Pentair plc (PNR) Q3 2025 Earnings Call Transcript

Pentair plc (NYSE: PNR) Q3 2025 Earnings Call dated Oct. 21, 2025

Corporate Participants:

Shelly Hubbard — Vice President, Investor Relations and

John L. Stauch — President and Chief Executive Officer, Infrastructue Officer

Bob P. Fishman — Executive Vice President and Chief Financial Officer

Analysts:

Steve Tusa — Analyst

Andrew Kaplowitz — Analyst

Deane Dray — Analyst

Damian Karas — Analyst

Michael Halloran — Analyst

Julian Mitchell — Analyst

Bryan Blair — Analyst

Nathan Jones — Analyst

Nick Cash — Analyst

Andrew Buscaglia — Analyst

Andrew Krill — Analyst

Nigel Coe — Analyst

Joseph Giordano — Analyst

Jeffrey Hammond — Analyst

Scott Graham — Analyst

Presentation:

Operator

Welcome to the Pentair Third Quarter 2025 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] Please also note that today’s event is being recorded.

At this time, I would like to turn the floor over to Shelly Hubbard, Vice President of Investor Relations. Please go ahead.

Shelly Hubbard — Vice President, Investor Relations and

Thank you, operator, and welcome to Pentair’s Third Quarter 2025 Earnings Conference Call. On the call with me are John Stauch, our President and Chief Executive Officer, and Bob Fishman, our Chief Financial Officer. 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 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 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, which 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.

We advise listeners to carefully review the risk factors in our most 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.

John L. Stauch — President and Chief Executive Officer, Infrastructue Officer

Thank you, Shelly, and good morning, everyone. Thank you for joining us today. Please turn to the executive summary on Slide 8. In Q3, we delivered sales growth and a record third quarter across adjusted operating income, return on sales, and adjusted EPS. Sales increased 3%, driven by our Pool and Flow segments. Adjusted operating income increased 10%. ROS expanded 160 basis points to 25.7% and adjusted EPS rose 14% to $1.24.

In September, we acquired Hydra-Stop, a leading specialty valve solutions provider for water infrastructure, for approximately $292 million in cash or $242 million net of the anticipated $50 million of tax benefit. This acquisition enhances our Commercial Flow business with a strong financial profile and strategic fit. We are excited to welcome the Hydra-Stop team and their customers to Pentair.

Year-to-date, we delivered record free cash flow, and we repurchased $175 million of shares. Lastly, we are increasing our full year guidance, driven by a strong third quarter and continued confidence in our execution. We now expect sales growth of approximately 2% and adjusted EPS of approximately $4.85 to $4.90, up 12% to 13% from 2024.

Let’s move to the strategic overview on Slide 9. Over the last three years, our teams have successfully implemented our transformation initiatives while continuing to drive strong execution, leading to robust margin expansion. As we enter 2026, we feel confident that we’ve developed a flywheel that we expect will continue to drive efficiencies, opportunities, and profitability.

Our 80/20 actions are well underway and show early signs of success in driving top-line growth. Our businesses are in various stages of implementation on this multiyear journey. We plan to share more insights with you on our 80/20 actions at an upcoming Investor Day in March. We continue to invest in focused growth initiatives where we see great opportunities to drive near-term and long-term growth. We are also investing in innovation through digital and product technology.

In addition to investing for growth, our strong financial discipline and free cash flow has enabled us to make strategic acquisitions that align well with our current businesses and provide a platform for growth. As a dividend aristocrat, we have raised our dividend for 49 consecutive years, and we have continued to repurchase shares. Collectively, we believe this is a smart use of capital deployment to drive future sales and earnings growth.

Let’s turn to Slide 10. We have delivered approximately $56 million in transformation savings year-to-date and are on track to reach approximately $80 million in 2025. I want to remind you that this performance is net of strategic growth investments and is in addition to the $174 million of net performance we drove in 2023 and 2024 combined. As I mentioned earlier, we believe transformation and 80/20 are creating a flywheel for continued sales growth and profitability.

Let’s turn to Slide 11. There are several key themes that I wanted to share. We delivered another quarter of sales growth and double-digit earnings growth due to strong execution. We increased our full year 2025 guidance, driven by a strong Q3 and continued confidence in our strategy. We continue to build a foundation of optimal operational efficiency that we believe can be leveraged when volume returns to normal.

We have a balanced water portfolio and a capital-light business model with 75% of our business going through two-step distribution and roughly 75% of revenue representing replacement sales, and we have strong free cash flow, a solid balance sheet, and a balanced capital deployment strategy that we expect will accelerate earnings and ROIC.

Before I hand the call off to Bob, I want to acknowledge that we announced this morning that Bob will be leaving Pentair effective March 1, 2026, and embarrass him a little by complimenting him on having been an outstanding partner to me and Pentair. Over his nearly six years of what will be 23 quarters of dedicated service, Bob has driven deep financial competency throughout the organization. It shows in our operating performance, the level of commitment to results from the team, our transformation progress, our cash flow, and ROIC performance, and of course, the total shareholder return that he has overseen as CFO.

What makes Bob an even better teammate is a steady and measured communication style and his no drama approach to challenges. We have seen tremendous operating performance throughout his tenure despite us having had to deal with COVID, a period of supply chain instability, rapid inflation, and, of course, tariffs.

Bob has led us through all of it with a bold leadership style and a sense of humor. Now, after nearly 60 quarters of being a public company CFO, he’s moving on to his next chapter. Bob has built and developed a great financial team, and as you get to know Nick, I’m confident you will see that he has a lot of Bob’s skills plus unmatchable energy and drive. Bob will oversee a smooth transition process through March 1, 2026, ensure that we do not miss a beat on our value creation journey.

