PNR - Earnings call transcript Q3 2018

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Operator

Ladies and gentlemen, thank you for standing by and welcome to the Pentair Third Quarter 2018 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Mr. Lucas, please go ahead.

Jim Lucas

to quarter welcome call. earnings and Crystal Pentair’s XXXX third conference Thanks,

press Treasurer. today are us and President Senior and join you Chief of with I Relations We Mark could Lucas, Executive full call, in our performance our as today. as today’s Officer glad Borin, provide year outlook our on John is outlined we release. and as XXXX Chief morning’s Stauch, Financial Officer. am our and Jim details this Investor well And fourth will President On third XXXX quarter me Vice quarter

most let you uncertainties XX-Q, company’s and statements today’s and Before me we Form about are to made subject any such the as begin, XX-K financial forward-looking recent results release. remind Pentair’s press that the risks statements risks future anticipated in outlined

materially included or Investor statements obligation no reflect update Forward-looking today of Relations are Actual a in webcast as Pentair’s presentation, circumstances. section company can results anticipated subsequent herein and be statements the website. which undertakes the differ found is accompanied publicly from to events results. by such of Today’s to made could

presentation. reconciled will Any references are prepared reference our appendix in remarks. the these of financials non-GAAP We to slides the throughout

ask follow-up We a our in will and to order you questions. that over to ensure would will their for like to request I the and answers call time to prepared an questions be sure reserve after to I now questions to John. opportunity remarks. limit one turn everyone your

John Stauch

#X everyone. turn Slide Executive and titled Summary. morning Jim good Please you, Thank to

than key sales growth the Aquatic marked XX% and XX% year-to-date. in line core sales with $XXX results over generated to as growth quarter all by X% of of three with the to EPS contributed in top cash our flow We All we performance metrics our quarter. delivering million third on are the a line Systems adjusted better or segments forecast free quarter in able deliver our and growth, core were $XXX million strong pleased

sheet to the quarter and and shares quarters. also first our We cash balance three XXX million of to buyback strong flow XXX the have million purchased used in

year, X% point and still full basis of X% raised approximately sales we a be expecting to the we points growth our to full to ROS by are expectation For expansion core XX XX%.

across our by the quarter. also quarter as the third reflects guidance well are that continued from We the the the benefit markets as driven would approximately quarter outlook raised which I as details raising expectations second execution Mark of the end well small continued adjusted now like third our to key $X.XX, on marks an quarter healthy update consecutive part growth strategic our be to performance we provide in EPS over year repurchases as share our update you discuss initiatives. on turn before the to and in portfolio. our full This results I XXXX have call to

Mark Borin

Slide you, X QX Please Pentair to turn performance. Thank John. ‘XX labeled

quarter contributed grew particular in strength As Systems. core X%. All mentioned, sales Aquatic this segments John three with

XX of quarter. ROS offset to increases to performance Segment took segments the all while provide income late inflation on will We three in effect increased price implemented basis line color in X%, contracted as expectations more the shortly. with XX.X% points

$X.XX We prior will $X.XX to expand when share, guidance. grew on Adjusted per our the XX% ahead individual EPS of margin discussing was the performance segments. which

$XXX in X second have million during came the XX% in flow was additional we generated in line million share we the the Slide We segments. and remained repurchased to at count in performance turn XXX lays shares million flow $XXX of Please segment patterns. Systems strongest our is year-to-date, at third quarter. out Aquatic of ‘XX labeled strong we benefiting three a quarter This XXX in seasonal cash Pentair year sales million repurchased quarter, our rate the delivered of QX mix gains. core the demand during growth tax points. normal Free expansion slide performance free XX% in shares from strong performance. XX% with quarter, cash an which quarter in with dealer saw favorable and the and and million and in income adjusted continued the Our growth the basis part XX of XXX.X ROS

In important quarter, increase continuing outlook the long-term Aquatic Filtration very franchise with our Solutions and to our sales price core favorable believe in the outlook while to implemented September, this growth investments our for growth Systems segment. believe continue addition, of annual remains increase we business. increasing returned in We we the to in in X%.

performance Technologies North The growth and of see cycle and mitigate solid to X help further to not irrigation and Flow basis growth would We the implemented of XX flow to in implemented of due benefits stabilizing significantly tends strength X% year. after be other we it’s quarter. is points our the realization. Technologies timing its to turn Solutions September and American third core and Please the XX.X%. important and reported to the than we remains its our saw basis lumpier price sheet July, our of to price beverage quarter contracted debt industrial flow. but and and see strength residential the businesses, particular income and just the Segment cash therefore performance expect and due of as favorite flow. performance continues and free reduced of a signs do continue We business our strong showed markets. of pockets and half our XXX tariffs pump important, This but during stabilization, We to our saw consecutive business decreased fourth in inflation pressures full core large residential the was we but levels XX%. sales corresponding as remind increased part in Segment labeled have American to bit X% increases North inflationary Flow be in in showed increase smallest food our strongest our sales income ROS margin this niche to until in declines. ROS commercial business one in cash Filtration similarly We down of of was everyone year. longer as impacted that segment signs was our businesses contracted to price Slide points the balance slides part first

