Pentair Reports Fourth Quarter and Full Year 2018 Results

Pentair plc (NYSE: PNR) today announced fourth quarter 2018 sales of $741 million. Sales were up 3 percent compared to sales for the same period last year. Excluding currency translation, acquisitions and divestitures, core sales grew 6 percent in the fourth quarter. Fourth quarter 2018 earnings per diluted share from continuing operations ("EPS") were $0.54 compared to $0.30 in the fourth quarter of 2017. On an adjusted basis, the company reported EPS of $0.60 compared to $0.52 in the fourth quarter of 2017. Segment income, adjusted net income, free cash flow, and adjusted EPS are described in the attached schedules.

Fourth quarter 2018 operating income was $113 million, up 32 percent compared to operating income for the fourth quarter of 2017, and return on sales ("ROS") was 15.3 percent, an increase of 350 basis points when compared to the fourth quarter of 2017. On an adjusted basis, the company reported segment income of $134 million for the fourth quarter, up 5 percent compared to segment income for the fourth quarter of 2017, and ROS was 18.1 percent, an increase of 40 basis points when compared to the fourth quarter of 2017.

Full year net cash provided by operating activities of continuing operations was $458 million and free cash flow from continuing operations was $410 million. The company delivered full year free cash flow of 98 percent of adjusted net income.

Pentair paid dividends of $0.175 per share in the fourth quarter of 2018. Pentair previously announced on December 10, 2018 that its Board of Directors approved a 3 percent increase in the company's regular annual cash dividend rate for 2019 to $0.72 from $0.70, adjusted for the spin-off of nVent Electric plc. 2019 will mark the 43rd consecutive year that Pentair has increased its dividend.

"2018 was an eventful year for Pentair as we began our new journey as a pure play water company," said John L. Stauch, Pentair President and Chief Executive Officer. "We delivered on our 2018 commitments while successfully completing the separation of nVent Electric plc to shareholders. During 2018, we returned nearly $700 million to our shareholders through share buybacks and dividends. Our core sales growth accelerated during the year and we were able to expand our margins while making a number of long-term, strategic growth investments. To start 2019, we announced agreements for two strategic acquisitions to further our Residential & Commercial water treatment strategy. Our balance sheet remains in excellent shape and we remain committed to executing our strategy as a focused Residential & Commercial water treatment company."

OUTLOOK

The company introduces its 2019 GAAP EPS guidance of $2.29 to $2.39 and on an adjusted basis of $2.50 to $2.60. The company anticipates full year 2019 sales up approximately 5 to 6 percent on a reported basis and up approximately 4 to 5 percent on a core basis. The company expects to deliver full year free cash flow to approximate adjusted net income.

In addition, the company introduces first quarter 2019 GAAP EPS from continuing operations guidance of $0.47 to $0.50 and on an adjusted EPS basis of $0.52 to $0.55. The company expects first quarter sales to be up approximately 0 to 1 percent on a reported basis and up approximately 4 to 5 percent on a core basis compared to first quarter 2018.

EARNINGS CONFERENCE CALL

Pentair President and Chief Executive Officer John L. Stauch and Chief Financial Officer Mark C. Borin will discuss the company’s fourth quarter and full year 2018 results on a two-way conference call with investors at 9:00 a.m. Eastern today. A live audio webcast of the call, along with the related presentation, can be accessed in the Investor Relations section of the company’s website, www.pentair.com, shortly before the call begins.

Reconciliations of non-GAAP financial measures are set forth in the attachments to this release and in the presentations, each of which can be found on Pentair’s website. The webcast and presentations will be archived at the company’s website following the conclusion of the event.

