Core Viewpoint - Pentair plc, a water treatment company, has underperformed the broader market and industry benchmarks despite reporting positive financial results for Q3 2025 [2][3][4]. Financial Performance - Pentair's Q3 core revenues increased by 3% year-over-year, with total revenues reaching $1 billion, reflecting a 2.9% year-over-year growth and exceeding Street expectations by 1.7% [4]. - The adjusted EPS for Q3 rose by 13.8% year-over-year to $1.24, beating consensus estimates by 5.1% [4]. - For the full fiscal year 2025, analysts project an adjusted EPS of $4.91, representing a 13.4% increase year-over-year [5]. Market Performance - Pentair's stock has gained nearly 8% year-to-date and 4.4% over the past 52 weeks, which is significantly lower than the S&P 500 Index's gains of 16.5% in 2025 and 14.5% over the past year [2]. - The company has also underperformed compared to the Invesco Global Water ETF, which saw an 18% increase year-to-date and 12% over the past 52 weeks [3]. Analyst Ratings - Among 21 analysts covering Pentair, the consensus rating is a "Moderate Buy," consisting of 12 "Strong Buys," two "Moderate Buys," six "Holds," and one "Moderate Sell" [5]. - RBC Capital analyst Deane Dray reiterated an "Outperform" rating on Pentair and raised the price target from $121 to $124 on October 22 [6].

Core Insights - The session features key executives from Pentair, including CEO John Stauch and CFO Bob Fishman, along with incoming CFO Nick Besas [1][2] Group 1 - The presentation follows a standard protocol with prepared remarks and a Q&A session planned [2] - Attendees are encouraged to ask questions via cards or by raising their hands during the session [2]

Summary of Pentair Conference Call Company Overview - **Company**: Pentair - **Industry**: Water Solutions - **Revenue**: Over $4 billion with $1.1 billion in EBITDA - **Segments**: - Flow (small and large pumps, Industrial Solutions) - Improved (commercial and residential water filtration) - Enjoy (pool business) [4][5][6] Key Points Transformation and Growth Strategy - Pentair is in the early stages of a transformation program initiated 2.5 years ago, focusing on standardizing processes, pricing, sourcing, and digitizing global support [6][11][12] - The company has improved its Return on Sales (ROS) by nearly 600 basis points over the last three years [6] - The transformation aims to balance organic volume growth with continued operational improvements as they head into 2026-2028 [14] Flow Segment Performance - The Flow segment generates approximately $1 billion in revenue, with residential flow stabilizing after three years of headwinds due to high interest rates [23] - Commercial and Infrastructure business has shown consistent growth for 12 quarters, with a focus on expanding market reach [24] - The HydroStop acquisition is expected to enhance service offerings to municipalities, particularly in infrastructure repair [30] Pool Business Insights - The pool segment is currently experiencing a flat market due to high interest rates, but new product innovations are expected to drive future growth [44][52] - Approximately 60% of pool revenue comes from aftermarket services, with a significant opportunity for automation and AI integration [51][57] - The company is focusing on a select group of 400 dealers that contribute to the majority of revenue, providing them with dedicated support [44] Water Solutions Segment - The company is deemphasizing residential water solutions in favor of commercial opportunities, particularly through partnerships with plumbing distribution channels [66][68] - The Manitowoc Ice and Everpure brands are being combined to offer a comprehensive solution to distributors [69] Capital Allocation and Financial Health - Pentair aims to maintain a strong balance sheet with a focus on returning value to shareholders through dividends and strategic acquisitions [73][74] - The company plans to remain disciplined in its acquisition strategy, targeting bolt-on opportunities that provide higher returns than share buybacks [74][75] Additional Insights - The company has identified significant opportunities in the automation space, with a focus on enhancing customer experience through technology [57][60] - There is a conscious effort to manage pricing strategies to avoid pushing customers towards repair rather than replacement, which could disrupt the market [64] This summary encapsulates the key insights and strategic directions discussed during the Pentair conference call, highlighting the company's focus on transformation, segment performance, and financial discipline.

