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Pentair Reports a 49% Sales Increase, a 50% EPS Improvement, and a 70 Basis Point Margin Gain in Second Quarter of 2005
07.26.2005

GOLDEN VALLEY, Minn., July 26 /PRNewswire-FirstCall/ -- Pentair (NYSE: PNR) today announced its second quarter 2005 results, highlighting a 50 percent year-over-year increase in earnings per share (EPS) from continuing operations driven by stronger margins in Pentair's Enclosures and Water businesses, coupled with share gains in robust Enclosures markets and the contributions of the new water businesses acquired in the WICOR purchase in August 2004.

Pentair's second quarter 2005 net sales totaled $788.5 million, up 49 percent from $530.4 million in the same period a year ago. Organic sales - removing the effects of acquisitions and excluding favorable foreign currency exchange - grew approximately seven percent. Operating income for the second quarter totaled $111.5 million, 57 percent greater than the $71.0 million reported in the same period last year. A 14.1 percent margin in the second quarter reflected a gain of 70 basis points over the year-earlier level of 13.4 percent. Second quarter 2005 EPS of $0.63 compared to second quarter 2004 EPS from continuing operations of $0.42. Cash flow for the second quarter of 2005 totaled $117 million, bringing free cash flow for the first half of 2005 to $19 million. Pentair has targeted $200 million of free cash flow in 2005.

"The integration of our new water businesses and our water margin enhancement efforts both showed concrete progress in this our seasonally high quarter. The Enclosures Group continued its long streak of sales and margin improvements with several performance records established in the second quarter," said Randall J. Hogan, Pentair chairman and chief executive officer. "These results demonstrate that we are executing very well in all of our businesses, and that we are getting solid bottom line results from our newly acquired water businesses."

In the Water Group, second quarter 2005 sales of $585.7 million were 66 percent higher than the $353.3 million recorded in the same period last year. Removing the effects of acquisitions and excluding favorable foreign currency exchange, sales were up approximately four percent over the second quarter of 2004 when the Group's organic growth rate was 15 percent. Sales gains in specialty pumps, water treatment, foodservice, pool equipment, and Asia more than offset lower sales in water systems pumps, Europe, and spa and bath equipment.

Second quarter 2005 operating income in the Water Group totaled $93.5 million, up 58 percent from $59.3 million for the same period last year. The Group showed significant progress in margin expansion with operating income margin of 16.0 percent in the second quarter -- only 80 basis points below the same period last year, prior to the WICOR acquisition. Pentair said the integration of its new water businesses is on schedule, with 17 of the facility closings or consolidations identified in its integration plan now completed or announced, up from 15 in the first quarter. Water margins are up 180 basis points over where they would have been had WICOR been included in the second quarter of last year.

Pentair's Enclosures Group delivered 15 percent sales growth with second quarter 2005 sales totaling $202.9 million compared to a year-earlier total of $177.1 million. Second quarter growth was driven by gains in all North American end markets, with sales in the rest of the world down slightly.

Second quarter operating income in the Enclosures Group increased 25 percent from the same period last year, totaling $27.1 million in 2005 versus $21.6 million in 2004. Margins reached 13.3 percent, expanding by 110 basis points over the second quarter 2004, and delivering the Enclosures Group's 14th consecutive quarter of sequential margin improvement. The Group benefited from higher volume in North America and productivity gains from the Pentair Integrated Management System and supply management initiatives, as well as more stable raw material pricing.

Second quarter 2005 EPS included a $5.2 million pre-tax gain, or a net gain of $3.3 million after tax, from the sale of our investment in the stock of LN Holdings Corporation. This gain was offset by a $3.2 million charge to tax expense related to an anticipated settlement of a routine German tax exam for prior years that is likely to be unfavorable. The overall effective tax rate of 38.5 percent in the second quarter of 2005 was higher than our normal 2005 tax run rate of 35.5 percent due to this additional $3.2 million of tax expense.

"Our performance during the first half of 2005 has proven the value of the steps we are taking to grow our company and build shareholder value," Hogan said. "We are clearly executing well in Enclosures and most of our Water businesses, and we continue to work to improve organic sales growth in Water and to minimize costs from redundant operations during integration-related product line moves."

Hogan added: "Looking ahead to our third quarter expectations, we are initiating third quarter EPS guidance of between $0.43 and $0.47 -- at least 34 percent higher than third quarter 2004 continuing EPS. We are further tightening our full year 2005 EPS guidance to a range of between $2.00 and $2.05, which is, at minimum, 48 percent higher than 2004 continuing EPS."

