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Pentair's Second Quarter 2004 EPS Rises 25% to $0.55 on 13% Sales Gain
07.21.2004

GOLDEN VALLEY, Minn., July 21 /PRNewswire-FirstCall/ -- Pentair (NYSE: PNR) announced that its second quarter 2004 earnings per share (EPS) of $0.55 increased 25 percent over second quarter 2003 EPS of $0.44 (adjusted to reflect the impact of a two-for-one stock split effective June 8, 2004). Pentair's second quarter 2004 net sales totaled $813.9 million, up 13 percent from $719.0 million in the same period a year ago. Removing the effects of an acquisition and favorable currency translation, sales were up 10 percent over the second quarter 2003. Operating income for the second quarter 2004 totaled $96.5 million, 26 percent greater than the $76.3 million reported in the second quarter of 2003. Pentair's operating income margin in the second quarter improved 130 basis points to 11.9 percent. Second quarter 2004 free cash flow was $98.8 million, bringing the first half total to $94.7 million, a $36 million improvement compared to the first half of last year.

"We continued to deliver on our performance commitments, with the water and enclosures businesses generating double digit sales growth and expanded margins," said Randall J. Hogan, Pentair chairman and chief executive officer. "In addition, the strategic repositioning of Pentair made another leap forward with our recent announcements concerning the FTC clearance of the WICOR acquisition and the pending sale of the Tools business."

In the Water Technologies Group, second quarter 2004 sales of $353.3 million were 22 percent higher than the $290.7 million recorded in the same period last year, reflecting broad-based growth in all of the water businesses. Sales of residential sump pump and effluent pump lines, pool and spa equipment, and residential water conditioning valves were particularly strong in the quarter. After excluding sales from the Everpure acquisition and the impact of favorable currency translation, the Group's second quarter growth rate was 15 percent.

Second quarter 2004 operating income totaled $59.3 million in Water Technologies, a 29 percent gain over the same period last year. Increased volume and continued progress on the Pentair Integrated Management System (PIMS) and supply management initiatives contributed to a 100 basis point margin improvement, boosting second quarter margins to 16.8 percent. The second quarter 2004 was the third consecutive quarter in which margins grew by at least 100 basis points on a quarter-over-quarter basis.

Pentair's Enclosures Group delivered 23 percent sales growth with second quarter 2004 sales totaling $178.1 million compared to a year-earlier total of $145.2 million. Pentair attributed the increase to market share gains, the recovery of the telecom market, and stronger demand in test and measurement, as well as automation and control markets. Significant wins in targeted growth markets - safety, security and defense, and medical - together with the impact of new product introductions helped boost Enclosures Group organic sales to the highest levels in three years.

Second quarter operating income in the Enclosures Group increased 85 percent from the same period last year, totaling $21.6 million in 2004 versus $11.7 million in 2003. Margins improved 400 basis points to 12.1 percent on the same comparison, and 100 basis points from the first quarter 2004 as the Group generated its tenth consecutive quarter of margin improvement. This performance was driven by higher volume and productivity gains from PIMS and supply management initiatives.

In the Tools Group, sales of $283.4 million equaled those of the same period last year. The Group benefited from stronger sales of portable power tools and stationary/bench-top tools in industrial channels, new pressure washer sales at a major home center, stronger international sales, and sales of new private label power tools. This improvement was offset by price declines in some lines, the change-out of accessories at a major home center in advance of a re-launch, our removal of a couple of pressure washer SKUs in the club channel and the bankruptcy of a major woodworking customer.

Operating income of $23.2 million was equal to that of the same period last year, as the effects of competitive market place pricing, higher raw material costs, and one-time costs, combined to offset higher productivity. Margins of 8.2 percent were comparable to those in the year-earlier period.

