Q1 2025 Earnings Call Transcript

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 send a conference specialist by pressing the star key followed by zero. To ask questions, after today's presentation, there will be an opportunity 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 Stauch, 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 Pentair 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 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-Ks. 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. Good morning, everyone. Let's turn to the Q1 executive summary on Slide seven. We delivered our twelfth 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 2025 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 4 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, 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 uniquely 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 U.S. 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 one and two to continue to contribute to these savings. We are implementing wave three, which we expect will begin to add another layer of saving in 2025 and beyond. Looking at operational excellence, we are driving operational efficiency with our factories through lean practices, automation, 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 overserving our best customers and optimizing the rest. We have taken actions to transition our quad three and four lower margin 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, reducing complexity within our operations, and advancing productivity. Additionally, 80/20 actions have helped us to absorb higher inflation and see 80/20 as an enabler to transformation by reducing complexity and streamlining our businesses.

Let's turn to Slide ten. 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 4, 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 along price.

And finally, we have strong 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, 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. Bob?

Thank you, John, and good morning, everyone. Let's start on Slide eleven. We delivered another strong quarter of quality earnings with triple-digit margin expansion and double-digit adjusted income and EPS growth despite lower volume. Sales, margin, and adjusted earnings outperformed our expectations.

In Q1, sales were $1 billion, down 1%. Adjusted operating income increased 12% to $243 million, ROS expanded 260 basis points to 24%, driven primarily by transformation, and adjusted EPS increased 18% to $1.11. Core sales were down 1% year over year, driven by 4% growth in pool, which was offset by a 3% decline in flow and a 4% decline in water solutions. Pool and water solutions outperformed our expectations while Flow was in line with our guidance. Please turn to slide twelve.

Flow sales declined 4% year over year. Within flow, residential sales were down 6%, as higher interest rates continued to pressure residential end markets. Commercial sales rose 3%, marking the eleventh consecutive quarter of year-over-year sales growth. And industrial sales were down 9%, driven by a focus on profitable and higher-margin business.

Segment income grew 8%, and return on sales expanded 260 basis points to nearly 23%. The strong margin expansion was a result of continued progress on our transformation initiatives. Flow continued to benefit from changes the segment made in its go-to-market strategies over the last two years and its focus on complexity reduction. Please turn to slide thirteen.

In Q1, water solution sales declined 5% to $258 million, which outperformed our expectations. Sales in commercial filtration increased year over year while ice performed as expected and residential performed better than expected. As a reminder, the ICE business faced difficult year-over-year comparisons as Q1 in the prior year included a larger rollout in China. We expect ICE to begin to return to more normalized growth rates going forward.

Segment income grew 9% to $61 million, and return on sales expanded 310 basis points to 23.5%, driven by higher productivity from transformation and 80/20 actions in Q1. Please turn to Slide fourteen. In Q1, pool sales increased 7% to $384 million, driven by price, volume, and our Q4 2024 acquisition. Segment income was $126 million, up 14%, and return on sales increased 200 basis points to 32.8%, driven by sales growth and transformation. Please turn to slide fifteen.

We are well into our transformation journey and continue to see strong results. Last quarter, we increased our 2026 ROS target from 24%, as provided in our March 2024 Investor Day, to 26%. Our goal is to drive incremental sales growth through value-based pricing and 80/20 and to deliver a return on sales of 26% in 2026, or margin expansion of over 700 basis points since 2022, utilizing the four pillars of transformation. We achieved 23.5% in 2024 and expect to deliver approximately 25% in 2025. We've made great progress as our teams have continued to succeed.

Please turn to Slide sixteen. Our balance sheet remains strong, and our return on invested capital continued to improve, nearly reaching 16% in Q1. Long term, we continue to target high teens ROIC. Our net debt leverage ratio is 1.6 times, down from 2.1 times a year ago. During the quarter, we repurchased $50 million of shares.

