PNR - Earnings call transcript Q2 2020

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Operator

Ladies and gentlemen, thank you for standing by and welcome to the Q2 2020 Pentair plc Earnings Conference Call. [Operator Instructions]. I would now like to hand the conference over to your speaker today, Jim Lucas. Thank you. Please go ahead.

James Lucas

to Quarter welcome Call. Earnings and Mariama, Pentair's XXXX Second Conference Thanks, glad today. us could We're join you I'm Senior Jim Relations. Investor Lucas, Vice President, and Treasurer And Fishman, John Executive with is President me Chief and Stauch, Officer; Chief our our Bob Financial Officer. and today details morning's will performance as press year release. call, full second as outlook, well our provide today's quarter on On outlined our XXXX we XXXX as in this

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

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

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

and We questions reserve John. turn call to sure after our Instructions]. to will time the over for remarks. now will I prepared be [Operator answers

John Stauch

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

that and and everyone we First foremost, safe. hope healthy remains

the While focus our to potential believe and businesses we the will standard pandemic, we to to on to better due processes. we COVID-XX-management continues of impact positioned be the our are capabilities, strong We recognize of which employees, continue help of our built our that impact. there part work customers now continue Throughout the any our but manage are create the priority. disruptions safety uncertainty, quarter, COVID-XX pandemic be our health and to

businesses overall but in guidance While quarter industrial-facing of entering quarter, the the our face decline were did capital spending a withdrawn company. we our the halt challenges April, moderate generally to of came commercial- global the We pleased and that would as as with the performance anticipated we had second rate progressed.

pool improvements the quarter with franchise, and residential-facing including Our saw leading May and June during our healthy in continued trends. improvement businesses, exited

place the pools were earlier our demand Water remain swimming grew, swimming As pools resulting being equipment. quarter, water during it increased in focused overall sheltered for our demand Consumers quality, business. for orders consumers improved in their and on for led which also Solutions opened to appears

to revolver extremely second our of pleased million are during further flow balance as our flow free use generated our We with quarter. the cash over important free and result of outstanding performance reduce cash our profile. cash flow was We we this $XXX liquidity strengthening

business We take advantage Residential continue opportunities as portfolio, benefit to XX% we from believe to ourselves improved to of demand. these roughly businesses recovers. of our continue should position comprises and

will segments, Focus. the for of all remain appropriately continuing in our aftermarket is focus our our relatively Segment everyone our to labeled well We within turn reach. of in advancing #X Please times. wanted pool growth our segment, extending content primary which Consumer Slide Within focus X largest our to both as as remain unprecedented the anticipate remind Solutions, in unchanged. our rest challenged, remain and thank commercial Pentair's we to to that these cost continuing industrial structure on for focused we despite While longer-term likely while serving I'd employees portfolio like opportunities. aligning to customers of deliver invest the gaining

term a and XX,XXX continue X.X there that ground. each the new are to pools opportunity, evolve year in product there represents pools million longer reminder, We a automation our we and approximately are offering. built As believe roughly installed

will products be a out that and the and launched app have number can Pentair Home new We rolling interconnected. are of

adoption of we to comment on which expect in regulation pumps. in July speed that Energy of goes We into variable of effect further XXXX, an also wanted Department will upcoming result

As a after ago. the a speed XX% we regulation is increase in-ground takes effect. that new estimate XX% DOE a pump number to variable to over pools decade reminder, of that helped invent expect We this roughly have today, a category only we this and

for from such we away While our distributors closely new business, product standpoint, about we them believe better invest with are look while Water innovative areas pumps. a and as them we well to forward we working single-speed systems Within manage help what new well positioned, well our We also softeners, continue in opportunity you water we Solutions positioned as commercial to we as around business. to total and this valve Within and the expanding office our in water are the means the water future. our regulation management. our components long-term residential believe educate we updating dealers where transition as from commercial to we connected in see flat business, invest systems continue a are

Finally, we funnel, continue to around focus our bolt-ons. tuck-in on primarily and M&A

product acquisition our expands We opportunities an and cleaner other pool pool small opportunities Solutions. broader line of in quarter, Water company the within made for During in-floor a offerings. extensions product much see we that

within is around focus a has growth, & principally Industrial focus of Flow Consumer on productivity. our more While IFT, Solutions Technologies, or

the our We are improve quality within opportunities cost delivery a structure businesses. segment across processes that we select the have number to reinforced PIMS there as and and a believe of few improve also

plants. in continue to productivity-enhancing We manufacturing our in technology invest

we While that well focused on as margin IFT beer business on COX are beverage particularly membrane food believe is our niche-growth the and improvement, as our focus more recovery some opportunities, in business. in there potential

opportunities. shareholder to prioritize both for value optimize continue allocating most creation We our to to ensure are segments we opportunities our our resources effectively

and make Doing Slide We Really to of Please stakeholders. Pentair. productivity tradition a Pentair to that our at have positioned contributions well #X growth turn good are and has long-standing and both a We What doing to all well segments Do focus by been believe labeled balanced between Matters!

