Enclosures Margins Improve 310 Basis Points, Water Technologies Delivers Record QuarterGOLDEN VALLEY, Minn., Jul 17, 2003 /PRNewswire-FirstCall via COMTEX/ -- Pentair
(NYSE: PNR) today announced that its second quarter 2003 earnings per share
(EPS) of $0.88 gained two percent over EPS of $0.86 in the same period last
year, resulting in first-half EPS of $1.44, a 12 percent increase over EPS of
$1.29 in the first half of 2002.
Pentair's second quarter net sales totaled $719.0 million, up from sales
of $708.1 million in the same period a year ago. Operating income for the
second quarter 2003 totaled $76.3 million, two percent greater than the
$74.6 million reported in the second quarter of 2002. Pentair generated Free
Cash Flow (Cash from Operations less Capital Expenditures) of $68.8 million in
the second quarter of 2003, resulting in a positive year-to-date Free Cash
Flow of $58.7 million.
"Our supply management, lean enterprise, and cash flow initiatives
continued to improve our performance in the second quarter, despite the impact
of the slow economy, unfavorable weather conditions, and a challenging
comparison against what was a very strong performance in the second quarter of
2002," said Randall J. Hogan, Pentair chairman and CEO. "Our Enclosures Group
realized its sixth quarter of sequential margin improvement with a 100 basis
point gain over the first quarter of 2003. Our Water Technologies Group, which
is now at a billion-dollar run rate, delivered a record quarter in terms of
sales and operating income as a result of initiatives that are beginning to
show promising results, with new growth in pumps, filtration, the European
pool business, and Asia."
In the Tools Group, net sales of $283.4 million in the second quarter of
2003 were down seven percent compared to the same period last year. These
results were attributed to the effects of an uncertain economy, unfavorable
weather conditions that hampered sales of certain product lines into
industrial and retail channels, and the lingering impact of the first quarter
2003 loss of compressor SKUs in the home center channel. The continued decline
in demand also led to increased pricing pressure and higher promotional costs.
Operating income of $23.1 million was 25 percent lower than in the same period
last year, and margins of 8.2 percent were 200 basis points below those of the
same period last year due to sales declines driven by lower units and price
pressure, coupled with increased costs related to capacity reductions.
In the Water Technologies Group, second quarter 2003 sales of
$290.7 million increased nearly 10 percent versus the same period last year
due to the contributions of the Plymouth Products business and favorable
effects of currency translation. The Group's operating income of $46.0 million
was up more than five percent for the quarter compared to those of the same
period last year, while margins declined by 70 basis points on the same
comparison. The lower margins resulted from unfavorable product mix due
primarily to the slow start of the pool season, and costs associated with
downsizing the Chardon, Ohio operation.
In the Enclosures Group, sales of $145.2 million in the second quarter of
2003 were up five percent compared to the same period in 2002, driven by
favorable currency exchange. Second quarter operating income of $11.7 million
gained 67 percent over that of the previous year's second quarter, while
margins gained 310 basis points to 8.1 percent. The continued margin
improvement was attributed to productivity improvements from lean enterprise
activities and supply chain initiatives.
"While sales were weak in the Tools Group, growth initiatives in both the
Enclosures and Water Technologies Groups are showing promising results," Hogan
said. "Given continued gains in our Enclosures and Water Technologies
businesses, and our cautious outlook on Tools, we are targeting third quarter
2003 EPS of between $0.70 and $0.80."
Pentair EPS guidance for the full year 2003 of between $2.90 and $3.05 is
unchanged from guidance provided on April 17, 2003.
A Pentair conference call scheduled for 11:00 a.m. CDT today will be
webcast live via http://www.pentair.com . The conference call, which can be
found on the site's "Financial Information" page, will be archived at the same
location.
Pentair is a Minnesota-based manufacturer whose core businesses compete in
tools, water technologies, and enclosures markets. The company employs 12,000
people in more than 50 locations around the world.
Any statements made about the company's anticipated financial results are
forward-looking statements subject to risks and uncertainties such as
continued economic growth; foreign currency effects; retail and industrial
demand; product introductions; and pricing and other competitive pressures.
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.
