Press release from PR Newswire
Pentair Reports Third Quarter Results; Merger with Tyco's Flow Control Business Completed
Thursday, November 01, 2012
Pentair Reports Third Quarter Results; Merger with Tyco's Flow Control Business Completed07:00 EDT Thursday, November 01, 2012- Third quarter adjusted EPS of $0.64 per share, up 10 percent over the same quarter last year. Sales up 1% in local currencies to $866 million. - Legacy Pentair on track to previously communicated EPS expectations. - Company reiterates expectations of EPS accretion of $0.40 in 2013 related to merger with Tyco's Flow Control business and $5.00 EPS in 2015. - Further updates to be given at Investor and Analyst Day on November 27. Reconciliations of GAAP to Non-GAAP are in the attached financial tables.SCHAFFHAUSEN, Switzerland, Nov. 1, 2012 /PRNewswire/ -- Pentair Ltd. (NYSE: PNR) today announced third quarter 2012 sales of $866 million, an increase of 1 percent from the prior year quarter excluding 3 points of foreign exchange translation. When adjusted to exclude acquisition-related and repositioning costs, third quarter 2012 earnings per diluted share ("EPS") were $0.64, up 10 percent from adjusted EPS of $0.58 in the third quarter of last year. EPS on a GAAP basis, including acquisition-related and repositioning costs for the third quarter, were $0.30 compared to $0.51 of EPS in the third quarter last year. (Logo: http://photos.prnewswire.com/prnh/20120307/CG65728LOGO) Adjusted operating income was $108 million, up 7 percent, and operating margins expanded 110 basis points to 12.4 percent. Pricing and productivity gains more than offset material inflation and higher labor costs. On a GAAP basis, the company delivered operating income of $54 million.Free cash flow in the quarter was $62 million, inclusive of $11 million of deal-related costs resulting in $203 million for the first nine months of 2012, inclusive of $26 million of deal-related costs. The company expects to deliver full year free cash flow greater than 100% of net income.As previously communicated, Pentair completed its merger with Tyco's Flow Control business on September 28, 2012, more than doubling the revenue for Pentair. The combination of the two companies better positions Pentair to fully participate in fast growth regions where rising GDP and urbanization are driving infrastructure, energy, and water demands. The company's fourth quarter earnings will include the results related to Tyco's Flow Control business."Although the global economic environment remains cloudy and foreign exchange continues to negatively impact the top line, we continue to drive strong margin expansion led by price and productivity," said Randall J. Hogan, Pentair chairman and chief executive officer. "Great execution allowed us to deliver record third quarter adjusted earnings per share while also closing the transformational merger with Tyco's Flow Control business." "The integration of the new Pentair, while in the early stages, is well underway and the leadership team is even more excited after visiting more than 30 flow control facilities around the world and meeting with more than a quarter of our new employees in the first four weeks," continued Hogan. "The enthusiasm around the growth opportunities and the ability to accelerate operational performance with the Pentair Integrated Management System gives me even more confidence in our ability to deliver the expected $5.00 of earnings per share by 2015." THIRD QUARTER BUSINESS HIGHLIGHTSWater & Fluid Solutions sales were down 1 percent year-over-year to $605 million, but increased 2 percent when excluding the impact of foreign exchange. In fast growth regions, Water & Fluid Solutions sales grew 11 percent driven by strength in Latin America and the Middle East. Within Water & Fluid Solutions, the third quarter sales performances were as follows:Flow Technologies, which accounted for approximately 40 percent of Water & Fluid Solutions sales, was down 5 percent versus the prior year quarter, as strength in agriculture and infrastructure was offset by continued weakness in Western Europe and flood related products in the U.S. impacted by the unusually dry