CAUTION CONCERNING FORWARD-LOOKING STATEMENTS

This release 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 impacting our business, including the strength of housing and related markets; competition and pricing pressures in the markets we serve; volatility in currency exchange rates; failure of markets to accept new product introductions and enhancements; the ability to successfully identify, finance, complete and integrate acquisitions, including the Aquion and Pelican Water Systems acquisitions; the ability to achieve the benefits of our restructuring plans and cost reduction initiatives; risks associated with operating foreign businesses; the impact of material cost and other inflation; our ability to comply with laws and regulations; the impact of changes in laws, regulations and administrative policy, including those that limit U.S. tax benefits or impact trade agreements and tariffs; the outcome of litigation and governmental proceedings; the ability to realize the anticipated benefits from the separation of nVent Electric plc from Pentair; 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 Securities and Exchange Commission, including our Annual Report on Form 10-K for the year ended December 31, 2017. All forward-looking statements speak only as of the date of this release. Pentair plc assumes no obligation, and disclaims any obligation, to update the information contained in this release.

ABOUT PENTAIR PLC

At Pentair, we believe the health of our world depends on reliable access to clean water. We deliver a comprehensive range of smart, sustainable water solutions to homes, business and industry around the world. Our industry leading and proven portfolio of solutions enables our customers to access clean, safe water. Whether it’s improving, moving or enjoying water, we help manage the world’s most precious resource. Smart, Sustainable, Water Solutions. For Life.

With approximately 130 locations in 34 countries and 10,000 employees, we believe that the future of water depends on us. Our 2018 revenue was $3.0 billion, and we trade under the ticker symbol PNR. To learn more, visit www.pentair.com.

 
Pentair plc and Subsidiaries
Condensed Consolidated Statements of Operations (Unaudited)
           
Three months ended Twelve months ended
December 31, December 31, December 31, December 31,
In millions, except per-share data     2018   2017     2018   2017
Net sales $ 740.5 $ 720.8 $ 2,965.1 $ 2,845.7
Cost of goods sold       472.5       467.1         1,917.4       1,858.2  
Gross profit 268.0 253.7 1,047.7 987.5
% of net sales 36.2 % 35.2 % 35.3 % 34.7 %
Selling, general and administrative 135.3 149.8 534.3 536.0
% of net sales 18.3 % 20.8 % 18.0 % 18.8 %
Research and development 19.7 18.5 76.7 73.2
% of net sales       2.7 %     2.6 %       2.6 %     2.6 %
Operating income 113.0 85.4 436.7 378.3
% of net sales       15.3 %     11.8 %       14.7 %     13.3 %
Other expense (income):
Loss on sale of businesses, net 0.9 0.4 7.3 4.2
Loss on early extinguishment of debt 17.1 101.4
Other expense (income) 1.6 9.5 (0.1 ) 12.6
Net interest expense 4.7 13.1 32.6 87.3
% of net sales       0.6 %     1.8 %       1.1 %     3.1 %
Income from continuing operations before income taxes 105.8 62.4 379.8 172.8
Provision for income taxes 11.6 6.6 58.1 58.7
Effective tax rate       11.0 %     10.6 %       15.3 %     34.0 %
Net income from continuing operations 94.2 55.8 321.7 114.1
(Loss) income from discontinued operations, net of tax (1.3 ) 151.6 25.7 371.3
(Loss) gain from sale of discontinued operations, net of tax             (17.8 )             181.1  
Net income     $ 92.9     $ 189.6       $ 347.4     $ 666.5  
Earnings (loss) per ordinary share
Basic
Continuing operations $ 0.55 $ 0.32 $ 1.83 $ 0.63
Discontinued operations       (0.01 )     0.73         0.15       3.04  
Basic earnings per ordinary share     $ 0.54     $ 1.05       $ 1.98     $ 3.67  
Diluted
Continuing operations $ 0.54 $ 0.30 $ 1.81 $ 0.62
Discontinued operations       (0.01 )     0.74         0.15       3.01  
Diluted earnings per ordinary share     $ 0.53     $ 1.04       $ 1.96     $ 3.63  
Weighted average ordinary shares outstanding
Basic 172.9 181.4 175.8 181.7
Diluted 174.0 183.6 177.3 183.7
Cash dividends paid per ordinary share $ 0.175 $ 0.345 $ 1.05 $ 1.38
 
