Pentair plc (PNR) Q3 2026 Earnings Report, Transcript and Summary

Good day, and welcome to the Pentair Third Quarter 26 Earnings Conference Call. All participants will be in listen-only mode. After today's presentation, To withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference call over to Mr. Jeff Thompson, Vice President of Investor Relations. Mr. Thompson, the floor is yours, sir.

Thank you, operator, and welcome to Pentair's third quarter 2026 earnings Conference Call. On the call with me are John L. Stauch, our President and Chief Executive Officer Bob Fishman, our outgoing interim chief financial officer and Robert W. Hau, our incoming chief financial officer effective November 1st. On today's call, we will provide details on our third 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 provides a reconciliation of differences between GAAP, and non GAAP financial measures that we will reference. Any statements made during our presentation today about Pentair's anticipated financial results are forward looking statements subject to future risks and uncertainties. Such as the risks outlined in today's earnings release and Pentair's filings with the Securities and Exchange Commission. Actual results could differ materially from anticipated results. Following our prepared remarks, we will open the call up for questions. Please limit your questions to 2 and reenter the queue to allow everyone an opportunity to participate. I will now turn the call over to John.

Thank you, Jeff, and good morning, everyone. We appreciate you joining us today. First, let's begin with an executive summary on slide 4. We delivered a solid third quarter. With sales inside of our guidance range and adjusted operating income and adjusted EPS exceeding our expectations. Each of our 3 segments contributed to the quarter. Flow and Water Solutions continued to deliver sales and segment income growth along with meaningful margin expansion. In pool, we completed the previously communicated channel inventory destock, an important milestone that positions the business on a healthier foundation as we enter 2027. We also completed the acquisition of Taco Group Holdings, on October 1st. Taco adds a high growth platform to Pentair, and expands our presence in attractive commercial infrastructure and multifamily residential end markets. Finally, Robert W. Hau has been announced as Pentair's chief financial officer. Bob brings significant public company finance leadership experience. And we are excited to welcome him to Pentair. I also want to thank Bob Fishman for coming back to serve as the interim CFO, this past quarter. His steady leadership provided important continuity during the CFO transition. And we greatly appreciate his continued support and commitment to Pentair. Robert W. Hau has been working closely with Bob Fishman over the past 6 weeks, to ensure a smooth transition and will officially assume the CFO role effective November 1st. Overall, our third quarter results demonstrate the underlying strength of our portfolio and the continued execution of our strategy. Please turn to the Q3 overview on Slide 5. Turning to our third quarter results, sales were $976 million adjusted operating income was $242 million and adjusted EPS was $1.18 above our guidance range of approximately $1.05 to $1.08 The year over year comparisons primarily reflect the previously communicated pool channel inventory destock. This was a temporary impact that aligns channel inventory with current demand. Beyond that dynamic, we saw strong execution across the portfolio. Flow and Water Solutions both delivered both sales and segment income growth, as well as well as return-on-sales expansion. Pool exceeded our expectations for both top line and income. Adjusted operating income in the quarter included approximately $8 million in tariff refunds. Significantly below the $35 million received in Q2. These refunds benefited the quarter, but they do not change our view of the underlying operating performance or the progress we are making across the businesses. Cash generation also remains strong. We generated $153 million of free cash flow in the third quarter, and $620 million through the first 9 months of the year. Our Q3 performance was ahead of our expectations and gives us increased confidence in our execution as we close out the year. We are reaffirming the midpoint of our previous full year guidance of $4.70. Please turn to Slide 6 for an update on the Taco acquisition. We completed the acquisition on October 1st, and we are excited to welcome the Taco team to Pentair. Taco is a high growth platform with a strong brand, differentiated technology, attractive customer relationships, and meaningful opportunities for continued growth and margin improvement. The business is performing ahead of our previous expectations, and is entering 2027 with significant momentum. Taco's estimated 2026 sales are approximately $560 million representing growth of roughly 23% from 2025. For 2027, we currently expect sales of greater than $620 million or growth of more than 10%. EBITDA is estimated to be approximately $90 million in 2026, and greater than $105 million in 2027. Which would represent mid teens growth. Beyond the near term financial contribution, we see compelling opportunities to accelerate TACO's growth. Its commercial and residential capabilities, established channels, and expertise in water circulation and hydronic flow control, are highly complementary to Pentair. The combination expands our customer reach and creates opportunities to bring broader, more complete solutions to the market. Importantly, TACO fits squarely within our disciplined approach to capital allocation. We expect the acquisition to be accretive to adjusted EPS in 2027 and to accelerate Pentair's sales and EBITDA growth. And we expect to delever rapidly due to our strong operating cash flow generation. Now let's turn to the strategic rationale and benefits of the Taco acquisition on Slide 7. As we introduced last quarter, TACO strengthens