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Pentair Announces Record Second Quarter Sales and Operating Income
07.24.2007

  • Reports record second quarter sales of $923 million, up 7 percent versus the second quarter 2006
  • Delivers second quarter earnings per share of $0.62
  • Generates strong free cash flow of $145 million in the second quarter and $69 million for the first half of 2007, up $42 million year-to-date versus the first half of 2006
  • Announces full year earnings per diluted share guidance range of $2.00 to $2.05

GOLDEN VALLEY, Minn.--(BUSINESS WIRE)--July 24, 2007--Pentair, Inc. (NYSE:PNR) today announced second quarter 2007 earnings per share (EPS) from continuing operations of $0.62, down 7 percent on a reported basis as compared with the year-earlier period. Last year's second quarter earnings per share of $0.67 included $0.08 of one-time tax benefits.

Total sales increased 7 percent to a record $923 million as compared with $862 million in the second quarter of 2006. The company delivered record operating income for the second quarter of $115 million versus $108 million in the year-earlier quarter. Overall, operating margins declined 10 basis points as a 260 net basis point improvement from productivity, volume, mix and pricing actions could not offset the impact of key commodity inflation. Pentair generated free cash flow of $145 million for the quarter, driven primarily by higher cash provided from working capital. For the first half of the year, the company generated $69 million, reflecting a $42 million improvement as compared with the first half of 2006.

"We delivered a strong second quarter. Organic sales were up 3 percent, and 2 percent excluding the impact of foreign exchange. While some of our end markets were turbulent, as expected, we exceeded our earnings per share guidance by capitalizing on several opportunities for growth," Hogan said. "The strength of our diversity in end markets was evidenced in the quarter as we countered the softness of the North American residential markets with sales growth in our municipal and commercials markets," Hogan said.

SECOND QUARTER BUSINESS HIGHLIGHTS

The Water Group delivered $665 million in sales or 10 percent year-over-year sales growth. Organic sales were up 5 percent, and up 4 percent excluding foreign exchange. Acquisitions contributed 5 points of growth. Organic sales in the North American Pool and Filtration markets were relatively flat, reflecting the continuing softness of the North American residential housing market. Europe and Asia operations drove double-digit sales growth.

  • Sales in Asia-Pacific grew 34 percent, driven in part by a strong rebound in the Australian market and continued penetration in China.
  • Sales in Europe grew 42 percent or 13 percent excluding the Jung Pump acquisition. Sales growth outpaced the economy with strength in the industrial and food service markets offset somewhat by softness in residential water treatment.
  • Overall, North American pump sales were up 9 percent as compared with the second quarter of 2006. The company drove sales growth in the commercial, industrial and municipal pump markets and saw continued weakness in residential pump markets. The overall sales improvement reflects higher-than-expected municipal sales, as some project-based product shipments moved from the third quarter into the second to meet a customer request. Excluding this order, overall Pump sales would have declined about 1 percent.
  • Sales in North American Filtration markets were up 7 percent, driven by the Porous Media acquisition. Organic sales were down 1 percent as increases in our commercial and industrial markets and continued momentum in food service did not offset declines in residential tanks.
  • Sales in North American Pool and Spa markets were essentially flat in a down market. New products, new customers and price increases helped offset the market declines.

The Water Group's second quarter operating income totaled $91 million, up 8 percent as compared to $84 million in the same period in 2006. Operating margins of 13.7 percent were 20 basis points below the year-earlier period, even with 10 basis points of productivity improvement net of key strategic investments. These improvements did not offset the decline in volume in the North American residential markets and some material cost inflation.

Technical Products delivered second quarter 2007 sales of $257 million, flat as compared to the year-earlier period. Sales were down approximately 1 percent organically and 2 percent excluding the positive impact of foreign exchange. Solid sales in the electrical markets and strong sales in international regions did not offset the declines associated with the consolidation and contraction of the telecommunications and the global electronics markets.