I will now pass the call over to Bob, who will discuss our performance and financial results in more detail. Bob?

Bob P. Fishman — Executive Vice President and Chief Financial Officer

Thank you, John, for the very kind words. I have thoroughly enjoyed my time at Pentair, our partnership, and working with all the great people in the company. We have very strong finance and IT teams at Pentair, which is evidenced by Nick’s and Heather’s promotions. Personally, I will be 63 in May, and I’m looking forward to spending more time with my family and enjoying my hobbies. It is comforting to know that not only is my team in a great place, but the company is expected to exit the year with continued momentum and is poised for significant success going forward. I look forward to continuing to work with Nick and Heather over the next few months to help ensure a smooth transition.

Let’s move to Slide 12. As John mentioned, we delivered a third quarter record in adjusted operating income, return on sales, and adjusted EPS. In Q3, we drove sales of $1,022 million, up 3%. Adjusted operating income of $263 million, up 10%. ROS of 25.7%, an increase of 160 basis points, and adjusted EPS of $1.24, up 14%.

Core sales were up 3% year-over-year, driven by core growth of 6% in Pool, 4% in Flow, and Water Solutions approximately flat. Moving to adjusted operating income. Transformation was the primary driver of 160 basis points of margin expansion in Q3. Price offset inflation, and we delivered transformation savings of $12 million while continuing to invest in growth initiatives.

Please turn to Slide 13. Flow sales were up 6% year-over-year to $394 million. Within Flow, residential sales were up 3%. Commercial sales increased 5%, marking the 13th consecutive quarter of year-over-year sales growth, and industrial sales rose 10%. Segment income grew 15% and return on sales expanded 200 basis points to 24%, driven by strong sales growth and transformation.

Please turn to Slide 14. In Q3, Water Solutions’ sales declined 6% to $273 million. Core Water Solutions’ sales were flat. Commercial sales were down 6%, inclusive of a 9% negative impact from the sale of commercial services in Q2. Residential sales were down 6% year-over-year, primarily due to portfolio exits. Segment income grew 6% to $68 million, and return on sales increased 280 basis points to 25%, primarily driven by transformation savings. The contribution of price slightly offset inflation.

Please turn to Slide 15. In Q3, Pool sales increased 7% to $354 million, driven by price, volume, and the Q4 2024 Gulfstream acquisition. Segment income was $116 million, up 3%. Return on sales decreased 120 basis points to approximately 33%. As a reminder, in Q3 2024, ROS reflected margin expansion of nearly 500 basis points, resulting in a challenging compare.

In Q3 this year, we continue to invest in growth initiatives such as new products, sales plays [Phonetics], and digital solutions to drive higher top-line growth in future periods. We expect Pool margins to expand in Q4 and for the full year as we continue to drive a balanced approach of top-line growth and continued ROS expansion in the future.

Please turn to Slide 16. We generated record free cash flow of $719 million year-to-date, up 14% year-over-year. Our balance sheet remains strong, and our return on invested capital increased to 16.7% from 15.2% a year ago. Our net debt leverage ratio was 1.3x, down from 1.4x a year ago. This includes our recent acquisition of Hydra-Stop for $292 million with an estimated $50 million of future cash tax benefit. Year-to-date, we have repurchased $175 million of shares.

Our significant free cash flow generation has enabled us to strategically deploy capital through debt paydown, dividends, share repurchases, and strategic acquisitions. We plan to remain disciplined with our capital and have additional flexibility to strategically allocate additional capital to areas with the highest shareholder returns.

Let’s turn to our outlook on Slide 17. For the full year, we are increasing our adjusted EPS guidance to approximately $4.85 to $4.90, which is up roughly 12% to 13% year-over-year. Also, for the full year, we are increasing our sales guidance to up approximately 2%. We expect Flow sales to be up low single digits, Water Solutions to be down mid-single digits, with core sales down approximately low single digits, and Pool sales to be up approximately 7%.

We expect adjusted operating income to increase approximately 9% to 10%. We continue to expect to drive approximately $80 million in transformation savings this year, net of investments. For the fourth quarter, we expect sales to be up approximately 3% to up 4%. 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 down approximately mid-single digits, with core sales approximately flat, reflecting the commercial services sale in Q2. Core commercial water sales are expected to be up approximately low single digits. Pool sales are expected to be up approximately mid-single digits. We expect fourth quarter adjusted operating income to increase approximately 4% to 8%. We’re also introducing adjusted EPS guidance for the fourth quarter of approximately $1.11 to $1.16, up roughly 3% to 7%.

Let’s turn to Slide 18. We continue to execute well and are offsetting the impact of tariffs through increased prices and other mitigation strategies. Our total 2025 tariff impact of approximately $75 million remains consistent with our outlook in Q2, but tariff uncertainty continues. Our 2025 guidance does not include further China and Mexico impacts, which could go into effect later this year. However, these are expected to be immaterial for this year. We expect to take mitigating actions as needed to offset these additional tariffs if they occur.

We are very pleased with our performance in Q3 and year-to-date. Our teams have been hard at work to mitigate the impact of tariffs while continuing to focus on transformation and 80/20 and continuing to deliver strong results. We are excited to welcome the Hydra-Stop team to Pentair and look forward to driving continued success. We are in a solid financial position with a strong balance sheet and record free cash flow, which allows us to continue to invest to drive higher sales growth and profitability over the long term.

I now would 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.

