Post on 18-Aug-2020
PENTAIR Q1 2016 Earnings Release
Q1 2016 EARNINGS RELEASE April 26, 2016
PENTAIR Q1 2016 Earnings Release
FORWARD-LOOKING STATEMENTS CAUTION CONCERNING FORWARD-LOOKING STATEMENTS
This communication contains statements that we believe to be " forward-looking statements " within the meaning of
the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical fact are
forward-looking statements. Without limitation, any statements preceded or followed by or that include the words
"targets," "plans," "believes," "expects," "intends," "will," "likely," " may," "anticipates," "estimates," "projects, "
"should," "would," "positioned," "strategy," "future“ or words, phrases or terms of similar substance or the negative
thereof, are forward-looking statements. These forward-looking statements are not guarantees of future performance
and are subject to risks, uncertainties, assumptions and other factors, some of which are beyond our control, which
could cause actual results to differ materially from those expressed or implied by such forward-looking statements.
These factors include overall global economic and business conditions, including worldwide demand for oil and
gas; the ability to achieve the benefits of our restructuring plans; the ability to successfully identify, finance,
complete and integrate acquisitions, including the ability to successfully integrate and achieve the expected benefits
of the acquisition of ERICO Global Company; competition and pricing pressures in the markets we serve; the
strength of housing and related markets; volatility in currency exchange rates and commodity prices; inability to
generate savings from excellence in operations initiatives consisting of lean enterprise, supply management and
cash flow practices; increased risks associated with operating foreign businesses; the ability to deliver backlog and
win future project work; failure of markets to accept new product introductions and enhancements; the impact of
changes in laws and regulations, including those that limit U.S. tax benefits; the outcome of litigation and
governmental proceedings; and the ability to achieve our long-term strategic operating goals. Additional information
concerning these and other factors is contained in our filings with the U.S. Securities and Exchange Commission
("SEC"), including in our 2015 Annual Report on Form 10-K. All forward-looking statements speak only as of the date
of this report. We assume no obligation, and disclaim any obligation, to update the information contained in this
report.
2
PENTAIR Q1 2016 Earnings Release 3
KEY DEFINITIONS
• Except as Otherwise Noted All References to 2016 and 2015 Represent Our Results from Continuing Operations for the Period Indicated Presented on an Adjusted Basis
• "Core Sales" Refers to GAAP Revenue from Existing Operations Excluding (1) the Impact of Currency Translation and (2) the Impact of Revenue from Acquired Businesses Recorded Prior to the First Anniversary of the Acquisition Less the Amount of Sales Attributable to Divested Product Lines Not Considered Discontinued Operations
• Segment Income Represents Equity Income of Unconsolidated Subsidiaries and Operating Income from Continuing Operations Exclusive of Non-Cash Intangible Amortization, Certain Acquisition Related Expenses, Costs of Restructuring Activities, "Mark-to-Market" Gain (Loss) for Pension and Other Post-Retirement Plans, Impairments, and Other Unusual Non-Operating Items
• Return on Sales ("ROS") Equals Segment Income Divided by Sales
• See Appendix for GAAP to Non-GAAP Reconciliations
PENTAIR Q1 2016 Earnings Release
EXECUTIVE SUMMARY
Cash and Execution Remain the Key Focus 4
• Q1 Results Beat Expectations with Strong Margin Expansion in Three Segments and Strong Execution Across the Board
• New V&C Leader in Place … Prior Cost-Out Actions are on Schedule and Continued Focus on Cost and Cash
• ERICO Integration Meeting Expectations … Synergies on Track
• Strong Free Cash Flow Start to the Year … Full Year Free Cash Flow Still Anticipated to be Approximately $750 Million
• Maintain Full Year EPS Outlook of $4.05 to $4.25
PENTAIR Q1 2016 Earnings Release
Core Sales Up 1% (Up 7% Incl. FX and ERICO) • Water Quality Systems Up 9% (Up 8% Incl. FX)
• Flow & Filtration Solutions Down 2% (Down 4% Incl. FX)
• Technical Solutions Up 5% (Up 33% Incl. FX and ERICO)
• Valves & Controls Down 7% (Down 10% Incl. FX)
5
Segment Income Up 5%
Adj. EPS Flat • Adjusted Tax Rate of 20.5%
• Net Interest of $36M; Share Count 182M
FINANCIAL HIGHLIGHTS (YoY)
SUMMARY
Solid Execution Across the Board
• 3 of 4 Segments Beat or Met Sales Forecast
• 3 of 4 Segments Delivered Strong Margin Expansion
• Cash Flow Usage Better than Expected
$1.58B
$171M
$210M
13.3%
$0.59
$0.76
Q1'16 Q1'15 Sales
Op. Income Seg. Income ROS
EPS (Rpt.)
EPS (Adj.)
