Pentair(PNR) - 2021 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - In 2021, sales grew over 20%, segment income and adjusted EPS increased over 30% each, with return on sales expanding 100 basis points to over 18% despite inflation pressures [6][7] - Free cash flow generated was over $550 million, representing over 100% conversion to net income, with approximately half returned to shareholders through dividends and share repurchases [7][33] - For Q4 2021, sales grew 24% with core sales increasing 19%, while adjusted EPS grew 24% [20][22] Business Line Data and Key Metrics Changes - Consumer solutions grew sales 31% in Q4, with pool sales increasing 35% and water treatment up 23% [23] - Industrial & Flow Technologies (IFT) grew sales 14% in Q4, with residential flow up 14% and industrial filtration growing 24% [30][32] - For the full year, consumer solutions delivered 30% core sales growth, while IFT saw core sales growth of 9% [20][22] Market Data and Key Metrics Changes - The pool industry has seen strong demand due to population migration to warmer climates and increased interest in residential pools [24] - Channel inventories ended the year approaching historical levels, although some product lines still faced challenges [25] Company Strategy and Development Direction - The company is focused on integrating ESG priorities with its business strategy, emphasizing sustainability as core to operations [10][11] - Strategic growth initiatives include investments in pool and water treatment businesses, as well as sustainable gas technology [17][19] - The company aims for greater than 300 basis points of margin improvement by 2025 through transformation initiatives [18] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism for 2022, expecting continued sales, income, and earnings growth despite challenges from inflation and supply chain disruptions [8][34] - The company anticipates that price increases will offset inflation, with further margin expansion expected [35][80] Other Important Information - The company ended 2021 with a strong balance sheet, levered at only one times, allowing for flexibility in funding growth and acquisitions [19][33] - The Pleatco acquisition is performing well and aligns with the company's strategic goals [84] Q&A Session Summary Question: Insights on pool business visibility and pricing - Management indicated strong visibility into the pool business due to a lofty backlog and normalized inventory levels, with expectations for significant growth driven by pricing [39][40] Question: Inventory build and growth expectations - A modest inventory build was noted, primarily related to acquisitions and preparing for higher demand in 2022 [45][46] Question: Competitive dynamics in the pool space - Management highlighted strong demand and backlog management, with expectations for a strong second quarter as backlog repricing occurs [55] Question: Growth opportunities in sustainable gas - The sustainable gas business grew approximately 20% last year, with expectations for continued growth driven by carbon reduction initiatives [48] Question: Profitability and margin expansion - Management expects overall price increases to exceed inflation, contributing to margin expansion and improved profitability [80]