  • In North America, second quarter sales growth in the electrical markets was up approximately 6 percent driven by market share gains year-over-year in the industrial, commercial and networking market segments. New products contributed significantly to this growth, especially in the networking and data-communications segments.
  • Technical Products global electronic sales were down approximately 6 percent. In North America, electronic sales declines of approximately 27% masked significant progress in Asia, which delivered 60 percent year-over-year electronic sales growth.

Second quarter operating income for Technical Products totaled $36 million as compared to $40 million in the same quarter last year. Operating margins of 14.1 percent were 140 basis points lower year-over-year, driven by the strong performance of Hoffman Enclosures and planned price increases but offset by the declines in Electronics volume.

OUTLOOK

"Based on our solid first half of 2007, we are announcing third quarter EPS guidance in the range of $0.48 to $0.51, and a full-year EPS guidance range of $2.00 to $2.05," Hogan said. "Looking ahead, we anticipate ongoing uncertainty in the North American residential market, which impacts our Water business, and we anticipate a modest recovery in the telecommunications markets we serve.

"We continue to drive sales growth in the commercial, industrial and municipal markets, the electrical technical products markets, and internationally. We expect this growth, coupled with lean disciplines driven through Pentair's Integrated Management System, to offset the market challenges we face. We remain on track to achieve our 2007 margin targets, and to achieving free cash flow greater than 100 percent conversion of net income," Hogan added.

EARNINGS CONFERENCE CALL

Pentair Chairman and CEO Randall J. Hogan and Chief Financial Officer John L. Stauch will discuss the Company's performance and guidance on a two-way conference call with investors at 12:00 p.m. Eastern today. Reconciliation of any non-GAAP financial measures are set forth in the attachments of this second quarter 2007 earnings release and in the second quarter 2007 earning release conference call presentation, both of which can be found at Pentair's web site (www.pentair.com). Related financial charts and certain other information to be discussed on the conference call will be available on the company's website shortly before the conference call. The web cast 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     Six months ended
                           --------------------- ---------------------
                            June 30     July 1    June 30     July 1
In thousands, except per-
 share data                   2007       2006       2007       2006
----------------------------------------------------------------------
Net sales                  $  922,645 $  862,022 $1,730,640 $1,633,411
Cost of goods sold            639,200    599,333  1,209,792  1,148,214
----------------------------------------------------------------------
Gross profit                  283,445    262,689    520,848    485,197
  % of net sales                30.7%      30.4%      30.1%      29.7%
Selling, general and
 administrative               153,792    139,831    296,092    268,920
  % of net sales                16.7%      16.2%      17.1%      16.5%
Research and development       14,808     14,883     29,758     29,746
  % of net sales                 1.6%       1.7%       1.7%       1.8%
----------------------------------------------------------------------
Operating income              114,845    107,975    194,998    186,531
  % of net sales                12.4%      12.5%      11.3%      11.4%
Net interest expense           18,885     12,553     34,005     25,837
  % of net sales                 2.0%       1.4%       2.0%       1.6%
----------------------------------------------------------------------
Income from continuing
 operations before income
 taxes                         95,960     95,422    160,993    160,694
  % of net sales                10.4%      11.1%       9.3%       9.8%
Provision for income taxes     33,959     26,789     56,862     48,990
  Effective tax rate            35.4%      28.1%      35.3%      30.5%
----------------------------------------------------------------------
Income from continuing
 operations                    62,001     68,633    104,131    111,704
Gain (loss) on disposal of
 discontinued operations,
 net of tax                        64         --        207    (1,451)
----------------------------------------------------------------------
Net income                 $   62,065 $   68,633 $  104,338 $  110,253
======================================================================

Earnings (loss) per common
 share
Basic
Continuing operations      $     0.63 $     0.68 $     1.05 $     1.11
Discontinued operations            --         --         --     (0.01)
----------------------------------------------------------------------
Basic earnings per common
 share                     $     0.63 $     0.68 $     1.05 $     1.10
======================================================================

Diluted
Continuing operations      $     0.62 $     0.67 $     1.04 $     1.09
Discontinued operations            --         --         --     (0.01)
----------------------------------------------------------------------
Diluted earnings per
 common share              $     0.62 $     0.67 $     1.04 $     1.08
======================================================================