Core Insights - Pentair plc is recognized as a highly profitable manufacturing stock, with RBC Capital Markets maintaining an "Outperform" rating and increasing the 12-month price target from US$121.00 to US$124.00, citing solid earnings quality in Q3 results [1][2] Financial Performance - Pentair achieved a 160 basis-point expansion in return on sales and a strong incremental of approximately 82% in its Q3 results [1] - The company reported a return on invested capital of around 16.7%, which is an increase of approximately 120 basis points [2] Market Position - Approximately 75% of Pentair's business is derived from replacement and aftermarket markets, providing a defensive advantage amid broader industrial softness [2] - The company has successfully implemented tariff-mitigating price increases without signs of demand destruction, indicating strong pricing power [2] Business Segments - Pentair operates globally in water and fluid solutions, with segments including Flow, Water Solutions, and Pool, catering to residential, commercial, and industrial needs [3]

Core Viewpoint - Pentair plc will participate in the Baird 2025 Global Industrial Conference on November 12th in Chicago, IL, highlighting its commitment to sustainable water management [1] Company Participation - President and CEO John L. Stauch and EVP and CFO Bob Fishman will present at 9:05 a.m. Central Time [1] - Incoming CFO Nick Brazis will engage in investor meetings during the conference [1] Event Details - The conference is scheduled for November 12th, 2025, indicating the company's proactive approach to investor relations and industry engagement [1]

Core Viewpoint - The article discusses the author's perspective on Pentair plc (NYSE: PNR), suggesting that the stock is relatively overpriced based on fundamental analysis and market sentiment tracking [1]. Group 1: Company Analysis - Pentair plc has been identified as a company that may not meet the expectations set by its current stock price, indicating a potential disconnect between market perception and actual performance [1]. - The author utilizes a software tool developed over the years to assess the levels of optimism and pessimism in stock prices, which aids in identifying investment opportunities [1]. Group 2: Investment Strategy - The investment strategy focuses on companies that have a higher likelihood of surprising the market positively in the near future, suggesting a proactive approach to capitalizing on market inefficiencies [1].

