The operator introduces the Pentair Fourth Quarter 2023 Earnings Conference Call and provides instructions for participants. Shelly Hubbard, Vice President of Investor Relations, introduces the speakers and directs listeners to the company's website for additional information. She also reminds listeners that the presentation may include forward-looking statements and advises them to review the company's risk factors.

Pentair had a record performance in 2023, showcasing the strength of their balanced water portfolio and focused growth strategy. The company's three segments, Flow, Water Solutions, and Pool, all saw record sales and ROS, despite a challenging macroeconomic environment. Pentair expects to continue this growth and profitability in 2024 and will share more about their strategy at an upcoming Investor Day. In the fourth quarter of 2023, the company saw record segment income and ROS, marking seven consecutive quarters of ROS expansion. Sales were down 2%, but Pool performance was slightly better than expected.

In the fourth quarter of 2023, the company saw an 8% increase in segment income and a 190 basis point expansion in ROS. Adjusted EPS also increased by 6% and the company generated $97 million in free cash flow. The full year of 2023 was a record year for segment income, ROS, and adjusted EPS, despite flat sales. The company's balanced water portfolio, consisting of three segments with over $1 billion in sales each, has been driving operational efficiencies and delivering on expectations. In the fourth quarter, the company saw significant margin expansion and improved volume, with continued progress from previous quarters.

In the fourth quarter of 2023, sales for all three segments were slightly down compared to the previous year's record quarter. However, segment income increased by 8% and return on sales improved by 190 basis points, driven by Transformation initiatives. For the full year, sales were flat but segment income grew by 11% and return on sales reached a record high. The Flow segment has shown impressive financial performance over the past five years, with sales increasing by 4% annually and margins expanding by 300 basis points. In the fourth quarter of 2023, Flow achieved record sales of $379 million, with growth in industrial and commercial solutions offsetting a decline in residential sales. Overall, the company has a strong portfolio of iconic brands and is highly regarded for its quality, technical support, and customer service.

In the fourth quarter of 2023, segment income for Flow remained flat and return on sales decreased due to a return to normal seasonality and an unfavorable mix in the residential business. However, for the full year, Flow saw a 5% increase in sales and a 17% growth in segment income, resulting in a record margin of 17.8%. Water Solutions, a segment of Flow, also saw a strong financial record over the past five years with a compounded annual sales growth rate of 17% and a 400 basis points margin expansion. In Q4, Water Solutions sales decreased by 5%, but segment income grew by 15% and return on sales expanded by 320 basis points. For the full year, Water Solutions saw a 19% increase in sales, a 66% growth in segment income, and a record margin of 21%.

In the sixth paragraph, the company discusses the significant increase in commercial sales due to the acquisition of Manitowoc Ice and growth in filtration. They also mention that their Pool business has a large installed base and that their fourth quarter performance showed improvement compared to the previous quarter. The company also provides an update on their Transformation initiatives, which aim to drive margin expansion and achieve a return on sales of 23% by the end of fiscal 2025. They are currently on track with their initiatives and expect to see further improvement in 2024.

In the fourth quarter, the company generated $97 million in free cash flow, up 100% from the previous year. For the full year, free cash flow was $550 million, up 94%. The net debt leverage ratio decreased to 2.0 times and total debt was less than $2 billion. The company plans to remain disciplined with capital and focus on debt reduction, but may also consider share buybacks. For fiscal year 2024, the company expects adjusted EPS growth of 11% to 13%, total sales of $4.2 billion, and growth in the Flow and Pool segments. Commercial sales are expected to increase, while residential sales may decline slightly. Pool sales are expected to increase due to inventory headwinds in the previous year and some price benefits.

The company expects growth in 2024, but it may be slightly offset by uncertainties in the macroeconomic environment, interest rates, and potential repair deferrals. They believe the pool market is still attractive and plan to deliver strong growth. They anticipate an increase in segment income and a milestone of $1 billion in EBITDA. For the first quarter, they expect sales to be down due to working down backlog orders in the previous year. They also expect to see seasonality resume to historical norms and margin expansion due to Transformation.

The company expects adjusted EPS to be slightly lower in the first half of 2024 compared to the full year. The first quarter is expected to have the lowest sales, segment income, ROS, and adjusted EPS, but the company is focused on investing in long-term growth. The company had a successful year in 2023, with strong margins and performance accountability. The operator will now open the line for questions, and the first question is about margin expansion. The company's full year guide implies a 140 basis point expansion, while the first quarter guide implies a 20 basis point expansion. The question asks about the trajectory of margin expansion for the rest of the year and which segment will see the most expansion.

