2016 Outlook · PENTAIR 2016 Outlook EXECUTIVE SUMMARY Confirming FY 2015 Guidance and Initiating...

PENTAIR 2016 Outlook

2016 Outlook

December 17, 2015


FORWARD-LOOKING STATEMENTS CAUTION CONCERNING FORWARD-LOOKING STATEMENTS

This communication contains statements that we believe to be “forward-looking statements” within the meaning of the

Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical fact are forward-

looking statements. Without limitation, any statements preceded or followed by or that include the words “targets,”

“plans,” “believes,” “expects,” “intends,” “will,” “likely,” “may,” “anticipates,” “estimates,” “projects,” “should,”

“would,” “positioned,” “strategy,” “future” or words, phrases or terms of similar substance or the negative thereof, are

forward-looking statements. These forward-looking statements are not guarantees of future performance and are subject

to risks, uncertainties, assumptions and other factors, some of which are beyond our control, which could cause actual

results to differ materially from those expressed or implied by such forward-looking statements. These factors include

the ability to achieve the benefits of planned cost take-out actions; the ability to successfully identify, complete and

integrate acquisitions, including the ability to successfully integrate and achieve the expected benefits of the acquisition

of ERICO Global Company; overall global economic and business conditions; competition and pricing pressures in the

markets we serve; the strength of housing and related markets; volatility in currency exchange rates and commodity

prices; inability to generate savings from excellence in operations initiatives consisting of lean enterprise, supply

management and cash flow practices; increased risks associated with operating foreign businesses; the ability to deliver

backlog and win future project work; failure of markets to accept new product introductions and enhancements; the

impact of changes in laws and regulations, including those that limit U.S. tax benefits; the outcome of litigation and

governmental proceedings; and the ability to achieve our long-term strategic operating goals. Additional information

concerning these and other factors is contained in our filings with the U.S. Securities and Exchange Commission,

including in our 2014 Annual Report on Form 10-K. All forward-looking statements speak only as of the date of this

communication. We assume no obligation, and disclaim any obligation, to update the information contained in this

communication.

2

PENTAIR 2016 Outlook 3

KEY DEFINITIONS • Except as Otherwise Noted All References to 2015 and 2014 Represent Our Results from

Continuing Operations for the Period Indicated Presented on an Adjusted Basis

• “Core Sales” Refers to GAAP Revenue from Existing Operations Excluding (1) the Impact of Currency Translation and (2) the Impact of Revenue from Acquired Businesses Recorded Prior to the First Anniversary of the Acquisition Less the Amount of Sales Attributable to Divested Product Lines Not Considered Discontinued Operations

• Segment Income Represents Operating Income from Continuing Operations Exclusive of Non-Cash Intangible Amortization, Certain Acquisition Related Expenses, Costs of Restructuring Activities, “Mark-to-Market" Gain (Loss) for Pension and Other Post-Retirement Plans, Impairments, and Other Unusual Non-Operating Items

• Return on Sales (ROS) Equals Segment Income Divided by Sales

• See Appendix for GAAP to Non-GAAP Reconciliations


EXECUTIVE SUMMARY

Confirming FY 2015 Guidance and Initiating 2016 Guidance 4

• Confirming 2015 Full Year Guidance of $3.84 to $3.86 of Adjusted EPS and Free Cash Flow of ~$700M

• Initiating 2016 Full Year Adjusted EPS Guidance of $4.05 to $4.25, Representing ~8% Growth at the Mid-Point

• 2016 Core Sales Expected to be Down ~2% at the Midpoint and Segment Income Up ~10%

• Anticipating 2016 Free Cash Flow Equal to or Greater Than Adjusted Net Income or >$750 Million

• Recently Announced Dividend Increase for 40th Consecutive Year to an Annual Rate of $1.34 Per Share for Full Year 2016