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
                                 July 2      July 3       July 2     July 3
    In thousands, except          2005        2004        2005        2004
     per-share data

    Net sales                  $788,523    $530,433   $1,498,158 $1,018,886
    Cost of goods sold          553,290     368,782    1,058,787    717,162
    Gross profit                235,233     161,651      439,371    301,724
      % of net sales              29.8%       30.5%        29.3%      29.6%
    Selling, general and
     administrative             113,224      84,260      229,562    167,912
      % of net sales              14.4%       15.9%        15.3%      16.5%
    Research and development     10,532       6,407       21,959     12,718
      % of net sales               1.3%        1.2%         1.5%       1.2%
    Operating income            111,477      70,984      187,850    121,094
      % of net sales              14.1%       13.4%        12.5%      11.9%
    Gain on sale of investment    5,199           -        5,199          -
    Net interest expense         11,698       7,500       22,974     15,145
      % of net sales               1.5%        1.4%         1.5%       1.5%
    Income from continuing
     operations before income
     taxes                      104,978      63,484      170,075    105,949
      % of net sales              13.3%       12.0%        11.4%      10.4%
    Provision for income taxes   40,456      21,491       62,248     35,714
      Effective tax rate          38.5%       33.9%        36.6%      33.7%
    Income from continuing
     operations                  64,522      41,993      107,827     70,235
    Income from discontinued
     operations, net of tax           -      13,470            -     25,438
    Net income                  $64,522     $55,463    $ 107,827    $95,673

    Earnings per common share
    Basic
    Continuing operations         $0.64       $0.42        $1.07      $0.71
    Discontinued operations           -        0.14            -       0.26
    Basic earnings per
     common share                 $0.64       $0.56        $1.07      $0.97

    Diluted
    Continuing operations         $0.63       $0.42        $1.05      $0.70
    Discontinued operations           -       $0.13            -       0.25
    Diluted earnings per
     common share                 $0.63       $0.55        $1.05      $0.95

    Weighted average common
     shares outstanding
    Basic                       100,769      99,320      100,566     98,874
    Diluted                     102,967     101,694      102,855    101,112

    Cash dividends declared
     per common share            $0.130      $0.105       $0.260     $0.210


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

                                           July 2    December 31    July 3
    In thousands                            2005        2004         2004
                     Assets
    Current assets
    Cash and cash equivalents              $41,853     $31,495      $58,247
    Accounts and notes receivable, net     457,878     396,459      285,348
    Inventories                            339,460     323,676      193,220
    Current assets of discontinued
     operations                                  -           -      380,387
    Deferred tax assets                     49,077      49,074       30,630
    Prepaid expenses and other
     current assets                         27,734      24,433       26,868
    Total current assets                   916,002     825,137      974,700

    Property, plant and equipment, net     324,477     336,302      219,343

    Other assets
    Non-current assets of discontinued
     operations                                  -         393      561,769
    Goodwill                             1,614,248   1,620,404      997,441
    Intangibles, net                       254,233     258,126       96,156
    Other                                   60,538      80,213       81,871
    Total other assets                   1,929,019   1,959,136    1,737,237
    Total assets                        $3,169,498  $3,120,575   $2,931,280

          Liabilities and Shareholders' Equity
    Current liabilities
    Short-term borrowings                       $-          $-       $1,587
    Current maturities of long-term debt     6,469      11,957        5,333
    Accounts payable                       195,702     195,289      130,852
    Employee compensation and benefits      80,584     104,821       64,868
    Accrued product claims and warranties   43,940      42,524       27,013
    Current liabilities of discontinued
     operations                                192         192      206,779
    Income taxes                            47,384      27,395       26,680
    Accrued rebates and sales incentives    38,177      41,618       22,809
    Other current liabilities               97,367     103,083       57,640
    Total current liabilities              509,815     526,879      543,561

    Long-term debt                         727,631     724,148      747,319
    Pension and other retirement
     compensation                          138,830     135,356      100,383
    Post-retirement medical and
     other benefits                         70,309      69,667       25,790
    Deferred tax liabilities               143,377     142,873       60,201
    Other non-current liabilities           67,576      70,804       62,525
    Non-current liabilities of
     discontinued operations                 2,031       3,054       46,733
    Total liabilities                    1,659,569   1,672,781    1,586,512