Pentair strategically in several important ways. First, it creates a broader water management platform by extending our capabilities into water circulation and hydronic flow control. TACO adds another leading brand to our water solutions portfolio, and it complements our existing residential and commercial pump businesses. Second, TACO provides Pentair with an additional growth engine. It increases our exposure to attractive end markets, including HVAC, data centers, and related infrastructure development. TACO's portfolio is well aligned with these secular trends and with Pentair's broader focus on smart, sustainable water solutions. Third, the acquisition significantly strengthens our presence in commercial and institutional applications. TACO has established positions in data centers, schools, hospitals, universities, commercial buildings, and other mission critical water and HVAC systems. Fourth, TACO expands our access to specification driven aftermarket revenue. Its large installed base of pumps, valves, and controls generates ongoing replacement, maintenance, and upgrade demand, creating an attractive source of recurring revenue. Finally, the combination creates meaningful cross selling opportunities. Pentair and Taco have complementary products and channels giving us the opportunity to broaden customer access deepen channel relationships, and bring combined solutions to customers. For all of these reasons, we believe TACO is an excellent strategic fit and is aligned with both our long term strategy and our disciplined financial return criteria. Let me now provide an update on Pool on slide 8. First, we are pleased to announce Josh Cowley as Executive Vice President and chief executive officer of Pentair Pool, reporting to De'Mon L. Wiggins. Josh brings 25 years of leadership experience deep industry expertise, and a proven track record of driving growth, strengthening organizations, and improving business performance. We believe his experience and leadership will be a great fit as we continue to build on the strong foundation of our pool business and position it for long term growth. Shifting to the business performance. With the channel inventory destock complete, our focus is firmly on execution and returning the business to higher growth. We have a clear strategy built around 4 pillars, with 1 overarching goal. Putting dealers at the center and delivering elite customer experience. The first pillar is to outsell. We are strengthening coverage and local execution to outgrow the industry improve customer acquisition and retention, and reinforce Pentair Pool as the industry's most trusted partner. We have added resources to our inside sales team as well as started to build out our regional structure including enhanced regional reporting and targeted marketing programs designed to enable higher levels of dealer engagement. The second pillar is to out-support. We intend to differentiate Pentair through an elevated customer experience by providing education support across the entire customer journey. In Q3, we added capacity in critical areas to reduce call hold times, and provide expertise to pool professionals. The third pillar is to deliver quality. We are working to make quality an even stronger competitive differentiator by enhancing our end to end quality management system and consistently delivering the performance our customers expect for Pentair. And when we do not meet that level of expectancy--expectation--we will make it right. During the quarter, we made investments in the quality organization, including capital expenditures within our testing processes. The fourth pillar is product excellence. We are focused on competing effectively across our core product categories, delivering differentiated value, and creating a more visible pipeline of customer led innovation. We have added resources to seek input from pool dealers to simplify their work and deliver a better experience for pool owners. These 4 pillars are designed to work together. Better coverage, stronger support, consistent quality, differentiated products should deepen our customer relationships and strengthen Pentair Pool's competitive position. While it is still too early to provide formal guidance for 2027, I wanna provide some context around the pool business. Because we believe the underlying dynamics are important to understand. We estimate full year sell through in 2026 will be $1.45 billion up 2% to 3% versus 2025. At the same time, channel inventory has been reduced significantly, particularly following the inventory actions in the second and third quarter. This distinction is important The decline in our 2026 reported pool sales was driven primarily by the channel inventory reset not by a corresponding decline in sell through. With the inventory adjustment now behind us, we enter 2027 from a healthier starting point. And importantly, our growth expectations for next year do not anticipate market recovery. We expect sell through next year to remain about flat to this year at about $1.45 billion with more modest price increases offsetting anticipated continued soft market conditions. This would mean approximately $180 million of year over year sales growth or about 14% versus our forecasted sales number for 2026. as 2027 Pentair sales mirror sell through sales, reflecting steady channel inventory. We also expect to maintain our strong profitability. With pool delivering approximately 30% return on sales for full year 2027. While continuing to invest in innovation, our brand, and our industry leading position. We are going to continue to compete for growth, with the strength of our brand, the efforts we are investing in, Josh's leadership, and new product innovations that we expect to be able to return to volume growth in 2007 and beyond. We will provide a more definitive 2027 outlook during our Q4 earnings, and 2027 guidance call early next year. With that, I will turn the call over to Bob Fishman to discuss our third quarter financial performance in greater detail. Bob?

