Pentair PLC

Good morning, everyone, and welcome to the Pentair First Quarter 2025 Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and then one on your touch-tone telephone. To withdraw your questions, you may press star and two. Please note today's event is being recorded. At this time, I'd like to turn the conference call over to Shelly Hubbard, Vice President of Investor Relations. Please go ahead.

Thank you, Operator, and welcome to Pentair's first quarter 2025 earnings conference call. On the call with me are John Stouck, our President and Chief Executive Officer, and Bob Fishman, our Chief Financial Officer. On today's call, we will provide details on our first quarter performance, as outlined in this morning's press release. On the Pantera Investor Relations website, you can find our earnings release and slide deck, which is intended to supplement our prepared remarks during today's call and provide a reconciliation of differences between GAAP and non-GAAP financial measures that we will reference. The non-GAAP financial measures provided should not be considered as a substitute for or superior to the measures of financial performance prepared in accordance with GAAP. They are included as additional clarifying items to aid investors in further understanding the company's performance, in addition to the impact these items and events have on the financial results. Before we begin, let me remind you that during our presentation today, we will make forward-looking statements, which are predictions, projections, or other statements about future events. Listeners are cautioned that these statements are subject to certain risks and uncertainties, many of which are difficult to predict and generally beyond the control of Pentair. These risks and uncertainties can cause actual results to differ materially from our current expectations. We advise listeners to carefully review the risk factors in our most recent Form 10-Q and Form 10-K. Following our prepared remarks, we will open the call up for questions. Please limit your questions to two and reenter the queue if needed to allow everyone an opportunity to participate. I will now turn the call over to John.

Thank you, Shelly, and good morning, everyone. Let's turn to the Q1 executive summary on slide seven. We delivered our 12th consecutive quarter of margin expansion and another strong quarter of earnings growth while operating in a dynamic environment. Our businesses and functional teams continue to execute with agility across our move, improve, and enjoy water segments to mitigate tariff impacts, launch innovation, win awards, generate new accounts, expand existing key accounts, deliver margin expansion driven by transformation, and continue to implement 80-20. I am very grateful for how our teams continue to rise to the challenge and deliver for customers while creating value for shareholders. In the first quarter, sales were down 1% and were better than expected, with pool growing 7%, offset by difficult comparisons in commercial water within water solutions, and continued challenges in residential and irrigation markets within flow. Adjusted operating income increased 12% to $243 million. ROS expanded by 260 basis points to 24%. And adjusted EPS was $1.11, up 18%. We repurchased 50 million of shares and increased our dividend for the 49th consecutive year, further solidifying our dividend aristocrat status. Lastly, we maintained our full year 25 sales and adjusted EPS guidance. of $4.65 to $4.80, which is up approximately 9% at the midpoint year over year. Let's move to the tariff and inflation update on slide eight. We are remaining agile in a rapidly changing environment. Bob will provide more detail on our estimated tariff impact and mitigation strategies in a moment. Our initial guidance on February 4th incorporated estimated impacts from tariffs and an expectation that volume would likely decline as prices rose. As a result, while the tariff amounts by country have changed since our last earnings call and some tariffs have been paused, we feel comfortable maintaining our initial 2025 sales and adjusted 2025 EPS guidance with the current tariff impacts. We have taken several steps to mitigate tariffs across our portfolio and continue to position our businesses to be successful in both the short term and the long term. We believe we have multiple advantages, including a two-step distribution model representing about 75% of our sales that generally enables us to pass along price increases when we are not unique in dealing with inflationary pressures, a high recurring revenue base generated from a majority of non-discretionary replacement products, a global supply chain with reduced reliance on China, a strong US manufacturing footprint, strong free cash flow, a solid balance sheet, and a well-balanced capital deployment strategy across debt repayment, dividends, share repurchases, and M&A. We are also applying our prior inflationary learnings to manage our channel and maximize our performance. Let's turn to slide nine. Despite a dynamic environment, we continue to deliver on our transformation goals to drive margin expansion. In 2023 and 2024, combined, we saved $174 million due to our transformation initiatives, and we expect to deliver another $80 million this year, net of investments. We expect our sourcing Waves 1 and 2 to continue to contribute to these savings. We are implementing Wave 3, which we expect will begin to add another layer of savings in 2025 and beyond. Looking at operational excellence, we are driving operational efficiency with our factories through lean practices, automation and digital transformation, and optimizing our operational footprint. We expect to rapidly accelerate productivity when volumes within our core markets return to normalized levels. As we continue to implement 80-20, we expect to drive high-value core sales growth long-term by over-serving our best customers and optimizing the rest. We have taken actions to transition our Quad 3 and 4 lower-margin customers to purchase directly from our top distributors, or accept new terms and conditions that we expect to enable us to become a larger and more profitable business. We are also optimizing the selection of products we offer to reduce complexity within our operations and advance productivity. Additionally, 80-20 actions have helped us to absorb higher inflationary costs. We see 80-20 as an enabler to transformation by reducing complexity and streamlining our businesses. Let's turn to slide 10. Before I hand the call over to Bob, I wanted to reiterate some key takeaways. We had solid execution across all three of our segments. In Q1, pool grew 7% while transformation and strong execution drove triple-digit margin expansion and double-digit earnings growth for Pentair. We delivered better-than-expected productivity savings from transformation despite lower volumes. We are maintaining our initial sales and adjusted EPS 2025 guidance provided on February 4th, which includes estimated tariff impacts, mitigation strategies, and the use of our 80-20 and transportation toolkit. We continue to build a foundation of optimal operational efficiency that can be leveraged when volume returns to normal. We have a balanced water portfolio with a capital light business model and the ability to mostly pass long price. And finally, we have a strong key free cash flow, a solid balance sheet, a low net debt to EBITDA leverage ratio, and a balanced capital deployment strategy. As a water company providing solutions to move, improve, and enjoy water, we continue to believe that we are well positioned to address opportunities from favorable secular trends by getting water to where it needs to be and away from where it doesn't, and by filtering and improving water for people to drink and enjoy. I will now pass the call over to Bob, who will discuss our performance and financial results in more detail.