    Shareholders' equity                 1,509,929   1,447,794    1,344,768
    Total liabilities and shareholders'
     equity                             $3,169,498  $3,120,575   $2,931,280

    Days sales in accounts receivable
     (13 month moving average)                  53          52           52
    Days inventory on hand
     (13 month moving average)                  68          62           55
    Days in accounts payable
     (13 month moving average)                  56          57           55
    Debt/total capital                       32.7%       33.7%        35.9%



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

                                                        Six months ended
                                                     July 2         July 3
    In thousands                                      2005           2004
    Operating activities
    Net income                                      $107,827        $95,673
    Adjustments to reconcile net income to
     net cash provided by operating activities
    Net income from discontinued operations                -        (25,438)
    Depreciation                                      28,962         20,928
    Amortization                                      12,075          6,277
    Deferred income taxes                              2,572            301
    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                 (72,729)       (35,903)
       Inventories                                   (22,340)       (28,179)
       Prepaid expenses and other current assets      (4,036)        (7,797)
       Accounts payable                                4,590         38,994
       Employee compensation and benefits            (29,912)         2,971
       Accrued product claims and warranties           1,228          2,660
       Income taxes                                   20,546         11,934
       Other current liabilities                         787          7,979
       Pension and post-retirement benefits            7,370          3,990
       Other assets and liabilities                   (5,144)        (1,182)
          Net cash provided by continuing operations  47,374         93,208
          Net cash provided by (used for)
           discontinued operations                      (630)        14,863
               Net cash provided by operating
                activities                            46,744        108,071

    Investing activities
    Capital expenditures                             (39,077)       (13,340)
    Proceeds from sale of property and equipment      11,553              -
    Acquisitions, net of cash acquired               (10,513)       (15,288)
    Divestitures                                        (190)             -
    Proceeds from sale of investment                  23,596              -
    Equity investments                                     -           (200)
               Net cash used for investing
                activities                           (14,631)       (28,828)

    Financing activities
    Net short-term borrowings (repayments)                 -         (2,603)
    Proceeds from long-term debt                     160,000        164,816
    Repayment of long-term debt                     (160,383)      (220,526)
    Proceeds from exercise of stock options            6,355         10,178
    Dividends paid                                   (26,648)       (21,001)
               Net cash used for financing
                activities                           (20,676)       (69,136)

    Effect of exchange rate changes on cash           (1,079)           151
    Change in cash and cash equivalents               10,358         10,258
    Cash and cash equivalents, beginning of period    31,495         47,989
    Cash and cash equivalents, end of period         $41,853        $58,247

    Free cash flow
    Net cash provided by operating activities        $46,744       $108,071
    Less capital expenditures continuing
     operations                                      (39,077)       (10,412)
    Less capital expenditures discontinued
     operations                                            -         (2,928)
    Proceeds from sale of property and equipment      11,553              -
    Free cash flow                                   $19,220        $94,731



                          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     2005      2005      2005      2004     2004      2004

    Net sales to
     external
     customers
    Water          $512,088 $585,657 $1,097,745 $313,981 $353,316   $667,297
    Enclosures      197,547  202,866    400,413  174,472  177,117    351,589
    Consolidated   $709,635 $788,523 $1,498,158 $488,453 $530,433 $1,018,886

    Intersegment sales
    Water               $22     $187       $209      $21      $29        $50
    Enclosures          402      630      1,032      332      986      1,318
    Other              (424)    (817)    (1,241)    (353)  (1,015)    (1,368)
    Consolidated        $ -      $ -        $ -      $ -      $ -        $ -

    Operating income
     (loss)
    Water           $61,803  $93,481   $155,284  $41,547  $59,253   $100,800
    Enclosures       25,926   27,078     53,004   19,354   21,590     40,944
    Other           (11,356)  (9,082)   (20,438) (10,791)  (9,859)   (20,650)
    Consolidated   $ 76,373 $111,477   $187,850  $50,110  $70,984   $121,094

    Operating income
     as a percent
     of net sales
    Water             12.1%    16.0%      14.1%    13.2%    16.8%      15.1%
    Enclosures        13.1%    13.3%      13.2%    11.1%    12.2%      11.6%
    Consolidated      10.8%    14.1%      12.5%    10.3%    13.4%      11.9%

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.

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; 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 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.

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