Thank you, John, and good morning, everyone. Let's start on slide 9. As John mentioned, we reported sales of $976 million adjusted operating income of $242 million, an ROS of 24.8%, and adjusted EPS of $1.18 above the high end of our Q3 guide of approximately $1.05 to $1.08. Core sales were down 5% year over year as an 18% decrease in pool more than offset 1% growth across both flow and water solutions. Moving to adjusted operating income. The expected pool volume decline drove a headwind year over year. Price offset inflation, and we delivered productivity savings of $15 million. We received $8 million in tariff refunds in the quarter, which were previously anticipated to be received in Q4. Please turn to Slide 10. Flow sales were up 4% year over year to $262 million. Sales were modestly below expectations due to delayed spending in food and beverage. We are very pleased with the performance across the remainder of the portfolio which delivered double digit sales growth including strong performance from the Hydra-Stop acquisition. Segment income grew 15% and return on sales increased 250 basis points to 26%, driven by strong productivity performance and the acquisition of Hydra-Stop in Q3 last year. Please turn to Slide 11. In Q3, Water Solutions sales increased 1% to $422 million Core water solution sales grew 1% as commercial sales increased 4% offsetting an anticipated reduction in residential due to end market headwinds. We are excited about the performance and trajectory in commercial where the focus on large strategic accounts and convenience stores offers runway for continued growth. Segment income grew 16% to $121 million and return on sales increased 370 basis points to 29% driven by disciplined pricing and productivity. Tariff refunds totaling $6 million provided the largest benefit across the 3 segments. Please turn to Slide 12. In Q3, pool sales declined 18% to $291 million which was better than expected. The previously communicated channel inventory reduction has now been completed. Which we believe positions us for significant growth for our pool business in 2027. Segment income was $72 million, down 38%. Return on sales decreased to approximately 25%. Which reflects the negative impact of volume leverage inflation and investments in the growth initiatives described by John to deliver a best-in-class customer experience. Please turn to slide 13. Our balance sheet remains strong and continues to provide optionality to deliver shareholder value. Our net debt to leverage ratio was 1.4x at the end of Q3 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 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. I would also like to welcome Robert W. Hau to Pentair. I have been working closely with Bob since his arrival, and I am excited about the leadership that he brings to the company. Thank you, Bob, and a special thank you to you and the team for assisting with the transition over the past 6 weeks.

