Pentair plc (PNR) — Q2 2024 Earnings Call Transcript

Thank you, and welcome to Pentair's second quarter 2024 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 second 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. Following our prepared remarks, we will open the call up for questions. Please limit your questions to two and reenter the queue if needed to allow everyone an opportunity to ask questions. As a reminder, you can reference our Pentair investor overview and investor day presentations on our investor relations website. Please visit our Pentair Investor relations website and click on events and presentations to find these materials. I will now turn the call over to John.

Thank you, Shelly, and good morning everyone. Let's begin with our record Q2 results in the executive summary on slide four. During the second quarter, we achieved record sales, adjusted operating income, return on sales, adjusted EPS, and free cash flow following the separation of nVent from Pentair in 2018, and we delivered these results on top of a record from the prior year period. I would like to thank our 10,000 plus Pentair employees for their continued commitment towards delivering for our customers and creating value for our shareholders. We worked tirelessly and impressively to deliver another quarter of remarkable income growth and margin expansion. Thank you. In Q2, sales increased 2%, adjusted operating income increased 16%, ROS expanded by 310 basis points, driven by margin expansion across all three segments. Adjusted EPS rose 18% and free cash flow was over $500 million, driven by a disciplined capital allocation strategy and record free cash flow. We continue to strengthen the balance sheet, and we purchased $50 million worth of stock in the second quarter. We also continue to elevate our dividend. As a dividend aristocrat, we have increased our dividend to shareholders for 48 consecutive years. As we look to the remainder of the year, we are increasing our adjusted EPS and ROS guidance. This is driven by our strong results in the first half of this year and continued confidence in our ability to execute in a dynamic macroeconomic and geopolitical environment while implementing and executing on our major initiative transformation now inclusive of 80/20. Our expected 2024 EPS increased to approximately $4.25. This represents the high end of our previous guidance. Bob will provide more details later in the call. We believe our record second quarter performance demonstrates the power of our sustainable and balanced water portfolio, as well as strong execution across all three segments: Flow, Water Solutions, and Pool. Our strategy to help the world sustainably move, improve, and enjoy water, life's most essential resource, continues to prove its resilience and we believe we are well positioned to capture opportunities from favorable secular trends such as water availability, with growing concerns over access to clean, safe, and reliable water, increased awareness of water challenges led by growing concerns around human-made contaminants impacting water composition, taste, and quality. Growing environmental concerns as consumers look to reduce their carbon footprint and impact on the environment, aging commercial, public, and municipal infrastructure, outdoor healthy living as people are interested in gathering at pools to exercise, stay cool, and have fun, and favorable housing migration to the Sunbelt states, which represents a large mix of our Pool sales. Let's turn to slide five. Over the last 90 days, we've seen reports that suggest a continuation of slower global growth throughout the remainder of the year. As we look at each of our three segments and the verticals within each, we believe that there are areas of great opportunity and some that we expect to remain slightly pressured. All in all, this is where we believe our balanced water portfolio diversifies the risk and enables us to control what we can and mitigate challenges where possible. For example, in Flow, we reached record sales within commercial and have seen higher activity from IIJA funding on infrastructure projects. Higher interest rates in a slow housing market continued to impact our residential vertical, and our industrial vertical has experienced some delay in CapEx spending by some key customers. Within Water Solutions, our North America commercial filtration business remains strong, and our commercial Ice business performed as expected while international has been impacted by economic pressures. Residential continues to be impacted by higher interest rates. That said, we are really excited about the launch of our first commercial PFAS certified filtration product in Q2, which further expanded our existing PFAS certified filtration product line. Customers showed strong interest in wanting to learn more about this product. We are proud of this new innovation and the teams that brought this product to market. With heightened awareness on water quality and interest in point of use filtration, we are excited to see this product line grow in the long term. Lastly, in Pool, sustained higher interest rates in a slower housing market have continued to impact Pool demand, predominantly in new and remodeled Pools. New in-ground Pools built in 2024 are now expected to be near the 60,000 Pool range compared to roughly 72,000 in 2023 and roughly 78,000 in 2019. Given this economic weakness, our recent dealer survey noted that the industry is expecting slightly lower growth than it did 90 days ago. However, our aftermarket business performed well in Q2, which in part drove double-digit Pool sales growth for Pentair. Despite the near-term economic challenges for the Pool industry, we remain confident in Pentair’s ability to drive long-term growth and margin expansion. We believe it remains a very attractive industry with mega trends that are in our favor. A majority of our revenue is concentrated in five Sunbelt states, which are benefiting from the higher migration to warmer weather. We're also seeing a trend toward lifestyle and wellness, with family and friends gathering outdoors and Pools for exercise and to have fun. As climate change remains a top concern, Pentair is well positioned for secular trends and preferences for smart, sustainable products. We are the pioneers in introducing variable speed pumps which save energy and money. Let's turn to slide six. Last quarter, I mentioned that our transformation initiatives remained on track to deliver margin expansion as we highlighted at our March Investor Day. Approximately 50% of our total revenue has adopted and implemented value-based pricing as part of our strategic pricing initiatives. We are well into wave two of our sourcing initiatives, which is beginning to drive benefits in our financial results, and we have continued to drive operational footprint optimization and plan to continue this going forward. In Q2, transformation drove record quarterly productivity. Additionally, we trained about 1,000 employees on 80/20, reflecting about 50% of Pentair’s revenue streams. We're starting to execute on some quick wins and continue to see larger longer-term opportunities as we expect 80/20 to further enable our transformation success. It is important to recognize that reducing complexity of low-value products for lower-value customers is the premise of 80/20. By doing this, resources are freed up. That should allow us to perform better for the core customers who buy our core products. When we do this, we expect to see higher core growth rates in our businesses longer term. I'm excited about the initial fact-based data that we have analyzed and I am encouraging the business leaders to move quickly to exit their complexity and focus on the core. We expect to have a further update on our progress and the impact on 2025 after we have completed the initial training and implemented the actions across the entire Pentair portfolio, which we expect to complete by the end of 2024. Before I turn it over to Bob, let's turn to slide seven. We continue to drive strong margin expansion and operating income dollars through transformation despite economic weakness. Our transformation initiatives are well underway, and our 80/20 analysis kicked off in recent months with strategic actions that are in the early stages. We have increased confidence in our long-term value creation, and we expect to deliver ROS of approximately 23%, about 100 basis points higher than previously guided, and about 13% adjusted EPS growth in 2024. All in all, we continue to build a strong foundation that we expect to drive long-term growth and profitability across our diverse water portfolio. I will now pass the call over to Bob, who will discuss our performance and financial results in more detail. Bob?

