Pentair plc (PNR) Q2 2026 Earnings Report, Transcript and Summary

Welcome to the Pentair Second Quarter 2026 Earnings Conference Call. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Jeffrey Thompson, Vice President, Investor Relations. Please go ahead.

Thank you, operator, and welcome to Pentair's second quarter 2026 earnings conference call. On the call with me are John L. Stauch, our President and Chief Executive Officer and Bob Fishman, our interim chief financial officer. On today's call, we will provide details on our second 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 company's performance. In addition to the impact these items have, 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, 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. Advise listeners to carefully review the risk factors in our recent Form 10-Q and Form 10-K. Please note that during the presentation today, we will be making references to record financial results. These references reflect the time period post the nVent 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 re-enter the queue to allow everyone an opportunity to participate. I will now turn the call over to John.

Thank you, Jeffrey. Good morning, everyone. We appreciate you joining us today. As you saw this morning, in addition to our quarterly results, we announced that we have agreed to acquire Taco Group Holdings, a market leader in hydronic and water-based solutions. This exciting transaction aligns with our strategic priorities and allows us to accelerate our growth trajectory. First, let's begin with an executive summary on slide 4. The second quarter was slightly better than the July 14 preannouncement and reflects efforts to realign pool channel inventory ahead of the 2027 pool season. Pool remains a fantastic business, and we believe it is well positioned for return to robust growth in 2027. Importantly, Water Solutions and Flow remain on track to deliver full-year expectations and we expect to see improved revenue growth from these businesses in the second half of 2026. Lastly, the addition of Taco creates another platform in water solutions that aligns with Investor Day themes and accelerates our growth profile. Please turn to the Q2 overview slide on slide 5. As we shared in the preannouncement on July 14, Q2 was a challenging quarter driven by the underperformance of our pool segment and specifically the acknowledgment that we would not realize the pool dealer growth that we had originally planned. While we are disappointed with the impact this had on our overall business, I want to emphasize two important points. First, our underperformance was concentrated in pool. The flow and water solutions businesses delivered record return on sales, even when excluding the benefit of tariff refunds. Further reinforcing the resilience of our balanced portfolio. Second, we believe the pool challenges are temporary. And we remain confident in the attractive nature of the segment and our position as a market leader. As we will discuss in the following slide, we have a clear plan to address the near-term issues we are facing. And we turn the business to robust growth as we have historically realized. Second-quarter adjusted operating income included approximately $35 million of tariff refunds across our three reporting segments. During the quarter, we repurchased $150 million of shares in the open market as we continue to put our capital to work to drive long-term shareholder returns. For the full-year 2026, we are reaffirming our adjusted EPS guidance range of $4.60 to $4.80, communicated through our preannouncement on July 14. Please turn to our pool overview and growth action plan on slide 6. The year-over-year decline in pool sales was largely driven by a more pronounced inventory alignment with major channel partners than previously expected. Once learning the full magnitude of the inventory reduction during the quarter, we acted with urgency, to address the issue and we are confident that the inventory levels will be optimized by the end of the Q3 setting us up nicely for the 2027 pool season. A smaller portion of the sales decline was related to moderating sell-through due to ongoing end market pressure across discretionary residential end markets in North America. In addition, we estimate modest movement in share on some older pool pads where we are not capturing our fair share of replacement equipment installed 10 to 15 years ago. Our action plan includes initiatives to resolve this issue and increase aftermarket share moving forward. As these dynamics became clear throughout the course of the quarter, we initiated a comprehensive review of our pool business to determine how best to adapt to our current environment and ensure we are positioned for success heading into next year's pool season. This review showed us a few key points. First, we remain an industry leader with a premier brand, strong customer base, and a large installed base. With leading positions in energy-efficient, and smart connected pool technologies. We believe the challenges we are facing are temporary, and do not reflect a structural change in the pool market or our long-term opportunity, And finally, we need to deepen dealer engagement and accelerate customer-driven innovation to deliver the value-added differentiated solutions that have become synonymous with the Pentair brand. We have a clear action plan to invest in our highest performing growth initiatives and position the pool business for a return to more normalized performance in 2027. These actions include, aligning the pool sales organization marketing strategies by region, and realigning incentives with the industry growth priorities, to ensure we have the right products and service levels our most important geographic markets. Implementing a dealer-centric and segmented sales process to drive enhanced engagement with channel partners and increase aftermarket growth. An increasing investment in customer-driven innovation to expand core pool product categories with more differentiated value-added solutions. We are focused on the work underway and the opportunities ahead. Pool remains an attractive market with compelling profitable growth opportunities. We are confident the actions we are taking will strengthen the business and position it to deliver on those opportunities and we expect to build momentum throughout the rest of 2026 and beyond. Now let's turn to strategic rationale and benefits of Taco acquisition on slide 7. We believe Taco is a natural fit for our business. It advances our growth strategy and meets our disciplined M&A criteria. Taco broadens Pentair's innovative suite of water solutions. Accelerating growth and strengthening our ability to serve more customers across more commercial, infrastructure, and residential applications. The combination also brings together Pentair's innovation engine and Taco's strong engineering and product development capabilities. Together, we believe there are meaningful opportunities to develop new solutions that address customers' evolving water needs. Including efficiency, reliability, and sustainability. Importantly, this transaction significantly strengthens our positions in attractive high-growth commercial end markets. Including HVAC, data centers, and related infrastructure build-outs. Demand for solutions in these markets is supported by key secular trends, including infrastructure investment, digital infrastructure, and the AI revolution. Energy efficiency, and sustainable water management. Our increased exposure in these areas will allow us to create an attractive diversified growth engine and enhance our resilience. During our Investor Day earlier this year, we identified the residential utility room and building a broader, more scaled offering for the North American plumber as a key growth priority. Taco expands the breadth and scale of our plumbing offering and positions us to increase share in this high-growth category. Taco will also expand our channel network creating compelling cross-selling opportunities. Taco is a strong manufacturer-representative model, and established relationships with OEMs. Distributors, contractors, engineers, and end users. Taco's large installed base will allow us to leverage these channel opportunities to expand our aftermarket business. In fact, approximately 85% of its revenue is associated with replacement products maintenance, and system upgrades. That durable demand will create more customer touchpoints and deepen those relationships. Supporting growing recurring revenue streams and enhancing our resilience. This is not just an opportunity to bring in an outstanding business into Pentair. it is an opportunity to bring in an outstanding growth-focused team. We look forward to welcoming the Taco team to Pentair. And we are confident that our shared values and commitment to excellence will allow us to seamlessly integrate our organizations as we work to capture the compelling opportunities ahead. With that, I would like to welcome back Bob Fishman, who is rejoining Pentair as interim CFO while we search for his successor. Bob previously served as the Pentair CFO for six very successful years, and we could not be happier to have him back on the team. Bob will walk through our financial results in more detail. Bob?