I am excited to be joining Pentair. I will now discuss our outlook on Slide 14. For the full year, we have increased our confidence and reaffirmed the midpoint of our previous full year guide. We expect adjusted EPS to be approximately $4.70 and also for the full year we expect total Pentair sales in fiscal 2026 to be down approximately 3%. We expect flow sales to be up approximately mid single digits Water Solutions sales are expected to be up approximately high single digits including the impact of TACO, with core sales approximately flat and pool sales are expected to decrease approximately 18% to 19% for the full year. We expect total Pentair adjusted operating income to decrease approximately 6%. We expect price to offset inflation and productivity of approximately $55 million net of volume deleverage and pool growth investments. While we have received $43 million of tariff year to date, we do not expect further refunds in the fourth quarter. As a reminder, completed the Taco acquisition on October 1st. We financed this acquisition with $1.4 billion of debt of term loans at approximately 5.25% interest rate. Our pro form a net leverage calculation is approximately 2.5x at the beginning of Q4. For the fourth quarter, we expect sales to be up approximately 7% to 9% inclusive of the TACO acquisition. Core sales are estimated to be down 2% to 3%. We expect flow sales to be up approximately low single digits which reflects the continued headwinds from the food and beverage business. We anticipate Water Solutions sales to be up approximately 40% with core growth of low single digits. Pool sales are expected to be down approximately 12% to 15% due to a difficult top line comparison versus the prior year. We expect fourth quarter adjusted operating income to be up approximately 1%. We are also introducing adjusted EPS guidance for the fourth quarter of $1.15 The full year guidance reaffirms the midpoint communicated on our Q2 26 earnings call. And reflects confidence in the actions underway to close this year strong and carry momentum for the expected robust growth in 2027. We plan to remain disciplined with our capital and have additional flexibility to strategically allocate additional capital to areas with the highest shareholder returns. Following the Taco acquisition, we will prioritize deleveraging our balance sheet, supporting our dividend and investing in our key growth initiatives. We will also continue to opportunistically repurchase shares in line with our commitment to returning capital to shareholders. I would now like to turn the call over to our operator for Q&A.

After which John will have a few closing remarks.

Operator, please open the line for questions. Thank you. Hey. Thank you, sir. We will now begin the question and answer session. If you would like to ask a question, you may press star then 1 on a touch tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If anytime a question has been addressed and you would like to withdraw your question, please press star then 2. Again, that is star then 1 to ask your question. At this time, we will just pause momentarily to assemble our roster. The first question we have will come from Bryan Blair of Oppenheimer. Please go ahead.

Thank you. Good morning, everyone. Good morning. Good morning. Hi, Bryan. It sounds like the in your baseline or preliminary outlook for pools reset growth next year is largely unchanged. Just working off of a slightly higher base Within that, just to level set, what are you assuming for pool market share? Is that stabilizing at that current level? Or is there any recapture of the I believe you had framed it as 2 or 3 points of share loss that took last Well, Bryan, we.

Really what we are just trying to do is say if we were to remain flat to the current year's sell through, it would be $1.45 billion. Clearly, that is a starting point. We would expect to do better. We do not yet have the market dialed in for 2027. And, you know, we are gonna compete for growth. We are gonna compete to recover you know, any lost share and continue to grow share. We do not know what that looks like yet. We are just trying to get people's head around the $1.45 billion and how that moves over and creates that mid teens growth rate. And then give you a starting point for what the ROS should do to model 2027 performance. We will have better insight into share value markets everything else when we come forward with our full year earnings guide in early February.

that is perfectly fair. Appreciate it. I think your team sounds quite bullish on, Taco's operating momentum If we think about the 2027 outlook that you have provided, at least the preliminary 1. How should we think about growth rates on the commercial and industrials side of the business relative to residential? And then as we look forward, how meaningful should cross selling be? In terms of sustaining TACO outgrowth? And also accelerating growth for legacy vendor?

Yeah. I think first of all, we are we are teeing up double digit growth for Taco next year off of their strong greater than 20% performance this year. A lot of that is coming to the commercial industrial side, but they are growing mid single digits on the residential side as well. I think that is a starting point again for next year. We have a significant funnel of opportunities, and we are working through that funnel to see how we build our confidence rate for how good TACO could be next year. As far as the synergies, we have identified significant opportunities through their rep channel and how they go to market. And opportunities to use the complementary portfolio to satisfy key demand. Do not have it yet quantified. We will again, as we head into next year, give you a better number. First is to do no harm to Taco and make sure we take advantage of their business model and their tailwind. And then we start to add some of the Pentair growth to it, and I think it gets really, really exciting. All makes sense. Thanks again.

And next, have Brett Linzey of Mizuho.

Hey, good morning all. Good morning. Hey. Good morning. Yes, question on mix. I am curious on the sales line within pull. Were there any mix dynamics or trade downs that you saw through the quarter And then I guess, how do we think about mix going forward in the face of the consumer backdrop and then also the potential you know, reentry into some of the low. You know, lower tier end as you maybe go back into that marketplace and try to you know, win back some share?

