PNR
#Yes, we are starting to see the downstream investment again.
The OpEx has been turned off for some period of time.
We are starting to see a fair amount of aftermarket consolidation, so our customer is spending with the scale providers, which gives us great excitement as being the largest valve supplier in our space that we're going to see a lot more aftermarket consolidation and that's a big growth opportunity for us.
And then, we also are back in the game in the Middle East and we are starting to see order contributions in the Middle East, where we have been out of that game for some time.
Yes, we were finishing a job in Q2 that was a fixed bid job in Thermal and we had some overruns on the labor side on that project, so that job is ending early Q3, and so with that behind us, we are back to more of our normal project margins and our normal product margins.
So, it was one large job that we worked through last year and we have the final labor runs going through Q2 and early Q3, and then it is behind us.
It was a project order and it was a fixed hourly or fixed fee, and we overran the labor to install and complete the job, and so it ended in Q2 and Q3, so it is finishing up here in July, and then we're going to see those orders ---+ or see that margin rate get better from here.
Just the Process Filtration piece.
I think we have a lot of capability and we have not fully achieved ignition in the marketplace on them.
Infrastructure, we have pretty good reach globally to basically the components that go into large projects and we do pretty well there.
Our hit rate when we compete for Industrial is pretty good.
We need to get more at-bats on that.
And similarly, I think that there is a vast opportunity for us to sell membrane bundles and not just modules and systems.
So I think we're early days in terms of all the growth opportunities that Process Filtration has.
You are talking about Flow & Filtration in total.
Oh, Agriculture.
Given the lack of good predictability that we had going into the second quarter, I will be less confident in answering.
We expect to see some improvement in crop spray coming, but irrigation, I think, is going to be ---+ this is irrigation season, so the fact that it wasn't up now means it won't be up in the third quarter.
It tracks pretty closely with farm income, unless you have an issue like we had with the drought.
Not worsening; not bettering, though, to be honest, I would say.
Pentair wide.
There is a small little tailwind from the variances associated with the last year productivity working its way through Q1 and Q2, but most of it is the momentum on the incremental cost saves on the operational side and also some momentum around material savings working its way through the shipments.
<UNK>, just to be clear, and thank you for asking the question, our price that shows up in the Valves & Controls chart is a like product to a like product (multiple speakers), so it is standard product and it is an aftermarket, usually, and it is a like to like.
We are seeing, as we have talked about over the last several quarters, the project margin headwind that works its way into the growth in the FX bar on the right as far as segment income, so we are seeing that project mix to that project pricing work its way through that and that is stabilized, but it is still on a year-over-year basis pretty large, as you can see there.
It is pretty much just the Agriculture issues, the majority (multiple speakers)
We don't think so, no.
Yes, before I get into the specific investments, what we meant was that we had such a nice increase in margins.
I just don't think people should expect it to be that good, and we gave you some insights into what we expect the margins to be.
The investments are basically in two.
One is product innovation and the other one is in channel and geography investments and sales coverage.
So, maybe it is 50 bps a quarter in investment increase, and one is it is a business that as the conversation about China and the conversation we talked earlier about in the Pool Business, it really is a business that is yielding to innovation, so product innovation pays.
And then, as I mentioned, we are applying some of the Pool playbook to water purification to get more intimate and closer to the customer, and those are the geography and channel investments we are making.
Right.
You're talking about Valves.
Yes, okay, go ahead.
Listen, we have had a fairly sizable front lawn for a period of time and I think, as <UNK> mentioned, we scrubbed it.
We have discounted the larger projects from the expectation that those would close this year.
But what we did when we reorganized the sales force is put a lot more energy and effort around the Aftermarket side.
And one of the things we bring to the table to a lot of the larger customers is the ability to service a vast majority of valves.
And the way that we are servicing those right now is on an aggregated buy basis from those customers and then also working inside their factories or their plants to be able to benefit from that.
So, that's a big piece of it.
The second one is that there has been some pent-up demand on the downstream side and especially the MRO downstream.
And as we always said, we don't think that could be deferred forever, and we are starting to see that start to come in.
So, listen, we are not declaring victory yet.
I think what we are saying is that we believe that Q2 represents the bottom of the orders and we are starting to see the increase from here.
A double-digit increase off of Q2 is still a modest level of orders versus what we are used to, but it is at least a sign that we're going to see that downstream investment start to come back.
Right now, we are committed to the 100% of net income.
