PENTAIR plc Annual Report - Fiscal Year Ended December 31, 2025

This summary offers retail investors a clear and comprehensive look at Pentair plc's performance and strategic direction for the fiscal year ended December 31, 2025. Pentair plc, headquartered in Ireland with its principal office in London, UK, trades on the New York Stock Exchange under the ticker PNR.

Business Overview

Pentair is a global leader providing smart, sustainable solutions for water and fluid management. Its diverse portfolio serves residential, commercial, industrial, and infrastructure applications. Pentair operates through three primary segments:

• Flow: Includes pumps, filtration, and fluid transfer technologies for industrial, commercial, and agricultural uses.
• Water Solutions: Focuses on residential and commercial water treatment, filtration, and purification systems.
• Pool: Offers equipment and accessories for residential and commercial swimming pools and spas.

In fiscal year 2025, Pentair delivered robust performance, driven by strong demand in its Water Solutions and Pool segments, while the Flow segment maintained steady contributions.

Financial Performance

Pentair achieved total net sales of $4.2 billion for fiscal year 2025, a 7% increase from the previous year. Strong demand in residential and commercial water treatment primarily fueled this growth. Net income rose to $550 million, or $3.20 per diluted share, marking a 12% increase year-over-year. Gross margin improved to 35%, reflecting operational efficiencies and a favorable product mix, while operating income grew to $700 million, a 10% increase.

Looking at segment performance:

• The Water Solutions segment led growth with a 9% increase in sales, driven by innovation in sustainable solutions.
• The Pool segment saw a 6% increase, benefiting from strong aftermarket demand and new product introductions.
• The Flow segment contributed steadily with a 4% increase in sales.

Management's Discussion and Analysis (MD&A) Highlights

Results of Operations

The 7% increase in net sales primarily stemmed from organic growth across most product lines, particularly in the Water Solutions and Pool segments, complemented by contributions from recent acquisitions. Gross margin expansion to 35% resulted from favorable pricing actions, disciplined cost management, and a beneficial product mix shift towards higher-margin offerings. Operating income growth outpaced sales growth, reflecting effective management of selling, general, and administrative expenses, despite investments in research and development and strategic initiatives. Net income improved due to stronger operating performance and a stable effective tax rate.

Liquidity and Capital Resources

Strong cash flow from operations remained Pentair's primary source of liquidity. The company used this cash generation to fund capital expenditures, strategic acquisitions, and return capital to shareholders through dividends and share repurchases. Pentair primarily directed capital expenditures toward enhancing manufacturing capabilities, supporting new product development, and improving operational efficiencies. The company maintains a balanced approach to capital allocation, prioritizing investments in organic growth, strategic acquisitions, and shareholder returns.

Major Strategic Initiatives and Operational Changes

• Acquisitions: Pentair expanded its portfolio through key acquisitions. In September 2025, Pentair acquired HydraStop LLC for approximately $150 million, significantly enhancing its capabilities in pipeline repair and maintenance and complementing its existing Flow segment offerings. Pentair expects this acquisition to boost earnings by 2027. The earlier acquisition of GF Manufacturing LLC in late 2024 further strengthened its position in specialized water treatment components. These acquisitions align with the company's strategy to expand into attractive adjacent markets and enhance its technology portfolio.
• Restructuring: The company continued its strategic restructuring initiatives throughout 2025, incurring approximately $45 million in related costs, primarily for severance and facility consolidation. These efforts, which began in 2023 and totaled $120 million over three years, aim to streamline operations, reduce overhead, and enhance long-term profitability. Pentair anticipates annual cost savings of $30 million starting in 2026. These initiatives focus on optimizing the company's global manufacturing footprint and organizational structure.
• Share Buybacks: Pentair returned capital to shareholders through its share repurchase program. Under the December 2020 authorization, Pentair repurchased 3 million shares for $180 million during 2025. In December 2025, Pentair authorized a new $500 million share repurchase program, signaling management's confidence in the company's valuation and commitment to enhancing shareholder value by reducing share count and potentially boosting earnings per share.

Critical Accounting Policies and Estimates

Management also highlighted critical accounting policies and estimates requiring significant judgment. These include revenue recognition, inventory valuation, goodwill and intangible asset impairment assessments, and estimates related to income taxes and contingencies. Changes in these estimates could materially impact the company's financial position and results of operations.

Financial Health

Pentair demonstrates a solid financial position. As of December 31, 2025, the company held cash and cash equivalents of $320 million. Total debt was approximately $1.8 billion, primarily from its 5-year term loan facility and senior notes. The company's net debt to adjusted EBITDA ratio stood at a healthy 2.0x, indicating manageable leverage. Pentair also has access to an undrawn $750 million revolving credit facility, providing ample liquidity for operational needs and strategic investments and demonstrating strong access to capital markets.

Risk Factors

Several key risks could materially affect Pentair's business, financial condition, and results of operations:

• Economic Downturns: Potential economic downturns could impact consumer and industrial demand for Pentair's products, particularly in discretionary spending areas like residential pools.
• Cost and Supply Chain Volatility: Pentair faces fluctuating raw material costs and supply chain disruptions, which could impact production costs and product availability.
• Customer Concentration: Customer concentration risk exists if a significant portion of sales in certain segments relies on a few large customers.
• Restructuring Execution: Ongoing restructuring efforts, while beneficial long-term, present short-term execution risks and can incur additional costs if not managed effectively.
• Regulatory and Litigation Risks: Compliance with evolving environmental regulations and potential litigation, including product liability and intellectual property disputes, are constant risks for industrial companies.
• Operational Risks: Cybersecurity threats and the ability to attract and retain skilled personnel also pose operational risks.

Competitive Position

Pentair navigates highly competitive global markets across its segments. Its strength comes from its diverse portfolio across Flow, Water Solutions, and Pool segments, offering a broad range of products and services. The company leverages its strong brand recognition, technological innovation, extensive distribution networks, and global manufacturing footprint to maintain a competitive edge against both specialized and diversified competitors. Success hinges on factors like product performance, reliability, price, customer service, and the ability to innovate and adapt to changing market demands and regulatory requirements.

Future Outlook

Looking ahead to fiscal year 2026, Pentair expects continued growth, projecting net sales to rise by 4-6% and diluted EPS in the range of $3.40 to $3.60. The company plans to integrate recent acquisitions, realize cost savings from restructuring, and invest in sustainable water solutions and digital technologies to drive long-term value. Management anticipates continued strong demand in key end markets, supported by ongoing trends in water conservation and quality.

Market Trends and Regulatory Environment

Pentair is poised to capitalize on several favorable market trends:

• Increasing global demand for clean and safe water.
• Growing interest in sustainable home and industrial solutions.
• The ongoing need for infrastructure maintenance and upgrades.

Demographic shifts, urbanization, and climate change also drive demand for the company's products. Regulatory changes, particularly those related to water quality standards, energy efficiency, and environmental protection, present both opportunities for new product development and compliance challenges, requiring continuous monitoring and adaptation.