Thank you, John, and good morning everyone. Let's start on slide eight. We delivered another strong quarter of quality earnings. Sales rose 2% to $1.1 billion, while adjusted operating income increased 16% to $271 million. ROS expanded 310 basis points to 24.7%, driven by sales growth and transformation. All three metrics achieved new records post the separation of nVent from Pentair in 2018. Core sales were up 2% year-over-year, driven by 18% growth in Pool, which was somewhat offset by a 3% decline in Flow and a 7% decline in Water Solutions. Both Flow and Water Solutions reported record sales in the prior year period due to supply chain improvement and our ability to ship a large portion of backlog orders. Sales across all three segments increased sequentially from Q1 as expected; our second quarter sales have typically been our highest sales quarter of the year. We are very pleased to see Pool return to growth for the first time in eight quarters. All three segments drove significant margin expansion in the second quarter. Lastly, we delivered record adjusted EPS of $1.22 post the nVent split, which exceeded the high end of our guidance by $0.05 and was up 18% year-over-year. Please turn to slide nine. Flow sales declined 4% year-over-year compared to a record quarter last year. Residential sales declined 10% as compared to the prior year quarter, but reflected an improvement sequentially from Q1. Commercial sales rose 2% compared to a record prior year. Industrial sales were flat in Q2, reflecting our decision to discontinue certain projects that no longer met our profitability criteria. Segment income grew 13% and return on sales expanded 310 basis points to 21.3%, marking the first time ROS has reached or exceeded 21%. The strong margin expansion was a result of continued progress on our transformation initiatives. Please turn to slide 10. In Q2, Water Solutions sales declined 8% to $311 million, driven by declines in both commercial and residential. We expected our commercial business to be down in light of a record prior year comparison driven by Manitowoc Ice's ability to work through a significant portion of backlog orders. We were pleased with filtration sales strength in Q2. Segment income declined 3% to $73 million, and return on sales expanded 130 basis points to 23.5%, driven primarily by transformation which continued to drive operational efficiencies as well as mix. This was the ninth consecutive quarter of ROS expansion. Margins have expanded nearly 900 basis points over the last two years. Please turn to slide 11. In Q2, Pool sales increased 17% to $392 million. Segment income was $134 million, up 27%, and return on sales increased 270 basis points to 34.1%, driven by sales growth and transformation. Please turn to slide 12. At our investor day in March, we shared our updated three-year margin targets. We expect 2026 ROS to expand to 24%, over 540 basis points as compared to 2022, driven by contributions from all four of our key transformation initiatives: pricing, sourcing, operations, and organization. And we have the opportunity to do even better as we discussed at our March investor day. In 2023, we achieved ROS of 20.8% and expect to continue to drive margin expansion to approximately 23% by year-end 2024, an increase of nearly 100 basis points from our previous guidance. Please turn to slide 13. As we mentioned in our March Investor Day, we expect 80/20 to enable and accelerate our transformation initiatives. It's another tool in our toolkit to help our businesses enhance the customer experience and reduce complexity. The 80/20 analysis uses a quadrant-based strategy to assess customers and products. Simplistically, the first quadrant reflects a combination of customers and products, which drive a majority of revenue and profit. Conversely, the fourth quadrant reflects customers and products that represent roughly 4% of revenue but include 15% to 25% of total cost to serve. We expect to focus on customer segmentation over product segmentation to enable us to implement customer strategies based on each quadrant. As a result, we can take specific actions tailored to each quadrant to drive higher and more profitable growth over time. To date, we have assessed about 50% of our total revenue using 80/20 and are currently evaluating this analysis and developing action plans. 