Forward-looking Statements
This report contains statements that we believe to be “forward-looking
statements” within the meaning of the Private Securities Litigation Reform Act
of 1995. All statements, other than statements of historical fact, are
forward-looking statements. Without limitation, any statements preceded or
followed by or that include the words “targets,” “plans,” “believes,” “expects,”
“intends,” “will,” “likely,” “may,” “anticipates,” “estimates,” “projects,”
“should,” “would,” “could,” “positioned,” “strategy,” “future” or words, phrases
or terms of similar substance or the negative thereof, are forward-looking
statements. All statements made about the
the anticipated time for completing the acquisition, and the anticipated
benefits of the acquisition are forward-looking statements. These
forward-looking statements are not guarantees of future performance and are
subject to risks, uncertainties, assumptions and other factors, some of which
are beyond our control, which could cause actual results to differ materially
from those expressed or implied by such forward-looking statements. These
factors include our ability to close the
expected terms and time schedule, including satisfying closing conditions; our
ability to integrate the
retain customers and employees of
COVID-19 pandemic on our and the
severity of the COVID-19 pandemic, the impact of virus variants and the
effectiveness of vaccinations; actions that may be taken by us, other businesses
and governments to address or otherwise mitigate the impact of the COVID-19
pandemic, including those that may impact our ability to operate our facilities,
meet production demands, and deliver products to our customers; the impacts of
the COVID-19 pandemic on the global economy, our workforce, customers and
suppliers, and customer demand; overall global economic and business conditions
impacting our business, including the strength of housing and related markets
and conditions relating to the conflict between
sanctions; supply, demand, logistics, competition and pricing pressures related
to and in the markets we serve; volatility in currency exchange rates; failure
of markets to accept new product introductions and enhancements; the ability to
successfully identify, finance, complete and integrate acquisitions; the ability
to achieve the benefits of our restructuring plans, cost reduction initiatives
and transformation program; risks associated with operating foreign businesses
and foreign supply chains; the impact of raw material costs, labor costs and
other inflation; the impact of seasonality of sales and weather conditions; our
ability to comply with laws and regulations; the impact of changes in laws,
regulations and administrative policy, including those that limit
benefits or impact ability to trade, trade agreements and tariffs; the outcome
of litigation and governmental proceedings; and the ability to achieve our
long-term strategic operating and ESG goals. Additional information concerning
these and other factors is contained in our filings with the
Exchange Commission
on Form 10-K for the year ended
statements speak only as of the date of this report.
obligation, and disclaims any obligation, to update the information contained in
this report.
Overview
The terms “us,” “we,” “our” or “Pentair” refer to
consolidated subsidiaries. At
depends on reliable access to clean water. We deliver a comprehensive range of
smart, sustainable water solutions to homes, businesses and industries around
the world. Our industry-leading and proven portfolio of solutions enables our
customers to access clean, safe water; reduce water consumption; and recover and
reuse water. Whether it’s improving, moving or helping people enjoy water, we
help manage the world’s most precious resource. We are comprised of two
reporting segments: Consumer Solutions and Industrial & Flow Technologies. For
the first six months of 2022, the Consumer Solutions and Industrial & Flow
Technologies segments represented approximately 64% and 36% of total revenues,
respectively. We classify our operations into business segments based primarily
on types of products offered and markets served:
•Consumer Solutions – This segment designs, manufactures and sells
energy-efficient residential and commercial pool equipment and accessories, and
commercial and residential water treatment products and systems. Residential and
commercial pool equipment and accessories include pumps, filters, heaters,
lights, automatic controls, automatic cleaners, maintenance equipment and pool
accessories. Water treatment products and systems include pressure tanks,
control valves, activated carbon products, conventional filtration products, and
point-of-entry and point-of-use systems. Applications for our pool business’s
products include residential and commercial pool maintenance, repair,
renovation, service and construction. Our water treatment products and systems
are used in residential whole home water filtration, drinking water filtration
and water softening solutions in addition to commercial total water management
and filtration in foodservice operations. The primary focus of this segment is
business-to-consumer.
•Industrial & Flow Technologies – This segment manufactures and sells a variety
of fluid treatment and pump products and systems, including pressure vessels,
gas recovery solutions, membrane bioreactors, wastewater reuse systems and
advanced membrane filtration, separation systems, water disposal pumps, water
supply pumps, fluid transfer pumps, turbine pumps, solid handling pumps, and
agricultural spray nozzles, while serving the global
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residential, commercial and industrial markets. These products and systems are
used in a range of applications, including fluid delivery, ion exchange,
desalination, food and beverage, separation technologies for the oil and gas
industry, residential and municipal wells, water treatment, wastewater solids
handling, pressure boosting, circulation and transfer, fire suppression, flood
control, agricultural irrigation and crop spray. The primary focus of this
segment is business-to-business.
On
entered into a definitive agreement with Welbilt, Inc. (“Welbilt”), to acquire
the issued and outstanding equity securities of certain subsidiaries of Welbilt
and certain other assets, rights, and properties, and assume certain
liabilities, comprising Welbilt’s
an aggregate purchase price of
contemplated by the definitive agreement. We expect to fund the purchase price
for the acquisition with borrowings under our term loan facility and net
proceeds from the issuance of our 2032 senior notes, together with cash on hand
and/or borrowings under our revolving credit facility. We expect to close our
closing conditions set forth in the definitive agreement.