Yeah. So first of all, I mean, I think we were encouraged by mid single digit sell through in the quarter in pool. Know, not the high single digits we are used to, but we are we are back in mid single digits. So we are we are pleased by that. As a reminder, we still had a lot of inventory burn in the quarter. that is reflected in what we would say is the lower margin. And we are also investing significantly for sales, marketing, and targeted marketing actions. I do not think there is a mix issue. Brett. I think we feel good about our product lineup. And it is about making sure that our customers and either if you are a service or a new pool builder, understand the value of our products and you are competing effectively with our products for those opportunities. And I feel good about, the progress in Q3, but we are a long way from declaring victory yet.

Yeah. No. that is helpful. And then and then maybe just a follow-up on price and cost, just thinking about the inflationary uptick we have seen, obviously, some movement on tariffs. But thinking about price cost near term, what is your hedging position looks like? Over the next couple of quarters? And you know, at least the front part of 2027, any preliminary expectation on how the model price cost?

Yeah. We are gonna we are gonna take IEPA recoveries and move them off to side and make them clear for you. Ourselves, and our customers. And then we have a strong belief that we will offset inflation next year cost with pricing as we have done historically. We will not be able to do that and recover AIPA twice. Right? So you know, we will make sure that clarity is there. But we have had some products running up in inflation, and then we have had some positive movement in some other ways. As you would expect across global supply chain. But overall, our initial indications are we should be able to recover on the cost side price for 2027. I appreciate the detail. Okay.

Next, we have Nathan Jones of Stifel.

Good morning. This is Adam Farley on for Nathan. Hi, Adam. Staying on the pool business, how do you think about pricing within the pool business just given all the dynamics? Think you will have to eat some of the additional costs to compete per share?

No. I do not. I think we believe that we will compete and recover any listen. When we talk about share, we would acknowledge that we have the most amount of existing pool pads over you know, in the country or inside The United States just because of our strong positioning. From decades And when we talk about potential share loss, it is a onesie and twosie product on an existing pad that we feel has migrated at times to a more competitive offering or a dealer who has switched alliances. We think by going out and making sure that our products are understood and that they are like for like replacements to products we had and reminding consumers of the great experience they have had under the Pentair brand. That we can continue to compete effectively for that. It was really about we were focused on new pool builds, and we were not as focused on where those existing pads were. And a big part of this regional structure and the investment we are making state by state with our dealers is to align our opportunities to where the long term growth resides. And right now, that is in the aftermarket and service, and that is why we are gonna be more competitive in that area. it is not a pricing play. it is it is a targeted marketing approach. it is a. Making sure that the customers our customers are well trained. it is making sure that we are providing the services that differentiate them. And that is part of the investment that we are making. it is not a pure net price play.

Yeah. No. I just. it is Robert W. Hau. I would point you to the conversation that John had in his prepared remarks. 've talked about in the past, the 4 pillars for the quote get well plan for pool, around outselling, out supporting, delivering on quality, and project excellence. it is supporting our dealers, putting them at the center of everything we do. And competing based upon our offering and our service it is not necessarily a price plan. And for overall 27, you know, in line with our communication to the dealer channel, we went out with 3% to 4% price increases. Generally, which is more moderate versus last year. But we think that is a good position cover the inflation as we mentioned. And position us for the ability to support and our dealers in a successful way.

Understood. that is that is really helpful color. If change gears and look at the flow business, maybe could you just talk about some of the near and medium term path to growth within this segment, maybe specifically on the volume side, and maybe some of the different market dynamics going on between residential and other markets within flow. Thank you.

Yeah. Certainly, in Q3, we saw some headwinds from the food and beverage piece of the business. So thank, you know, selling into the beer market as an example. We saw that as delayed spending. Overall, I would say on the other pieces of the portfolio, we were very pleased to drive double digit growth in the third quarter. So slightly below our expectations for Q3, but you know, mainly driven by food and beverage delayed spending. Thank you for taking my questions.

And next, we have Nigel Coe of Wolfe Research.

