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Pentair Reports Fourth Quarter and Full Year 2016 Results

 

  • Fourth quarter sales of $1.2 billion; full year 2016 sales of $4.9 billion.
  • Fourth quarter GAAP EPS of $0.60 and adjusted EPS of $0.78; full year 2016 GAAP EPS of $2.47 and adjusted EPS of $3.05.
  • Full year net cash provided by operating activities of $861 million and total free cash flow of $770 million. Full year net cash provided by operating activities of continuing operations of $702 million and free cash flow from continuing operations of $609 million. The company delivered full year free cash flow of 109 percent of adjusted net income.
  • The company introduces its 2017 GAAP EPS guidance to a range of $3.03 to $3.13 and on an adjusted basis to a range of $3.45 to $3.55.
  • Pentair previously announced that it entered into a Share Purchase Agreement to sell its Valves & Controls business to Emerson Electric Co. for a purchase price of $3.15 billion in cash, subject to certain customary adjustments.  The results of the Valves & Controls business, which was previously disclosed as a stand-alone reporting segment, have been presented as discontinued operations for all periods presented.

Reconciliations of GAAP to Non-GAAP measures are in the attached financial tables.

LONDON, United Kingdom - January 31, 2017- Pentair plc (PNR) today announced fourth quarter 2016 sales of $1.2 billion. Sales were down 8 percent compared to sales for the same period last year. Excluding currency translation ("FX"), core sales declined 7 percent in the fourth quarter.  Fourth quarter 2016 earnings per diluted share from continuing operations ("EPS") were $0.60 compared to $0.58 in the fourth quarter of 2015. On an adjusted basis, the company reported EPS of $0.78 compared to $0.88 in the fourth quarter of 2015.  Segment income, adjusted net income, free cash flow, and adjusted EPS are described in the attached schedules.

Fourth quarter 2016 operating income was $162 million, down 6 percent compared to operating income for fourth quarter of 2015, and return on sales ("ROS") was 13.6 percent, an increase of 30 basis points when compared to the fourth quarter of 2015. On an adjusted basis, the company reported segment income of $204 million for the fourth quarter, down 11 percent compared to segment income for the fourth quarter of 2015, and ROS was 17.2 percent, a decrease of 50 basis points when compared to the fourth quarter of 2015.

Full year net cash provided by operating activities was $861 million and total free cash flow was $770 million. Full year net cash provided by operating activities of continuing operations was $702 million and free cash flow from continuing operations was $609 million.  The company delivered full year free cash flow of 109 percent of adjusted net income.

Pentair paid dividends of $0.34 per share in the fourth quarter of 2016. Pentair previously announced on December 8, 2016 that its Board of Directors approved a 3 percent increase in the company`s regular annual cash dividend rate for 2017 to $1.38 from $1.34.  2017 marks the 41st consecutive year that Pentair has increased its dividend.

"Including the ERICO acquisition we were able to deliver 6 percent sales growth, 11 percent segment income growth, and free cash flow from continuing operations of $609 million, or 109 percent conversion of adjusted net income despite the challenges that we faced from an uncertain global economic environment in 2016," said Randall J. Hogan, Pentair Chairman and CEO.  "We still believe the sale of our Valves & Controls business will be completed by the end of the first quarter of 2017, at which point we will have a dramatically improved balance sheet and be positioned to allocate resources in a disciplined manner.  We have also issued 2017 guidance that calls for adjusted EPS growth of 15 percent as we continue to position Pentair to deliver more consistent, predictable results."

OUTLOOK

The company introduces its 2017 GAAP EPS to a range of $3.03 to $3.13 and on an adjusted basis to a range of $3.45 to $3.55.  The company anticipates full year 2017 sales of $4.7 billion, or down approximately 3 percent on a reported basis and down approximately 3 percent on a core basis.  The company expects to deliver full year free cash flow of approximately 100 percent of adjusted net income.

