Pentair Reports First Quarter 2015 Results

"We started the year much slower than we had originally anticipated as a decline in oil prices and the strengthening dollar have led many of our customers to delay business in what feels like a global capital spending pause," said Randall J. Hogan, Pentair Chairman and Chief Executive Officer. "We believe that Pentair is in the right markets for the long term and we have detailed plans in place to work through the anticipated near term challenges."

First quarter 2015 operating income was $171 million, down 15 percent compared to adjusted operating income for first quarter 2014, and adjusted operating margins were 11.6 percent, a decline of 60 basis points when compared to adjusted first quarter 2014 operating margins.

Free cash flow in the quarter was a usage of $159 million, reflecting normal seasonality and timing of cash flows. The company expects to deliver full year free cash flow greater than 120 percent of net income.

Pentair paid dividends of $0.32 per share in the first quarter of 2015. Pentair previously announced on December 10, 2014 that its Board of Directors approved a 16 percent increase in the company s regular annual cash dividend rate for 2015 to $1.28 from $1.10. 2015 marks the 39th consecutive year that Pentair has increased its dividend.

First Quarter Business Highlights

All references to changes in core sales exclude the impact of currency translation.

Valves & Controls delivered first quarter 2015 sales of $429 million, down 19 percent versus the prior year quarter. Core sales declined 11 percent year over year for the first quarter and negative FX translation was 8 percent. Backlog decreased 4 percent to $1.2 billion compared to fourth quarter 2014.

• Core sales in the Energy vertical, which accounted for approximately 60 percent of Valves & Controls revenue in the quarter, decreased 12 percent. Core sales to the oil & gas industry were down 11 percent while core sales to the power industry decreased 6 percent. Core sales to the mining industry decreased 26 percent.
• Core sales in the Industrial vertical, which accounted for approximately 40 percent of Valves & Controls revenue in the quarter, decreased 10 percent.

Valves & Controls delivered first quarter segment income of $42 million, down 31 percent compared to $61 million in the same quarter last year. First quarter segment margins decreased 170 basis points to 9.8 percent.

Flow & Filtration Solutions first quarter sales were $350 million, down 13 percent versus the prior year quarter. Core sales declined 7 percent in the first quarter and negative FX translation was 6 percent.

• Core sales in the Residential & Commercial vertical, which accounted for approximately 35 percent of Flow & Filtration Solutions revenue in the quarter, decreased 11 percent.
• Core sales in the Food & Beverage vertical, which accounted for approximately 30 percent of Flow & Filtration Solutions revenue in the quarter, decreased 2 percent.
• Core sales in the Infrastructure vertical, which accounted for approximately 15 percent of Flow & Filtration Solutions revenue in the quarter, decreased 14 percent.
• Core sales in the Industrial vertical, which accounted for approximately 15 percent of Flow & Filtration Solutions revenue in the quarter, decreased 1 percent.

Flow & Filtration Solutions first quarter segment income of $29 million represented a 16 percent decrease as compared to $35 million in the same period last year. Segment margins decreased by 40 basis points to 8.3 percent.

Water Quality Systems delivered first quarter 2015 sales of $307 million, up 1 percent versus the prior year quarter. Core sales grew 4 percent in the first quarter and negative FX translation was 3 percent.

• Core sales in the Residential & Commercial vertical, which accounted for approximately 80 percent of Water Quality Systems revenue in the quarter, increased 3 percent.
• Core sales in the Food & Beverage vertical, which accounted for approximately 20 percent of Water Quality Systems revenue in the quarter, increased 11 percent.

Water Quality Systems delivered first quarter segment income of $49 million, represented a 3 percent increase compared to $48 million in the same quarter last year. First quarter 2015 segment margins increased 40 basis points to 16.1 percent.

Technical Solutions delivered first quarter 2015 sales of $396 million, down 5 percent versus the prior year quarter. Core sales grew 1 percent in the first quarter and negative FX translation was 6 percent.

• Core sales in the Industrial vertical, which accounted for approximately 45 percent of Technical Solutions revenue in the quarter, were flat.
• Core sales in the Energy vertical, which accounted for approximately 25 percent of Technical Solutions revenue in the quarter, increased 2 percent.
• Core sales in the Residential & Commercial vertical, which accounted for approximately 15 percent of Technical Solutions revenue in the quarter, increased 7 percent.
• Core sales in the Infrastructure vertical, which accounted for approximately 15 percent of Technical Solutions revenue in the quarter, increased 2 percent.

Technical Solutions delivered first quarter segment income of $73 million, down 8 percent compared to $79 million in the same quarter last year. First quarter 2015 segment margins decreased 70 basis points to 18.4 percent.

Outlook

The company updated its full year 2015 adjusted EPS guidance to approximately $3.80, which represents an increase of approximately one percent from 2014 adjusted EPS of $3.78. The company anticipates full year 2015 sales of $6.5 billion, or down approximately 8 to 9 percent over 2014 sales. The company expects to generate free cash flow in excess of 120 percent of net income in 2015.

"Given the significantly slower start to the year, we are adjusting our expectations for the full year," said Hogan. "We have rebuilt our plan for the full year to deliver adjusted EPS to be at least flat compared to last year. Although the economic headwinds have worsened, we are focusing on the elements within our control. This includes getting more aggressive on cost actions, continuing to invest in differentiated growth, and select M&A where appropriate."

In addition, the company introduced second quarter 2015 adjusted EPS guidance of $0.95 - $0.96, down approximately 6 percent on an adjusted basis versus the same quarter last year s adjusted EPS. The company expects second quarter revenue to be approximately $1.64 billion, which would be down approximately 10 to 11 percent on a reported basis and down 3 to 4 percent on a core basis compared to second quarter 2014 revenue.