weather. Treatment/Process, which accounted for approximately 40 percent of Water & Fluid Solutions sales, was flat. Foreign exchange was a major headwind, which negated a 5 percent volume and price gain on strength in energy and residential markets. Aquatic Systems, which accounted for approximately 20 percent of Water & Fluid Solutions sales, was up 6 percent year-over-year driven by pool dealer expansion and continued strong demand for Pentair's energy efficient products and solutions. Water & Fluid Solutions' third quarter adjusted operating income of $70 million was up 4 percent as compared to $67 million in the same period last year. Adjusted operating margins increased by 60 basis points to 11.6 percent. Pricing and productivity initiatives more than offset inflation during the quarter. Including repositioning charges Water & Fluid Solutions' third quarter reported operating income was $69 million.Technical Solutions delivered third quarter 2012 sales of $260 million, down 6 percent versus the prior year quarter, including a three-percentage point unfavorable impact from foreign exchange.Enclosures & Cabinets, which made up approximately 58% of Technical Solutions sales, was up 2% excluding the impact of foreign exchange, primarily on the continued strength of global Industrial, which was offset slightly by military markets. Systems & Solutions and Accessories, which made up approximately 32% of Technical Solutions sales, was down 10% in the quarter related to significant project delays and OEM orders primarily related to global data communications applications. Cooling, which made up approximately 10% of Technical Solutions sales, was flat excluding the impact of foreign exchange, with strong industrial growth offset by significant declines in the datacom and telecom markets.Technical Solutions reported third quarter operating income of $52 million, up 7 percent compared to $49 million in the same quarter last year. Third quarter 2012 operating margins increased to a third quarter record of 20.1 percent, an increase of 240 basis points when compared to the prior year quarter. Pricing and productivity gains related to a richer mix of standard products more than offset material and labor inflation. OUTLOOKThe legacy Pentair business remains on track to deliver adjusted EPS approximating $2.73 per share, which represents the mid-point of its prior guidance of $2.70 to $2.76 on $3.6 billion in revenue. Pentair Ltd. is introducing adjusted fourth quarter 2012 EPS guidance of $0.40 to $0.45. These numbers are inclusive of a substantial increase in its share count following the merger with Tyco's Flow Control business, incremental corporate and integration team expenses, estimated deal amortization costs in line with previous estimates, approximately $25 million of branding/transition costs to be incurred during the fourth quarter, and a tax rate of approximately 30%, which does not yet reflect the tax strategy savings that the company expects to realize in 2013 and beyond.In addition, the company is updating its full year 2012 adjusted EPS outlook to a range of $2.30 to $2.35, which includes the items mentioned above. GAAP EPS guidance for the fourth quarter and full year is ($0.22) to ($0.17) and $0.92 to $0.97, respectively, which include repositioning and deal-related expenses, inventory step-up and backlog amortization, specific tax benefits, and the make-whole provision relating to an early bond redemption."We are excited about the expanded opportunities across the combined company to accelerate both revenue growth and earnings," said Hogan. "The teams are building robust plans to ensure that we achieve expected $0.40 of EPS accretion against legacy Pentair's 2013 expectation and ultimately $5.00 per share of EPS in 2015. We will share these plans in detail during our investor conference scheduled for November 27th in New York City." EARNINGS CONFERENCE CALLPentair Chairman and CEO Randall J. Hogan and Chief Financial Officer John L. Stauch will discuss the company's performance and third quarter 2012 results on a two-way conference call with investors at 10:00 a.m. Eastern today. A live audio webcast of the call, along with the