- Reports second quarter sales up 15 percent year-over-year to $796 million, with double digit growth in both Water and Technical Products
- Operating margins improved year-over-year to 12.6 percent
- Diluted earnings per share from continuing operations (EPS) of $0.61 up 85 percent year-over-year on GAAP basis; up 61 percent when compared to adjusted second quarter 2009 EPS
- Delivered strong free cash flow of $150 million in the second quarter
- Updated full-year 2010 EPS guidance to a range of $1.86 to $1.96 from previous guidance of $1.75 to $1.90 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.
MINNEAPOLIS, July 29, 2010 /PRNewswire via COMTEX/ --
Pentair, Inc. (NYSE: PNR) today reported second quarter 2010 revenue of $796 million and net income from continuing operations attributable to Pentair, Inc. of $60 million, or $0.61 per share. This represents an increase of 85 percent as compared to the $0.33 of EPS in the second quarter last year. Adjusting second quarter 2009 for restructuring items, year-over-year adjusted EPS increased 61 percent.
Total company sales increased 15 percent to $796 million, compared with $694 million in the second quarter of 2009. Both Water and Technical Products posted double-digit sales gains, and growth was broad-based across end-markets served. The company delivered second quarter operating income of $100 million, up 58 percent year-over-year or up 51 percent compared to adjusted second quarter 2009 operating income. Overall, operating margins for the second quarter increased 300 basis points to 12.6 percent when compared to adjusted second quarter 2009 operating margins, driven by revenue growth and operational productivity.
The company generated strong free cash flow of $150 million for the quarter, with year-to-date free cash flow performance of $128 million, which is $29 million greater than the first half of 2009. The company said it is on track to achieve free cash flow of greater than $225 million for full year 2010.
"I am pleased with our second quarter performance, as strong execution of growth and productivity initiatives, along with improvement in market trends, enabled us to deliver double digit revenue gains and robust earnings growth. Pentair's strong market execution, innovation and growth in the U.S., Europe and China led the way in both Water and Technical Products," said Randall J. Hogan, Pentair chairman and chief executive officer.
"Our lean cost structure and continued productivity efforts enabled us to significantly expand operating margins, while making continued incremental growth investments in product and market innovation," Hogan continued. "Our strong second quarter performance underscores the strength of our brands, channels and geographies, as well as our focused execution."
SECOND QUARTER BUSINESS HIGHLIGHTS
Water delivered $549 million in sales, a 13 percent increase year-over-year. Foreign exchange was neutral to revenue in the quarter.
- Residential Flow sales were up 4 percent versus the year-ago quarter, reflecting share gains in the professional pump channel and strength in the agricultural business.
- Residential Filtration sales were up 7 percent as fast growth regions increased double digits, while the U.S. market continued its modest recovery.
- Pool sales were up 31 percent as the business continued to gain share with an expanded dealer base and healthy demand for energy-efficient Eco-Select products.
- Engineered Flow sales were up 14 percent driven by strong municipal sales, while North American commercial water systems remained down, reflecting a weak commercial construction market.
- Filtration Solutions sales were up 8 percent led by strong sales in Food Service along with growth in global systems in China and India, which helped offset timing delays of larger municipal project sales.
Water's second quarter reported operating income totaled $76 million, up 53 percent as compared to $50 million in the same period last year. When compared to second quarter 2009 adjusted operating income of $51 million, second quarter 2010 operating margins increased by 330 basis points to 13.8 percent. The benefits from higher volumes, modest pricing and strong productivity more than offset increased costs related to material inflation, reinstated employee benefits and growth investments.
Technical Products delivered second quarter 2010 sales of $247 million, an increase of 19 percent versus the year-earlier period. Sales grew 20 percent, excluding the impact of foreign exchange, driven by solid demand across all key markets and increased pricing of approximately 1 percentage point.
- Industrial, general electronics, energy and infrastructure all posted strong double digit sales, with modest growth in communications and commercial markets.
