Pentair plc — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; unaudited. Pentair provides water solutions through Consumer Solutions and Industrial & Flow Technologies.
Key financial results
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Net sales | $865.9 million | $710.0 million | +22.0% |
| Gross profit / margin | $315.2 million / 36.4% | $251.6 million / 35.4% | Margin +1.0 point |
| Operating income / margin | $157.1 million / 18.1% | $100.7 million / 14.2% | Income +56.0%; margin +3.9 points |
| Income from continuing operations | $131.1 million | $72.7 million | +80.2% |
| Net income | $128.6 million | $72.7 million | Includes $2.5 million discontinued-operations loss |
| Diluted EPS | $0.77 | $0.43 | Continuing-operations EPS: $0.78 vs. $0.43 |
| Effective tax rate | 13.5% | 21.5% | Down 8.0 points |
Sales growth reflected 17.5% higher volume, 1.0% price, 0.9% acquisitions and 2.6% favorable currency. SG&A was $136.6 million (15.8% of sales), versus $131.9 million (18.6%); R&D was $21.5 million versus $19.0 million.
Segments and business trends
- Consumer Solutions: Sales rose 34.1% to $521.4 million; segment income increased 54.5% to $131.0 million, with margin improving to 25.1% from 21.8%. Growth was led by pool and residential water-treatment demand; European commercial filtration remained weak.
- Industrial & Flow Technologies: Sales increased 7.2% to $344.1 million; segment income grew 11.9% to $50.0 million, with margin up to 14.5% from 13.9%. Residential flow demand improved, while industrial filtration and food-and-beverage project sales were held back by deferred customer capital spending.
Consolidated margin gains reflected volume, productivity and selective pricing, partly offset by raw-material inflation and higher transportation and labor costs. A $2.4 million legal-accrual reduction benefited Q1 results; restructuring costs were $1.1 million versus $2.7 million a year earlier.
Cash flow, liquidity and debt
- Operating cash flow from continuing operations was negative $18.8 million, improved from negative $162.4 million. The company attributed Q1 cash use largely to seasonal working-capital needs, including higher receivables tied to pool demand and distributor early-buy programs.
- Capital expenditures were $13.2 million; free cash flow was negative $28.8 million, versus negative $181.0 million in Q1 2020.
- Cash was $95.0 million at March 31, 2021. Current assets were $1,208.5 million and current liabilities $823.9 million.
- Total debt was $932.4 million on the balance sheet, up from $839.6 million at December 31, 2020; Q1 net borrowings of commercial paper and revolving debt were $92.4 million. No commercial paper was outstanding.
- Availability under the $900 million Senior Credit Facility was $771.5 million. The company reported compliance with debt covenants. It had $103.8 million of fixed-rate notes due within 12 months, classified as long-term based on its stated intent and ability to refinance.
- Financing cash flow was positive $34.6 million, including $33.3 million of dividends and $9.6 million of share repurchases; it also included a $14.7 million payment when a cross-currency swap matured.
Outlook, risks and notable items
Management expected Q2 2021 to generate significant cash as seasonal demand peaks, and said existing liquidity and anticipated operating cash flows should cover ordinary-course needs for the next 12 months. No numerical full-year revenue or earnings guidance is provided in the filing.
Management cited persistent uncertainty from COVID-19, including supply-chain disruption, customer demand, and effects on manufacturing and distribution. Strong pool and residential demand supported results, while commercial and industrial markets remained uneven. Raw-material, logistics and labor inflation were expected to continue into Q2 and possibly beyond; pricing and productivity actions were intended to offset these pressures. Restructuring and transformation initiatives were expected to continue during 2021 and beyond to support margin growth.
On April 19, 2021, after quarter-end, Pentair agreed to acquire Ken’s Beverage, Inc. assets for approximately $80 million in cash, subject to customary adjustments and closing conditions; completion was anticipated in Q2. The filing also discusses ordinary-course litigation, product liability and environmental matters, and $99.0 million of outstanding bonds, letters of credit and bank guarantees. Recorded environmental reserves were not material. The company said no material changes occurred in its previously disclosed risk factors.
Important facts for investors to verify
- Whether strong pool and residential demand persists and commercial/industrial demand recovers, particularly given COVID-19 uncertainty.
- Whether pricing and productivity can offset continuing materials, freight and labor inflation without weakening demand or margins.
- How seasonal working-capital requirements convert to cash in Q2 and whether the company achieves its stated cash-generation expectations.
- Debt refinancing plans for the $103.8 million of notes due in 2021, covenant headroom and continued access to committed credit facilities.
- Ken’s Beverage transaction terms, closing, integration and any effects on cash, debt or results.
- Potential changes in litigation, product-liability or guarantee exposures; the filing does not quantify the maximum amount of certain indemnification obligations.