create core initiative This sustainable a the not is customers Pentair, how to slide are is and purpose snapshot within helped the to brief of energize instead water-focused make many our solutions. we a products a company, our an Our is and at are is difference Pentair products mission serve. our to workplace. employees products a the helping beyond and and but place. Sustainability make energy-efficient some of of safer, our the world we more to

us costs. be helping speed has pool of STAR's nearly X named ENERGY while $X variable the pump save to helped energy consumers years, Partner Our Year billion for in consecutive

billion water Our almost Residential the Water of reduce for Solutions business annually. need has helped bottles XX

call industrial to is to in to purpose We sustainable Bob company. tons essential I discuss over This and and product leveraging our like to of and smart, our also focused turn and over treatment leading has core deliver position Pentair water remain within filtration customers our solutions. helped to year. million now our every detail. strong mission our customers reuse building capture COX-recovery on metric the financial leading to results XX We a have in that and a business Bob? help technology would more offerings COX

Robert Fishman

Thank you, John. XXXX X Please QX Performance. turn Slide labeled Pentair to

For income XX%. in Flow efforts, did not our basis, sales the and X% decreased progress Consumer decremental Technologies on We sales $X.X shortly. sales discuss points and second the while to Segment declined on & a performance XX% basis. reading timing the XXX declined offset XX.X%. in line, core core cost-reduction ended on other XX% sales more fully net our each the I basis segment's million. a will our core on quarter. margins out operating made expense Industrial quarter the but of contracted Below at Solutions and interest actions our declined return quarter, XX% detail these was down

$XXX.X million. Our following adjusted the were the tax difficult of shares was rate the quarter $X.XX, delivered quarter We year-over-year. adjusted EPS and a which April. a our decline represented Overall, average we progression XX%, outstanding XX% pleased with of was very in

do, to there's positive to While to our align with Cash line. our X Flow. Slide Sheet Please Balance and about weakened we structure still labeled ability work turn much the top cost feel

While faced of and extremely the cash strengthening challenges its of share with our sheet. flow pleased we further balance the the our performance during were P&L quarter, fair

X quarter, our $XXX the under $XXX ago. million $XXX comparable our period the we second cash down increase We pay available flow ended For to free the for with a We generated performance used over strong revolver. primarily revolver million, of flow cash million our year quarter XX% balance.

debt-to-EBITDA at a quarter manageable the ended net X.Xx. very ratio Our

one maturity the X%, or and for declined QX flow equal Consumer cash net sales income. in upcoming dividends return free points have in half. the we Solutions plan of XX.X%. feel Solutions to second strength sheet have decreased outside XX to X expect sales needs turn we segment Performance. capital September, to labeled basis to than greater remain While and small pressing income Slide disciplined Please year Consumer deliver XXXX XX% we on the declined good to of no capital, balance We and other our about our with our

to Before that you the is full within X remind Consumer of commercial. wanted businesses and Solutions discussing XX% XX% the results residential segment, the we

business April, pool included sales for improvements June. decline by the flat Our in a followed This mid-teens May quarter. in delivered and continued

product as place, sheltered keep the pools all various demand about strong than ability across with and it were more having our in up in This demand that usual. categories. for appears quarter dealers increased in earlier up consumers people throughout were were confirmed new publications substantially their inquiries the to As resulted more demand. Further, opening of pools limited

delays were the and meeting quarter historically While disruptions, ramping notably impacted early COVID-related of during we this were supplier be part when we the on by manufacturing productions. the demand, up focused would we quarter in

production other to experienced occurred does We able U.S., to double-digit for of meaningful It principally suppliers produce decline have commercial the decline. bifurcated our any business. and story rate Within of are The the have to business worked seen addition industries, the add remainder ramp decline the to up we we supplier the but for the in throughout sales key again. is not several current smaller outside restaurants Solutions, have mid-teen see not The once being Water recovery sales facilities this and manufacturing was suppliers encouraging our in business, hospitality exposed lines. moderate been quarter, product expecting own of tell year. the to disruptions the less to and downtime which able a in

of of business our unable can Our the their systems. customers as quarter, residential did in be improvement throughout water in to see test the a Early many quarter. were what story to consumers' we signs get stabilization and and the homes dealers exiting quarter was best different described install into as

all pockets progressed, as Please and some we turn Industrial take with limiting return components basis based XX%, businesses decline we activity ability sales Consumer believe to in the down saw positioned Solutions IFT on orders. saw strong Flow declined of the the IFT, sales our X pool or sequential The Technologies, decreased increased also rate Technologies out improvement quarter enter & our quarter income Segment well XX.X%. Industrial we to as continued steep, quickly the to was As Slide the the third and but in XX%, saw exited QX XXXX was Flow there a cost, we in XX and of sales & quarter. decline stabilization quarter. on is in XXX demand in dealer We in improvement business. labeled points Performance.

IFT reduce in cost to We likely utilization. commercial and we demand run the pressured to will capital in and structure stay asset to are working as spending pause industrial lower aftermarket on believe rate customers as rightsizing continue top orders the line the their their according

in improvement infrastructure digits orders sheets actively Irrigation to an a with flow smaller residents infrastructure a the the to in progressed, place. up managing sales, Flow activity business impacted high as were demand many and their June customers versus sheltered in business & Commercial demand the states its with and sales low low was ship backlog. quarter double in significantly decline balance due experienced commercial Residential Our their single-digit severely being continued April. decline experienced own posted double-digit down earlier We in as quarter as

freeze sales XX%. this It orders part for capital at served be too hit trends This pressure declining monitoring asset IFT lower the as severe had in we a virtually what during was are when just rate to in this a as under to broad-based utilization these We but will industries it Industrial for sales. are the backlog that be reverse, of all negative business, with spending be Filtration seen over quarter, and impact early determine the year. closely replenished. saw our will appears to was aftermarket to of remainder as remains preparing remain the well on hardest

to cost We structure. IFT, the pressured and expect actions rightsize the taking to line top we remain in are appropriate