Weighted average common
 shares outstanding
Basic                          98,874    100,509     98,915    100,498
Diluted                       100,371    102,429    100,294    102,457

Cash dividends declared
 per common share          $     0.15 $     0.14 $     0.30 $     0.28
                    Pentair, Inc. and Subsidiaries
          Condensed Consolidated Balance Sheets (Unaudited)

                                     June 30   December 31   July 1
In thousands                          2007        2006        2006
----------------------------------------------------------------------
              Assets
Current assets
Cash and cash equivalents          $    52,016 $    54,820 $    48,331
Accounts and notes receivable, net     533,144     422,134     502,982
Inventories                            416,008     398,857     380,219
Deferred tax assets                     52,642      50,578      45,922
Prepaid expenses and other current
 assets                                 42,453      31,239      27,659
----------------------------------------------------------------------
Total current assets                 1,096,263     957,628   1,005,113

Property, plant and equipment, net     354,322     330,372     312,146

Other assets
Goodwill                             1,941,014   1,718,771   1,729,179
Intangibles, net                       503,823     287,011     263,600
Other                                   77,822      71,197      80,167
----------------------------------------------------------------------
Total other assets                   2,522,659   2,076,979   2,072,946
----------------------------------------------------------------------
Total assets                       $ 3,973,244 $ 3,364,979 $ 3,390,205
======================================================================

  Liabilities and Shareholders'
              Equity
Current liabilities
Short-term borrowings              $    10,202 $    14,563 $     4,869
Current maturities of long-term
 debt                                    4,622       7,625       6,970
Accounts payable                       219,151     206,286     224,237
Employee compensation and benefits      96,651      88,882      83,071
Current pension and post-
 retirement benefits                     7,918       7,918          --
Accrued product claims and
 warranties                             48,867      44,093      41,346
Income taxes                            20,459      22,493      22,533
Accrued rebates and sales
 incentives                             42,185      39,419      35,723
Other current liabilities               94,873      90,003      83,937
----------------------------------------------------------------------
Total current liabilities              544,928     521,282     502,686

Other liabilities
Long-term debt                       1,173,527     721,873     801,898
Pension and other retirement
 compensation                          218,420     207,676     164,480
Post-retirement medical and other
 benefits                               46,806      47,842      73,723
Long-term income taxes payable          14,705          --          --
Deferred tax liabilities               112,615     109,781     125,418
Other non-current liabilities           87,949      86,526      79,838
----------------------------------------------------------------------
Total liabilities                    2,198,950   1,694,980   1,748,043

Shareholders' equity                 1,774,294   1,669,999   1,642,162
----------------------------------------------------------------------
Total liabilities and
 shareholders' equity              $ 3,973,244 $ 3,364,979 $ 3,390,205
======================================================================

Days sales in accounts receivable
 (13 month moving average)                  54          54          54
Days inventory on hand (13 month
 moving average)                            78          76          71
Days in accounts payable (13 month
 moving average)                            55          56          56
Debt/total capital                       40.1%       30.8%       33.1%

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
 in the first quarter of 2007. 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)

                                                   Six months ended
                                                 ---------------------
                                                  June 30     July 1
In thousands                                        2007       2006
----------------------------------------------------------------------
Operating activities
Net income                                       $  104,338 $  110,253
Adjustments to reconcile net income to net cash
 provided by operating activities
(Gain) loss on disposal of discontinued
 operations                                           (207)      1,451
Depreciation                                         30,185     30,386
Amortization                                         12,972      9,476
Deferred income taxes                               (6,476)        181
Stock compensation                                   12,626     12,484
Excess tax benefits from stock-based
 compensation                                       (2,213)    (2,605)
Changes in assets and liabilities, net of
 effects of business acquisitions and
 dispositions
   Accounts and notes receivable                   (86,949)   (74,193)
   Inventories                                        2,673   (28,032)
   Prepaid expenses and other current assets        (3,542)    (2,809)
   Accounts payable                                  15,065     12,382
   Employee compensation and benefits               (4,982)   (16,832)
   Accrued product claims and warranties              4,561    (1,793)
   Income taxes                                       5,477      6,443
   Other current liabilities                          3,192   (19,933)
   Pension and post-retirement benefits               7,730      8,722
   Other assets and liabilities                       3,466      1,565
----------------------------------------------------------------------
     Net cash provided by continuing operations      97,916     47,146
     Net cash provided by operating activities
      of discontinued operations                         --         48
----------------------------------------------------------------------
     Net cash provided by operating activities       97,916     47,194