Questions and Answers:

Operator

Ladies and gentlemen, at this time we will begin the question-and-answer session. [Operator Instructions] And our first question today comes from Steve Tusa from J.P. Morgan. Please go ahead with your question.

Steve Tusa

Hi, guys. Good morning.

John L. Stauch

Hey, Steve. How are you?

Bob P. Fishman

Hi. Good morning, Steve.

Steve Tusa

I think you addressed some of like the tough comp in Pool on the margin side, but I think the productivity was definitely weaker than we were expecting there. Could you just talk about what the trend is and then maybe how you’re feeling about that number for the full year for the full company? And then secondarily, I guess it’s good to see the volume picking up there. Any — is that kind of like signs of life have a little bit of a bounce in the kind of replacement of the aged installed base? And then just talk about how you’re measuring — how you’re kind of balancing that against price.

Bob P. Fishman

Very good. Let me go ahead and start with that one. So in terms of transformation as a whole for the company, still driving towards that $80 million commitment we made at the beginning of the year, net of investments, so feel good about that. Also optimistic that Pool will rebound in terms of ROS expansion in the fourth quarter and drive transformation savings.

Frankly speaking, when we compare Pool’s performance in Q3 this year, last year, their ROS was sitting at 34%, up roughly 500 basis points. So we always knew that was going to be a challenging compare. And then frankly speaking, we had the luxury this quarter to invest in Pool to drive that top-line growth in the future. We started off the year very strong from a transformation perspective, drove over half of our savings, so we could afford to invest in Q3, especially in Pool. Flow had an amazing quarter in the third quarter, and again — once again, that allowed us to invest in other businesses.

So that investment in the quarter for Pool has really helped in terms of sales plays, new products, digital solutions. For us, it’s all about making the life of the dealers and the distributors easier by making those investments, creating an effortless pool experience for the end consumer, and then just driving an improved level of customer service.

So we think it was money well spent. But again, from a ROS perspective, I expect Pool will end the year very strong. They’ll be very close to that 34% ROS. And when you think about the journey Pool has been on, six quarters in a row of strong top-line growth, and their ROS was 31% back in 2023, so to be approaching 34% this year, really an amazing trajectory for that business.

Steve Tusa

Right. And then I guess just a follow-up on the volume and the sources of upside there, and then just how you’re balancing that against price.

John L. Stauch

Yeah. I would just say it felt like it was more predictable in Q3, Steve, and I think some of that is we’re not seeing the levels of declines across the new pool builds, and we’re also not seeing the — some of the same challenges that we were seeing in the aftermarket side on — when the price first went into place. Some of that was consumer shock and looking at substitution, so feel stable.

We’re highly encouraged that we’re going to have a volume-based growth plan for Pool next year and prices are holding. I mean, clearly, I don’t know if we get this next wave of — if China were to 100% tariffs, we’re going to have to go consider those prices again. But right now, the price cost is in line, and we’re doing fine, and we feel comfortable with where we are, Steve.

Bob P. Fishman

And just to add a few numbers to that, we talked last quarter, our view has not changed that price would read out about 4% for the company and about 5% for Pool, so on track for that. And when you think about our guide, Steve, up 7% this year for Pool, think about 5% being price, 1% to 2% being the Gulfstream acquisition, and the market generally flat from a volume perspective.

Operator

Our next question comes from Andy Kaplowitz from Citigroup. Please go ahead with your question.

Andrew Kaplowitz

Good morning, everyone. Congrats, Bob. Thanks for all your help.

Bob P. Fishman

Thank you, Andy.

Andrew Kaplowitz

So, you lowered your ’25 year-over-year Core Water Solutions growth, I think just a little bit down low single digits instead of flat. So, as commercial growth continued to lag a bit for you, I know you — I think, Bob, you said it will go to low single digit growth in Q4, and then any preliminary thoughts on ’26 for the segment?

Bob P. Fishman

Yeah, you’re right, Andy. It was the only full year guide we tweaked [Phonetics] down a little bit in terms of Core Water Solutions. You’ll remember, for Q3, we were saying Commercial Water Solutions would be low to mid-single digits, that came in at low single digits, and we guided Q4 for core commercial water to be low single digits.

So it’s a little bit off where we like that business to be in kind of that low to mid-single-digit range. But to me, it’s reflective of the foodservice industry in general. That’s the type of growth we’re seeing. We’re going to continue to drive optimization in that business from a bottom-line perspective, but it is a slower market right now.

John L. Stauch

Yeah. And Andy, I would just add to that. I think North America, we continue to do extremely well against the market backdrop, but we do have international sales, and we’ve seen softness in 2025 with some of the sales into China, and we’re still doing well despite that, and that will level off as we look at next year. And I think we’re encouraged by some of the recent volume trends that we’re seeing in North America.

Bob P. Fishman

Yeah. We did see in Q3, the ICE business hit mid-single-digit growth, which was encouraging for us. And in North America Filtration, we also hit our 18th consecutive quarter of growth. So that’s been a very impressive run for them.

Andrew Kaplowitz

That’s helpful, guys. And then maybe you could give us an update on the 26% target in ’26. It seems that you’re still comfortable with that. As you know, transformation savings really hasn’t slowed down now in three years, as you said. Is it reasonable to think that at that March Investor Day, you could still talk about a significant transformation 80/20 funnel that lasts well past ’26 and drive margin higher? I know I’m asking for cart before the horse, but there you go.

John L. Stauch

Very comfortable with the ’26, let’s start there, and very comfortable that when we come to Investor Day, we’ll demonstrate a funnel that significantly improves from there. I think every time you — we have success, we find opportunities that we need to continue to look at. I think we’ve been reactionary a lot on the tariff mitigation, but now we have an opportunity to study those supply chains and be more opportunistic of how we can drive further savings.