- The U.S. and Western European geographies grew in the mid-teens, while emerging markets were up over 36 percent in total, led by robust growth in China.
Technical Products' second quarter reported operating income totaled $38 million, up 61 percent compared to $24 million in the same quarter last year. When compared to second quarter 2009 adjusted operating income of $25 million, second quarter 2010 operating margins increased 340 basis points to 15.4 percent. Higher volumes, increased pricing and continued productivity more than offset the negative impact from inflation, reinstated employee benefits, costs related to the completion of all previously announced plant closures, and growth investments.
OUTLOOK
The company provided its third quarter 2010 EPS guidance of $0.49 to $0.52, an increase of 17 to 24 percent year-over-year when compared to adjusted third quarter 2009 earnings. The company expects third quarter sales to be up over 10 percent compared to the same period last year.
The company updated its full year 2010 EPS guidance to a range of $1.86 to $1.96, an increase of 27 to 33 percent versus full year 2009 adjusted EPS. Full year 2010 sales are expected to be around $2.95 billion and full year free cash flow is expected to be greater than $225 million.
"Our raised full year 2010 guidance reflects our strong first half performance and a balanced market view for the remainder of the year," said Hogan. "We have a strong portfolio of products and systems today, along with an aligned global business structure with prioritized growth and productivity initiatives that we believe are yielding positive results and positioning us for accelerating performance in our served markets," he 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 second 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 second quarter 2010 earnings release and the second 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.
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PENTAIR CONTACT:
Sara Zawoyski
Vice President, Investor Relations
Tel.: (763) 656-5575
E-mail: [email protected]
Pentair, Inc. and Subsidiaries
Condensed Consolidated Statements of Income (Unaudited)
Three months ended Six months ended
------------------ ----------------
July 3, June 27, July 3, June 27,
In thousands,
except per-share
data 2010 2009 2010 2009
-----------------
Net sales $796,167 $693,712 $1,503,180 $1,327,552
Cost of goods sold 547,999 497,233 1,041,310 961,841
------------------ ------- ---------
Gross profit 248,168 196,479 461,870 365,711
% of net sales 31.2% 28.3% 30.7% 27.6%
Selling, general
and administrative 131,043 119,104 263,933 236,379
% of net sales 16.5% 17.1% 17.6% 17.8%
Research and
development 16,999 13,815 34,210 28,558
% of net sales 2.1% 2.0% 2.2% 2.2%
--- --- --- ---
Operating income 100,126 63,560 163,727 100,774
% of net sales 12.6% 9.2% 10.9% 7.6%
Other (income)
expense:
Equity (income)
losses of
unconsolidated
subsidiaries (1,375) 279 (1,459) 556
Loss on early
extinguishment of
debt - 4,804 - 4,804
Net interest
expense 8,569 9,833 18,096 21,617
% of net sales 1.1% 1.4% 1.2% 1.6%
--- --- --- ---
Income from
continuing
operations before
income taxes
and noncontrolling
interest 92,932 48,644 147,090 73,797
% of net sales 0.0% 0.0% 0.0% 0.0%
Provision for
income taxes 31,320 16,217 49,449 23,649
effective tax rate 33.7% 33.3% 33.6% 32.0%
---- ---- ---- ----
Income from
continuing
operations 61,612 32,427 97,641 50,148
Gain (loss) on
disposal of
discontinued
operations, net of
tax 593 (78) 1,117 (68)
------------------- --- --- ----- ---
Net income before
noncontrolling
interest 62,205 32,349 98,758 50,080
Noncontrolling
interest 1,124 421 2,356 887
-------------- ----- --- ----- ---
Net income
attributable to
Pentair, Inc. $61,081 $31,928 $96,402 $49,193
================ ======= ======= ====== =======
Net income from
continuing
operations
attributable to
Pentair, Inc. $60,488 $32,006 $95,285 $49,261
================ ======= ======= ====== =======
Earnings per common
share attributable
to Pentair, Inc.