 
Pentair plc and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
       

December 31,
2018

December 31,
2017
In millions        
Assets
Current assets
Cash and cash equivalents $ 74.3 $ 86.3
Accounts and notes receivable, net 488.2 483.1
Inventories 387.5 356.9
Other current assets 89.4 114.5
Current assets held for sale             708.0
Total current assets 1,039.4 1,748.8
Property, plant and equipment, net 272.6 279.8
Other assets
Goodwill 2,072.7 2,112.8
Intangibles, net 276.3 321.8
Other non-current assets 145.5 180.9
Non-current assets held for sale             3,989.6
Total other assets       2,494.5       6,605.1
Total assets     $ 3,806.5     $ 8,633.7
Liabilities and Equity
Current liabilities
Accounts payable $ 378.6 $ 321.5
Employee compensation and benefits 111.7 115.8
Other current liabilities 328.4 401.3
Current liabilities held for sale             360.8
Total current liabilities 818.7 1,199.4
Other liabilities
Long-term debt 787.6 1,440.7
Pension and other post-retirement compensation and benefits 90.0 96.4
Deferred tax liabilities 105.9 108.6
Other non-current liabilities 168.2 213.8
Non-current liabilities held for sale             537.0
Total liabilities       1,970.4       3,595.9
Equity       1,836.1       5,037.8
Total liabilities and equity     $ 3,806.5     $ 8,633.7
 
 
Pentair plc and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
 
    Years ended December 31
In millions     2018     2017
Operating activities    
Net income $ 347.4 $ 666.5
Income from discontinued operations, net of tax (25.7 ) (371.3 )
Gain from sale of discontinued operations, net of tax (181.1 )
Adjustments to reconcile net income from continuing operations to net cash provided by (used for) operating activities of continuing operations
Equity income of unconsolidated subsidiaries (8.4 ) (1.3 )
Depreciation 49.7 50.8
Amortization 34.9 36.4
Loss on sale of businesses 7.3 4.2
Deferred income taxes (4.1 ) (18.0 )
Share-based compensation 20.9 39.6
Trade name and other impairment 12.0 15.6
Loss on early extinguishment of debt 17.1 101.4
Changes in assets and liabilities, net of effects of business acquisitions
Accounts and notes receivable (15.3 ) (13.4 )
Inventories (40.1 ) (20.5 )
Other current assets 31.2 (13.0 )
Accounts payable 58.3 15.6
Employee compensation and benefits (0.6 ) (1.4 )
Other current liabilities (3.3 ) (54.6 )
Other non-current assets and liabilities       (23.2 )       23.1  
Net cash provided by (used for) operating activities of continuing operations 458.1 278.6
Net cash provided by (used for) operating activities of discontinued operations       (19.0 )       341.6  
Net cash provided by (used for) operating activities 439.1 620.2
Investing activities
Capital expenditures (48.2 ) (39.1 )
Proceeds from sale of property and equipment 0.2 3.7
(Payments due to) proceeds from sale of businesses and other (12.8 ) 2,759.4
Acquisitions, net of cash acquired       (0.9 )       (45.9 )
Net cash provided by (used for) investing activities of continuing operations (61.7 ) 2,678.1
Net cash provided by (used for) investing activities of discontinued operations       (7.1 )       (47.7 )
Net cash provided by (used for) investing activities (68.8 ) 2,630.4
Financing activities
Net receipts (repayments) of commercial paper and revolving long-term debt 39.7 (913.1 )
Repayments of long-term debt (675.1 ) (2,009.3 )
Premium paid on early extinguishment of debt (16.0 ) (94.9 )
Transfer of cash to nVent (74.2 )
Distribution of cash from nVent 993.6
Shares issued to employees, net of shares withheld 13.3 37.2
Repurchases of ordinary shares (500.0 ) (200.0 )
Dividends paid (187.2 ) (251.7 )
Other       (2.0 )       (0.8 )
Net cash provided by (used for) financing activities (407.9 ) (3,432.6 )
Change in cash held for sale 27.0 (5.4 )
Effect of exchange rate changes on cash and cash equivalents       (1.4 )       56.8  
Change in cash and cash equivalents (12.0 ) (130.6 )
Cash and cash equivalents, beginning of year       86.3         216.9  
Cash and cash equivalents, end of year     $ 74.3       $ 86.3  
 
