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Welcome to the Pentair third quarter 2025 Earnings Conference Call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. To withdraw your questions, you may press star and two.
Please also note today's event is being recorded. At this time, I would like to turn the floor over to Shelly Hubbard, Vice President Investor Relations. Please go ahead.
Thank you, operator, and welcome to Pentair's third 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 third quarter performance as outlined in the 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 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 risks in our most recent Form 10-Q and Form 10-Ks. Please note that during the presentation today, we will be making references to record financial results. These references reflect the time period post the indent separation in 2018 unless noted otherwise.
Following our prepared remarks, we will open the call up for questions. Please limit your questions to two and reenter the queue to allow everyone an opportunity. I will now turn the call over to John.
Thank you, Shelly. And good morning, everyone. Thank you for joining us today. Please turn to the executive summary on slide eight.
In Q3, we delivered sales growth and a record third quarter across adjusted operating income, return on sales, and adjusted EPS. Sales increased 3% driven by our pool and flow segments. Adjusted operating income increased 10%. ROS expanded 160 basis points to 25.7%, and adjusted EPS rose 14% to $1.24. In September, we acquired HydroStop, a leading specialty valve solutions provider for water infrastructure, for approximately $292 million in cash, or $242 million net of the anticipated $50 million of tax benefits.
This acquisition enhances our commercial flow business with a strong financial profile and strategic fit. We are excited to welcome the HydroStop team and their customers to Pentair. Year to date, we delivered record free cash flow and we repurchased $175 million of shares. Lastly, we are increasing our full-year guidance driven by a strong third quarter and continued confidence in our execution.
We now expect sales growth of approximately 2% and adjusted EPS of approximately $4.85 to $4.90, up 12 to 13% from 2024. Let's move to the strategic overview on slide nine. Over the last three years, our teams have successfully implemented our transformation initiative while continuing to drive strong execution leading to robust margin expansion. As we enter 2026, we feel confident that we've developed a flywheel that we expect will continue to drive efficiencies, opportunities, and profitability. Our 8020 actions are well underway and show early signs of success in driving top-line growth.
Our businesses are in various stages of implementation on this multi-year journey. We plan to share more insights with you on our 8020 actions at an upcoming Investor Day in March. We continue to invest in focused growth initiatives where we see great opportunities to drive near-term and long-term growth. We are also investing in innovation through digital and product technology.
In addition to investing for growth, our strong financial discipline and free cash flow have enabled us to make strategic acquisitions that align well with our current businesses and provide a platform for growth. As a dividend aristocrat, we have raised our dividend for forty-nine consecutive years, and we will have continued to repurchase shares. Collectively, we believe this is a smart use of capital deployment to drive future sales and earnings growth. Let's turn to slide 10. We have delivered approximately $56 million in transformation savings year to date and are on track to reach approximately $80 million in 2025. I want to remind you that this performance is net of strategic growth investments and is in addition to the $174 million of net performance we drove in 2023 and 2024 combined.
As I mentioned earlier, we believe transformation and 8020 are creating a flywheel for continued sales growth and profitability. Let's turn to slide 11. There are several key themes that I wanted to share. We delivered another quarter of sales growth and double-digit earnings growth due to strong execution. We increased our full-year 2025 guidance driven by a strong Q3 and continued confidence in our strategy.
We continue to build a foundation of optimal operational efficiency that we believe can be leveraged when volume returns to normal. We have a balanced water portfolio and a capital-light business model, with 75% of our business going through two-step distribution, and roughly 75% of revenue representing replacement sales. And we have strong free cash flow, a solid balance sheet, and a balanced capital deployment strategy that we expect will accelerate earnings and ROIC. Before I hand the call over to Bob, I want to acknowledge that we announced this morning that Bob will be leaving Pentair effective 03/01/2026. And embarrass him a little by complimenting him on having been an outstanding partner to me and Pentair.
Over his nearly six years in what will be 23 quarters of dedicated service, Bob has driven deep financial competency throughout the organization. It shows in our operating performance, the level of commitment to results from the team, our transformation progress, our cash flow and ROIC performance, and of course, the total shareholder return that he has overseen as CFO. What makes Bob an even better teammate is his steady and measured communication style and his no-drama approach to challenges. We have seen tremendous operating performance throughout his tenure, despite us having had to deal with COVID, a period of supply chain instability, rapid inflation, and of course, tariffs.
Bob has led us through all of it with a bold leadership style and a sense of humor. Now to nearly sixty quarters of being a public company CFO, he's moving on to his next chapter. Bob has built and developed a great financial team. As you get to know Nick, I'm confident you will see that he has a lot of Bob's skills plus unmatchable energy and drive.
Bob will oversee a smooth transition process through 03/01/2026, ensuring that we do not miss a beat on our value creation journey. I will now pass the call over to Bob who will discuss our performance and financial results in more detail.
Thank you, John, for the very kind words. I have thoroughly enjoyed my time at Pentair, our partnership, and working with all the great people in the company. We have very strong finance and IT teams at Pentair, which is evidenced by Nick's and Heather's promotion. Personally, I will be 63 in May, and I'm looking forward to spending more time with my family and enjoying my hobbies.