As quarter, is not we out at a since last XXXX. our now debt seen level pointed

invest are tuck-in the shareholders. return Given strength our acquisition and to well-positioned in business, look at continue to to bolt-on of we believe targets strategically we aligned cash the sheet, or balance attractive

years. three We back shares grow ‘XX everyone have all Please X% QX year-to-date million sales with remind outlook. X labeled have for anticipate XXX Slide turn that we to dividend X% to bought in fourth We to core would and segments our Pentair XX raised quarter contributing. consecutive we

up Flow to expected be to tax Below We roughly Systems grow rate to Technologies to expect is income is Segment adjusted be approximately Solutions to to Aquatic and XX%, line, Filtration expense up expect interest XX%, around we and $X the to to the X% be ROS points. be million anticipated X% basis other net expand XX approximately while X%. of XX% and up labeled X% share, our we growth. This XXXX. at February of XXXX we to Day Slide an as introduced homestretch wanted first slide our the X outlook. in provide Pentair is enter update and Investor $X.XX to one fourth million. be expected consecutive which to turn quarter adjusted around be Please the double-digit XXX share Adjusted is would EPS to count EPS per be approximately we X%,

higher our half our Given for increases in year performance, outlook prior quarter of the addition the labeled with expect Please our sales in in in year. initial is implemented our outlook. our net the expectations second than have earnings expectations and price changed. year second to number the call have Pentair and forecast September. we with discussed businesses our turn materially for continue slightly strong we changed The to line in not full outlook that drive we result July, is price our year-to-date essentially will implemented. inflation expected to XX XXXX to implementation All is Slide Consistent three income overall has productivity full increases segment full not year price

raised year, growth now our point to to core X% expect increase X%. the have sales and forecast core we by a sales For full

million. adjusted $XX expect to We X%, the is shares represent would income expect Aquatic Below up adjusted X% grow line, to the around Solutions X%, roughly around which is of tax and year be be to to other we to Segment around expense the net full around Systems end increase and expected basis to Flow points. an to be interest XXX Technologies and core million be XX%, Filtration roughly XX%, sales up XX while rate roughly ROS year X%. to to XX%, be increase expected X% to

For to net I the around share back cash of to approximate now $X.XX XXX% would and we adjusted full to John. free year, continue to to be like flow target the income. call EPS adjusted we turn expect per

John Stauch

Slide Mark. strategy you, to Please turn Thank Pentair’s titled #XX summary.

share consistently to are treatment and and investing remind where be commercial in the the with residential this used We of water leading our to everyone in have page earnings company our we and presentations strategy you growth. areas

level. at accelerating of the treatment, strategy the Our commercial areas and investment and in pool requires on and residential growth advancing water focused enterprise remain which business

maintaining capital attractive our to yield. most grade disciplined and approach remains businesses, to investment rating, we reinvesting paying our core remain committed and Our competitive dividend in allocation

the balanced ability Slide and intelligent them being informed to and valuations our look available as turn M&A quality successfully. between by well focused Please labeled We our at a as XX overall of assets also decisions M&A with approach to strategies. buybacks integrate

in our our is drive prioritize regarding focused like important attractive what you give water believe the strategies. space. I would this progress we our we differentiated two a growth us on quick best update quality most opportunity growth As allows to to very we believe a priorities,

connected advancing one is and pools opportunities our and growth, automation of first biggest products. The strategy pool around

two continue systems. introductions, product have We new of our to and technologies inclusive automation launched smart increase new

will entry-level advanced launched have our only continued pool in-ground platform provides IntelliConnect few to some of we automation form that and highest automation IntelliConnect our the and X have Our continue a automation for of invest. next an products XX% pools connects system pool this the growth of represents installed and million a Less system that today believe level we consumers more where end is of our we dealers. generation existing than runway also of

is key growth initiative accelerating residential water treatment. commercial Our and second

to important, better We surveys and network. conducted consumers to strength brand engaging through dealer drive marketing market, build consumer our but equally demand have through understand several the are digital we

chain connected branded smart in introducing solutions. supplier up of are early to moving from the products the We being value innings leading and component a

where core this in our We has In market. Asia large the to the as toward opportunities China is to Southeast see assuming to we we Conference We of sales current in upper have everyone this price and at the long-term made lot several better. a remind investments that this This year. May EPG #XX. to slide publicly inflationary if the trending in get would goals. Please been and not end we wanted introduced not surprised turn the of slightly of be environment continues, growth easier see range of Slide

when currently quarter expecting end we XXXX our but impact with the fourth January, to to of turn to and please goals guidance generally line Thank you. the coupled at like are everyone not I earnings would open for more the questions. our Q&A offset closing we details the Crystal wanted pricing provide have on will after We productivity the we comments. inflation environment, to have long-term that Crystal, remind changed. to over which for now call release will I

Operator

with Your is Dray Instructions] Deane question first [Operator Markets. you. RBC from Thank Capital

Deane Dray

Thank you. morning, Good everyone.