And one of the encouraging data points in Q3 is, we finally got labor and overhead productivity. You need volume generally to get that labor and overhead productivity. So as we start to bring volume back, we’re very comfortable that we’ll start to expand margins from a volume [Technical Issues], which we haven’t seen for some time here.

Andrew Kaplowitz

Thanks, Guys.

Operator

Our next question comes from Deane Dray from RBC Capital Markets. Please go ahead with your question.

Deane Dray

Thank you. Good morning, everyone. I also add my congrats to Bob.

Bob P. Fishman

Thank you, Deane.

John L. Stauch

Thank you, Deane.

Deane Dray

Can we just — want to follow up on some of Andy’s questions on the transformation. Just kind of can you give us some context of where those savings are coming from, kind of what buckets SG&A? And how much more is there to go there?

Bob P. Fishman

Yeah, I’ll go ahead and start. The transformation journey, two years ago, we drove $67 million of savings; last year, $107 million. This year, we’re tracking $80 million, on the way to that 26% ROS, so really pleased with the transformation reading out. In the early years, it was primarily in that sourcing space where we were working on Wave 1 and Wave 2 of our overall material spend. What we’re seeing now is much better balance across all four pillars of transformation.

So we’re doing a really nice job with value-based pricing in the pricing excellence work streams. Within sourcing, we’re on Wave 3, which is looking at really make versus buy. Is there more product we should be making in our plants, or is there less product we should be making? We’re also at the point of revisiting Wave 1 and Wave 2 with more of an 80/20 lens, so a lot of opportunity within sourcing.

On the productivity side, we’re looking at everything from factory automation, four-wall lean, looking at our operational footprint, and driving savings there. To John’s point, we’ve set some pretty aggressive targets for each of our plants around labor and overhead, and we’re starting to see that labor productivity start to read out.

And then finally, on the org excellence piece, again, setting G&A targets, understanding where the spend is, holding the teams accountable for that spend. So I really think about it as balanced across the four pillars that’s driving the transformation savings, and you’ll hear a lot more about that as part of Investor Day in March.

Deane Dray

Good to hear. And just a second question, back on Pool, there was no mention of an early buy. You don’t do that every year, but just — is that not needed? And so just to clarify, that’s not in your assumption.

John L. Stauch

No, the early buys are always there, Deane, every single year in Pool. We would say that it was a normal early buy season, and we’re experiencing — that carries forward here. And as you know, that’s the level of the factories, but there has been no abnormal efforts related to early buys.

Bob P. Fishman

Yeah. We’re seeing, again, a very typical early buy for the fourth quarter. Think about a quarter’s worth of revenue with roughly 50% shipping in Q4 and 50% shipping in Q1, very normal year is what we expect.

Operator

Our next question comes from Damian Karas from UBS. Please go ahead with your question.

Damian Karas

Hey. Good morning, everyone.

John L. Stauch

Good morning.

Damian Karas

So I wanted to get in the weeds a little bit on the Flow segment. So you got three points of price overall, could you just talk about — was there much variation in that across residential and commercial versus industrial? And because that Industrial Solutions is up 10% really stood out, so maybe you could just kind of talk about what you saw there.

Bob P. Fishman

Yeah. Again, we were really pleased with the performance of Flow in the quarter to drive growth across resi, commercial, and industrial was excellent for us. We’re seeing price reading out across all three of those businesses. We’ve told the story around commercial before in terms of expanding who they sell to, and that’s really paying off for that business.

On the industrial side, just really pleased with both our food and beverage and sustainable gas businesses. Frankly speaking, those were easier compares, but as those businesses have improved their operational performance, we’ve allowed them to go after more top-line growth through standardized offerings, and that’s really paying off. And then it’s really nice to see the Resi business starting to stabilize and even grow, and we had a good quarter in [Indecipherable] specialty as well.

Damian Karas

Okay. That’s really helpful. And John, I think I heard you say Pool pricing kind of has been holding up. Could you guys just confirm that you didn’t see any sequential decrease in pricing in the Pool segment? Thank you.

John L. Stauch

Well, I’m not going to address it sequentially because I look at them year-over-year. [Technical Issues] We have two really busy seasons in four quarters in Pool and two softer ones. But we would tell you that the price increases that we put in, we held, and we saw no challenges associated with it. But as a reminder, we didn’t put the incremental one in that would have captured the concerns of the incremental bump in the China tariffs that were mentioned before. So we timed our price increases with what known information we had, and therefore, we’re very comfortable with what the way that we approached it and implemented it.

Bob P. Fishman

Yeah. Again, feel good about pricing in Pool, read out about 5% this year. In terms of price in Q3 of this year, it is bumping up against a large price increase. So these changes that we show in our waterfall are year-on-year, and last year, Q3, was one of the larger price increases. So it had that compare to go up again.

Operator

Our next question comes from Mike Halloran from Baird. Please go ahead with your question.

Michael Halloran

Yeah. Good morning, everyone, and congrats, Bob.

John L. Stauch

Good morning, Mike.

Bob P. Fishman

Good morning.

Michael Halloran

So, just carrying through on the pricing there, at this point, what is the carryover pricing into next year from a percentage basis? So in other words, if you didn’t implement any incremental price from here, what does that carryover look like?

Bob P. Fishman

It’s encouraging for us to kind of start the year with some of that momentum, not only in the overall businesses, but also with price carryover. At this point, we think it’s 1 to 2 points that would help us next year.

