Pentair's Resilient Business Model

Published: 2025-06-23 03:21:41 ET PNR

Published on 06/23/2025 at 03:21

By Grégoire Legrand

Pentair operates as a diversified water technology company that provides sustainable solutions for water movement, improvement, and enjoyment across residential, commercial, and industrial applications. Established in 1966 and headquartered in London, United Kingdom, the company maintains operational centers in Minneapolis, Minnesota. Let’s take a closer look.

The water treatment industry is being reshaped by urgent needs: aging infrastructure, stricter regulations, and rising global demand—expected to grow 30% by 2025. This creates steady demand for both new systems and ongoing maintenance, making the sector relatively resilient even during downturns. Growth is strongest in emerging markets, where investments in clean water access and wastewater treatment are accelerating, while mature markets focus on upgrading outdated systems and meeting tighter environmental standards. In fact, global water consumption is projected to rise from 1,405 to 1,565 billion cubic meters between 2014 and 2025, reflecting growing pressure on already strained resources.

At the same time, technology is unlocking new efficiencies. Utilities are turning to AI for smart water management, improving leak detection, and optimizing plant operations. Advanced filtration, better flood response tools, and connected building systems are helping cities and industries use water more effectively. These solutions not only address water scarcity but also raise the bar for entry, favoring companies with deep technical know-how and strong regulatory capabilities.

Pentair's business model operates through three primary revenue streams:

Flow Segment: It focuses on moving water – and other fluids – across residential, commercial, and industrial settings. Its business ranges from everyday water pumps for homes and farms to complex filtration and wastewater systems for cities and factories. Whether it’s agricultural irrigation, flood control, or sustainable gas recovery, Flow’s products help manage water and liquid resources across the globe. Key brands like Sta-Rite, Jung Pumpen, and Fairbanks-Nijhuis support its position in fluid handling. Sales are split across Residential and Irrigation Flow (40%), Commercial and Infrastructure Flow (25%), and Industrial Solutions (35%), with demand peaking in warmer months. Geographically, 56% of revenue comes from North America, while Europe and the rest of the world each contribute 22%. In terms of product mix, 63% of sales come from pumps, 27% from separation technologies, and 10% from other solutions.

Water Solutions Segment: It delivers clean, great-tasting water for homes and businesses while promoting smarter water use. The segment offers filtration systems, softeners, pressure tanks, and commercial-grade ice machines, serving everything from households to restaurant chains. With brands like Everpure and Manitowoc Ice, it leads in water quality and efficiency. Two-thirds of its revenue (68%) comes from the commercial market, and the remaining 32% from residential. Geographically, 71% of sales originate from North America, 16% from CSEA (Central & South America/Asia-Pacific), and 13% from EMEA. From a channel perspective, 75% of sales are through distribution, 15% through strategic accounts, and 10% from service and other sources. Seasonal demand is influenced by warmer weather and customer renovation cycles.

Pool Segment: It provides energy-efficient products that make pool ownership easier, safer, and more sustainable. It offers pumps, filters, heaters, lighting, automated cleaning systems, and accessories for both residential and commercial pools. Well-known names like Kreepy Krauly and Sta-Rite help position it as a top brand in the space. Sales are dominated by existing pool installations (80%) with only 20% coming from new construction. Regionally, 75% of pool revenue comes from the North American Sunbelt, 20% from the Snowbelt, and 5% from the rest of the world. The channel mix shows a heavy reliance on distribution, accounting for 91% of revenue, with 9% from other sales channels. Pool sales are highly seasonal, peaking in spring and summer, and one major distributor accounts for a significant portion of revenue. Its focus on high-performance and eco-friendly solutions helps it stay competitive in a crowded market.

Pentair operates in a crowded market where competition is intense across nearly every segment—from residential filtration to industrial flow systems. Xylem is its closest overall rival, especially in industrial and municipal water systems, with a strong edge in smart infrastructure and large-scale fluid technologies. In pool equipment, Hayward and Fluidra (which owns Zodiac and Jandy) are the main challengers, offering competing lines of pumps, filters, and automation with strong brand loyalty in the residential market. For residential and commercial water filtration, Culligan leads with its service-based model, while A. O. Smith has a growing presence in point-of-use systems sold through retail. Grundfos, Franklin Electric, and ITT also compete in pumps and flow systems, especially in industrial and agricultural settings. This creates ongoing pressure to stay competitive on both price and performance. At the same time, volatile raw material costs—like steel and plastics—can squeeze margins and disrupt planning in a business with long production cycles.

Economic and regulatory factors also represents risk as demand for large-scale water projects is closely tied to capital spending, which often slows during downturns or public budget constraints. Meanwhile, water regulations vary widely across jurisdictions and frequently evolve, requiring constant investment in compliance and product adaptation. As climate change intensifies droughts and flooding, utilities are being pushed to invest in long-term solutions—but uncertainty around environmental policy, permitting, and funding timelines can delay or disrupt projects, adding further complexity to growth planning.

Pentair delivered solid full-year results in 2024, with sales of $4.1 billion, essentially flat year over year on a core basis. The group’s revenues were $6.45 billion in 2015, with EBITDA of $1.14 billion compared to $1 billion today. However, net income has increased over the period, rising from $469 million to $625 million, while debt has been reduced by two-thirds—from $4.5 billion to $1.5 billion. Despite top-line pressure, the company achieved strong margin expansion, with operating income rising 9% to $804 million and return on sales improving to 19.7%. On an adjusted basis, EPS grew to $4.33 from $3.75, and adjusted operating margins reached 23.5%, reflecting continued execution on cost discipline and operational efficiency. Cash flow was also strong, with $767 million in operating cash flow and $693 million in free cash flow, providing flexibility for share repurchases and a 9% dividend increase—marking Pentair’s 49th consecutive year of dividend growth.

The group has seen a clear improvement in profitability, with ROA rising from 6.19% in 2015 to 9.62% in 2024, and projections reaching 12.39% by 2027. ROE increased from 15.81% to 21.35%, though it's expected to ease slightly to 18.92%. In terms of valuation, Pentair currently trades above its 10-year average, with a P/E ratio of 26.9x vs. a historical average of 21.9x, and 2025 estimates pointing to 22.2x. Its P/B stands at 4.72x (vs. a 10-year average of 3.5x), and EV/Revenue is at 4.45x, also well above its long-term norm of 3.0x.

Pentair started 2025 with solid earnings growth despite soft top-line performance, posting Q1 sales of $1.0 billion, down 1% YoY with Flow down 3%, Water Solutions down 4%, and Pool up 4%. Operating income rose 12% to $203 million, with adjusted EPS up 18% to $1.11, supported by strong execution, margin expansion, and disciplined cost control. The company repurchased $50 million in shares, and reaffirmed its full-year adjusted EPS guidance of $4.65 to $4.80.

Pentair is a prominent player in the water treatment industry, with a robust business model, diverse product portfolio, and strong market presence. It benefits from its brand reputation, innovation, and sustainability while having to adapt to technological advancements, capitalize on emerging market opportunities, and navigate regulatory changes will be key to its continued success.

Grégoire Legrand