Basic
Continuing
operations $0.61 $0.33 $0.96 $0.51
Discontinued
operations 0.01 - 0.01 -
------------
Basic earnings
per common
share $0.62 $0.33 $0.97 $0.51
============== ===== ===== ==== =====
Diluted
Continuing
operations $0.61 $0.33 $0.96 $0.50
Discontinued
operations - - 0.01 -
------------
Diluted earnings
per common
share $0.61 $0.33 $0.97 $0.50
================ ===== ===== ==== =====
Weighted average
common shares
outstanding
Basic 98,208 97,507 98,081 97,445
Diluted 99,638 98,422 99,435 98,145
Cash dividends
declared per
common share $0.19 $0.18 $0.38 $0.36
Pentair, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
December
July 3, 31, June 27,
In thousands 2010 2009 2009
Assets
Current assets
Cash and cash equivalents $38,580 $33,396 $38,118
Accounts and notes receivable, net 475,679 455,090 462,106
Inventories 389,428 360,627 362,743
Deferred tax assets 49,058 49,609 51,465
Prepaid expenses and other current
assets 42,878 47,576 50,111
Total current assets 995,623 946,298 964,543
Property, plant and equipment, net 318,124 333,688 340,884
Other assets
Goodwill 2,033,064 2,088,797 2,106,026
Intangibles, net 451,806 486,407 504,674
Other 54,083 56,144 61,118
Total other assets 2,538,953 2,631,348 2,671,818
------------------ --------- --------- ---------
Total assets $3,852,700 $3,911,334 $3,977,245
========== ========== ==========
Liabilities and Shareholders' Equity
Current liabilities
Short-term borrowings $2,320 $2,205 $6,143
Current maturities of long-term debt 163 81 122
Accounts payable 248,679 207,661 212,973
Employee compensation and benefits 86,471 74,254 71,674
Current pension and post-retirement
benefits 8,948 8,948 8,890
Accrued product claims and warranties 42,981 34,288 36,780
Income taxes 23,252 5,659 14,668
Accrued rebates and sales incentives 34,418 27,554 26,286
Other current liabilities 78,496 85,629 84,491
Total current liabilities 525,728 446,279 462,027
Other liabilities
Long-term debt 734,472 803,351 883,281
Pension and other retirement
compensation 213,142 234,948 270,588
Post-retirement medical and other
benefits 29,819 31,790 32,847
Long-term income taxes payable 24,821 26,936 26,906
Deferred tax liabilities 139,977 146,630 150,167
Other non-current liabilities 92,926 95,060 96,016
-----------------------------
Total liabilities 1,760,885 1,784,994 1,921,832
Shareholders' equity 2,091,815 2,126,340 2,055,413
Total liabilities and shareholders'
equity $3,852,700 $3,911,334 $3,977,245
========== ========== ==========
Days sales in accounts receivable (13
month moving average) 60 62 61
Days inventory on hand (13 month moving
average) 83 90 89
Days in accounts payable (13 month
moving average) 69 66 62
Pentair, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
Six months ended
----------------
July 3, June 27,
In thousands 2010 2009
------------
Operating activities
Net income before noncontrolling interest $98,758 $50,080
Adjustments to reconcile net income to net
cash provided by (used for) operating
activities
(Gain) loss on disposal of discontinued
operations (1,117) 68
Equity (income) losses of unconsolidated
subsidiaries (1,459) 556
Depreciation 28,876 29,634
Amortization 13,357 14,601
Deferred income taxes 2,396 464
Stock compensation 12,365 9,087
Excess tax benefits from stock-based
compensation (1,322) (582)
Gain on sale of assets (57) (286)
Changes in assets and liabilities, net of
effects of business acquisitions and
dispositions
Accounts and notes receivable (33,438) 1,556
Inventories (38,651) 55,703
Prepaid expenses and other current assets 1,877 13,532
Accounts payable 46,938 (3,436)
Employee compensation and benefits 11,275 (21,821)
Accrued product claims and warranties 9,196 (4,792)
Income taxes 18,872 9,066
Other current liabilities 1,043 (23,234)
Pension and post-retirement benefits (12,943) (1,433)
Other assets and liabilities 448 (2,205)