• Continued Disciplined Capital Allocation Deployment


KEY HIGHLIGHTS

Confirming 2015 Q4 and FY Adjusted EPS Guidance

CONFIRMING 2015 OUTLOOK

• Core Sales Down ~5%: (Down 3% Including FX and Acquisitions)

Valves & Controls Down ~16%, Flow & Filtration Solutions Down ~5%, Water Quality Systems Up ~8%, Technical Solutions Down ~2%

• Segment Income Down ~7%; ROS Down ~80 bps to ~16.0%

• Adj. EPS Down ~10%; Free Cash Flow Seasonally Strong and >100% of Adjusted Net Income

KEY HIGHLIGHTS

• Core Sales Down ~4%: (Down 9% Including FX and Acquisitions)

Valves & Controls Down ~14%, Flow & Filtration Solutions Down ~4%, Water Quality Systems Up ~5%, Technical Solutions Up ~2%

• Segment Income Down ~12%; ROS Down ~50 bps to ~15.6%

• Adj. EPS Down ~9%; Free Cash Flow Expected at ~100% Adjusted Net Income

Sales

Op. Income Seg. Income ROS

EPS (Rpt.)

EPS (Adj.)

Q4’15 Q4’14

~$1.75B

~$158M ~$280M ~16.0%

$0.52-$0.54 $1.03-$1.05

$1.80B

$176M $303M 16.8%

$0.70 $1.17

Sales


EPS (Rpt.)

EPS (Adj.)

FY’15 FY’14

~$6.43B

~$726B ~$1.00B ~15.6%

$2.64-$2.66 $3.84-$3.86

$7.04B

$852M $1.14B 16.1%

$3.14 $4.23

5


2016 OUTLOOK KEY ASSUMPTIONS

Energy and Industrial Expected to Remain Challenging

• Residential & Commercial: Expect a Little Less Bullish than 2015, but Overall Remains Strong … We Believe Enough Opportunities Exist to be Encouraged

• Energy: Expect Oil to Remain at Current Levels (<$40/bbl) for at Least First Half of 2016 … Expect Pressure on Orders in Both Projects and NOW Short Cycle … Cost Out Efforts Will Continue

• Industrial: ISM Suggests No Near-Term Industrial Recovery … Maintenance Spending Remains Uncertain … Cost Out Actions in Place

• Food & Beverage: Expect Continued Growth, but More Choppy Given Industry Consolidation (Food & Beverage) and Lower Commodity Prices (Agriculture)

• Infrastructure: Second Half 2015 Orders and Backlog Build Offer Encouraging Signs for a Potential 2016 Recovery

• FX: Forecasting at Current Levels – Euro at $1.09, Canadian Dollar at $0.73, and Australian Dollar at $0.72 (Combined with USD are ~70% of Currency Exposure)

• Pension and Interest: Fully Funded in U.S. and on Mark-to-Market Accounting … Debt is 75% Fixed and We are Forecasting Slightly Higher Rates on the ~$1B of Variable Debt


KEY PRIORITIES BY BUSINESS

Each Segment has its Own Contribution in the New Year

• Adjusting to New Reality – Lowering Cost Structure

• Still Opportunities to Grow – Aftermarket, LNG, Petrochemical

• PIMS Adoption – Aligning into Two Value Streams; Sales Excellence

Valves & Controls

• Evolving from Products to Solutions

• PIMS Application to Drive Margin Expansion

• Well Positioned Portfolio to Grow with Macro Trends

Flow & Filtration Solutions

• Proven Growth Culture Built on Innovative Technology and Customer Intimacy

• Extending PIMS Expertise to Water Filtration

• Well Positioned in the Residential & Commercial and Food & Beverage Verticals

Water Quality Systems

• Focus on Differentiated Growth – Sales Excellence, Smart Products, Global Expansion

• ERICO Integration

• Well Positioned to Drive Growth and High Profitability

Technical Solutions

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Adj. EPS* Up ~8% • Tax Rate of ~22%

• Net Interest / Other ~$135M; Shares ~183M

Free Cash Flow of >$750M; >100% Adj. Net Inc.

