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Pentair Announces First Quarter Results; Reports Sales Up 5% and Earnings Per Share of $0.42
04.24.2007

GOLDEN VALLEY, Minn.--(BUSINESS WIRE)--April 24, 2007--Pentair, Inc. (NYSE:PNR) today announced that first quarter 2007 sales increased 5 percent to $808 million from $771 million in the first quarter of 2006. Earnings per share (EPS) from continuing operations of $0.42 were flat with the year-earlier period. Free cash flow for the quarter improved to a usage of $75 million versus a usage of $101 million in the first quarter of 2006, an improvement of $26 million driven by lower cash use of working capital. The Company said it remains committed to achieving free cash flow greater than 100 percent conversion of net income in 2007.

"Pentair delivered solid performance in the first quarter, and we are on track to achieve our 2007 goals," said Randall J. Hogan, Pentair chairman and chief executive officer. "Overall, sales were good despite the challenges we faced in water markets affected by slow North American residential housing starts and headwinds in our electronic markets from consolidation in the telecommunication industry," he added.

"As expected, the Water Group began to deliver margin improvements in the quarter," Hogan continued. "This progress reflects actions we took in the third and fourth quarters of 2006 to address market softness as well as effective deployment of our lean disciplines across our businesses and our continued emphasis on supply management.

"Looking ahead, we continue to view our markets as challenging. However, based on our solid first quarter and our progress on cost actions, we remain committed to exceeding two dollars in earnings per share for 2007," Hogan said.

Water Group Highlights

The Water Group delivered strong year-over-year sales performance with sales of $555 million, up 7 percent over the same period last year. Organic sales growth, excluding the Jung Pump acquisition, was 5 percent. Excluding favorable foreign currency exchange, organic growth for the Water Group was about 4 percent.

  • Continued growth in China and in emerging markets in Asia-Pacific as well as continued success in penetrating markets in Europe and the Middle East contributed to Water's overall growth. Sales in Asia-Pacific grew 27 percent, or 23 percent excluding currency exchange. Sales in Europe grew 36 percent, or 14 percent excluding the Jung Pump acquisition and approximately 6 percent also excluding currency exchange.
  • Strong sales in the commercial and industrial pump markets continued; however, this growth was offset by continued weakness in residential pump sales. Overall, North American pump sales were down 1 percent.
  • Sales in North American Filtration markets were flat, with growth in industrial and food service filtration markets offset by slowing residential markets.
  • Pool and Spa sales were approximately 11 percent higher than the same period in 2006, due to shipments of fourth quarter 2006 early-buy program orders and successful new product introductions. Combining the pool and spa sales of fourth quarter 2006 and first quarter 2007 to reflect the first half of the pool season, sales were down approximately 4 percent as compared to the year-earlier period.

The Water Group's first quarter operating income totaled $61 million, up 10 percent as compared to $56 million in the same period in 2006, as higher volume, price realization and improved productivity more than offset inflation. Water's first quarter operating margins expanded 20 basis points to 11.0 percent reflecting core operational improvements. Excluding the fair market value inventory step-up for Jung Pump, Water's first quarter operating margins expanded 50 basis points.

Technical Products Highlights

For the quarter, Technical Products' sales of $253 million were essentially flat as compared to $254 million in the same period last year. Consolidation in the telecommunication (telecom) market and datacommunication (datacom) projects that reached end-of-life continue to depress growth. Excluding the impact of favorable foreign currency exchange, sales decreased approximately 3 percent.

  • Technical Products global electronic sales were down approximately 8 percent. Strong first quarter sales in Asia advanced 32 percent as compared to the first quarter of 2006 with the majority of the growth reflecting successful penetration into China. This growth was offset by declines in North American and European sales, reflecting the telecom market contraction and datacom programs that, as expected, reached end-of-life.
  • In North America, first quarter growth in the electrical markets was up approximately 5 percent. The industrial, commercial and networking market segments all grew, driven by the Company's distribution penetration strategy.

First quarter operating income for Technical Products totaled $32 million as compared to $38 million in the same quarter last year. Operating margins of 12.5 percent were 230 basis points lower compared to 14.8 percent in the same period in 2006. This decline reflects softness in the telecom and datacom markets; raw material inflation; and, exit costs related to a previously announced 2001 French facility closure. These exit costs negatively affected operating margins by approximately 70 basis points.

Earnings Conference Call

As previously announced, Pentair will discuss the Company's results, strategy and outlook on a conference call with investors at 12:00 p.m. Eastern today. The Company will host a live webcast and presentation on the Financial Information page of the Company's website (www.pentair.com); the webcast and presentation will be archived at the same site following the conclusion of the conference call.

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 integrate acquisitions successfully and the risk that expected synergies may not be fully realized or may take longer to realize than expected; the ability to successfully limit any judgment 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.