John Stauch

Deane. morning, Good

Deane Dray

in last hold on as stuck, to how the came at it quarter? few it and the increases Hey, you with controversial some Could you much pool that off implementing price one the you and start and time much was get, pool that one power give off certainly price on underlying what were the you growth what quarter for that how color to and through. was this of think it congratulations pricing but segment, of did process companies was,

John Stauch

to we Sure, the strong for went in discussed control decisions line ability the had and Deane with price comments a in, expectations pool the and Pricing agree their as and was that business have before. mid-September. result. pricing thanks The in certainly has

the the price full in is walk. So, we we year the of with in for when overall see QX saw QX business of full for full impact and the small of that QX our that you that in in benefit pool and will year but quarter, it’s expectation part our the see expectations line on

price, the that QX. from points from split I think X then in growth volume of that about price In in terms coming point grows, of their maybe growth, and rather core of coming to than most QX X and growth price growth between double only as

Deane Dray

Got it. you And This us the could similar speed to the product. introduced. clarify be to to potential one outlook variable seems be pump revolutionary then for of just these this – the you IntelliConnect to that have products

what's growth for your IntelliConnect, do in pools system? implement have to today in expectation order this and you to So retrofit

John Stauch

some is proper than dealers pumps to answer other X pools is their The more we and obviously of themselves to or and the to yes, you as works giving you're basically no. provides water WiFi last monitor automation capability that of for of the XX% today pools opportunities, system, the and automation effectively, the installed speed products And it for for less about people. pools, – do that and to for is Deane. on Internet variable But the is manage salt interact that pool believe talking the chemistry. run automation million then mentioned, with intelligent capability type the question remotely mean, I one lighting, to consumer one – composites two off system them an pool connects pool

interface revolutionary we not will is well, graphic work And as it we and with and for a it an meaning with our software has only also creates really one open it easier also that its So, over-the-air see this but Pentair architecture as think one products is products, competitors’ work a user updates better product will sure, capability. revolutionary. which

Deane Dray

Good to hear. Thank you.

John Stauch

Deane. you, Thank

Operator

comes Giordano question from Joe Cowen. Your with next

Joe Giordano

morning. good guys, Hey,

John Stauch

morning Good

Mark Borin

Good morning.

Joe Giordano

think So, at enough with price the do the enough large with like look of how you if forward thinking are you or you that expectations see they increases, do businesses, to do quarters? over you playing out are non-pool feel your inflation, we your other forward few were how kind for deal next you

John Stauch

the we for expected businesses. realization do we pull-in in with it's similar response Yes, expectations The QX. the price half Yes. other a little September see and had of – – back that of the the in, is increase, anticipated. in we and again reading bit as so of ahead in price consistent had kicked two We which out QX

consistent as but expectation price a overall, price So run million. rate little And our that remains expectations. the reduces bit into on so the with full-year of views or on a about for $XX remain inflation inflation, the our it's basis, you can unchanged offset full-year, well, see on expectation which was put mitigate

Joe Giordano

have wise any little And make a you relates bit going you then to discussions that need consider have you strategy? to and at deploy your there, China geopolitically it your that to trade – on you strategy, least changed and to there is how what's as – do alterations

John Stauch

rate is mean, in are X,XXX These overall way I that going Starbucks a enormous stores there market Luckin filtration X,XXX from revenue and advanced about I China the are rates. We competitor question. because X,XXX pace, of our our coffee committed primarily we in, Southeast evolving, great to strategy $XXX that China year. year, chain growth this put and new businesses. doing some called most a of they stream the they're million in next is stores in the still do a It's to mean, Asia

two and Internet way delivery windows also and Internet we’re to people looking with off the that three-hour of product. We the working the context have – buy the to at the there

lot we’re into to of participate ultimately principles think an and because growing in, I it's and North tools well. establishing that back the to that we're think as themselves and and to America are I learning work going continue area going a So, into Europe

Joe Giordano

seen far to see? days that's And direction examples you forward post-split, then what about maybe like changes bit than can taking you – just last biggest of for you'd of internally in me, over couple early a some you've talk something you it's so the still longer maybe the can maybe are and but John, move

John Stauch

to best but consistency and we’re evidenced impatient, with the so to by most reacting the in. back getting about it announcement through late managing again. and a tariff those discussions the and we're But could very am way takes a the level and everything we product leaning very we're result I impact what is a dealing great about of of proud Yes, line Obviously, in at teams longer, as I'm the expectations predictability. excited having winning quarter

some major that's win. lines you XX and way have We where the product

good utilize eyes achieve. to I the going to we that business discussions that’s customers' differentiate that’s core to about and innovation get and having time, going to know are can product longer customer the how model really and You your that but ultimately we're organic innovation differentiate in against back and to experience competition technology we take how the growth

Joe Giordano

guys. Thanks

Operator

next the comes Your line question of Steve with JPMorgan. Tusa from

Steve Tusa

Hey, guys. morning. Good

John Stauch

morning, Steve. Good

Mark Borin

Steve. morning, Good

Steve Tusa

running guys which on think about whatever and GAAP net right? whether slightly year or year-to-date relatively free am adjusted know just income quarter usually of it’s I ahead anything seasonality strong, you I this normal use cash not Just are is don’t flow, think or getting I the I income, different you or fourth net

John Stauch

update seasonality XXX% work through Steve. income, mean, adjusted net right, are and of cash we adjusted targeting still it, we time. got to the at obviously to nothing I is You and there this net income be patterns flow normal will really

Steve Tusa

stands front? on the performance cash the unusual sustainable out, anything that And third quarter in the about that’s not

John Stauch

No.