In addition, the company introduced first quarter 2017 GAAP EPS guidance of approximately $0.50 and on an adjusted basis approximately $0.61, approximately flat on an adjusted basis versus the same quarter last year.  The company expects first quarter revenue to be approximately $1.14 billion, which would be down approximately 4 percent on a reported and core basis  compared to first quarter 2016 revenue.

EARNINGS CONFERENCE CALL

Pentair Chairman and CEO Randall J. Hogan and Chief Financial Officer John L. Stauch will discuss the company`s performance, fourth quarter and full year 2016 results on a two-way conference call with investors at 9:00 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, www.pentair.com, 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 STATEMENTS

This press release contains statements that we believe to be "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical fact 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," "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 our control, which could cause actual results to differ materially from those expressed or implied by such forward-looking statements. These factors include the company`s ability to complete the sale of the Valves & Controls business on anticipated terms and timetable; overall global economic and business conditions, including worldwide demand for oil and gas; the ability to achieve the benefits of our restructuring plans; the ability to successfully identify, finance, complete and integrate acquisitions; competition and pricing pressures in the markets we serve; 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 markets 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 our long-term strategic operating goals. Additional information concerning these and other factors is contained in our filings with the U.S. Securities and Exchange Commission ("SEC"), including in our 2015 Annual Report on Form 10-K. All forward-looking statements speak only as of the date of this report. We assume no obligation, and disclaim any obligation, to update the information contained in this report.

ABOUT PENTAIR PLC

Pentair plc (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 2016 revenues of $4.9 billion, Pentair employs approximately 26,000 people worldwide.

###

PENTAIR CONTACTS:

Jim Lucas
Vice President, Investor Relations & Strategic Planning
Direct: 763-656-5575
Email: jim.lucas@pentair.com

Rebecca Osborn
Senior Manager, External Communications
Direct: 763-656-5589
Email: rebecca.osborn@pentair.com




 
 
 
Pentair plc and Subsidiaries
Condensed Consolidated Statements of Operations (Unaudited)
           
  Three months ended   Twelve months ended
In millions, except per-share data December 31,
 2016
December 31,
 2015
  December 31,
 2016
December 31,
 2015
Net sales $ 1,188.1   $ 1,289.0     $ 4,890.0   $ 4,616.4  
Cost of goods sold 748.0   856.5     3,095.9   3,017.6  
Gross profit 440.1   432.5     1,794.1   1,598.8  
% of net sales 37.0 % 33.6 %   36.7 % 34.6 %
Selling, general and administrative 251.1   234.4     979.3   884.0  
% of net sales 21.0 % 18.3 %   20.0 % 19.1 %
Research and development 27.2   26.4     114.1   98.7  
% of net sales 2.3 % 2.0 %   2.3 % 2.1 %
Operating income 161.8   171.7     700.7   616.1  
% of net sales 13.6 % 13.3 %   14.3 % 13.3 %
Other (income) expense:          
Equity income of unconsolidated subsidiaries (1.6 ) (0.2 )   (4.3 ) (1.5 )
Loss on sale of businesses, net 3.9   3.2     3.9   3.2  
Net interest expense 34.2   34.4     140.1   101.9  
% of net sales 2.9 % 2.7 %   2.9 % 2.2 %
Income from continuing operations before income taxes 125.3   134.3     561.0   512.5  
Provision for income taxes 15.7   30.3     109.4   115.4  
Effective tax rate 12.5 % 22.6 %   19.5 % 22.5 %
Net income from continuing operations 109.6   104.0     451.6   397.1  
Income (loss) from discontinued operations, net of tax 21.4   (555.4 )   70.0   (466.8 )
Gain (loss) from sale of discontinued operations, net of tax -   (1.9 )   0.6   (6.7 )
Net income (loss) $ 131.0   $ (453.3 )   $ 522.2   $ (76.4 )
Earnings (loss) per ordinary share          
Basic          
Continuing operations $ 0.60   $ 0.58     $ 2.49   $ 2.20  
Discontinued operations 0.12   (3.10 )   0.39   (2.62 )
Basic earnings (loss) per ordinary share $ 0.72   $ (2.52 )   $ 2.88   $ (0.42 )
Diluted          
Continuing operations $ 0.60   $ 0.58     $ 2.47   $ 2.17  
Discontinued operations 0.11   (3.10 )   0.38   (2.59 )
Diluted earnings (loss) per ordinary share $ 0.71   $ (2.52 )   $ 2.85   $ (0.42 )
Weighted average ordinary shares outstanding          
Basic 181.8   180.5     181.3   180.3  
Diluted 183.6   182.5     183.1   182.6  
Cash dividends paid per ordinary share $ 0.34   $ 0.32     $ 1.34   $ 1.28  