Thank you, John, and good morning, everyone. I am excited to be back at Pentair supporting the CFO transition. And working with such a great team. Let's start on slide 8. In Q2, we reported sales of $933 million adjusted operating income of $237 million, ROS of 25.4%, and adjusted EPS of $1.14 These results are slightly better than what we communicated in our preannouncement on July 14. Core sales were down 17% year-over-year. Driven primarily by the $170 million pool channel inventory destocking. Moving to adjusted operating income. Lower pool volume was the primary year-over-year headwind. The volume decline and inflation were partially offset by price realization, $14 million of productivity savings, and approximately $35 million of tariff refunds. Despite the recent challenges in pool, we continue to invest in growth initiatives, that support our long-term strategy. Please turn to Slide 9. Flow sales were up 5% year-over-year to $264 million driven by the Hydra-Stop acquisition. Order wins in the quarter across commercial building, data center, and desalination markets highlight the breadth of the portfolio and provide confidence in our long-term growth trajectory. Segment income grew 27% and return on sales increased 470 basis points to 26.5%. Even when excluding the benefit of tariff refunds, Flow delivered record return on sales driven by productivity the acquisition of Hydra-Stop, and price. Please turn to Slide 10. In Q2, Water Solutions sales decreased 5% to $422 million driven primarily by the sale of our commercial service business in Q2 2025. Core segment sales declined 3% Commercial sales were down 6% inclusive of negative 8% impact from the Q2 2025 business exit. Residential sales were down 4% year-over-year as we lapped one final quarter of lower margin portfolio exits in our residential filtration business. The pro channel continued to grow during the quarter, reflecting gains supported by our 80/20 focus on top customers and strength in our combined product offering as we bring our residential pump and filtration portfolio together. Importantly, this growth came from repeatable, higher quality demand. Segment income grew 17% to $126 million and return on sales increased 560 basis points to 30% driven by disciplined pricing and productivity. Water Solutions segment income included $18 million of tariff refunds the largest benefit among the three segments, but similar to flow delivered record return on sales even when excluding this benefit. Please turn to slide 11. In Q2, pool sales declined 42% to $247 million and segment income was $58 million down 62%. Return on sales was 23.4%, down from 35.7% in Q2 2025. The reduction in sales and income was mainly driven by the $170 million channel inventory destocking in the quarter. Price offset inflation excluding the onetime tariff refund benefit, We expect that the actions that John described earlier will drive significant growth in pool in 2027. Please turn to Slide 12. Our balance sheet remains strong. Our net debt leverage ratio was 1.4x, as of the end of the second quarter. In Q2, we repurchased $150 million of shares reflecting our strong confidence in the long-term strategy. As communicated earlier this year, we increased our dividend by 8%. And achieved our 50th consecutive year of dividend increases making Pentair a Dividend King while proudly maintaining our dividend aristocrat status. Our significant annual free cash flow generation has enabled us to strategically deploy capital via debt pay down, dividends, share repurchases, and strategic acquisitions. We plan to remain disciplined with our capital deployment, while also having the flexibility to strategically allocate excess cash towards areas with the highest shareholder returns. Let's turn to our outlook on Slide 13. Our current guidance excludes the Taco acquisition, which is expected to close in the fourth quarter. For the full-year, we are reaffirming our adjusted EPS guidance provided on July 14, of approximately $4.60 to $4.80. Also, for the full-year, we expect total Pentair sales in fiscal 2026 to be down approximately 4% to 7% consistent with the July 14 preannouncement. Or a midpoint of approximately $3.95 billion. Flow and Water Solutions are unchanged from the previous guidance, given during our Q1 earnings call. We expect Flow sales to be up approximately mid-single digits to high-single-digits. Water Solutions sales are expected to be approximately flat with core sales up approximately low-single digits. And pool sales are expected to decrease 18% to 22% in fiscal 2026 consistent with the July 14 preannouncement. We believe the right-sizing of channel inventory this year positions the company for robust pool growth in 2027. Within our down 4% to 7% sales guidance for total Pentair, we expect full-year price to be up approximately 3% with FX, acquisitions and divestitures providing a net benefit of approximately 50 basis points and the remaining change reflecting lower volume. We expect total Pentair adjusted operating income to decrease approximately 5% to 9%. We expect price to offset inflation, and approximately $55 million of productivity savings net of investments. We are executing well on our productivity initiatives but the savings now include the inefficiencies associated with the lower pool volume. Tariff refunds