FY’16 FINANCIAL OUTLOOK (YoY)

SUMMARY

Positive Contribution from ERICO … Cautious on Core Sales Outlook

FULL YEAR 2016 PENTAIR OUTLOOK

• Energy and Industrial Headwinds Expected to Continue with Growth Expected in Residential & Commercial and Food & Beverage

• Strong Margin Expansion and EPS Growth on Cost-Out Actions and ERICO Contribution

• Expect 3 of 4 Segments to Grow Income • Strong Cash Flow Expected as Working Capital

Opportunities Remain

Core Sales* Down 2% (Up ~3% Incl. FX and ERICO)

• Valves & Controls Down ~5% (Down ~7% Incl. FX)

• Flow & Filtration Solutions Up ~1% (Flat Incl. FX)

• Water Quality Systems Up ~4% (Up ~3% Incl. FX)

• Technical Solutions Down 6% (Up ~14% Incl. FX and ERICO)

Segment Income* Up ~10%

ROS* ~16.8% … Up ~120 bps • Valves & Controls ~11.5%

• Flow & Filtration Solutions ~14.0%

• Water Quality Systems ~21.0%

• Technical Solutions ~24.0%

~$6.6B

~$1.1B

~$1.1B

~16.8%

$4.05-$4.25

$4.05-$4.25

FY’16 FY’15 Sales


EPS (Rpt.)

EPS (Adj.)

~$6.43B

~$726M

~$1.00B

~15.6%

$2.64-$2.66

$3.84-$3.86

*At Mid-Point of Adjusted EPS Range


$4.05

Industrial Spending and FX Volatility are Two Biggest Uncertainties

2016 ADJUSTED EPS GUIDANCE RANGE (KEY ASSUMPTIONS)

$4.15

$4.25

+5% “Low-End”

+8% “Mid-Point”

+10% “High-End”

• Core Sales Down 4% and V&C Further Worsening • FX Headwind Increases • Energy and Industrial Capital Spending Freeze Continues • Maintenance Cuts and Plant Shutdowns

• Core Sales Down 2% and V&C Down Further on Oil Decline • FX a $0.05 Headwind • Continued Pause in Industrial Capital Spending and

Further Pressures on Energy Spending • Maintenance Spending Delayed

• Core Sales Down 1% and Signs of V&C Stabilizing • FX is Neutral to Earnings • Industrial Spending Returns and Energy Remains Weak • Maintenance Spending Resumes


VALVES & CONTROLS FY'16 BACKLOG/ORDERS

~$1,835M

Scheduled Backlog

~$1,705M ~$810M

~($55M)

Book and Ship

Backlog Slippage

2016F Revenue

50% Gross Conversion Consistent with 2015

45% Net Conversion vs. 44% PY

~$990M

FX

Expecting Another Challenging Year For Sales and Orders

~($40M)

2015F Revenue

~(5%) Core

Scheduled Backlog Down

$70M (7%) Core from

PY ~$25M

Improved from 2015

$2,377M

2014 Revenue

~(7%) YOY

10

Orders~(8%)

YOY


2015/2016 V&C FORECASTED PERFORMANCE

11 11

Sales: $2,377M ~$1,835M ~$1,705M

$399M

~($260M)

16.8%

2014 Segment Income

Volume/FX

16.8% ~11.5%

~$200M

Net Productivity

Volume/FX Net

Productivity

Cost Out Less Inflation, Incentives, Productivity Realized

in 2015, and FX

~$95M ~$235M

~($125M)

~$90M

~(23%) ~(7%)

~12.7%

More Cost Actions Required as Macro Conditions Worsen

2015F Segment Income


~(41%) YOY ~(15%)