Over the last two years, our strong free cash flow has enabled us to deploy approximately $1.4 billion in capital via debt pay down, dividends, share repurchases, and a strategic acquisition. We plan to remain disciplined with our capital and have additional flexibility to strategically allocate capital to areas with the highest shareholder returns. Let's turn to our outlook on slide seventeen. For the full year, we are maintaining our adjusted EPS guidance of $4.65 to $4.80, which is up roughly 7% to 11% year over year.

Also, for the full year, we are maintaining our sales guidance of approximately flat to up 2%, which assumes FX and tariff-related price increases are roughly offset by anticipated tariff-related volume declines. We expect adjusted operating income to increase approximately 6% to 9%, which includes the assumption that price increases are offset by higher tariffs net of mitigation actions and associated volume drop-through. We continue to expect to drive approximately $80 million in net of investment. For the second quarter, we expect sales to be up approximately 1% to 2%.

We expect pool sales to be up approximately mid-single digits, and water solutions and flow sales to be roughly flat. We expect second-quarter adjusted operating income to increase approximately 5%, and we expect margin expansion across all three segments in Q2. We're also introducing adjusted EPS guidance for the second quarter of approximately $1.31 to $1.35, up roughly 7% to 11%. Let's turn to slide eighteen. The purpose of this chart is to highlight the estimated tariff impact based on what we know today.

The estimated tariff impact of roughly $140 million net of mitigation actions is primarily from China, as you can see on the left-hand side of the chart. The remainder of the tariffs include smaller amounts from Mexico, Europe, the rest of the world, and the steel and aluminum tariff. In our initial 2025 guidance, we had included an estimated impact of enacted and potential tariffs, and we began taking actions in Q1 to mitigate risk. We've taken further actions to mitigate the impacts of tariffs.

Some examples of these include tariff-related price increases, inventory pre-buys, and capping orders to optimize our supply chain inventory and production. Over 90% of goods that we import to the US from Mexico qualify under the current USMCA. And through our transformation sourcing initiatives, we have already lowered our supply and production from China over the last three years. We also expect that we can pass along pricing through our channel, as 75% of our sales are to two-step distribution, in which we sell into distribution, who then sells to dealers and ultimately the end consumer.

As a reminder, over 75% of our sales are also aftermarket or break-fix related revenue. We continue to monitor the rapidly changing landscape and remain agile to quickly adjust as necessary. We believe that we are taking the right actions to mitigate tariff impacts. We have a strong balance sheet and a balanced capital allocation strategy.

Our significant free cash flow enables us to continue to pay down debt, increase our dividend, repurchase shares, and remain strategic on M&A. We plan to continue to deploy capital in areas that drive the highest return for our shareholders while being mindful of protecting capital during periods of macroeconomic and geopolitical uncertainty. I would now like to turn the call over to the operator for Q&A, after which John will have a few closing remarks. Operator, please open the line for questions.

Thank you. Ladies and gentlemen, at this time, we'll begin the question and answer session. If you would like to ask a question, you may do so by pressing star and then one using a touch-tone telephone. We do ask that you please pick up your handset before pressing the keys to ensure the best sound quality.

We do ask that you please limit yourself to a single question and a follow-up. To withdraw your questions, you may press star and two. Once again, that is star and then one to join the question queue. Our first question today comes from Julian Mitchell from Barclays.

Please go ahead with your question.

Hello? Julian, your line is open. Hi. Good morning. Sorry about that. Maybe just my first question would be around the assumptions on organic sales as you're going through the year. You know, and help us understand the volume of some growth sales guide, do you assume a sort of offset, you know, one for one of higher price of, say, three points offset by lower volume.

Yeah. Julian, as a reminder, I think when we started this year, we did not anticipate that we would see recovery in the North American residential housing, which is roughly 50% of our revenue. And we counted on it a little bit last year and thought we'd see lower interest rates. When we entered this year, we've kind of put that on the upside to our original guide.

As you take a look at the way tariffs are coming through, they're different than what we anticipated on February 4, but they still are going to lead to higher prices through the channel. And we think we could see de-featuring. We think we could see consumers defer. So we're anticipating that.