Thanks for taking my questions. 2. 1 was just on the confidence and clarity you have around where you are on that destock. I know you sort of said that was through. I just kind of. If you could flesh out a little bit more where that sort of comfort level comes from. And then the second 1 was just around the sort of targeting of those sort of mid and small sized pool builders. I would just be curious how the initial conversations with those customers have gone. How receptive were they when you sort of went back and tried to sort tap into them again? Any color would be great. Thank you.

Saree. We will tag team this 1. Go ahead, Bob.

Take the first part on the inventory. Yeah. Our confidence, around the destock you know, comes from, you know, the information that we have. We. We have seen roughly $280 million of destock over Q2 and Q3. So think call it, roughly $190 million in Q2. Of destock and $90 million in Q3. That puts us at an inventory position in the channel at the end of the third quarter that is roughly $110 million lower than it was last year and then we. When we look ahead to ending inventory at the end of the fourth quarter, we anticipate that we will be down versus the prior year roughly $180 million in the channel inventory. And so you know, that information, that type of sell through that we are seeing, puts us in a position for strong growth in 2027 when we use a flat $1.45 billion sell through number. This also includes the mid single digit sell through that John talked about in the third quarter. And again, roughly mid single digit sell through in the fourth quarter. So it is really that ending inventory position at the end of the year that gives us confidence that sell in will equal sell through in 2027.

And as far as the Mhmm. Conversation with customers, we have you know, made sure that we have got a national accounts focus primarily focused on the 2 largest distributors and make sure they are getting the service levels that they need. And then we have had a dedicated sales and account team on the all other and specifically making sure that all of the nonaffiliated distributor accounts are called on personally and that we are reminding them that we want them back and we want them part of the Pentair family. And we are working with them 1-on-1 on ways to bring them back to our know, coverage and support. And so you know, it is gonna be a. You know, some of them are smarting on our desire to ask them to go to distribution and their choice not to. They might be a little bit longer coming back, but we have. We are pretty pleased that some of the progress on opening up the buying opportunities across those independents. And starting to make some progress on recovering the losses associated with those accounts. Very helpful. Thank you.

And next, we will have a question from Brian Lee of Goldman Sachs.

Hey, guys. This is Tyler Bisson on for Brian. Thanks for taking our questions. Can we go back to the flow segment? I know sales came in a bit lower than expected due to some delayed spending in food and beverage. For Q4, it is only expected to be up low single digits. And I know last quarter, you called out some key wins across data centers, commercial buildings, desalination markets. So curious how these wins are progressing in terms of revenue conversion and whether you had any incremental wins this past quarter. And then any expectations when that delayed spending across food and beverage could be realized? Is that, like, a first half of 2027 event?

Yeah. I think there is 2 things happening. there is also a sustainable process solutions business that we have, which you know, is biogas and waste management recovery. And if you recall, we had a really, really strong pipeline as we ended last year. So we got a year over year comparable there in Q4. We are very encouraged about the continued order rate in that particular side of the business. But you are gonna have a little bit of lumpier projects on that side. But we are you know, outside of the food and beverage, which we are not counting on a significant recovery next year, we are seeing some pretty good infrastructure wins. We are seeing some pretty good municipal wins. And we are really building backlog as we head into 2027.

Super helpful. And then just on the Taco acquisition, should we expect any meaningful changes in working capital or CapEx requirements? And how are you thinking about capital deployment from here? And how fast do you expect to delever following the acquisition?

Yeah, Tyler, it is Bob Hau. Yeah. From a standpoint of working capital and CapEx, I think you know, current outlook would be remains consistent with how the kind of combined company has been operating. Obviously, we will bring, Taco into the fold, and they spend a bit more capital than we do. But overall, you know, well within our capacity and continue to generate strong free cash flow and a very good strong balance sheet. From a capital deployment or capital allocation philosophy, absolutely remains intact. We will continue to invest in the business to grow it organically. Maintain our investment grade rating as. Continues to be a priority and will remain a priority of ours. And given the strong free cash flow we have, we have the direct path to delever, as I have claimed. As I said in my prepared remarks, you know, on a pro forma basis, we start the fourth quarter at about 2.5 times or so. We will delever over the next 24 months back into our more normal range of 1.5 to 2x and, have a direct path to do that given the cash generation of the company. So feel good about, our current position and our ability to deliver quickly. Perfect. Thank you very much.

