Third Quarter 2005 Highlights
-
Earnings per share of $0.46, up 44%.
- Operating income of 80.8 million, up 26%.
- Operating margins up 80 bps. to 11.3%.
- Net sales of $716.3 million, up 18%.
- Cash flow of $76.0 million brings YTD total Free Cash Flow to
$95.2 million.
- Water margins of 11.7%, up 60 bps.
- Water business integration activities captured $26 million YTD in net
synergies.
GOLDEN VALLEY, Minn., Oct. 25 /PRNewswire-FirstCall/ -- Pentair
(NYSE: PNR) today announced its third quarter 2005 results, highlighting a
44 percent year-over-year increase in earnings per share (EPS) from continuing
operations on a sales gain of 18 percent. Sales growth on a pro forma basis,
assuming WICOR had been acquired at the beginning of the third quarter of
2004, and excluding favorable foreign currency exchange, was approximately
seven percent.
According to Pentair Chairman and Chief Executive Officer, Randall J.
Hogan, "Pentair made excellent progress on several fronts in the third
quarter. We delivered seven percent pro forma sales growth, achieved our 15th
consecutive quarter of sequential margin improvement in Enclosures, increased
Water Group margins 60 basis points, and captured water business net
integration synergies of $11 million. Our net integration synergy savings on a
year-to-date basis are approximately $26 million, with our current full year
estimate of $37 million compared to our goal of $30 million. Strong sales in
pool and enclosure markets and continued success in implementing our Pentair
Integrated Management System (PIMS), helped offset manufacturing move-related
expenses, lower growth in retail pump and residential filtration markets, and
inflationary pressures.
"We are on track with our integration synergies, yet we saw a decline in
our price to inflation spread from the first half of 2005," Hogan said. "We
expect this price to inflation pressure to continue into the fourth quarter as
raw material input costs continue to rise ahead of price increases. This
tighter spread, together with investments in Asia and in acquisition activity,
will affect earnings in the fourth quarter. Therefore, we now expect fourth
quarter 2005 earnings from continuing operations in a range between $0.40 and
$0.42, approximately 25 percent higher than the same period last year. As a
result, EPS from continuing operations is expected to gain 40 percent in 2005
compared to 2004. In addition, we are initiating guidance for 2006 EPS in a
range between $2.20 and $2.30, assuming sales growth in the mid-single digits
and excluding the pending adoption of SFAS No.123-R requiring the expensing of
stock options.
"Our previously announced acquisition of APW's thermal management
businesses will expand our Enclosures Group offering with the capability to
provide advanced thermal solutions," Hogan said. "We are assuming the
transaction will close in the fourth quarter and have included a slightly
dilutive impact in our fourth quarter 2005 EPS guidance. We do expect the
acquisition will be accretive to earnings within the first 12 months."
Third Quarter 2005 Financial Comments
Earnings:
Operating income totaled $80.8 million, 26 percent greater than the
$64.1 million reported in the same period last year. Operating margins of
11.3 percent in the third quarter reflected a gain of 80 basis points over the
year-earlier level of 10.5 percent. EPS from continuing operations of $0.46
was 44 percent higher than third quarter 2004 EPS from continuing operations
of $0.32.
Third quarter 2005 EPS included a $1.0 million favorable tax accrual
adjustment related to the recently filed 2004 Federal tax return. The overall
effective tax rate of 32.3 percent was due to this one-time item and adjusting
the year-to-date tax run rate from 35.5 percent to 35.0 percent. These
adjustments combined added $0.02 to earnings in the third quarter.
Revenue:
Net sales totaled $716.3 million, up 18 percent from $607.8 million in the
same period a year ago. Sales growth on a pro forma basis, assuming WICOR had
been acquired at the beginning of the third quarter of 2004, and excluding
favorable foreign currency exchange, was approximately seven percent.
Cash:
Cash flow totaled $76.0 million, bringing free cash flow for the first
nine months of 2005 to $95.2 million. Pentair has revised its free cash flow
expectations for 2005 to a range of between $170 million and $190 million due
primarily to higher than previously anticipated working capital related to
increases in safety stocks of certain critical materials, such as resins and
motors. In addition, Pentair is experiencing higher inventories on products
sourced out of Asia. Pentair expects these conditions will be mitigated
throughout 2006 as the supply chain is optimized.