In an announcement issued Monday, July 19, Pentair said that it has concluded its exploration of strategic alternatives for its Tools Group, and that it has signed a definitive agreement to sell the Tools Group to The Black & Decker Corporation of Towson, Maryland, for approximately $775 million. The transaction is expected to close in 2004, following the completion of customary regulatory clearances. The Tools Group will be treated as a discontinued operation under Statement of Financial Accounting Standards ("SFAS") No. 144 for reporting purposes beginning in the third quarter of 2004. A preliminary analysis of continuing and discontinued operations for the last six quarters of reportable business segments results is included with this announcement.

On July 6, 2004, Pentair announced it has received clearance from the Federal Trade Commission for its acquisition of WICOR Industries, a unit of Wisconsin Energy Corporation, Milwaukee. In addition, the Public Service Commission of Wisconsin approved the corporate restructuring of WICOR required to facilitate this transaction. Pentair said it expects to complete the transaction at the end of July.

"The third transformation of Pentair is nearing completion," Hogan said. "Looking to the future on a continuing operation basis, we expect third quarter EPS of between $0.29 and $0.34 and full year EPS of between $1.28 and $1.38. This is in line with our prior guidance. Further, we expect 2005 EPS of $1.95 to $2.10, which reflects 50 percent EPS growth from continuing operations. By then, we expect to have swapped the earnings of our Tools business, and the dynamics of the tools market, for the earnings of WICOR, and the prospects of our water business, for a net cash outlay of roughly $100 million -- with no dilution from prior expectations of $1.99."

A Pentair conference call scheduled for 11:00 a.m. CDT today will be webcast live via http://www.pentair.com . A link to the conference call is posted on the site's "Financial Information" page and will be archived at the same location.

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

                            Three months ended        Six months ended
     In thousands, except   July 3       June 28      July 3      June 28
      per-share data         2004         2003        2004         2003

     Net sales             $813,873     $718,989   $1,581,014   $1,356,505
     Cost of goods sold     590,412      535,501    1,155,895    1,017,726
     Gross profit           223,461      183,488      425,119      338,779
       % of net sales         27.5%        25.5%        26.9%        25.0%

     Selling, general and
      administrative        115,086       95,932      231,781      188,914
       % of net sales         14.1%        13.3%        14.7%        13.9%

     Research and
      development            11,829       11,224       23,756       21,345
       % of net sales          1.5%         1.6%         1.5%         1.6%

     Operating income        96,546       76,332      169,582      128,520
       % of net sales         11.9%        10.6%        10.7%         9.5%

     Net interest expense    11,233        9,837       22,407       19,830
       % of net sales          1.4%         1.4%         1.4%         1.5%

     Income before income
      taxes                  85,313       66,495      147,175      108,690
       % of net sales         10.5%         9.2%         9.3%         8.0%

     Provision for income
      taxes                  29,853      22,608        51,504       36,954
       Effective tax rate     35.0%       34.0%         35.0%        34.0%

     Net income             $55,460     $43,887       $95,671      $71,736

     Earnings per
      common share
     Basic                    $0.56        $0.44        $0.97        $0.73
     Diluted                  $0.55        $0.44        $0.95        $0.72

     Weighted average common
      shares outstanding
     Basic                   99,320       98,762       98,874       98,729
     Diluted                101,694       99,624      101,112       99,430

     Cash dividends declared
      per common share       $0.105       $0.105        $0.21        $0.20


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

                                     July 3        December 31     June 28
     In thousands                      2004            2003          2003

                  Assets
     Current assets
     Cash and cash equivalents       $58,247         $47,989       $45,465
     Accounts and notes receivable,
      net                            459,710         420,403       442,366
     Inventories                     373,350         285,577       333,370
     Deferred tax assets              50,126          50,989        57,524
     Prepaid expenses and other
      current assets                  33,266          24,493        22,861
     Total current assets            974,699         829,451       901,586

     Property, plant and equipment,
      net                            345,912         343,550       342,784