reflect a range of outcomes. From $35 million to $50 million as described in our preannouncement on July 14. For the third quarter, we expect sales to be down approximately 4% to 6% or a midpoint of approximately $970 million. We expect Flow sales to be up approximately high-single-digits which includes our Hydra-Stop acquisition of approximately $10 million of sales in the quarter at approximately 30% ROS. We anticipate Water Solutions sales to be up approximately low-single digits As a reminder, we divested the commercial services business in Q2 of last year. And as a result, we do not face this sales headwind in Q3 for comparative purposes. Pool sales are expected to be down approximately 23% to 25% as we continue to rightsize channel inventories for the 2027 pool season. We expect third quarter adjusted operating income to decrease approximately 14% to 16% We are also introducing adjusted EPS guidance for the third quarter of approximately $1.05 to $1.08. We anticipate that the actions underway will support significant sales operating income, EPS growth in 2027. I would like to now take the opportunity to provide additional detail on the exciting announcement of the Taco acquisition. Please turn to Slide 15 titled Transaction Overview. Under the terms of the agreement, Pentair will acquire Taco for $1.4 billion subject to customary adjustments. The purchase price represents approximately 10.5x expected 2026 adjusted EBITDA when accounting for estimated tax benefits and run-rate cost synergies. The transaction is expected to be $0.10 to $0.15 accretive to adjusted EPS in fiscal 2027. Taco is a fast-growing business, with a large addressable market and will significantly strengthen our Water Solutions segment. The acquisition establishes a new growth engine. Enhancing exposure to energy efficiency, comfort cooling, HVAC, and data center infrastructure build-out. While the real opportunity is top-line growth, we expect to generate approximately $30 million in run-rate cost synergies over the next few years through Pentair's purchasing power and economies of scale. We will preserve the brand, expertise, and customer relationships that have made Taco so successful. over the last 100 years, we plan to fund the transaction with a combination of cash on hand and committed bridge financing which we intend to refinance through a permanent debt issuance. At closing, which we anticipate in the fourth quarter, we expect net leverage of approximately 2.4x. Supported by Pentair's strong cash flow generation we expect to reduce net leverage to below 1.5x within two years following the close. Next, turn to Slide 16 highlighting that Taco is a market-leading hydronics and water solutions provider. Taking a step back, this is a business and team we have long admired, and have crossed paths with regularly. For over 100 years, Taco has built a premier brand and is a trusted market-leading provider of circulator pumps, valves, other pumps, tanks, heat exchangers, fabricated solutions, and advanced controls. It has done so by maintaining a culture built on innovation with a relentless focus on customer service. Taco is primarily a North American business, with an especially strong presence in the Eastern United States. Which we see particularly compelling growth opportunities in the multifamily residential market. It brings a large installed base of roughly 40 million units across commercial, industrial, and residential markets. What makes this base even more compelling is that Taco products are specified by engineers which fuels their aftermarket business as customers require like-for-like replacement solutions. The company has a strong growth profile along with attractive profitability. Finally, turn to Slide 17, as we highlight the increased scale and enhanced water solutions platform. As we have touched on, this transaction advances our strategic priorities and accelerates growth. Strengthening our positions in key high-growth end markets that are supported by secular water and sustainability trends The addition of Taco will increase the scale, and relevance of our Water Solutions segment. Just as important, it will enhance the resiliency of Water Solutions as we expand Taco's installed base and accelerate the growth of our aftermarket business. The transaction will give us a new growth profile. Taco's commercial business is its fastest growing. Driven primarily by its HVAC and data center exposure. Data centers represent approximately 15% of Taco's commercial and industrial revenue, with a significant pipeline of opportunities expected to support accelerating growth. On the residential side, Taco's business is heavily weighted towards multifamily, which is a faster growing and more compelling area of the market than single family. The transaction will scale our business, enhance our growth profile, and allow us to unlock significant profitability and value creation as we bring our businesses together. We are excited to welcome Taco to the Pentair family. 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. We will now begin the Q&A session. In the interest of time, we ask that you please limit yourself to one question and one follow-up. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press *2. Our first question comes from Bryan Blair with Oppenheimer. Please go ahead.

