Pentair plc Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Sales and Financial Performance: In Q3, sales increased 3%, adjusted operating income rose 10%, ROS expanded to 25.7% (up 160 basis points), and adjusted EPS climbed to $1.24 (up 14%). Year-to-date, record free cash flow was generated and $175 million of shares were repurchased.
• Acquisition: In September 2025, Pentair acquired HydroStop, a leading specialty valve solutions provider for water infrastructure, for approximately $292 million in cash (net of $50 million tax benefits), enhancing the commercial flow business.
• Transformation and Guidance: Year-to-date, ~$56 million in transformation savings were delivered, on track to reach ~$80 million in 2025. Full-year guidance was increased: sales growth expected at ~2%, and adjusted EPS projected at $4.85 to $4.90 (up 12-13% from 2024).
• Bob Fishman's Departure: Bob Fishman announced his departure effective 03/01/2026, praised for his financial leadership over nearly six years.

Segment Performance

• Flow: Sales increased 6% year over year to $394 million. Residential sales up 3%, commercial sales up 5% (13th consecutive quarter of growth), industrial sales up 10%. Segment income grew 15%, return on sales expanded 200 basis points to 24%.
• Water Solutions: Sales declined 6% to $273 million. Core water solution sales flat. Commercial sales down 6% (inclusive of 9% negative impact from sale of commercial services in Q2), residential sales down 6% due to portfolio exits. Segment income grew 6%, return on sales increased 280 basis points to 25%.
• Pool: Sales increased 7% to $354 million driven by price, volume, and the Q4 2024 Gulfstream acquisition. Segment income was $116 million, up 3%. Return on sales decreased 120 basis points to approximately 33%, but expected to expand in Q4 and full year.

Guidance

• Full-Year 2025: Anticipates sales growth of approximately 2% and adjusted EPS of $4.85 to $4.90, up 12-13% from 2024.
• Q4 2025: Expect sales growth of 3-4%. Flow sales to grow high single digits (including HydroStop ~$10 million sales at 30% ROS), water solutions sales down mid-single digits, pool sales up mid-single digits. Adjusted operating income expected to increase 4-8%, and adjusted EPS projected at $1.11 to $1.16 (up 3-7%).
• Tariffs: 2025 tariff impact is ~$75 million, consistent with Q2 outlook. Further China/Mexico tariffs possible, but expected immaterial for 2025.

Risks

• Tariff Uncertainty: Potential impact from further China and Mexico tariffs, though expected immaterial for 2025.
• Market Softness: Slow market for commercial water solutions, particularly in the food service industry.
• Substitution Risk: Increased substitution of lower-cost foreign products, especially in commodity-based and lower-end applications.

Question and Answer

• Q: Steve Tusa on pool margin and productivity trend A: Bob Fishman and John Stauch discussed pool ROS challenges due to tough comp, but optimistic for rebound in Q4, with investment in growth initiatives for future top-line growth.
• Q: Andy Kaplowitz on water solutions growth A: Bob Fishman noted core water solution growth tweaked down, reflective of slower market, but focusing on optimization.
• Q: Deane Dray on transformation savings buckets A: Bob Fishman explained transformation savings across four pillars: sourcing, pricing, productivity, and org excellence, with balance across pillars driving savings.
• Q: Brian Blair on Flow business growth vectors A: John Stauch and Bob Fishman discussed Flow's growth across commercial, industrial, and residential, with diversification and HydroStop acquisition contributing.
• Q: Nathan Jones on 8020 focus on Quad 1 A: John Stauch mentioned focus on Quad 1 to grow with core customers, with details to be shared at March Investor Day.