It is comforting to know that not only is my team in a great place, but the company is expected to exit the year with continued momentum and is poised for significant success going forward. I look forward to continuing to work with Nick and Heather over the next few months to help ensure a smooth transition. Let's move to slide 12. As John mentioned, we delivered a third-quarter record in adjusted operating income, return on sales, and adjusted EPS. In Q3, we drove sales of $1.022 billion, up 3%, adjusted operating income of $263 million, up 10%, ROS of 25.7%, an increase of 160 basis points, and adjusted EPS of $1.24, up 14%.
Core sales were up 3% year over year, driven by core growth of 6% in pool, 4% in flow, and water solutions approximately flat. Moving to adjusted operating income, transformation was the primary driver of 160 basis points of margin expansion in Q3. Price offset inflation and we delivered transformation savings of $12 million while continuing to invest in growth initiatives. Please turn to slide 13. Flow sales were up 6% year over year to $394 million. Within flow, residential sales were up 3%, commercial sales increased 5%, marking the thirteenth consecutive quarter of year-over-year sales growth, and industrial sales rose 10%.
Segment income grew 15% and return on sales expanded 200 basis points to 24% driven by strong sales growth and transformation. Please turn to Slide 14. In Q3, water solution sales declined 6% to $273 million. Core water solution sales were flat. Commercial sales were down 6%, inclusive of a 9% negative impact from the sale of commercial services in Q2. Residential sales were down 6% year over year primarily due to portfolio exits.
Segment income grew 6% to $68 million and return on sales increased 280 basis points to 25% primarily driven by transformation savings. The contribution of price slightly offset inflation. Please turn to slide 15. In Q3, 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%. As a reminder, in Q3 2024, ROS reflected margin expansion of nearly 500 basis points resulting in a challenging compare. In Q3 this year, we continued to invest in growth initiatives, such as new products, sales plays, and digital solutions, to drive higher top-line growth in future periods. We expect pool margins to expand in Q4 and for the full year as we continue to drive a balanced approach of top-line growth and continued ROS expansion in the future.
Please turn to Slide 16. We generated record free cash flow of $719 million year to date, up 14% year over year. Our balance sheet remains strong and our return on invested capital increased to 16.7% from 15.2% a year ago. Our net debt leverage ratio is 1.3 times, down from 1.4 times a year ago. This includes our recent acquisition of HydroStop for $292 million with an estimated $50 million of future cash tax benefit.
Year to date, we have repurchased $175 million of shares. Our significant free cash flow generation has enabled us to strategically deploy capital through debt paydowns, dividends, share repurchases, and strategic acquisitions. We plan to remain disciplined with our capital and have additional flexibility to strategically allocate additional capital to areas with the highest shareholder return. Let's turn to our outlook on slide 17. For the full year, we are increasing our adjusted EPS guidance to approximately $4.85 to $4.90, which is up roughly 12% to 13% year over year.
Also, for the full year, we are increasing our sales guidance to up approximately 2%. We expect flow sales to be up low single digits, water solutions to be down mid-single digits, with core sales down approximately low single digits, and pool sales to be up approximately 7%. We expect adjusted operating income to increase approximately 9% to 10%. We continue to expect to drive approximately $80 million in transformation savings this year, net of investments.
For the fourth quarter, we expect sales to be up approximately 3% to 4%. We expect flow sales to be up approximately high single digits, which includes our HydroStop acquisition of approximately $10 million of sales in the quarter at approximately 30% ROS. We anticipate water solution sales to be down approximately mid-single digits with core sales approximately flat reflecting the commercial services sale in Q2. Core commercial water sales are expected to be up approximately low single digits. Pool sales are expected to be up approximately mid-single digits.
We expect fourth-quarter adjusted operating income to increase approximately 4% to 8%. We're also introducing adjusted EPS guidance for the fourth quarter of approximately $1.11 to $1.16, up roughly 3% to 7%. Let's turn to slide 18. We continue to execute well and are offsetting the impact of tariffs through increased prices and other mitigation strategies. Our total 2025 tariff impact of approximately $75 million remains consistent with our outlook in Q2, but tariff uncertainty continues.
Our 2025 guidance does not include further China and Mexico impacts, which could go into effect later this year. However, these are expected to be immaterial for this year. We expect to take mitigating actions as needed to offset these additional tariffs if they occur. We are very pleased with our performance in Q3 and year to date.
Our teams have been hard at work to mitigate the impact of tariffs while continuing to focus on transformation and 8020 and continuing to deliver strong results. We are excited to welcome the HydroStop team to Pentair and look forward to driving continued success. We are in a solid financial position with a strong balance sheet and record free cash flow, which allows us to continue to invest to drive higher sales growth and profitability over the long term. I now would 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 are using a speakerphone, we do ask that you please pick up your handset prior to pressing the keys to ensure the best sound quality. To withdraw your questions, you may press star and two. We do ask that you please limit yourselves to two questions.
At this time, we will pause momentarily to assemble the roster. And our first question today comes from Steve Tusa from JPMorgan. Please go ahead with your question.
