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Pentair's Fourth Quarter 2003 EPS Rises 21 Percent to $0.69 as Sales and Profits Rise in the Water Technologies and Enclosures Groups
02.04.2004
Pentair Generates Record Free Cash Flow of $219 Million

GOLDEN VALLEY, Minn., Feb. 4 /PRNewswire-FirstCall/ -- Pentair (NYSE: PNR) reported earnings per share (EPS) from continuing operations of $0.69 for the fourth quarter 2003, a 21 percent gain over fourth quarter 2002 EPS of $0.57. Sales for the fourth quarter totaled $682.8 million, a seven percent gain over sales of $640.3 million in the same period in 2002. Operating income for the fourth quarter totaled $63.3 million, up 18 percent compared to $53.9 million in the same period last year.

Pentair's net sales for 2003 totaled $2,724.4 million, up from the $2,580.8 million recorded in 2002. Operating income for the year totaled $259.6 million, versus $236.0 million in 2002. EPS from continuing operations in 2003 was $2.90, an 11 percent gain over 2002 EPS of $2.61. Full year free cash flow totaled $219.3 million, representing a 155 percent conversion of 2003 net income.

"Pentair's fourth quarter 2003 performance reflected continued benefits flowing from our five operating initiatives together with an improving economic environment," said Randall J. Hogan, Pentair chairman and CEO. "The Water Technologies Group turned in a tremendous quarter with solid organic sales growth and a 39 percent profit gain over the fourth quarter of 2002. Our Enclosures Group delivered an outstanding performance with margins of 10.5 percent in the fourth quarter -- the Group's eighth consecutive quarter of margin improvement. Coupled with six percent organic sales growth, the margin gain resulted in the strongest Enclosures Group performance since the first quarter of 2001. Our Tools Group continued to battle through competitive market conditions, and it too realized a fourth quarter sales gain of nearly three percent."

In the Water Technologies Group, fourth quarter 2003 sales of $252.3 million increased nine percent versus the same period last year, driven principally by pool equipment, residential and commercial pumps, filtration, and the European water business. Excluding the impact of currency translation, sales were up seven percent. Operating income of $32.3 million increased 39 percent over the same period last year, with pump margins increasing due to productivity improvements and material savings. The European water business also contributed stronger profits resulting from productivity improvements and the effects of currency translation. Margins in the Group were 12.8 percent, up 280 basis points from those of the same period last year.

In the Enclosures Group, fourth quarter 2003 sales of $152.5 million were up 11 percent over the same period in 2002, or six percent excluding the impact of currency translation. The improved volume was driven by increased demand broadly spread across all electrical and electronic markets. Fourth quarter operating income of $16.0 million gained 69 percent over that of the previous year's fourth quarter, while margins increased 360 basis points to 10.5 percent. The Group's profit performance was driven by volume-related efficiencies and continued productivity improvements.

In the Tools Group, the fourth quarter was the first quarter in 2003 in which sales, excluding the effect of acquisitions, improved year-over-year. Sales of $278.2 million in the quarter were up 3 percent compared to the fourth quarter of last year. Operating income for the Group totaled $19.5 million, 21 percent below that of the same period last year due to competitive marketplace pricing, expenses related to capacity reductions, and other one-time costs. The Group expects to improve sales and margins in 2004 by leveraging its brand strength, introducing innovative products, and improving cost productivity.

Pentair reported a loss from discontinued operations of $0.06 per share for the fourth quarter and full year of 2003 due to a reduction in estimated proceeds related to exiting two remaining facilities associated with the fourth quarter 2001 disposal of Pentair's Equipment segment. There was no income or loss from discontinued operations in 2002.

In a separate announcement, Pentair said it has entered into an agreement to acquire WICOR Industries, a subsidiary of Wisconsin Energy Corporation (NYSE: WEC) of Milwaukee, Wisconsin. WICOR, which manufactures water system, filtration, and pool equipment products under the Sta-Rite, SHURflo, and Hypro brands, is expected to generate sales of approximately $750 million in 2003 and employs 3,500 people in 24 locations worldwide. Pentair expects the WICOR acquisition to be accretive to earnings in the first 12 months of ownership. Pentair also announced that it is exploring strategic alternatives for its Tools Group businesses.

"Our Water Technologies and Enclosures groups are performing well in an economy that seems to be gaining momentum," Hogan said. "Our acquisition of Everpure on December 31, 2003, has already reinforced our water filtration platform, and our planned acquisition of WICOR Industries will take Pentair's Water Technologies Group to an entirely new level of performance and profitability. Enclosures will continue to make the most of the sales gains it is capturing and this is expected to further enhance profitability. Meanwhile, the Tools Group is pursuing cost and productivity steps to strengthen its margins in 2004.

"Before any impact from WICOR, we expect to continue driving earnings growth and forecast EPS in the range of $3.15 to $3.30 for 2004," Hogan added. "We expect an increase of about 15 percent in the first quarter 2004."