And the next question we have will come from Andy Kaplowitz of Citigroup.

Hey, good morning, everyone. Morning. Good morning. Morning. Morning. Maybe just focusing on margin for a second in Flow and Water Solutions. Good margin performance continues. So maybe update us where you are now on your eightytwenty initiatives and opportunities for continued margin expansion in those segments in 2027?

Yeah. I would say we were also very pleased with the ROS expansion. Even when you exclude the tariff refunds. For the Water Solutions business, the gross margin expansion was significant. You know, in pieces of each of those 2 businesses, we are still running complexity reduction plays. So there is opportunities in pieces of flow and water solutions to continue to expand the ROS, and that is the path that we are on, Andy.

And, Bob, maybe just focusing on Water Solutions a little more. I think you said core up low single digits in Q4. Maybe break down the businesses a little more and how they are faring. I think The U. S. Was doing better than I assume that is still the case and how that kind of looks going into 2027.

Yeah. Very much so. So the commercial water side, continues to grow mid single digits and do really well for us. Residential still has the headwinds. Primarily due to, you know, low housing closings. Starts and, higher mortgage rates. So a very similar story to what we saw in the third quarter.

Hey. Next, Joseph Craig Giordano of TD Cowen.

Good morning. This is Michael on for Joe. Good morning. Good morning. Can you walk us through what is underpinning the 1.45 pool guide for next year? Can you just unpack that between resi to commercial? New build versus remodel, and repair and replace. We would love to understand that better.

Yeah. Not there yet. First of all, it is 1.45. I just wanna make sure we are clear. Our intended goal there was to make sure that everybody starting from the $1.45 billion is a starting point. Recognizing that is roughly this year's sell through, which is modestly higher, you know, call it a few points higher than it was in 2025. And not be focused on our shipping numbers. And the primary purpose of doing that was because we are expecting that this inventory level remains the appropriate level, and therefore, our sell through equals our shipping next year. We have not yet talked to our dealers as we always do about where they think the opportunities lie and how do we position ourselves. So we do not have next year's numbers dialed in from a perspective of new pool builds and what that mix looks like by state, by region, also where we are gonna be from a market perspective at aftermarket service. We are really pleased and excited about the new regional structure we have. We split the 7 selling regions across 2 divisions, and it allows us to get more local into the key states. And it allows us to keep the focus on what we need to do differently across those states to grow. A differentiated way We will have all that when we talk to you at. After the end of Q4. And we will give you a clearer path to the mix of how we expect to deliver next year's pool. Expectations. Thank you. Thank you.

Next we have Jeff Rave of RBC Capital.

Thank you and good morning everyone. I want to follow-up on the regional sales structure that is part of your 4-pillar growth strategy for pool. Can you just help us understand what is actually changing here and maybe what was wrong with the prior structure and what you are doing differently now?

Yeah. I will I will I will take. I will give you a couple examples. I appreciate the question. Take something like a variable speed pump, and the different features we have. Depending on your energy dynamics or use of energy, that cost savings to a consumer varies widely. From what the cost of energy might be in the Northeast or Southeast versus what it might be in an Arizona or a Texas or California. And we wanna make sure that we are targeting and marketing the position and the value propositions of products effectively. You have markets like Florida that are very heavy heat pump orientation with no natural gas. So you gotta compete differently for products in different regions. And if you are running a national strategy both on marketing campaigns or targeting a product, you miss the local nuances that you need to service your dealers on. This regional structure has always been in place at the sales level, but we were not making the investments on the service side, the. Both technical and field service capability. And dealer training differently across those 7 core regions. And we think by listening, to what the need are state by state, we are gonna be able to effectively invest and go gain significant share from listing to our local dealers. that is the purpose of this structure? Got it. Appreciate that. California and Arizona that are open 12 months a year, and you got regions like the Northeast, Midwest that shut down pools for part of the season. And you gotta have different, programs and different support mechanisms for those particular pool builders. All makes sense. Maybe just as a follow-up, as you are kind of empowering your regional leaders to make more localized decisions, how do you maintain the discipline of 80/20 and maybe avoid reverting to the complexity that you spent the last several years eliminating? Yeah. I mean, listen. First of all, 80/20 is a very good tool, and I am a huge fan of the tool. I am being honest in this case. It was probably misused. As we have talked about for purposes of driving some efficiencies and some systems changes. But, you know, the 80/20 says you have valued customers and most valued customers. And the only difference is how you treat them slightly differently. You do not fire customers ever. Customers choose to be with you or leave you based upon the set of parameters that you give them. as to how you are going to partner with them and service them. So I still think all of those come from a more central led organization. Structure talking about what your discount rates are to a dealer, you know, how do you balance the types of dealers that are more value to you, if those accounts are worth for you from a growth perspective? But you execute very locally. Based upon those parameters. And I think that it is a combination of using the tools appropriately and making sure we are empowering that salesperson to do what they need to satisfy that dealer. that is gonna go get that trust back from the dealer network. Awesome. Thank you. Still think we have the most enviable brand in the industry. And I think it is really living up to the brand promise day to day. that is our goal.