80/20 is about treating our customers fairly but differently depending on the circumstances. The objectiveness of the data frees the organization to make the right decisions. We expect to see the largest benefit from 80/20 in operations. However, we also believe G&A and new product introductions will be impacted by the fourth quadrant due to the effort required to serve. We expect this to benefit our organizational excellence efforts as well. We believe the 80/20 analysis is a great complement to our transformation program. We expect to see a noticeable contribution in 2025 as these plans are rolled out. I'm excited about the process and the findings, and I expect it to lead to larger transformation opportunities. Please turn to slide 14. In Q2, we achieved record free cash flow of $522 million. We deployed capital to lower our long-term debt, restart share repurchases, and pay our quarterly dividend. During the quarter, we repurchased approximately 600,000 shares for a total of $50 million. We have an additional $550 million available on our share repurchase program. Our net debt leverage ratio was 1.6 times, down significantly from 2.2 times in the prior year period. Our ROIC was nearly 15%. Long-term, we continue to target high teens return on invested capital. We plan to remain disciplined with our capital and continue to focus on debt reduction amid the higher interest rate environment and share repurchases. As I mentioned last quarter, with the net debt leverage ratio within our target range, we have additional flexibility to strategically allocate additional capital to areas with the highest shareholder returns. Moving to slide 15. For the full year, we are increasing our adjusted EPS guidance to approximately $4.25, which is up roughly 13% year-over-year and is at the high end of our previous guidance range. Also, for the full year, we expect sales to be approximately flat to down 1%, driven by a continued sluggish economy. The second half of 2024 reflects the anticipated reality of a continued higher interest rate environment and its impact on the global economic landscape. For Pentair, this means we are lowering the back half revenue expectations by about $120 million at the midpoint of our guidance. About $30 million of this is in Pool, which reflects the expectation of primarily slower Pool builds and remodels. About $30 million is in Water Solutions and is in lower margin commercial services and global water treatment end markets and about $60 million in Flow is primarily related to residential delayed industrial projects and being more focused around standardized offerings and recurring revenue to drive higher profitability. We now expect Flow and Water Solution sales to be down approximately low single digits and Pool sales to be up approximately mid-single digits for the full year. Within Flow, we expect residential to be down approximately high single digits, commercial to be up approximately mid-single digits, and industrial to be roughly flat as we continue to be selective around certain projects. Within Water Solutions, we expect residential to be down approximately low to mid-single digits and commercial to be down approximately low-single digits, primarily due to services. We're also updating expected adjusted operating income to approximately increase 10% to 11%. We are pleased to be able to increase our adjusted EPS guidance despite the lower revenue. We are increasing expected transformation savings to approximately $100 million for 2024 as compared to $75 million in our previous guidance, driven by higher productivity. We expect to improve our mix of higher margin businesses and continue our focus on pricing initiatives to offset inflation. Due to a continued sluggish economy, we expect sales to be down approximately 2% to 3% for the third quarter but adjusted operating income to increase 10% to 12%. We are also introducing strong adjusted EPS guidance for the third quarter of approximately $1.06 to $1.08, up roughly 14% at the midpoint. Before I turn the call over to the operator for questions, I want to say how pleased we are with our second quarter record performance. Our teams have been working diligently and effectively to mitigate uncontrolled risk like continued global economic pressures while working to deliver strong financial results and executing our major initiative transformation, which now includes 80/20. We are very proud of the hard work and dedication of our entire Pentair team. I would now like to turn the call over to the operator for Q&A, after which John will have a few closing remarks.

