Pentair’s Second Quarter 2006

08.08.2006

Pentair announced its second quarter 2006 results, highlighting earnings per share (EPS) from continuing operations of $0.67, an increase of 12 percent over the same period last year, on sales of $862.0 million, a gain of nine percent. Excluding the impact of acquisitions ...

... and negligible currency exchange, second quarter sales increased approximately four percent. Pentair realized a net EPS benefit of approximately five cents per share from the net impact of one-time tax-related items that were partially offset by one-time reorganization costs in the quarter.

Pentair Chairman and Chief Executive Officer, Randall J. Hogan, said: "We realized good growth in our residential, commercial and municipal pump markets; in Asian markets; and in the industrial and commercial markets of our Technical Products Group. Our Thermal Management acquisition has exceeded its sales, operating income and margin targets for the first six months of 2006, and the Technical Products Group, as a whole, has surpassed our 15 percent return on sales goal.

"Although our residential Water markets remained relatively strong, we did see some weakness in the Spa & Bath area due to softer housing markets, and sales of pool equipment were adversely affected by inventory adjustments at several large distributors. Growth in our European Water business slowed in the second quarter with good growth in pump sales being somewhat offset by lower pool equipment sales due to an unseasonably cool, wet European spring."

Hogan added: "We continue to build toward the promise of higher growth and higher performance in our two attractive business segments. Based upon our second quarter performance and not withstanding the mixed economic outlook, we are reiterating our previous EPS guidance of between $2.08 and $2.18 for the year and are initiating third quarter EPS guidance in a range between $0.46 and $0.50."

Pentair's full year 2005 EPS from continuing operations was $1.80 with EPS from continuing operations in the third quarter 2005 of $0.43, both reflecting the impact of stock option expensing per SFAS 123R.

Second Quarter 2006 Financial Comments

Earnings

EPS from continuing operations of $0.67 was 12 percent higher than second quarter 2005 EPS from continuing operations of $0.60. Operating income totaled $108.0 million, approximately one percent higher than the $107.2 million reported in the same period last year. Return on sales of 12.5 percent in the second quarter was lower by 110 basis points than that of a year ago as higher Technical Products Group margins were offset by Water Group investments and higher corporate costs. Pentair realized a net EPS benefit of approximately five cents per share from the net impact of one-time tax-related items that were partially offset by one-time reorganization costs in the quarter.

Revenue

Net sales totaled $862.0 million, up nine percent from $788.5 million in the same period a year ago. Sales growth, excluding the impact of acquisitions and negligible currency exchange, was approximately four percent.

Cash

Cash flow totaled $128.5 million, bringing free cash flow for the first half of 2006 to $27.2 million. This compares favorably to the second quarter of 2005, when cash flow totaled $112.8 million, bringing free cash flow for the first half of 2005 to $11.4 million.

Water Group Second Quarter Comments

Water Group sales of $605.5 million increased 3.4 percent over the same period last year.

Pump growth included record sales of Aurora and Sta-Rite pumps and strong sales of water systems in commercial, municipal, and residential pump markets. Wet weather in the northeastern U.S. contributed to the strong quarter, as did new customers in several vertical markets including wastewater and fire protection systems, and new products, including control boxes, variable speed drive pumps, and end-suction pumps.

Pool sales were up from year-ago levels driven by new products including electronic control packages and high-efficiency variable speed pumps. This performance came despite a decline in Spa & Bath sales, and slower pool building markets in Florida and California.

Filtration growth reflected improved industrial sales that more than offset weaker sales in residential and original equipment manufacturer (OEM) markets. Filtration also saw stronger activity in its Ecolab partnership and in point-of-use residential filtration.

Efforts to capture additional share in global desalination projects produced another record quarter for our CodeLine pressure vessel business.

New products contributed to sales gains, particularly in Pool and in Europe. Pool benefited from previously launched products including variable speed pumps, control systems, and robotic cleaners, while product launches in Europe included an energy-efficient variable speed pump for residential markets, a new in-ground fire suppression system, and a complete cabinet-sized water softener for point-of-use applications.

Operating income for the Group totaled $84.2 million, down nine percent over the same period last year. Return on sales was 13.9 percent, down 180 basis points compared to last year.

Margin gains in Pump operations - driven by sourcing activities, pricing, and volume - were offset by mix, material cost inflation, and plant consolidation-related inefficiencies in Pool and Filtration operations.

Planned investments for growth continued with approximately $7 million incurred in the quarter.

Operating income from international businesses was down from year-ago levels due primarily to reorganization costs and continuing investments in Asia and in Europe.

The FARADYNE joint venture is progressing well as field-testing is complete. Production of submersible motors is expected to begin shortly, and motors should be available in the third quarter, as anticipated.

Technical Products Group Second Quarter Comments

Sales of $256.5 million for the quarter increased $54 million or 26 percent over the same quarter last year. Excluding the impact of the newly acquired Thermal Management businesses and negligible foreign currency exchange, organic growth was approximately seven percent.

Excluding acquisitions, sales in North American markets grew in the mid-single digits, resulting from share gains in targeted petrochemical, food & beverage, and commercial construction markets driven by new products and focused vertical marketing efforts.

In Europe, growth in test & measurement and automation & control markets, and in ATCA was offset by several end-of-life telecom programs and transition of OEM business to our China operations. New products and an expanded customer base bolstered sales.

Strong growth in Asia benefited from continued market penetration in China, strong growth in Japan as those markets continued their recovery, and OEM program transitions from our North American and European operations.

Volume growth, supply management savings, cost reductions, and improved productivity combined to set new earnings records. Operating income of $39.7 million set a new record, breaking the previous $37.7 million record set in the first quarter of 2006.

Margins totaled 15.5 percent, up 70 basis points on a sequential quarter basis. The second quarter was the Group's 18th consecutive quarter of sequential margin improvement, excluding the impact of stock option expensing.

Increased sales together with the rapid implementation of lean and supply management practices drove significant profit improvements in the newly acquired Thermal Management business. The business exceeded its sales, operating income and margin targets for the first six months.

Source: Pentair plc.

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