We don't know that, but that is the assumption in our current guide is that the more price goes up, the more volume we'll likely see start to soften.

That's helpful. Thank you. And then just to understand on the tariff element, the sort of $140 million gross, is that an annualized number or is that sort of in year in fiscal 2025? And any help you could give us on differences in sort of phasing of the offsets through the year or differences in sort of offsets by segment? Any sort of color around that, please?

Yeah. I'll start off, and I'll give it to Bob. I mean, you know, you're right on your assumption it is the in-year 2025 number. I mean, I think it would be slightly higher on an annual basis.

We are getting some small benefits related to mitigation of buy-aheads and things that we bought in Q1 and also the fact that we do have inventory on hand. So as you think about the tariffs, it'll mostly hit the second half of the year as it unfolds. And then our pricing has stayed between April actions, May actions, and potentially June actions if necessary. And so those as we head into 2026, more than offset the tariffs, they more than offset this year as they phase in.

Julian. And then, Bob, you wanna give it by segment?

Yeah. I think the only thing I would add is that we think of that $140 million net of mitigating actions as split about a third, a third, a third between flow, water solutions, and pool.

And our next question comes from Andrew Kaplowitz from Citigroup. Please go ahead with your question.

Hey. Good morning, everyone.

Hi, Andy. How are you?

Good. John and Bob, you're assuming you could absorb the entire $140 million of incremental tariffs in your margin guidance, which I think is decently higher than your original tariff assumption from last quarter. And I think today, you Bob, you got it to the higher end of your margin range, 25%. Is that basically all the prices that get you there?

Do you have higher embedded productivity in your forecast? And how much of it all is currency helping you in terms of talent?

Yeah. From a I'll start with the last one. Currency helps a little bit. I think of it as, you know, being roughly 50 basis points, but, you know, not much help to the income or the bottom line.

I would say that, you know, to John's point, it's primarily us pricing to exceed the tariffs, a volume drop that's, you know, roughly in line with that. We do benefit slightly from mix. That's helping us out a little bit. But overall, we feel good that, you know, we're closer to that 25% ROS as we run the different scenarios.

Helpful. And then, John, you didn't change your pool forecast growth for 2025, but maybe give us a little more color into what you're seeing as the selling season develops here in Q2 as rates, you know, they look like they wanna stay relatively high. Is it 60k in pull still the right number, positive break and fix? Just any color be helpful in the year.

Yeah. And I think we saw, you know, as we normally see, you know, if there was any movement in Q1, most of the movement that we saw in the sell-through sell-in was more what we think is weather-related. In certain regions getting off to a slower start. As we head into Q2, we're thinking that we're right in line with where we thought we were before as the season unfolds, most of those pools were already being built or the permits were in place and they needed to get finished.

And then we would anticipate in this particular outlook that we would see some softening in either the remodeling aspect of the pool or as I said earlier, some discretionary push-outs on some larger ticket items as it relates to even the break and fix in the back half of the year. So those price increases will go in, and then we would expect that consumers will look for the best timing of when they should replace their product. So I think that's a fair balanced approach. I think it's still a good industry in the sense that, you know, we're at a more of a historical low level.

So significant downside from here is hard to see. And we're gonna have to work harder on getting consumers and getting our dealers to sell the high-end features that we want within this environment.

Thanks, John. Appreciate it.

Thank you. Our next question comes from Deane Dray from RBC Capital Markets. Please go ahead with your question.

Thank you. Good morning, everyone.

Morning, Dean.

Hi, Dave.

Hey. I was hoping to get some more color regarding your prepositioning of inventory. You had a tariff. So what was the impact there? And then there's in the release, you talk about also capping orders for customers. Just, you know, what's the strategy there? How is that played out? And I was curious if anyone any of your suppliers were capping any of your orders for prepositioning.

Yeah. You know, Dean, I mean, just on the mitigating thing, think about a couple months of inventory being pretty basic throughout the channel and, you know, given the fact that we're talking about the substantial tariffs coming from China, most of the things are preordered and on their way so that that's it's a modest amount of number, but it does help you from a timing and a delay perspective. Especially given the fact that most of it is raw materials, which is a subcomponent of a subcomponent. So it's I wouldn't say it's really in the action we took on.