Thank you. Good morning, everyone.

Hi, Brian.

Bob, nice to have you back for a little bit.

Thank you.

Alright. it is a level-set a bit on Pool destocking. How regionalized is the reset Are there certain geographies driving most of the realignment? And similarly, is the destocking concentrated in any product categories?

No. No. I mean, it is broad inventory, and it is broad on the product side. there is no particular subset that is, you know, being addressed in this one in the destocking.

Okay. Understood. And with regard to Taco's financial impact, you outlined some key near-term metrics and expectations. We know margin dilution at the outset and then synergy capture helping to close that gap over time. I guess two related questions. One, what is the timeline to achieve the $30 million in synergies? And then longer term, is there any reason why the gap would not be fully closed to current fleet average margin? Or is there something structural on the Taco side that may cap profitability below that range?

Yeah. I will start and I will have Bob add some color. I mean, first of all, I mean, we want to honor the fact that this is a growth platform. I mean, this is a hundred-year, you know, rich in history brand that has done a lot of great things to evolve its product line. And right now, it is growing at a substantial rate. I do think there is some things in the Pentair business system that we think can add to the margin profile mainly around sourcing and, you know, helping them drive operational leverage. But at the end of the day, I think what we want to do is learn and really open up our eyes to understanding where the continued opportunities are, and we see probably more growth synergies in the long haul than we are focused on the operating synergies. We are gonna run it as a standalone unit. You know, honoring its go-to-market capabilities and strategies and we will have a shorter, light touch, on the integration. And we see that integration period being somewhere between around 3 years to fully get those synergies

Out of the business. Yeah. I would agree with that over the next two to three years, we will be able to drive those cost synergies Those are primarily relating to the purchasing power of Pentair, the economies of scale. And, you know, some of those will accrue to us next year. But definitely feel good about the $30 million of cost synergies. From a run-rate perspective.

Got it. Appreciate the detail.

And the next question comes from Andrew Krill with Deutsche Bank. Please go ahead.

Hi, thanks. Good morning, everyone.

Hi, Andrew.

Digging a little deeper on pool and the 2027 growth prospects, could you build a finer point maybe on some expectations there? I think Bob said significant, robust Does this mean it could be double-digits, or will this be close to the mid-single digits Investor Day target? Thank you.

Yes. it is important for us first to have dealt with the issue as quickly as possible in Q2. And then as we think through the balance of the year to make sure that the channel inventory is right-sized for success in 2027. I would say that the math that I do, if you put together the guidance that we gave on pool, it is gonna be roughly a $1.25 billion type number for the year for pool. The way that we start to build up the 2027 number is by looking at the inventory destocking. So if you say conservatively inventory destocking around $200 million for the year. You can put yourself in a position where looking at you know, a $1.45 billion type number next year for pool. Now a lot of things have to happen between now and then in terms of us assessing the 2027 pool season. But when you are growing $1.45 billion off a $1.25 billion base, that is where we get the significant robust growth.

Great. that is very helpful. And related to that, just margins for pool next year, Any help there just given how big of a reset the deleveraging this year, do you think you can be back solidly into the 30s next year? Or are there gonna be new headwinds from growth etcetera? Just any help there would be great. Thank you.

Yeah. I am targeting definitely keeping a three in front. As the first digit and you know, I would start with the with a zero as the second digit for now. I think we are gonna use this utilize this opportunity to reestablish a growth mindset in pool. and ensure that we are investing appropriately in the growth opportunities. And I do think that we have been afforded a small reset on that margin side, and I want to start with a growth orientation on and driving a higher level of growth and getting the drop-throughs. Structurally, nothing's really changed. And we would get the leverage on the way back up from all of the growth. And it is really about making sure that we take our higher growth profile that we have in pool and invest in it. These are little things. Right? This is about putting the dealer first. it is about rallying around the seven regional sales leaders that we have today and making sure their voice is heard. it is also about making our product roadmap reflect our dealer councils, and our dealer inputs And, you know, those are not huge investments, but it is it is a little bit here and there that I think I want to make sure that the organization feels that they have at their discretion and that the channel knows that we are supporting them.

Thank you.

And the next question comes from Brett Linzey with Mizuho. Please go ahead.

Hey. Good morning, just, wanted to follow back up with pool. So appreciate some of the destocking details in the bridge there to 2027, I guess. Are there any other, signals or KPIs that are giving you a little bit more confidence that things do, in fact, come back and, you know, the inventory levels are right-sized, are you seeing any pull-forward on orders already? And then I guess why, you know, why does the $200 million come back? come back? I mean, is there some structural kind of reset on, you know, inventory levels in the system?