A Pentair conference call scheduled for 9:00 a.m. CST 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, Inc. and Subsidiaries
             Condensed Consolidated Statements of Income (Unaudited)

                            Three months ended            Year ended
                         December 31  December 31  December 31  December 31
    In thousands,           2003         2002         2003         2002
     except per-share data
    Net sales             $682,846     $640,303   $2,724,365   $2,580,783
    Cost of goods sold     509,594      486,556    2,045,327    1,965,076
    Gross profit           173,252      153,747      679,038      615,707
      % of net sales         25.4%        24.0%        24.9%        23.9%
    Selling, general
     and administrative     98,405       89,276      375,586      342,806
      % of net sales         14.4%        13.9%        13.8%        13.3%
    Research and
     development            11,558       10,620       43,898       36,909
      % of net sales          1.7%         1.7%         1.6%         1.4%
    Operating income        63,289       53,851      259,554      235,992
      % of net sales          9.3%         8.4%         9.5%         9.1%
    Net interest expense    11,506       11,134       40,936       43,545
      % of net sales          1.7%         1.7%         1.5%         1.7%
    Income from continuing
     operations before
     income taxes           51,783       42,717      218,618      192,447
      % of net sales          7.6%         6.7%         8.0%         7.5%
    Provision for
     income taxes           17,606       14,632       74,330       62,545
      Effective tax rate     34.0%        34.3%        34.0%        32.5%
    Income from continuing
     operations             34,177       28,085      144,288      129,902
    Loss from discontinued
     operations, net of
     tax                    (2,936)           -       (2,936)           -
    Net income             $31,241      $28,085     $141,352     $129,902

    Earnings per common share
    Basic
    Continuing operations    $0.70        $0.57        $2.95        $2.64
    Discontinued operations  (0.06)           -        (0.06)           -
    Basic earnings per
     common share            $0.64        $0.57        $2.89        $2.64

    Diluted
    Continuing operations    $0.69        $0.57        $2.90        $2.61
    Discontinued operations  (0.06)           -        (0.06)           -
    Diluted earnings per
     common share            $0.63        $0.57        $2.84        $2.61

    Weighted average common
     shares outstanding
    Basic                   48,963       49,305       48,938       49,235
    Diluted                 49,766       49,552       49,810       49,744

    Cash dividends declared
     per common share        $0.21        $0.19        $0.82        $0.74


                          Pentair, Inc. and Subsidiaries
                Condensed Consolidated Balance Sheets (Unaudited)

                                                  December 31    December 31
    In thousands                                     2003           2002
                        Assets
    Current assets
    Cash and cash equivalents                        $47,989        $39,648
    Accounts and notes receivable, net               420,403        403,793
    Inventories                                      285,577        293,202
    Deferred income taxes                             50,989         55,234
    Prepaid expenses and other current assets         26,205         18,931
    Total current assets                             831,163        810,808

    Property, plant and equipment, net               343,550        351,316

    Goodwill                                       1,373,549      1,218,341
    Other assets                                     235,113        133,985
    Total assets                                  $2,783,375     $2,514,450

          Liabilities and Shareholders' Equity
    Current liabilities
    Short-term borrowings                                 $-           $686
    Current maturities of long-term debt              73,631         60,488
    Accounts and notes payable                       170,077        171,709
    Employee compensation and benefits                84,587         84,965
    Accrued product claims and warranties             37,148         36,855
    Income taxes                                      13,198         12,071
    Other current liabilities                        120,521        109,426
    Total current liabilities                        499,162        476,200

    Long-term debt                                   734,836        673,911
    Pension and other retirement compensation        101,704        124,301
    Post-retirement medical and other benefits        42,134         42,815
    Deferred income taxes                             78,532         31,728
    Other noncurrent liabilities                      65,529         59,771
    Total liabilities                              1,521,897      1,408,726

    Shareholders' equity                           1,261,478      1,105,724
    Total liabilities and shareholders' equity    $2,783,375     $2,514,450

    Days sales in accounts receivable
     (13 month moving average)                            56             59
    Days inventory on hand (13 month moving average)      63             63
    Days in accounts payable (13 month moving average)    51             53
    Debt/total capital                                 39.1%          39.9%


                          Pentair, Inc. and Subsidiaries
           Condensed Consolidated Statements of Cash Flows (Unaudited)

                                                          Year ended
                                                  December 31    December 31
    In thousands                                      2003           2002
    Operating activities
    Net income                                      $141,352       $129,902
    Depreciation                                      61,129         58,833
    Other amortization                                 4,514          5,869
    Deferred income taxes                             33,134         29,677
    Stock compensation                                   306              -
    Loss from discontinued operations                  2,936              -
    Changes in assets and liabilities,
     net of effects of business acquisitions
      Accounts and notes receivable                    9,400         25,535
      Inventories                                     25,782         29,717
      Prepaid expenses and other current assets       (4,491)         8,147
      Accounts payable                               (15,530)       (18,356)
      Employee compensation and benefits              (6,423)         6,289
      Accrued product claims and warranties           (1,012)        (1,704)
      Income taxes                                     2,349          5,863
      Other current liabilities                        4,845        (18,384)
      Pension and post-retirement benefits             5,621         (4,787)
      Other assets and liabilities                      (178)        10,667
        Net cash provided by continuing operations   263,734        267,268
        Net cash provided by (used for)
         discontinued operations                        (796)         3,526
          Net cash provided by operating activities  262,938        270,794