We are tracking, as we said, $150 million better than last year, but we are focused on this and obviously getting our debt paid down (multiple speakers)
Yes, we are not only $150 million ahead of last year; we are ahead of where we thought we would be at this point in time.
But Jeff, I think we've got to see another quarter or two before we ---+ obviously if we see two, we will have it, but I think we need to see another quarter before we're going to declare that there is upside to that number.
Yes, there are a couple factors.
One is the Europe comp in Water Purification in the second quarter was tough, so we didn't show any growth there.
We think that gets better.
And then, we talked about the pool timing.
And the pool market, and you can look at ---+ there is a few comps you can look at ---+ the pool market is really quite strong and we think that more of that will read out, too.
You'll see that more because the timing comp won't ---+ the timing won't mess up the comp.
Yes, the weather can have an impact on the timing of the pool season, <UNK>, and last year there was a very, very strong Q2, and we are now back to more of a normal trend on a year-over-year basis in Q3.
And as we shared, our Aquatic & Environmental Systems Business has been growing nearly double digits now for four or five years in a row.
So, we feel fairly good about the visibility to this number and feel very good about the growth rate for Q3.
No, we have a few more factories in the works to reduce, so we are just under 100 total factories for Pentair and we expect to have reduced it by around five or six by the beginning of the year to the end of year.
So, we're modestly addressing it where we feel we have excess capacity due to the end markets that we are serving, but we are not aggressively reducing the factory footprint at this time.
That was close.
That was a new one.
Josh <UNK>, go ahead.
We have done really well on the price/cost at both ERICO and Enclosures, so we did single out the Thermal business, Josh, primarily because ---+ and that is not really steel related; it is more of the heat tracing cable versus the labor and the integration cost to bring that project to bear.
So, when we take on the projects and we're doing the design, the engineering, and the install, and then we are bringing the cable along, we're going to have a compression of margins when the product side is down.
And as we mentioned, the aftermarket MRO sometimes goes to distribution or it will go direct to the end site and get installed, and that's the part that has been down double digits.
So we're up significantly in the project side, we are down in the product side, and we are experiencing an overall mix issue, even though we're up in revenue.
No change, and we have ---+ probably experiencing a little bit modest headwind Q3 and Q4 and I would say of a couple million dollars in the rising cost of the steel, but not anything significant.
It is Water Purification in Europe.
Pool isn't that big in Europe, but the Water Purification side is, but margins are not bad.
Is there a little mix shift there (multiple speakers)
I think there is ---+ <UNK> mentioned there is the desire to do significant growth investments, and this is a business that absolutely deserves to do these growth investments.
And we've factored them in as the business views spending them.
The likelihood that they would actually spend them would ---+
Spend them all.
---+ would be low.
No, not at all.
Not at all.
Too early to call that, but I think your intuition is about right.
Yes, I would certainly start with that.
We haven't started that yet, though.
But I think your intuition, if we were doing it now, is correct, Chris.
I think you should look at around $43 million-ish divided equally between Q3 and Q4.
Yes, we have got a little bit more short-cycle product shipments and also getting out the past-due backlog, so we see that we are expecting to get slightly higher standard margins as we move that through the shipments, and we also, as we mentioned, we took in a fair amount of deferred variances from last year, which means we spent more than we should have on the labor side, and we had to bleed that off the first couple quarters this year, so we had a little tailwind associated with that.
That was from refinery.
We are seeing more of the petrochem spending come through, which has been actively being bid.
One thing that seems pretty clear is that now that the rapid decline in capital spending has happened, our customers have really sorted out not only who is working on ---+ who is still working for them, but which projects they're going to go forward with.
We skew to little projects.
We talk a lot about big projects because they are the things that move the needle a lot, but our average project size is well under $1 million.
So, those are small outage turnarounds, just maintenance-related activities.
And so, I think we are going to get into a more normalized, albeit lower, level of how they are deployed.
I think the structure itself is the right structure.
I think when you make this level of change where you have Project-oriented sales people trying to call on the Aftermarket, you're going to find areas where that is the wrong skill set, and I think that's where we're going to have to continue to migrate the sales force to the right skill set over time.
And to say we are optimized at the moment I would say is not accurate, and I think we think the structure is right.
And what we now need to do is get the processes and the support for the structure operating fully, and then we think we can benefit going forward.
Has it hurt us.
Probably here and there, but not dramatically.