Yeah. I will have Bob chime in here. I mean, keep in mind the $1.25 billion that Bob is sharing with you is our ship in number. Consistent with all the previously reported numbers that we have had. In our prior years. The inventory is really a doubling up of any inventory that was in the channel, and it comes out at a 2x factor to how it went in. Right? Because the first $100 million is gonna be serviced through existing inventory, and then you have also got the right-sizing inventory to get you back to where you need. We expect all of that to be cleared out by Q3, and then we head into next year with, you know, moderating prices where our price is not going to be as large as an increase as it was last year, which generated some of this prebuy in into the channel. And it is gonna be, a slight you know, add as we build that inventory out of season. But we have more clear lines of sight on the sell-through which is our sales to dealers. And so the numbers that Bob is giving you, if you look at dealer sell-through today, you can actually take the ship in plus the change in inventory, and that is actually what we are selling to the dealer channel. With no growth next year, we get those types of growth rates that Bob was alluding to. Now we have higher expectations than that with the growth actions we are taking, and we would like to be back to that mid-single-digit sell-through growth that we set in the LRP. And we will build that credibility and trajectory over the next several quarters.

Yeah. I would agree with that. You know, obviously, early to be giving a 2027 view, but important from our perspective Because of the challenges we saw in Q2. That $1.45 billion-type number does approximate sell-through. That we have seen over the last couple of years. And so conservatively, you are saying another flattish sell-through year. When you think about maybe get a little bit of price maybe volume comes back with 5.4 million pools in the ground. And pool equipment breaking, you would like to think that there will be some volume growth next year. Again, we are not gonna get ahead of ourselves. The number that I gave, the $1.45 billion feels like a reasonable starting point. To plan for the year.

Alright. Thanks. And then just one on Flow and Water Solutions that delivered the strong, you know, ROS in the quarter. I guess as you strip out tariffs and look at the underlying results between the productivity actions and maybe some mix benefit from the product exits. What is the jumping off point from here? Is there any, you know, kind of onetime noise, or is it a sustainable run-rate that we build off of into next year?

Well, both Flow and Water Solutions are both performing well from a profitability perspective. They have a nice funnel of product improvement programs. And we believe Ross will continue to expand. A number of complexity reduction plays as well as, you know, revisiting Wave 1 and Wave 2 of our sourcing program. So we are optimistic that those businesses can continue to drive, you know, ROS improvement, but more importantly, drive top-line growth. Those businesses are well positioned now. They have been investing for growth, and we should continue to see those businesses grow nicely. We are gonna see some nice back-half growth in both Water Solutions and in Flow. And that is with a challenging international environment as well. We are optimistic both from a top-line and ROS expansion for both of those segments.

Appreciate all the detail. Thanks.

And the next question comes from Andrew Buscaglia with BNP Paribas. Please go ahead. Andrew, your line may be muted. And the next question comes from Mike Halloran with Baird. Please go ahead.

Hey, good morning everyone.

Morning. Morning, Mike.

So to take some questions. First, just on the pool side, how quickly do you think some of these efforts can drive results? So the commercial efforts, innovation, I know some of these you put in place earlier this year. But how quickly can those drive results? And John, is there an implication to pricing in your commentary about maybe being a little less price aggressive in the marketplace as you look to stabilize the business?

Yeah. I mean, I when I talk about moderating pricing, I will I will give you a range. I think it is somewhere in the 3% to 5%. Once next year, and we have not established those price increases yet. But we think, you know, we are covering some levels of freight, and we have got some unique inflation on some of the core product lines. And we think we cover within that context. it is really a reference, Mike, that last year, we had 7%-8% price forecasted, and it really drove a prebuy energy level across the entire channel, right, to get ahead of those price increases I think the prices that I am talking about are more moderating, which does not generate that need to get ahead of it at the same rate of last year. You know, I think we talk about investment and how long it is gonna take, I think credibility with the dealers that we have got their back and that we are supporting them on a consistent basis. We have started that already. You know, we gotta build that quarter by quarter by quarter over time. it is really in the way that we take our strategic advantages of our technical service reps and our field service support and we make sure that they are backing them to get the product up and running and support them when it does not. it is also about making sure that we are understanding that the various regions that we participate in all have different competitive dynamics and that we are competing effectively in that channel And then the primary place that we are acknowledging that we lost share is, you know, we put pads in 10 to 15 years ago, and our technology on the premium pools we are building has evolved at a very rapid rate. And so we got to just make sure we have product that can go back and address a like-for-like replacement on the pads that we had established at a significant rate 10 to 15 years ago. You know, when I when I put that into a context, Mike, we can make progress here in the back-half of the year. I am convinced. But I think you are looking at, you know, a 6- to 18-month time frame to get back to where we feel we should be. And to maintain the getting back share winning share again. Versus just defending our share. Got it.

Appreciate that. And then And then just a balance sheet question here. 2.4x, I think, is what the leverage is. Is the plan to let growth and EBITDA normalization and pool, etcetera, inherently or naturally lower that leverage level over the next couple of years Meaning, are you willing to deploy capital for buybacks beyond that or for other things or is there a targeted debt paydown plan concurrent?

