customers

Water Group

$

423,932

$

486,990

$

461,570

$

1,372,492

Technical Products Group

209,908

206,722

201,095

617,725

Consolidated

$

633,840

$

693,712

$

662,665

$

1,990,217

Intersegment sales

Water Group

$

289

$

198

$

284

$

771

Technical Products Group

233

600

544

1,377

Intercompany sales eliminations

(522)

(798)

(828)

(2,148)

Consolidated

$

$

$

$

Operating income (loss)

Water Group

$

26,976

$

49,781

$

53,085

$

129,842

Technical Products Group

20,462

23,578

24,356

68,396

Unallocated corporate expenses and

  intercompany eliminations

(10,224)

(9,799)

(10,759)

(30,782)

Consolidated

$

37,214

$

63,560

$

66,682

$

167,456

Operating income as a percent of net sales

Water

6.4%

10.2%

11.5%

9.5%

Technical Products

9.7%

11.4%

12.1%

11.1%

Consolidated

5.9%

9.2%

10.1%

8.4%

Pentair, Inc. and Subsidiaries

Reconciliation of the GAAP "As Reported" year ending December 31, 2009 to the "Adjusted" non-GAAP

excluding the effect of 2009 adjustments (Unaudited)

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

Year

In thousands, except per-share data

2009

2009

2009

2009

2009

Net sales

$       633,840

$            693,712

$        662,665

$          702,251

$ 2,692,468

Operating income - as reported

37,214

63,560

66,682

52,492

219,948

  % of net sales

5.9%

9.2%

10.1%

7.5%

8.2%

Adjustments:

   Restructuring and asset impairment

2,824

2,944

7,295

24,881

37,944

Operating income - as adjusted

40,038

66,504

73,977

77,373

257,892

  % of net sales

6.3%

9.6%

11.2%

11.0%

9.6%

Net income from continuing operations attributable

   to Pentair, Inc. - as reported

17,255

32,006

37,033

29,218

115,512

Adjustments - tax affected

   Restructuring and asset impairment, net of

       minority interest

1,864

1,943

4,815

17,549

26,171

   Bond tender

3,171

3,171

Net income from continuing operations attributable

   to Pentair, Inc. - as adjusted

19,119

37,120

41,848

46,767

144,854

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

Diluted earnings per common share - as reported

$             0.18

$                  0.33

$              0.38

$                0.29

$          1.17

Adjustments

0.02

0.05

0.04

0.18

0.30

Diluted earnings per common share - as adjusted

$             0.20

$                  0.38

$              0.42

$                0.47

$          1.47

Weighted average common shares outstanding - Diluted

97,966

98,422

98,641

99,226

98,522

Pentair, Inc. and Subsidiaries

Reconciliation of the GAAP "As Reported" year ending December 31, 2009 to the "Adjusted" non-GAAP

excluding the effect of 2009 adjustments (Unaudited)

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

Year

In thousands

2009

2009

2009

2009

2009

Water

Net sales

$       423,932

$            486,990

$        461,570

$          475,272

$ 1,847,764

Operating income - as reported

26,976

49,781

53,085

33,903

163,745

  % of net sales

6.4%

10.2%

11.5%

7.1%

8.9%

Adjustments - restructuring and asset impairment

1,464

1,460

2,639

21,336

26,899

Operating income - as adjusted

28,440

51,241

55,724

55,239

190,644

  % of net sales

6.7%

10.5%

12.1%

11.6%

10.3%

Technical Products

Net sales

$       209,908

$            206,722

$        201,095

$          226,979

$    844,704

Operating income - as reported

20,462

23,578

24,356

31,959

100,355

  % of net sales

9.7%

11.4%

12.1%

14.1%

11.9%

Adjustments - restructuring and asset impairment

792

1,139

4,557

2,729

9,217

Operating income - as adjusted

21,254

24,717

28,913

34,688

109,572

  % of net sales

10.1%

12.0%

14.4%

15.3%

13.0%

SOURCE Pentair, Inc.



RELATED LINKS

http://www.pentair.com