Water Group Third Quarter Comments
- Sales of $515.9 million were up 21 percent over the same period last
year, and were up approximately five percent on a pro forma basis,
assuming WICOR had been acquired at the beginning of the third quarter
of 2004.
- Pool equipment sales grew in the high teens as favorable weather
conditions combined with successful fall stocking programs.
- Specialty pump sales were up in the high single digits, spurred by
strong municipal, industrial, and agriculture equipment demand, and
by pricing actions.
- European water sales rebounded, driven by successful share gains in
pump, and strong penetration of the food and beverage markets with
filtration products.
- New products were significant in driving sales and included new
transfer, split-case, and solids handling pumps; and new pool
lighting products, and control systems.
- Operating income totaled $60.3 million, up 27 percent compared to the
same period last year, driven by pricing and synergy savings.
- Margins expanded to 11.7 percent, a gain of 60 basis points over the
same period last year.
- The integration of the water businesses continued on-track with $26
million in net savings realized during the first nine months of 2005
against a total year goal of $30 million.
- Of the three ongoing plant shutdowns in the quarter, two were
completed and one is still in progress. Two low-cost country plants
were ramping up to accommodate the product relocated as a result of
the shutdowns. The shutdown still in process was delayed to ensure
that our processes were stable at the new location, which manufactures
water storage tanks. We are now gaining NSF approval for the tank
products, and are on-track to complete the move in February.
- Inflationary pressures increased during the third quarter, with raw
material and energy costs rising and closing the margin gap between
price and inflation.
Enclosures Group Third Quarter Comments
- Sales of $200.4 million grew 11 percent over the same period last
year. Favorable foreign currency exchange accounted for less than one
percent of the growth.
- The Group continued to grow in North America, with strong sales in
the industrial, commercial, medical and networking markets. Sales
in China more than doubled compared to the same period in 2004.
Enclosures' growth in Europe remained weak in a tough market
environment.
- Enclosures rolled out a number of new products targeting growth in
specific end markets. New cable management and data interface
products were introduced to drive growth in the networking market,
while two new cabinets were targeted toward high thermal load
applications. The previously announced Varistar cabinet line also
continues to ramp quickly and customer interest is strong.
- Operating income set a new third quarter record of $28.5 million, up
23 percent compared to the same period last year, driven by volume,
supply savings, productivity improvements, and pricing.
- Margins reached 14.2 percent, expanding by 140 basis points over the
third quarter 2004, and delivering the Enclosures Group's 15th
consecutive quarter of sequential margin improvement.
- Raw material costs increased about six percent in the quarter, and
were offset by actions in both pricing and productivity. Steel costs
are expected to moderate through the balance of the year, although
higher transportation and energy costs are anticipated.
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.
About Pentair, Inc.
Pentair ( http://www.pentair.com ) is a diversified operating company
headquartered in 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 Enclosures Group is a leader in the
global enclosures market, designing and manufacturing standard, modified and
custom enclosures that house and protect sensitive electronics and electrical
components. With 2004 revenues of $2.28 billion, or $2.76 billion on a pro
forma basis, Pentair has approximately 13,000 employees worldwide.