We would run a similar play to what we ran with Manitowoc Ice. That was successful from a balanced capital allocation story, but leaning in on debt pay downs so we delevered quickly. So our expectation is that we would utilize some amount of Pentair's free cash flow for debt pay down That would be the main driver to get us from the 2.4 times down to 1.5x two years later. But that still allows us room to continue to make the dividend payment and increase it and keep that 50-year streak alive. To do share buybacks at least from a dilution perspective, and then to have optionality with other free cash flow that we have.

But I would say we will prioritize the debt pay down drive that leverage ratio down, and that is on the strength of the Pentair and the Taco free cash flow.

Thanks, gentlemen. Appreciate it.

And the next question comes from Nathan Jones with Stifel. Please go ahead.

Good morning, everyone.

Good morning.

I guess I will just I will start with another 1 on the pool inventory buildup Can you-- I mean, I think you have kind of I do not know whether explicitly or implicitly talked about, you know, the bid price increases coming into this year as responsible for the prebuy. Can you it does not seem like a lot of the other suppliers are saying the destocking at least to the same level that Pentair is. Can you just provide a little more color on how this inventory build got into the channel? And then I guess you guys gave guidance at the end of April. Did you have any indication that there was a big inventory destocking coming there? I guess the question then is there some review of business processes that needs to be made so that you guys have better intelligence on what is actually going on with your dealers and in the market.

Yeah. I appreciate the question. I-- I cannot speak to our competitors. I have said this often. We had a double-digit growth on the sell-through side, Nathan, as we headed into this year. That was made up about seven to eight points of price. We had about two to three points of volume, which you know, felt normal. We did our channel checks. We talked to our dealers. And people were encouraged and optimistic that we would enter the year, and we would see that type of growth rate. You know, a lot of things happened throughout the first quarter. We had a war start in The Middle East. We saw, you know, gasoline spike. We saw interest rates that actually were not declining but actually went up. And, you know, we did our, sell-through checks in Q1, and, you know, we did actually okay. I mean, it was not a great, sell-through period. Did not hit that double-digit, but it was mid-single-digit type of growth. What happened in Q2 is we saw that there might have been some pull-ahead from the channel from Q2 into Q1 and that we also noticed that you know, there is a fair amount of rebates to dealers and encouragement of dealers to buy product. And we learned that we were not going to hit those sell-through rates, which is where we started to soften the guide in the April time frame. We came out with a lower pool forecast, if you recall. And we had a little bit of the inventory correction in our Q3 numbers. And then it became apparent that we were gonna be in an excess inventory situation in Q2. And we worked with the channel to actively try to rightsize everything so that we could get it all behind us by the end of Q3 and begin to get back to a sell-out mentality next year, And, also, just make sure that inventory coming in equals the inventory that is going out. it is that simple. I cannot speak for the competition. You know, these numbers get large because when you have a large business, just a little bit of percentage miss on the way up, you know, doubles the impact on the way down. Usually, you will live with a little bit of excess inventory in the channel but, I think this one got to the point where we are just uncomfortable that it would affect our long-term growth rates. And we would be out trying to incentivize the channel differently to get beyond where the inventory levels are. So I am comfortable with what we did. Think as far as going forward, we have the ability to measure sell-through sell-in across all the regions and just keeping an eye on making sure that we understand what is going into the channel, what is going out of the channel. It will be different within a, you know, full-year by quarter because there is seasonality in the business. it is really easy to get your head around that, Nathan.

Thanks for thanks for that. On Taco, you are talking here in the slide deck about mid-teens 2026 revenue growth. Can you put that in a bit of context with where it is been historically? What the expectations for that are going forward? I assume that the revenue from data centers is a big driver of the growth in there. If you could just parse that out, maybe what the growth rate is x the data center growth. Thanks.

Yeah. And I will let Bob handle a piece of this. But I do wanna acknowledge that our plumbing, business exposure never included the HVAC channel. And those of you that follow the HVAC channel, it is always been a really good spot to service plumbers into. And, that is historically what Taco's really good at is the number one or number two brand in the climate and hydronic and HVAC space. And they play in some really good core regions where they take advantage of multiunit housing as well, where we have not historically played. And so their growth rate has always been, you know, mid- to high-single-digits-ish kind of range. And then, obviously, when you start adding data centers onto that, you know, you get this ramp and this incremental growth related to those data centers.

Yeah. They are really taking advantage of some fast-growing markets. We are excited with the fact that we will add roughly $10 billion of addressable market to Pentair. Taco has been taking advantage of that addressable market. Historically, they have been a high-single-digit grower. They are having nice growth this year as they expand into data centers. Including expanding their product offerings. But you know, the commercial side of their business overall is doing well. They are right in the sweet spot of efficiency plays, sustainability plays. The residential business is doing well because of the focus on multifamily units. So it is really across the board growth. They are building a nice funnel. And we are excited about not only Taco's growth, but being able to add what Pentair has to offer they sell primarily through manufacturing reps. We sell through distribution. there is a nice cross-sell opportunity there. So overall, excited about the-- and again, it will be a standalone business unit. Within the Water Solutions segment.

Thanks for taking my questions.

And the next question comes from Deane Dray with RBC Capital Markets. Please go ahead.

Thank you. Good morning, everyone.

Morning, Deane.

Hi, Deane.

