Pentair's EPS Rises 14%, Free Cash Flow Exceeds $100 Million in Third Quarter 2002

Oct. 17, 2002
Company Updates 2002 EPS Expectations

Pentair has generated third quarter 2002 earnings per share (EPS) of $0.75, a 13.6 percent gain over EPS of $0.66 -- without goodwill amortization -- in the same period last year. The Company's third quarter free cash flow totaled $110.1 million or $197.2 million on a year-to-date basis. This represents an 80 percent increase over 2001 year-to-date cash flow, or 194 percent conversion of 2002 net income and year-to-date cash EPS of $3.96.

"Supply management, lean enterprise, cash flow and growth initiatives in our businesses offset the effects of a tough global economy in the third quarter," said Randall J. Hogan, Pentair chairman and CEO. "We're making good progress in gaining new customers, improving profits, and maintaining our cash flow discipline. We are particularly pleased with the latter, which has more than paid for the two complementary acquisitions we made in the fourth quarter."

Pentair's third quarter net sales totaled $629.3 million, down slightly compared to $636.2 million in the same period a year ago. Operating income for the third quarter 2002 totaled $61.6 million, 2.4 percent greater than the $60.1 million, before goodwill amortization, reported in the third quarter 2001. Despite slightly lower sales, operating income margins improved 30 basis points.

In the Tools Group, third quarter 2002 sales of $265.7 million were 10 percent higher than in the same period last year, while operating income of $26.0 million improved 31 percent on the same comparison. Third quarter operating income margins in the Group were 9.8 percent, representing an increase of 160 basis points over the third quarter 2001. Pentair attributed the improved sales results to significantly higher shipments of Delta products and pressure washers. Gains in operating income were due primarily to benefits generated by supply chain, lean enterprise, and cost reduction initiatives, offset by product mix and costs related to promotional activities.

In the Water Technologies Group, third quarter sales of $223.6 million declined three percent versus the same period last year, operating income of $30.0 million was nine percent lower, and margins declined 90 basis points to 13.4 percent. The Group's sales performance was adversely affected by fluctuations in the seasonality of pool and spa equipment sales. This was due primarily to timing of orders and was partially offset by strong pump sales during the quarter. The decline in operating income was due to lower pool product sales and unfavorable product mix, specifically significantly higher sales of retail pumps, which carry a lower margin, and lower productivity in the pump and tank businesses.

In the Enclosures segment, sales of $139.9 million and operating income of $8.9 million in the third quarter of 2002 were 15 and 18 percent lower, respectively, than year-ago levels due to continued slow capital spending and weak global technology markets. Enclosures Group sales have been essentially flat during this year, but margins improved sequentially by 90 basis points in the first quarter of 2002, 170 basis points in the second quarter, and another 130 basis points in the third quarter. Pentair expects its Enclosures Group to generate continued margin improvement in the fourth quarter.

"We are pleased that margins in Enclosures have continued to improve, that our Tools sales are growing, and that our ongoing cash flow discipline delivered excellent results in the quarter," Hogan said. "Despite these accomplishments, we face a constrained growth environment overall, more aggressive pricing pressures, and promotional activities in Tools, as well as slower cost productivity improvements in our Water Technologies Group.

"Given these conditions and particularly the economic concerns that exist in many of our businesses, we are expecting to deliver 2002 EPS of between $2.60 and $2.65, versus previous guidance of between $2.80 and $2.90 per share," Hogan added. "Even if the current economic conditions continue and allow only modest sales growth in 2003, our initiatives will still drive EPS growth in the mid-teens."

Source: Pentair, Inc.

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