Pentair Reports Third Quarter 2014 Results
Pentair announced third quarter 2014 sales of $1.8 billion. Sales were up 3 percent compared to sales for the same period last year. Third quarter 2014 earnings per diluted share from continuing operations ("EPS") were $1.00, up 22 percent from adjusted EPS of $0.82 in the third quarter of last year.
On a GAAP basis, the company reported EPS of $0.81 in the third quarter of 2013. Adjusted EPS and operating income exclude repositioning costs, acquisition and redomicile-related expenses, gain/loss on sale of a business and certain tax items.
Third quarter 2014 operating income was $267 million, up 12 percent compared to adjusted operating income for third quarter 2013, and operating margins were 15.2 percent, an expansion of 130 basis points when compared to adjusted 2013 operating margins. Price and productivity more than offset inflation during the quarter.
Free cash flow in the quarter was over $260 million and $600 million for the first nine months of 2014. The company expects to deliver full year free cash flow greater than 110 percent of net income.
On July 28, 2014 Pentair s Board of Directors approved a decision to exit its Water Transport business in Australia. The results of the Water Transport business have been presented as discontinued operations and the assets and liabilities of the Water Transport business have been reclassified as held for sale for all periods presented. In connection with the decision to exit the business, Pentair recognized an impairment charge of $380 million, net of tax, in the third quarter of 2014, representing our estimated loss on disposal.
Pentair paid dividends of $0.30 per share in the third quarter of 2014. Pentair had previously announced on May 20, 2014 the approval by its shareholders of an ordinary cash dividend of $1.20 per share in four equal quarterly installments of $0.30 in each of the third and fourth quarter of 2014 and the first and second quarter of 2015. Pentair has increased its dividend for 38 consecutive years.
"All five of our verticals contributed to growth this quarter," said Randall J. Hogan, Pentair Chairman and Chief Executive Officer. "Superior execution drove another quarter of robust margin expansion and a sixth consecutive quarter of EPS growth greater than 20 percent."
Third Quarter Business Highlights
All third quarter 2014 results are presented on a GAAP basis as there were no adjustments in the quarter. Unless otherwise indicated, all comparisons are year-over-year against 2013 adjusted results. See attached reconciliations of these Non-GAAP measures.
Valves & Controls delivered third quarter 2014 sales of $613 million, flat versus the prior year quarter. Backlog decreased 6 percent to $1.3 billion compared to second quarter 2014.
- Sales in the Energy vertical, which accounted for approximately 60 percent of Valves & Controls revenue in the quarter, decreased 3 percent. Sales to the oil & gas industry were up 3 percent while sales to the power industry decreased 13 percent. Sales to the mining industry decreased 6 percent.
- Sales in the Industrial vertical, which accounted for approximately 40 percent of Valves & Controls revenue in the quarter, increased 5 percent.
Valves & Controls delivered third quarter operating income of $96 million, up 20 percent compared to $80 million in the same quarter last year. Third quarter operating margins increased 260 basis points to 15.7 percent.
Process Technologies third quarter sales were $438 million, up 4 percent versus the prior year quarter.
Process Technologies third quarter operating income of $58 million represented a 3 percent decrease as compared to $60 million in the same period last year. Operating margins decreased by 90 basis points to 13.3 percent.
Flow Technologies delivered third quarter 2014 sales of $275 million, down 2 percent versus the prior year quarter.
- Sales in the Residential & Commercial vertical, which accounted for approximately 50 percent of Flow Technologies revenue in the quarter, decreased 3 percent.
- Sales in the Food & Beverage vertical, which accounted for approximately 15 percent of Flow Technologies revenue in the quarter, increased 2 percent.
- Sales in the Industrial vertical, which accounted for approximately 15 percent of Flow Technologies revenue in the quarter, decreased 9 percent.
- Sales in the Infrastructure vertical, which accounted for approximately 15 percent of Flow Technologies revenue in the quarter, decreased 2 percent.
Flow Technologies delivered third quarter operating income of $39 million, flat compared to $39 million in the same quarter last year. Third quarter 2014 operating margins increased 30 basis points to 14.1 percent.
Technical Solutions delivered third quarter 2014 sales of $439 million, up 8 percent versus the prior year quarter.
- Sales in the Industrial vertical, which accounted for approximately 45 percent of Technical Solutions revenue in the quarter, increased 5 percent.
- Sales in the Energy vertical, which accounted for approximately 25 percent of Technical Solutions revenue in the quarter, increased 13 percent.
- Sales in the Infrastructure vertical, which accounted for approximately 15 percent of Technical Solutions revenue in the quarter, increased 12 percent.
- Sales in the Residential & Commercial vertical, which accounted for approximately 15 percent of Technical Solutions revenue in the quarter, increased 9 percent.
Technical Solutions delivered third quarter operating income of $97 million, up 15 percent compared to $84 million in the same quarter last year. Third quarter 2014 operating margins increased 140 basis points to 22.0 percent.
Outlook
The company updated its full year 2014 adjusted EPS guidance to a range of $3.72 - $3.74, which represents an increase of approximately 22 percent from 2013 adjusted EPS of $3.05. The company anticipates full year 2014 sales of $7.1 billion, or up approximately 1 to 2 percent over 2013 sales. The company expects to generate free cash flow in excess of 110 percent of net income in 2014.
"With our third quarter results exceeding our prior forecast, we are raising our full year expectations," said Hogan. "The progress we have made in expanding margins based on our ability to deliver on productivity and synergies strengthens our momentum for the future."
In addition, the company introduced fourth quarter 2014 EPS guidance of $1.02 - $1.04, up approximately 20 percent versus the same quarter last year s adjusted EPS. The company expects fourth quarter revenue to be approximately $1.86 billion, which would be up approximately 1 to 2 percent compared to fourth quarter 2013 revenue.
Source: Pentair plc.