   
   
   
Pentair plc and Subsidiaries  
Condensed Consolidated Balance Sheets (Unaudited)  
       
  December 31,
 2016
December 31,
 2015
 
In millions  
Assets  
Current assets      
Cash and cash equivalents $ 238.5   $ 126.3    
Accounts and notes receivable, net 764.0   773.2    
Inventories 524.2   564.7    
Other current assets 253.4   220.0    
Current assets held for sale 891.9   1,093.4    
Total current assets 2,672.0   2,777.6    
Property, plant and equipment, net 538.6   539.8    
Other assets      
Goodwill 4,217.4   4,259.0    
Intangibles, net 1,631.8   1,747.4    
Other non-current assets 182.1   161.1    
Non-current assets held for sale 2,292.9   2,348.6    
Total other assets 8,324.2   8,516.1    
Total assets $ 11,534.8   $ 11,833.5    
Liabilities and Equity  
Current liabilities      
Current maturities of long-term debt and short-term borrowings $ 0.8   $ -    
Accounts payable 436.6   403.8    
Employee compensation and benefits 166.1   162.6    
Other current liabilities 511.5   487.1    
Current liabilities held for sale 356.2   433.0    
Total current liabilities 1,471.2   1,486.5    
Other liabilities      
Long-term debt 4,278.4   4,685.8    
Pension and other post-retirement compensation and benefits 253.4   244.6    
Deferred tax liabilities 609.5   670.2    
Other non-current liabilities 162.0   192.4    
Non-current liabilities held for sale 505.9   545.2    
Total liabilities 7,280.4   7,824.7    
Equity 4,254.4   4,008.8    
Total liabilities and equity $ 11,534.8   $ 11,833.5    


 
 