related presentation, can be accessed in the Investors section of the company's website shortly before the call begins. Reconciliations of non-GAAP financial measures are set forth in the attachments to this release and in the presentation, both of which can be found on Pentair's website. The webcast and presentation will be archived at the company's website following the conclusion of the event.CAUTION CONCERNING FORWARD-LOOKING STATEMENTSThis press release contains statements that Pentair believes to be "forward-looking statements" within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact, including, without limitation, statements regarding the anticipated benefits of the merger or Pentair's anticipated financial results, are forward-looking statements. Without limitation, any statements preceded or followed by or that include the words "targets", "plans", "believes", "expects", "intends", "will", "likely", "may", "anticipates", "estimates", "projects", "should", "would", "expect", "positioned", "strategy", "future" or words, phrases or terms of similar substance or the negative thereof, are forward-looking statements. These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties, assumptions and other factors, some of which are beyond Pentair's control, which could cause actual results to differ materially from those expressed or implied by such forward-looking statements. These factors include the ability to successfully integrate Pentair and the flow control business and achieve expected benefits from the merger; overall global economic and business conditions; competition and pricing pressures in the markets Pentair serves; the strength of housing and related markets; volatility in currency exchange rates and commodity prices; inability to generate savings from excellence in operations initiatives consisting of lean enterprise, supply management and cash flow practices; increased risks associated with operating foreign businesses; the ability to deliver backlog and win future project work; failure of market to accept new product introductions and enhancements; the impact of changes in laws and regulations, including those that limit U.S. tax benefits; the outcome of litigation and governmental proceedings; and the ability to achieve Pentair's long-term strategic operating goals. Additional information concerning these and other factors is contained in Pentair's filings with the U.S. Securities and Exchange Commission ("SEC"), including in Pentair's Quarterly Report on Form 10-Q for the quarter ended September 29, 2012. All forward-looking statements speak only as of the date of this press release. Pentair assumes no obligation, and disclaims any obligation, to update the information contained in this press release. ABOUT PENTAIR LTD.Pentair Ltd. (www.pentair.com) delivers industry-leading products, services and solutions for its customers' diverse needs in water and other fluids, thermal management and equipment protection. With pro forma revenues of approximately $8 billion, Pentair employs more than 30,000 people worldwide.PENTAIR CONTACTS: Investors:Jim Lucas, Vice President of Investor RelationsDirect: 763-656-5575Email: firstname.lastname@example.orgMedia:Betsy Day, Corporate Communications ManagerDirect: 763-656-5537Email: email@example.comPentair Ltd. and SubsidiariesCondensed Consolidated Statements of Income (Unaudited)Three months endedNine months ended In thousands, except per-share dataSeptember 29,2012October 1,2011September 29,2012October 1,2011Net sales$865,512$890,546$2,665,214$2,590,994Cost of goods sold587,435618,4841,794,2901,782,137Gross profit278,077272,062870,924808,857% of net sales32.1%30.6%32.7%31.2%Selling, general and administrative204,665159,068553,120462,260% of net sales23.6%17.9%20.8%17.8%Research and development19,73520,09161,38358,095% of net sales2.3%2.3%2.3%2.3%Operating income53,67792,903256,421288,502% of net sales6.2%10.4%9.6%11.1%Other (income) expense:Equity income of unconsolidated subsidiaries(616)(574)(2,301)(1,481)Net interest expense18,62017,37349,46741,311% of net sales2.2%2.0%1.9%1.6%Income before income taxes and noncontrolling interest35,67376,104209,255248,672Provision for income taxes4,02324,05041,96676,447effective tax rate11.3%31.6%20.1%30.7%Net income before noncontrolling interest31,65052,054167,289172,225Noncontrolling interest 1,2329624,2273,880Net income attributable to Pentair Ltd.