U.S. to Slide way, the a first the appeared COVID an year. has first throughout pool Please of a business improve XXXX. Planning labeled meaningful of Full to turn our Despite period XX XXXX in second decrementals Assumptions. enjoyed expect the We in stronger half brief half when otherwise Year

continue the strong to make in trend this we experiencing. quarter third satisfying expect in progress demand channel the strong We the is remains as and demand the across industry

the business, by are on to have a recovery and impacted Water Solutions commercial the hand, other as not Our pandemic. is second hospitality remain likely to COVID-XX offices half expected

watching states on could increased our Solutions such key We instituted, infection as California. business. quality rates shelter-in-place have closely COVID are Texas are If tighter impact also an as in Water Residential restrictions Florida, water this and

recovery pause the As is much their we see IFT customers spending remainder the earlier, the year. way we in of capital expected for stated not to continue to as anticipate of

economic for as create to continues we base assumptions. make environment pandemic the challenges Finally, us

but we portfolio uncertainty, continued with expect rest to Outlook. Year of as to guidance continued turn reinstating Full we performance expected XXXX pool the challenges. of face Pentair Slide are XX our labeled our business, expect the Please We

remains visibility year behind guidance. full with the half While reinstating of we limited, full are the us, year

year, the rate line, approximately shares EPS to $X of the on of of $X.X are expecting and tax full in Below the $X.XX we range average sales we expect to roughly an billion. outstanding million. For XXX be total adjusted of XX% adjusted

noncash over flow target like Thank $XX to approximate to be million, expenditures please $XX Mariama, free greater questions. few line should while cash XXX% million D&A for should compensation $XX income. million Q&A. continue million. open of call to the remarks. now for net $XX would around have which, are We to I expected a After Mariama turn than will John closing Capital to stock be the you. and

Operator

Instructions]. [Operator

question with first comes Pokrzywinski Your from Morgan Josh Stanley.

Joshua Pokrzywinski

John, backlog as we bit of you two So about on on just and head channel versus no talk into inventory your second about the that point Anything can question those lockstep? in a maybe how should surprise, the marketplace first pool. be into business? sale half, we little come thinking

John Stauch

Yes.

pleased trend resiliency. first -- in we what's in think to I the demand. we're think think and with very I the about QX think certainly, through of most that orders the the and to the happened so external inventory of in and demand channel, channel excited pool business' rates -- And in were through the and that served opportunity, I an those all, is the as continue sell-through meet there's inventory, refill order

that's looks we're back So Bob's about why we hopeful optimistic very demand. strong very that comments that to the what half like, and see we're continue

Joshua Pokrzywinski

I'm Got T-shirt question. price it. win And I some sort then of for a assuming nonpool or a

institutions. exit filtration. shift X to? rates doesn't can kind of but Any maybe June tell went the or from X. story, organizations Just restaurants speak there than pretty some factor of XQ would was like commercial you that something in swing July, these better that where demand imagine to we that punitive I be should on and Any shelter-in-place things aware of to

John Stauch

No.

halves. because you'd think even have two in as June, look to I

the up, very certainly pullback demand certainly see states, June, opening the strong trends to country see started to United again. and a as started to And we recovered. we I States, think across started the the across in start as slow main

I to And the pandemic. continued in think see continue to our see pullbacks recovery. we forecast fact, just assumes deal with don't we

be to now. right a place And I think it's so balanced

that pickup views we've As to That in we people's throughout as openings. states if big on a the the quality, as concerned half Bob's notes start the And a -- year expectation in we're residential. in muted area. determined, water high-demand homes, we reverse back the their accelerated especially did saw well see a residential quarter. is big of And

I in did trends we're QX. very what would China the we optimistic be we certainly and and quarter, rates see think highlight the its the June heading recover of year-over-year into as see

will So of our that pandemic, unfold. that around things strength that the when to start indications does the stabilize feel give portfolio us to really we the start

Operator

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

Jeffrey Hammond

a what's lingering? that? talk they of So kind abated? issues? issues, result chain you they of supply defers are still of chain can just on the pool those fully And Have XQ you kind into about as just supply think of assessment your what just Or

John Stauch

Yes.

So positive have QX. substantial a The supply into we're disruptions primarily order was we And Jeff, carrying fairly some and trend QX. very backlog yes, to COVID base. did throughout supply related our

And existing to expect are doing we the everything meet and that created so very that in trying demand meet consistently we're can we QX. to strong July, also the demand, demand and and we was a

Jeffrey Hammond

surprised you in did should how then then getting me better for better, half where what think And comment trends a you for kind the maybe Okay. I expecting? back like the see the upside, on at model And made decrementals and Bob of IFT IFT? we were look decrementals versus

John Stauch

We'll this Jeff. split Yes. answer,

on think you IFT, a carry I little bit into the on think I backlog first of quarter. all, long-cycle businesses,

ship So a and in the than IFT become on had we I as had that But some that booked X across previous X we orders am recurring stream to backlog quarters large got throughout did we that dependent ago. we've years QX. continue revenue have to from portfolio less we also projects of more maybe we a pleased

team orders started to anytime that more growth return through, potentials we're So in last I predictable stream positioned started the the least back. position to And -- had around to I to but efforts to revenue we mitigate think as in ourselves growth to especially downside soon, show not cycle. think the pull at the in

the good are we in where about I So feel portfolio.