Pentair, Inc. and Subsidiaries
Condensed Consolidated Statements of Income (Unaudited)
In thousands, Three months ended Six months ended
except per-share June 28 June 29 June 28 June 29
data 2003 2002 2003 2002
Net sales $718,989 $708,116 $1,356,505 $1,311,179
Cost of goods sold 535,501 532,136 1,017,726 998,188
Gross profit 183,488 175,980 338,779 312,991
% of net sales 25.5% 24.9% 25.0% 23.9%
Selling, general and
administrative 95,932 92,367 188,914 175,287
% of net sales 13.3% 13.0% 13.9% 13.4%
Research and
development 11,224 9,021 21,345 17,385
% of net sales 1.6% 1.3% 1.6% 1.3%
Operating income 76,332 74,592 128,520 120,319
% of net sales 10.6% 10.5% 9.5% 9.2%
Net interest expense 9,837 10,476 19,830 24,206
% of net sales 1.4% 1.5% 1.5% 1.8%
Income before income
taxes 66,495 64,116 108,690 96,113
% of net sales 9.2% 9.1% 8.0% 7.3%
Provision for income
taxes 22,608 21,140 36,954 31,699
Effective tax rate 34.0% 33.0% 34.0% 33.0%
Net income (loss) $43,887 $42,976 $71,736 $64,414
Earnings per common
share
Basic $0.89 $0.87 $1.45 $1.31
Diluted $0.88 $0.86 $1.44 $1.29
Weighted average
common shares
outstanding
Basic 49,381 49,228 49,364 49,201
Diluted 49,812 50,039 49,715 49,812
Cash dividends
declared per common
share $0.21 $0.18 $0.40 $0.36
Pentair, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
June 28 December 31 June 29
In thousands 2003 2002 2002
Assets
Current assets
Cash and cash equivalents $45,465 $39,648 $29,289
Accounts and notes
receivable, net 442,366 403,793 450,701
Inventories 333,370 293,202 305,663
Deferred income taxes 57,524 55,234 67,087
Prepaid expenses and other
current assets 20,695 17,132 21,189
Net assets of discontinued
operations 2,166 1,799 2,399
Total current assets 901,586 810,808 876,328
Property, plant and
equipment, net 342,784 351,316 314,655
Goodwill 1,245,812 1,218,341 1,098,952
Other assets 137,339 133,985 110,894
Total assets $2,627,521 $2,514,450 $2,400,829
Liabilities and Shareholders' Equity
Current liabilities
Short-term borrowings $329 $686 $-
Current maturities of
long-term debt 58,516 60,488 6,089
Accounts and notes payable 214,213 171,709 206,159
Employee compensation
and benefits 76,884 84,965 76,548
Accrued product claims
and warranties 38,920 36,855 39,678
Income taxes 17,086 12,071 15,234
Other current liabilities 109,186 109,426 118,775
Total current liabilities 515,134 476,200 462,483
Long-term debt 669,687 673,911 638,554
Pension and other retirement
compensation 132,622 124,301 80,405
Post-retirement medical
and other benefits 42,293 42,815 43,102
Deferred income taxes 33,745 31,728 35,143
Other noncurrent liabilities 62,497 59,771 63,005
Total liabilities 1,455,978 1,408,726 1,322,692
Shareholders' equity 1,171,543 1,105,724 1,078,137
Total liabilities and
shareholders' equity $2,627,521 $2,514,450 $2,400,829
Days sales in accounts
receivable (13 month
moving average) 58 59 63
Days inventory on hand
(13 month moving average) 65 63 68
Days in accounts payable
(13 month moving average) 53 53 56
Debt/total capital 38.3% 39.9% 37.4%
Pentair, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
Six months ended
June 28 June 29
In thousands 2003 2002
Operating activities
Net income $71,736 $64,414
Depreciation 32,031 30,376
Other amortization 2,566 1,728
Deferred income taxes (614) 3,485
Stock compensation 306 -
Changes in assets and liabilities,
net of effects of business acquisitions
Accounts and notes receivable (31,013) (43,461)
Inventories (33,148) (1,620)
Prepaid expenses and other current assets (3,899) (5,087)
Accounts payable 38,753 25,407
Employee compensation and benefits (8,783) 1,099
Accrued product claims and warranties 1,125 1,894
Income taxes 3,816 8,496
Other current liabilities (3,515) 8,077
Pension and post-retirement benefits 4,795 3,508
Other assets and liabilities 3,863 1,217
Net cash provided by continuing operations 78,019 99,533
Net cash provided by (used for)
discontinued operations (367) 2,926
Net cash provided by operating activities 77,652 102,459
Investing activities
Capital expenditures (18,935) (15,275)
Proceeds (payments) from sale of businesses (2,400) 1,547
Acquisitions, net of cash acquired (15,150) -
Equity investments (5,461) (4,169)
Other 47 (165)
Net cash used for investing activities (41,899) (18,062)
Financing activities
Net short-term borrowings (repayments) (549) 665
Proceeds from long-term debt 291,691 119,689
Repayment of long-term debt (301,300) (201,388)
Proceeds from exercise of stock options 699 2,107
Dividends paid (19,738) (17,713)
Net cash used for financing activities (29,197) (96,640)
Effect of exchange rate changes on cash (739) 1,688
Change in cash and cash equivalents 5,817 (10,555)
Cash and cash equivalents, beginning of period 39,648 39,844
Cash and cash equivalents, end of period $45,465 $29,289
Free cash flow
Net cash provided by operating activities $77,652 $ 102,459
Less capital expenditures (including buyout
of synthetic lease) (18,935) (15,275)
Free cash flow $58,717 $87,184
Pentair, Inc. and Subsidiaries
Supplemental Financial Information by Reportable Business Segment
(Unaudited)
First Second Six First Second Six
Qtr Qtr Months Qtr Qtr Months
In thousands 2003 2003 2003 2002 2002 2002
Net sales
to external
customers
Tools $251,765 $283,416 $535,181 $252,092 303,771 $555,863
Water 246,440 290,692 537,132 211,411 265,531 476,942
Enclosures 139,311 144,881 284,192 139,560 138,814 278,374
Consolidated $637,516 $718,989 1,356,505 $603,063 708,116 $1,311,179
Intersegment
sales
Tools $ - $ - $ - $ - $ - $ -
Water - - - - - -
Enclosures 142 355 497 - - -
Other (142) (355) (497) - - -
Consolidated $ - $ - $ - $ - $ - $ -
Operating
income
(loss)
Tools $17,686 $23,148 $40,834 $16,686 $30,837 $47,523
Water 29,504 46,002 75,506 29,747 43,708 73,455
Enclosures 9,865 11,703 21,568 4,608 6,995 11,603
Other (4,867) (4,521) (9,388) (5,314) (6,948) (12,262)
Consolidated $52,188 $76,332 $128,520 $45,727 $74,592 $120,319
Operating
income as a
percent of
net sales
Tools 7.0% 8.2% 7.6% 6.6% 10.2% 8.5%
Water 12.0% 15.8% 14.1% 14.1% 16.5% 15.4%
Enclosures 7.1% 8.1% 7.6% 3.3% 5.0% 4.2%
Consolidated 8.2% 10.6% 9.5% 7.6% 10.5% 9.2%
SOURCE Pentair
Mark Cain of Pentair, +1-763-656-5278