PART I FINANCIAL INFORMATION This section presents the unaudited condensed consolidated financial statements, management's discussion, market risk, and controls [ITEM 1. Financial Statements (Unaudited)](index=3&type=section&id=ITEM%201.%20Financial%20Statements%20(unaudited)) This section presents Pentair's unaudited condensed consolidated financial statements, including operations, balance sheets, cash flows, and equity changes [Condensed Consolidated Statements of Operations and Comprehensive Income](index=3&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income) Pentair reported increased net sales and significant growth in operating income and net income for both the three and nine months ended September 30, 2025, compared to the same periods in 2024, driven by improved gross profit margins and reduced net interest expense | Metric (in millions, except per-share data) | Three months ended Sep 30, 2025 | Three months ended Sep 30, 2024 | Nine months ended Sep 30, 2025 | Nine months ended Sep 30, 2024 | | :------------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net sales | $1,022.0 | $993.4 | $3,155.5 | $3,109.9 | | Gross profit | $418.6 | $393.2 | $1,278.5 | $1,221.2 | | Operating income | $231.7 | $179.9 | $652.5 | $608.7 | | Net income | $184.3 | $139.6 | $487.7 | $459.0 | | Basic earnings per ordinary share | $1.13 | $0.84 | $2.97 | $2.77 | | Diluted earnings per ordinary share | $1.12 | $0.84 | $2.94 | $2.75 | - Net sales increased by **2.9%** for the three months ended September 30, 2025, and by **1.5%** for the nine months ended September 30, 2025, compared to the prior year periods[8](index=8&type=chunk) - Operating income saw a substantial increase of **28.8%** for the three months and **7.2%** for the nine months ended September 30, 2025, reflecting improved operational efficiency[8](index=8&type=chunk) [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of September 30, 2025, Pentair's total assets increased, primarily driven by higher goodwill and intangibles due to acquisitions, while total liabilities also rose, mainly in current liabilities and other non-current liabilities | Metric (in millions) | September 30, 2025 | December 31, 2024 | | :------------------- | :----------------- | :---------------- | | Total current assets | $1,445.1 | $1,436.1 | | Goodwill | $3,528.8 | $3,286.6 | | Intangibles, net | $1,088.0 | $1,033.8 | | Total assets | $6,759.6 | $6,446.5 | | Total current liabilities | $988.2 | $895.1 | | Long-term debt | $1,580.1 | $1,638.7 | | Total liabilities | $2,977.2 | $2,883.6 | | Total equity | $3,782.4 | $3,562.9 | - Goodwill increased by **$242.2 million** from December 31, 2024, to September 30, 2025, primarily due to the Hydra-Stop acquisition[10](index=10&type=chunk)[34](index=34&type=chunk) - Total equity increased by **$219.5 million**, from **$3,562.9 million** at December 31, 2024, to **$3,782.4 million** at September 30, 2025[10](index=10&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Pentair generated significantly more cash from operating activities in the first nine months of 2025 compared to 2024, while cash used in investing activities increased substantially due to acquisitions | Cash Flow Activity (in millions) | Nine months ended Sep 30, 2025 | Nine months ended Sep 30, 2024 | | :------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $764.0 | $680.2 | | Net cash used for investing activities | $(354.3) | $(68.2) | | Net cash used for financing activities | $(370.8) | $(560.0) | - Net cash provided by operating activities increased by **$83.8 million (12.3%)** in the first nine months of 2025, primarily reflecting higher net income and favorable changes in working capital[12](index=12&type=chunk)[109](index=109&type=chunk) - Net cash used for investing activities increased by **$286.1 million**, largely due to the **$292.2 million** acquisition of Hydra-Stop in 2025[12](index=12&type=chunk)[111](index=111&type=chunk) [Condensed Consolidated Statements of Changes in Equity](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Equity) Pentair's total equity increased from December 31, 2024, to September 30, 2025, primarily due to net income, partially offset by share repurchases and dividends declared | Equity Component (in millions) | Balance - Dec 31, 2024 | Balance - Sep 30, 2025 | | :----------------------------- | :--------------------- | :--------------------- | | Ordinary shares | $1.7 | $1.7 | | Additional paid-in capital | $1,501.7 | $1,351.8 | | Retained earnings | $2,336.1 | $2,700.6 | | Accumulated other comprehensive loss | $(276.6) | $(271.7) | | Total | $3,562.9 | $3,782.4 | - Net income contributed **$487.7 million** to retained earnings for the nine months ended September 30, 2025[8](index=8&type=chunk)[14](index=14&type=chunk) - Share repurchases totaled **$175.0 million** for the nine months ended September 30, 2025, reducing additional paid-in capital[14](index=14&type=chunk)[122](index=122&type=chunk) - Dividends declared amounted to **$123.3 million ($0.75 per share)** for the nine months ended September 30, 2025[14](index=14&type=chunk)[124](index=124&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed disclosures and explanations for the condensed consolidated financial statements, covering accounting policies, revenue, acquisitions, debt, and segment information [Note 1. Basis of Presentation and Responsibility for Interim Financial Statements](index=8&type=section&id=Note%201.%20Basis%20of%20Presentation%20and%20Responsibility%20for%20Interim%20Financial%20Statements) The unaudited condensed consolidated financial statements are prepared in accordance with SEC requirements for interim reporting, allowing for condensation or omission of certain GAAP footnotes - Financial statements are prepared following U.S. SEC requirements for interim reporting, allowing for condensed GAAP information[18](index=18&type=chunk) - Management is responsible for the fair presentation of these unaudited condensed consolidated financial statements[19](index=19&type=chunk) - Interim results and trends may not be indicative of a full year due to quarterly variations in revenues, expenses, cash flows, assets, and liabilities[20](index=20&type=chunk) [Note 2. Revenue](index=8&type=section&id=Note%202.%20Revenue) Pentair disaggregates revenue by reportable segment, geographic location, and vertical market, showing increased sales in the U.S. and Residential markets Geographic Net Sales (in millions) | Region | Three months ended Sep 30, 2025 | Three months ended Sep 30, 2024 | Nine months ended Sep 30, 2025 | Nine months ended Sep 30, 2024 | | :-------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | U.S. | $703.9 | $687.6 | $2,236.0 | $2,166.4 | | Western Europe | $126.7 | $117.0 | $371.8 | $375.8 | | Developing | $130.6 | $129.9 | $375.8 | $391.9 | | Other Developed | $60.8 | $58.9 | $171.9 | $175.8 | | Consolidated | $1,022.0 | $993.4 | $3,155.5 | $3,109.9 | Vertical Market Net Sales (in millions) | Market | Three months ended Sep 30, 202