     Other assets
     Goodwill                      1,404,264       1,373,549     1,245,812
     Intangibles, net                105,997         108,118        18,065
     Other                            99,148         126,009       119,274
     Total other assets            1,609,409       1,607,676     1,383,151
     Total assets                 $2,930,020      $2,780,677    $2,627,521


         Liabilities and Shareholders' Equity
     Current liabilities
     Short-term borrowings            $1,587              $-          $329
     Current maturities of long-term
      debt                             5,333          73,631        58,516
     Accounts payable                253,447         170,077       214,213
     Employee compensation and
      benefits                        89,077          84,587        76,884
     Accrued product claims and
      warranties                      41,278          37,148        38,920
     Income taxes                     27,781          13,198        17,086
     Other current liabilities       123,303         118,810       109,186
     Total current liabilities       541,806         497,451       515,134

     Long-term debt                  747,319         732,862       669,687
     Pension and other retirement
      compensation                   102,351         101,704       132,622
     Post-retirement medical and
      other benefits                  41,970          42,134        42,293
     Deferred tax liabilities         78,573          78,532        33,745
     Other noncurrent liabilities     73,233          66,516        62,497
     Total liabilities             1,585,252       1,519,199     1,455,978

     Shareholders' equity          1,344,768       1,261,478     1,171,543
     Total liabilities and
      shareholders' equity        $2,930,020      $2,780,677    $2,627,521


     Days sales in accounts
      receivable (13 month
      moving average)                     54              56            58
     Days inventory on hand
      (13 month moving average)           61              63            65
     Days in accounts payable
      (13 month moving average)           53              51            53
     Debt/total capital                35.9%           39.0%         38.3%


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

                                                         Six months ended
                                                      July 3         June 28
     In thousands                                       2004           2003

     Operating activities
     Net income                                       $95,672        $71,736
     Depreciation                                      31,655         32,031
     Other amortization                                 6,629          2,566
     Deferred income taxes                              1,977           (614)
     Stock compensation                                     -            306
     Changes in assets and liabilities, net of
      effects of business acquisitions and
      dispositions
       Accounts and notes receivable                  (28,957)       (31,013)
       Inventories                                    (72,237)       (33,148)
       Prepaid expenses and other current assets      (20,526)        (3,899)
       Accounts payable                                53,996         38,753
       Employee compensation and benefits               3,025         (8,783)
       Accrued product claims and warranties            4,215          1,125
       Income taxes                                    14,450          3,816
       Other current liabilities                       12,646         (3,515)
       Pension and post-retirement benefits             1,257          4,795
       Other assets and liabilities                     2,732          3,863
         Net cash provided by continuing operations   106,534         78,019
         Net cash provided by (used for)
          discontinued operations                       1,533           (367)
           Net cash provided by operating activities  108,067         77,652

     Investing activities
     Capital expenditures                             (13,340)       (18,935)
     Payments from sale of businesses                       -         (2,400)
     Acquisitions, net of cash acquired               (15,288)       (15,150)
     Equity investments                                  (200)        (5,461)
     Other                                                  -             47
           Net cash used for investing activities     (28,828)       (41,899)

     Financing activities
     Net short-term borrowings                         (2,603)          (549)
     Proceeds from long-term debt                     164,816        291,691
     Repayment of long-term debt                     (220,526)      (301,300)
     Proceeds from exercise of stock options           10,178            699
     Dividends paid                                   (20,997)       (19,738)
           Net cash used for financing activities     (69,132)       (29,197)

     Effect of exchange rate changes on cash              151           (739)
     Change in cash and cash equivalents               10,258          5,817
     Cash and cash equivalents, beginning of period    47,989         39,648
     Cash and cash equivalents, end of period         $58,247        $45,465

     Free cash flow
     Net cash provided by operating activities       $108,067        $77,652
     Less capital expenditures                        (13,340)       (18,935)
     Free cash flow                                   $94,727        $58,717


                        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      2004     2004       2004     2003     2003       2003