$1.48B
$171M
$199M
13.5%
$0.65
$0.76
Q1 Free Cash Flow Usage of $47M,
Consistent with Seasonality
ROS 13.3% … Down 20 bps
Q1'16 PENTAIR RESULTS
PENTAIR Q1 2016 Earnings Release
Strong Residential & Commercial … Signs of Industrial Stabilization
Return on Sales 13.3%
• Price and Productivity More than Offsetting Inflation
• Cost-Out Actions Reading Out
• ERICO Contributed Strength to Bottom Line
6
Sales Highlights
SALES SEGMENT INCOME
Q1'16 PENTAIR PERFORMANCE
Q1'15 Infl. Growth/ Acq./FX
Q1'16
Core Sales Up 1%
• Residential / Commercial Up 11% (~35% of Sales)
• Industrial Down 1% (~25% of Sales)
• Energy Down 7% (~20% of Sales)
• Food & Beverage Down 8% (~10% of Sales)
• Infrastructure Up 11% (~10% of Sales)
Segment Income Highlights
Q1'15 Price Q1'16 Volume FX Acq.
$14M $1.48B $2M
$120M
($36M)
$1.58B
1 pt 0 pts 8 pts (2 pts) (2.7%) (1.0%) 3.5%
7% YoY
$199M
($25M) ($15M)
$51M $210M
5% YoY
ROS ROS 13.5% 13.3%
Core 1%
7 pts
Prod./ Price
$28M * $38M *
*Non-Cash Intangible Amortization
PENTAIR Q1 2016 Earnings Release
Valves & Controls
(Revenue ~$1.8B)
Aftermarket/MRO
(Revenue ~$900M)
Engineered Projects
(Revenue ~$900M)
Flow & Filtration Solutions
(Revenue ~$1.4B)
Water Technologies
(Revenue ~$800M)
Fluid Solutions
(Revenue ~$425M)
Process Filtration
(Revenue ~$200M)
Water Quality Systems
(Revenue ~$1.4B)
Aquatic & Environ. Systems
(Revenue ~$825M)
Water Filtration
(Revenue ~$550M)
Technical Solutions
(Revenue ~$2.2B*)
Enclosures
(Revenue ~$950M)
Thermal Management
(Revenue ~$700M)
Eng. Fastening Solutions
(Revenue ~$525M*)
*Pro Forma Including ~$375M for ERICO
Aligned to Increase Focus on Key Priorities
SEGMENT & STRATEGIC BUSINESS GROUP STRUCTURE
Four External Reporting Segments
10 Strategic Business Groups
7
Revenue Based on 2015 Actuals Unless Otherwise Noted
PENTAIR Q1 2016 Earnings Release 8
Segment Income Highlights Sales Highlights (by Strategic Business Group)
Strong Growth and Execution as Usual
SALES SEGMENT INCOME
Q1'16 WATER QUALITY SYSTEMS PERFORMANCE
$307M
$332M $1M $28M
($4M)
Q1'15 Price FX Q1'16
0 pts (1 pt) 8 pts
Volume
9 pts
8% YoY
$9M $4M
($3M)
ROS
Q1'15 Prod./ Price
Infl. Growth/
FX Q1'16
ROS (0.9%) 1.5% 1.1% 16.9% 18.6%
ROS
19% YoY Core 9%
$62M
$52M
Core Sales Up 9%
• Aquatic & Environmental Systems Up 13%
• Water Filtration Up 5%
Return on Sales 18.6%
• Robust Operating Leverage
• Productivity/Price Greater than Inflation
• Continued Investments in Growth
$3M *
$3M *
*Non-Cash Intangible Amortization
PENTAIR Q1 2016 Earnings Release 9
Sales Highlights (by Strategic Business Group)
Another Solid Quarter of Margin Expansion
SALES SEGMENT INCOME
Q1'16 FLOW & FILTRATION PERFORMANCE
Q1'15 Prod./ Price
Infl. Growth/
FX Q1'16
Segment Income Highlights
($5M)
$13M
($4M)
ROS (1.3%) (1.1%) 3.7% 10.4%
ROS
11.7% ROS
9% YoY
$350M $338M
($7M)
Q1'15 Price FX Q1'16
$3M
(4%) YoY
0 pts (2 pts) (4 pts)
Volume
(2 pts)
($8M)
Core (2%)
$36M $40M
Core Sales Down 2%
• Water Technologies Down 1%
• Fluid Solutions Down 5%
• Process Filtration Up 4%
Return on Sales 11.7%
• Price and Productivity Offset Inflation
• Improved Mix
• Cost-Out Actions Gaining Momentum
*Non-Cash Intangible Amortization
$7M * $7M *
PENTAIR Q1 2016 Earnings Release 10
Q1'16 TECHNICAL SOLUTIONS PERFORMANCE
Continued Strength in Execution … ERICO Integration on Track
SALES SEGMENT INCOME
Segment Income Highlights Sales Highlights (by Strategic Business Group)
Core Sales Up 5%
• Enclosures Down 5%
• Thermal Management Up 22%
• Engineered Fastening Solutions N/A
Q1'15 Infl. Growth/ Acq./FX
Q1'16
$396M
$525M
($11M)
($1M)
$21M
5 pts (2 pts) 33 pts
Q1'15 Price Q1'16 Volume FX
(0 pts)
33% YoY
$26M
($4M)
45% YoY
ROS
0.0% (1.1%) 19.6% 21.5% ROS
Core 5%
$13M
$78M
Acq.