longer-term little it. got what looks business we'll We've actions I'll stream going actions mentioned, are business the order like. we about started been pattern we Bob trends that to we be get encouraged are have of decrementals. discussing the take still line And in Bob where to here a with QX. the rightsize to this bit those throughout here but with as revenue As talk to have QX, cost the

Robert Fishman

Thanks, John. the fixed work going of that discretionary, business. continue is to within to to around model as I use There half tremendous back decrementals a business. to mid-XXs would the say nondiscretionary, especially structure, the best understanding variable, is amount on cost low way IFT the for

Operator

America. Our question Obin Bank from Andrew next of with comes

Andrew Obin

Just a follow-up question pool. on

what sort As guides will just public an using distributors, And by your sales disconnect. public sales it I'm you I take long match as reported at as do but we for industry look said, how example, is to of think doing? the the there's

I You pool guys we does the to close up in Should it take? how Or were industry the flat, think expect reported long XX%. third gap quarter?

John Stauch

do orders Yes. we to remain as continue the gap said, everything strong. to I close that I we're going QX. think can And mean in I to

think, I year, significantly, the back of expected So to through the revenue see we our half increase Andrew.

Andrew Obin

suppliers. And chain the you chain, talk Are and some did supply just same about the the to your derisking talk -- Fantastic. on how are suppliers Can about geography? thinking adding you U.S.? guys post-COVID? you considering moving the at supply about Or you're you maybe chain just in of supply

John Stauch

Yes.

production. the little as supply Mexico that couple disrupted use think think get I was have our to a do And what have you source that -- of out. as like suppliers need hit is, most bit. hard chain in And do a in companies, QX, COVID to Mexico and of first cases, I have we we we to throughout we here the know, demand what that

think I U.S. in China. also more to be aware Europe that need the but and forward, very also move we chains in not are much just supply we're As localized, to going

the aspects associated be the to longer but needs, tariffs its global in pandemic But Andrew. been think I more through, move And also going serve issues. think the really and to to drives and I manufacturing of I to better were needed hasn't couple as any localized demand think, which where are really, and supply reminder, tariffs were chains to where term, the highlighted of that all as space with caused supply a production to another as feeling indication the a disruptions the derisk balance well. about worked disruption mean, chains, movement, there way us about

I So for trend think us just for a not but that's everybody.

Operator

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

Charles Tusa

issues, the was of supply chain impact the volume-wise? dollar What

John Stauch

where big a was between would it the close and trends what of piece Steve. the Well, gap we shift industry products, helped our have

it up behind when further started start we then the Bob Part mentioned, put a from got the coming supply and put just manufacturing ours being the But to off happened, mentioned slow Let's disruptions earlier, that demand. as there. orders I that quarter as to and operations as of our the head QX in to but in us well, aspect. that, just we're it's working now so out a have get strong product as we see not we're across confident its also portfolio, their a orders seen we We've entire digging as And the line. within of customers way the a that demand Steve. QX, we just QX, the demand into equipment path ramping into

Charles Tusa

double How orders June you than digit? up You and July? are in significantly? kind strong I more mean were can said our grow they of

John Stauch

Yes. be No, more double, triple, not than right? that'd

Charles Tusa

Sorry.

John Stauch

definitely They're They're digits. digits. up double double up

Charles Tusa

not XXX% right. They're

up So they XX? are than more

John Stauch

Yes.

Charles Tusa

Okay.

you, for flat in segment? hold this you line this think, actually can consumer, do So year, the

John Stauch

aggressive. would think I be that

we listen, to year I think think think XX, have anyway. on acknowledge going Slide a pool, good we're and Steve, -- we expect like the just -- it's we year we this I said

we comparisons for weather we year-over-year. great you As have year. know, tremendous season had And pool and year, the had weather easier we've last didn't this

changed the behaviors, aren't primarily consumers' that, we "Okay, products has our home, seasonal to In let's our the heaters. and we purchased, earlier, shelter-in-place talk so going We're think pool around we're about we're addition consider related all start our that about that are it. to the time, in order our use we're should periods pool, maintaining for consumers would to long of that that are invest hopeful to and trends begin chlorinators? encouraged really pool?" Should things automating consider our we Those those And we that. to always understand

there probably and good only it. are fact the that open are And to limit So is the through look going what have acknowledging sure people chain much going of in travel we're supply we're offices to we're we making Solutions. really acknowledging people a see our the out to work had the and optimistic back in as We're this impact is forecast a more to, managing guide, we our Water year, Steve. and or pool up likelihood that's going that that build hotels we their hospitality to that taking sections to level to for come this commercial used

And would end to back, so be hard very in June, for the I open liked would June, closures but it our recovery. a of to happen. Solutions as the Consumer I things and really it in lot positioning a pull see trends. started think And then started the started to do Solutions as to business, back get encouraged saw that But way towards all little we by the Water see we're we think we we of bit

what's pandemic, lot the slide color. know in happen our that our because optimism impact important on none know on factories. manufacturing give our the going our you long-winded this in and with to is but also the that global bullet to chains just it there's felt what but I final supply to to a businesses, us I point economic that the sobering reality own do a to going And the has I outlook it's of it's both wanted was answer, of while So businesses,

Charles Tusa

Right.

more that productivity, for Or timing-wise consistent quarter. a half? rate $X this costs On kind kind you can in Is the back one. quick run of the last do good that you improve couple that million through coming quarters? last of of did have one Sorry, some

Robert Fishman

than on there's that at focused number. looking we to of think opportunity do better businesses, Again, portfolio improving the We're that.