Effective
reflect how we expect to manage our business beginning in 2023. As a result of
this segment change, the Consumer Solutions segment will be divided into a Pool
segment and a Water Solutions segment. Our new Water Solutions segment will
include
or around
the same.
COVID-19 Pandemic Update
In 2020, the
pandemic. The ongoing effects of the COVID-19 pandemic continue to impact global
economic conditions. During the first six months of 2022, we have continued to
experience various degrees of supply chain challenges, including increased lead
times for raw materials due to availability constraints and high demand. While
we have elevated our engagement with our suppliers and used secondary suppliers
and new methods of procurement where available to mitigate the supply chain
pressures, we expect supply chain challenges to continue throughout 2022.
In connection with the supply chain disruptions described above, we have
experienced inflationary increases of certain raw materials, such as metals,
resins and electronics (including drives and motors), as well as logistics,
transportation and labor costs. While we have taken pricing actions and we
strive for productivity improvements that could help offset these inflationary
cost increases, we expect inflationary cost increases to continue throughout
2022.
The extent of the COVID-19 pandemic’s effect on our operational and financial
performance in the future will depend on future developments, including the
duration, geographic location and intensity of the pandemic, the impact of virus
variants, the effectiveness of vaccinations, our continued ability to
manufacture and distribute our products, as well as any future actions that may
be taken by governmental authorities or by us relating to the pandemic. For more
information regarding factors and events that may impact our business, results
of operations and financial condition as a result of the COVID-19 pandemic, see
“Risk Factors – Risks Relating to our Business: The COVID-19 pandemic may have a
material negative impact on our business, financial condition, results of
operations and cash flows” included in Item 1A. “Risk Factors” in our Annual
Report on Form 10-K for the year ended
Key Trends and Uncertainties Regarding Our Existing Business
The following trends and uncertainties affected our financial performance in the
first six months of 2022 and/or may impact our results in the future:
•There are many uncertainties regarding the COVID-19 pandemic, including the
anticipated duration and severity of the pandemic, the spread of an increasing
number of virus variants, the extent of worldwide social, political and economic
disruption it may continue to cause and the distribution and effectiveness of
vaccines to address the COVID-19 virus. The broader implications of the COVID-19
pandemic that are reasonably likely to impact our business, financial condition,
results of operations and cash flows cannot be determined at this time, and
ultimately will be affected by a number of evolving factors including the length
of time that the pandemic continues and the impact of vaccines on it, the impact
of virus variants, the effectiveness of vaccinations, the pandemic’s effect on
the demand for our products and services, our supply chain, and our
manufacturing capacity, as well as the impact of governmental regulations
imposed in response to the pandemic. See further discussion above under
“COVID-19 Pandemic Update” for key trends and uncertainties with regard to the
COVID-19 pandemic.
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•During 2021 and the first six months of 2022, we executed certain business
restructuring initiatives aimed at reducing our fixed cost structure and
realigning our business. We expect these actions to continue throughout the
remainder of 2022 and to drive margin growth.
•In 2021, we created a transformation office and launched and committed
resources to the Transformation Program designed to accelerate growth and drive
margin expansion by driving operational excellence, reducing complexity and
streamlining our processes. We expect to implement Transformation Program
initiatives and incur transformation costs throughout the remainder of 2022 and
beyond.
•During the first six months of 2022, we continued to experience supply chain
challenges, including increased lead times for raw materials due to availability
constraints and high demand. While we have elevated our engagement with our
suppliers and used secondary suppliers and new methods of procurement where
available to mitigate the supply chain pressures, we expect supply chain
challenges to continue throughout the remainder of 2022, which may continue
thereafter and could negatively impact our results of operations.
•During the first six months of 2022, we continued to experience inflationary
increases in costs of raw materials such as metals, resins and electronics
(including drives and motors), as well as increases in logistics, transportation
and labor costs. While we have taken pricing actions and we strive for
productivity improvements that could help offset these inflationary cost
increases, we expect inflationary cost increases to continue throughout the
remainder of 2022, which may continue thereafter and could negatively impact our
results of operations.
•At the end of the second quarter of 2022, our backlog, primarily in our
Consumer Solutions segment, decreased compared to the backlog at the end of 2021
as shipments outpaced new orders during the period as customers balanced the
need to place new orders with market demand and channel inventory levels. This
downward trend may continue throughout the remainder of 2022 as we expect
backlog to return to more historical levels.
•We have identified specific product and geographic market opportunities that we
find attractive and continue to pursue, both within and outside the
reinforcing that our businesses more effectively address these opportunities
through research and development and additional sales and marketing resources.
Unless we successfully penetrate these markets, our core sales growth will
likely be limited or may decline.
In 2022, our operating objectives remain to focus on delivering our core while
continuing to build out our future. We expect to execute these objectives by:
•Delivering revenue growth in our core businesses;
•Delivering income and cash by managing price/cost inflation, prioritizing
growth investments and addressing the cost structures as necessary;
•Continued focus on capital allocation through:
•Commitment to maintain our investment grade rating;
•Return of cash to shareholders through dividends and share repurchases; and
•Supplement our business with strategically-aligned mergers and acquisitions;
•Focused growth initiatives that accelerate our investments in digital,
technology and services expansion;
•Implementation of Transformation Program initiatives that will drive
operational excellence, reduce complexity and improve our organizational
structure;
•Integration of
•Building a high performance growth culture and delivering on our commitments
while living our
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