Mark Borin

and in was anything the expectations as quarter in unusual we with fourth don’t quarter see necessarily line Third well.

Steve Tusa

I tariffs, update thinking – of And us maybe structure? us us China just but anybody noticed how your or are you you kind think guys it about thinking kind is marked don’t it give remind an know update about asked into just how you some I that? so yet, an XXXX? up, on on of it anything getting about Okay. if sourcing from are color give

Mark Borin

Steve. our I previous just expectations. in Sure, as the And is inflation mentioned and story before general is with overall tariffs the consistency on

announced as about have expectation So, at all tariffs the balance we includes remains inflation the the implemented. look that of been $XX that million, at year, our and

and includes about that different X, the sections X it up. make the in lists talk sort So, of people X that

we there. chain what make supply we change going pricing that’s to longer our so for as overall opportunities to are reflected about certainly we tariffs And certainly those expectations, already the the be expectations really looking to all and impact So continue of able as look and take obviously, our touched in before from no are but on to talked to have changes a little long-term reduce at that. we things evaluate bit

We in we there what is we and structure factory have will chain and Suzhou a so overall our organized. evaluate supply do how

Steve Tusa

mean I headwind Yes. be these just and you an of you kind simplified increase guess by of that coming sourcing of that, with would on knows you overcome cost more through this using China through, a of you specifically, you could expect some you things view what else from in productivity sort see XXXX of X, other come what I whatever or to what assuming that sticking do? then there X, in and there are today do then only X, X year X, are hit just as some part is getting who of list,

John Stauch

Yes.

likely we reflects XX Steve assume the When currently get we to into the is couple the of China given a these put happened. see at we forward that of out pricing direct inflationary everything are XXXX continue all inflation that sourcing. That just September for pressures including we XXXX points So, on would – we to from heading another fact least come that to lists see scenario XXXX. probably likely that of going of reiterate,

can back with now is think So about, comes we know, we right there what go else with things have only if Steve anything got like we we right I increases. feel that contained well deal incremental and reserve to the we price and

Steve Tusa

China? talked you – of indirect question, What last either cost that that one is direct bucket about sorry or Okay. coming what from

John Stauch

mean, you do What Steve?

Steve Tusa

stuff from maybe math is we the are of sourcing just total there, you What the do so can cost the over ourselves?

Mark Borin

Think of both direct indirect. and it $XXX as roughly million

Steve Tusa

I lot. what Alright, looking Great. Great for. That’s a thanks exactly am color.

John Stauch

you. Thank

Operator

next Graham Your comes Scott Markets. with BMO Capital question from

Scott Graham

I the bit little if look guess want number Yes, expectations, $XX the hi, million third indicated a know seem lists, loaded we not that to X and second piggyback I but inflation quarter, because it’s question were million be recent your in with I is the you morning. good quarter on the just report to most Steve’s fully guys still waterfall, a your in earnings XX yet the most lists recent and does post with line inflation. the here,

with price over million pricing, So, need is be contemplated, could more you the your going and number in have could say give us two go $XXX there an other in idea pool segments increases be what let’s to to year? out next

Mark Borin

had we if know know John and the so the guidance but and we the said, necessary, adjust on have that visibility back we is which you the and As This was we price the provided unchanged go John that and there prior stands to there. what go is new what implemented previously. put even to that we nothing own as referring last be out announced haven’t out we our list information are approximately ability they all and and hadn’t from And to implemented there some our effective that million frankly quarter’s its the enough forecast to for as guidance, for that changed been tariffs to referenced that’s we though I is there been reflects of and the – reserve right that. and mean, we more have remains able forth before, don’t $XX back don’t year expectations have

John Stauch

continue. I said expectations in mean reflected increases XXXX our put I inflation would we not that add, only Just to price have as for that inflation, Scott, but

we are we that have hopeful enough we not accordingly. there, so if adjust in will got And

Scott Graham

that, your answers the this maybe have quick And of been inflation, wondering independent know as just am your to far I offset price that sort do great. has given is so a model to productivity then an the price plus of the we next we productivity contemplated I excluding will to just price follow-up Okay, in get increases you fewer they the that inflation. affirmatively you neutral price thinking have more cost year, above cost? which to on answered half where the have Can first are

John Stauch

don’t mind Scott. seeking we think on productivity of And we the also our think in it, sourcing. teams are and I so, are sourcing keep I prices, counting need majority but active day alternative every single

even contributions, now. we think offsetting we right So going have I and numbers see year this that’s the we going productivity need in but productivity to favorable are in within are environment to the think the just inflation you that are growth that, column Scott, also need I we and

Scott Graham

don’t the have the And which and that very you the that you surveys Got quarter? more, if squeeze your market over the dealer one comments, I really was us understanding of a for can before, the more answer. could maybe able to about about you if mind and excited John things you whole monetize examples, are that team I you actually win thing. consumers are engaging you interested couple the was I it. if last network give wondering just discussed just thank in I was how in

