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Pentair's Third Quarter 2006 Continuing Operations EPS of $0.33 Reflects Continued Strong Performance in Technical Products and Pump, Weakness in Pool
10.24.2006

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

Categories: Press Releases