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PENTAIR plc (PNR)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 delivered record adjusted operating income ($231.3M) and adjusted ROS (23.8%), with adjusted EPS up 24% YoY to $1.08, despite sales down 1% to $972.9M .
  • Segment margins set new highs: Flow ROS +320 bps to 20.4%, Water Solutions ROS +500 bps to 24.1%, Pool ROS +250 bps to 33.8% .
  • 2025 guidance introduced: adjusted EPS $4.65–$4.80, GAAP EPS $4.37–$4.52; sales flat to up 2%; Q1 2025 adjusted EPS $1.00–$1.02, sales down 3–4% as seasonality and 80/20 actions weigh early; ROS targeted ~24.5–25% for FY25 .
  • Tariffs: 10% China tariff on ~$200M embedded; pricing expected to offset, with potential Mexico (25%) included in FY25 EPS range; management prepared to raise price and leverage distribution to pass through costs .
  • Capital allocation: dividend increased ~9% to $0.25, 49th consecutive annual increase; $150M FY24 buybacks, $450M authorization remaining, leverage reduced (net debt/EBITDA ~1.5x) supporting optionality .

What Went Well and What Went Wrong

What Went Well

  • Record profitability and margin expansion: “record Q4 adjusted operating income and ROS, marking the 11th consecutive quarter of year-over-year ROS expansion” .
  • Pool strength: Q4 Pool sales +5%; demand exceeded expectations aided by Florida hurricanes; Pool ROS reached 33.8% (+250 bps) .
  • Transformation and 80/20 delivered: >$100M productivity savings in 2024 and ~$80M targeted for 2025; management raised medium-term ROS target to 26% by 2026 .
  • Cash generation and de-leveraging: FY24 free cash flow $693M, cash flow margin 17%, net leverage ~1.5x, ROIC 15.5% .

What Went Wrong

  • Topline headwinds: Q4 sales down 1% YoY to $972.9M; Flow and Water Solutions declined on residential rate pressure and delayed industrial capex; FX headwinds present .
  • Water Solutions commercial ICE: China-related coffee rollout created tough comparison; commercial ICE down mid-single digits in 2024 after two +20% years .
  • Q1 2025 caution: sales expected down 3–4% YoY; Water Solutions high single-digit decline and Flow mid-single-digit decline; 80/20 actions initially a sales headwind before profitability benefits .

Financial Results

Consolidated Quarterly Comparison

MetricQ4 2023Q3 2024Q4 2024
Net Sales ($USD Millions)$984.6 $993.4 $972.9
Operating Income ($USD Millions)$167.0 $179.9 $195.1
ROS (%)17.0% 18.1% 20.1%
Adjusted Operating Income ($USD Millions)$197.8 $239.2 $231.3
Adjusted ROS (%)20.1% 24.1% 23.8%
Diluted EPS (GAAP, $)$1.25 $0.84 $0.99
Adjusted EPS ($)$0.87 $1.09 $1.08

Segment Breakdown (Quarterly)

SegmentQ4 2023 Net Sales ($MM)Q3 2024 Net Sales ($MM)Q4 2024 Net Sales ($MM)Q4 2023 Segment Income ($MM)Q3 2024 Segment Income ($MM)Q4 2024 Segment Income ($MM)Q4 2023 ROSQ3 2024 ROSQ4 2024 ROS
Flow$378.5 $372.2 $360.7 $65.0 $82.8 $73.6 17.2% 22.2% 20.4%
Water Solutions$269.6 $289.5 $257.9 $51.6 $64.4 $62.2 19.1% 22.2% 24.1%
Pool$336.2 $331.4 $353.7 $105.1 $112.7 $119.4 31.3% 34.0% 33.8%

Selected KPIs

KPIQ4 2023Q4 2024
Gross Margin %37.2% 38.8%
SG&A as % of Sales17.8% 16.5%
R&D as % of Sales2.4% 2.2%
Net Interest Expense ($MM)$26.6 $15.2
Effective Tax Rate(55.3)% 9.8%
Dividend per Share (Quarter)$0.22 $0.23
Shares Repurchased (Q4)—0.4M for $50M

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Adjusted EPS ($)FY 2025N/A$4.65 – $4.80 New
GAAP EPS ($)FY 2025N/A$4.37 – $4.52 New
Sales GrowthFY 2025N/AFlat to +2% reported New
Adjusted Operating Income GrowthFY 2025N/A+6% to +9% New
ROS (Adjusted)FY 2025N/A~24.5%–25% New
Corporate Expense ($MM)FY 2025N/A~85 New
Net Interest Expense ($MM)FY 2025N/A~80 (weighted avg rate slightly >5%) New
Adjusted Tax RateFY 2025N/A~17% New
Share Count (MM)FY 2025N/A~166.5 New
Adjusted EPS ($)Q1 2025N/A$1.00 – $1.02 New
GAAP EPS ($)Q1 2025N/A$0.93 – $0.95 New
Sales GrowthQ1 2025N/ADown ~3%–4% New
Segment SalesFY 2025N/AFlow up slightly; Water Solutions down low-single to flat; Pool +4%–5% incl. ~2% from Dec acquisition New
Price ContributionFY 2025N/A~1.5%–2% (incl. ~$20M from China tariff) New
FXFY 2025N/A~1 pt headwind New
Free Cash Flow TargetFY 2025N/A~100% of net income New
Dividend per Share2025$0.23/qtr (2024) $0.25/qtr (Feb 7 payment for Q1 2025; ongoing) Raised