 
Pentair plc and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
 
  Twelve months ended
In millions December 31,
 2016
December 31,
 2015
Operating activities    
Net income (loss) $ 522.2   $ (76.4 )
(Income) loss from discontinued operations, net of tax (70.0 ) 466.8  
(Gain) loss from sale of discontinued operations, net of tax (0.6 ) 6.7  
Adjustments to reconcile net income (loss) from continuing operations to net cash provided by (used for) operating activities of continuing operations    
Equity income of unconsolidated subsidiaries (4.3 ) (1.5 )
Depreciation 84.6   81.2  
Amortization 96.4   68.1  
Loss on sale of businesses, net 3.9   3.2  
Deferred income taxes (62.5 ) 22.8  
Share-based compensation 34.2   33.0  
Impairment of trade names 13.3   -  
Excess tax benefits from share-based compensation (8.0 ) (6.0 )
Amortization of bridge financing debt issuance costs -   10.8  
Pension and other post-retirement expense 31.8   9.4  
Pension and other post-retirement contributions (13.5 ) (12.7 )
Changes in assets and liabilities, net of effects of business acquisitions    
Accounts and notes receivable 21.3   (6.2 )
Inventories 34.3   54.7  
Other current assets (15.8 ) (27.3 )
Accounts payable 38.0   10.6  
Employee compensation and benefits 7.0   (15.6 )
Other current liabilities 51.6   (16.6 )
Other non-current assets and liabilities (61.5 ) (7.3 )
Net cash provided by (used for) operating activities of continuing operations 702.4   597.7  
Net cash provided by (used for) operating activities of discontinued operations 159.0   141.6  
Net cash provided by (used for) operating activities 861.4   739.3  
Investing activities    
Capital expenditures (117.8 ) (91.3 )
Proceeds from sale of property and equipment 24.7   4.6  
Acquisitions, net of cash acquired (25.0 ) (1,913.9 )
Other (5.2 ) (3.0 )
Net cash provided by (used for) investing activities of continuing operations (123.3 ) (2,003.6 )
Net cash provided by (used for) investing activities of discontinued operations 1.5   38.1  
Net cash provided by (used for) investing activities (121.8 ) (1,965.5 )
Financing activities    
Net receipts (repayments) of short-term borrowings 0.8   (2.3 )
Net receipts (repayments) of commercial paper and revolving long-term debt (385.3 ) 363.5  
Proceeds from long-term debt -   1,714.8  
Repayment of long-term debt (0.7 ) (356.6 )
Debt issuance costs -   (26.8 )
Excess tax benefits from share-based compensation 8.0   6.0  
Shares issued to employees, net of shares withheld 20.7   19.4  
Repurchases of ordinary shares -   (200.0 )
Dividends paid (243.6 ) (231.7 )
Net cash provided by (used for) financing activities (600.1 ) 1,286.3  
Effect of exchange rate changes on cash and cash equivalents (27.3 ) (44.2 )
Change in cash and cash equivalents 112.2   15.9  
Cash and cash equivalents, beginning of year 126.3   110.4  
Cash and cash equivalents, end of year $ 238.5   $ 126.3  
     


 
 
 
Pentair plc and Subsidiaries
Reconciliation of the GAAP operating activities cash flow to the non-GAAP free cash flow (Unaudited)
 
  Twelve months ended
In millions December 31,
 2016
December 31,
 2015
Net cash provided by (used for) operating activities of continuing operations $ 702.4   $ 597.7  
Capital expenditures (117.8 ) (91.3 )
Proceeds from sale of property and equipment 24.7   4.6  
Free cash flow from continuing operations $ 609.3   $ 511.0  
Net cash provided by (used for) operating activities of discontinued operations 159.0   141.6  
Capital expenditures of discontinued operations (20.4 ) (43.0 )
Proceeds from sale of property and equipment of discontinued operations 21.9   22.7  
Free cash flow $ 769.8   $ 632.3  



 
 
 
Pentair plc and Subsidiaries
Supplemental Financial Information by Reportable Segment (Unaudited)
           
  2016
In millions First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Full
Year
Net sales          
Water Quality Systems $ 331.5   $ 397.1   $ 328.6   $ 371.0   $ 1,428.2  
Flow & Filtration Solutions 337.7   368.7   342.7   314.0   1,363.1  
Technical Solutions 524.6   540.6   543.1   507.7   2,116.0  
Other (3.8 ) (5.2 ) (3.7 ) (4.6 ) (17.3 )
Consolidated $ 1,190.0   $ 1,301.2   $ 1,210.7   $ 1,188.1   $ 4,890.0  
Segment income (loss)          
Water Quality Systems $ 61.7   $ 98.2   $ 69.6   $ 83.8   $ 313.3  
Flow & Filtration Solutions 39.5   55.5   49.5   36.2   180.7  
Technical Solutions 112.8   111.6   119.6   103.2   447.2  
Other (36.1 ) (24.3 ) (22.5 ) (18.8 ) (101.7 )
Consolidated $ 177.9   $ 241.0   $ 216.2   $ 204.4   $ 839.5  
Return on sales          
Water Quality Systems 18.6 % 24.7 % 21.2 % 22.6 % 21.9 %
Flow & Filtration Solutions 11.7 % 15.0 % 14.4 % 11.5 % 13.3 %
Technical Solutions 21.5 % 20.6 % 22.0 % 20.3 % 21.1 %
Consolidated 14.9 % 18.5 % 17.9 % 17.2 % 17.2 %