John Stauch

Yes.

of go first we X – really across the think segments. I all,

the and that, they it’s to is consumer we And dealer and as learning that what with consumer. consumer pool actual great educated more and think talking a the really I are the dealer And create has more I about is the dealer, working becoming other to the why products mentioned more become think the the you more table. and to retrofits you you are in bring that you we or pool able about are of excited because content, put more to very educated can your as all your pool intimacy.

would I as clearly are is influence that’s global the it’s important learning in are we is content and a more of learning more helping national what to that aftermarket that we expect, and through or that a to result In consumer issue the infiltration, you stay. do it’s think local. not getting So,

your and New obviously shared and city not you, is this have water. problem a you live, varies Your where quality City water York with for I

other that we right move particular are specific brands good region to starting products channel think more available there. to to issues, large have each getting isn’t the dealer do that the work start on I solve products. want and are doing to flow, well. nationally. a you China we’re major to need to channels to those ready-now all buy And I to experience North we’ve excited have challenges mentioned, distributor, the the end learned us that center. And China products the covers in well we that we customers want with there those across They people want way very think you that of Internet. to American Southeast into those work that get have around as to about regions, those consumer, that an have realize in work As brand do and through connecting distribution we’ll I things your challenges the large They allows have various to so our a continue dealer and we growth what in since to to we a and then make Asia, we very to as market And and from respected

Scott. So, thanks for asking,

Scott Graham

it. for Thanks a that Appreciate answer. lot

Operator

comes question Mike line Halloran from Baird. next the of Your with

Mike Halloran

Hey, good guys. morning,

John Stauch

Good morning.

Mike Halloran

next the why fourth beverage into quarter the into stabilization food how just some in dig a seeing granularly we more Maybe you're and is market, bit you’re year? starting thinking there. you're on So, to move what little and stabilization about the occurring, the see side, that as

Mark Borin

sure. Yes,

for it’s of quite overall has where drive As shrinking our going and something we’ve smaller experienced before it's that talked a been that’s gotten it's that as not point portfolio while, the to to and business challenges has a really frankly, a performance. portion

the sort like more it's the the a about residential, it’s picture overall have to of hit signs continue – frankly it's – that of our on And business. so bottom small we’re seeing hope and And to some it's life importantly commercial just not and side on feel piece we’re focused of something talking order of because and rates. decent

John Stauch

And the and have beverage value and the market, are systems Mike the just other food processing. longer products and people's we forward. really in no growing you very but them with around we go we’re high overall and a to assembling remind to membrane the helpful just growing market is the is and What products building have doing skids that are we

a feel and where put product think really and as we for So the be better that’s we and what It’s revenue better predictability process that's into decline. drove that have future our assemble we streams. and we other combine, consistency confident And margins also should the that us long-term. people really

was in this was all it effort it all we that year. So, conscious and an put

Mike Halloran

how consistent? M&A dividends but backup, Makes you are know deployment sense. been few through thinking on capital that's thinking aggressively forward funnel quarters, are about the basis, buybacks core obviously part, side, balancing takes then I on about are the thinking a are pretty a funnel last what balance obviously, And the about build M&A been two you buybacks, running to the time pretty but that it verse is and you how

John Stauch

consistent get I to on making our goal we that. back and progress I'm that pleased Yes, think are first predictable results is and

we're to those where as a those not are aligned we'd where to basically and like cores I starting best now and of where think are with Board businesses positioned we're understand tuck-ins that consistency like we're quarters make three team, our bolt-ons. acquisitions, businesses management we've build and only but how got to the starting really our strategically and also

over things really I able robust to get do the – I’m think to year. next done I build funnel some we'll we're really And so, a starting that hopeful and be

Mike Halloran

Great. Thank Appreciate you. it.

John Stauch

you. Thank

Operator

Your Steven with UBS. the next Winoker from comes line question of

Steven Winoker

morning, Good all. Thanks.

John Stauch

Hi, Steve.

Mark Borin

morning. Good

Steven Winoker

around still Hey, be points I holding, thoughts concentration so basis the growth the ROS given additional point about but of and just more on to particularly in not the you think XX Aquatics. expect why up,

you can not bit think there – little just that explain puts in? and a I through takes I more ROS there's talk the why if coming

Mark Borin

mentioned it I earlier. Sure.

our we than slightly year. some sort mean, balance the had we to see we of I price investments less did the ramp previously and move coming pull-in do to increase, the benefiting price September, through beat we the in were year we forecasted. As see through growth so as have we're continuing the of

balance, So, on when we've where maintaining landed guidance things those overall, of think that's on income. you our two at

Steven Winoker

you away were have think from, took the had? to do you that quantify you much otherwise would impact How if that

Mark Borin

was Well, the dollars. to change price investment $X about million of $X million, million probably is million, couple and $X the

Steven Winoker

thoughts X for Okay, on guys great. about also But off mostly factors exceptional quarter these slowing And are thinking as just were just that the comps coming X to growth at you X, here? any other growth rates. to fourth

