Pentair Reports Third Quarter Results


Pentair announced that its third quarter 2004 earnings per share (EPS) from continuing operations of $0.32 increased 19 percent over third quarter 2003 EPS from continuing operations of $0.27.

Pentair's third quarter 2004 net sales totaled $607.8 million, up 46 percent from $417.0 million in the same period a year ago. Removing the effects of acquisitions, sales were up 11 percent over the third quarter 2003.

Operating income for the third quarter 2004 totaled $64.1 million, 42 percent greater than the $45.2 million reported in the third quarter of 2003. Excluding acquisitions, operating income increased 20 percent in the third quarter. Third quarter 2004 free cash flow was $74.4 million, bringing the year-to-date total to $169.2 million, a $20.6 million improvement compared to the first nine months of last year.

"We have completed the strategic repositioning of Pentair, exchanging the earnings of our Tools business, and the dynamics of the tools market, for the earnings of WICOR, and the brighter prospects of our water business, for a net cash outlay of about $100 million," said Randall J. Hogan, Pentair chairman and chief executive officer. "Now we are turning to the second phase of the transformation: improving the performance of the newly acquired businesses and attaining our growth and profit goals."

Hogan said that Pentair's growth initiatives are on-track, that margins in Pentair's existing businesses continue to improve, and that the integration of the former WICOR businesses is proceeding well, despite the fact that integration costs were higher than benefits in the quarter and that WICOR's starting margins were somewhat lower than expected. Hogan credited Pentair's productivity improvements, supply management activities, and ability to achieve price increases in offsetting the impact of higher material costs in the quarter.

In the Water Group, third quarter 2004 sales of $426.7 million were 58 percent higher than the $270.9 million recorded in the same period last year, reflecting the impact of the WICOR acquisition effective as of July 31, 2004. Organic sales increased in the upper single digits reflecting continued double-digit growth in our pump markets.

Third quarter 2004 operating income of $47.4 million in the Water Group reflected a 31 percent gain over the same period last year. As expected, operating income margins were 11.1 percent including the lower initial margins of the former WICOR businesses. Excluding the WICOR and Everpure businesses and about $1.0 million of post-acquisition integration expenses, operating margins were about 13.6 percent, comparable to the 13.4 percent in the same period in 2003.

Integration of the former WICOR businesses proceeded as expected during the quarter. The consolidations of three manufacturing facilities and six distribution or warehousing locations in the U.S. and Europe have been announced, with some already completed. Costs associated with the integration efforts, which are expected to total approximately $5 million in the fourth quarter of 2004, will continue to offset the benefits for the remainder of this year.

All Enclosures Group businesses had significantly higher sales in key sectors, resulting in organic sales growth of 24 percent for the quarter. Additional wins in high growth markets, continued market share gains, and new customers in European markets helped to boost third quarter 2004 sales to $181.1 million compared to a year-earlier total of $146.2 million.

Third quarter operating income in the Enclosures Group increased 71 percent from the same period last year, totaling $23.2 million in 2004 versus $13.6 million in 2003. Margins reached 12.8 percent, expanding by 350 basis points over the third quarter 2003 and by 70 basis points over the second quarter 2004, delivering the Enclosures Group's 11th consecutive quarter of sequential margin improvement. This performance was driven by higher volume and productivity gains from PIMS and supply management initiatives.

Pentair's third quarter Cost of Goods Sold increased, reducing EPS by approximately three cents per share, for the expensing of fair market value inventory adjustments related to inventory acquired in the Everpure and WICOR transactions. Excluding this adjustment, gross profit increased by 210 basis points over the same period.

Pentair's year-to-date 2004 effective income tax rate of 35.0 percent is 330 basis points higher than the 31.7 percent rate of the same period last year. The higher rate is due to the discontinued status of the Tools Group, the higher tax rate borne by the WICOR businesses, the anticipated higher level and mix of Pentair's 2004 U.S. and foreign earnings, and the fact that many of Pentair's tax saving programs are relatively fixed.

Pentair noted that the proceeds from the early fourth quarter sale of its Tools Group to Black & Decker yielded a total of $796 million. With the closing of the sale, Pentair immediately paid down the $850 bridge loan associated with its acquisition of WICOR. Today, Pentair's debt-to-total- capital ratio is less than 37 percent, equal to what it was in late 2003.

According to Hogan, Pentair is now focused on driving the Water Group's margins back toward the goal of 15 percent, and capturing growth opportunities in both water and enclosures.

"In the first half of this year, our Water Group reached its goal of 15 percent Return on Sales. As we combine WICOR's strong customer service orientation and Pentair's proven operating disciplines over the next two years, we expect that the expanded Water Group will regain that high level of performance," Hogan said. "Our fourth quarter will continue to reflect more integration costs than benefits but, despite this, we still expect to generate fourth quarter EPS of between $0.30 and $0.34, or full year EPS of between $1.32 and $1.36. This is in-line with our prior guidance and represents a year-over-year EPS growth of approximately 35 percent. We still expect 2005 EPS to be in the range of $1.95 to $2.10, an increase of approximately 50 percent over 2004."

About Pentair, Inc.

Pentair is a diversified operating company headquartered in Minnesota. Its Water Group is a global leader in providing innovative products and systems used worldwide in the movement, treatment, storage and enjoyment of water. Pentair's Enclosures Group is a leader in the global enclosures market, designing and manufacturing standard, modified and custom enclosures that house and protect sensitive electronics and electrical components. With 2003 revenues of $2.7 billion, Pentair has approximately 13,000 employees worldwide.

Any statements made about the company's anticipated financial results are forward-looking statements subject to risks and uncertainties such as continued economic growth; the ability to integrate the WICOR acquisition successfully and the risk that expected synergies may not be fully realized or may take longer to realize than expected; foreign currency effects; retail and industrial demand; product introductions; and pricing and other competitive pressures. Forward-looking statements included herein are made as of the date hereof, and the company undertakes no obligation to update publicly such statements to reflect subsequent events or circumstances. Actual results could differ materially from anticipated results.

Source: Pentair plc.

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