$30,418$51,092$163,062$168,345Earnings per common share attributable to Pentair Ltd.Basic$0.30$0.52$1.64$1.71Diluted$0.30$0.51$1.60$1.69Weighted average common shares outstandingBasic100,44598,47299,48498,228Diluted102,91099,802101,70899,759Cash dividends paid per common share$0.22$0.20$0.66$0.60 Pentair Ltd. and SubsidiariesCondensed Consolidated Balance Sheets (Unaudited)September 29,December 31,October 1,In thousands201220112011AssetsCurrent assetsCash and cash equivalents$642,570$50,077$52,665Accounts and notes receivable, net1,319,561569,204556,688Inventories1,379,971449,863459,916Deferred taxes131,53160,89961,411Prepaid expenses and other current assets266,813107,792147,568Total current assets3,740,4461,237,8351,278,248Property, plant and equipment, net1,156,327387,525394,922Other assetsGoodwill4,766,5192,273,9182,516,692Intangibles, net1,954,512592,285619,262Other354,53194,75073,319Total other assets7,075,5622,960,9533,209,274Total assets$11,972,335$4,586,313$4,882,443Liabilities and Shareholders' EquityCurrent liabilitiesShort-term borrowings$17$3,694$29,705Current maturities of long-term debt501,3751,1681,194Accounts payable602,707294,858281,448Dividends payable142,999??Employee compensation and benefits304,029109,361117,538Current pension and post-retirement benefits14,7909,0528,733Accrued product claims and warranties64,49842,63043,920Income taxes?14,54726,283Accrued rebates and sales incentives153,64537,00945,231Other current liabilities347,889129,522163,550Total current liabilities2,131,949641,841717,602Other liabilitiesLong-term debt1,495,3691,304,2251,317,454Pension and other retirement compensation382,181248,615190,221Post-retirement medical and other benefits28,96331,77426,933Long-term income taxes49,04126,47023,891Deferred taxes539,451188,957228,737Other non-current liabilities279,14097,03979,489Total liabilities4,906,0942,538,9212,584,327Redeemable noncontrolling interest100,000??Shareholders' equity6,966,2412,047,3922,298,116Total liabilities and shareholders' equity$11,972,335$4,586,313$4,882,443Days sales in accounts receivable (13 month moving average)(1)606161Days inventory on hand (13 month moving average) (1)868383Days in accounts payable (13 month moving average) (1)707171(1) Calculations exclude balance sheet accounts related to amounts acquired or assumed in the Merger. Pentair Ltd. and SubsidiariesCondensed Consolidated Statements of Cash Flows (Unaudited)Nine months ended In thousandsSeptember 29,2012October 1,2011Operating activitiesNet income before noncontrolling interest$167,289$172,225Adjustments to reconcile net income to net cash provided by (used for) operating activitiesEquity income of unconsolidated subsidiaries(2,301)(1,481)Depreciation48,59049,079Amortization29,39429,807Deferred income taxes4,0394,445Stock compensation28,52714,695Excess tax benefits from stock-based compensation(2,145)(3,137)Loss (gain) on sale of assets(3,271)702Changes in assets and liabilities, net of effects of business acquisitions?Accounts and notes receivable27,30122,657Inventories(600)15,633Prepaid expenses and other current assets(4,478)(26,380)Accounts payable(30,673)(45,759)Employee compensation and benefits(14,944)(12,334)Accrued product claims and warranties2,220115Income taxes(12,686)18,045Other current liabilities47,41446,924Pension and post-retirement benefits(20,062)(23,636)Other assets and liabilities(16,263)(21,041)Net cash provided by (used for) operating activities247,351240,559Investing activitiesCapital expenditures(49,942)(53,063)Proceeds from sale of property and equipment5,130139Acquisitions, net of cash acquired671,797(733,105)Other(3,074)(441)Net cash provided by (used for) investing activities623,911(786,470)Financing activitiesNet short-term borrowings (3,683)24,772Proceeds from long-term debt500,8601,370,423Repayment of long-term debt(723,443)(771,793)Debt issuance costs(3,122)(8,973)Excess tax benefits from stock-based compensation2,1453,137Stock issued to employees, net of shares withheld21,97211,788Repurchases of common stock?