News Release Details

MINNEAPOLIS--(BUSINESS WIRE)-- Pentair, Inc. (NYSE:PNR):

• Delivers record full year net earnings per share from continuing operations (EPS) of $2.59; or $2.20 on adjusted basis, up 5 percent versus 2007 adjusted EPS of $2.09
• Reports fourth quarter sales of $768 million, down 5 percent year over year
• Announces fourth quarter EPS of 22 cents or 41 cents on an adjusted basis

Adjusted 2008 and 2007 EPS exclude the impact of gains/losses from acquisitions and divestitures (2008), the settlement of the Horizon litigation (2008) and the negative impact associated with restructuring costs and impairment charges (2008 and 2007) and the one-time net tax benefits (2007). Adjusted 2008 and 2007 Operating Income and Margins exclude the settlement of the Horizon litigation, the negative impact associated with restructuring costs and impairment charges in the respective period. All financial information and period-to-period references are on a continuing operations basis unless otherwise noted. Reconciliations to discontinued operations as well as GAAP and non-GAAP reconciliations are in the attached financial tables.

Pentair, Inc. (NYSE:PNR) today announced fourth quarter 2008 net earnings per diluted share from continuing operations (EPS) of $0.22. This represents a decrease of 55 percent as compared to the $0.49 of EPS in the fourth quarter last year. Current period results include a negative $0.19 per share impact from restructuring and impairment charges. Adjusting for these items, fourth quarter 2008 EPS was $0.41, down 21 percent when compared to the year-earlier adjusted EPS of $0.52. The $0.41 per share of adjusted earnings was at the midpoint of the per share adjusted earnings guidance range of $0.40 to $0.42 that the company provided in December 2008.

Total company fourth quarter sales decreased five percent to $768 million, compared with $807 million in the fourth quarter of 2007. The company delivered fourth quarter operating income of $45 million. Excluding the effects of restructuring and impairment charges, the company delivered operating income of $74 million versus $97 million in the year-ago quarter. The company’s adjusted operating income included the negative impact of $3 million of integration and intangible amortization related to the second quarter 2008 transaction with GE Water & Process Technologies, a unit of the General Electric Company (GE), to combine the companies’ respective residential water filtration businesses into Pentair Residential Filtration (PRF). Overall, adjusted operating margins for the fourth quarter contracted 240 basis points to 9.6 percent. A positive 400 basis point impact from price and productivity did not offset a negative 640 basis point impact related to total inflation, lower sales volume and foreign exchange.

“Through the first three quarters of 2008, a period when we met or exceeded our financial outlook, we recognized the global economy was slowing and we began taking aggressive cost reduction actions,” said Randall J. Hogan, Pentair chairman and CEO. “However, as we exited the third quarter, the speed and magnitude of the economic deterioration increased dramatically. This caused us to miss our original fourth quarter sales and earnings forecasts and set into motion an acceleration of additional cost actions. By the end of 2009, when compared to June of 2008, we will have reduced our headcount by over 15 percent and closed 17 facilities,” he added.

FOURTH QUARTER BUSINESS HIGHLIGHTS

The Water Group delivered $509 million in sales, a six percent decline year-over-year. The formation of PRF added three points of growth and foreign exchange reduced sales by two points. Slowing international and non-residential markets joined continuing softness in North American residential markets to negatively impact sales.

• Global Flow Technologies sales were down five percent versus the year-ago quarter. Sales growth in pump equipment for global commercial, municipal and agricultural markets did not outpace further declines in North American and European residential markets.
• Global Filtration sales declined two percent, or down twelve percent organically offset by the increased sales associated with PRF. Sales increases in the industrial filtration and desalination vertical markets did not offset declines in North American and European residential markets and in global foodservice markets.
• Global Pool Equipment sales were down 12 percent as sales increases to commercial pool markets could not offset the prolonged decline in residential pool markets.
• Europe, Middle East and Africa sales declined seven percent versus the year-ago quarter as Western European economies continued to slow in the fourth quarter.
• Asia-Pacific sales declined seven percent as growth in China and India did not overcome volume declines and negative currency fluctuations in Australia and New Zealand.

The Water Group’s fourth quarter operating income totaled $32 million, a decrease of 51 percent as compared to $65 million in the same period last year. Excluding the effects of restructuring and impairment charges, the Group’s operating income was $52 million or 25 percent lower than the $69 million in the year-ago period. Adjusted operating margins of 10.2 percent contracted 250 basis points as the benefit from productivity actions and positive price did not offset the negative impact from inflation, decreased volumes and integration costs associated with the formation of PRF.

Technical Products delivered fourth quarter 2008 sales of $258 million, a decrease of two percent versus the year-earlier period as industrial and commercial demand slowed throughout the quarter.