It's just the normal part of the supply chain that we were dealing with. You know, as far as the overall environment of what we're looking at, I would say that we're capping the order strategy primarily the learning from the last supply chain issue we had where if we let the channel just buy whatever it wants to buy, it's gonna get try to get ahead of all of the potential increases and you create shadow inventory and inventory. So we're working with our top customers and giving them an ability to order at sell-through rates which then gives them the necessary inventory they have to meet the demand.

But doesn't get us in a situation where we get behind or disruptive in the supply chain again. Just the learning from the last go around.

Got it. And then just broadly, what's your expectation for the businesses? Any demand destruction that's happened from all the tariff uncertainty? And are you seeing any project push-outs, cancellations? Anything that would be material in your outlook?

Not yet, Dean. I mean, we are definitely looking for the fact I mean, we are a small part of usually a project, and we are, you know, definitely more of the break and fix of the needed components. But we're keeping an eye out on the future projects where, you know, a large project could be paused or deferred. And this would be on more on the, you know, food and beverage side and or the large infrastructure pump sides.

We have not yet seen anything, but we're keeping an eye on it and making sure that we're looking through sell-throughs and making sure we're looking at front log orders to make sure we're not, you know, in an adverse position there. Now most of those projects are local for local. So they're not necessarily impacted by each tariffs.

And our next question comes from Mike Halloran from Baird. Please go ahead with your question.

Hey. Good morning, everyone.

Good morning, Mike.

Hey, Mike. So a little bit of a follow-up to that. How's the channel reacting at this point? I know you've limited, you know, are limiting the amount they can pre-buy.

Is there any sense that they're trying to take inventory down at any levels? Are they responding? And, you know, earlier you mentioned about Salesforce having to be a little bit more proactive to upsell. You know, have you put that in place in how are you interacting with the channel when it comes to managing a lot of say this in a flipper joking way.

This is probably the most exhaustive quarter I can ever remember participating in. I say that because we run so many different scenarios and so many different alternatives of what this could be. I mean, think about the way this quarter played out. You know, the way the announcements came, the way you heard about them, the reactions, the counter tariffs, the retaliatory, tariffs are in, they're paused.

And so I think the right answer to say is everybody's looking and seeking that solution. Like, I think right now, as I mentioned, I think a lot of projects that are getting completed now were put in motion a while ago, and you're just to the stage where you're gonna finish pool or you're gonna finish that, you know, particular need in that housing development. I think the bigger decisions and the way the channel gonna react is still out there. In a couple quarters.

Like, depending on what scenario we see play out. Just being honest.

Yeah. No. And that makes sense. And that makes sense. On the capital usage side, any change in how you're thinking about buybacks in the short term I'm guessing no shift on the M&A side. But if anything's interesting on that side, certainly curious there too.

Yeah. You probably noticed that we did do a $50 million share buyback in Q1. That's a little unusual for us. Usually, we wait till our bigger free cash flow quarter in Q2, but we felt good about the free cash flow. It's at, you know, $70 million better than the prior year.

But overall, I would say we're continuing to be disciplined around our capital allocation, continuing to do debt pay down, share buyback. We increased our dividend by 9%. And, you know, looking at strategic bolt-on M&A if they come our way. So that balanced approach has been good to us, and I think we'll continue to look at ROIC, which was close to 16% in the quarter.

And stay very focused on shareholder returns.

Our next question comes from Steve Tusa from JPMorgan. Please go ahead with your question.

Hey. Good morning, guys.

Like this morning.

Can you hear me okay?

Yes. Now we can.

Yep. Hey. Sorry about that. So I just wanted to make sure from an annual base you guys didn't provide the profit bridge in the deck.