Good morning, everyone. Nice quarter. John or Bob, can you give us more color regarding what you're seeing in Pool and your assumptions for break and fix and remodeling? I think you mentioned a strong aftermarket, weaker remodeling, we obviously know what you're thinking for new Pools, but could you talk about your selling assumptions to the channel? How concerned are you? Or where you're baking in for inventories in the channel at this point for '24?

Yes, I'll go ahead and start with that one. Andy, thanks for the question. Again, from our perspective, we started the year saying Pool would grow approximately 7% full year. We've now guided that to up mid-single digits. As a reminder, a significant piece of our growth is coming from the fact that last year's inventory correction will not be happening this year. Plus a couple of points of price and then an assumption that says the overall market's down roughly mid-single digits. And so that's how we get to our mid-single digit growth for the year. From our last earnings call, we have seen a little bit of pressure on new Pool builds and remodels. And that was the reason why we brought our guide down for the Pool season.

Andy, I would just add that as a reminder. We had a really easy compare in Q2 versus a really low number last year. And so the growth rate in Q2 is more reflective of last year's performance than it is of anything that is outside the performance of this year.

That's helpful guys. And then obviously, your transformation impact is impressive in raising the productivity to $100 million. But you talked about 80-20. How much of it all is that sort of helping '24? It seems like it's early days. And you've got the 23% target for this year and 24% target for '26. So does it give you a little bit more confidence towards maybe that upside case as you go into '26, any thoughts on how 80-20 could impact '25, for example?

Yes. So first of all, 80-20 was not in our 2026 Investor Day longer-term targets. Very little of it is included in our 2024 update guidance. We completed the training sessions and the fact-based analysis on roughly half of our revenue streams. And we'll have the other half done in roughly the next 90 days. So we're very encouraged with what we're learning and finding, and it does give us confidence that we can continue to improve margins as we go forward.

We were very pleased to be able to increase the transformation savings from $75 million to $100 million. Think of that as primarily coming from our sourcing savings with also our manufacturing and org excellence piece helping as well.

Thank you. Good morning. Very solid quarter. To follow up on transformation, obviously, benefits accelerated in the quarter, you have stepped up the full year guide. Just mentioned that it's primarily from sourcing. So, should we think that there's somewhat waiting to the Pool segment in the back half in terms of contribution? And just overall, with that step up, how should we think it's Q3, Q4 waiting?

