Pentair(US:PNR)2023-10-24 20:38Financial Performance - For the three months ended September 30, 2023, net sales decreased by 4.4% to $1,008.8 million compared to $1,055.1 million in the same period of 2022[84]. - Gross profit for the third quarter of 2023 was $371.8 million, representing a gross margin of 36.9%, an increase of 3.9 percentage points from 33.0% in the prior year[84]. - Operating income for the third quarter of 2023 increased by 22.4% to $180.1 million, with an operating margin of 17.9%, up from 13.9% in the same period last year[84]. - For the nine months ended September 30, 2023, net sales were $3,119.9 million, a slight increase of 1.0% compared to $3,118.9 million in the same period of 2022[86]. - Net sales were flat in the first nine months of 2023 compared to 2022, with a gross profit increase of 3.9 percentage points in Q3 2023[90]. Cost and Expenses - The company experienced inflationary cost increases in raw materials, with a 5.4% decrease in cost of goods sold for the nine months ended September 30, 2023, totaling $1,966.8 million compared to $2,079.1 million in 2022[86]. - Research and development expenses for the third quarter of 2023 increased by 7.6% to $25.5 million, representing 2.5% of net sales[84]. - Selling, general and administrative expenses (SG&A) decreased by 0.3 percentage points as a percentage of net sales in Q3 2023, primarily due to lower identifiable intangible asset amortization expenses[90]. Segment Performance - Industrial & Flow Technologies segment net sales increased by 2.7% in Q3 2023 and 7.0% in the first nine months of 2023, driven by price increases and favorable foreign currency effects[96][97]. - Water Solutions segment net sales rose by 8.8% in Q3 2023 and 29.0% in the first nine months of 2023, largely due to the acquisition of Manitowoc Ice and increased productivity[100][101]. - Pool segment net sales decreased by 20.8% in Q3 2023 and 21.9% in the first nine months of 2023, primarily due to decreased sales volume and higher channel inventory[104][108]. - Segment income for Industrial & Flow Technologies increased by 18.0% in Q3 2023 and 22.8% in the first nine months of 2023[96]. - Water Solutions segment income increased by 39.6% in Q3 2023 and 88.5% in the first nine months of 2023, reflecting improved margins[100]. - Pool segment income decreased by 17.1% in Q3 2023 and 13.9% in the first nine months of 2023, impacted by lower sales volume and inflationary costs[104][107]. Tax and Financial Ratios - The effective tax rate for the third quarter of 2023 was 13.6%, an increase of 4.0 percentage points from 9.6% in the prior year[84]. - The effective tax rate increased by 4.0 percentage points in Q3 2023, driven by an unfavorable mix of global earnings[93]. Cash Flow and Capital Allocation - Net cash provided by operating activities for the first nine months of 2023 was $502.3 million, compared to $271.5 million in the same period of 2022, reflecting a net income of $506.8 million[117][118]. - Free cash flow from continuing operations for the first nine months of 2023 was $452.9 million, significantly higher than $211.3 million in the prior year[125]. - The company paid dividends totaling $108.9 million in the first nine months of 2023, an increase from $104.1 million in the same period of 2022, reflecting a dividend of $0.22 per share declared on September 18, 2023[135]. - The company has $600.0 million available for share repurchases under the Board of Directors' authorization, which expires on December 31, 2025[133]. Operational Challenges - The company anticipates continued supply chain pressures and inflationary cost increases for the remainder of 2023, which may negatively impact operational results[82]. - The company experienced inventory impairments and write-offs of $1.4 million in Q3 2023 and $5.3 million in the first nine months of 2023[90]. Assets and Liabilities - As of September 30, 2023, current assets decreased to $0.5 million from $2.4 million as of December 31, 2022[141]. - Noncurrent assets increased slightly to $2,682.9 million from $2,677.4 million year-over-year[141]. - Current liabilities rose significantly to $1,519.2 million from $1,068.6 million, indicating increased short-term obligations[141]. - Noncurrent liabilities decreased to $2,310.8 million from $2,640.3 million, reflecting a reduction in long-term debt[141]. Miscellaneous - The company is focused on capital allocation, including maintaining an investment-grade rating and returning cash to shareholders through dividends and share repurchases[82]. - The company plans to continue executing its Transformation Program initiatives aimed at driving operational excellence and margin expansion[85]. - The overall backlog decreased to $668.0 million as of September 30, 2023, down 32.9% from $995.2 million at December 31, 2022, with significant declines in Pool (down 56.4%) and Water Solutions (down 29.2%) segments[111]. - There were no material changes in market risk during the quarter ended September 30, 2023[144]. - The company has maintained its critical accounting policies without any material changes since the last annual report[142].