Just wanted to make sure that the kind of $80 million of productivity is still there, kind of the core inflation number think it was roughly that, is also still there. And then I guess if we just assume the $140 gets entirely offset at the price that would get us to, like, a 5% year-over-year price number for the company in total. Is are those you just stick on the $140 of tariff headwind. Is that are those kind of the moving parts of the bridge and then you back out volume?

Well, we didn't provide a bridge, but if we were, that would be pretty close to it.

Yeah. Steve, I'd answer yes, yes, and yes.

You know, your price assumption makes sense to us. The productivity has stayed at $80 million net of investment, and we're off to a pretty fast start here in Q1 versus certainly versus last year. And then the core inflation number, you know, prior to tariffs makes sense as well.

Got it. Okay. And then just one last one just on pool. I'm not sure if I caught this before, but what is the, like, channel telling you about? I think you would that if you address these tariffs, you would expect some demand destruction. Is any feedback on the channel on that so far?

Not yet, Steve. I think we're well-positioned. I mean, 80/20 has been a great tool for us. Keep in mind, we're really only shipping to a handful of key distributors now directly, you know, as part of the 80/20 effort.

And so it's a lot less channel partners that we have to work through. And I think in our perspective, we think all of them think they're being treated fairly, and I think right now, what you're hoping for is that you don't see large price increases that would be disruptive by having price decreases in the future. And so we've paced out the price increases, and I think we've done that in a thoughtful way. And I think so far, it's given the channel a heads up on what's coming.

And I think they're prepared for it.

Our next question comes from Jeff Hammond from Auto Markets. Please go ahead with your question.

Hey, good morning, guys.

Hi, guys.

Hey, just the tariff details, Greg. Can you just level set us on what percentage of your cost of goods sold's sourced from China today versus, you know, three years ago, it seems like you've been moving it. And then if we kinda live in this world going forward, what are the big changes you're contemplating to your sourcing and manufacturing footprint long term?

Yeah. I mean, mathematically, Jeff, when you calculate, you'll see that it's just less than $100 million that's sourced from China. Doesn't seem like a lot, but you put a big pretty hefty tariff on there, and it starts to impact us. It also is one of those situations where very little of it's finished goods.

So a lot of it is a subset of a subset, which means it's spread across a lot of different products and a lot of different motors and items like that that take time to actually unwind, Jeff, in the sense that we have to get certifications. We have to get approvals, we have to reengineer. So we're in a situation where even though it's not a lot, it's still enough to be annoying. And we're working through that.

Answer your other question, it would have been about two and a half times that. We would have gone back three or four years ago. And as we were looking through our transformation process, we were able to mitigate a lot of that single country exposure. Did not think this was gonna come.

Not gonna say that's why we did it. We really just wanted to spread out the purchase by across many different suppliers so that we weren't in any one single risk situation.

Okay. That's helpful. And then is there anything in the guide contemplated around restructuring actions you might take if you do see that demand destruction and any kind of ability to pull forward or ramp up transformation above that $80 million if we do start to see that demand destruction?

Yeah. Jeff, we're in the process of looking at all that. You know, we don't forecast the actual transformation impact, but I think the next wave of projects would be probably relative related to how do we reposition our supply chains and how do we reposition our factories to be more effective. Most of that would be realized in 2026 and beyond.

Because it would take time to actually benefit from that cost out.

Yeah. And from a transformation perspective, we're always working on a funnel that's two to three times higher than our commit. And so that gives us the flexibility to use transformation as we need to.

Our next question comes from Nathan Jones from Stifel.

Good morning, everyone.

Good morning.

I'll start with a question on competitive differences. I'm sure your supply chain is not always exactly the same positioning as your competitor's supply chain. Are there places where you see either risks or opportunities given an advantaged or disadvantaged supply chain relative to your competitors?

Yes. I mean, it is why I chose the wording I chose in that second bullet on the slide we're gonna position ourselves to be the best for our businesses in the short run and long run, meaning some of our businesses don't have the ability to just pull the price lever. They're gonna have to compete, and we're likely to see some margin challenges there as we work through the longer-term actions and some of our businesses aren't in a situation where price might actually exceed the tariffs.