$120M
30 pts
Prod./ Price
3.0%
$113M
Return on Sales 21.5%
• ERICO Contributed Strength to Bottom Line
• Continued Cost-Out Actions
• Negative Impact from Mix
*Non-Cash Intangible Amortization
$5M *
$15M *
PENTAIR Q1 2016 Earnings Release 11
Sales Highlights (by Strategic Business Group)
Top Line and Margins Met Expectations Despite Tough Environment
SALES SEGMENT INCOME
Q1'16 VALVES & CONTROLS PERFORMANCE
Backlog Including FX Down 2% Sequentially at $1.1B … Orders of $357M; Core Down 11% YoY
Core Sales Down 7% YoY
• Aftermarket/MRO Down 9%
• Engineered Projects Down 4%
Return on Sales 6.5% • Project Margins Remain Under Pressure • Negative Mix and Aftermarket Pricing Pressure • Productivity and Cost-Out Benefits • 2015 Manufacturing Variances Carried into
1H’16 (Netted in Productivity)
Segment Income Highlights
$429M $387M
($14M)
(10%) YoY
(3 pts) (10 pts) (6 pts)
($27M)
(1 pt)
($1M)
Q1'15 Price FX Q1'16 Volume
Q1'15 Prod./ Price
Infl. Growth/
FX Q1'16
($56M)
$29M
($3M)
ROS (0.7%) 7.5%
ROS
(54%) YoY
(13.2%)
$55M
$25M
12.9% 6.5%
Core (7%)
*Non-Cash Intangible Amortization
$13M *
$13M *
PENTAIR Q1 2016 Earnings Release 12 12
VALVES & CONTROLS BACKLOG
Order Weakness Persists … Continue to Build Funnel
• Core Orders Down 5% YoY and Down 9% Sequentially
• Weak Activity in US & Europe on Continued Customer Maintenance Deferral
• Customer OpEx Constraints Clearly Impacting Orders
$1,385 $1,413 $1,321 $1,235 $1,188 $1,210 $1,171 $1,128 $1,109
$0
$200
$400
$600
$0
$500
$1,000
$1,500
Q1 '14 Q2 '14 Q3 '14 Q4 '14 Q1 '15 Q2 '15 Q3 '15 Q4 '15 Q1 '16
Backlog Short Cycle Orders Long Cycle Orders
SHORT CYCLE ORDERS
($ Millions)
LONG CYCLE ORDERS
• Core Orders Down 18% YoY and Down 25% Sequentially
• Oil & Gas Remains Weak
• Power (Coal) in China Showed Strength in Q1
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PENTAIR Q1 2016 Earnings Release 13 13
SEGMENT POSITIONING/UPDATE
3 out of 4 Segments Well Positioned … V&C Adjusting to New Reality
TECHNICAL SOLUTIONS
FLOW & FILTRATION SOLUTIONS WATER QUALITY SYSTEMS
VALVES & CONTROLS
• Proven Growth Culture Built on Innovative Technology and Customer Intimacy
• Extending PIMS Expertise to Water Filtration
• Well Positioned in the Residential & Commercial and Food & Beverage Verticals
• Adjusting to New Reality – Lowering Cost Structure
• Still Opportunities to Grow – Aftermarket, LNG, Petrochemical
• PIMS Adoption – Aligning into Two Value Streams; Sales Excellence
• Evolving from Products to Solutions
• PIMS Acceleration to Drive Margin Expansion
• Well Positioned Portfolio to Grow with Macro Trends
• Focus on Differentiated Growth – Sales Excellence, Smart Products, Global Expansion
• ERICO Integration
• Well Positioned to Drive Growth and High Profitability
• Industrial Outlook / Recovery
PENTAIR Q1 2016 Earnings Release
Other FY Key Financial Metrics:
• Capital Expenditures ~$150M
• Total D&A of ~$285M + ~$37M of Non-Cash
Stock Compensation
• ROIC at Quarter End 9.6%
14
BALANCE SHEET AND CASH FLOW
Remain Focused on Free Cash Flow and Debt Reduction
DEBT ROLLFORWARD
CASH FLOW DEBT SUMMARY
*Does Not Include $158M of Cash on Hand
Maturity
Variable
$4.8B*