Michael Halloran

Thank you for that. And then maybe just a thought on the tariffs. Are you seeing any benefits on the competitive side or anything notable on the competitive side associated with how those tariffs are rolling through your footprint versus others in the industries you cover or producing? Just any thoughts on the competitive dynamics?

John L. Stauch

No, Mike. I mean, I think we’re all — even though we’re all different with some of our supply chain and sources, we’re all chasing the same commodities and looking for the same access points, and so I think we’re all on a fairly common playing field regarding the competitive challenges. As a reminder, and we haven’t in our particular slide, we’ve whittled down our China purchases to roughly $100 million, inclusive of some tariffs that were there from the 2017 time frame.

So I don’t — I think as we continue to evaluate the global landscape, I think all of us are seeking alternatives, but we’re also looking for the clarity of where the best alternatives will be, and so I’m reasonably pleased that we’ve been able to implement what we’ve done to cover them today, and we’re working very, very hard to have alternatives if further challenges arise.

Operator

Our next question comes from Julian Mitchell from Barclays. Please go ahead with your question.

Julian Mitchell

Oh, yes. Hi. Good morning, and thanks, Bob, for all the help. I guess my first question just around when we’re thinking about the revenue outlook on organic sales for 2026, just sort of trying to understand the sort of entry rate into the new year. You talked about, I think, the sort of long-term algorithm of mid-single-digit growth on Slide 5, and it looks like you’re exiting this year in Q4 with maybe low single-digit organic sales in the guide. So I just wondered sort of any initial impressions on that point.

Bob P. Fishman

Without giving 2026 guidance at this early stage, I will mention of the fact that we do feel like we have some tailwinds coming into 2026. So the businesses are performing well, and we have some top-line momentum in the back half that should carry forward into the new year. We’ve got the price carryover that we just talked about in the 1% to 2% range. We’ve got market recoveries that we’re slowly starting to see from a relatively low starting point in many of our businesses. I’m also really pleased that the 80/20 focus on our Quad [Phonetics] 1 customers and overserving those customers is really beginning to read out. We’ll have transformation momentum ending the year with a large funnel. So those are all positives for us as we look at 2026.

We also, though, have to be cautious in terms of looking at potential headwinds. Tariffs still create uncertainty for us. Interest rates are remaining high, general sentiment with end consumers, whether it’s home sales or eating out with the families, and so, for us, we’re cautious entering 2026. Our goal has always been to build a plan around lower top-line growth and really lean in on transformation, and then if markets do recover more than what we had planned, we’ll capture that upside. That’s the way we’re thinking about 2026 at this early point.

Julian Mitchell

That’s great. Thanks very much. And then just my follow-up would be around the operating margins. So it looks like the sort of guide for the fourth quarter implies less than 100 bps of operating margin expansion year-on-year. You’ve clearly done well above that year-to-date, and you have the pool business growing margins again in the fourth quarter. So just trying to understand, is that just kind of conservatism for the Q4 margin guide, or any particular reinvestment effort underway or something like that in Q4, or something on price net of inflation that’s a headwind? Thank you.

Bob P. Fishman

I would say from a full year ROS expansion story, again, extremely pleased. And even in the fourth quarter, we’re seeing ROS expansion across the businesses. So pleased with what’s built into the guide, but it does give us the opportunity to invest in the business as well to drive that balance going forward, the top-line growth with ROS expansion. Again, pleased with the Q4 guide, pleased with the ROS expansion story, and we end the year very strong.

Operator

Our next question comes from Bryan Blair from Oppenheimer. Please go ahead with your question.

Bryan Blair

Thanks. Good morning, everyone. Congrats, Bob.

Bob P. Fishman

Hi, Bryan.

Bryan Blair

Bob, you had emphasized, I think it was in response to Damian’s question, kind of the broadened focus and growth vectors of the Flow business, and your team started to call that out publicly, as I recall, maybe a year ago. So extending reach a bit more into data center, institutional, municipal applications. Just wondering if you can speak to the traction to date, offer a little more detail on what that’s meant to Flow’s 2025 progression? How the funnel of opportunities look into 2026? And then, on the muni side, how Hydra-Stop factors into strategy?

Bob P. Fishman

I’ll go ahead and start there. Overall, for us with Flow, the significant top-line growth, and again, we’ve guided Q4 for Flow to grow high single digits. I think about roughly half of that is core growth, the other half benefiting from FX and acquisition of Hydra-Stop. So the growth continues to be there. In Commercial Flow, really pleased with their ability to sell to different types of customers, not necessarily doubling down on any one particular set. If a data center opportunity comes up, we’ll take advantage of it. But we’re not putting all our eggs in one basket. We’re more diversifying across that customer base to drive that growth.

John L. Stauch

Yes. I’d just add to it, we’re looking to sell water supply, fire protection, and water disposal, and we look at all commercial building opportunities. And what’s been really building the momentum is getting more specified across our key product offerings with our specifiers and the end markets that we serve. And we’re building momentum, and that’s allowing us to get more looks, and we’ve also improved operational efficiencies that have allowed us to outperform some of the competition in those spaces. So we feel really good about the progress there and look forward to further capture of commercial building opportunities.

Bryan Blair

Understood. That’s encouraging. And in terms of Hydra-Stop, Bob, I believe you mentioned $10 million in contribution top-line in Q4. I assume that’s seasonally a bit muted. Should we assume $50 million at 30% ROS for 2026 as a baseline or factor in any variance to those numbers?

Bob P. Fishman

That would be a good number to use.

Bryan Blair

Understood. Thank you.

Operator

Our next question comes from Nathan Jones from Stifel. Please go ahead with your question.

