GOLDEN VALLEY, Minn.--(BUSINESS WIRE)--Oct. 24, 2006--Pentair
(NYSE:PNR):
Third Quarter 2006 Highlights
- Net sales of $778.0 million increased 9%, of which 3% was
organic, excluding foreign exchange.
- EPS from continuing operations of $0.33, including one-time
costs of $17 million, or ($0.11) of EPS.
- Excluding one-time costs, operating income was flat
year-over-year as Technical Products gains offset Water
declines.
- The Technical Products Group achieved 15 percent operating
margin for the second consecutive quarter and achieved its
16th consecutive quarter of year-over-year margin expansion.
- Sales in Asia grew nearly 25% in local currencies, while sales
in Europe and the Middle East gained 10% in local currencies.
- Cash flow of $66 million brings YTD free cash flow to $93
million.
Pentair (NYSE:PNR) today announced its third quarter 2006 results,
highlighting earnings per share (EPS) from continuing operations of
$0.33 on sales of $778 million, a total sales increase of nine percent
over the same period last year. The results reflected strong
performance in Technical Products and in the industrial and commercial
pump and filtration markets. Accelerating growth in the Asian and
European markets also contributed to the Company's sales performance.
Pentair Chairman and Chief Executive Officer, Randall J. Hogan,
said: "The majority of our businesses performed well with continued
excellent results from our Technical Products and Pump businesses.
Sales in commercial and industrial markets have remained robust and
investments are beginning to pay off in international sales growth. In
addition, our Filtration business achieved the strongest sales growth
we have seen in two years.
"As anticipated, however, this performance was offset by the
impact of the softening pool equipment and spa and bath markets on the
performance of our Pool and Spa business. On September 26, 2006,
Pentair revised its earnings guidance for the third and fourth
quarters of 2006 in recognition of the weaker pool markets and
included a third quarter charge of $17 million, or ($0.11) EPS. The
charge related to increased reserves for accounts receivable,
inventory, and warranty in Pentair's Pool and Spa business and some
severance costs in the Water Group and at Corporate.
"Excluding the Pool and Spa business, the Water Group's sales grew
nearly five percent in the quarter. However, as expected and reflected
in our revised guidance, third quarter sales in Pool and Spa were
about two percent lower than a year ago, driven by the slowing housing
market, which affects both new pool construction and spa and bath
markets.
"While the downturn in our pool and spa markets is challenging in
the near term, we have taken actions that we expect will drive
improved performance in this uncertain environment, including actions
to reduce costs and accelerate growth in other Water markets,
particularly municipal, foodservice, commercial, and international
markets.
"As previously announced, we expect fourth quarter sales in Pool
and Spa to be down significantly as pool distribution customers
continue to adjust inventory levels. We believe this inventory
drawdown will be essentially complete by the end of the fourth quarter
and, thereafter, we should track more closely to end-market demand,
which includes both replacement and new pool-related sales.
"We are reiterating our full-year 2006 EPS guidance from
continuing operations of between $1.72 and $1.76. In addition, we are
initiating EPS guidance for full-year 2007 in a range between $2.00
and $2.15, indicating an increase of between 14 percent and 25 percent
over 2006 EPS. The low end of the 2007 guidance assumes a sustained
weakness in housing markets that would affect both our pump and pool
businesses, while the high end of the range represents some moderation
of housing markets and continued strength in other markets."
Third Quarter 2006 Financial Comments
Earnings:
Operating income for the third quarter totaled $60.3 million, 22
percent below the $76.9 million reported in the same period last year.
Operating margins of 7.7 percent in the third quarter were down from
those of a year ago as higher Technical Products Group margins were
offset by the impact of softer pool and spa markets and one-time costs
in the Water Group. Third quarter 2006 EPS from continuing operations
of $0.33 was lower than the $0.43 in the same period last year.
Earnings per share of $0.33 included $0.03 of favorable prior year tax
settlements - versus $0.01 of favorable tax settlements in the same
quarter last year - and was in-line with our EPS guidance of $0.30 to
$0.32. Earnings also included one-time costs of $17 million, or
($0.11) EPS, related to severance costs in the Water Group and at
Corporate, and increased reserves for accounts receivable, inventory,
and warranty in the Pool and Spa business.
Pentair's resolution of prior year tax items also resulted in $1.4
million of net income from discontinued operations or approximately
one cent per share.
Revenue:
Pentair's third quarter 2006 net sales totaled $778.0 million, up
nine percent from $716.3 million in the same period a year ago.
Organic sales - removing the effects of acquisitions and excluding
favorable foreign currency exchange - grew approximately three
percent, or approximately four percent also excluding the decline of
our Pool and Spa business.