Operator

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

Brett Linzey

your Just wanted changeover. some Do you and deadline mix then circle ahead expect what's you see there? out of roll up the efficiency into that year? process prebuy single-speed Or on as next the of the we get back DOE 'XX? of the playing kind beyond to thought you How do

John Stauch

felt prebuy always other there of be some We've the that this of because handled Yes. way would industries just like. transitions have the

working with are that understand distribution the obviously and plainly just of is, significant, its value the we and variable a the of both is think the channels it form in help fact better that is dealer quiet to efficiency pump. how I speed it our

So of are the hopeful switches pump that of to in having a the short available that mix expect some speed year, while to not prebuy we the it do more we really order next variable of very mitigate impacts here.

Brett Linzey

Yes. Got then just line to And hold encouraging, the businesses it. both price, able the you're quarter. in on the in there

strength Just lever a in think you the up commodities got do through against the moving some you, in kind second pool, half have given you've specifically price you of move to the of pool? price back year,

John Stauch

pricing we think more to normalized environment, the going similar a year. it's I to be way approach this

inflation. held While we haven't and significant there are some generally in challenges have across certain product lines, seen commodities I mean, there, overall,

a going the normalized season. year it's we to as head be think more I So into

Operator

from Cowen. with question comes Your next Giordano Joe

Joseph Giordano

hear Can you me?

John Stauch

Joe. can, We Yes.

Joseph Giordano

All right. Good.

following change. just on So regulatory up question the that on

who's profile the on you producing variable basis Just and the give kind what means what efficient that and of that guys can -- how of to guys, competitive and it means you you for kind versus like margin for speed, out and single-speed landscape frame a take the in or industry? works

John Stauch

Yes.

So XX-plus states, my introduced the comments, and this said has needs, been high-cost energy this a for that's been I channel as years. product the And on primarily helped with there product. we the out in

it the I our the people got biggest pump been challenge I has understand speed So both a it is value getting everybody in to time, that almost And lasts and think period across even think the in value a pump. is candidly, double, though of variable cost but in leader it how we've product industry is of for the that significant. the long creates the

it a more really not revenue change higher margin. margin and out margin It not throws out but profile. there's at So dollars, in goes more

Joseph Giordano

over more time? Got That Amazon-type like was seen an sale How through makes it. curious has your you the And that just about of going Have more kind shifted recently? I business evolution. like sense. of kind of channel

John Stauch

There's as through that definitely acquisition a into has we give or like channels. do right that we then those the that people our we water Pelican sell we've that's solution, picked replacement just more to cartridges. through have the going need. think And water it is some shift do-it-yourself not over because that capability utilized Online filtration to online just demand got products they interest want product of they them take and online what filtration filtration own up reminder, expertise in definitely on a of a

Joseph Giordano

does shifts you And what was it guys a as what margin that channel, from that that standpoint? mean, towards mean -- I for

John Stauch

set mean, mean, don't going I people the -- themselves. We and products I water. necessarily and in be going replace of or our businesses able real their there's consumer Well, solves be curated always quality Water taste do that in in Solutions that, are concern feel pool to which in any industry of a to we around to think

that drive so And term, the nice creates really leads for long we revenue believe, over that term. longer services the us

Operator

Your Brian Goldman next comes of from Lee question Sachs.

Brian Lee

They the decline whether was all Or the about it segment there the mix? And of quarters? better on the pretty in have the think sales. few firstly Anything the in helped would strong, we than that profile? else? Was a have in in next maybe given bit how quarter margin Consumer level in Solutions, we then on seem come to decrementals should X% of specifically. sustains might Just a expected something function this decrementals

Robert Fishman

to Solutions, again, half expect in back Solutions, And helpful also, There's plays the are was we of the mix that continue a the Consumer year. Consumer in trend that quarter. productivity underway. of number within For

Consumer to continue segment. I the So to do expect within decrementals Solutions well

Brian Lee

do of just construction? business Okay. relative from actually are as different when some renovation trends is comes are to the it being curious mix respect your players, coming sounds average X business impacts to in Fair are to secondarily, the segments versus construction opposed are similarly see be to to other? what business but I pool seeing you hear you chain the type the the from side you new margin but projects on specifically, profiles those -- It And like above both, seeing in backlogs mentioned you just the other? enough. of with then And outperforming Or strong? and new read one one also think according supply

Robert Fishman

very are those been it, new at remodel pieces. in this both construction Right. is similar we've the strong profile margin X environment. both and looking And between When

good perspective news our demand both again, terms of areas. in of in consistent those So from

Operator

next line of Your question Scott Securities. comes from the with Graham Rosenblatt

Scott Graham

I have you. three for

And quick you your the if a that maybe when when breaking and on manifest us IFT your on reinstating you comment share to inquiries, you expecting are dealers If could tell of just us also new thoughts trade mix. when give could also pool into what tell grounds? actual is us Can repurchases.