Nathan Jones

Good morning, everyone. Congratulations, Bob. Nick’s got big shoes to fill. I guess I’ll start with a question on Pool. You’re obviously into the prebuy season, and that gives you some visibility into what your customers are expecting in 2026. Maybe — I mean, I know the aftermarket part of your business is generally pretty consistent, but maybe you could give any preliminary commentary on what you’re thinking about the new and refurbished side of Pool in 2026.

John L. Stauch

Yeah. It’s a little early, Nathan. I think what we’re encouraged by is the way we end the year is, we’re just not seeing the declines and decreases that we were seeing in the previous couple of years. I also think that it’s an industry that doesn’t usually see price decreases. So we’re getting stabilization and realization that the prices that are in the market today are roughly what they’re going to be in the future, which allows people to quote pools, deliver the customer pool pads that they’re trying to deliver, and have some continuity around that.

So, I think it feels more like a break and fix is being serviced appropriately. And as the remodels and the new pool builds come online, we feel like we’re well-positioned with the dealers to support them. So that’s the way I would describe it. I mean, we’ll get a better look as we close out the year here and get some indications on new housing starts for next year, and how pool attachment rates are there, and what the potential opportunities are for us. But it’s a little early to tell.

Nathan Jones

Fair enough. Follow-up question is on 80/20, and the comment that you made there about focusing on Quad 1 and growing there is really starting to read out, which I find interesting. Typically, I think 80/20 is usually associated with margin expansion and focusing on Quad 4 to begin with. So I’d be very interested to hear a little bit more about the 80/20 focus on Quad 1 and what kind of growth initiatives you’re putting in there? And then maybe just a comment on how you’re addressing Quad 4 as part of 80/20 and the margin potential there. Thanks.

John L. Stauch

Yes. I mean, I think real quickly, and we’ll give quite a few business cases and share some insights in our March analyst meeting when we roll it out, because I think it is time to share details and stories and share with you kind of where we’re winning. But when you start a business, you generally started and become successful with a set of core customers, and you become great partners with them.

But then typical public company mentality will be, when you stretch to get volume growth and you need to make orders, you bring on other customers, and you give deeper discounts or you offer different ways to serve that new customer base, and you are not taking care of your top customers the way you should. And so by deemphasizing the Quad 4 or the lesser customers today, you have an opportunity to go back to those top customers and say, how do we grow together and really think about our partnership that we have built together, so that’s what we’re talking about.

And it’s a leap of faith to say, I’m going to give away my growth to the lesser performing customers, and I’m going to get that double-digit growth in my core customers. But when you start to see it, you start to build momentum, and then you build more programs with those individuals to be more successful. And that’s the stage we’re at in some of our businesses, and that’s building momentum and best-case examples that we share across the rest of the portfolio.

Operator

Our next question comes from Brian Lee from Goldman Sachs. Please go ahead with your question.

Nick Cash

Hi, everyone. This is Nick Cash on for Brian Lee. Just one follow-up question on the Hydra-Stop acquisition. I mentioned doing — the company is doing $50 million in revenue in ’25, and I think in the previous answer, you said you have a decent number to model for fiscal year ’26. Are there any cross-selling opportunities or abilities to accelerate that growth in ’26? And have you guys given any color on what the growth was from ’24 to ’25? Thank you.

John L. Stauch

Roughly high single digits on the growth side. That’s been performing historically. We don’t see a reason why that would slow down as we head into 2026. We do think there’s cross-selling opportunities as we look at where they’re specified and where they’re currently providing value and where we’re specified and providing value, and how do we go work with those specifiers to get an extended offering similar to what we did with Manitowoc [Phonetics] and Everpure when we put those businesses together. So it’s a really nice adjacency. It’s a unique product that allows water to run the critical application areas while you’re trying to work on the infrastructure opportunities, and we think that’s going to open up a great opportunity for us to cross-sell aggressively in ’26 and ’27.

Nick Cash

Awesome. Appreciate it. Thank you.

Operator

Our next question comes from Andrew Buscaglia from BNP Paribas. Please go ahead with your question.

Andrew Buscaglia

Hi. Good morning, everyone.

John L. Stauch

Good morning.

Andrew Buscaglia

I just want to follow up on the data center comments. Just as I understand it, the pump valve market, as it plays into that application, can be competitive, and wondering what you’re finding in terms of margins and how you go about capturing volume, but at the right margin in this kind of market?

John L. Stauch

Yeah. I want to be clear, I mean, I think you got to look at data centers as the infrastructure to support the data center and then the product requirements inside the data center for their particular unique needs, primarily cooling. We’re looking at a building. It doesn’t matter if it’s a hospital, it doesn’t matter if it’s a commercial warehouse structure, it doesn’t matter for the manufacturing, or if it’s a data center, and we’re working with the engineers and the specifiers to get water to those sites, try to be the choice for fire inside of that building and fire protection, which is critical in all applications and then be the water disposal partner as well as we extract water from that site or reuse the water from that site. And that’s how we’re looking at the build permit and the specification.

Some of them happen to be data centers, some have to be hospitals, some of them happen to be manufacturing expansions in the United States, and that’s how we’re trying to win. And you win those by local municipality specifications, you win by the engineers being localized to the builders in those regions, and you have to have an outward sales program to do that.

Andrew Buscaglia

Yeah, okay. Maybe, Bob, first off, congratulations, but I wanted to check in, maybe one of the last few times on your capital allocation into year end, been pretty active with repurchases and M&A. And I’m wondering if maybe we’re seeing some increased activity on the M&A front with some optimism around interest rates. I don’t know how are you seeing that balance of capital allocation into year-end and into next year?