Yes. From our perspective, in terms of the guide we gave for Q3 and then the implicit guide for Q4, we'll see significant ROS expansion in both quarters. We do think that the main beneficiaries in the back half will be the Pool business and Flow, followed by Water Solutions.

Understood. And I was wondering if you could parse out the commercial Water Solutions revenue decline in Q2 across Everpure, Menis, and KBI, and then what you're anticipating in the back half by business line. We know, and I said, in particular, a very challenging comp in Q2. Just curious what you're seeing there and what's factored into the outlook now?

Yes. I mean most of the decline that we're seeing in Water Solutions is coming from not participating in low-value service contracts within our KBI services arm, and we're adjusting our revenue down to reflect that. That would be roughly a $20 million adjustment for the year. The rest of it is filtration grew double digits in Q2 and they're having a really strong year. And the Manitowoc Ice business continues to perform to expectations. And as a reminder, we were just under $450 million of revenue last year. We'll be just in the low 420s this year. So we're managing through really decent execution despite having those record backlogs last year that we ended up shipping. So I feel really good about the Water Solutions business. We are tweaking our global residential water treatment business, reflecting some of the lower revenue streams and non-U.S. related businesses. And that's a small adjustment here, but I think it's reflected that we don't think that those will improve in the back half of the year.

Yes. And just as a reminder, the North America filtration business, the Ice business, those are very profitable ROS businesses for us. So, the mix certainly works in our favor.

Good morning. Can you discuss the pricing environment you are experiencing and how it might trend over the year? It seems you are anticipating perhaps one to two points for the year.

That is correct, Steve. I don't believe we should expect to outperform that for the rest of the year. There are some areas where we can recover from incremental inflation, but we don't think inflation is significant enough to justify another round of pricing. We're doing our best to stick with the original list prices, and so far, things are going well.

Do you, at any point in time, see price going flat to down and Pool at all?

No, we do not anticipate that happening. At the midpoint of the year, we have two points of price reading out, and I expect something similar in the latter half.

Okay. Great. And then just on the bridge, the productivity was pretty solid this quarter. What are you guys expecting for the year now on that number? I think it was like $75 million before. some of these numbers around it, but what do you guys expect for the year?

$100 million in my prepared remarks can be roughly considered as evenly split between Q3 and Q4.

Hey, guys, thanks for taking the questions. Good morning. I guess maybe a follow-up on the last one. You raised the kind of transformation benefits from the $75 million to $100 million. I know you don't have much, if any, of the 80-20 in '24, but can you give us some sense, any sense of sort of how it would compare just your initial read on 80-20 impact into '25 when you kind of compare and contrast to what you've been able to do with the transformation initiatives this year going from $75 million to $100 million?

Yes. Let me hit the transmission real quickly. I think it's fair to say we always had an internal funnel that was higher than what we had confidence with in the beginning of the year internal side. And I think the $100 million now reflects that most of the programs that we had in the internal funnel are now being realized. And so that's where our confidence level is as we exited Q2. As a reminder, we had difficult year-over-year in transformation in Q1, and we had a very strong Q2, and now we feel confident in what that full year expectation is. When we look at 80-20, I think it's important to note that the way the math works is that what we call Quad 4, which is the lowest performing quadrant. These would be less desirable products to lesser desirable customers. That's roughly usually around 4% of revenue. So just to think about that, that frames on a $4 billion-ish revenue stream, what the walkaway revenue number would be at its worst possible scenario. That same quadrant generally usually reflects about 25% of the company's cost structure. Now you're not going to get all that 25% out because clearly utilizing pieces of people's work efforts, but it starts to tell you about how it's non-profitable being Quadrant four. So, as you release yourself from the products that you're spending a lot of time on, you should ultimately be able to reduce your labor and reduce or redirect your NPI and your sales and marketing efforts to your Quad one to generally over-serve or create a better service level to your top customers, which gives you an overall better core rates. So we don't have that figured out for all the businesses yet, but the math is not going to be any different for Pentair than it is for everybody else who goes through the program. And it's really encouraging and gives us a lot of optimism that the whole another list of transformation ideas as we head into 2025.