Cash:
Cash flow totaled $66 million, bringing YTD free cash flow to $93
million. This compares favorably to YTD free cash flow through the
third quarter of 2005 of $87 million.
Water Group Third Quarter Comments
- Water Group sales grew three percent over the same period last
year to $531.7 million. The impact of foreign currency
exchange was negligible.
- Pump sales were up in the third quarter, driven by strong
double-digit commercial and export sales and mid-single-digit
applied wastewater and residential sales.
- Pool sales were down in the low single-digits including the
decreases in inventory levels of pool distribution customers.
The pool equipment market was estimated to be flat, with
growth in replacement product offsetting declines in new pool
construction.
- Filtration sales were up, driven by commercial and industrial
markets that more than offset declines in RV and marine
markets.
- Sales in Europe were up, driven by pump and filtration, while
sales gains in Asia resulted from continued strong pressure
vessel demand and improved performance in Australia and New
Zealand.
- Global sales of Codeline pressure vessels continued very
strong in the quarter, driven principally by
desalination-related demand in North America, Europe and the
Middle East, as well as a large OEM project.
- Operating income for the Group totaled $36.2 million, down 39
percent from the same period last year. Return on sales was
6.8 percent, down 460 basis points compared to last year. The
decline was attributed to one-time costs for increased
reserves and severance totaling $15 million; lower unit volume
in Pool and Spa; and ongoing investment spending.
- Both the Pump and Asia businesses improved return on sales
year-over-year, driven by improved productivity, pricing, and
growth.
- Recent price actions more than offset inflationary pressures
for key commodities such as resins, copper and brass.
- The Faradyne pump motor joint venture continues to progress
well. Motor shipments to Pentair began in the third quarter,
and four-inch Faradyne-motor-equipped submersible pumps began
shipping to Pentair customers in September.
Technical Products Group Third Quarter Comments
-
Sales of $246.3 million for the quarter increased 23 percent
over the same quarter last year. Excluding the impact of the
acquired Thermal Management businesses and favorable foreign
currency exchange, organic growth was approximately four
percent.
- Excluding acquisitions, sales in North American markets were
flat. Continued robust sales to commercial and industrial
markets were offset by declines in sales to telecom and data,
primarily due to OEM projects that reached end-of-life or were
transitioned to our Asian operations.
- The newly acquired McLean Thermal Management business set
sales records for the third quarter.
- In Europe, sales grew in the low teens. Excluding the impact
of favorable foreign currency exchange, growth was in the high
single digits. Markets in Europe overall remain robust,
particularly in test and measurement and telecom markets.
Several new European customers also bolstered growth.
- Continued strong growth in Asia benefited from key OEM
programs in China, continued ATCA sales in Japan, as well as
sales of Schroff components into semiconductor markets.
- Volume, supply management savings, cost reductions, and
improved productivity resulted in operating income of $37.1
million, a 33 percent gain over year-ago levels.
- The Group met its 15 percent operating margin goal for the
second consecutive quarter and achieved its 16th consecutive
quarter of year-over-year margin expansion.
- Margins in Europe improved as a result of volume and supply
management savings.
- Margins in Asia reached new highs on the strength of OEM
programs in China and continued strong performance in Japan.
Horizon Litigation Update
As announced in a June 29, 2006 news release, a jury verdict was
rendered against Pentair for $193 million, exclusive of pre-judgment
interest and attorney's fees, in the commercial damages portion of the
previously disclosed Horizon litigation. Post-trial motions have been
filed and Pentair anticipates they will be heard and decided in the
fourth quarter. Therefore, Pentair made no adjustments to its
previously established reserves except for the accrual of an
additional quarter's interest expense and legal fees related to the
matter. Pentair's EPS guidance does not reflect any potential impact
of this litigation.