• Total electrical sales were up slightly as growth in energy, network and commercial overcame contraction in automotive and machine tools and other key markets.
• Global electronic sales decreased approximately six percent as each major region experienced year-over-year sales declines.

Technical Products’ fourth quarter reported operating income totaled $27 million, a decrease of 33 percent as compared to $40 million in the same quarter last year. Adjusting for restructuring expenses and impairment charges, operating income totaled $34 million, down 19 percent versus the $42 million in the fourth quarter 2007. Adjusted operating margins were 13.1 percent, a decrease of 260 basis points versus the year-ago period. In the quarter, the benefits from productivity and price could not offset the negative impact from total inflation, predominantly steel costs, and foreign exchange.

“The insurmountable combination of sales volume declines, high period-costs for steel and other materials, and actions we took to temporarily curb production in December impacted margins in the fourth quarter considerably,” said Hogan. “However, we are taking aggressive actions to align our cost structure and growth strategies to reflect the reality of the economy.”

FISCAL YEAR 2008 RESULTS

Total company sales of $3.35 billion for fiscal year 2008 increased 2.2 percent from $3.28 billion a year ago. For the year, the company reported EPS of $2.59. This represents an increase of 22 percent as compared to the $2.12 of reported EPS in 2007. Full year 2008 results included the favorable impact of the 86 cents per share gain from the formation of PRF, the negative 33 cents per share impact from restructuring actions and impairment charges and the negative 14 cents per share impact from the settlement of the Horizon litigation. Full year 2007 adjusted EPS of $2.09 excluded the favorable impact of $0.13 per share from one-time net tax benefits and a negative $0.10 per share impact from restructuring costs.

For the year, Pentair generated $164 million in free cash flow. Excluding the impact of $28 million for the settlement of the Horizon litigation, $18 million for restructuring and related expenses and $8 million for pension fund contributions, free cash flow was $218 million. In 2007, the company generated $281 million of free cash flow on a continuing operations basis. In 2008, the company paid a $0.68 dividend for each share of common stock and repurchased 1.55 million shares of stock in 2008. The company recently announced a dividend increase to $0.72 for each share of common stock.

“Pentair delivered solid results in 2008 despite a tumultuous economic environment that included unplanned headwinds around commodities, currency, and market-based credit and financial crises,” said Hogan. “We generated record full year sales and earnings per share, we improved our portfolio by divesting three non-core businesses and we strengthened our position in filtration by the formation of PRF. We exit the year with new technologies, more global distribution capabilities, a leaner manufacturing footprint and many actions underway that will enable us to remain competitive.”

OUTLOOK

The company updates first quarter 2009 earnings per share guidance in the range of $0.20 to $0.30, a decrease of 43 to 62 percent year-over-year. The updated first quarter guidance range reflects additional in-the-period restructuring expenses associated with increased severance costs, plant shutdowns, and a continued curbing of production early in the quarter. The company maintains its full year 2009 EPS guidance range of $1.70 to $2.00, a decrease of 9 to 23 percent versus 2008 adjusted EPS. The company expects full year 2009 free cash flow to equal or exceed net income.

“We expect our quarterly 2009 earnings results will improve sequentially as we realize the benefits of our cost actions and the benefit of approximately three percent net material deflation,” said Hogan. “However, we expect first quarter 2009 results will be down significantly year-over-year. In the first quarter of 2009, we are forecasting sales levels at December 2008 run-rates levels in each business except for our Pool business, which we believe will be more negative. Additionally, restructuring related expenses will be at their peak early in the year. Unfortunately, the benefits from those restructuring actions, as well as from material deflation, will not yet have been realized in our first quarter operating results,” Hogan added.

“Given the uncertain depth and length of the global recession, our full year 2009 outlook reflects our expectation that sales volumes across our four global business units will decline around 10 percent as the economic environment remains soft,” said Hogan. “While we don’t see the global economy improving in 2009, we believe that when it does improve our structural cost reductions and improved end-market focus position us for rapid earnings growth and cash flow generation.”

EARNINGS CONFERENCE CALL

Pentair Chairman and CEO Randall J. Hogan and Chief Financial Officer John L. Stauch will discuss the Company’s 2008 performance, and first quarter and full year 2009 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 to this fourth quarter 2008 earnings release and in the fourth quarter 2008 earnings 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 the breadth and severity of the global economic downturn; 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; foreign currency effects; retail and industrial demand; product introductions; and pricing and other competitive pressures, as well as other risk factors set forth in our SEC filings. 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 2008 revenues of $3.35 billion, Pentair employs approximately 15,000 people worldwide.

Source: Pentair, Inc.

Pentair
Todd Gleason, 763-656-5570
Vice President, Strategic Planning & Investor Relations
todd.gleason@pentair.com
or
Media Inquiries:
Betsy Day, 763-656-5537