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Pentair plc( PNR 0.07% )
Q2 2021 Earnings Call
Jul 27, 2021, ix:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Expert twenty-four hours and thank you lot for continuing past. Welcome to the Second Quarter 2021 Pentair Earnings Briefing Call. At this fourth dimension, all participants are in a mind-only mode. Later on the speakers' presentation, at that place will be a question-and-answer session. [Operator Instructions]. Please exist advised that today's briefing is being recorded. [Operator Instructions].
I would now like to mitt the conference over to your speaker today, Jim Lucas. Please go alee.
Jim Lucas -- Senior Vice President, Treasurer, FP&A and Investor Relations
Thanks, Michelle and welcome to Pentair's second quarter 2021 earnings conference telephone call. Nosotros are glad you could bring together us. I am Jim Lucas, Senior Vice President, Treasurer, FP&A and Investor Relations. With me today is John Stauch, our President and Chief Executive Officeholder and Bob Fishman, our Chief Financial Officeholder. On today'due south phone call, we volition provide details on our 2d quarter operation, every bit outlined in this morn's press release.
Before nosotros begin, let me remind you that during our presentation today, nosotros volition make forward-looking statements. Listeners are cautioned that these statements are subject to certain risks and uncertainties, many of which are difficult to predict and more often than not beyond the control of Pentair. These risks and uncertainties tin can crusade actual results to differ materially from our electric current expectations. Nosotros advise listeners to carefully review the risk factors in our almost recent Course x-Q and Course 10-One thousand and today's release. We will as well reference certain non-GAAP measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures tin exist found in the Investor Relations section of Pentair'south website.
We will be sure to reserve time for questions and answers later on our prepared remarks. I would like to asking that you limit questions to one and a follow-upwards in lodge to ensure everyone an opportunity to inquire their questions.
I will now turn the call over to John.
John Stauch -- President, Chief Executive Officer
Give thanks you, Jim and expert morning, anybody. Please turn to slide number 4 titled Executive Summary.
Nosotros were pleased to deliver potent second quarter with sales up over 30%, adjusted EPS growth greater than 40% and free cash menstruation upwards over $100 million in the first half of the yr. I would similar to thank our Pentair teams for helping deliver these results, fifty-fifty in the confront of unprecedented cloth shortages and inflation. Our orders continued to grow and our backlog ended the quarter at record levels. We believe our order trajectory gives us increased confidence not only in our power to growing the second one-half but it besides gives u.s. condolement that the topline momentum we take built the past several quarters will conduct over into adjacent year. Our transformation work is on track and we built a strong pipeline of initiatives beyond the enterprise.
Regarding the electric current inflationary environment, we have implemented further price increases and we wait the price cost gap to farther narrow in the 2d one-half. Our greenbacks flow remained robust and our balance sheet is in a very solid position. We have a stiff 1000&A pipeline tied to our strategic growth initiatives and we plan to remain disciplined with our capital allocation. We are introducing 3rd quarter guidance and raising our full year expectations over again, which Bob will give more detail on after in the phone call. Our forecast reflects our expectations that material shortages and inflation are not going away nor will they improve materially. We believe nosotros have better visibility than nosotros have had in the concluding few quarters and that our proven focus effectually manufacturing and sourcing gives us the tools to navigate the current environment. We are encouraged to see our commercial and industrial businesses recovering and our residential businesses remaining seasonally potent and every bit mentioned earlier, our excess support continued growth.
Please turn to slide 5 labeled Building a Rail Record of Consequent Growth. At our June 10th Investor Twenty-four hours, we introduced several targets for 2022 to 2025, including mid-single digit sales growth, 300 basis points margin expansion and 10%-plus CAGR for adjusted EPS. Our 2025 targets were based on our guidance as of June 10, which we are raising one time again following our stiff 2nd quarter functioning. Our longer term target provided at Investor Day would now be based on our revised guidance. We have experienced significant growth since the second one-half of 2020 and we believe the momentum that we accept created will continue into the foreseeable futurity. Nosotros continue to believe that nosotros have a well-positioned portfolio benefiting from many positive secular trends. Our pool business serves a large installed base of operations. Water treatment helps solve water quality issues for residential and commercial customers. And industrial and flow technologies serves some attractive niches similar biogas in addition to a large installed base the pumps.
While our consumer businesses are seasonal, we practice not believe them to be cyclical. While our focus is on driving the cadre to create consequent value cosmos, we are investing in a few strategic growth initiatives to accelerate the topline. These include getting closer to the consumer in puddle, expanding water handling farther into services and biogas and carbon capture within industrial and menstruation technologies. As we drive transformation more broadly across the entire enterprise, we expect that this will drive both ROS expansion and assist fund growth initiatives. Finally, nosotros believe our balance sheet provides a great degree of flexibility to bulldoze further upside, primarily through M&A tied to our strategic growth initiatives.
I would now similar to plough the call over to Bob to discuss our performance and our financial results in more item, after which I will provide an update on our overall strategic position.
Bob?
Bob Fishman -- Chief Financial Officer
Thank yous John. Delight turn to slide 6 labeled Q2 2021 Pentair Functioning.
Second quarter sales grew 32% with core sales increasing 28%. Consumer solutions grew core sales nearly 40% and industrial and menstruum technologies delivered core sales growth of 12% with 2nd consecutive quarter of growth. Segment income was up xl% and render on sales expanded 110 basis points to eighteen.six%. Adapted EPS increased 42% to $0.84. Consistent with our guidance, the second quarter did not see cost fully starting time aggrandizement as we saw higher inflation and we have connected to implement price increases to aid offset. The second half should see price cost offset to fifty-fifty out, only unprecedented corporeality of material and wage inflation coupled with robust demand has contributed price reading out at a slower pace.
