Pentair Reports Fourth Quarter and Full Year 2015 Results

15.02.2016

Pentair announced fourth quarter 2015 sales of $1.8 billion. Sales were down 2 percent compared to sales for the same period last year. Excluding the unfavorable impact of currency translation and positive contribution from acquisitions, core sales declined 4 percent in the fourth quarter.

Adjusted fourth quarter 2015 earnings per diluted share from continuing operations ("EPS") were $1.13, down 3 percent from adjusted EPS of $1.17 in the fourth quarter of last year. On a GAAP basis, excluding impairment charges, the company reported EPS of $0.51 compared to $0.70 in the fourth quarter of 2014. Amounts excluded from segment income, adjusted net income and adjusted EPS are described in the attached schedules.

Fourth quarter 2015 segment income was $280 million, down 7 percent compared to segment income for fourth quarter 2014, and return on sales was 15.9 percent, a decrease of 90 basis points when compared to 2014 return on sales. On a GAAP basis, excluding impairment charges, the company reported operating income of $163 million for the quarter.

For the full year, the company reported sales of $6.4 billion, segment income of $1.0 billion, and adjusted EPS of $3.94. On a GAAP basis, excluding impairment charges, the company reported operating income of $732 million and EPS of $2.63.

Free cash flow was $316 million for the quarter and $643 million for the full year; which represented approximately 90 percent conversion of adjusted net income for the full year.

In the fourth quarter of 2015, we performed step one of the goodwill impairment analysis required under U.S. GAAP. As a result, we determined the fair value of our Valves & Controls reporting unit was less than its carrying value. We are currently in the process of completing the second step of the goodwill impairment test in order to determine the implied fair value of the goodwill of Valves & Controls. We will complete the necessary work to determine an estimated impairment amount prior to the issuance of our 2015 Annual Report on Form 10-K. We estimate we will record a pre-tax, non-cash impairment charge of $400 million - $600 million for the year ended December 31, 2015.

Pentair paid dividends of $0.32 per share in the fourth quarter of 2015.

Pentair previously announced on December 8, 2015 that its Board of Directors approved a 5 percent increase in the company s regular annual cash dividend rate for 2016 to $1.34 from $1.28. 2016 will mark the 40th consecutive year that Pentair has increased its dividend.

"We delivered on our fourth quarter commitments despite the challenges our businesses serving the Energy and Industrial markets continue to face," said Randall J. Hogan, Pentair Chairman and Chief Executive Officer. "We are maintaining our full year 2016 adjusted EPS guidance of $4.05 to $4.25 per share, which assumes continued difficult business conditions combined with additional productivity actions. We continue to believe in the long-term prospects of all of our businesses and we expect our proven track record around operational rigor and cash flow will help us manage our way through this uncertain economic environment."

Fourth Quarter Business Highlights

All references to changes in core sales exclude the impact of currency translation and acquisitions. See attached reconciliations of these Non-GAAP measures.

Valves & Controls delivered fourth quarter 2015 sales of $474 million, down 22 percent versus the prior year quarter. Core sales declined 15 percent year over year for the fourth quarter and FX translation was a negative 7 percent. Backlog, including the impact of currency translation, declined 4 percent to $1.1 billion compared to third quarter 2015.

  • Core sales in the Energy vertical, which accounted for approximately 60 percent of Valves & Controls revenue in the quarter, decreased 16 percent. Core sales to the oil & gas industry decreased 20 percent while core sales to the power and mining industries were down 10 percent.

  • Core sales in the Industrial vertical, which accounted for approximately 40 percent of Valves & Controls revenue in the quarter, decreased 12 percent.

Valves & Controls delivered fourth quarter segment income of $48 million, down 59 percent compared to $116 million in the same quarter last year. Fourth quarter 2015 segment margins decreased 900 basis points to 10.0 percent.

Flow & Filtration Solutions fourth quarter sales were $354 million, down 8 percent versus the prior year quarter. Core sales declined 2 percent in the fourth quarter and FX translation was negative 6 percent.

  • Core sales in the Residential & Commercial vertical, which accounted for approximately 30 percent of Flow & Filtration Solutions revenue in the quarter, decreased 7 percent.

  • Core sales in the Food & Beverage vertical, which accounted for approximately 25 percent of Flow & Filtration Solutions revenue in the quarter, decreased 2 percent.

  • Core sales in the Infrastructure vertical, which accounted for approximately 20 percent of Flow & Filtration Solutions revenue in the quarter, decreased 3 percent.

Flow & Filtration Solutions delivered fourth quarter segment income of $40 million compared to $42 million in the same period last year. Segment margins increased 40 basis points to 11.3 percent.

Water Quality Systems delivered fourth quarter 2015 sales of $365 million, up 4 percent versus the prior year quarter. Core sales grew 7 percent in the fourth quarter and FX translation was negative 3 percent.

  • Core sales in the Residential & Commercial vertical, which accounted for approximately 80 percent of Water Quality Systems revenue in the quarter, increased 7 percent.

  • Core sales in the Food & Beverage vertical, which accounted for approximately 20 percent of Water Quality Systems revenue in the quarter, increased 9 percent.

Water Quality Systems fourth quarter segment income of $81 million represented a 30 percent increase as compared to $62 million in the same quarter last year. Fourth quarter 2015 segment margins increased 450 basis points to 22.3 percent.

Technical Solutions delivered fourth quarter 2015 sales of $574 million, up 23 percent versus the prior year quarter. Core sales were flat in the fourth quarter, ERICO added 29 percent and FX translation was negative 6 percent.

  • Core sales in the Industrial vertical, which accounted for approximately 35 percent of Technical Solutions revenue in the quarter, decreased 2 percent.

  • Core sales in the Residential & Commercial vertical, which accounted for approximately 25 percent of Technical Solutions revenue in the quarter, increased 7 percent.

  • Core sales in the Energy vertical, which accounted for approximately 20 percent of Technical Solutions revenue in the quarter, decreased 3 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 fourth quarter segment income of $130 million, up 17 percent compared to $111 million in the same quarter last year. Fourth quarter 2015 segment margins decreased 130 basis points to 22.6 percent.

Outlook

The company previously communicated its full year 2016 adjusted EPS outlook of $4.05 - $4.25. On an adjusted basis, this would represent an increase of 5 percent over 2015 adjusted EPS of $3.94. The company anticipates full year 2016 sales of $6.6 billion, or up approximately 2 percent on a reported basis and down 2 to 3 percent on a core sales basis. The company expects to generate free cash flow approximately equal to adjusted net income in 2016.

In addition, the company introduced first quarter 2016 adjusted EPS guidance of $0.70 - $0.72, down approximately 7 percent on an adjusted basis versus the same quarter last year s adjusted EPS. The company expects first quarter revenue to be approximately $1.6 billion, which would be up 7 to 8 percent on a reported basis and up approximately 1 percent on a core basis compared to first quarter 2015 revenue.

Source: Pentair plc.

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