  2015
In millions First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Full
Year
Net sales          
Water Quality Systems $ 306.9   $ 387.7   $ 322.0   $ 364.9   $ 1,381.5  
Flow & Filtration Solutions 350.1   374.6   362.7   354.2   1,441.6  
Technical Solutions 395.8   407.1   432.3   574.1   1,809.3  
Other (5.3 ) (2.3 ) (4.2 ) (4.2 ) (16.0 )
Consolidated $ 1,047.5   $ 1,167.1   $ 1,112.8   $ 1,289.0   $ 4,616.4  
Segment income (loss)          
Water Quality Systems $ 51.8   $ 88.2   $ 60.5   $ 81.3   $ 281.8  
Flow & Filtration Solutions 36.4   57.1   53.2   40.5   187.2  
Technical Solutions 77.6   86.4   101.0   130.0   395.0  
Other (30.3 ) (27.9 ) (27.2 ) (23.4 ) (108.8 )
Consolidated $ 135.5   $ 203.8   $ 187.5   $ 228.4   $ 755.2  
Return on sales          
Water Quality Systems 16.9 % 22.8 % 18.8 % 22.3 % 20.4 %
Flow & Filtration Solutions 10.4 % 15.2 % 14.7 % 11.4 % 13.0 %
Technical Solutions 19.6 % 21.2 % 23.4 % 22.6 % 21.8 %
Consolidated 12.9 % 17.5 % 16.8 % 17.7 % 16.4 %





 
 
 
Pentair plc and Subsidiaries
Reconciliation of the GAAP year ended December 31, 2016 to the non-GAAP
excluding the effect of 2016 adjustments (Unaudited)
             
In millions, except per-share data First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
  Full
Year
Total Pentair            
Net sales $ 1,190.0   $ 1,301.2   $ 1,210.7   $ 1,188.1     $ 4,890.0  
Operating income 152.7   203.4   182.8   161.8     700.7  
% of net sales 12.8 % 15.6 % 15.1 % 13.6 %   14.3 %
Adjustments:            
Restructuring and other 0.6   12.2   8.1   (0.3 )   20.6  
Pension and other post-retirement mark-to-market loss -   -   -   4.2     4.2  
Intangible amortization 24.2   24.3   24.1   23.8     96.4  
Trade name impairment -   -   -   13.3     13.3  
Equity income of unconsolidated subsidiaries 0.4   1.1   1.2   1.6     4.3  
Segment income 177.9   241.0   216.2   204.4     839.5  
% of net sales 15.0 % 18.5 % 17.9 % 17.2 %   17.2 %
Net income from continuing operations-as reported 91.8   132.7   117.5   109.6     451.6  
Loss on sale of businesses -   -   -   3.9     3.9  
Adjustments to operating income 24.8   36.5   32.2   41.0     134.5  
Income tax adjustments (5.4 ) (7.9 ) (7.0 ) (10.7 )   (31.0 )
Net income from continuing operations-as adjusted $ 111.2   $ 161.3   $ 142.7   $ 143.8     $ 559.0  
Continuing earnings per ordinary share-diluted            
Diluted earnings per ordinary share-as reported $ 0.50   $ 0.73   $ 0.64   $ 0.60     $ 2.47  
Adjustments 0.11   0.15   0.14   0.18     0.58  
Diluted earnings per ordinary share-as adjusted $ 0.61   $ 0.88   $ 0.78   $ 0.78     $ 3.05  



 
 
 
Pentair plc and Subsidiaries
Reconciliation of Net Sales Growth to Core Net Sales Growth by Strategic Business Group
For the Quarter and Year Ending December 31, 2016
           