And again, as a reminder, if you would like to participate Next, have Deane Dray of RBC Capital Markets. Please go ahead.

Hi, guys. Thank you for taking my questions. Just first, how should we think about the long term trajectory for the operating margin in the pool business? Following the expectations for 30% next year? Are there any onetime investments next year, or should we think about this as sort of the long term target to build off of going forward?

Yeah. I will start with I have arbitrarily said it; let's just say that know, when we had the inventory destock and we reset, I still think we have got the premium brand. I think we have got the superior product offering. I think we have the best selling organization and the service organization in the industry. And I think all of that deserves a premium to competition. So that is where the 30 comes in from an ROS perspective. I think as we go forward, we are expecting volume contributions to really help leverage and drive margin performance. And then we expect to invest a portion of that back into the business, again, around marketing campaigns, NPI, innovation,, and outservicing our competition. And I still think having a healthy 3 in front of it is the right answer, but I do not think it has to grow disproportionately every single year to add value. I think that this is a high single digit growth contributor when the market, is set up where new pools are actually increasing. And the aftermarket pads continue to grow. And so I think between its high-end growth rate and its margin rate, it can contribute effectively to Pentair's portfolio.

Okay, great. And then just a follow-up on capital allocation. How should we think about how does the pullback in the share price impact your decision to pay down debt versus repurchase shares at this point?

Again, this is Bob Hau. Certainly part of the equation, you know, from a capital allocation standpoint given the strength of our balance sheet and our free cash flow. We have choices to make but are largely an "and" choice, not an "or." In other words, we can invest in our business organically. We can look at value accretive acquisitions. We can continue to increase our dividend, and we can do share repurchase. it is about balancing those along with our commitment to maintain that strong balance sheet and delever. But we think we can do all of the above very effectively over the course of time.

Thank you. Well, at this time, we are showing no further questions. We will go ahead and conclude the question and answer session. I would now like to turn the conference back over to Mr. Stauch for any closing remarks. Sir?

Thank you for joining us today. In closing, I would like to reinforce some key takeaways. On slide 15. First, the pool channel inventory realignment is now complete. With channel inventory better aligned with demand and a clear growth strategy centered on our dealers, and customers, we believe Pool is positioned for robust growth in 2027 without assuming recovery in the end markets. Second, the acquisition TACO adds a high growth platform to Pentair. TACO expands our presence in attractive commercial and institutional markets, strengthens our water management capabilities, is expected to be accretive to adjusted EPS. In 2027. Third, Flow and Water Solutions continue to execute their profitable growth strategies delivering sales and segment income as well as margin expansion in the third quarter. As we look to 2027, we will also manage through the year over year impact of approximately $43 million of tariff recoveries recognized in 2026 that we do not expect to repeat. Overall, our third quarter performance reinforces our confidence in Pentair's long term strategy. We have a strong portfolio, leading brands, attractive exposure to secular water trends, and multiple opportunities to create long term shareholder value. You to our Pentair employees for their continued dedication and execution, and thank you to our customers and shareholders for their ongoing support. Thank you, everyone, Have a great day.

Alright. Thank you, sir, and to the rest of the management team for your time also. The conference call has now concluded. At this time, you may disconnect your lines. Thank you. Take care, and have a great day, everyone.