Pentair 2016 Outlook Call Notes

Easy to get lost in negatives but have positives too. Residential and commercial should grow again next year, but maybe a little less than in 2015

“As we reviewed in our investor meeting last month several of our businesses face a number of economic challenges, it’s easy to get lost in all the negative headlines these days. We also have a few positives to highlight. Starting with our largest vertical Residential & Commercial we’re expecting another year of growth, albeit maybe a little less bullish than we experienced in 2015.”

Industrial is the biggest wildcard next year

“Industrial is perhaps the biggest wildcard next year, following a yearlong capital spending freeze in 2015. The recent rating in the ISM index suggest that there’s no near term recovery in sight but similar to energy we’ll watch closely to see if maintenance spending returns”

2015 ending with another sharp drop in oil

“2015 is ending like last year, with a sharp drop in the price of oil, which will undoubtedly cause more trepidation in our customer’s plans.”

We saw industrial down in 4Q worse than we anticipated

“we’ve seen short cycle certainly in Valves & Controls within energy generally, but then we saw it in industrial being down low single digits. The fourth quarter was considerably worse than that, and we think it’s — we did anticipate some of it, but it is worse than we anticipated.’

John Stauch

We’ve seen energy customers cutting back on more short cycle projects now

“If we said what’s new and we label it there on page six, it’s the fact that we’ve now seen short cycle really pull back. So what was a capital spending cuts of our customers on the longer cycle projects we’ve seen now a fairly significant pullback in the short cycle orders here in the end of 2015.

The fall in oil has led to an industrial challenge that we were fearing and now we know

” mean oil has fallen even further than what most people thought was the bottom, that is now having a significant impact into what we’re seeing into the electrical distribution channel around industrial especially with Canada being a really weak point. And so if you take a look at our customer’s forecast, our distributor — the electrical distribution forecast out there and you take a look at current order rates and you extrapolate those in the next year, we now have an industrial challenge that we were fearing and now we know. So that’s the way I would described it. As Randy said the residential commercial side of the business is still in growth mode, it’s the industrial and energy that are really starting to pull down the overall growth rates.’