    Investing activities
    Capital expenditures                             (43,622)       (33,744)
    Acquisition of previously leased facility              -        (22,952)
    Proceeds (payments) from sale of businesses       (2,400)         1,744
    Acquisitions, net of cash acquired              (229,094)      (170,270)
    Equity investments                                (5,294)        (9,383)
    Other                                                 48             (7)
          Net cash used for investing activities    (280,362)      (234,612)

    Financing activities
    Net short-term (repayments) borrowings              (873)           665
    Proceeds from long-term debt                     780,857        462,599
    Repayment of long-term debt                     (709,886)      (468,161)
    Proceeds from exercise of stock options            5,795          2,730
    Repurchases of common stock                       (1,589)            -
    Dividends paid                                   (40,494)       (36,420)
          Net cash provided by (used for)
           financing activities                       33,810        (38,587)

    Effect of exchange rate changes on cash           (8,045)         2,209
    Change in cash and cash equivalents                8,341           (196)
    Cash and cash equivalents, beginning of period    39,648         39,844
    Cash and cash equivalents, end of period         $47,989        $39,648

    Free cash flow
    Net cash provided by operating activities       $262,938       $270,794
    Less capital expenditures (including buyout
     of synthetic lease)                             (43,622)       (56,696)
    Free cash flow                                  $219,316       $214,098


                          Pentair, Inc. and Subsidiaries
        Supplemental Financial Information by Reportable Business Segment
                                   (Unaudited)

                 First Qtr   Second Qtr   Third Qtr  Fourth Qtr     Year
    In thousands    2003        2003         2003       2003        2003

    Net sales to
     external
     customers
    Water         $246,440    $290,692     $270,901    $252,332 $1,060,365
    Enclosures     139,453     145,236      146,233     152,494    583,416
    Tools          251,765     283,416      268,028     278,169  1,081,378
    Intersegment
     sales
     elimination      (142)       (355)        (148)       (149)      (794)
    Consolidated  $637,516    $718,989     $685,014    $682,846 $2,724,365

    Operating
     income (loss)
    Water          $29,504     $46,002      $36,197     $32,259   $143,962
    Enclosures       9,865      11,703       13,555      15,971     51,094
    Tools           17,686      23,148       21,440      19,500     81,774
    Other           (4,867)     (4,521)      (3,447)     (4,441)   (17,276)
    Consolidated   $52,188     $76,332      $67,745     $63,289   $259,554

    Operating income
     as a percent
     of net sales
    Water            12.0%       15.8%        13.4%       12.8%      13.6%
    Enclosures        7.1%        8.1%         9.3%       10.5%       8.8%
    Tools             7.0%        8.2%         8.0%        7.0%       7.6%
    Consolidated      8.2%       10.6%         9.9%        9.3%       9.5%


                 First Qtr   Second Qtr   Third Qtr   Fourth Qtr     Year
    In thousands    2002        2002        2002        2002        2002

    Net sales to
     external
     customers
    Water         $211,411    $265,531     $223,637    $231,841   $932,420
    Enclosures     139,560     138,814      139,932     137,726    556,032
    Tools          252,092     303,771      265,732     270,736  1,092,331
    Intersegment
     sales
     elimination         -           -            -           -          -
    Consolidated  $603,063    $708,116     $629,301    $640,303 $2,580,783

    Operating
     income (loss)
    Water          $29,747     $43,708      $29,969     $23,135   $126,559
    Enclosures       4,608       6,995        8,884       9,455     29,942
    Tools           16,686      30,837       25,479      24,596     97,598
    Other           (5,314)     (6,948)      (2,510)     (3,335)   (18,107)
    Consolidated   $45,727     $74,592      $61,822     $53,851   $235,992

    Operating income
     as a percent
     of net sales
    Water            14.1%       16.5%        13.4%       10.0%      13.6%
    Enclosures        3.3%        5.0%         6.3%        6.9%       5.4%
    Tools             6.6%       10.2%         9.6%        9.1%       8.9%
    Consolidated      7.6%       10.5%         9.8%        8.4%       9.1%

About Pentair, Inc.

Pentair is a diversified operating company headquartered in Minnesota. Its Water Technologies Group is a global leader in providing innovative products and systems used worldwide in the movement, treatment, storage and enjoyment of water. Pentair's Enclosures group is a leader in the global enclosures market, serving industrial and electronic customers, and its Tools Group markets innovative products under established brand names to professionals and do-it-yourself users. Pentair's 2003 revenues totaled $2.7 billion. 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.

Contacts:
Pentair: Mark Cain
Tel. (763) 656-5278
E-mail: mark.cain@pentair.com

SOURCE Pentair, Inc.

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