John L. Stauch

Yeah, and by the way, Bob is going to have his signature authority all the way through February. He’s going to have a tight hold on that checkbook, and he’s continued to manage cash the way he has. And I think you’ll see that Nick being the Treasurer understands that playbook as well. Right now, we couldn’t be more pleased with the balanced approach to the capital allocation story. We’ve got a little bit of M&A contribution here that we think was well spent. We continue to demonstrate buying back our stock. And we’re continuing to pay a dividend, as we have mentioned, for 49 years.

Next year is a big round number that we hope to continue, and we like that balanced approach. And I’m an ROIC person. So I think ROIC is a measurement of how you’re performing on that capital allocation, and we’re very proud of where we sit right now in the high teens regarding that, which demonstrates that we’re putting cash to work and getting a return. So I don’t think anything changes in this area. And I do think we’re encouraged that there’s more of an M&A pipeline to consider, but we’re going to be extremely disciplined as we look at those opportunities.

Operator

Our next question comes from Andrew Krill from Deutsche Bank. Please go ahead with your question.

Andrew Krill

Hi, thanks. Good morning, everyone, and congratulations, Bob. I wanted to ask on the new elevated CIO role with Heather, and I think there’s a little bit of a shift on focusing more on digital. Can you just level set us on what percent of sales right now you would consider digital or digital-enabled? And maybe any views on where this could go over time? Thanks.

John L. Stauch

Yeah. I didn’t — I haven’t ever quantified it that way. I do think that it is the time to consider how we’re going to use artificial intelligence, how we’re going to look at our enterprise product technology opportunities, how we’re going to digitize factories, and how we’re going to provide elite customer experiences, and I don’t think you could do any of that without software that makes it easier for your customers to do business with you and making sure that you have end-to-end usage of simple-to-use technology so that end consumers can work with the dealer partners to optimize those dealer routes, and we can help utilize our product to enable it.

Obviously, Pool does most of its product offering through an intelligence offering, and we’re encouraged with some of the progress that we’ve had in our Industrial Solutions business, which is where a lot of the growth is coming from, measured performance. And then ultimately, we’re doing the same thing in ICE and the expansion there.

Our businesses need to create end-to-end digital strategies, and we’re going to work hard to do that. And then, we have to have an accelerated way to implement the IT technology necessary to create those experiences, and so it’s a great opportunity to look at it now. And I think Heather is a great partner and a great contributor to the organization. Bob has done a great job stewarding and leading IT. But I think we’re moving a little bit from the infrastructure and the foundational parts, and we need to invest in the digital front end of our business, and that’s why she’s going to have a seat at the executive table.

Bob P. Fishman

Yeah, I couldn’t be more pleased for Heather, so often sitting in the executive leadership team meetings. I’m thinking to myself, boy, it would be nice for Heather to hear this firsthand as we try to make the lives easier for our distributors and our dealers. So I think this will allow faster decision-making and also better decision-making on that part.

And while I am talking about my team, I am extremely proud. Earlier this year, we took a very strong Corporate Controller, Jennifer Hensley, and promoted her to Chief Accounting Officer. Heather now moves up to the executive leadership team, and Nick is more than ready to take on the CFO role with his strength in the industry overall and his industry knowledge, FP&A, and transformation in 80/20. So we’re just in a really good place from that perspective.

Andrew Krill

Okay. Great to hear. And then as a follow-up, I was hoping, could you comment a little on just inventory in the channel across your different segments, and just if you’re seeing anything that seems a bit out of balance at this point? Thank you.

John L. Stauch

No. Not seeing anything unusual, and out of balance.

Bob P. Fishman

We really are at historical levels in almost all of our industries that we serve, so in good shape as we turn the page into 2026.

Operator

Our next question comes from Nigel Coe from Wolfe Research. Please go ahead with your question.

Nigel Coe

Thanks. Good morning, everyone. I know you covered a lot of ground here. So just maybe a few more clarifications. John, last quarter, you mentioned price fatigue and a bit more repair activity amongst the contractors. Are you seeing any change in that? It certainly seems like the price increases for next year seem to indicate that — it seems like quite a healthy environment. So, just wondering if you could maybe just touch on those points.

John L. Stauch

Yeah. I mean, I just want to recognize and acknowledge that if you take a look at cumulative price increases over the last several years, you wouldn’t have been here in 2023 and said the price is going to represent this much more of the cost of our product. I do think I’m proud of the fact that we’ve been able to capture that and expand margins and generally produce profit for share owners.

But I think you got to start looking at through value propositions, dealer enablement, and consumer lenses, and say you got to make sure that your product still is the highest quality in the industry, that has reliability that matches that new price point, and that you’re not having dealers come back with no dollar sales calls, right? They have to generate revenue from every sales call because the cost of inflation regarding wages and the cost of their routes.

So we just have to, as an organization and team, continue to give the best value and make sure that our products are cutting-edge from a technology standpoint, recognizing that things are a lot more expensive today than they used to be three years ago. That’s the point I’m making. And we got to have NPI lens on this. We’ve got to have innovation, and we’ve got to make sure that our dealers are getting the best value from Pentair when they work with us. That’s what I meant, Nigel.

Nigel Coe

Okay. No, that’s clear. And there’s been a lot of price going through, no question about that. And then my follow on is for Bob. I want to throw in a couple of quick ones for you before you [Indecipherable] retirement. On Page 12 on the profit bridge, there’s $48 million from price volume net M&A, and we know the $37 million from price, which implies $11 million from other things, ex price. I’m just wondering if there’s a big mix contribution in that number. Just curious what gets us to $48 million.