John Stauch

Sure.

when get this when I So I versus again ringing March how heard hit on a we and I'll I started people to interesting, mean, And phones nervous. I going it's and were the I elsewhere. pandemic vacationing take it with focus frame the weren't we life in what have what April, throughout is to of Bob. want do -- the maybe and with was it start think happened that, we pool, late hit QX I people channel with quality to and mean saw checked where

today. come we this through and strong So demand continues be very that strong saw call in very,

is that weeks. built usually So people I to they're a usually signal, couple quarters. going that of get think not a know and It's in pool a

so what feel as and about the trend happen think it forward. goes pools in I that good and remodeled could new we And

that includes get Scott, automation, the homeowner every particular and themselves chemicals convince is best we a look the one there pool. dose best of to a opportunities That experience. in overall As that pool to for a themselves maintain and their reminder, that as it ability that solution includes those at way

trend to opportunity the again, equipment, a pool trend love pool new to remodeled is, increase and you're and the which through pool your best We pools, content. using because continue our it's like-for-like run to of your to that we you're serve the installed replacement. So the more but be tends obviously going

to now. it's right continuing hopeful Bob, the question? you the trends So continues into We we in capital allocation do the it talk we're and right think like want about direction, XXXX.

Robert Fishman

share Yes. the to structure. around repurchases, approach whole it On me, within fits capital

disciplined have We balanced, approach. very continue to a

coming in The flow a and equal flow a very liquidity million. on XXXX perspective. you we closer And than of with cash if with then available over quarter the it income. here to cash, foremost, with And XX and X.XX. free we're what's covenants greater position, out in driving the manageable, the our that with to And the very to cash that of makes, free days to to debt X.Xx, First do million. from position were QX way company or net me, were to our $XXX especially pleased begins take liquidity position difference at at same me, to add second revolver and what it $XXX is

of $XXX things share completed needs, the future, return need our to invest and the pay higher around business. the organically us the both year. targeted market back inorganically. conditions optionality cash buybacks $XXX continue, We opportunities We So obviously, $XXX this half still shareholders repurchase year. the million dividend million. of in in on we into depending but those to the investing capital resume then million and growth may and All We give decision. going and of highest in We'll our that margin make the to

a lot optionality best So structure with it liquidity of capital our would based a describe on as balanced but I position. really

John Stauch

better your does was all we really IFT. better. except say in final the And agriculture when would And then, Scott, same I the mix across question businesses, do they're about relatively

in market ag that's is this pertains demand strong. love that one but OEM the spray seen it irrigation we ag uptick haven't we when year piece the or of ag, So as to the portfolio on

Operator

Blair with Bryan from comes Oppenheimer. question next Your

Bryan Blair

demand demand new Or the circle the season, given pool is for XXXX? that wanted the am a runway back new it in labor constraints, of on limited I supportive I construction pool oversimplifying length to minute. that? for to spike Is significantly reasonable, the construction assume backlogs, remain to going through

John Stauch

need expectation. seen things. of reasonable right their of kinds you based to to it's there's people type But scenario economic upon that the like about assume XXX(k)s, are shared. very all feeling realistic those a you things consider how That's we've now, that impacts, Obviously, the trends

Bryan Blair

your that are scale in meaningfully interest to And any Water -- shifted, of or funnel you the you pandemic you M&A tuck-in the on impacted, platform? technologies Okay. as prepared the capabilities pool Solutions to Has M&A the or way touched remarks. specific in

John Stauch

reinforced it's I Yes. several. mean

more we create of so that the the in-floor think filtration small put of and a at think just we I one ability remodeled did in pool it's pool cleaning, jets the a to you really to as mixture the pool, portfolio. the a capability. fits It's bottom of nicely create in build

portfolio nice So wouldn't that's a certainly you'd that an a example have. retrofit, you pool. to of a in but technology new adding that as remodeled is really go and put And

than the Solutions, water we now to when about to are buildings going they comes where more that about want feeling a dispensing ever touchless really people to faster, think it have going meaning shift to office As we Water into take we back believe solutions different and water. drink. trends come They're want the

And to seek. a so being taste water branded a maybe to that forms of think or water people dispensed going tend health profile they to of are or profile certain

internally the and So we'll innovation them in and/or with or of we augment markets service all into things accelerators offerings those either to. want that go our to I accelerate the channel feel portfolio, were

we'll organically. continue X because that going a X to tuck-in, capability an months. be there at to But some going bolt-on we most to have in to or we of this put as accelerator We're over can that as expect consider out I next looks we're disciplined, the do it. can So deals there's said, if some Bob

Operator

Your comes Andy Citigroup. next question from with Kaplowitz

Andrew Kaplowitz

we obviously the working in I flow guidance given mean a XXX% half, little see a flow or And cash than could had have in to equal the out understand continue capital and in pool? pool, cash your the seasonality strength greater to second vague. coming of big it's QX, obviously, You and but you strength quarter conversion. tailwind

we've you would well could already, see So given conversion it above what seen suggest that XXX%.

know on could I don't that. if just comment So you

Robert Fishman

Yes.

we a describe us, and So a describe in not working I strong did from out But playing saw 'XX as it this and would we have I thought it's movements in free payables half as the that year 'XX would cash capital. collections in typical of we first In such cash had headwind not flow like QX, 'XX. of because would. to perspective. we the year

right it's drive the of and we're continue X the positive in QX, that's cash is both So why to QX year. What really about so back turn. that up to flow I free what is the We'll like now much going the profile half the in at significantly past. than better be the been reasons linearity, in

quarter level-loading and that cash. the each off plans then start having collect I So the to opportunity

I on We net what the do So like to linearity. exactly of better be think right the we're than we've I got But calling XXX% potential flow. income. focus right That's free have cash now. overall,

down the we've things the free changed building out forecast is last the in business cash of flow level. One XX to days a

around cash we throughout taxes inventory to CapEx accountability from have so company. the And to everything

are whole So as focused company me a helps when it this always the on metric.

