Pentair Reports First Quarter 2014 Results

First quarter 2014 adjusted operating income was $204 million, up 14 percent compared to adjusted operating income for first quarter 2013, and adjusted operating margins were 11.8 percent, an expansion of 170 basis points when compared to adjusted 2013 operating margins. On a GAAP basis, the company reported operating income of $180 million.

Free cash flow in the quarter was a usage of $26 million, reflecting normal seasonality and timing of cash flows. The company expects to deliver full year free cash flow greater than 105 percent of net income.

The quarterly dividend effective for the first and second quarters of 2014 is $0.25 per share per quarter. The company is seeking authorization from its shareholders at its 2014 annual general meeting to increase the dividend to $0.30 per share per quarter for each of the third and fourth quarters of 2014 and the first and second quarters of 2015. If approved by shareholders, the 2014 dividend increase will mark the 38th consecutive year in which Pentair has increased its dividend.

"This quarter, our Food & Beverage and Residential & Commercial verticals delivered strong sales performance, helping to offset declines in our Energy and Infrastructure verticals," said Randall J. Hogan, Pentair Chairman and Chief Executive Officer. "We were pleased with our strong double-digit EPS growth in the quarter which was driven by the continued momentum in productivity and synergies."

First Quarter Business Highlights

Unless otherwise indicated, all comparisons are year-over-year against 2013 adjusted results. See attached reconciliations of these Non-GAAP measures.

Valves & Controls delivered first quarter 2014 sales of $535 million, down 9 percent versus the prior year quarter. Backlog increased 2 percent to $1.4 billion compared to fourth quarter 2013.

• Sales in the Energy vertical, which accounted for roughly 60 percent of Valves & Controls revenue in the quarter, declined 12 percent. Sales to the oil & gas industry were down 5 percent while sales to the power industry decreased 18 percent. Sales to the mining industry decreased 24 percent.
• Sales in the Industrial vertical, which accounted for nearly 40 percent of Valves & Controls revenue in the quarter, decreased 4 percent.

Valves & Controls delivered first quarter adjusted operating income of $62 million, up 4 percent compared to $59 million in the same quarter last year. First quarter adjusted operating margins increased 140 basis points to 11.5 percent. Price and productivity more than offset inflation during the quarter. Including repositioning and other charges, Valves & Controls reported a GAAP operating income of $52 million in the first quarter.

Flow Technologies delivered first quarter 2014 sales of $364 million, down 7 percent versus the prior year quarter.

• Sales in the Residential & Commercial vertical, which accounted for roughly 40 percent of Flow Technologies revenue in the quarter, grew 2 percent.
• Sales in the Infrastructure vertical, which accounted for approximately 25 percent of Flow Technologies revenue in the quarter, decreased 22 percent.
• Sales in the Food & Beverage vertical, which accounted for approximately 15 percent of Flow Technologies revenue in the quarter, decreased 6 percent.
• Sales in the Industrial vertical, which accounted for nearly 15 percent of Flow Technologies revenue in the quarter, grew 2 percent.

Flow Technologies delivered first quarter adjusted operating income of $36 million, down 2 percent compared to $37 million in the same quarter last year. First quarter 2014 adjusted operating margins increased 50 basis points to 9.9 percent. Price and productivity more than offset inflation during the quarter. Including repositioning and other charges, Flow Technologies reported a GAAP operating income of $28 million in the first quarter.

Technical Solutions delivered first quarter 2014 sales of $415 million, up 1 percent versus the prior year quarter.

• Sales in the Industrial vertical, which accounted for roughly 50 percent of Technical Solutions revenue in the quarter, increased 2 percent.
• Sales in the Energy vertical, which accounted for nearly 25 percent of Technical Solutions revenue in the quarter, declined 9 percent.
• Sales in the Residential & Commercial vertical, which accounted for approximately 15 percent of Technical Solutions revenue in the quarter, grew 12 percent.
• Sales in the Infrastructure vertical, which accounted for nearly 15 percent of Technical Solutions revenue in the quarter, increased 6 percent.

Technical Solutions delivered first quarter adjusted operating income of $79 million, up 13 percent compared to $70 million in the same quarter last year. First quarter 2014 adjusted operating margins increased 210 basis points to 19.1 percent. Price and productivity gains more than offset material and labor inflation. Including repositioning and other charges, Technical Solutions reported a GAAP operating income of $76 million in the first quarter.

Outlook

The company continues to expect full year 2014 adjusted EPS to be between $3.85 - $4.00, which represents an increase of approximately 22 percent from 2013 adjusted EPS of $3.21. The company anticipates full year 2014 sales of $7.7 billion, or up approximately 2 to 4 percent over 2013 sales. The company expects to generate free cash flow in excess of 105 percent of net income in 2014.

"We expect to deliver another year of strong double-digit EPS growth," said Hogan. "We continue to have confidence in our ability to deliver on the areas within our control. We believe the second quarter will represent our last significant year-over-year Australian project headwind and the second half should show improving growth."

In addition, the company introduced second quarter 2014 adjusted EPS guidance of $1.02 - $1.05, up approximately 13 percent versus the same quarter last year s adjusted EPS. The company expects second quarter revenue to be approximately $1.95 billion, which is flat to down 1 percent compared to second quarter 2013 revenue.