YOY


2016 FORECASTED REVENUE

Energy, FX, and Industrial Headwinds Expected to Continue 12 12

~$6.43B

~$6.6B

~($95M)^

(1 pt)

5 pts

6 pts

~$385M

(2 pt)

~($125M)

2015F Core Growth

2016F Including Impact of Currency

ERICO Pro-Forma

FX Impact at Current Rates

~+3% YoY

~$6.7B

2016F at 2015

Currency

~+4% YoY Sales Growth at Mid-Point by Segment

Incl. FX Excl. FX

Valves & Controls ~(7%) ~(5%)

Flow & Filtration Sol. ~0% ~1%

Water Quality Sys. ~3% ~4%

Technical Solutions ~14%* ~(6%)

^Euro Rate at $1.09

*Also Includes ERICO


2016 FORECASTED SEGMENT INCOME

Expecting >100 bps of Margin Expansion 13 13

ROS at Mid-Point of Forecast

Valves & Controls ~11.5%

Flow & Filtration Solutions ~14.0%

Water Quality Systems ~21.0%

Technical Solutions ~24.0%


Inflation Growth

~($30M)

~$1.1B ~$1.11B

~$1.0B ~($50M)

ROS ~(0.8%) ~16.6% ~15.6%

ROS

~16.8% ROS

~+10% YoY

~(0.5%)

Productivity/ Price

~2.3%

~$180M

~($10M)*

~0.2%

~+11% YoY

*Euro Rate at $1.09

2016F Including Impact of Currency

FX Impact at Current Rates

2016F at 2015

Currency


Expecting Near Double-Digit Adjusted EPS Growth 14 14

2016 FORECASTED ADJ. EPS WALK (AT MIDPOINT OF RANGE)

~$3.85 ~$0.25

~($0.05)*

2015F FX Impact at Current Rates

ERICO Base (Q1-Q3, 2015)

Growth & Productivity

~($0.20)

+8% YOY

2016F Including Currency

Inflation

~$0.30

~$4.15 ~$4.10

2015PF 2016F Excluding Currency

~$4.20

+9% YOY

Includes $0.10 of ERICO

*At $1.09 Euro


2016 FORECASTED CASH BRIDGE

Free Cash Flow Expected to be > Adjusted Net Income 15 15

~$760M

Depreciation ∆ in

Working Cap 2016F

Free Cash Flow Capital

Expenditure

2016F Adjusted Net

Income

Restructuring/ Other

~$760M

~$160M

(~$140M)

~$75M

(~$95M) >100% Of

Adjusted Net Income


Sales (% of FY)

Quarterly Seasonality Consistent the Past Three Years on Average

HISTORICAL SALES AND EARNINGS SEASONALITY EPS (% of FY)

Q1 Historically Weaker

Q3 Historically Slower Due to

August “Holidays”

Q4 Industrial Spend Q2 Pool Benefit

23% 26%

25% 26%

Q1 Q2 Q3 Q4

19%

27% 26%

28%

Q1 Q2 Q3 Q4


SUMMARY

Anticipate Income, EPS, and Free Cash Flow Growth in 2016

Core Sales Expected to be Down ~2% at the Mid-Point of Guidance Plus Positive ERICO Contribution

Sales

Segment Income

Adjusted EPS

Cash Flow Expect a Strong Free Cash Flow Year as We Believe Working Capital Opportunity is Significant

V&C Challenges to Persist … Additional Cost Actions to be Taken … All Other Segments Expected to Grow

Adjusted EPS Expected to Grow 5% to 10% with Energy and Industrial Spending Remaining Uncertain

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APPENDIX GAAP to Non-GAAP Measurements & Reconciliations

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NON GAAP 2015 RECONCILIATION

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NON GAAP 2014 RECONCILIATION

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2016 Outlook · PENTAIR 2016 Outlook EXECUTIVE SUMMARY Confirming FY 2015 Guidance and Initiating...

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