Hey, guys. Good morning.
Hey, Steve. How are you?
Hey. Good morning, Steve. I think you addressed some of, like, the tough comp and pool on the margin, but I think the productivity was definitely weaker than we were expecting there. Could you just talk about what the trend is and then maybe how you're feeling about that number for the full year for the full company?
And then secondarily, I guess it's good to see the volume picking up there. Is that kind of like signs of life of a little bit of a bounce in the kind of replacement of the age installed base, and then just talk about how you're measuring, you know, how you're kind of balancing that against price.
Very good. Let me go ahead and start with that one. So, you know, in terms of transformation as a whole for the company, still driving towards that $80 million commitment we made at the beginning of the year net of investment. So feel good about that.
Also, optimistic that Pool will rebound in terms of ROS expansion in the fourth quarter and drive transformation savings. Frankly speaking, when we compare pool performance in Q3 this year, last year, their ROS was sitting at 34%, up roughly 500 basis points. So we always knew that was gonna be a challenging compare. And then frankly speaking, we had the luxury this quarter to invest in pools to drive that top-line growth in the future.
We started off the year very strong from a transformation, drove over half of our savings. So we could afford to invest in Q3, especially in pool. Flow had an amazing quarter in the third quarter. And, again, once again, that allowed us to invest in other businesses.
So that investment in the quarter for Pool has really helped in terms of sales plays, new products, digital solutions. It's all about making the life of the dealers and the distributors easier by making those investments, creating an effortless pool experience for the end consumer, and then just driving an improved level of customer service. So I think it was money well spent. But again, from a ROS perspective, I expect pool will end the year very strong.
They'll be very close to that 34% ROS. And when you think about the journey Pool's been on, six quarters in a row of strong top-line growth, and their ROS was 31% back in 02/2023. So to be approaching 34% this year, really an amazing trajectory for that business.
Right. And then I guess just a follow-up on the volume and the source of upside there and then just how you're balancing out against price?
Yeah. I would just say it felt like it was more predictable in Q3, Steve. And I think some of that is we're not seeing the levels that could find across the new pool build. And we're also not seeing some of the same challenges that we were seeing in the aftermarket side on when the price first went into place.
Some of that was consumer shock and looking at substitution. So it feels stable. We're highly encouraged that we're gonna have a volume-based growth plan for pool next year. And prices are holding.
I mean, clearly, don't know if we get this next wave of if China were to, you know, 100% tariffs, we're gonna have to go consider those prices again. But right now, the price cost is in line, and we're doing fine, and we feel comfortable with where we are.
Just to add a few numbers to that, we talked last quarter, our view has not changed that price would read out about 4% for the company and about 5% for pool. So on track for that. And when you think about our guide, Steve, you know, up 7% this year for pool, think about 5% being priced, 1% to 2% being the Gulfstream acquisition, and the market generally flat from a volume perspective.
Our next question comes from Andy Kaplowitz from Citigroup. Go ahead with your question.
Good morning, everyone. Congrats, Bob. Thanks for all your help.
Thank you, Andy.
So you lowered your twenty-five year-over-year cold water solutions growth, I think, just a little bit down low single digits instead of flat. As commercial growth continues to lag a bit for you, I know you, I think, Bob, you said it will go to low single-digit growth in Q4. And then any preliminary thoughts on '26? For the segment?
Yeah. You're right, Andy. It was the only full-year guide we tweaked down a little bit in terms of core water solution. You'll remember for Q3, we were saying commercial water solutions would be low to mid-single digits.
That came in at low single digits. And we guided Q4 for core commercial water to be low single digits. So it's a little bit off where we like that business to be in kind of that low to mid-single-digit range. But to me, it's reflective of the food service industry in general.
That's the type of growth we're seeing. We're gonna continue to drive optimization in that business from a bottom-line perspective. But it is a slower market right now.
Yeah. And, Andy, I would just add to that. I think North America, we continue to do extremely well against the market backdrop, but we do have international sales. We've seen softness in 2025 for some of the sales into China.
And we're still doing well despite that. And that'll level off as we look at next year, and I think we're encouraged by some of the recent value trends that we see in North America.
Yeah, we did see in Q3 the ICE business hit mid-single-digit growth, which was encouraging for us. And in North America filtration, we also hit our eighteenth consecutive quarter of growth. So that's been a very impressive run for them.
It's helpful, guys. And then maybe you could give us an update on the 26% target in '26. It seems that you're still comfortable with that. As you know, transformation savings really slowed down now in three years as you said. Is it reasonable to think that at that March Investor Day, you could still talk about a significant transformation in 2020 funnel that lasts well past 2026 and drive margin higher?
I know I'm asking for carp before the horse, but you go. Very comfortable with the '26.
Start there. And very comfortable that when we come to invest today, we'll demonstrate a bundle that significantly improves from there. I think every time you we have success, we find opportunities that we need to continue to look at. I think we've been reactionary a lot on the tariff mitigation, but now we have an opportunity to study those supply chains more opportunistically of how we can drive further savings.