Yes. From my perspective, it brings tremendous focus to the things that really matter allows us to seek perfection in Quadrant one with our best customers and best products and really to reduce complexity and simplify the business in Quadrant four.

Hi. Good morning. Maybe just a first around some of the operating profit levers. So just to understand, I think it's $30 million a quarter of productivity savings in the second half. And then the assumption would be you've still got good transformation waves into next year plus the 80-20. So that $30 million a quarter run rate is a sort of reasonable placeholder starting out next year. I just wanted to check ahead that right. And sort of unrelated price net of inflation was a headwind to op profit year-on-year in Q2. Is that quantum of headwind expected to remain steady through the back half?

Yes. I would say I'll take the second one first. I mean at the turn year-to-date, we're slightly below price versus inflation. Prices read out around $40 million, inflation at $47 million. So inflation continues to be running a little higher than what we thought. I would say in the back half, our goal is to catch up and end the year, roughly speaking, price equaling inflation. On the run rate going into next year for transformation, too early to kind of give a calendarized view of that, but transformation will be significant next year in 2025 and certainly help us accelerate our ROS expansion goals.

Hey, good morning, everyone. Congrats on the transformation progress. So first, just a follow-up to some of your earlier comments on Pool, the business being up year-over-year for the first time in a few years, but underlying markets still kind of down for the rest of the year, which would kind of suggest like an extended 3-year down cycle more or less. I'm just curious, given channels being kind of more or less normalized now, what do you think a market recovery looks like for Pool presumably in 2025?

Yes, it's too early to tell yet. I do think I agree with all your earlier comments. It has been a 3-year cycle. And quite frankly, when you look point to point, it's one in which we don't yet agree that there's been any type of pull-in or anything related to COVID. We definitely think that we'll start seeing new Pool builds increase from this level as we head forward in '25 and beyond. And we're hoping to get more to that historical level, which would be somewhere around 80,000 to 90,000 a year, kind of lead aided by the interest rates starting to ease. I think overall, still pleased that we're growing year-over-year despite the challenges. And I think from this point forward, we think we're returning to growth.

Okay. I appreciate your thoughts. And then you've called out the launch of your first commercial PFAS product as well as expansion of the existing PFAS product line. I know you haven't necessarily put a number around the PFAS opportunity. But maybe if you could just speak to that, would you say that's firmly in your mid-single-digit sales target over the medium term? Or is there maybe some upside there?

No, I think it helps. I think it's slightly in that. I mean, it's going to be in that mid-single-digit. It gives customers a reason to want to continue to partner with us and our strong brand and our value propositions in the industry. We've been working hard to make sure that all of our food service-related customers understand the value of high-quality water. And I think that segment of the market definitely understands it. But as we start to expand our Ice footprint and certainly expand our water drinking footprint, we want to make sure that all the other adjacencies also understand the value of higher filtration capabilities. So we're very excited about the offering, and we're starting to make sure that we title that value proposition to the ones that aren't directly serving a customer who's coming in for a food-related drink or beverage. I think schools and institutions think about that as the backdrop.

Hey, thanks. Good morning, everyone. I don't believe it's been touched obviously, but for 3Q and the guidance for sales down 2% to 3%, now you can help us with expectations by segment there for the sales growth, just I think the inflection from growth to being down that much is a little surprising, say maybe Water Solutions and Flow, kind of down that low single-digit area. And that Pool is really what's flowing into the third quarter?

For Q3 and that down 2% to 3% guide, we expect Pool to be up slightly and for Flow and Water Solutions to be down slightly.

Great. Very helpful. And then for thinking of Pool margin in second quarter, were very impressive. Just do you expect that you can maintain that level of margin in the back half of the year? I know seasonally, they tend to trend a bit lower, but you have all the transformation savings coming through, trying to see how those two factors might offset each other? Thank you.