The speaker reminds the audience that last year's Pool inventory correction occurred mainly in Q2, and this quarter's performance is in line with expectations. They also note that Q1 EPS guidance is back to normal seasonality and ROS expansion will continue throughout the year. The speaker then discusses Pool's year-over-year growth, which is driven by destocking and uncertainty in the macro environment and higher interest rates. They mention that they have visibility on the growth and that early buy activity gives them confidence in their 7% year-over-year growth guidance.

In 2024, the company is expecting a profit bridge of $40 million, with price offsetting inflation by roughly two points. This is compared to the negative $460 million seen in 2023. The company is also anticipating good conversion of return on sales (ROS) on this contribution.

The company is pleased to be moving to a more normalized environment and expects to see growth in the future. The revenue increase will be offset by inflation and investments into the business, but they are confident in their ability to drive a 150 basis point expansion in return on sales (ROS). They anticipate growth to return in the second quarter and continue throughout the year. The Transformation initiatives will also contribute to this growth.

The speaker discusses the expected savings from Transformation over the next few years and expects them to continue at a steady pace. They also mention that Manitowoc Ice had a backlog due to supply chain challenges, but it has now been normalized. The business had a strong 2023 and is expected to continue contributing to Pentair's success.

The company is focused on achieving synergies in filtration and the Manitowoc Ice acquisition in 2024. The Ice business unit is historically a mid-single digit grower, but is expected to take a breather in 2024 while the commercial water business grows low-single digits. The company is pleased with the performance of Ice and expects it to return to its mid-single digit growth trajectory after 2024. The water solutions segment, particularly the residential piece, is expected to face some pressure due to global factors, but there are easier comps and a return to growth is expected.

The speaker discusses the current interest rate environment and its impact on new housing starts and business growth. They anticipate slightly lower results in China and Europe, but overall flat performance. They clarify that pricing will be slightly up while volume will be down for the Pool business. They explain that the fourth quarter price cost on the order side was impacted by early buy, but it came in line with expectations.

The speaker believes that the company's performance will improve in the future, with early buy levels returning to normal in the fourth quarter and being spread out between the fourth quarter and first quarter. The break fix market may be affected by the current interest rate environment, leading to cautious outlook for consumer spending on discretionary pool products. The speaker believes it is better to have a more realistic outlook and potentially exceed expectations, rather than being overly optimistic and having to lower the forecast.

Brett Linzey from Mizuho asks about the company's capital allocation priorities and potential for share repurchases. The company plans to resume share buybacks later in the year to offset dilution, but their focus is on debt reduction. $75 million of Transformation is planned for this year, primarily from Wave 1 measures taken last year. Wave 2 will focus on metals, moldings, resins, ocean raid, and purchasing finished goods.

The speaker discusses the company's expected growth in 2024 and 2025, with benefits from pricing excellence and operations. They mention the rollout of a strategic playbook and hint at more details to be revealed at an upcoming event. A question is asked about pricing increases and the speaker confirms they have already been implemented. Another question is asked about the growth in the Manitowoc Ice segment, and the speaker discusses factors such as backlog, pricing, and revenue synergies with filtration.

John Stauch, CEO of Flow International, discussed the company's growth strategy during a recent earnings call. He mentioned that they are seeing strong traction with their Manitowoc and Everpure filtration products through distributors and key accounts. However, the services business faced a headwind due to a large project in 2022. In the industrial segment, the company is seeing steady order rates and deliveries, with continued investment in waste-to-value technology. This is driven by the benefits it brings to customers in terms of productivity and sustainability. Overall, Flow International is well positioned for growth in 2024.

The company's larger pump business has been benefiting from expansion in infrastructure projects and the continued build out in North America related to data centers and warehouses. The company's focus is now more on residential, commercial, and pool opportunities, and the renaming of the Industrial & Flow Technologies segment to Flow was just a branding exercise. The company is still considering a potential separation of the business, and more information will be shared at the upcoming Analyst Day in March.

The company is experiencing growth in specialty applications such as heating and cooling of ice, which has resulted in an $800 million increase in revenue. They also have a strong presence in the residential market, but are expanding into industrial wastewater and plan to use their membrane technology for both sectors. The company is investing $10-20 million in sales, marketing, innovation, and digitization to improve efficiency and automation.

The speaker discusses their excitement for several innovation projects and their plans to invest in them. They also mention their positive results in productivity and their balanced water portfolio and Transformation initiatives. They conclude by thanking the participants for joining the call and reiterating their focus on margin expansion in 2023.

The company has announced its 2024 guidance, which shows expected growth in sales and profitability. The Transformation initiatives have gained momentum and are expected to drive further margin expansion in 2024. The company's focused growth strategy and solid execution are expected to lead to long-term growth, profitability, and shareholder value. The conference call has now ended.

This summary was generated with AI and may contain some inaccuracies.