(12,785)Dividends paid(66,153)(59,669)Net cash provided by (used for) financing activities(271,424)556,900Effect of exchange rate changes on cash and cash equivalents(7,345)(4,380)Change in cash and cash equivalents592,4936,609Cash and cash equivalents, beginning of period50,07746,056Cash and cash equivalents, end of period$642,570$52,665Free cash flowNet cash provided by (used for) operating activities$247,351$240,559Capital expenditures(49,942)(53,063)Proceeds from sale of property and equipment5,130139Free cash flow$202,539$187,635Pentair Ltd. and SubsidiariesSupplemental Financial Information by Reportable Segment (Unaudited)First QtrSecond QtrThird QtrNine MonthsIn thousands2012201220122012Net sales to external customersWater & Fluid Solutions$586,978$675,522$605,390$1,867,890Technical Solutions271,199266,003260,122797,324Consolidated$858,177$941,525$865,512$2,665,214Intersegment salesWater & Fluid Solutions$73$(116)$60$17Technical Solutions1,3591,5351,4004,294Other(1,432)(1,419)(1,460)(4,311)Consolidated$?$?$?$?Operating income (loss)Water & Fluid Solutions$63,677$91,989$69,228$224,894Technical Solutions50,45950,62452,320153,403Other(29,184)(24,821)(67,871)(121,876)Consolidated$84,952$117,792$53,677$256,421Operating income as a percent of net salesWater & Fluid Solutions10.8%13.6%11.4%12.0%Technical Solutions18.6%19.0%20.1%19.2%Consolidated9.9%12.5%6.2%9.6%First QtrSecond QtrThird QtrNine MonthsIn thousands2011201120112011Net sales to external customersWater & Fluid Solutions$515,368$631,994$614,557$1,761,919Technical Solutions274,905278,181275,989829,075Consolidated$790,273$910,175$890,546$2,590,994Intersegment salesWater & Fluid Solutions$455$316$426$1,197Technical Solutions9991,5591,7554,313Other(1,454)(1,875)(2,181)(5,510)Consolidated$?$?$?$?Operating income (loss)Water & Fluid Solutions$56,528$84,521$59,608$200,657Technical Solutions48,08748,26148,611144,959Other(18,438)(23,360)(15,316)(57,114)Consolidated$86,177$109,422$92,903$288,502Operating income as a percent of net salesWater & Fluid Solutions11.0%13.4%9.7%11.4%Technical Solutions17.5%17.3%17.6%17.5%Consolidated10.9%12.0%10.4%11.1%Pentair Ltd. and SubsidiariesReconciliation of the GAAP "As Reported" year ending December 31, 2012 to the "Adjusted" non-GAAPexcluding the effect of 2012 adjustments (Unaudited)ForecastTotal PentairFirst QuarterSecond QuarterThird QuarterFourth QuarterIn millions, except per-share data2012201220122012Net sales$ 858.2$ 941.5$ 865.5 approx $1,800 Operating income - as reported85.0117.853.7 approx 30 - 35 % of net sales9.9%12.5%6.2%approx. 11.5%Adjustments: Deal related costs and expenses11.86.352.75 Inventory step-up and customer backlog???80 Restructuring?10.41.135Operating income - as adjusted96.8134.5107.5 approx 150 - 155 % of net sales11.3%14.3%12.4%approx. 8.5%Net income attributable to Pentair Ltd. - as reported60.871.830.4 approx (47) - (37) Bond redemption and interest expense(1.2)?2.551 Other adjustments net of tax4.411.932.683Net income from continuing operations attributable to Pentair Ltd. - as adjusted64.083.765.5 approx 87 - 97 Continuing earnings per common share attributable to Pentair Ltd. - dilutedDiluted earnings per common share - as reported$ 0.61$ 0.71$ 0.30 ($0.22) - ($0.17) Adjustments0.030.120.340.62Diluted earnings per common share - as adjusted$ 0.64$ 0.83$ 0.64 $0.40 - $0.45 Pentair Ltd. and SubsidiariesReconciliation of the GAAP "As Reported" year ending December 31, 2011 to the "Adjusted" non-GAAPexcluding the effect of 2011 adjustments (Unaudited)Total PentairFirst QuarterSecond QuarterThird QuarterFourth QuarterYearIn millions, except per-share data20112011201120112011Net sales$ 790.3$ 910.2$ 890.5$ 865.7$ 3,456.7Operating income - as reported86.2109.492.9(120.0)168.5 % of net sales10.9%12.0%10.4%(13.9%)4.9%Adjustments: CPT deal related costs1.76.1?0.58.3 Restructuring??2.110.812.9 Inventory step-up and customer backlog0.25.35.82.213.5 Goodwill impairment???200.5200.5Operating income - as adjusted88.1120.8100.894.0403.7 % of net sales11.1%13.3%11.3%10.9%11.7%Net income attributable to Pentair Ltd. - as reported50.566.751.1(134.1)34.2 Adjustments