So back the I year. the to in half expect we'll cash of performance strong flow continue have

Andrew Kaplowitz

is have that you they for you started had are just they helping certainty? mentioned economic frozen comment a us I'm industrial particular a more self-help it a in your business, business, of at color opportunities in they're of And to not that And little you spend give more the on I so seeing? waiting off you And into have past backlog CapEx trends all? are slowly If filtration? number Or so backlog this at you're shelter-in-place, can in could you then, customers the what it's all? your John, as regarding think come comments they? then mistaken,

John Stauch

great It's Yes. question. a

that industrial of any don't economic have our you filtration you when our at. think think applications then and F&B, just about feel within can broad beer many think our membrane yet been have that liquor we food hospitality dropped business even that you with customers think off for into considerably. of that and have comfortable though and sales beverage the and And offerings even I has they outlook stay-at-home tremendous, industrial, of offset to pretty the demand the

the beer considering with beer are beverage the of manufacturing remote that they're right food pandemic So making world and we're uncomfortable locations now given in customers that a is. intimate lot investment that strategic very around where our and

in if they're but has So the on of will they they're going where are. freeze, are -- to it's versus careful really with been And say it industrial most a it be. that been they're put where need do about customers, in our the create again, side, I that, evaluation going and want I've of to to more our capital because accelerate don't offerings very when our investment we productivity, those and dialogue and then membrane of stage to

right because they to is really a So to reboot a that that either spend or the of pause, it think drive we need. paused carefully, freeze more pending now capital we've word chosen productivity

Operator

next Your question Dray Markets. from comes RBC Deane with Capital

Deane Dray

more XX% change the industry, would new you're circle is your signs a at for I want new the think been pool mix? and back any and while. this And capacity but capacity construction you mean how industry sales? to put that we've seeing XX,XXX I that on aftermarket, place would new increase you're Do that? going stuck to in the of typically pool about

John Stauch

be do pool I mean there those the we'll I as states permits did to I states I'm year, pullback, we they can retire as about, pool choose we for as this year, these get yet. last due a there, think if necessity they we weather. in at catch-up. and/or permit a trends at the when most lifestyle. to there's talked little be Yes. have Deane, a and And they I these encouraged don't looking know because forward. go by look warm-weather pool their people And

better aware you professional we you of pool, is we yet, with make what the our it connect ready maintain we can you. not to that that I we goes, you in So Deane. goes do can how is our that if the still believe and I'm to choice trends we are feel Where have think for do how channel make continue think a fast solution that help it can I you and it how best you give favor.

Deane Dray

because is an that more Got variable decision. I'm it. not observation. pump the speed penetration such there's surprised it just economic of compelling a

of in question lift Where installations do So have? you does the of looks And for natural that partners What's or app that put expected is, service users more today? a typically. the qualitative does with relationship? you second Or that that products? more are the these And for like automation. any many the there on folks? does pull-through anyway, then channel the mean pool I enhance competition stand question in How terms sales. Home is way in your the

John Stauch

now, Yes. test Deane, it, thank mean you for so asking. in phase around a the introduced. it right got couple soft-launched I we products we've that we've

into into that I And to app more make out bugs and start of in-home we we'll XXXX. it consumer-friendly. see so one want that acceleration brings sure makes We believe our and It Pentair experience. end-user giving work all to a the we're products you better

our through the we'll going of And for dealer it's We or it I app, dealer have you app you things app you needs served and or right augment now that best to then dealers going your analogy more give more have good that like you So give main that -- I but expert We believe, dealer-specific a Deane, -- be understanding I salt app, will so we're is call more it with network. water with consumer then solution accelerate the the strongly bad experience. things connect adjust the giving point the we best Uber we're the supported we're that best I still be will best for dealer if we a quite are because and how do decision call our actually the and think quality your need connecting to and believe, need to relationships, and need? appropriately. or the I the needs, particular to technical

going at the going give something, through odds the be But we're awareness app them, to need we're not consumers our So dealers. you better experience. you with best through a to we're connect and to trying when create the

Operator

with Damian Your Karas UBS. comes question from next

Damian Karas

Just a few minor model questions on my end.

cutting little want you've and first particular -- your the investment. quarter. John, bit in to a back the second just looks investments. in half I the about First, you talked like about, strategic continuing know it you've R&D been ask It I in on long-term

in thoughts wondering quarter? some there? of you the facility Just shutdowns second any just on had the Or the going perhaps that's what's maybe of on if that result

John Stauch

do we levels days, on year. in of had one You in prior Pentair, functions industry, it. that It here the I that of projects. to work-from-home. wasn't one key of programs, nailed the consistent year was try because the hard would at but those by candidly, that was It R&D was was hard some choice. remotely It the in up of some NPI to up probably maintain in expect XX function certainly to the back we are, in the was probably And and R&D half on those lost interruptions catch to those spend we as that pick

are We choice. COVID, requirements, back and working of a of now. different but yes, all Obviously, result social was from strategic distancing not through that the a

Robert Fishman

we than add on million to spend We would be spend is, productivity. capital in I $XX that last at of to safety, just do capital bit a what call. And that. we buckets: honest, and higher and And about talked look our X probably little $XX which growth million

holding NPV cases a growth productivity, building teams business there, On compromise On drive positive more and bit the on little that. won't safety piece, the accountable. we and spending the to

see that as in spend benefits the We also to expect from future well.