 
Pentair plc and Subsidiaries
Reconciliation of the GAAP operating activities cash flow to the non-GAAP free cash flow (Unaudited)
 
    Year ended December 31
In millions     2018     2017
Net cash provided by (used for) operating activities of continuing operations $ 458.1     $ 278.6
Capital expenditures (48.2 ) (39.1 )
Proceeds from sale of property and equipment       0.2         3.7  
Free cash flow from continuing operations     $ 410.1       $ 243.2  
Net cash provided by (used for) operating activities of discontinued operations (19.0 ) 341.6
Capital expenditures of discontinued operations (7.4 ) (38.6 )
Proceeds from sale of property and equipment of discontinued operations       2.3         4.5  

Free cash flow

    $ 386.0       $ 550.7  
 
 
Pentair plc and Subsidiaries
Supplemental Financial Information by Reportable Segment (Unaudited)
                   
2018
First Second Third Fourth Full

In millions

    Quarter     Quarter     Quarter     Quarter     Year
Net sales
Aquatic Systems $ 240.4 $ 276.2 $ 232.7 $ 276.8 $ 1,026.1
Filtration Solutions 251.6 262.1 240.4 246.9 1,001.0
Flow Technologies 240.3 241.9 238.0 216.5 936.7
Other       0.3         0.4         0.3         0.3         1.3  
Consolidated     $ 732.6       $ 780.6       $ 711.4       $ 740.5       $ 2,965.1  
Segment income (loss)
Aquatic Systems $ 60.0 $ 79.6 $ 59.9 $ 78.1 $ 277.6
Filtration Solutions 33.7 52.3 38.4 44.1 168.5
Flow Technologies 38.7 44.4 36.6 25.9 145.6
Other       (15.4 )       (12.2 )       (13.1 )       (14.2 )       (54.9 )
Consolidated     $ 117.0       $ 164.1       $ 121.8       $ 133.9       $ 536.8  
Return on sales
Aquatic Systems 25.0 % 28.8 % 25.7 % 28.2 % 27.1 %
Filtration Solutions 13.4 % 20.0 % 16.0 % 17.9 % 16.8 %
Flow Technologies       16.1 %       18.4 %       15.4 %       12.0 %       15.5 %
Consolidated       16.0 %       21.0 %       17.1 %       18.1 %       18.1 %
 
 
Pentair plc and Subsidiaries
Supplemental Financial Information by Reportable Segment (Unaudited)
                   
2017  
First Second Third Fourth Full

In millions

    Quarter     Quarter     Quarter     Quarter     Year
Net sales
Aquatic Systems $ 222.5 $ 253.7 $ 211.8 $ 251.6 $ 939.6
Filtration Solutions 230.8 263.8 242.4 253.6 990.6
Flow Technologies 229.6 236.2 233.0 215.4 914.2
Other       0.4         0.3         0.4         0.2         1.3  
Consolidated     $ 683.3       $ 754.0       $ 687.6       $ 720.8       $ 2,845.7  
Segment income (loss)
Aquatic Systems $ 55.5 $ 74.3 $ 53.1 $ 71.2 $ 254.1
Filtration Solutions 24.0 49.0 40.4 41.1 154.5
Flow Technologies 33.1 40.3 39.3 27.9 140.6
Other       (15.6 )       (12.0 )       (12.6 )       (12.5 )       (52.7 )
Consolidated     $ 97.0       $ 151.6       $ 120.2       $ 127.7       $ 496.5  
Return on sales
Aquatic Systems 24.9 % 29.3 % 25.1 % 28.3 % 27.0 %
Filtration Solutions 10.4 % 18.6 % 16.7 % 16.2 % 15.6 %
Flow Technologies       14.4 %       17.1 %       16.9 %       13.0 %       15.4 %
Consolidated       14.2 %       20.1 %       17.5 %       17.7 %       17.5 %
 