Q1'16 Avg. Rate ~3.06% ~69% Fixed …
$3.3B
$1.5B '19
Fixed '17 – '25
Q1 Q1 ($M) 2016 2015
Net Income - Continuing Ops $ 107 $ 118 Amortization 38 28 Subtotal $ 145 $ 146 Depreciation 33 32 Capital Expenditures (38) (35) Asset Sales 6 2 Working Capital (107) (234) Other Accruals/Other (86) (70) Free Cash Flow $ (47) $ (159)
Q1 Q4
Use of Cash: ($M) 2016 2015
Beginning Debt $ 4,687 $ 4,962
Used (Generated) Cash 47 (316)
Dividends 60 58
Bond Repayments - (350)
Other 44 333
Ending Debt $ 4,838 $ 4,687
PENTAIR Q1 2016 Earnings Release 15
Adj. EPS Up ~2% • Tax Rate of ~20.5%
• Net Interest ~$35M; Shares ~182M
Q2 Free Cash Flow Expected to be Strong Consistent with Historical Seasonality
Q2'16 FINANCIAL OUTLOOK (YoY)
SUMMARY
Seasonal Strength in WQS Expected to Offset Ongoing Energy Weakness
Q2'16 PENTAIR OUTLOOK
• Growth Expected in Both Water Businesses
• ERICO Contributing to Bottom Line and Margin Expansion
• V&C Cost-Out Benefits Gaining Momentum
• Seasonal Free Cash Flow Strength Expected to Follow Historical Sequential Trends
Core Sales Down ~3% (Up ~4% Including FX and ERICO)
• Water Quality Systems Up ~5% (Up ~5% Incl. FX)
• Flow & Filtration Solutions Up ~1% (~Flat Incl. FX)
• Technical Solutions Down ~3% (Up ~29% Incl. FX and ERICO)
• Valves & Controls Down ~13% (Down ~15% Incl. FX)
Segment Income Up ~5%
Return on Sales ~16.5% … ~Flat • Water Quality Systems ~23.0%
• Flow & Filtration Solutions ~15.5%
• Technical Solutions ~22.0%
• Valves & Controls ~9.5%
~$1.72B
~$246M
~$285M
~16.5%
$0.91-$0.94
$1.08-$1.11
Q2'16 Q2'15 Sales
Op. Income Seg. Income ROS
EPS (Rpt.)
EPS (Adj.)
$1.66B
$218M
$274M
16.5%
$0.84
$1.08
PENTAIR Q1 2016 Earnings Release 16
FY'16 FINANCIAL OUTLOOK (YoY)
SUMMARY
Maintaining Full Year EPS and Cash Flow Outlook
FULL YEAR 2016 PENTAIR OUTLOOK
• Residential & Commercial Strength Expected to Continue … Industrial Stabilization
• Expect 3 of 4 Segments to Grow Income
• Margin Expansion and EPS Growth on Cost-Out Actions and ERICO Contribution
• Strong Cash Flow Expected as Working Capital Opportunities Remain
~$6.7B
~$945M
~$1.1B
~16.5%
$3.39-$3.59
$4.05-$4.25
FY'16 FY'15 Sales
Op. Income Seg. Income ROS
EPS (Rpt.)
EPS (Adj.)
$6.45B
$177M
$1.0B
15.6%
($0.36)
$3.94
Adj. EPS Up ~5% • Tax Rate of ~20.5%
• Net Interest / Other ~$140M; Shares ~182M
Free Cash Flow of >$750M; ~100% Adj. Net Inc.
Core Sales Down ~1% (Up ~3% Incl. FX and ERICO)
• Water Quality Systems Up ~5% (Up ~5% Incl. FX)
• Flow & Filtration Solutions Up ~2% (Up ~1% Incl. FX)
• Technical Solutions Down ~2% (Up ~18% Incl. FX and ERICO)
• Valves & Controls Down ~8% (Down ~10% Incl. FX)
Segment Income Up ~9%
ROS ~16.5% … Up ~90 bps • Water Quality Systems ~21.0%
• Flow & Filtration Solutions ~14.0%
• Technical Solutions ~23.5%
• Valves & Controls ~10.5%
PENTAIR Q1 2016 Earnings Release 17
APPENDIX GAAP to Non-GAAP Measurements & Reconciliations
PENTAIR Q1 2016 Earnings Release 18
REPORTED TO ADJUSTED 2016 RECONCILIATION
PENTAIR Q1 2016 Earnings Release 19
Q1 2016 CORE SALES GROWTH RECONCILIATION
PENTAIR Q1 2016 Earnings Release 20
OTHER RECONCILIATIONS
PENTAIR Q1 2016 Earnings Release 21
REPORTED TO ADJUSTED 2015 RECONCILIATION