Pentair plc — Q1 2022 Form 10-Q
Business context and period: Unaudited results for the three months ended March 31, 2022, compared with Q1 2021. Pentair provides water-related products and solutions through Consumer Solutions and Industrial & Flow Technologies.
Financial performance
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Net sales | $999.6 million | $865.9 million | +15.4% |
| Gross profit / margin | $332.2 million / 33.2% | $315.2 million / 36.4% | Margin down 3.2 points |
| Operating income / margin | $145.8 million / 14.6% | $157.1 million / 18.1% | Income down 7.2% |
| Continuing-operations net income | $118.5 million | $131.1 million | Down 9.6% |
| Net income | $117.6 million | $128.6 million | Down 8.6% |
| Diluted EPS | $0.70 | $0.77 | Down $0.07 |
| Operating cash flow | $(131.5) million | $(18.8) million | Greater cash use |
| Free cash flow | $(149.2) million | $(28.8) million | Greater cash use |
Sales growth comprised 2.3% volume, 10.1% price, 4.3% acquisitions and a 1.3% currency headwind. Inflation and supply-chain-related logistics and labor costs more than offset pricing and productivity benefits, compressing margins.
Segments: Consumer Solutions sales rose 23.0% to $641.2 million; segment income increased 5.7% to $138.5 million, while margin fell 3.5 points to 21.6%. Industrial & Flow Technologies sales rose 4.1% to $358.1 million; segment income increased 4.4% to $52.2 million, with margin up 0.1 point to 14.6%.
Liquidity, debt and capital
- Cash was $102.3 million at March 31, 2022, versus $94.5 million at year-end 2021. Current assets were $1.542 billion and current liabilities $1.014 billion.
- Total debt was $1.091 billion, up from $894.1 million at year-end, primarily reflecting $199.6 million of net revolving-debt borrowings. Revolver availability was $505 million; no borrowings had been made under the acquisition term-loan or bridge facilities.
- Operating cash use reflected a $274.2 million working-capital outflow, principally higher receivables and inventory and lower employee-compensation accruals. Capital expenditures were $17.7 million; dividends paid were $34.7 million.
- The quarterly dividend was $0.21 per share. No shares were repurchased under the public repurchase authorization during the quarter.
Material changes, outlook and risks
- In March, Pentair agreed to acquire Welbilt’s Manitowoc Ice business for $1.6 billion, subject to customary conditions and regulatory approvals, with closing expected in Q2 or Q3 2022. The company arranged a $600 million five-year term-loan facility and retained a $1.0 billion bridge commitment; neither facility was drawn at quarter-end.
- Pentair reported $5.9 million of Russia-exit costs in its segment reconciliation, including inventory and contract/order write-offs, receivable-related charges and contract-asset impairment. It exited business activity and sales in Russia.
- Management expected supply-chain constraints and inflation in materials, logistics, transportation and labor to continue through 2022. Pricing actions and productivity efforts were intended to mitigate cost pressure. Management said seasonal cash usage typically reverses in Q2 and expected significant Q2 cash generation.
- The company continued restructuring and its transformation program, recording $7.4 million of related costs in Q1. Actions were expected to continue during the remainder of 2022 and beyond.
- No specific full-year revenue or earnings guidance is provided in the supplied filing text. Key uncertainties include acquisition closing, funding and integration; higher leverage and debt-service needs; COVID-19 effects; Russia/Ukraine-related conditions and sanctions; supply availability, inflation and customer demand. Management stated existing liquidity and anticipated operating cash flows should meet ordinary-course needs for the next 12 months.
Important facts for investors to verify
- Whether Manitowoc Ice closes on expected terms and timing, and the resulting purchase accounting, integration costs, synergies and debt levels.
- Whether pricing and productivity can offset continued inflation and supply-chain costs without further margin deterioration.
- Whether working capital unwinds and seasonal Q2 cash generation materializes after the substantial Q1 operating cash outflow.
- How Russia-exit impacts, customer demand and any related credit or legal exposures develop.
- Debt-covenant headroom and the company’s ability to maintain its investment-grade objectives after acquisition financing.