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, Inc. (NYSE:PNR) 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
Technical Products Group is a leader in global enclosures and thermal
management markets, designing and manufacturing thermal management
products and standard, modified, and custom enclosures that house and
protect sensitive electronics and electrical components. With 2005
revenues of $2.95 billion, Pentair employs approximately 15,000 people
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, including the
strength of housing and related markets; the ability to successfully
appeal and limit damages payable arising out of the Horizon
litigation; 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
---------------------- -------------------------
September 30 October 1 September 30 October 1
In thousands, except
per-share data 2006 2005 2006 2005
----------------------------------------------------------------------
Net sales $778,020 $716,308 $2,411,431 $2,214,466
Cost of goods sold 565,533 515,467 1,713,747 1,574,254
----------------------------------------------------------------------
Gross profit 212,487 200,841 697,684 640,212
% of net sales 27.3% 28.0% 28.9% 28.9%
Selling, general and
administrative 137,923 112,813 406,843 350,905
% of net sales 17.7% 15.7% 16.9% 15.8%
Research and
development 14,271 11,148 44,017 33,107
% of net sales 1.9% 1.6% 1.8% 1.5%
----------------------------------------------------------------------
Operating income 60,293 76,880 246,824 256,200
% of net sales 7.7% 10.7% 10.2% 11.6%
Gain on sale of
investment 167 -- 167 5,199
Net interest expense 13,024 10,752 38,861 33,724
% of net sales 1.7% 1.5% 1.6% 1.5%
----------------------------------------------------------------------
Income from
continuing
operations before
income taxes 47,436 66,128 208,130 227,675
% of net sales 6.1% 9.2% 8.6% 10.3%
Provision for income
taxes 13,995 21,595 62,985 81,582
Effective tax rate 29.5% 32.7% 30.3% 35.8%
----------------------------------------------------------------------
Income from
continuing
operations 33,441 44,533 145,145 146,093
Gain (loss) on
disposal of
discontinued
operations, net of
tax 1,400 -- (51) --
----------------------------------------------------------------------
Net income $34,841 $44,533 $145,094 $146,093
======================================================================
Earnings per common
share
Basic
Continuing operations $0.34 $0.44 $1.45 $1.45
Discontinued
operations 0.01 -- -- --
----------------------------------------------------------------------
Basic earnings per
common share $0.35 $0.44 $1.45 $1.45
======================================================================
Diluted
Continuing operations $0.33 $0.43 $1.42 $1.42
Discontinued
operations 0.01 -- -- --
----------------------------------------------------------------------
Diluted earnings per
common share $0.34 $0.43 $1.42 $1.42
======================================================================
Weighted average
common shares
outstanding
Basic 99,419 100,922 100,133 100,685
Diluted 101,062 102,866 101,998 102,787
Cash dividends
declared per common
share $0.14 $0.13 $0.42 $0.39
Pentair, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
September 30 December 31 October 1
In thousands 2006 2005 2005
----------------------------------------------------------------------
Assets
Current assets
Cash and cash equivalents $45,153 $48,500 $49,352
Accounts and notes receivable,
net 454,255 423,847 428,486
Inventories 397,637 349,312 344,676
Deferred tax assets 46,040 48,971 64,793
Prepaid expenses and other
current assets 28,736 24,394 28,244
----------------------------------------------------------------------
Total current assets 971,821 895,024 915,551
Property, plant and equipment,
net 312,295 311,839 316,491
Other assets
Goodwill 1,732,410 1,718,207 1,629,978
Intangibles, net 261,261 266,533 251,308
Other 77,386 62,152 61,739
----------------------------------------------------------------------
Total other assets 2,071,057 2,046,892 1,943,025
----------------------------------------------------------------------
Total assets $3,355,173 $3,253,755 $3,175,067
======================================================================
Liabilities and Shareholders' Equity
Current liabilities
Current maturities of long-term
debt $6,912 $4,137 $4,003
Accounts payable 191,206 207,320 183,376
Employee compensation and
benefits 93,431 95,552 90,722
Accrued product claims and
warranties 44,016 43,551 43,252
Current liabilities of
discontinued operations -- 192 192
Income taxes -- 17,518 40,820
Accrued rebates and sales
incentives 41,982 45,374 41,397
Other current liabilities 95,122 111,026 114,176
----------------------------------------------------------------------
Total current liabilities 472,669 524,670 517,938
Long-term debt 788,066 748,477 685,354
Pension and other retirement
compensation 171,063 152,780 142,584
Post-retirement medical and other
benefits 73,398 73,949 70,794
Deferred tax liabilities 124,393 125,785 138,186
Other non-current liabilities 84,783 70,455 69,369
Non-current liabilities of
discontinued operations -- 2,029 2,027
----------------------------------------------------------------------
Total liabilities 1,714,372 1,698,145 1,626,252
Shareholders' equity 1,640,801 1,555,610 1,548,815
----------------------------------------------------------------------
Total liabilities and
shareholders' equity $3,355,173 $3,253,755 $3,175,067
======================================================================
Days sales in accounts receivable
(13 month moving average) 54 54 55
Days inventory on hand (13 month