Mark Borin

ventured No, part is it’s of I it that price the I mean, experienced as increase we QX. in acceleration

was by higher half QX increase into the don't pull-in the expected so to fourth maybe quarter. was continuing that see of we that So driven priced, than driven be and

Steven Winoker

And John…

John Stauch

mean, new see talking QX. You’re X% we – – we are the you see on right about a markets I going from X% now, we slowing. X% commercial this, still point And don’t good. of to residential a you to ask this don’t as really know an remind serve. start isn’t we but phenomenon feel in or we you housing base primarily installed I is that anything. our It businesses, Steve

As in starts actually of shared are a housing as water a rural utilize this new as before our we lot systems they much do urban, matter the fact don’t which of areas. out

is see channel outlooks. aftermarket the a on just consumer so consistency we believe demand there really on and we those pull on far So

Steven Winoker

than the follow-up, more suppose. three this aftermarket, quarters Great. which business John, was usually that leading or great I all that’s within actually growth, roughly to of my pool is

can So, existing new product that introductions new installation you are installed around from the base maybe growth versus just anyway much thoughts mentioned? this the on is coming connected your how breakdown chance and you

John Stauch

that mean, this Yes. is seen we thumb general of for rule – I business. have

up year, versus so If to you of just be digits. you very single those take would ups last it’s I are not demographics permits. housing really think out XXX,XXX the around think work And housing out, which it’s starts starts talking think somewhere point what million which or about that’s if new pool you XX% much, and way generally XX% generally the it’s XXX,XXX about pools, about X.X

fairly in pump. get I variable larger lighting their them ways, [indiscernible]. So, taking people channel actually LED speed dealers through giving then That’s the monitoring the they comments manage remote a and capability efficiencies the convince installed content like both we more easier pool our costs on them lot the and/or to iPhone their share is way driving then been in that within to mentioned and a my capability the on and growing base and their And and systems can their that’s continually to more work reduce really what’s as significantly for in energy pool content. growing that also in the and more dealer that the of our pad content so

Steven Winoker

And well you dealers right? said as converting

John Stauch

yes. Absolutely, Correct.

Steven Winoker

or that? percentage numbers any Any around

John Stauch

No.

Steven Winoker

a lot. Thanks Alright.

John Stauch

you, Steve. Thank

Operator

Your line with next question Stifel. the Jones Nathan of from comes

Nathan Jones

everyone. morning Good

John Stauch

Good morning.

Mark Borin

morning. Good

Nathan Jones

quarter. I the would and to third million is about there equation, cost in is the the pickup back the think the first productivity on guys of gains half, color down side whatever the shed you about dropped X that? can of comp projects improvements half had fourth issues, talk driven X like Can productivity in you in the the to things you those have I timing $XX quarter that implication price in productivity of

John Stauch

Yes.

the are growth centers offset first Nathan. place In seeing spending our see all our And productivity, So, the are sure where our in is all Mark as our ramping we marketing, more year, are as starting insights generally I’d bets investments. certainly, on through the we identifying and with innovation year, to the are went that’s you are in consumer putting beginning I per that aligned. we should we of technology what digital really mentioned working start our of the we mean and and making we strategies up

Nathan Jones

Okay.

productivity count investments against growth So your number?

John Stauch

Correct.

Nathan Jones

has we investments? that have stayed excluded Underlying as the number declined, growth same productivity about you the the improved if year, through the gone

John Stauch

primarily mentioned the and opportunities started into then with we inflationary the as tend up to take material ramp year half to to begun here we back side significant work have and head year. time which sourcing and the we pressures the we as on because alternatives of improving It’s those have started

Nathan Jones

of of productivity X would be year, growth you you points longer to every in a point, to equation? think number it bit exclude time little able the out If X revenue, investments terms from if is kind as of we expect a what get percentage

John Stauch

around. on for it’s would question a inflation want mean, in dance that gross drive don’t mean, I I basis seek a we less XXX would margin to productivity I to a we normal environment, points investment with around XX of model. a XXX Obviously, basis would growth XXX times. that’s points to not then we normalized somewhere basis to offset and are look normal to of in expansion in we

I think still we expansion invest. are can thinking margin so we And still and get continued

Nathan Jones

some want of just these then to follow-up numbers. on revenue And

thought rate I you about the pull-forward you of XQ XQ from said think Mark in growth organic half ‘XX? was ‘XX

John Stauch

not true, but that’s – No,

Mark Borin

and clarify that. Half the were quarter, about in to third pull-in so million, of from higher of we start came half that Yes, I’ll about $XX than expected Difficulty] the beat the [Technical by

Nathan Jones

Got sense. makes it. That

Mark Borin

Yes.

Nathan Jones

Okay. Thanks very much.

Mark Borin

Clarifying question. Thank you.