  Q4 Net Sales Growth   Full Year Net Sales Growth
  Core Currency Acq. / Div. Total   Core Currency Acq. / Div. Total
Water Quality Systems 1.6 % - % - % 1.6 %   3.7 % (0.3 )% - % 3.4 %
Aquatic & Environmental Systems 7.6 % 0.3 % - % 7.9 %   7.2 % (0.2 )% - % 7.0 %
Water Filtration (7.6 )% (0.4 )% - % (8.0 )%   (1.1 )% (0.6 )% - % (1.7 )%
Flow & Filtration Solutions (11.1 )% (0.2 )% - % (11.3 )%   (4.8 )% (0.6 )% - % (5.4 )%
Water Technologies (14.4 )% (0.2 )% - % (14.6 )%   (5.1 )% (0.5 )% - % (5.6 )%
Fluid Solutions (3.8 )% - % - % (3.8 )%   (3.1 )% (0.8 )% - % (3.9 )%
Process Filtration (6.4 )% (0.8 )% - % (7.2 )%   (4.1 )% (0.9 )% - % (5.0 )%
Technical Solutions (10.8 )% (0.7 )% - % (11.5 )%   (2.5 )% (1.1 )% 20.6 % 17.0 %
Enclosures (6.8 )% (0.6 )% - % (7.4 )%   (4.4 )% (0.6 )% - % (5.0 )%
Thermal Management (15.0 )% (1.0 )% - % (16.0 )%   0.6 % (2.0 )% - % (1.4 )%
Engineered Fastening Solutions (9.9 )% (0.6 )% - % (10.5 )%   N.M. N.M. N.M. N.M.
Total Pentair (7.3 )% (0.5 )% - % (7.8 )%   (1.4 )% (0.8 )% 8.1 % 5.9 %

N.M. Not Meaningful


 
 
 
Pentair plc and Subsidiaries
Reconciliation of the GAAP year ended December 31, 2015 to the non-GAAP
excluding the effect of 2015 adjustments (Unaudited)
             
In millions, except per-share data First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
  Full
Year
Total Pentair            
Net sales $ 1,047.5   $ 1,167.1   $ 1,112.8   $ 1,289.0     $ 4,616.4  
Operating income 120.7   170.8   152.9   171.7     616.1  
% of net sales 11.5 % 14.6 % 13.7 % 13.3 %   13.3 %
Adjustments:            
Restructuring and other 0.1   16.1   3.9   22.3     42.4  
Pension and other post-retirement mark-to-market gain -   -   -   (23.0 )   (23.0 )
Intangible amortization 14.2   14.8   14.8   24.3     68.1  
Inventory step-up -   1.5   1.4   32.8     35.7  
Deal related costs and expenses -   -   14.3   -     14.3  
Equity income of unconsolidated subsidiaries 0.5   0.6   0.2   0.3     1.6  
Segment income 135.5   203.8   187.5   228.4     755.2  
% of net sales 12.9 % 17.5 % 16.8 % 17.7 %   16.4 %
Net income from continuing operations-as reported 80.0   118.4   94.7   104.0     397.1  
Loss on sale of businesses -   -   -   3.2     3.2  
Amortization of bridge financing fees -   -   10.7   -     10.7  
Adjustments to operating income 14.3   32.4   34.4   56.4     137.5  
Income tax adjustments (5.0 ) (10.0 ) (12.7 ) (3.2 )   (30.9 )
Net income from continuing operations-as adjusted $ 89.3   $ 140.8   $ 127.1   $ 160.4     $ 517.6  
Continuing earnings per ordinary share-diluted            
Diluted earnings per ordinary share-as reported $ 0.44   $ 0.65   $ 0.52   $ 0.58     $ 2.17  
Adjustments 0.05   0.12   0.18   0.30     0.66  
Diluted earnings per ordinary share-as adjusted $ 0.49   $ 0.77   $ 0.70   $ 0.88     $ 2.83  



This announcement is distributed by NASDAQ OMX Corporate Solutions on behalf of NASDAQ OMX Corporate Solutions clients.

The issuer of this announcement warrants that they are solely responsible for the content, accuracy and originality of the information contained therein.
Source: Pentair plc via GlobeNewswire

HUG#2074586