---------------------------- --- ------
Net cash provided by (used for) continuing
operations 156,414 126,558
Net cash provided by (used for) operating
activities of discontinued operations - (1,408)
----------------------------------------- --- ------
Net cash provided by (used for) operating
activities 156,414 125,150
Investing activities
Capital expenditures (28,937) (28,850)
Proceeds from sale of property and
equipment 243 563
Divestitures - 920
Other (1,286) (10)
----- ------ ---
Net cash provided by (used for) investing
activities (29,980) (27,377)
Financing activities
Net short-term borrowings 115 6,024
Proceeds from long-term debt 335,021 400,000
Repayment of long-term debt (403,742) (470,187)
Debt issuance costs (50) (50)
Excess tax benefits from stock-based
compensation 1,322 582
Stock issued to employees, net of shares
withheld (817) 996
Dividends paid (37,700) (35,433)
-------------- ------- -------
Net cash provided by (used for) financing
activities (105,851) (98,068)
Effect of exchange rate changes on cash and
cash equivalents (15,399) (931)
-------------------------------------------
Change in cash and cash equivalents 5,184 (1,226)
Cash and cash equivalents, beginning of
period 33,396 39,344
--------------------------------------- ------ ------
Cash and cash equivalents, end of period $38,580 $38,118
======================================== ======= =======
Free cash flow
--------------
Net cash provided by (used for) continuing
operations $156,414 $126,558
Capital expenditures (28,937) (28,850)
Proceeds from sale of property and
equipment 243 563
----------------------------------
Free cash flow $127,720 $98,271
============== ======== =======
Pentair, Inc. and Subsidiaries
Supplemental Financial Information by Reportable Business Segment
(Unaudited)
First Second Six
Qtr Qtr Months
In thousands 2010 2010 2010
------------ ---- ---- ----
Net sales to external
customers
Water Group $478,038 $549,318 $1,027,356
Technical Products Group 228,975 246,849 475,824
Consolidated $707,013 $796,167 $1,503,180
============ ======== ======== ==========
Intersegment sales
Water Group $517 $427 $944
Technical Products Group 703 1,047 1,750
Intercompany sales
eliminations (1,220) (1,474) (2,694)
Consolidated $ - $ - $ -
============ === === === === === ===
Operating income (loss)
Water Group $42,138 $75,954 $118,092
Technical Products Group 33,098 37,990 71,088
Unallocated corporate
expenses and
intercompany eliminations (11,635) (13,818) (25,453)
Consolidated $63,601 $100,126 $163,727
============ ======= ======== ========
Operating income as a percent
of net sales
Water 8.8% 13.8% 11.5%
Technical Products 14.5% 15.4% 14.9%
Consolidated 9.0% 12.6% 10.9%
First Second Six
Qtr Qtr Months
In thousands 2009 2009 2009
------------ ---- ---- ----
Net sales to external
customers
Water Group $423,932 $486,990 $910,922
Technical Products Group 209,908 206,722 416,630
Consolidated $633,840 $693,712 $1,327,552
============ ======== ======== ==========
Intersegment sales
Water Group $289 $198 $487
Technical Products Group 233 600 833
Intercompany sales
eliminations (522) (798) (1,320)
Consolidated $ - $ - $ -
============ === === === === === ===
Operating income (loss)
Water Group $26,976 $49,781 $76,757
Technical Products Group 20,462 23,578 44,040
Unallocated corporate
expenses and
intercompany eliminations (10,224) (9,799) (20,023)
Consolidated $37,214 $63,560 $100,774
============ ======= ======= ========
Operating income as a percent
of net sales
Water 6.4% 10.2% 8.4%
Technical Products 9.7% 11.4% 10.6%
Consolidated 5.9% 9.2% 7.6%
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 Second Third Fourth
Quarter Quarter Quarter 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 Second Third Fourth
Quarter Quarter Quarter 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.