 
Pentair plc and Subsidiaries
Reconciliation of the GAAP year ended December 31, 2018 to the non-GAAP
excluding the effect of 2018 adjustments (Unaudited)
                   
First Second Third Fourth Full
In millions, except per-share data     Quarter     Quarter     Quarter     Quarter     Year
Net sales     $ 732.6       $ 780.6       $ 711.4       $ 740.5       $ 2,965.1  
Operating income 92.7 122.6 108.4 113.0 436.7
% of net sales 12.7 % 15.7 % 15.2 % 15.3 % 14.7 %
Adjustments:
Restructuring and other 5.6 19.0 3.5 3.7 31.8
Intangible amortization 9.3 9.1 8.6 7.9 34.9
Trade name and other impairment 6.0 6.0 12.0
Corporate allocations 8.8 2.2 11.0
Deal related costs and expenses 2.0 2.0
Equity income of unconsolidated subsidiaries       0.6         5.2         1.3         1.3         8.4  
Segment income 117.0 164.1 121.8 133.9 536.8
Return on sales 16.0 % 21.0 % 17.1 % 18.1 % 18.1 %
Net income from continuing operations—as reported 58.4 77.9 91.2 94.2 321.7
Loss on sale of businesses 5.3 0.9 0.2 0.9 7.3
Loss on early extinguishment of debt 17.1 17.1
Interest expense adjustment 6.0 2.4 8.4
Pension and other post-retirement mark-to-market loss 2.2 1.4 3.6
Adjustments to operating income 23.7 36.3 12.1 19.6 91.7
Income tax adjustments       (4.5 )       (7.1 )       (10.3 )       (11.5 )       (33.4 )
Net income from continuing operations—as adjusted     $ 88.9       $ 127.5       $ 95.4       $ 104.6       $ 416.4  
Continuing earnings per ordinary share—diluted
Diluted earnings per ordinary share—as reported $ 0.32 $ 0.44 $ 0.52 $ 0.54 $ 1.81
Adjustments       0.17         0.27         0.02         0.06         0.54  
Diluted earnings per ordinary share—as adjusted     $ 0.49       $ 0.71       $ 0.54       $ 0.60       $ 2.35  
 
 
Pentair plc and Subsidiaries
Reconciliation of the GAAP year ended December 31, 2019 to the non-GAAP
excluding the effect of 2019 adjustments (Unaudited)
               
Forecast
First Full
In millions, except per-share data     Quarter     Year
Net sales     approx     Up 0 - 1 %     approx     Up 5 - 6 %
Operating income approx Up 12 - 20 % approx Up 22 - 26 %
Adjustments:
Intangible amortization approx $10 approx $45
Equity income of unconsolidated subsidiaries     approx     $1     approx     $4
Segment income approx Up 2 - 5 % approx Up 8 - 12 %
 
Net income from continuing operations—as reported approx $82 - $87 approx $394 - $411
Adjustments to operating income approx 10 approx 45
Income tax adjustments     approx     (2)     approx     (9)
Net income from continuing operations—as adjusted     approx     $90 - $95     approx     $430 - $447
Continuing earnings per ordinary share—diluted
Diluted earnings per ordinary share—as reported approx $0.47 - $0.50 approx $2.29 - $2.39
Adjustments     approx     0.05     approx     0.21
Diluted earnings per ordinary share—as adjusted     approx     $0.52 - $0.55     approx     $2.50 - $2.60
 
 
Pentair plc and Subsidiaries
Reconciliation of Net Sales Growth to Core Net Sales Growth by Segment
For the Quarter and Year Ending December 31, 2018 (Unaudited)
               