Investing activities
Capital expenditures                               (30,068)   (20,217)
Proceeds from sale of property and equipment          1,536        221
Acquisitions, net of cash acquired                (482,885)   (19,694)
Divestitures                                             --   (24,007)
Other                                                 (779)    (4,273)
----------------------------------------------------------------------
     Net cash used for investing activities       (512,196)   (67,970)

Financing activities
Net short-term borrowings                           (4,708)      4,763
Proceeds from long-term debt                      1,121,402    414,233
Repayment of long-term debt                       (673,341)  (358,141)
Debt issuance costs                                 (1,782)         --
Excess tax benefits from stock-based
 compensation                                         2,213      2,605
Proceeds from exercise of stock options               4,922      2,939
Repurchases of common stock                         (9,280)   (18,330)
Dividends paid                                     (29,991)   (28,458)
----------------------------------------------------------------------
     Net cash provided by financing activities      409,435     19,611

Effect of exchange rate changes on cash and cash
 equivalents                                          2,041        996
----------------------------------------------------------------------
Change in cash and cash equivalents                 (2,804)      (169)
Cash and cash equivalents, beginning of period       54,820     48,500
----------------------------------------------------------------------
Cash and cash equivalents, end of period         $   52,016 $   48,331
======================================================================

Free cash flow
Net cash provided by operating activities        $   97,916 $   47,194
Less capital expenditures                          (30,068)   (20,217)
Proceeds from sale of property and equipment          1,536        221
----------------------------------------------------------------------
Free cash flow                                   $   69,384 $   27,198
======================================================================
                    Pentair, Inc. and Subsidiaries
  Supplemental Financial Information by Reportable Business Segment
                              (Unaudited)

              First   Second               First   Second
                Qtr      Qtr   Six Months    Qtr      Qtr   Six Months
In thousands   2007     2007      2007      2006     2006      2006
----------------------------------------------------------------------

Net sales to
 external
 customers
Water        $555,412 $665,495 $1,220,907 $517,169 $605,516 $1,122,685
Technical
 Products     252,583  257,150    509,733  254,220  256,506    510,726
----------------------------------------------------------------------
Consolidated $807,995 $922,645 $1,730,640 $771,389 $862,022 $1,633,411
======================================================================

Intersegment
 sales
Water            $214      $46       $260      $50      $55       $105
Technical
 Products         896    1,689      2,585      889    1,312      2,201
Other         (1,110)  (1,735)    (2,845)    (939)  (1,367)    (2,306)
----------------------------------------------------------------------
Consolidated      $--      $--        $--      $--      $--        $--
======================================================================

Operating
 income
 (loss)
Water         $60,879  $90,978   $151,857  $55,587  $84,191   $139,778
Technical
 Products      31,631   36,140     67,771   37,704   39,678     77,382
Other        (12,357) (12,273)   (24,630) (14,735) (15,894)   (30,629)
----------------------------------------------------------------------
Consolidated  $80,153 $114,845   $194,998  $78,556 $107,975   $186,531
======================================================================

Operating
 income as a
 percent of
 net sales
Water           11.0%    13.7%      12.4%    10.8%    13.9%      12.5%
Technical
 Products       12.5%    14.1%      13.3%    14.8%    15.5%      15.2%
Consolidated     9.9%    12.4%      11.3%    10.2%    12.5%      11.4%

CONTACT: Pentair, Inc.
Todd Gleason, (763) 656-5570
Vice President, Investor Relations
E-mail: todd.gleason@pentair.com
Rachael Jarosh, (763) 656-5280
Director, Communications
E-mail: rachael.jarosh@pentair.com

SOURCE: Pentair, Inc.

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