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
continued economic growth; the ability to integrate the WICOR acquisition
successfully and the risk that expected synergies may not be fully realized or
may take longer to realize than expected; the ability to close and integrate
the acquisition of APW's thermal management businesses; 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)
Three months ended Nine months ended
October 1 October 2 October 1 October 2
In thousands, 2005 2004 2005 2004
except per-share
data
Net sales $716,308 $607,767 $2,214,466 $1,626,653
Cost of goods sold 515,467 437,983 1,574,254 1,155,145
Gross profit 200,841 169,784 640,212 471,508
% of net sales 28.0% 27.9% 28.9% 29.0%
Selling, general
and administrative 108,917 96,882 338,479 264,794
% of net sales 15.2% 15.9% 15.3% 16.3%
Research and
development 11,148 8,803 33,107 21,521
% of net sales 1.5% 1.5% 1.5% 1.3%
Operating income 80,776 64,099 268,626 185,193
% of net sales 11.3% 10.5% 12.1% 11.4%
Gain on sale of
investment - - 5,199 -
Net interest expense 10,752 11,172 33,726 26,317
% of net sales 1.5% 1.8% 1.5% 1.6%
Income from continuing
operations before
income taxes 70,024 52,927 240,099 158,876
% of net sales 9.8% 8.7% 10.8% 9.8%
Provision for income
taxes 22,649 19,835 84,897 55,548
Effective tax rate 32.3% 37.5% 35.4% 35.0%
Income from continuing
operations 47,375 33,092 155,202 103,328
Income from
discontinued
operations, net of
tax - 14,810 - 40,247
Net income $ 47,375 $47,902 $155,202 $143,575
Earnings per
common share
Basic
Continuing operations $0.47 $0.33 $1.54 $1.04
Discontinued operations - 0.15 - 0.41
Basic earnings per
common share $0.47 $0.48 $1.54 $1.45
Diluted
Continuing operations $0.46 $0.32 $1.51 $1.02
Discontinued operations - 0.15 - 0.40
Diluted earnings per
common share $0.46 $0.47 $1.51 $1.42
Weighted average common
shares outstanding
Basic 100,922 99,502 100,685 99,083
Diluted 102,973 102,059 102,894 101,428
Cash dividends declared
per common share $0.130 $ 0.110 $0.390 $0.320
Pentair, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
October 1 December 31 October 2
In thousands 2005 2004 2004
Assets
Current assets
Cash and cash equivalents $ 49,352 $ 31,495 $ 78,794
Accounts and notes
receivable, net 428,486 396,459 397,098
Inventories 344,676 323,676 315,414
Current assets of
discontinued operations - - 394,937
Deferred tax assets 63,098 49,074 45,304
Prepaid expenses and other
current assets 28,244 24,433 30,967
Total current assets 913,856 825,137 1,262,514
Property, plant and equipment,
net 316,491 336,302 335,976
Other assets
Non-current assets of
discontinued operations - 393 565,071
Goodwill 1,637,020 1,620,404 1,619,635
Intangibles, net 251,308 258,126 259,770
Other 61,739 80,213 83,839
Total other assets 1,950,067 1,959,136 2,528,315
Total assets $3,180,414 $3,120,575 $4,126,805
Liabilities and Shareholders' Equity
Current liabilities
Short-term borrowings $ - $ - $850,000
Current maturities of
long-term debt 4,003 11,957 9,865
Accounts payable 183,376 195,289 184,741
Employee compensation and
benefits 90,722 104,821 88,779
Accrued product claims
and warranties 43,252 42,524 35,200
Current liabilities of
discontinued operations 192 192 209,339
Income taxes 44,134 27,395 49,697
Accrued rebates and sales
incentives 41,397 41,618 40,292
Other current liabilities 114,176 103,083 97,239
Total current liabilities 521,252 526,879 1,565,152
Long-term debt 685,354 724,148 737,719
Pension and other retirement
compensation 142,584 135,356 129,779
Post-retirement medical and
other benefits 70,794 69,667 58,007
Deferred tax liabilities 143,533 142,873 140,656
Other non-current liabilities 69,369 70,804 63,875
Non-current liabilities of
discontinued operations 2,027 3,054 41,598
Total liabilities 1,634,913 1,672,781 2,736,786
Shareholders' equity 1,545,501 1,447,794 1,390,019
Total liabilities and
shareholders' equity $3,180,414 $3,120,575 $4,126,805
Days sales in accounts
receivable (13 month
moving average) 55 52 52
Days inventory on hand
(13 month moving average) 70 62 58
Days in accounts payable
(13 month moving average) 56 57 56
Debt/total capital 30.8% 33.7% 53.5%
Pentair, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