Okay. And I guess then on the China sourcing, you know, it's less than it used to be, but still when you put a 145% tariff on it, pretty material. Are there already plans enacted to move more of that supply chain out of China? Can you get the whole lot out of China?

Are there things that you know, you can only get from China? How should we think about that? I know you said, you know, that's probably until 2026, and you can't snap fingers to make it happen.

Yes, yes, and yes to what you just said. There's things we can only get from China. You know, we're gonna have to make a determination if customers still want that product. You know, embedded in some of that volume, which is some of the mitigating aspects is we just might not be able to carry that product line going forward because we can't be competitive.

It's the only place it could be sourced at. And then that addresses the mix issue that Bob said. How do we move somebody to a, you know, it might be a more expensive product line on a normalized basis, but probably less expensive given the tariffs and probably provides a better solution. And then that helps free up what the supply chain could look like in the future, and then we could start to assess what we need to do longer term.

Our next question comes from Brian Blair from Oppenheimer. Go ahead with your question.

Thank you. Good morning, everyone.

Hi, Brian.

Obviously, you're pacing ahead of the $80 million in guidance. Transformation benefit for the year. And if we assume that $80 million is the number and that that does not move higher, how should we think about the phasing or cadence of the remaining $56 million or Q2 to Q4? And how does that shake out by segment?

That $56 million would be pretty evenly spread for each of the quarters. And, you know, by segment, it continues to be, you know, a flow play. Water solutions also have some complexity reduction. So I usually look at flow and water solution first, and then, you know, pool, this will be if they drive the growth that we forecasted in Q2, this will be their fifth consecutive quarter of top-line growth, and that certainly helps the leverage.

So again, feel good about all three segments participating in the transformation.

Understood. Appreciate the detail. And you maintain the consolidated ROS outlook for the year actually signaled the higher end is of the range, which is encouraging. Is there any change in expectation by segment you had?

Last quarter, I believe, broken out around 100 basis points in the pool, roughly equal contribution from the other segments. Just curious with everything that's going on and the moving parts of navigating this environment, if the platform level expectations have shifted.

Not really. Those estimates continue to track well for this forecast.

Understood. Thank you again.

Our next question comes from Andrew Krill from Deutsche Bank. Please go ahead with your question.

Hi. Thanks. Good morning, everyone. So let's step back and take a slightly longer-term view, but I know you mentioned again your 2026 targets, including the 26% margin.

And then think as of last earnings, you know, you said low single-digit growth this year and next year was kind of the path and assumption to get there. So just what's your level of confidence is still hitting that margin target in 2026? And, like, say we did have some form of a, you know, mini recession here, like, you still think you have enough contingency in those plans to get to that 26% margin next year? Thanks.

Yeah. We continue to feel good about that 26%. So, you know, something around 25% this year. 26% led by transformation next year, so I had that in my prepared remarks. And we continue to feel good about the 26 in 2026.

Okay. Great. And on just April, I know it's early in the quarter, but just any, you know, anything going poorly in the first week or two you might have some information on April trends?

Yeah. No. Our guide includes all that. Obviously, you know, we'll expect to see a lot of different order patterns here in Q2. Depending on, you know, how the channels are working through the various tariff impacts. And we're looking at sell-through, we're looking at all the data, and we think our Q2 is the best practical guide we have, and full year is the best.

Our next question comes from Joe Giordano from TD Cowen.

Hey, good morning, guys.

Morning. Hi, Joe.

John, you were around during the Tyco days. So to say that this is, like, the most exhausting quarter you can you remember that's a strong statement.

That is true. And I had a dual job back in those days too. But, yes, it is the most exhausting. And by the way, I don't mean that for me.

I worry about all the finance teams and the operations and sourcing teams. I mean, you're doing transformation and then layer on top of that, you know, relooking at the supply chain again and all the different impacts. Couldn't be more proud and grateful for the work that the entire team has done.

So just curious, on these price increases, are they different than normal ones? Like, how specifically tied are they to tariffs? Like, if something happened tomorrow and tariffs go away, do you have to go back out and cancel these price increases?