And one of the encouraging data points in Q is we finally got labor and overhead productivity. You need volume generally to get that labor and overhead productivity, so as we start to bring volume back, we're very comfortable that we'll start to expand margins from a volume which we haven't seen for some time here.
Thanks, guys.
Our next question comes from Deane Dray from RBC Capital Markets. Please go ahead with your question.
Thank you. Good morning, everyone, and I'll also add my congrats to Bob.
Thank you, Dean.
Hey, can we just want to follow-up on some of Andy's questions on the transformation? Just kind of could you give us some context of where those savings are coming from, kind of what buckets SG and A? And how much more is there to go there?
Yeah. I'll go ahead and start. And, you know, the transformation journey, you know, two years ago, we drove six seven of savings. Last year, a $107 million.
This year, we're tracking 80, you know, on the way to that 26% ROS. So really pleased with the transformation reading out. In the early years, it was primarily in that sourcing space. Where we were working on, you know, wave one, wave two of our overall material spend.
What we're seeing now is much better balance across all four pillars of transformation. So we're doing a really nice job with value-based pricing in the pricing excellence workstream. Within sourcing, we're on wave three. Which is looking at really make versus buy.
Is there more product we should be making in our plan? Or is there less product we should be making? We're also at the point of revisiting wave one and wave two with more of an 8020 lens. So a lot of opportunity within sourcing.
On the productivity side, we're looking at everything from factory automation, four-wall lean, looking at our operational footprint, and driving savings there. To John's point, we've set some pretty aggressive targets for each of our plants. Around labor and overhead, and we're starting to see that labor productivity start to read out. And then finally, on the org excellence piece, again, setting G and A targets, understanding where the spend is, holding the teams accountable for that spend.
So I really think about it as balance across the four pillars that's driving the transformation savings. And you'll hear a lot more about that as part of Investor Day in March.
Paul, good to hear. And just second question, back on pool, there was no mention of an early buy. You know, you don't do that every year, but just, you know, is that not needed? And so just to clarify, that's not in your assumption.
No. The early buys are always there. Seen every single year in pool. We would say that it was a normal early buy season, and we're experiencing, you know, carries forward here in as you know, that's the level of the factories, but there has been no abnormal efforts related early buy.
Yeah. We're seeing, again, a very typical early buy for the fourth quarter. Think about a quarter's worth of revenue with roughly 50% shipping in Q4 and percent shipping in Q1. Very normal year is what we expect.
Our next question comes from Damian Karas from UBS. Please go ahead with your question.
Morning. I want to so I wanted to get in the weeds a little bit on the flow segment. So you got three points of price overall. Could you just talk about, you know, was there much variation in that? Across residential and commercial versus industrial? And because that industrial solution's up 10% really stood out. So maybe you could just kind of talk about what you saw there.
Yeah. Again, we were really pleased with the performance of flow in the quarter. To drive growth across resi, commercial, and industrial was excellent for us. We're seeing price reading out across all three of those businesses.
We've told the story around commercial before in terms of expanding who they sell to, and that really paying off for that business. On the industrial side, just really pleased with both our food and beverage and sustainable gas businesses. Frankly speaking, those were easier compares. But as those businesses have improved their operational performance, we've allowed them to go after more top-line growth through standardized offerings.
And that's really paying off. And then it's really nice to see the resi business starting to stabilize and even grow. And we had a good quarter in specialty as well.
Okay. That's really helpful. And, John, I think I heard you say pool pricing kind of has been holding up. Could you guys just confirm that you didn't see any sequential decrease in pricing in the full segment? Thank you.
Well, I'm not going to address it sequentially because I look at them year over year. You know, we have two really busy seasons and pool quarters in pool and two softer ones. But you know, we would tell you that the price increases that we put in we held and we saw no challenges associated with it. But as a reminder, we didn't put the incremental one in.
That would have captured the concerns of the incremental bump in the China tariffs that were mentioned before. So we timed our price increases with what known information we had, and therefore, we're very comfortable with what the way that we approached it and implemented it. Again, feel good about pricing in full. Read out about 5% ish year.
In terms of price in Q3 of this year, it is bumping up against a large price increase. So these changes that we show in our waterfalls are year on year, and last year, Q3, was one of the larger price increases, so it had that compare to go up again.
Our next question comes from Mike Halloran from Baird. Please go ahead with your question.
Hey. Good morning, everyone, and congrats, Good morning. So just hearing carrying through on the pricing there. At this point, what is the carryover pricing in the next year from a percentage basis? So in other words, if you didn't implement any incremental price from here, what does that carryover look like?
It's encouraging for us to, you know, kind of start the year with some of that momentum, not only in the overall business but also with price carryover at this point, we think it's one to two points. That would help us next year.
Thank you for that. And then maybe just a thought on the tariffs. Are you seeing any benefits on the competitive side or anything notable on the competitive side? Associated with how those tariffs are rolling through your footprint versus others in the industries you cover or produce in? Any thoughts on the competitive dynamics.