Yes. We do expect to have a similar ROS expansion story for Pool in the back half of the year. So again, they're executing very well. They'll get some slight growth in the back half, and so we should be able to see, again, impressive ROS expansion story.

Yes, good morning. I have two questions, although most of my inquiries have been addressed. Regarding the price costs needed to achieve parity for the year, will you need to raise prices anywhere to reach that goal? Additionally, does the math for the second half support that increase to attain parity?

Yes. Again, a couple of points of price in the back half gets us very close to what we think inflation will read out. Again, remember, inflation is about $47 million at the turn. That's around 3% of the cost base. And so we think something similar will play out. Again, we're seeing inflation in the commodity space, the freight space. But overall, our goal, and we should be very close to price equaling inflation.

At price plus 2%, I think you're saying yes?

That price running about 2%. That's right.

Thank you. And the second question, it's an easy one. You used the wording we restarted share repurchases. I don't know what that means, more events that you just did some this quarter for the first time in a while. Is the second quarter share repurchase number, is that maybe a good number to use from here that maybe go higher?

We think for modeling purposes, it's a good number to use. Again, our stated goal is to offset dilution. So, $50 million a quarter is kind of what we've built into the overall guide for the balance of the year.

Hey, guys. Good morning. So just curious on the level of productivity you're getting in Pool, does that seem the calculus around like your desire on or like willingness to put volumes out in prebuy? I like are you willing to maybe give up a little bit of future price because of how much costs you're taking out of the organization and you know that you can keep margins on a good trajectory anyway. So just to give you more flexibility to like release more than you otherwise would have to protect volumes and maybe take some share?

Yes. I just want to make sure, I mean, early buy is done and it's just really more a the factory. Otherwise, we'd have all of our revenue in Q2 and Q3 and very little in Q3 and Q4. So we make that decision as we head into the year based upon what level of revenue we're comfortable with to still maintain a decent profit level and also make sure that we can keep a consistent employment level. So that's how we make that decision. It's too early to make that call right now. And as the season approaches, that's the discussions we have with the Pool team.

Fair enough. Regarding the PFAS solution, I want to clarify whether this is a secondary treatment that acts as an additional product alongside something like Everpure for commercial customers, or if it's an integrated solution that removes multiple contaminants.

Yes. The answer is yes. That is an add-on to what we currently have.

Hey, guys. Sorry. Just wanted to like touch on this whole inflation and pricing. It looked like the kind of the stack comp pricing in Pool went down sequentially. And I think as a follow-up to the other question, just wondering, could you just maybe delve into what was so inflationary for you guys? I mean like trying to disaggregate a sourcing benefit versus cost increases that would just be more basic in nature? Just wanted to maybe, I guess, just delve into what you're seeing by category and that inflation number? Like what's really driving that?

Yes. So Steve, we do have some superb commodity inflation a couple of the raw materials that everybody is experiencing that is a little higher than our overall expectations. Also this year, labor inflation still remains high, especially in the core U.S. areas. Mexico being one of the areas that saw significant labor inflation. So those are the I say the abnormal inflation in the year. As far as the pricing aspects, we do feel like when you look at it on a full-year basis, it all levels out. But within periods, because we do give rebates to dealers, and we also give discounts to distributors, you could have a little bit of abnormality as you work through the quarters. But overall, it usually comes right in on the forecasted number.

Okay, that's super helpful. Thanks a lot.

Thank you.

Thank you for joining us. In closing, I want to reiterate our key themes. First, solid execution across our balanced water portfolio drove significant margin expansion for the ninth consecutive quarter. Second, we are increasing our 2024 ROS and adjusted EPS guidance, which reflects continued confidence in our strategy and our ability to mitigate risk where we can and maintain agility in a dynamic environment. Third, we effect our transformation and 80-20 initiatives to continue to drive strong margin expansion. And finally, we believe our focused water strategy and solid execution are building a foundation to continue to deliver value creation beyond the 2024 fiscal year. Thank you, everyone, and have a great day.