No. I mean, we generally don't have a channel that loves the charge or, you know, a specific incremental amount that's tied to a particular product line. It's easier to do more across-the-board types of actions. What I would say is different this time, and we are pacing them out, so we have more of 30-day increments, which allows us to continue to react to what's known and to anticipate what could happen.

And I think that allows the channel to generally get ahead a little bit of where they need to be. So there's about 75% of the price actions to cover everything that's included or been actioned already, and the rest has been notified that it's still coming.

Yeah. We really like the phased approach around pricing. It allows us to react to the changing circumstances. So I would say that's something different than what we've done in the past.

And is there something is there exposure we need to consider on stuff that's currently on hiatus, like some of the electronics that are on temporary exclusions from tariffs that may need to come in? And would that be already contemplated in the price increases you've announced?

You know, I think it's not meaningful. You know, I would tell you I had a worst-case scenario at one point, and it literally said worst-case scenario, and then this exceeds the worst-case scenario. So I won't say that this is the final final. I think we're gonna see lots of movements, and we're gonna have to capture by channel and by product line and by source.

Those movements are and react accordingly. I do think if more tariffs come in, there's a likelihood that maybe some tariffs go away and have to look at what the net net of those impacts are.

Our next question comes from Brian Lee from Goldman Sachs. Please go ahead with your question.

Hi, everyone. This is Nick Cash on for Brian Lee. Can you guys hear me?

Yep. Yes. Hi, Nick.

Hey. Just wanted to circle back, you know, on one of the 80/20 questions earlier. I guess, you know, what impact is are you seeing, if any, on, you know, progress in relation to the tariffs and timing and not sure if we're thinking about this the right way, but if you're mitigating tariffs with price and one of the tactics is to move, you know, from, you know, quad four customers to quad three or push them out by raising prices, could this potentially accelerate 80/20 in that sense? Color would be helpful.

Thank you.

Yeah. It does, and it will get captured. The volume. I don't think it's an intentional, you know, acceleration of letting our customers go.

It's the natural reaction to we wanna take care of Quad One, which are our best customers and our best products. And that's where the majority of the, you know, 80s are, and that's our focus. So we wanna get that right. And we can't necessarily continue to make or produce or source a lot of the Quad four product because of the impact that tariffs have on it.

So just discontinuing it, which is part of the volume drop, is one solution. Raising those prices and moving the customers around the quadrants is another solution, but feel really good about having the 80/20 toolkit at our disposal. And I'm really happy that it's part of the Pentair business system given what we're dealing with.

Awesome. I appreciate that color. That is all for me. Thank you.

Thank you. Our next question comes from Andrew Buscaglia from BNP Paribas. Please go ahead with your question.

Hi. Good morning, guys.

Morning.

So just based on holding guidance and some of your commentary, I would assume you probably have some negative full volume going forward or slightly negative. Are your pricing strong? So how do you think about, you know, being able to expand margins, especially relative to the comps you have in the back half of this year? Is that the goal here still?

Yeah. We still feel good about that, you know, approximately 100 basis point improvement in pools. Return on sales. Again, there's not just the volume, but in addition to that, a number of the transformation pillars that they've been working on as well. So, you know, to drive the ROS improvement, continuing to be very focused on, you know, costs and the mix of the business as well.

You know, I'd add to it that we, you know, we look at this as net of investment. And there's a fair amount of growth investment in the transformation number. And those growth investments are what we call sales plays, where we'll sample a particular sales play in a different region, and then we'll scale it and clearly water solutions, parts of flow and pool had the majority of that. If it's an environment where no matter what effort we're trying to put at it, we're not gonna see that incremental volume, then that's another lever we have at our disposal as the year unfolds.

Okay. And then, you know, I was surprised to see, you know, the commentary around your distributors and raising prices. I would think you'd have some pushback. So I guess my question is do you

Nobody wants them, I'll be honest. Yeah. I think it's it's amount, you know. First of all, do we have to do them? And if you have to do them, you know, are they being fairly implemented? And is everybody still feeling like they're getting the best possible price for their relationship? And that's that's what I'm responding to, not that anybody welcomes them or wishes for them.