Damian Karas

I appreciate makes Okay. the at time. I'll it sense. leave Great. That that.

Operator

comes Jones question from next Nathan with Stifel. Your

Nathan Jones

second I of guess looks the it pool, you've about you IFT the for conservative how into good half? it's conservative second look realistic better year, a do giving upside? kind And deliver that the pretty bit you're the guide, guide. half? you IFT you've guidance? question the really visibility there's you a Can than like at a that maybe particularly guidance. pretty a Or guidance business full and I you Have in taken it of mean a pretty approached I'll the if for where looks into to half second-half taken confident just got little a approach talk built on second outlook the overall just more then think can start you strong get like to things some you've

John Stauch

I guidance all, could that again. pleased Nathan, mean we I'm first Yes. introduce of

and feel but I important the produce is as now in as worked I important goalpost in and being uncertainty people front a question to easier been to fourth do to That think put lean and for the mark that trying we internally out slide that actions it's X around result. us really accomplish, bullet plays goal X expectations they're it's of financial targets only we that we work and to continue how QX we still that our deliver that months of are on it here, do for. the one how like said, pandemic accountable you're the July. about in also hard think externally It's people with I working is more And through us. results to frame very towards held best our And how as possible? the good could best really And we that's always that safe? keep what

So better estimate of land. reasonable where to got I we're think a going we've

scenarios get because pull And don't there of may some the issue the to not But deem one may or there low do to we we to scenarios guidance think to that it's we be be have think appropriate And material. so want is are I end back things have on end, to expectation. Nathan. there are an high that are and the that

Street the what with? continue do And need big possible, results need give they The a we operationalize what Nathan. comfortable business feel what then and ourselves So we thought was, to to we deliver process how the best and can financial give

Operator

comes with from Julian Mitchell question Barclays. next Your

Julian Mitchell

the reduction. Maybe cost a question around

half. cost-cutting it maybe earlier release, alluded second to assuming in million restructuring at some perhaps if stepped $X this the you or so provided the at looks the up look and you're the in only $X.X $X about But the call million, think like guidance million for I segment. I of IFT year in

a is restructuring understand, flows to once is a misreading and that? cost-cutting sort the be there lot approach recovers? the Or trying Or of top to back announced? pending of am of that just more line So I variable-type

Robert Fishman

our not I any primarily We're of on to spend. Yes. our would relating efforts discretionary variable labor focused and the associate restructuring. cost-reduction

on line as So focus those the actions but costs restructuring those need we the variable components. is not We'll do take and with evaluate typically significant them. top to bring continue primarily to,

Julian Mitchell

second is as that it in worse? one, you commercial Just organic and think the Or That them relative saw second down only you gets my softens, is single-digit half? flow-driven that how something fairly it there then is quarter, through high backlog you And in with or where trying moving it resilience business, what's see part, stays to the backlog the sticking with a IFT. the in the trend and the business half? more, understand sales is similar the second specifically infrastructure the

John Stauch

IFT? to business, Or specific that item? broad is Was a that a in

Julian Mitchell

Yes. No. Yes.

commercial So infrastructure specifically piece. and around the

John Stauch

Yes.

backlog, fairly and strong a had we So we through QX. saw decent orders remain

building from municipalities is some it's in you're lower might I us think the and be what that of feeling anticipation the mean I future. commercial the needs

we're sequentially And It's we a necessarily so anticipating. indicative more not trend it's know. a of indicative of trend

Julian Mitchell

I see.

sense? digits single is in sort down that run rate a high of So reasonable the

John Stauch

Yes. Yes.

Operator

There to are no will I back the remarks. for John further now questions Stauch over at turn this call time. closing

John Stauch

us thank you for Well, joining today.

We I all customers pandemic. grind our this and as would employees, together, and to these all times through urge to of my like and offer we stay shareholders uncertain navigating best to all wishes you are safe

year one Pentair has build of the is we continue a foundation no type to strong to all we upon. believe While have expecting that experienced,

strong purpose, empower solutions that most We customers are attractive resources. life's the that smart, are a of we that vision essential strong mission our delivering sustainable spaces have make to most and We strong focused in expanding. on believe

improve enjoy applications. move, and and through our making world we systems their more people helping in sustainable leader a smarter are water, We and the are

We businesses, strategy, talent culture. right have and enterprise the

and Thank for leadership conclude more competencies results. you right system deliver our continued customer call. win employees to enable can integrated consistent of predictable improve continuously our and management the you Our and your our Pentair Mariama, all values, experiences interest.

Operator

Thank this and you Ladies participating. gentlemen, concludes call. conference today's for

You may disconnect. now

Pentair (PNR) 23 Jul 202020 Q2 Earnings call transcript