Hey, Bob. Welcome back. And I do believe you lead the league now in the most comebacks and retirements. Is that true?

I do not know if I would lead, but I do like coming back. And, again, this is such a such a great company, so excited to be back.

Yeah. And Pentair's fortunate to have you ready to step back in. So we really appreciate that. So hey. Look. On the Taco deal, we know this brand. it is a top brand, great aftermarket. Full disclosure. Our HVAC in my home has all Taco mixing valves. So I know that the business from the user standpoint as well This feels a lot like the Manitowoc deal where you are buying a top brand with really good aftermarket, and you are gonna run it like a, you know, its own platform. And maybe is that right? And then can you expand a bit on where there are adjacencies where you can build-out this platform further You know, I do not like to use the word plumbing, but just the idea here on you know, some of the fluid handling side. But maybe we can start there. Thanks.

Deane, thank you for the question. By the way, congratulations on your news as well. So but I will say that without a doubt, we plan to run it and learn from the Manitowoc way. We expect-- it is a proud, rich heritage as a brand. The Taco brand has a lot to be proud of. it is you know, fourth generation business, and we are going to run it as a standalone entity. And take the Manitowoc to our playbook in that regard. I wanna focus the potential synergies on the fact that they are in the mechanical side of data centers in a meaningful way. And we are starting to enter into the data center markets with a large HVAC offering. Which takes you to the bigger side of the chilling and cooling aspects with our water solutions. I think that is our biggest meaningful synergy that we see that would be worth focusing on. Is introducing each other, to the products and making sure that we can share those leads. And begin to work together to support that opportunity. And then, again, to the plumbing channel, just making sure we are expanding the line card and making sure that we give our plumbers access to their products. And that their plumbers have access to our products. We think those are meaningful synergies.

Great. And then just a follow-up on the pool side. one of the questions that we get is, has there been any fallout from all of the 80/20 kind of disruptions on the customer side. So as you switch someone from direct sales to distribution, there can be some relationship disruption. That question has come up. Is there any validity or applicability to this for you guys in your situation?

The answer, Deane, is yes. it is not the 80/20 tool. it is the way you implement 80/20. And I think we made some assumptions on some of the smaller distributors, buying groups, and small dealers. That are independent and do not necessarily buy from the two largest distributors. And those actions did, create disruptions. And some of the lost share that we had alluded to in the aftermarket side of our business And we are actively pursuing getting that back and reestablishing those relationships. They are long-term relationships and we made some decisions that need to be reversed. And, again, I will not blame that on the 80/20 tool. I will I will acknowledge that we did not implement the tool with the right assumptions, the right industry knowledge that we should have utilized.

Great. Well, look, I really appreciate the candor there, and I also for all the support and insight you and the team have provided me over the years. And wish you the best of luck.

Thank you.

Best of luck to you, Deane.

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

Great. Thank you. Bob, great to have you back and you know, maybe Deane can actually start to rival you for all the comebacks here. So never say never. But, Bob, good to see you back.

We have covered a lot of ground, John. So it sounds like you have lost most ground with the smaller distributors, small contractors. So with the larger players, you feel like you are in good shape, or do you think there is more work to do there? And this new growth mindset in pool, is there anything on a product side or, you know, in terms of customer targeting, I am talking I am thinking about some of the larger pool builders where you need to maybe reestablish a presence.

Yeah. So I will I will address that real quickly too. I mean, we segment the market, and you know, we have premium, large builders, Think of those as your regional large making the multibody pools highly innovative, highly technologically advanced I think we still feel like our product positioning and our dealer positioning there is where it needs to be. We continue to serve those dealers. We have not historically played in larger pool builders that serve the mid tier. Of the market. These would be the, more mass produced homes that have more single body pools. it is a segment of the, market that is actually growing faster right now than the premium pool builds. Price conscious buyers good enough, equipment, and it is one that we have to explore. Do we wanna participate or not? But we do not currently serve the top 20 builders in that space. We are looking at the economics of entering that space and understanding what that aftermarket and service tail would be. And then where I am candidly saying we have got to get better is making sure that we have got product that replaces our existing product in a very simple service-user-friendly way. In a lot of cases, that are not the installers or builders that place that product that are now servicing those pools. And we have gotta make it easier for those that service channel to be able to have a product that replaces our product. And it is not a long length of time. We do have product availability today. We just may need to make people aware of it. And we need to make sure it is being, focused on the areas that can recapture and regain our share. And then long-term, I think our innovation has to be more iterative. And has to be easy to use, easy to install, easy to sell. And I think we have, gotten into a little bit more breakthrough thinking. Which is a big leap for the channel. And I think we are gonna bring that product roadmaps into more every single year, having a slight improvement. Versus having these more radical improvements in the product designs.

John, that is great color, and, good luck with that transition. Just a quick clarification on the margin question. You indicated something close to the 30% is where you see the business maybe trending longer term. You think that is a good number for 2027, or do you think this, you know, transition period means it could, you know, could have a two-handle on margins next year?