Yeah. I guess that was I was wondering, like, the difference between the price increases and then, like, the actual price realization. It doesn't seem like there's a big delta there. Your the distributors are generally taking it in without a ton of pushback is what is what the takeaway is.

Yeah. Because everybody's doing it. And I think we're all in a situation where we're getting hit with, you know, these are stunning numbers. Right?

And they come at you this quickly, I mean, there's only one way to respond. And then I think they'll be looking for longer-term solutions. And wanting to make sure that we're partnering to give the best possible value to their customer customers and their customers' customers, which is still an obligation we have. As we go forward into 2026 and 2027.

Our next question comes from Scott Graham from Seaport Research Partners. Please go ahead with your question.

Hey, good morning. Thanks for taking my question. I wanted to understand something. You guys said that you were sort of gapping out pacing the pricing, but you also said 75% have been actioned, 25% notified. Can you explain what you mean by that?

Yeah. We went out with significant price increases in April across all the different businesses. And we have, as we mentioned, be stream between both mitigating things, having the inventory on hand and also the timing of the tariffs, notified that if things don't change, and the assumption here is they don't, then we would be back out with modest price increases in May. And then if things don't change again, we'd have more modest increases in June.

So 75% actioned. And the other 25% still coming in May and June time frame.

That's clear. That's much clearer. Thank you. Last time we talked about the pool markets components you're thinking on the market was low single digits for the three components. I'm assuming that, you know, with sales potentially having a little bit of destruction demand-wise, that do all three of them come down, or is it more focused on the remodeling side?

Don't know. I mean, right now, we're guessing at what that impact would be. So we very limited volume growth in this particular forecast. We're expecting that, you know, break and fix will still happen, and the new pool side is relatively flat.

If we see softness, we, as I mentioned earlier, might be in the remodeling side or it might be in what I'd call a discretionary purchase. I think we'll have more clarity as the year unfolds, obviously. But right now, it's way too early in the season to tell.

And our next question comes from Nigel Coe from Wolfe Research. Please go ahead with your question.

Thanks. Good morning. Just a couple of quick ones for me. So just to double clarify on the pricing actions, John, that these are regular price actions, not surcharges. And just the question really is, you know, if there's a de-escalation in these China tariffs, that the prices would remain in effect.

That is correct.

Hello?

Oh, I'm here. I said that is correct.

Can you hear me?

Yes.

Okay. Did you get the question?

Yes. And I agreed with you. I said that is correct. Your assumption is correct.

Okay. Sorry. I you didn't come through. Okay.

Great. And then just maybe again, I'm sorry if I missed this. Kind of how should we think about capital allocation in light of the balance sheet strength that you have, Karen, into the year? Especially with the pullback in stock price.

Just wondering if, you know, obviously, I saw $50 million of surplus share purchase this quarter or last quarter. Any thoughts on that?

Yeah. In the previous question, we discussed the balanced capital allocation strategy. So, again, nice mix of debt pay down, share repurchase, we've increased the dividend. And then if the opportunity comes up for bolt-on M&A, maybe similar to what we did in Q4, all four of those make a lot of sense to us.

And ladies and gentlemen, at this time, we've reached the end of the question and answer session. I'd like to turn the floor back over to John Stauch for any closing remarks.

Thank you for joining the call today. In closing, I want to reiterate some key themes on slide nineteen. Delivered our twelfth consecutive quarter of margin expansion and Pool Grids top line 7%. We maintained our sales and adjusted 2025 EPS outlook.

We expect a long runway of productivity savings driven by transformation in 80/20. Our focused water strategy and strong execution continue to build a solid foundation to drive long-term growth, profitability, and shareholder value. And we believe we are well-positioned to effectively manage the challenges from the current volatility. Thank you, everyone. Have a great day.

Ladies and gentlemen, that concludes today's conference call and presentation. We do thank you for joining. You may now disconnect your lines.