John L. Stauch

Yeah, we had a good mix of contribution.

Bob P. Fishman

Yeah, I’d tell you what, when we get sales growth and volume, that tends to drive mix for us with all of the work that we’re doing in Quad 1 to overserve those customers and focus on certain product lines. So that’s a nice trend for us as we start to drive that top-line growth, mix has been benefiting.

Operator

Our next question comes from Joe Giordano from TD Cowen. Please go ahead with your question.

Joseph Giordano

Hey, good morning, guys.

John L. Stauch

Good morning.

Joseph Giordano

We’ve been hearing just given — kind of building on what Nigel was just talking about, just given the amount of price that’s been put through over the last several years, we’re hearing a little bit more about like dealers and installers kind of using some more foreign products and some like low-cost product maybe from Asia, something like that. I’m just curious if you’re seeing any of that and any color on that you have there?

John L. Stauch

The short answer is yes. It’s starting to emerge. Long answer is, it’s not going to be a huge impact in the short run, but we have to make sure that we’re offering better value to our customers. We’re innovating. We’re building content in all of our channels, and we’re making sure that we’re offering superior quality and our brands stand for what we’re positioning them to stand for.

So it’s a longer-term issue, and we have to be very cognizant that when markets are more stable from a volume perspective and price starts to be introduced, people are going to look for lower cost alternatives, especially when supply chains are disrupted and there’s other opportunities. So nothing unusual, but we have to acknowledge that these entrants are going to be here, and we’ve got to outperform them.

Joseph Giordano

Is it targeted to a specific type of application set or product type, or is it kind of pervasive?

John L. Stauch

I would say right now, you’re looking at more commodity-based products, more lower-end, something that’s not intelligent or connected to technology. It’s an easier substitution at that level. So like, for instance, in Pool, you might see it on the lower end of the filter, right? So a filter is not doing the intelligence work, you might have other places that you do in that water chemistry. And you’re seeing it on lower-end applications in filtration as well across the rest of our businesses. And we just have to be cognizant that our value promises and our efforts around what our brand is promising, and our service levels and warranties are worth the difference in price.

Operator

Our next question comes from Jeff Hammond from KeyBanc Capital Markets. Please go ahead with your question.

Jeffrey Hammond

Hey, good morning, guys. Just staying on price. It looks like your ’26 pricing for pool is 6.5% or 6% to 7% versus kind of normal 4%. Just wondering what that contemplates for incremental tariffs? And then, should we expect something similar from the other businesses where there’s maybe an above-normal price increase because some carryover tariff impact?

John L. Stauch

Yeah. So Pool goes first, as you know, and at the end of the Pool season in September, we went out with roughly 6-ish price increases, which captured all the things we knew at that point in time. We don’t always net that full amount because we do work with our dealers and have dealer incentives that give them discounts on volumes or certain levels that they achieve.

And I think all the other businesses are looking at the same way. What do we know at the point of January 1 when we put those prices in, and what’s fair, and how do we feel we’re going to realize and net out price, Jeff? So hopeful that we don’t see anything disruptive between now and the end of the year, but we — if we do, we would have to adjust our prices accordingly.

Jeffrey Hammond

Okay. Thanks.

Operator

And our next question comes from Scott Graham from Seaport Research. Please go ahead with your questions.

Scott Graham

Hey, good morning. Thanks for taking the question. Bob, congratulations on really being part of a significant increase in earnings consistency. I think you guys have done a phenomenal job in the face of very little organic. What I wanted to kind of get into was the organic growth investments. It sounds to me like you’re doing a lot of investment on the front end, understandable, given your distribution sort of pie chart. So when your end markets improve, does that percentage of front end maybe shift toward a new product orientation, or would that be incremental growth investment that you deem necessary in better end markets?

John L. Stauch

So I’d put it into three major categories, Scott, real quickly. I think we want to drive demand to our dealer channel, right? We’ve been a little passed over the last few years and letting the dealers find their own path towards creating the demand. We’ve got to pull demand, right? We’ve got to have consumers that are interested in product upgrades, new technologies and reach out to a set of dealers that we recommend that helps create the demand in our industry. That would be one area.

Number two is the sales excellence. How do we cover the markets and the regions of the United States and the world more effectively? And how do we incentivize our sales team to sign up dealers and promote our value proposition? And then it’s marketing efforts. How do we build the momentum around value propositions around branding, et cetera? And all of that has a digital lens to it, and all of that has an increase in talent built to it.

The fourth component would be technology, right, and making sure that we’re investing in both innovative technology for today and innovative technology in the future. And across our great businesses, they’re prioritized as Pool, CWS, which is our Commercial Water business, and basically C&I as the top three businesses, we want to hit the accelerator for organic growth and drive value in those three businesses, and that’s what we’re doing, Scott.

Scott Graham

Appreciate it. Thank you.

John L. Stauch

Okay. Thank you for joining the call today. In closing, I want to reiterate some key themes on Slide 19. We delivered our 14th consecutive quarter of margin expansion and drove double-digit adjusted earnings growth as a result of solid execution and transformation. We increased our 2025 sales and adjusted EPS outlook, and remain confident in our long-term strategy. We expect a long runway of productivity savings driven by transformation and 80/20.

Our focused water strategy and strong execution continue to build a solid foundation with optimal operational efficiency, which we believe will drive long-term growth, profitability, and shareholder value. Lastly, we believe we are well-positioned to address opportunities from favorable secular trends in water with the right long-term strategy. We look forward to seeing you at our 2026 Investor Day in March. Thank you, everyone, and have a great day.

Operator

[Operator Closing Remarks]