Pentair Pricing Spineometer: 4 of 5 Vertebrae

Pentair, a sustainable water company, had a mostly positive FY 2024. Revenue fell slightly by 0.5% to $4.1 billion while operating income rose sharply by 8.6% to 804 million over the last year.

A review of Pentair’s 4 February 2025 earnings call and associated financial reports provided insight regarding the importance of pricing on performance.

FACTS FROM EARNINGS CALL AND ANNUAL REPORT

Pentair is in the middle of a Transformation Program with pricing excellence as one of the four key themes.  The pricing transformation is reported to be yielding fruit already.

John Stauch, CEO of Pentair, said, “Strategic pricing would do two things. First of all, it helps you have confidence that the price you set is the right value that you should expect, meaning you looked at the features and you priced accordingly. The second thing it allows you to do is hold firmer on your rebate structures. So that’s usually where the net pricing benefit comes on.“

Currently, he reports “Approximately 50% of our total revenue is adopted and implemented value-based pricing as part of our strategic pricing initiatives. “

As for inflation, his intention is “for the full year, try to offset price and cost.”

Bob Fishman, CFO of Pentair and a past Director of Planning and Pricing, echoed this sentiment, stating, “The strong margin expansion was a result of price and mix exceeding inflation and continued progress on our transformation initiatives.”

Pentair has three reportable segments: Flow, Water Solutions, and Pool.  Flow, 37% of revenue, moves water with pumps and water treatment systems for agricultural irrigation, residential, commercial, industrial, and infrastructure customers.  Water Solutions, 28% of revenue, cleans and treats water for drinking and ice for commercial use and residential businesses.  Pool, 35% of revenue, provides residential and commercial swimming pool solutions.

VALUE-BASED PRICING FRAMEWORK IMPLIED PRICING REQUIREMENTS

Of the 9,750 employees of Pentair, industry benchmarks would suggest 8 to 40 professionals focused on pricing.  A study of the complexity of their operations suggests Pentair should be operating at the upper end of this range.

1. Pentair operates globally.  This increases the need for pricing excellence as commercial policy must adjust to the cultural norms and market structure of different countries.  Each region may require a different price segmentation strategy.
2. Pentair is exposed to economic conditions.  Residential and commercial property market strength, political instability, tariff changes, interest rates, inflation, and other macro and microeconomic factors impact business performance.  Applied economists in pricing enable firms managing these challenges to distinguish economic shocks from standard competitive pressures and identify more appropriate responses.
3. Pentair’s business is seasonal, with greater business activity in the summer months.  This factor increases the need for price planning and rapid adjustment to enable price-market alignment during the busy season.
4. Pentair’s competition is diverse, changing with geographies and varying between global, national, regional, and local companies.  This factor increases the need to define price positioning at the local market level with clarity.
5. Pentair’s strategy is to be a high-service / high-quality provider competing with some cost-focused producers.  This can create downward pricing pressures, which can be partially alleviated with Economic Value to Customer studies and market communication.
6. Sales are concentrated in a relatively small number of larger customers, with one customer constituting 15% of revenue.  (Customers include Home Depot.) Markets with high customer concentration require greater discipline in commercial policy and price negotiations than other markets due to the high pressure a single customer can apply in price negotiations and the need to avoid indefensible price variations, which, when discovered by customers, can lead to price contagion.
7. Pentair spends 2.3% of its revenue on research and development. Primary market research on pricing is required for both commissioning the new product development (NPD) process and price correcting prior to product launch.
8. Pentair is actively mitigating the cost of inflation with price increases.
9. Pentair also examines its revenue quality using a Price-Volume Analysis, a form of variance analysis.
10. Pentair’s products require volatile cost inputs such as copper and, more recently, tariffs.  Managing fluctuating input costs with large and long-term customers sometimes requires Index-Based Pricing.

OBSERVED PRICING CAPABILITY

Research into the investment by Pentair in pricing yielded encouraging results.

1. The pricing team at Pentair is within industry benchmarks.
2. Pricing roles are identified at the associate, administrator, coordinator, specialist, analyst, manager, and director levels.  No Vice President of Pricing was identified.
3. Responsibilities include the pricing transformation itself, product pricing, retail pricing, price changes, price structures, commercial policy, and price variances.
4. Other professionals at Pentair have also brushed up on their pricing skills, including those in marketing, sales, finance, and a few Vice Presidents.

Given the importance and capability of pricing at Pentair as indicated in financial reports, management statements, and our pricing team research, and given their performance, we have come to the following conclusion as of May 2025.

PentairPricing Spineometer: 4out of 5 Vertebrae. Pentair is still in the process of its pricing transformation and we suspect there are further opportunities for improvement.  As a high-service / high-quality provider with a focus on value-based pricing, it should elevate pricing to include a Chief Pricing Officer (aka Chief Value Officer) as a peer to its Chief Supply Chain Officer, more so than its competitors with an operational-excellence / low-cost focus.

PNR (Pentair plc) fell slightlyfrom 102 the day prior to their earnings call to 98 one week later. FY 2024 revenue of $4.1 billion with a 19.7% operating margin and P/E ratio near 25.

For FY 2024, a 1% improvement in price would yield a 5.1% improvement in operating profits, holding all else constant at Pentair.