No, Mike. I mean, I think we're all, you know, even though we're all different with some of our supply chain sources, we're all chasing the same commodities and looking for the same access points. So I think we're all on a fairly common playing field regarding the competitive challenges. You know, as a reminder, and we haven't in our particular slide, we've whittled down our China purchase to roughly $100 million inclusive of some tariffs that were there from the 2017 timeframe.
So I don't think as we continue to evaluate the global landscape, I think all of us are seeking alternatives. But we're also looking for the clarity of where the best alternatives will be. And so I'm reasonably pleased that we've been able to implement what we've done to cover them today. And we're working very, very hard to have alternatives if further challenges arise.
Next question comes from Julian Mitchell from Barclays. Please go ahead with your question.
Oh, yes. Hi. Good morning. And thanks, Bob, for all the help.
I guess my first question just around when we're thinking about the revenue outlook on organic sales for 2026, just sort of trying to understand the sort of entry rate into the New Year. You talked about I think, the sort of long-term algorithm of mid-single-digit growth on Slide five. It looks like you're exiting this year in Q4 with maybe low single-digit organic sales in the guide. So just wanted sort of any initial impression on that point.
Without giving 2026 guidance at this early stage, I will make mention of the fact that we do feel like we have some tailwinds coming into 2026. So the businesses are performing well, and we have some top-line momentum in the back half that should carry forward into the new year. We've got the price carryover that we just talked about in the one to 2% range. We've got, you know, market recoveries that we're slowly starting to see from a relatively low starting point in many of our businesses. I'm also really pleased that the 8020 focus on our Quad one customers and over-serving those customers is really beginning to read out.
We'll have transformation momentum ending the year with a large funnel. So those are all positive for us as we look at 2026.
We also, though, have to be cautious in terms of looking at potential headwinds. Tariffs still create uncertainty for us. Interest rates are remaining high. General sentiment with end consumers, whether it's home sales or eating out with the families.
And so for us, we're cautious entering 2026. Our goal has always been to build a plan around lower top-line growth and really lean in on transformation. And then if markets do recover more than what we had planned, we'll capture that upside. That's the way we're thinking about 2026 at this early point.
That's great. And then just my follow-up would be around the operating margins. So it looks like sort of guide for the fourth quarter implies less than 100 bps of operating margin expansion year on year. You've clearly done well above that year to date, and you have the pool business growing margins again in the fourth quarter.
So just trying to understand, is that just kind of conservatism for the Q4 margin guide or any particular reinvestment effort underway or something like that in Q4 or something on price net of inflation that's a headwind? Thank you.
I would say from a full-year ROS expansion story, again, it's extremely pleased. And even in the fourth quarter, we're seeing ROS expansion across the businesses. So pleased with what built into the guide, but it is just give us the opportunity to invest in the business as well to drive that balance going forward, the top-line growth, with ROS expansion. Again, pleased with the Q4 guide.
Pleased with the ROS expansion story, and we end the year very strong.
Our next question comes from Brian Blair from Oppenheimer. Please go ahead with your question.
Thanks. Good morning, everyone. Congrats. Bye.
Bye, Brian.
Bob, you had emphasized, I think it was in response to Damian's question, kind of the broadened focus and growth vectors of the Flow business. And your team started to call that out publicly. As I recall, maybe a year ago. So extending reach a bit more into, you know, data center, institutional, municipal applications.
Just wondering if you can speak to, you know, the traction to date, offer a little more detail on what that's meant to Flow's 2025 progression, how the funnel of opportunities looks into 2026. And then on the muni side, how HydroStop factors into strategy?
I'll go ahead and start there. Yeah. Overall, for us with Flow, the significant top-line growth and again, we've guided to Q4 for Flow to grow high single digits. I think about roughly half of that is core growth, the other half benefiting from FX and acquisition of HydroStop.
So the growth continues to be there. In commercial flow, really pleased with their ability to sell to different types of customers. Not necessarily, excuse me, doubling down on any one particular set. If a data center opportunity comes up, we'll take advantage of it, but we're not putting all our eggs in one basket.
We're more diversifying across that customer base to drive that growth.
I'd just add to it. We're looking to sell water supply, fire protection, and disposal. And we look at all commercial building opportunities. And what's been really building the momentum is getting more specified across our key product offerings with our specifiers and the end markets that we serve.
And we're building momentum and that's allowing us to get more looks and we've also improved operational efficiencies that have allowed us to outperform some of the competition in those spaces. Feel really good about the progress there. And look forward to further capture of commercial building opportunities.
Understood, that's encouraging. And in terms of HydroStop, Bob, I believe you mentioned $10 million in contribution top line in Q4. I assume that that's seasonally a bit muted. Should we assume $50 million at 30% ROS for 2026 as a baseline? Or factor in, you know, any variance to those numbers?
That would be a good number for you.
Understood. Thank you.
Our next question comes from Nathan Jones from Stifel. Please go ahead with your question.
Good morning, everyone. Good morning. Congratulations. Hi, Nathan.
Bob. Nick's got big shoes to fill. I guess I'll start with a question on fall. You're obviously into the prebuy season, and that gives you, you know, some visibility into what your customers are expecting in 2026. Maybe I mean, I know the aftermarket side of your business is generally pretty consistent, but maybe you could give any preliminary commentary on what you're thinking about the new and refurbished side of pool in 2026?