About Pentair, Inc.

Pentair (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 Technical Products Group is a leader in the 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 2006 revenues of $3.15 billion, Pentair employs approximately 15,000 people worldwide.

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

                                                   Three months ended
                                                   -------------------
                                                   March 31   April 1
In thousands, except per-share data                  2007      2006
----------------------------------------------------------------------
Net sales                                          $807,995  $771,389
Cost of goods sold                                  570,592   548,881
----------------------------------------------------------------------
Gross profit                                        237,403   222,508
  % of net sales                                       29.4%     28.8%
Selling, general and administrative                 142,300   129,089
  % of net sales                                       17.6%     16.7%
Research and development                             14,950    14,863
  % of net sales                                        1.9%      1.9%
----------------------------------------------------------------------
Operating income                                     80,153    78,556
  % of net sales                                        9.9%     10.2%
Net interest expense                                 15,120    13,284
  % of net sales                                        1.9%      1.7%
----------------------------------------------------------------------
Income from continuing operations before income
 taxes                                               65,033    65,272
  % of net sales                                        8.0%      8.5%
Provision for income taxes                           22,903    22,201
  Effective tax rate                                   35.2%     34.0%
----------------------------------------------------------------------
Income from continuing operations                    42,130    43,071
Gain (loss) on disposal of discontinued
 operations, net of tax                                 143    (1,451)
----------------------------------------------------------------------
Net income                                          $42,273   $41,620
======================================================================

Earnings (loss) per common share
Basic
Continuing operations                                 $0.43     $0.43
Discontinued operations                                  --     (0.01)
----------------------------------------------------------------------
Basic earnings per common share                       $0.43     $0.42
======================================================================

Diluted
Continuing operations                                 $0.42     $0.42
Discontinued operations                                  --     (0.01)
----------------------------------------------------------------------
Diluted earnings per common share                     $0.42     $0.41
======================================================================

Weighted average common shares outstanding
Basic                                                98,966   100,493
Diluted                                             100,271   102,492

Cash dividends declared per common share              $0.15     $0.14
                    Pentair, Inc. and Subsidiaries
          Condensed Consolidated Balance Sheets (Unaudited)

                                    March 31   December 31   April 1
In thousands                          2007        2006        2006
----------------------------------------------------------------------
              Assets
Current assets
Cash and cash equivalents             $64,230     $54,820     $50,237
Accounts and notes receivable, net    532,792     422,134     520,968
Inventories                           413,178     398,857     375,619
Deferred tax assets                    52,198      50,578      44,432
Prepaid expenses and other current
 assets                                41,907      31,239      28,921
----------------------------------------------------------------------
Total current assets                1,104,305     957,628   1,020,177

Property, plant and equipment, net    351,211     330,372     314,164

Other assets
Goodwill                            1,830,359   1,718,771   1,723,952
Intangibles, net                      384,933     287,011     262,829
Other                                  69,505      71,197      67,561
----------------------------------------------------------------------
Total other assets                  2,284,797   2,076,979   2,054,342
----------------------------------------------------------------------
Total assets                       $3,740,313  $3,364,979  $3,388,683
======================================================================

  Liabilities and Shareholders'
              Equity
Current liabilities
Short-term borrowings                 $16,003     $14,563         $--
Current maturities of long-term
 debt                                   8,257       7,625       4,246
Accounts payable                      208,713     206,286     206,528
Employee compensation and benefits     85,741      88,882      75,536
Current pension and post-
 retirement benefits                    7,918       7,918          --
Accrued product claims and
 warranties                            42,766      44,093      42,238
Income taxes                           13,525      22,493      27,195
Accrued rebates and sales
 incentives                            31,293      39,419      23,353
Other current liabilities              91,402      90,003      94,418
----------------------------------------------------------------------
Total current liabilities             505,618     521,282     473,514

Other liabilities
Long-term debt                      1,056,495     721,873     888,015
Pension and other retirement
 compensation                         213,512     207,676     158,535
Post-retirement medical and other
 benefits                              47,401      47,842      73,812
Long-term income taxes payable         14,412          --          --
Deferred tax liabilities              111,106     109,781     123,663
Other non-current liabilities          85,912      86,526      76,452
----------------------------------------------------------------------
Total liabilities                   2,034,456   1,694,980   1,793,991

Shareholders' equity                1,705,857   1,669,999   1,594,692
----------------------------------------------------------------------
Total liabilities and
 shareholders' equity              $3,740,313  $3,364,979  $3,388,683
======================================================================

Days sales in accounts receivable
 (13 month moving average)                 54          54          55
Days inventory on hand (13 month
 moving average)                           77          76          71
Days in accounts payable (13 month
 moving average)                           56          56          56
Debt/total capital                       38.8%       30.8%       35.9%

NOTE: The Company adopted the provisions of Financial Accounting Standards Board (FASB) Interpretation No. 48, Accounting for Uncertainty in Income Taxes - an interpretation of FASB No. 109 ("FIN 48") on January 1, 2007. As a result of adoption of FIN 48, the Company recorded an adjustment to retained earnings of $2.9 million. Additionally, the Company has added the line "Long-term income taxes payable" to the Company's Condensed Consolidated Balance Sheets to report its total long-term liability for unrecognized tax benefits.