Nine months ended
October 1 October 2
In thousands 2005 2004
Operating activities
Net income $155,202 $143,575
Adjustments to reconcile net income to
net cash provided by operating activities
Net income from discontinued operations - (40,247)
Depreciation 43,144 34,946
Amortization 17,818 10,310
Deferred income taxes 3,457 (449)
Stock compensation 777 -
Gain on sale of investment (5,199) -
Changes in assets and liabilities, net
of effects of business acquisitions
and dispositions
Accounts and notes receivable (43,760) 13,611
Inventories (29,435) (46,043)
Prepaid expenses and other current assets (4,458) (13,835)
Accounts payable (8,374) 14,090
Employee compensation and benefits (23,876) 6,127
Accrued product claims and warranties 290 2,009
Income taxes 17,637 24,602
Other current liabilities 3,875 28,914
Pension and post-retirement benefits 11,911 7,121
Other assets and liabilities (4,115) (1,059)
Net cash provided by continuing
operations 134,894 183,672
Net cash provided by (used for)
operating activities of discontinued
operations (634) 14,031
Net cash provided by operating
activities 134,260 197,703
Investing activities
Capital expenditures (50,597) (28,553)
Proceeds from sale of property and equipment 11,534 -
Acquisitions, net of cash acquired (10,515) (877,717)
Divestitures (10,574) -
Proceeds from sale of investment 23,599 -
Other (950) -
Net cash used for investing activities (37,503) (906,270)
Financing activities
Net short-term borrowings - 845,838
Proceeds from long-term debt 403,425 231,516
Repayment of long-term debt (448,148) (317,152)
Proceeds from exercise of stock options 7,029 10,225
Dividends paid (39,889) (32,042)
Net cash provided by (used for)
financing activities (77,583) 738,385
Effect of exchange rate changes on cash (1,317) 987
Change in cash and cash equivalents 17,857 30,805
Cash and cash equivalents, beginning of period 31,495 47,989
Cash and cash equivalents, end of period $ 49,352 $ 78,794
Free cash flow
Net cash provided by operating activities $134,260 $197,703
Less capital expenditures continuing operations (50,597) (2,793)
Less capital expenditures discontinued operations - (5,760)
Proceeds from sale of property and equipment 11,534 -
Free cash flow $ 95,197 $169,150
Pentair, Inc. and Subsidiaries
Supplemental Financial Information by Reportable Business Segment (Unaudited)
First Qtr Second Qtr Third Qtr Nine Months
In thousands 2005 2005 2005 2005
Net sales to external
customers
Water $512,088 $585,657 $515,945 $1,613,690
Enclosures 197,547 202,866 200,363 600,776
Consolidated $709,635 $788,523 $716,308 $2,214,466
Intersegment sales
Water $22 $187 $280 $489
Enclosures 402 630 407 1,439
Other (424) (817) (687) (1,928)
Consolidated $-- $-- $-- $--
Operating income
(loss)
Water $ 61,803 $93,481 $60,278 $215,562
Enclosures 25,926 27,078 28,531 81,535
Other (11,356) (9,082) (8,033) (28,471)
Consolidated $ 76,373 $111,477 $80,776 $268,626
Operating income as
a percent of net sales
Water 12.1% 16.0% 11.7% 13.4%
Enclosures 13.1% 13.3% 14.2% 13.6%
Consolidated 10.8% 14.1% 11.3% 12.1%
First Qtr Second Qtr Third Qtr Nine Months
In thousands 2004 2004 2004 2004
Net sales to external
customers
Water $313,981 $353,316 $426,670 $1,093,967
Enclosures 174,472 177,117 181,097 532,686
Consolidated $488,453 $530,433 $607,767 $1,626,653
Intersegment sales
Water $21 $29 $26 $76
Enclosures 332 986 3 1,321
Other (353) (1,015) (29) (1,397)
Consolidated $-- $-- $-- $--
Operating income (loss)
Water $41,547 $59,253 $47,410 $148,210
Enclosures 19,354 21,590 23,211 64,155
Other (10,791) (9,859) (6,522) (27,172)
Consolidated $50,110 $70,984 $64,099 $185,193
Operating income as
a percent of net sales
Water 13.2% 16.8% 11.1% 13.5%
Enclosures 11.1% 12.2% 12.8% 12.0%
Consolidated 10.3% 13.4% 10.5% 11.4%
Pentair Contacts:
Rachael Jarosh
Communications
Tel.: (763) 656-5280
E-mail: rachael.jarosh@pentair.com
Mark Cain
Investor Relations
Tel.: (763) 656-5278
E-mail: mark.cain@pentair.com
SOURCE Pentair, Inc.
CONTACT: Rachael Jarosh, Communications, +1-763-656-5280,
rachael.jarosh@pentair.com , or Mark Cain, Investor Relations,
+1-763-656-5278, mark.cain@pentair.com , both of Pentair, Inc.