Yeah. It's a little early, Nathan. I think what we're encouraged by is the way we end up end the year is we're just not seeing the peak declines and decreases that we were seeing in the previous couple of years. I also think that it's an industry that doesn't usually see price decreases.
We're getting stabilization and realization that the prices that are in the market today are roughly what they're gonna be in the future. Which allows people to quote pool, deliver the customer pool pads at trying to deliver, and have some continuity around that. So I think it feels more like a break and fix is being serviced appropriately. And as the remodels and the new pool builds come online, you know, we feel like we're well positioned with the dealers just to support them.
So that's the way I would describe it. I mean, we'll get a better look as we close out the year here, and get some indications on new housing starts for next year and how pool attachment rates are there and what the potential opportunities are for us. But it's a little early to tell.
Fair enough. Follow-up questions on 8020 and the comment that you made there about focusing on Quad 1 and growing there is really starting to read out. I find interesting. Typically, I think 8020 is usually associated with margin expansion.
And focusing on Quad 4 to begin with. So I'd be very interested to hear a little bit more about the 8020 focus on Quad 1 and what kind of growth initiatives you're putting in there. And then maybe just a comment on how you're addressing Quad 4, as part of 8020 and the margin potential there. Thanks.
Yeah. I mean, think really quickly, and we'll give quite a few business cases and share some insights in our March analyst meeting when we roll it out because I think it is time to share details and stories and share with you kind of where we're winning. But when you start a business, you generally start it and become successful with a set of core and you become great partners with them. But then typical public company mentality will be when you stretch to get volume growth and you need to make quarters, you bring on other customers and you give deeper discounts or you offer different ways to serve that new customer base, and you are not taking care of your top customers the way you should.
And so by deemphasizing the quad four or the lesser customer day, you have an opportunity to go back to those top customers and say, how do we grow together and really think of our partnership that we had built together. So that's what we're talking about. And it's a leap of faith to say, I'm gonna give away my growth to the lesser performing customers, and I'm gonna get that double-digit growth to my core customers. When you start to see it, you start to build momentum, and then you build more programs with those individuals to be more successful.
That's the stage we're at in some of our businesses. And that's building momentum and best case examples that we share across the rest of the portfolio.
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. Just one follow-up question on the HydroStop acquisition. You mentioned doing the company is doing $50 million in revenue in 2025. And I think in the previous answer, you said, you know, it's a decent number to model for fiscal year 2026. Are there any cross-selling opportunities or to accelerate that growth in 2026?
And you guys given any color on what the growth was from 2024 to 2025? Thank you.
Roughly high single digits on the growth side. That's been performing historically. We don't see a reason why that would slow down if we head into 2026. We do think there's cross-selling opportunities as we look at where they're specified and where they're currently providing value and where we're specified in providing value, and how do we go work with those specifiers to get an extended offering? Similar to what we did with Manitowoc and Evercure, when we put those businesses together.
So it's a really nice adjacency. It's a unique product that allows water to run to critical application areas while you're trying to work on the infrastructure opportunities. We think that's gonna open up a great opportunity for us to cross-sell aggressively in 2026-2027.
Awesome. Appreciate it. Thank you.
Our next question comes from Andrew Buscaglia from BNP Paribas. Please go ahead with your question.
Hey, good morning, everyone. Morning. Just want to follow-up on the data center comment. Just as I understand it, the pump valve market as it plays into that application can be competitive and wondering what you're finding in terms of margins and how you go about capturing volume, but at the right margin in this kind of market.
Yeah, I want to be clear. I mean, I think you got to look at data centers as the infrastructure to support the data center. And then the product requirements inside the data center for their particular unique needs, primarily cooling. We're looking at a building, it doesn't matter if it's a hospital, doesn't matter if it's a commercial warehouse structure, doesn't matter if it's a manufacturing, or if it's a data center, and we're working with the engineers in the specifiers, to get water to those sites.
Try to be the choice for fire inside of that building and fire protection, which is critical in all applications. And then be the water disposal partner as well as we extract water from that site or reuse the water from that site. And that's how we're looking at the build permit and the specification. Some of them have to be data centers, some of them have to be hospitals, some of them happen to be manufacturing spaces in the United States.
And that's how we're trying to win. And you win those by local municipality specifications, you win by the engineers being localized to the builders in those regions. And you have to have an outward sales program to do that.
Yeah. Okay. Okay. Yeah.
Maybe, Bob, first off, congratulations. But I wanted to check-in maybe one of the last few times on your capital allocation into year-end. Been pretty active with repurchases and M&A. And I'm wondering if you know, maybe we're seeing some increased activity on the M&A front with, you know, some optimism around interest rates.
Don't know how are you seeing that balance of capital allocation into year-end and just into next year?
Yeah. And by the way, Bob's gonna have his signature authority all the way through February. He's gonna have a tight hold on that checkbook. And he's continued to manage cash the way he has.