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

                                                   Three months ended
                                                  --------------------
                                                  March 31   April 1
In thousands                                        2007       2006
----------------------------------------------------------------------
Operating activities
Net income                                         $42,273    $41,620
Adjustments to reconcile net income to net cash
 used for operating activities
(Gain) loss on disposal of discontinued
 operations                                           (143)     1,451
Depreciation                                        15,523     15,230
Amortization                                         4,900      4,258
Deferred income taxes                                 (355)     2,483
Stock compensation                                   6,218      6,646
Excess tax benefits from stock-based compensation   (1,063)    (2,532)
Changes in assets and liabilities, net of effects
 of business acquisitions and dispositions
 Accounts and notes receivable                     (99,387)   (95,541)
 Inventories                                        (6,381)   (25,379)
 Prepaid expenses and other current assets          (8,770)    (4,258)
 Accounts payable                                    7,886     (4,041)
 Employee compensation and benefits                (13,081)   (23,528)
 Accrued product claims and warranties              (1,403)    (1,363)
 Income taxes                                       (1,448)    10,717
 Other current liabilities                          (7,638)   (26,140)
 Pension and post-retirement benefits                4,033      4,477
 Other assets and liabilities                        1,167      3,550
----------------------------------------------------------------------
  Net cash used for continuing operations          (57,669)   (92,350)
  Net cash provided by operating activities of
   discontinued operations                              --         48
----------------------------------------------------------------------
   Net cash used for operating activities          (57,669)   (92,302)

Investing activities
Capital expenditures                               (18,865)    (9,054)
Proceeds from sale of property and equipment         1,329         79
Acquisitions, net of cash acquired                (230,581)    (2,158)
Divestitures                                            --    (24,007)
Other                                                   --     (2,150)
----------------------------------------------------------------------
   Net cash used for investing activities         (248,117)   (37,290)

Financing activities
Net short-term borrowings                            1,234         --
Proceeds from long-term debt                       345,190    272,906
Repayment of long-term debt                        (10,250)  (133,051)
Excess tax benefits from stock-based compensation    1,063      2,532
Proceeds from exercise of stock options              1,762      2,577
Repurchases of common stock                         (9,280)        --
Dividends paid                                     (15,022)   (14,224)
----------------------------------------------------------------------
   Net cash provided by financing activities       314,697    130,740

Effect of exchange rate changes on cash and cash
 equivalents                                           499        589
----------------------------------------------------------------------
Change in cash and cash equivalents                  9,410      1,737
Cash and cash equivalents, beginning of period      54,820     48,500
----------------------------------------------------------------------
Cash and cash equivalents, end of period           $64,230    $50,237
======================================================================

Free cash flow
Net cash used for operating activities            $(57,669)  $(92,302)
Less capital expenditures                          (18,865)    (9,054)
Proceeds from sale of property and equipment         1,329         79
----------------------------------------------------------------------
Free cash flow                                    $(75,205) $(101,277)
======================================================================
                    Pentair, Inc. and Subsidiaries
  Supplemental Financial Information by Reportable Business Segment
                              (Unaudited)

                                                   First Qtr First Qtr
In thousands                                         2007      2006
----------------------------------------------------------------------

Net sales to external customers
Water                                              $555,412  $517,169
Technical Products                                  252,583   254,220
----------------------------------------------------------------------
Consolidated                                       $807,995  $771,389
======================================================================

Intersegment sales
Water                                                  $214       $50
Technical Products                                      896       889
Other                                                (1,110)     (939)
----------------------------------------------------------------------
Consolidated                                            $--       $--
======================================================================

Operating income (loss)
Water                                               $60,879   $55,587
Technical Products                                   31,631    37,704
Other                                               (12,357)  (14,735)
----------------------------------------------------------------------
Consolidated                                        $80,153   $78,556
======================================================================

Operating income as a percent of net sales
Water                                                  11.0%     10.8%
Technical Products                                     12.5%     14.8%
Consolidated                                            9.9%     10.2%

CONTACT: Pentair, Inc.
Rachael Jarosh, 763-656-5280
E-mail: rachael.jarosh@pentair.com

SOURCE: Pentair, Inc.

Categories: Press Releases