Operator

from comes question Lee the Sachs. next Brian Your Goldman line of with

Brian Lee

the and Aquatics for strength sense guys. just, us how about just how may to give much But you be of taking moment volume mix when I a you. versus of increased here driven to Maybe that’s know in this some broader staying questions. you of share revenue topic products by pool tough for quantify. can Thanks the Hey, on maybe was the based was think new the much specific business,

is sense expansion the market's guys seeing get are growth a how Just for what versus you now? much to right share maybe trying underlying

John Stauch

X% somewhere I to market the think represent as in range growth that we mean, well. and taking are we rest we're broadly experiencing the would X% the others share think

Brian Lee

the range you into the share that accelerate and outcomes target even sort for then be year. start you'd that further? And if new you product Is same vitality next does index, of you to about will, introductions hoping or when of think as look still the

John Stauch

I mean, we is are, growth, pad. double-digit if kind we more the on out content of and that about that we're take we of ads, you new half what think content from you took creating if where going coming call

expanded those half adds growth, and rest a So, gets lighting, types share. what about think that the used automation, chlorinator, be mentioned, then to we expanded gets of a into a to of saltwater and is things, expanded the filter to as pump gets the and pool, I the

Brian Lee

Okay, that’s how versus comping recently. been starting commentary then maybe will specific macro industrial that's Can peers you're your to cautious there more China one it China, weaker as volumes late? The us you I some bit of pop up level pass set a alluded and end-markets I your And from the maybe – guess then on to of of have and exposure some various on. to just helpful. me, last in the

John Stauch

Yes, mentioned, China some in peers. I mean, I big in will as start keep $XXX I of with are we're not the region. Southeast million fact mind, we those that Asia the and as as total

controlling also growing our So, but and two as competitors making in over sure we're comps there also channels we're we're I are of China not anywhere – through our our and some working those think changing definitely size times well own that double-digit, we are get harder. destiny.

the then directly the themselves. As center connect the I company with of with to and directly said, want they deal most Internet to experience consumers want the and

there we're going over like we're excited are I but where doing just a how product and so the products think I have and also excitement what we about about And little new for from, comps innovation and really our starting that very easier teams from new the our introductions. winning and the I

Brian Lee

enough. Okay, guys. Thanks fair

John Stauch

Thank you.

Operator

Jeff the Your next comes from Markets. question Capital line KeyBanc with of Hammond

Jeff Hammond

good Hey, morning, guys.

John Stauch

Jeff. morning, Good

Mark Borin

Good morning.

Jeff Hammond

into lines that the kind you're just divestiture there, ramping ‘XX? is how that looks just there on Hey, Is X%. and XQ and it – of product look in that does your number that into down – of divestitures were run-off about like was discrete

Mark Borin

new it’s that is line product there’s talked Yes, discrete divestitures exits really there, we – that no the about previously. have

Jeff Hammond

seeing are we when do – those? when done we And Okay.

Mark Borin

first in the then QX in the year, half and little bit that of itself. completes It lap of but survive a will it

Jeff Hammond

little with going then interest run the was went Thanks. it on rate forward? a that and what how we And expense, bit lower should Okay.

John Stauch

gave we Well, the you QX number.

Mark Borin

really little mainly overall bit number I had. around income Yes, a thinking and levels, can we driven bounce we’re frankly, million, become a still so how it's by $X our – much it’s given it relatively around interest mean, debt small

why that's So in bit little was it QX. lower a

Jeff Hammond

Okay, thanks, guys.

John Stauch

Jeff. you, Thank

Operator

Brian of with comes Your William next question from line Blair. Drab the

John Stauch

Hey, Brian.

Mark Borin

Brian?

John Stauch

Brian? button. Brian, mute

Brian Drab

Alright. go. we There

John Stauch

back. Welcome

Mark Borin

Good morning.

Brian Drab

were kids background. running in around My Yes. the

this pressed not I I call button. revenue market the bit just and I here joined have and question So roughly growth aquaculture of percentage any the little off what are But end-markets, at growth in point, we has any at account one do on least are good late. update for significantly, agriculture believe that on mentioned seeing the forgot I and a been I aquaculture, here for ag today just I think bottom which you those you? don’t

John Stauch

and lately. around piece two I it’s to revenue, been million not somewhere total markets overall those things they so cyclical performing of be really big not the those well Pentair a total of ultimately really and Yes. are $XXX but mentioning mean, honest, I have think worth

Brian Drab

follow-up I then. Okay. will more you. Thank later

Operator

next line the question comes with Global. Your of from Walter Liptak Seaport

Walter Liptak

and morning, taking Thanks question my good for guys.

John Stauch

Good morning.

Walter Liptak

have a question I weather. about

fourth a pools, I been that couple quarter? if for any in there seeing this pipeline quarter all any call, are and renovation about especially in wonder storms big at talked about We you haven’t but and of has impact third the

John Stauch

the one but able there did and way is I really other of marvelous you those in to revenue also And had can’t our have to enough am say as a of a shipments other just team hurricane, few they amount track how and out, we meaningful the but team Cary, we people protecting all to lost can for have no but the companies products the plant, then the will that just I job in that, stepped sure a weather. it’s deliveries do days the were well, to and a this protecting they recover than and of or pool in protecting Carolina. I thank our lot thank assets, No, due North we the QX businesses protecting

Walter Liptak

the replaced? pools track in any quarter, then flooding fourth by And of that that were Okay. filters, pumps damaged

John Stauch

but Not able on as expect and we do no, aftermarket see order through repair QX, real-time that not usually the we and uptick a the in amount. in specific rate little to this it basis, a comes there see I business mean will track