And you know, I think you'll see that Nick, being the treasurer, under that playbook as well. Right now, we couldn't be more pleased with the balanced approach to the capital allocation story. We've got a little bit of M&A contribution here that we think was well spent. We continue to demonstrate buying back our stock, and we're continuing to pay a dividend as we mentioned forty-nine years.
Next year is a big round number that we hope to continue. And we like that balanced approach. And I'm an ROIC person, so I think ROIC is the measurement of how you're performing on that capital allocation. And we're very proud of where we sit right now in the high teens.
Regarding that, which demonstrates that we're putting cash to work and getting a return. So I don't think anything changes in this area, and I do think we're encouraged that there's more of an M&A pipeline to consider. But we're gonna be extremely disciplined as we look at those opportunities.
Our next question comes from Andrew Crow from Deutsche Bank. Please go ahead with your question.
Hi. Thanks. Good morning, everyone, and congratulations, Bob. Wanted to ask on the new elevated CIO role with Heather, and I think there's a little bit of a shift on focusing more on digital. Can you just level set us on what percent of sales right now you'd consider digital or digital-enabled? Maybe any views on where this could go over time? Thanks.
Yeah. You know, I haven't ever quantified it that way. I do think that it is the time to consider how we're gonna use artificial intelligence, how we're gonna look at our enterprise product technology opportunities, how we're gonna digitize factories, and how we're gonna provide elite customer experiences. And I don't think you could do any of that without software that makes it easier for your to do business with you.
And making sure that you have end-to-end usage of simple-to-use technology so that end consumers can work with the dealer partners to optimize those dealer routes. And we can help utilize our product to enable it. Obviously, pool does most of its product offering through an intelligence offering. And we're encouraged with some of the progress that we've had in our industrial solutions business, which is where a lot of the growth is coming from, measured performance, and then ultimately we're doing the same thing in ICE, in the expansion there.
Our businesses need to create end-to-end digital strategies, and we're gonna work hard to do that. And then we have to have an accelerated way to implement the IT technology necessary to create those experiences. And so it's a great opportunity to look at it now and I think Heather's a great partner and a great contributor to the organization. Bob's done a great job stewarding and leading IT.
But I think we're moving a little bit from the infrastructure and the foundational part and we need to invest in the digital front end of our business. And that's why she's gonna have a seat at the executive table.
Yeah, I couldn't be more pleased for Heather so often sitting in the executive leadership team meetings. I'm thinking to myself, boy, it would be nice for Heather to hear this firsthand. As we, you know, try to make the lives easier for our distributors and our dealers. So I think this will allow faster decision-making and also better decision-making on that part.
And while I am talking about my team, I am extremely proud. You know, earlier this year, we took a very strong corporate controller Jennifer Hensley, and promoted her to chief accounting officer. Heather now moves up to the executive leadership team and Nick is more than ready to take on the CFO role with his strength in the industry overall and its industry knowledge, FP and A, transformation in 8020. So we're just in a really good place from that perspective.
Okay. Great to hear. And then the follow-up, Oman, could you comment a little on just inventory in the channel? Across your different segments? And just if you're seeing anything that seems a bit out of balance at this point. Thank you.
No. Not seeing anything unusual and out of balance. We really are at historical levels in almost all of our industries that we serve. So in good shape as we, you know, turn the page into 2026.
Next question comes from Nigel Coe from Wolfe Research. Please go ahead with your question.
Oh, thanks. Morning, everyone. And I know you've covered a lot of ground here, so I'm just maybe a few more clarifications. John, last quarter, mentioned price fatigue and a bit more repair activity.
Amongst the contractors. Are you seeing any change in that? There certainly seems like the price increases for next year seem to indicate that seems like quite a healthy environment. So just wondering if you can maybe just touch on those points.
Yeah. I mean, I just want to recognize and acknowledge that if you take a look at cumulative price increase over the last several years, you wouldn't have been here in 2023 instead of price is gonna represent this much more of the cost per product. I do think I'm proud of the fact that we've been able to capture that and expand margins and generally produce profit for shareowners. But I think you gotta start looking at through value propositions, dealer enablement, and consumer lenses, and say you gotta make sure that your product still is the highest quality in the industry, that it has reliability, that matches that new price point.
And that you're not having dealers come back with no dollar sales calls. Right? They have to generate revenue from every sales call because of the cost of inflation regarding wages and the cost of their route. So we just have to, as an organization, team, continue to give the best value and make sure that our products are cutting edge from a technology standpoint.
Recognizing that things are a lot more expensive today than they used to be three years ago. That's the point I'm making. And, you know, we gotta have NPI lens on this, gotta have innovation. And we've gotta make sure that our dealers are getting the best value from Pentair when they work with us.
That's what I meant, Nigel.
Okay. No, that's fair. Been a lot of price going through. No question about that.
And then my follow-on is for Bob. I want to throw in a couple of quick ones, for you before you disappear into retirement. On page 12 on the profit bridge, there's $48 million from price volume, net M&A, and we know there's $37 million from price, which $11 million from other things for x price. I'm just wondering if there's a big mix contribution in that number, just curious what gets us to 48%.