Core Insights - Pentair plc (PNR) reported adjusted earnings per share (EPS) of $1.24 for Q3 2025, exceeding the Zacks Consensus Estimate of $1.18 by 5% and marking a 14% increase from the previous year [1][10] - The company raised its 2025 EPS guidance to $4.85-$4.90, indicating a year-over-year growth of 12.6% [11] Financial Performance - Net sales increased by 3% year over year to $1.022 billion, surpassing the Zacks Consensus Estimate of $1.005 billion [2][10] - Gross profit rose by 6.5% to $418.6 million, with a gross margin of 41%, up from 39.6% in the prior year [2][10] - Operating income, including one-time items, was $231.7 million, reflecting a 28.8% increase from the previous year [3] Segment Performance - Flow segment net sales reached $394 million, a 6% increase year over year, with operating earnings rising 15% to $95 million [5] - Water Solutions segment net sales decreased by 6% to $273 million, but earnings increased by 6% to $68 million [6] - Pool segment net sales totaled $354 million, up 7% year over year, with operating earnings growing 3% to $128 million [6] Cost Management - Selling, General and Administrative (SG&A) expenses decreased by 14.8% to $162 million [3] - Research and development expenses increased by 8% year over year to $24.7 million [3] Cash Flow and Balance Sheet - Cash and cash equivalents at the end of Q3 2025 were approximately $128 million, up from $119 million at the end of 2024 [7] - Net cash generated from operating activities was $764 million for the nine-month period ending September 30, 2025, compared to $680 million in the prior year [7] - Long-term debt decreased to $1.58 billion as of September 30, 2025, down from $1.64 billion at the end of 2024 [7] Share Repurchase - Pentair repurchased 1.8 million shares for $175 million in 2025, with $275 million remaining under its share repurchase authorization as of June 30, 2025 [8] Future Guidance - For Q4 2025, Pentair expects adjusted EPS between $1.11 and $1.16, indicating a 5% rise at the midpoint [12] - The company anticipates Q4 sales to increase by 3-4% compared to the same quarter last year [12] Stock Performance - Pentair's stock has appreciated by 11.2% over the past year, outperforming the industry growth of 1.1% [13]

Financial Data and Key Metrics Changes - In Q3, the company achieved sales of $1.022 billion, a 3% increase year-over-year, with adjusted operating income rising 10% to $263 million and adjusted EPS increasing 14% to $1.24 [6][13] - Return on sales (ROS) expanded by 160 basis points to 25.7% [6][13] - The company generated record free cash flow of $719 million year-to-date, up 14% year-over-year, and reduced its net debt leverage ratio to 1.3x from 1.4x a year ago [16] Business Line Data and Key Metrics Changes - Flow segment sales increased 6% year-over-year to $394 million, with residential sales up 3%, commercial sales up 5%, and industrial sales up 10% [13][14] - Water Solutions sales declined 6% to $273 million, with commercial sales down 6% and residential sales also down 6% year-over-year [14] - Pool sales increased 7% to $354 million, driven by price, volume, and the Gulfstream acquisition, although segment income rose only 3% [15] Market Data and Key Metrics Changes - The company expects Flow sales to grow in low single digits, Water Solutions to decline in mid-single digits, and Pool sales to increase approximately 7% for the full year [17] - The company anticipates fourth-quarter sales to be up approximately 3% to 4% [17] Company Strategy and Development Direction - The company is focused on transformation initiatives and has delivered approximately $56 million in transformation savings year-to-date, aiming for $80 million in 2025 [8][9] - The company continues to invest in growth initiatives and innovation through digital and product technology [8] - The company plans to share more insights on its 80/20 actions at an upcoming Investor Day in March [7] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to drive efficiencies and profitability, with a balanced capital deployment strategy [10][19] - The company is cautious about potential headwinds such as tariffs and high interest rates but remains optimistic about growth opportunities [64] Other Important Information - The company announced the acquisition of Hydra-Stop for approximately $292 million, enhancing its Flow business [6][16] - The CFO will be leaving the company effective March 1, 2026, with a smooth transition planned [10][11] Q&A Session Summary Question: Discussion on Pool margin productivity - Management acknowledged the challenging comparison for Pool's margin but expressed optimism for a rebound in Q4, highlighting investments made to drive future growth [23][24] Question: Update on Water Solutions growth - Management noted a slight decrease in core Water Solutions growth due to lagging commercial growth and international sales softness, particularly in China [33][34] Question: Transformation savings context - Management provided insights into the sources of transformation savings, emphasizing balanced contributions across all four pillars of transformation [43][44] Question: Hydro-Stop acquisition growth potential - Management indicated that Hydro-Stop is expected to contribute approximately $50 million in revenue for 2026, with cross-selling opportunities anticipated [87] Question: Digital sales percentage and future outlook - Management discussed the importance of digital strategies and the need for investment in digital front ends to enhance customer experiences [99][101]