Walter Liptak

could you you do just pickup up, in are earlier pricing – Okay, competitors? then pricing I playing your in the versus your year how supply competitors and would aquatics the guys staying us did the I chain price that great. your situation, you guess where And so walk catch wonder and some is competitive increase, and through if the of

John Stauch

on cycle, our which was in price did increase mid-September. We

timeline. Our for and We communicated have do continue some to stick price targeted standard consistent. competitors it’s previously price did we increases to earlier that’s implemented we with but chose with reasons, been our what our various increase X.X% expectations consistent and been have

Walter Liptak

Are competitors situation chain of tariffs react? to same and the supply kind in you them Okay. impact with your they where have

John Stauch

about, impact as seeing importantly pricing Some from what a the not just us, up of indirect and just our competitors as bit suppliers, talked just more different supply mean, have everybody it’s have I not maybe China similar little than impact, direct as well. the but others of we impact the to overall being looks chain, some start tariff ultimately but them don’t, it’s ends

Walter Liptak

great. for Okay, questions. my Alright, thanks taking

John Stauch

you. Thank

Operator

next Research. the of Brett Your with line from Vertical comes question Linzey

Brett Linzey

all. morning good Hi

John Stauch

morning. Good

Brett Linzey

then some any growth, around just driven markets on China. walk tenor regional pool, the mostly little obviously, and mean European about of some of pace international talk your or to was strong I want business? just U.S. within bit maybe Could you or about the So a you the by talked you major serve concern

John Stauch

you has a got have Yes, America generally us. China I for mentioned growth as overall I been this strong it, relatively have North area been year, we just mean,

of it’s chosen long-term. get not those didn’t relatively in divestiture environment, line, Mark line just part We out didn’t a the And that has geographies, the muted referenced has year. exits appropriate lot robust been have of compete have of so geographies, where a of is the presence not of which been we to in or scale most areas Europe to then growth product it’s have much call, geography our selectively

also half in in don’t picking that the And the back so of see year, don’t half we the see we but the of year. back up it declining

Brett Linzey

investments, that think look Southeast incremental around was you Okay. look I this as to China strategy, And then growth out investment what said year-to-date, broaden Asia XXXX? you incremental XXXX how million, previously step just the and had and year does we number XXXX then QX $XX your versus up have maybe spent back you into

John Stauch

know, be range thinking it million meaningful XXXX. investment we just year, this we activities don’t about R&D for $XX going in currently. full think not to incremental next maybe have And not say our about is we also and are to are by year million primarily as still are we in we innovation I the up expect for detail give forward, I but certainly would that from year, where quarter, a and way identified Yes, for step $X if the but going to it digital we

Brett Linzey

Okay, great. color. I appreciate the

John Stauch

you. Thank

Operator

line comes Your Julian last with from of question the Barclays. Mitchell

Jason Carr

Hi, guys. This is Jason on for Julian.

is aquatic saw into out you as a systems the share at demand to consistent looking with taking QX this backing account demand Just and result the given on color roughly of that of to in acceleration then the pre-buy, comp X% X% the demand imply market the that quarter? was the gain year-over-year was a QX September stronger what in demand acceleration there QX end here going it the of given tougher etcetera? and that Was cadence sort of versus does

Mark Borin

you that’s that at it unusual the a the driven unusual and expectation demand but not was in guidance September, slowdown don’t the And we growth don’t significant timing. anything QX QX strong price in look on in increase No, I we end-market are of some quarter, by about the as seeing was the for run-rate think there see was when and pool.

Jason Carr

pricing XX i.e., increases, take be effective? it be acknowledgment the lag in XX the of you on to going be how that the to acknowledgment there there just of increases of put of to what pricing was would pace quarter like be of would a would pipeline to increases post And sort sort maybe there have an would net there pricing days out, Understood. if terms those further – just inflation, the increases inflation into back further the sourcing in was for – did those that long or

Mark Borin

will said maybe And we continue as then light do lever, say have but to in we that we to price of inflation. that clarify a Sure. to use would we didn’t that

Jason Carr

Right, right, sorry.

Mark Borin

implemented. that being price lever To us also get take see would impact said, it’s to suppliers it and for of well. our fully the in from about days to XX XX That as days increases approximately

recall the was of QX and tariff coming timing if that pretty news announcement the what So quickly the was you and the not react. increase of time the about having to

Jason Carr

Understood. Thank you.

Operator

you And closing presenters, did have any remarks?

John Stauch

Yes, I do.

we bolt-on accretive thank delivered acquisitions. strong utilize the a and to capital So, our tuck-in record and you and Crystal, compounding our track hope And building to exceeding that right use pursue for are earnings, a structure ability agility of agree joining for interest. quarter today. and flow commitments. and that commitments, to in I growth we trust allows and to core to and only you the By pursue you solid earn achieve everybody strategy demonstrating a not we targeted call. that up us but Thank also our your conclude third strategic prioritization to meet hope us you cash can continued meeting

Operator

concludes today’s you, Thank call. sir. conference This

You disconnect. now may

Pentair (PNR) 23 Oct 182018 Q3 Earnings call transcript