Yes. We had a good mix count of these. Yeah. I tell you what, you know, when we get sales growth and volume, that tends to drive mix for us. With all of the work that we're doing in quad one. To over-serve those customers and focus on certain product lines. So that's a nice trend for us as we start to drive that top-line growth. Mix has been benefiting.
Our next question comes from Joe Giordano from TD Cowen. Please go ahead with your question.
Hey, good morning guys. Good morning. We've been here just given kinda building on what Nigel was just talking about. Just given the amount of price that's been put through over the last several years, we're hearing a little bit more about like, dealer or dealers and installers kinda using some more foreign products.
And some like, low-cost products maybe from Asia, something like that. I'm just curious of what if you're seeing any of that and any color on the other.
Short answer is yes. It's starting to emerge. Long answer is it's not gonna be a huge impact in the short run. But we have to make sure that we're offering better value to our customers.
We're innovating. We're building content in all of our channels, and we're making sure that we're offering superior quality and in our brand stand for what we're positioning them to stand for. So it's a longer-term issue and we have to be very cognizant that when markets are more stable from a volume perspective and price starts to be introduced, people are gonna look for lower-cost alternatives. Especially when supply chains are disrupted and there's other opportunities.
So nothing unusual but have to acknowledge that these entrants are gonna be here, and we've gotta outperform them.
It? Targeted to a specific type of application set or product type, or is it kind of pervasive?
I would say right now you're looking at more commodity-based products. More lower-end something that's not intelligent, or connected to technology, it's an easier substitution at that level. So, like, for instance, in pool, you might see it on the lower end of the filter. Right?
So a filter is not doing the intelligence work. You might have other places that you're doing that water chemistry, and you're seeing it on lower-end applications. In filtration as well across the rest of our businesses. And we just have to be cognizant that our value promises and our efforts around what our brand is promising and our service levels and warranties are worth the difference in price.
Our next question comes from Jeff Hammond from KeyBanc Capital Markets. Please go ahead with your question.
Hey, good morning, guys. I just just staying on price. It looks like your 26 pricing for pool is, you know, 6 and a half. Or 6 to 7 versus kinda normal 4. Just wondering what that contemplates for incremental tariffs. And then should we expect something similar from the other businesses where there's maybe an above-normal price increase because some carryover tariff impact?
Yeah, so pool goes first, as you know, in the end of the pool season. September. You know, we went out with roughly six-ish price increases, which captured all the things we knew at that point in time. We don't always net that full amount, because we do work with our dealers and have dealer incentives that give them discounts on volumes, or certain levels that they achieve.
And I think all the other businesses are looking at the same way. What do we know at the point of January 1 when we put those prices in, and what's fair and how do we feel we're gonna realize and net out price. Jeff? Hopeful that we see anything disruptive now and the end of the year, but if we do, we would have to adjust our prices accordingly.
Okay, thanks.
Our next question comes from Scott Graham from Seaport Research. Please go ahead with your questions.
Hey. Good morning. Thanks for taking the question. Bob, congratulations.
On really being part of a significant increase in earnings consistency. I think you guys have done a phenomenal job in the face of very little organic. What I wanted to kind of get into was the organic growth investments. It sounds to me like you're doing a lot on the front end, understandable, given your distribution sort of pie chart.
So when your end markets improve, does that percentage of front end maybe shift toward a new product orientation? Or would that be incremental growth investment that you deem necessary? In better end markets?
So I put it into three major categories. Scott, real quickly. I think we want to drive demand our dealer channel. Right?
We've been a little past about last few years in letting the dealers find their own path towards creating the demand, we've gotta pull demand. Right? We've gotta have consumers that are interested in product upgrades, new technologies, and reach out to a set of dealers that we recommend. That helps create the demand in our industry.
That'd be one area. Number two is the sales excellence. You know, how do we cover the markets and the regions of The United States and the world more effectively? And how do we incentivize our sales team to sign up dealers and promote our value proposition.
Then it's marketing efforts. How do we build the momentum around value propositions, branding, etcetera? All of that has a digital lens to it, and all of that has an increase in talent. Still to it.
The fourth component would be technology, right? Making sure that we're investing in both innovative technology for today and innovative technology for the future. Tools across our great businesses, they're prioritized as CWS, is our commercial water business, and basically C and I as the top three businesses. We want to hit the accelerator for organic growth and drive value in those three businesses.
That's what we're doing, Scott.
Appreciate it. Thank you.
Okay. Thank you for joining the call today. In closing, I want to reiterate some key themes on slide 19. We delivered our fourteenth consecutive quarter of margin expansion. And drove double-digit adjusted earnings growth as a result of solid execution and transformation.
We increased our 2025 sales and adjusted EPS outlook and remain confident in our long-term strategy. We expect a long runway of productivity savings driven by transformation and 8020. Our focused water strategy and strong execution continue to build a solid foundation with optimal operational efficiency. Which we believe will drive long-term growth profitability and shareholder value. Lastly, we believe we are well-positioned to address opportunities from favorable secular trends in water with the right long-term strategy.
We look forward to seeing you at our 2026 investor day in March. Thank you, everyone. Have a great day.