Financial Data and Key Metrics Changes - In Q3, the company achieved sales of $1.022 billion, a 3% increase year-over-year, with adjusted operating income rising 10% to $263 million and adjusted EPS increasing 14% to $1.24 [6][13] - Return on sales (ROS) expanded by 160 basis points to 25.7% [6][13] - The company generated record free cash flow of $719 million year-to-date, up 14% year-over-year, and reduced its net debt leverage ratio to 1.3 times from 1.4 times a year ago [16] Business Line Data and Key Metrics Changes - **Flow Segment**: Sales increased 6% year-over-year to $394 million, with residential sales up 3%, commercial sales up 5%, and industrial sales up 10% [13][14] - **Water Solutions Segment**: Sales declined 6% to $273 million, with commercial sales down 6% and residential sales also down 6% year-over-year [14] - **Pool Segment**: Sales increased 7% to $354 million, driven by price, volume, and the Gulfstream acquisition [15] Market Data and Key Metrics Changes - The company expects Flow sales to grow in low single digits, Water Solutions to decline in mid-single digits, and Pool sales to increase approximately 7% for the full year [17] - The company anticipates fourth-quarter sales to be up approximately 3% to 4% [17] Company Strategy and Development Direction - The company is focused on transformation initiatives and has delivered approximately $56 million in transformation savings year-to-date, aiming for $80 million by the end of 2025 [8][9] - The company continues to invest in growth initiatives and innovation through digital and product technology [8] - The company plans to share more insights on its 80/20 actions at an upcoming Investor Day in March [7] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's execution and increased full-year guidance, expecting adjusted EPS of approximately $4.85 to $4.90, up 12% to 13% from 2024 [7][16] - Management noted that while there are uncertainties due to tariffs and interest rates, they are optimistic about the company's performance and growth opportunities [64] Other Important Information - The company announced that CFO Bob Fishman will be leaving effective March 1, 2026, and Nick Cash will take over [10][11] - The company has been proactive in mitigating the impact of tariffs through price increases and other strategies [18] Q&A Session Summary Question: Discussion on Pool margin productivity and full-year outlook - Management acknowledged the tough comparison for Pool margins but expressed optimism for a rebound in Q4, indicating that investments made in Q3 would drive future growth [23][24] Question: Update on Water Solutions growth - Management noted a slight decrease in core Water Solutions growth due to lagging commercial growth and international sales softness, particularly in China [33][34] Question: Transformation savings and future potential - Management confirmed confidence in achieving the 26% ROS target and indicated that transformation savings have been balanced across various operational areas [36][43] Question: Insights on Flow segment pricing and performance - Management highlighted strong performance across residential, commercial, and industrial sectors, with price increases contributing positively [50][51] Question: Hydrostat acquisition impact - Management confirmed expectations of $10 million in sales contribution from Hydrostat in Q4 and projected $50 million in 2026, emphasizing cross-selling opportunities [73][86]