Pentair’s First Quarter 2006
Pentair announced its first quarter 2006 results, highlighting earnings per share (EPS) from continuing operations of $0.42, an increase of eight percent over the same period last year, on sales of $771.4 million, a gain of nine percent. Excluding the impact of acquisitions and currency exchange, first quarter sales increased approximately five percent.
Pentair Chairman and Chief Executive Officer, Randall J. Hogan, said: "We had a number of successes in the first quarter: Our Technical Products Group continued to grow far faster than the markets it serves and, even including the impact of acquisitions, achieved a record operating income margin of 14.8 percent. Pentair sales in European and Asian markets continued to trend upward, with solid gains in local currencies. Despite continued inflationary pressures in the first quarter, we widened the gap between price and inflation from the fourth quarter of 2005. The initial plant closings and consolidations that were put into action following the acquisition of the WICOR businesses are now complete, and the moves that had been delayed in the second half of 2005 were wrapped up in the first quarter. Our recent Thermal Management acquisition in Technical Products is performing well and the integration is progressing smoothly.
"Organic sales growth in Water was lower in the first quarter due to lower growth in pool and pump versus the fourth quarter," Hogan added. "As expected, Water profit margins were affected by planned investments in international growth, infrastructure build in Europe, and expected inefficiencies resulting from plant and product line moves. Unfavorable product mix and unfavorable foreign exchange resulting from the decline of the Euro were also factors in our Water Group's profit performance.
"We are reaffirming our previous EPS guidance for the full year 2006 of between $2.08 and $2.18. In addition, assuming some rebound in Water growth rates, we are initiating second quarter EPS guidance in a range between $0.61 and $0.63."
First Quarter 2006 Financial Comments
Operating income totaled $78.6 million, nine percent greater than the $72.1 million reported in the same period last year. Operating margins of 10.2 percent in the first quarter were even with those of a year ago as higher Technical Products Group margins were offset by Water Group performance and higher corporate costs. EPS from continuing operations of $0.42 was eight percent higher than first quarter 2005 EPS from continuing operations of $0.39. In the first quarter of 2006, Pentair finalized the purchase price adjustment from the sale of its former Tools Group, which was the primary reason for the after-tax expense of approximately $1.5 million and the resulting loss from discontinued operations of approximately one cent per share.
Net sales totaled $771.4 million, up nine percent from $709.6 million in the same period a year ago. Sales growth, excluding the impact of acquisitions and currency exchange, was approximately five percent.
Due to the seasonality of Pentair's businesses, free cash flow was negative $101.3 million, which is comparable to negative $101.4 million in the same period last year. We are still committed to achieving 2006 free cash flow in excess of $200 million, which is comparable to our full year 2005 free cash flow of $202.5 million.
Water Group First Quarter Comments
- Sales of $517.2 million were up one percent over the same period last year, or approximately two percent excluding unfavorable foreign exchange.
- Water systems, wastewater, commercial pumps, and Everpure foodservice filtration sales increased in the quarter, while retail pump and filtration sales softened. Unfavorable timing of municipal pump deliveries also affected sales volume. Pool sales gained in the mid-single digits in the first quarter of 2006 following strong growth in the fourth quarter of 2005 resulting from a successful early buy program.
- Sales in European markets were up in local currencies; however, these increases were more than offset by unfavorable currency exchange. Sales of CodeLine pressure vessels made in the Goa, India operation continued to benefit from strong growth in desalination projects.
- Operating income for the segment totaled $55.6 million, down eight percent over the same period last year. Return on sales was 10.8 percent, down 100 basis points compared to last year.
- Water profit margins were affected by planned investments in new products and new customers; in international management, sales, engineering, sourcing and manufacturing talent; in a unified business system infrastructure in Europe; and in the Faradyne Motors joint venture, together with expected inefficiencies resulting from plant and product moves.
- Water margins were also affected by unfavorable product mix caused by higher sales of large filtration projects and pool finishes, versus sales of residential water treatment and pool equipment products.
- Margins in European businesses were adversely affected by unfavorable currency exchange due to U.S. dollar sourcing arrangements for raw materials.
Technical Products Group First Quarter Comments
- Sales of $254.2 million for the quarter increased $57 million or 29 percent over the same quarter last year. Excluding the impact of the newly acquired Thermal Management businesses and foreign currency exchange, organic growth was approximately 13 percent.
- Excluding acquisitions, sales in North American markets grew in the high single digits, driven by strong sales in petrochemical, commercial, data, medical, and food and beverage markets.
- The European business recorded its highest sales quarter in the past five years in local currencies. This is attributed to stronger markets, success with several new products, and a large telecom project for outdoor cabinets that had heavy shipments in the first quarter.
- Sales in Asian markets increased strongly in the quarter, helped by planned OEM program transitions from North American Technical Products businesses, continued market penetration in China and southeast Asia, and general market recovery in Japan.
- Sales in the Thermal Management businesses were strong in the served telecom markets.
- Operating income of $37.7 million set a new record for the Group, breaking the previous $30.0 million record set in the fourth quarter of 2005.
- Margins totaled 14. percent, up 80 basis points on a sequential quarterly basis.
- In North America, profits benefited from material cost savings, productivity improvements, and price.
- In Europe, improved results were driven principally by increased volumes and supply management savings.
- In Asia, volume increases in China and Japan strengthened margins.
Source: Pentair plc.