No. I think there is no need to put a two in front of it. You know, right now, before this reset, we were, you know, tickling mid-thirties. You know, I think if you look at the things we wanna do, we wanna build our brand. You know, we wanna put the brand in front of consumers in a way where they know what Pentair pool is. So then when they Google, You know, our dealers are supported by a brand, and we wanna make that a localized regional approach. and you do a little bit more demand generation to bring leads to our core dealers. To service pools. So I see some early investment there, and I wanna set this up as we are recovering in those low-30% range as a more systemic place that I think we can be in pool. This is still a Rule of 40 business. Right? So you can get to 30% plus 10% growth. You could be at 33% with 7% growth. that is the way I am looking at it. And I think there is plenty of room to deliver income growth and a lot of value by having more of an emphasis on the top-line here.

that is great. Thanks, John.

And the next question comes from Andy Kaplowitz with Citigroup. Please go ahead.

Hey. Good morning, everyone. Bob, welcome back.

Hi, Andy.

John, so how difficult do you think it is to pivot from this sort of 80/20 mindset in pool to this maybe more innovation-based focus. And I think you mentioned replacing products, but maybe some examples of where you are going to lean in to drive the growth. Is it more on the automation side? Is it more in specific products where you have lost share? And how do you think about that?

No. I mean, stepping back, I mean, we have always been historically a customer-led, sales-led organization. When we experienced some of the supply chain disruptions during COVID, we had to solve more of the issues, more centrally. And I think we stopped listening at the rate that we needed to at the localized dealer needs. Some of the segmentation This is not gonna be hard to get back to, but I am not going to suggest it is immediate. Right? We have got to go back, and we have gotta commit to supporting our dealers. And making sure they recognize that they have that support behind them. And our salespeople have to have the empowerment to be able to say yes to what that dealer needs. Sounds simple. We also have to support them. And so it is it is gonna be progress here already within the quarter. And ultimately throughout the back of the year and making sure that consistency of voice is supported in 2027, 2028, and beyond.

Helpful. And then maybe I can ask you guys about flow in general. You know, for mid- to high-single-digit growth through the year. I think Hydra-Stop is doing well, as you said. Core sales down 1%. So maybe talk about the different businesses, John or Bob, and like, you know, CapEx is doing reasonably well, but anything sort of slowing you down there?

Nothing really slowing us down in line with the expectation. I would say. You know, if anything, perhaps a headwind in, you know, in regions in Europe as an example. That should come back once the economy and overall global conditions improve. So overall, it is it is more a macroeconomic that drove know, some of the, core, sales growth in the second quarter, but that rebounds quickly. We are optimistic that we can drive that high-single-digit growth in the back-half of the year. And so flow performing well, continued to be focused on ROS expansion. So overall, nothing particular with any of the different business units within Flow. More just a geographic challenge at this point in time.

Appreciate all the color.

And the next question comes from Brian Lee with Goldman Sachs. Please go ahead.

Hey, guys. This is Tyler Bisson on for Brian. Thanks for taking our questions. Wanted to dig into the flow segment. You know, sales were up 5%. You called out some key order wins and commercial buildings, data centers, and desalination end markets. Can you provide some more details on these order wins? or have you seen any market share gains here? And is this business performing a little better than expected?

It really reflects you know, we talked about driving productivity improvements, but we do reinvest some of those savings back into growth initiatives. And so the work that we are doing around data centers is a reflection of some of the investments that we have made either in the channel or with the products themselves. Those were nice wins in the quarter that will drive revenue growth in future quarters. We like the breadth of the portfolio. Within flow right now, and that is what is giving us confidence that we can drive that type of growth. You will remember flow used to be a low-single digit grower, growing in line with GDP, but we now believe we can do better than that.

Thank you. And just wanted to dig back into the pool you know, can you guys provide some more details on the plans you outlined to regain aftermarket share going forward? Like, what is some of the low-hanging fruit or more near-term opportunities, and what do you see as more medium-term impacts?

The low-hanging fruit in the short term is just making sure that the industry understands our like-for-like replacements. Maybe the name of the brand is slightly different. So for instance, if you are on a pad, on a pad. It was one of the best pumps ever invented, making sure people know that the WhisperFlo is a like-for-like replacement that can, know, give the customer what they need What we were trying to do is promote our IntelliFlo3, which has full automation baked into it and can allow you to have app-based capability and control of the pad that is great for the person who actually wants that offering. But we gotta make sure if that individual does not prefer that offering that there is an alternative that is ours. that is that is as simple as I can make it for now. Okay. So I wanna thank you for joining us today. In closing, I would like to reinforce some key takeaways on slide 18. We have taken actions to address near-term pool dynamics while maintaining long-term growth priorities, and we anticipate robust growth in 2027. Flow and Water Solutions remain on track and continue to perform in line with our expectations. Our acquisition of Taco expands our suite of innovative water solutions strengthening our position in high-growth end markets and expanding our channel network aftermarket exposure. This transaction will create an attractive and diversified growth platform. We are confident that our focused water strategy and disciplined execution will further strengthen the business, enhance operational efficiency, and position us to deliver long-term growth, profitability and value creation for customers and shareholders. Thank you, everyone. Have a great day.

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