     Net sales to
      external
      customers
     Water          $314,002 $353,345   $667,347 $246,440 $290,734   $537,174
     Enclosures      174,803  178,103    352,906  139,453  145,194    284,647
     Tools           278,688  283,441    562,129  251,765  283,416    535,181
     Intersegment
      sales
      elimination       (352)  (1,016)    (1,368)    (142)    (355)      (497)
     Consolidated   $767,141 $813,873 $1,581,014 $637,516 $718,989 $1,356,505

     Operating income
     (loss)
     Water           $41,547  $59,253   $100,800  $29,504  $46,002    $75,506
     Enclosures       19,354   21,590     40,944    9,865   11,703     21,568
     Tools            20,763   23,165     43,928   17,686   23,148     40,834
     Other            (8,628)  (7,462)   (16,090)  (4,867)  (4,521)    (9,388)
     Consolidated    $73,036  $96,546   $169,582  $52,188  $76,332   $128,520

     Operating income
      as a percent of
      net sales
     Water             13.2%    16.8%      15.1%    12.0%    15.8%      14.1%
     Enclosures        11.1%    12.1%      11.6%     7.1%     8.1%       7.6%
     Tools              7.5%     8.2%       7.8%     7.0%     8.2%       7.6%
     Consolidated       9.5%    11.9%      10.7%     8.2%    10.6%       9.5%


                        Pentair, Inc. and Subsidiaries
    Reconciliation of Continuing and Discontinued Operations* (Unaudited)

     In millions,
      except
      per-share      First   Second     Six      Third     Fourth
      data          Quarter  Quarter   Months   Quarter    Quarter     Year
     Net Sales
       2003 total    $637.5    $719.0   $1,356.5   $685.0    $682.9  $2,724.4
       Tools Group
        discontinued
        operations    251.8     283.4      535.2    268.0     278.2   1,081.4
         2003
          continuing
          operations $385.7    $435.6     $821.3   $417.0    $404.7  $1,643.0

       2004 total    $767.1    $813.9   $1,581.0
       Tools Group
        discontinued
        operations    278.7     283.4      562.1
         2004
          continuing
          operations $488.4    $530.5   $1,018.9
         % change from
           continuing
           operations   27%       22%        24%

     Operating Income
       2003 total     $52.2     $76.3     $128.5    $67.8     $63.3    $259.6
       Tools Group
        discontinued
        operations     20.1      25.6       45.7     22.6      21.1      89.4
         2003
          continuing
          operations  $32.1     $50.7      $82.8    $45.2     $42.2    $170.2

       2004 total     $73.0     $96.6     $169.6
       Tools Group
        discontinued
        operations     22.9      25.6       48.5

         2004
          continuing
          operations  $50.1     $71.0     $121.1
         % change from
           continuing
           operations   56%       40%        46%

     Diluted Earnings
      Per Share
       2003 continuing
        operations    $0.18     $0.30      $0.48    $0.27     $0.24     $0.99
       Equipment
        discontinued
        operations        -         -          -        -     (0.03)    (0.03)
       Tools Group
        discontinued
        operations     0.10      0.14       0.24     0.11      0.11      0.46

         2003 total
          reported    $0.28     $0.44      $0.72    $0.38     $0.32     $1.42

     Diluted Earnings
      Per Share
       2004 continuing
        operations    $0.28     $0.42      $0.70
       Tools Group
        discontinued
        operations     0.12      0.13       0.25
         2004 total
          reported    $0.40     $0.55      $0.95

     * On July 15, 2004, Pentair, Inc. met the recognition criteria to
       classify its Tools Group as a discontinued operation.  Beginning in the
       2004 third quarter Form 10-Q, the Pentair, Inc. historical financials
       will be restated to reflect the Tools Group as a discontinued
       operation.

About Pentair, Inc.

Pentair ( http://www.pentair.com ) 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 13,500 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.

Contact

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

SOURCE Pentair

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