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 2024)Previous Mentions (Q3 2024)Current Period (Q4 2024)Trend
Transformation savingsRaised FY24 savings to ~$100M; sourcing/operations driving margins Delivered record ROS; on track; $100M FY24; path to 26% ROS by 2026 >$100M realized FY24; ~$80M targeted FY25; medium-term ROS target raised to 26% Strengthening
80/20 programTraining ~1,000; early actions; Quad 4 ~4% of revenue but 15–25% of cost Early progress; margin-focused in Flow/Water Solutions; Quad 4 exits underway Quad 4 exits continue; ~1 pt sales headwind in FY25; productivity captured under Transformation Execution maturing
Pool demand & early buyQ2 Pool +17% YoY; sell-in vs sell-through normalized; industry down mid-single digit Q3 Pool +7%; hurricanes boost demand; early buy normal; price 2.5–3% FY Q4 Pool +5%; 2025 Pool +4–5% (2% from acquisition); inventories normal; new/remodel low-single-digit growth Gradual improvement
Water Solutions commercial/ICEPFAS product launch; commercial filtration strong; ICE tough comps Commercial ICE challenged vs prior China rollout; North America filtration strong ICE down mid-single digits FY24; return to normal growth by Q2 onward; PFAS momentum continues Normalizing
Industrial capex delaysSelective project exits; delays in Flow Delays pushed several quarters Expect some projects to begin in 2025; still cautious Stabilizing later
Pricing vs inflationPrice ~2%; inflation ~2–3% cost; aiming price≈inflation Moderating inflation; freight uptick; price offsets tariffs ~1.5–2% price; $20M tariff-related price; ability to offset tariff costs via price Managing
Tariffs (China/Mexico)Not a focus in Q2Bridge clarified; China inflation offset by price; Mexico not embedded yet FY25 EPS captures 10% China tariff; Mexico risk captured; pricing lever intact Embedded/monitored
Capital allocationDeleveraging; resumed buybacks; optionality Leverage down to ~1.4x; $50M quarterly buybacks FY24 buybacks $150M; $450M remaining; dividend +9% Positive

Management Commentary

  • “We posted record Q4 adjusted operating income and ROS, marking the 11th consecutive quarter of year-over-year ROS expansion” (John Stauch) .
  • “We are now increasing our 2026 ROS target to 26%” (John Stauch) .
  • “We expect Transformation and 80/20 to drive approximately $80 million of productivity savings [in 2025]” (Bob Fishman) .
  • “At this time, our 2025 adjusted EPS guidance range includes…a 10% tariff on roughly $200 million of product sourced from China…[and] we would offset the tariff costs with price” (Bob Fishman/John Stauch) .
  • “Demand increased more than expected, partially driven by the impact on the Florida hurricanes” (Bob Fishman, Pool) .

Q&A Highlights

  • Tariffs and pricing: Management embedding a 10% China tariff on ~$200M, prepared to offset with price; Mexico (25%) impact contemplated within EPS range; pricing notices compressed to 30 days with sufficient inventory to bridge timing .
  • Seasonality and Q1 softness: Q1 to be lowest quarter for sales, margin, EPS; minimal tariff impact in Q1 with majority in Q2–Q4; Q2 expected to improve on easier comps .
  • 80/20 impact: Quad 4 exits expected to be ~1 pt headwind to volume company-wide; benefits flow through Transformation; focus on freeing capacity and serving Quad 1 customers .
  • Segment margin contribution: Pool ~100 bps of FY25 ROS expansion; Flow and Water Solutions share remaining expansion roughly equally .
  • Acquisition details: December buy of Gulfstream heat pumps adds ~$35M FY25 revenue (~2% Pool growth), ~30% ROS, acquired at ~10x EBITDA .

Estimates Context

  • Wall Street consensus (S&P Global) estimates were unavailable at this time due to access limits. As a result, comparisons to consensus for Q4 revenue/EPS and FY25 guidance cannot be provided. We will update when S&P Global data access is restored.

Key Takeaways for Investors

  • Margin-led story intact: Transformation and 80/20 underpin sustained ROS expansion toward ~24.5–25% in FY25 and 26% by 2026, even on flattish sales; profitability quality improving across all segments .
  • Pool as near-term growth lever: Aftermarket strength and Gulfstream acquisition drive 4–5% FY25 growth; inventories normalized; weather events provide incremental demand tailwinds .
  • Tariff risk manageable: China tariff already embedded and offset via price; potential Mexico tariffs contemplated; distribution mix (~75%) aids pass-through dynamics .
  • Residential/industrial headwinds: Rate-sensitive residential demand and delayed industrial projects continue to pressure Flow and Water Solutions in early 2025; watch rates and capex cycle signals for upside .
  • Cash and capital discipline: Strong FCF (~100% of net income targeted), lower interest expense, and reduced leverage give flexibility for bolt-ons, buybacks, and dividend increases (49th consecutive) .
  • 2025 setup: Expect a soft Q1 and improving trajectory from Q2 onward; price (~1.5–2%) plus $80M productivity a clear bridge to EPS growth and ROS expansion .
  • Watchlist catalysts: Rate cuts, PFAS filtration adoption, industrial project releases, and execution of 80/20 actions could lift volumes and magnify margin flow-through .