Pentair plc — FY2021 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2021; comparisons are primarily with FY2020. Pentair is a water-focused manufacturer reporting in two segments: Consumer Solutions and Industrial & Flow Technologies. Amounts below are in U.S. dollars.
Financial performance
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Net sales | $3,764.8 million | $3,017.8 million | +24.8% |
| Gross profit / margin | $1,319.2 million / 35.0% | $1,057.6 million / 35.0% | Margin unchanged |
| Operating income / margin | $636.9 million / 16.9% | $461.4 million / 15.3% | +38.0%; +1.6 pts |
| Income from continuing operations | $556.0 million | $357.1 million | +55.7% |
| Net income | $553.0 million | $358.6 million | +54.2% |
| Diluted EPS | $3.30 | $2.14 | +54.2% |
| Operating cash flow | $613.6 million | $574.2 million | +$39.4 million |
| Free cash flow from continuing operations | $557.3 million | $512.1 million | +$45.2 million |
| Cash and cash equivalents | $94.5 million | $82.1 million | +$12.4 million |
| Total debt on balance sheet | $894.1 million | $839.6 million | +$54.5 million |
Sales growth reflected volume growth of 16.3%, pricing of 4.6%, acquisitions of 2.6% and currency effects of 1.3%. The effective tax rate declined to 11.3% from 17.4%, primarily reflecting favorable changes in tax items and unrecognized tax benefits; this supported earnings growth. Working-capital changes used $20.8 million of cash, with higher demand and inflation contributing to increased receivables and inventory.
Segments: Consumer Solutions generated $2,341.9 million of sales, up 34.4%, and segment income of $554.4 million, up 32.3%; its segment margin was 23.7% versus 24.0%. Industrial & Flow Technologies generated $1,421.4 million of sales, up 11.6%, and segment income of $213.3 million, up 29.6%; its segment margin rose to 15.0% from 12.9%. Segment income is a company-defined measure that excludes certain items.
Liquidity, capital allocation and debt
- Current assets were $1,304.0 million and current liabilities were $1,051.7 million at year-end; cash was $94.5 million.
- FY2021 investing cash outflow was $390.7 million, including $338.5 million of acquisition payments and $60.2 million of capital expenditures. Financing cash outflow was $222.2 million.
- Pentair paid $133.0 million in dividends and repurchased $150.0 million of shares in 2021. The annual dividend was $0.80 per share. The board approved an increase in the quarterly dividend from $0.20 to $0.21 per share, effective for the February 2022 payment.
- The amended senior credit facility provides a $900 million revolving facility and a $200 million term loan. Availability under the facility was $705 million at year-end. The company reported $88.3 million of fixed-rate notes due within 12 months and stated it intended and was able to refinance them long-term.
- Reported debt of $894.1 million is net of unamortized issuance costs and discounts; contractual debt principal was $902.6 million. The company reported $60 million of cash in countries where repatriation is restricted or may carry significant tax consequences.
Material changes and notable items
- FY2021 sales growth was particularly strong in Consumer Solutions, supported by elevated pool demand and improving water-treatment demand. One pool-business customer represented approximately 20% of consolidated sales, up from 15% in 2020.
- Backlog more than doubled to $1,520.0 million from $747.8 million, driven by strong orders and supply-chain and labor constraints. The filing cautions that backlog is not necessarily an indicator of 2022 sales.
- Completed the acquisitions of Ken’s Beverage for $83.1 million and Pleatco for $254.6 million, net of cash acquired. Total acquisition cash outflow was $338.5 million.
- Gross margin was flat despite pricing, volume leverage and productivity improvements, as raw-material, logistics and labor inflation offset those benefits. SG&A declined as a percentage of sales, helping lift operating margin.
- Restructuring costs were $7.4 million and new transformation-program costs were $11.7 million. Legal settlement and accrual adjustments benefited results by $7.6 million.
- Goodwill and intangible assets totaled $2,932.5 million, about 62% of total assets. No goodwill or intangible impairment was recorded in 2021.
Outlook, management commentary and risks
Management set a long-term target of at least 300 basis points of margin expansion by 2025 through simplification, pricing and sourcing improvements, operational effectiveness, digital capabilities and modernized administrative functions. For 2022, management described priorities including core revenue growth, managing price-cost inflation, protecting cash generation, continuing transformation, maintaining investment-grade credit quality, returning capital to shareholders and pursuing strategic acquisitions. The filing does not provide specific 2022 revenue, earnings or cash-flow guidance.
Management expected inflation in materials, logistics and labor, as well as supply-chain challenges, to continue in 2022. Pricing actions and productivity initiatives are intended to mitigate these pressures, but may not fully offset them. Other principal risks include COVID-19 impacts and uncertain demand, the sustainability of pandemic-related pool demand, supplier and labor constraints, seasonal and weather-driven sales, customer concentration, foreign-exchange movements, competition, debt covenants, cybersecurity and data privacy, environmental obligations, and litigation. Approximately 32% of FY2021 sales were outside the U.S.
Asbestos-related litigation remained outstanding, with approximately 670 claims pending at December 31, 2021, substantially all related to discontinued operations. Environmental reserves were described as not material. The company stated that a material impact from future claims was unlikely, while noting that adverse developments could still result in material charges.
Key facts for investors to verify
- Whether elevated demand and the $1.52 billion backlog convert into shipments and revenue, given supply and labor constraints.
- Whether pricing and productivity can offset continuing input, freight and wage inflation without reducing demand or margins.
- Progress toward the 300-basis-point margin-expansion target and the costs and realized benefits of the transformation program.
- Retention and purchasing trends of the largest pool-business customer, which accounted for approximately 20% of 2021 sales.
- Acquisition integration, debt levels, refinancing of the $88.3 million notes, and continued compliance with credit-facility covenants.
- Developments in asbestos claims, environmental matters, and the $37.3 million gross liability for unrecognized tax benefits.