    Q4 Net Sales Growth Full Year Net Sales Growth
        Acq. /     Acq. /
      Core     Currency     Div.     Total Core     Currency     Div.     Total
Total Pentair 5.7 % (1.2 )% (1.7 )% 2.8 % 4.8 % 0.6 % (1.2 )% 4.2 %
Aquatic Systems 12.6 % (0.6 )% (2.0 )% 10.0 % 10.5 % (0.1 )% (1.2 )% 9.2 %
Filtration Solutions 0.4 % (2.2 )% (0.9 )% (2.7 )% 0.8 % 1.1 % (0.9 )% 1.0 %
Flow Technologies 4.0 % (1.3 )% (2.1 )% 0.6 % 3.2 % 0.6 % (1.3 )% 2.5 %
 
 
Pentair plc and Subsidiaries
Reconciliation of Net Sales Growth to Core Net Sales Growth by Segment
For the Quarter Ending March 31, 2019 and Year Ending December 31, 2019 (Unaudited)
               
        Forecast
Q1 Net Sales Growth Full Year Net Sales Growth
        Acq. /     Acq. /
            Core     Currency     Div.     Total     Core     Currency     Div.     Total
Total Pentair approx 4 - 5 % (2 ) % (2 ) % 0 - 1 % 4 - 5 % (1 ) % 2 % 5 - 6 %
Aquatic Systems approx 4 - 6 % (1 ) % 3 - 5 % 5 - 7 % (1 ) % 4 - 6 %
Filtration Solutions approx 0 - 1 % (4 ) % (1 ) %

(5) - (4)

%

1 - 4 % (1 ) % 6 % 6 - 9 %
Flow Technologies approx 3 - 6 % (2 ) % (3 ) %

(2) - 1

%

4 - 6 % (1 ) % (2 ) % 1 - 3 %
 
 
Pentair plc and Subsidiaries
Reconciliation of the GAAP year ended December 31, 2017 to the non-GAAP
excluding the effect of 2017 adjustments (Unaudited)
                   
First Second Third Fourth Full
In millions, except per-share data     Quarter     Quarter     Quarter     Quarter     Year
Net sales     $ 683.3       $ 754.0       $ 687.6       $ 720.8       $ 2,845.7  
Operating income 61.9 129.2 101.8 85.4 378.3
% of net sales 9.1 % 17.1 % 14.8 % 11.8 % 13.3 %
Adjustments:
Restructuring and other 11.6 5.9 1.4 9.3 28.2
Intangible amortization 8.7 9.3 9.2 9.2 36.4
Tradename and other impairment 15.6 15.6
Corporate allocations 14.6 6.8 7.5 7.8 36.7
Equity income of unconsolidated subsidiaries       0.2         0.4         0.3         0.4         1.3  
Segment income 97.0 151.6 120.2 127.7 496.5
Return on sales 14.2 % 20.1 % 17.5 % 17.7 % 17.5 %
Net income (loss) from continuing operations 12.7 (3.4 ) 49.0 55.8 114.1
Loss on sale of businesses 3.8 0.4 4.2
Pension and other post-retirement mark-to-market loss 8.5 8.5
Loss on early extinguishment of debt 101.4 101.4
Interest expense adjustment 16.5 11.9 6.8 6.5 41.7
Adjustments to operating income 34.9 22.0 18.1 41.9 116.9
Income tax adjustments       (2.5 )       (22.5 )       11.7         (17.2 )       (30.5 )
Net income from continuing operations—as adjusted     $ 61.6       $ 109.4       $ 89.4       $ 95.9       $ 356.3  
Continuing earnings per ordinary share—diluted
Diluted earnings per ordinary share $ 0.07 $ (0.02 ) $ 0.27 $ 0.30 $ 0.62
Adjustments       0.26         0.62         0.22         0.22         1.32  
Diluted earnings per ordinary share—as adjusted     $ 0.33       $ 0.60       $ 0.49       $ 0.52       $ 1.94