moving average) 73 70 70
Days in accounts payable (13
month moving average) 56 56 56
Debt/total capital 32.6% 32.6% 30.8%
Pentair, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
Nine months ended
----------------------
September 30 October 1
In thousands 2006 2005
----------------------------------------------------------------------
Operating activities
Net income $145,094 $146,093
Adjustments to reconcile net income to net cash
provided by operating activities
Loss on disposal of discontinued operations 51 --
Depreciation 44,762 43,144
Amortization 13,955 11,815
Deferred income taxes (89) 3,457
Stock compensation 18,058 19,205
Excess tax benefits from stock-based
compensation (2,677) (7,983)
Gain on sale of investment (167) (5,199)
Changes in assets and liabilities, net of
effects of business acquisitions and
dispositions
Accounts and notes receivable (23,210) (43,760)
Inventories (43,360) (29,435)
Prepaid expenses and other current assets (3,671) (4,458)
Accounts payable (22,136) (8,374)
Employee compensation and benefits (7,153) (23,876)
Accrued product claims and warranties 547 290
Income taxes (14,800) 14,321
Other current liabilities (2,263) 3,875
Pension and post-retirement benefits 14,365 11,911
Other assets and liabilities 8,546 (4,115)
----------------------------------------------------------------------
Net cash provided by continuing operations 125,852 126,911
Net cash provided by (used for) operating
activities of discontinued operations 48 (634)
----------------------------------------------------------------------
Net cash provided by operating activities 125,900 126,277
Investing activities
Capital expenditures (33,311) (50,597)
Proceeds from sale of property and equipment 497 11,534
Acquisitions, net of cash acquired (22,879) (10,515)
Divestitures (24,007) (10,574)
Proceeds from sale of investment 167 23,599
Other (6,823) (950)
----------------------------------------------------------------------
Net cash used for investing activities (86,356) (37,503)
Financing activities
Proceeds from long-term debt 568,996 241,610
Repayment of long-term debt (526,599) (286,333)
Proceeds from exercise of stock options 3,126 7,029
Excess tax benefits from stock-based
compensation 2,677 7,983
Repurchases of common stock (50,000) --
Dividends paid (42,616) (39,889)
----------------------------------------------------------------------
Net cash used for financing activities (44,416) (69,600)
Effect of exchange rate changes on cash and
cash equivalents 1,525 (1,317)
----------------------------------------------------------------------
Change in cash and cash equivalents (3,347) 17,857
Cash and cash equivalents, beginning of period 48,500 31,495
----------------------------------------------------------------------
Cash and cash equivalents, end of period $45,153 $49,352
======================================================================
Free cash flow
Net cash provided by operating activities $125,900 $126,277
Less capital expenditures (33,311) (50,597)
Proceeds from sale of property and equipment 497 11,534
----------------------------------------------------------------------
Free cash flow $93,086 $87,214
======================================================================
Pentair, Inc. and Subsidiaries
Supplemental Financial Information by Reportable Business Segment
(Unaudited)
First Qtr Second Qtr Third Qtr Nine Months
In thousands 2006 2006 2006 2006
----------------------------------------------------------------------
Net sales to external
customers
Water $517,169 $605,516 $531,703 $1,654,388
Technical Products 254,220 256,506 246,317 757,043
----------------------------------------------------------------------
Consolidated $771,389 $862,022 $778,020 $2,411,431
======================================================================
Intersegment sales
Water $50 $55 $140 $245
Technical Products 889 1,312 1,133 3,334
Other (939) (1,367) (1,273) (3,579)
----------------------------------------------------------------------
Consolidated $-- $-- $-- $--
======================================================================
Operating income (loss)
Water $55,587 $84,191 $36,226 $176,004
Technical Products 37,704 39,678 37,050 114,432
Other (14,735) (15,894) (12,983) (43,612)
----------------------------------------------------------------------
Consolidated $78,556 $107,975 $60,293 $246,824
======================================================================
Operating income as a
percent of net sales
Water 10.8% 13.9% 6.8% 10.6%
Technical Products 14.8% 15.5% 15.0% 15.1%
Consolidated 10.2% 12.5% 7.7% 10.2%
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
Technical Products 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
Technical Products 402 630 402 1,434
Other (424) (817) (682) (1,923)
----------------------------------------------------------------------
Consolidated $-- $-- $-- $--
======================================================================
Operating income (loss)
Water $60,489 $92,167 $58,964 $211,620
Technical Products 25,172 26,325 27,778 79,275
Other (13,575) (11,258) (9,862) (34,695)
----------------------------------------------------------------------
Consolidated $72,086 $107,234 $76,880 $256,200
======================================================================
Operating income as a
percent of net sales
Water 11.8% 15.7% 11.4% 13.1%
Technical Products 12.7% 13.0% 13.9% 13.2%
Consolidated 10.2% 13.6% 10.7% 11.6%
CONTACT: Pentair
Communications:
Rachael Jarosh, 763-656-5280
E-mail: rachael.jarosh@pentair.com
or
Investor Relations:
Mark Cain, 763-656-5278
E-mail: mark.cain@pentair.com
SOURCE: Pentair