net of tax220.127.116.1189.8206.5Net income from continuing operations attributable to Pentair Ltd. - as adjusted51.875.557.755.7240.7Continuing earnings per common share attributable to Pentair Ltd. - dilutedDiluted earnings per common share - as reported$ 0.51$ 0.67$ 0.51$ (1.36)$ 0.34Adjustments0.010.080.071.922.07Diluted earnings per common share - as adjusted$ 0.52$ 0.75$ 0.58$ 0.56$ 2.41Pentair Ltd. and SubsidiariesReconciliation of the GAAP "As Reported" year ending December 31, 2012 to the "Adjusted" non-GAAPexcluding the effect of 2012 adjustments (Unaudited)Water & Fluid SolutionsFirst QuarterSecond QuarterThird QuarterIn millions201220122012Net sales$ 587.0$ 675.5$ 605.4Operating income - as reported63.7$ 92.0$ 69.2 % of net sales10.9%13.6%11.4%Adjustments - restructuring?6.91.1Operating income - as adjusted63.798.970.3 % of net sales10.9%14.7%11.6%Technical SolutionsNet sales$ 271.2$ 266.0$ 260.1Operating income - as reported50.550.652.3 % of net sales18.6%19.0%20.1%Adjustments - restructuring?3.1?Operating income - as adjusted50.553.752.3 % of net sales18.6%20.2%20.1%Pentair Ltd. and SubsidiariesReconciliation of the GAAP "As Reported" year ending December 31, 2011 to the "Adjusted" non-GAAPexcluding the effect of 2011 adjustments (Unaudited)Water & Fluid SolutionsFirst QuarterSecond QuarterThird QuarterFourth QuarterYearIn millions20112011201120112011Net sales$ 515.4$ 632.0$ 614.6$ 607.9$ 2,369.8Operating income - as reported$ 56.5$ 84.5$ 59.6$ (142.3)$ 58.3 % of net sales11.0%13.4%9.7%(23.4%)2.5%Adjustments: Restructuring??2.07.89.8 Inventory step-up and customer backlog0.25.35.82.213.5 Goodwill impairment???200.5200.5Operating income - as adjusted56.789.867.468.2282.1 % of net sales11.0%14.2%11.0%11.2%11.9%Technical SolutionsNet sales$ 274.9$ 278.2$ 276.0$ 257.8$ 1,086.9Operating income - as reported$ 48.1$ 48.3$ 48.6$ 40.3$ 185.3 % of net sales17.5%17.3%17.6%15.6%17.0%Adjustments - restructuring??0.12.02.1Operating income - as adjusted48.148.348.742.3187.4 % of net sales17.5%17.3%17.7%16.4%17.2%Pentair Ltd. and SubsidiariesReconciliation of the GAAP "As Reported" quarter ending December 31, 2012 to the "Adjusted" non-GAAPexcluding the effect of 2012 adjustments (Unaudited)ForecastPre-MergerMergerConsolidatedIn millions, except per-share dataPentair, Inc.ImpactPentair Ltd.Reported GAAP:Operating income$ 106$ (73)$ 33Net income63(103)(40)Weighted average common shares outstanding - diluted215215215Diluted earnings per common share N/A N/A $ (0.19)Adjustments:Deal related costs and expenses$ ?$ 5$ 5Restructuring?3535Inventory step-up and backlog amortization?8080Bond redemption?7373Income taxes?(59)(59) Total adjustments to net income$ ?$ 134$ 134Merger impact on weighted average shares outstanding113 N/A ?Adjusted non-GAAP:Adjusted operating income$ 106$ 47$ 153Adjusted net income633194Adjusted weighted average shares outstanding - diluted102 N/A 215Adjusted diluted earnings per common share$ 0.62 N/A $ 0.44Reconciliation provided to illustrate "Legacy Pentair" results excluding the impact of the merger with Tyco's Flow Control businessPentair Ltd. and SubsidiariesReconciliation of the GAAP "As Reported" year ending December 31, 2012 to the "Adjusted" non-GAAPexcluding the effect of 2012 adjustments (Unaudited)ForecastPre-MergerMergerConsolidatedIn millions, except per-share dataPentair, Inc.ImpactPentair Ltd.Reported GAAP:Operating income$ 362$ (73)$ 289Net income216(93)123Weighted average common shares outstanding - diluted129129129Diluted earnings per common share N/A N/A $ 0.95Adjustments:Deal related costs and expenses$ 71$ 5$ 76Restructuring113546Inventory step-up and backlog amortization18081Bond redemption and interest17374Income taxes(24)(69)(93) Total adjustments to net income$ 60$ 124$ 184Merger impact on weighted average shares outstanding28 N/A ?Adjusted non-GAAP:Adjusted operating income$ 445$ 47$ 492Adjusted net income27631307Adjusted weighted average shares outstanding - diluted101 N/A 129Adjusted diluted earnings per common share$ 2.73 N/A $ 2.38Reconciliation provided to illustrate "Legacy Pentair" results excluding the impact of the merger with Tyco's Flow Control businessSOURCE Pentair Ltd.