Corporate expense was $26 million in the quarter every bit nosotros recorded higher levels of compensation expense, given the performance our businesses delivered this year. Our tax rate was 17.4% in the quarter as we at present expect the full yr revenue enhancement rate to approximate 16%. This is due primarily to higher levels of Northward American income equally our residential businesses connected to grow at strong double digit levels.
Please turn to slide 7 labeled Q2 2021 Consumer Solutions Performance. Consumer solutions sales growth was 44% as both businesses delivered strong double digit growth. Segment income increased 48% and return on sales expanded 80 basis points to 24.9%. Consumer solutions experienced significant aggrandizement during the first half as demand connected to grow. Pool experienced sales growth of 50% in the quarter. While nosotros have seen significant growth ii quarters in a row to start the year, we believe puddle dealers are doing their best to keep upwardly with robust need. The theme of consumers investing in their backyards continued. The pool team accept significantly increased capacity fifty-fifty in the face of material shortages and inflation.
Backlog remains at tape levels and orders have more doubled. Fifty-fifty when the tape year, we believe the improvement in orders and strong backlog gives us improved visibility that growth will continue looking alee for adjacent yr. The macro trends continued to be favorable and the installed base of pool continues to grow. Demand for new pools remained potent with many builders reporting backlogs into next twelvemonth. We believe consumers remain committed to enhancing their at-domicile quality of life and enjoying the puddle is a major role of the experience for many consumers. In add-on to new pool structure, aftermarket growth remains potent equally consumers have used their pools more.
Water treatment delivered 35% sales growth as residential need remains robust and commercial showed strong signs of post-pandemic recovery. Our residential business grew about 20% and our commercial business grew sales by over xl%, excluding the contribution from KBI in the quarter. Overall, nosotros believe consumer solutions is well-positioned to evangelize continued double digit growth in the 2d half based on strong order and excess trends. We expect cost to read out further in the second half and close the gap on the higher inflation experienced in the first half.
Delight turn to slide viii labeled Q2 2021 Industrial and Menstruation Technologies Operation. Industrial and flow technologies increased sales 17% in the quarter and its finish-markets further recovered and the business organization connected to execute its strategy. Segment income increased 30% and render on sales expanded 160 ground points to 15.7%. Residential flow grew at a double digit rate for the third consecutive quarter. Orders connected to exceed sales and we wait the seasonal business organisation to end the twelvemonth well-positioned within all of its channels. Commercial flow increase sales 11% and farther built backlog. The commercial recovery has gained momentum with orders continuing to improve. Nosotros expect growth to proceed for the smaller part of the segment. Industrial filtration delivered 14% sales growth as the short cycle aftermarket showed further signs of improvement, particularly within food and potable. We experienced double digit increases in both orders and backlog. Industrial and flow technologies remains focused on reducing complication, selective growth and margin expansion.
Delight turn to slide 9 labeled Balance Sheet and Greenbacks Flow. Free cash flow continued to be a neat story with over $100 million improvement year-over-year. We generated $340 million of gratis greenbacks in the first half. We have returned $117 meg to shareholders through dividends and buybacks in the first one-half. We too repaid a $104 million bond that matured during the quarter and paid approximately $80 1000000 to learn KBI. Every bit nosotros proceed to invest our capital wisely, we concluded the quarter at simply under one times leverage. We are extremely proud and excited to see our return on invested majuscule exceed eighteen%. Equally we look at our cash menses needs going frontward, we programme to remain disciplined in our capital allocation approach. We plan to go on working the M&A pipeline and to buyback at to the lowest degree $150 1000000 of our shares this twelvemonth.
Delight turn to slide 10 labeled Q3 and Full Year 2021 Pentair Outlook. Nosotros are initiating third quarter and updating our full year 2021 guidance. For the quarter, we look sales to grow xvi% to nineteen%, segment income to grow 18% to 23% and adjusted EPS to grow xvi% to 21% to a range of $0.81 to 0.85. Our forecast reflects our expectations that material shortages and aggrandizement are not going away nor will they amend materially. For the full year, we expect sales to grow 21% to 23%, segment income to increase xxx% 5o 34% and adjusted EPS to abound 32% to 36% to a range of $3.xxx to $3.xl. Embedded in our full year sales guidance is anticipated growth in consumer solutions around xxx% with pool expected to be upwards almost 40% and water handling up over twenty% as commercial is expected to further recover and KBI is expected to contribute in the 2d one-half. Also incorporated in the revised guidance is anticipated low double digit growth for industrial and flow technologies.
Below the operating line, we expect corporate expense to be around $80 meg, given the higher levels of compensation expense in 2021, given the record performance expected this yr. We expect corporate expense to go back to more normalized levels adjacent year. We now expect net interest to be in a range of $15 million to $16 one thousand thousand and our tax charge per unit to be around 16%. We anticipate the share count to average betwixt 167 million and 168 million shares for the total year. Capital expenditures are expected to be around $threescore one thousand thousand, while depreciation and amortization is anticipated to be around $80 million. We proceed to target free cash flow to be greater than or equal to cyberspace income.
I would now like to turn the phone call over to Michelle for Q&A, after which John volition take a few closing remarks. Michelle, please open up the line for questions. Thank you.
Questions and Answers:
Operator
[Operator Instructions] Our first question comes from the line of Mike Halloran with Baird. Your line is open. Please go ahead.
Mike Halloran -- Baird -- Analyst
Hi. Expert morning, anybody. Thanks for taking the questions. So can you just give some context behind the incremental confidence yous are seeing in the puddle trajectory from year? Mayhap only how far is the backlog stretching out? Maybe a niggling more details on some of the commentary you getting from the channel? Inventory levels? Any more than context would be slap-up.
Bob Fishman -- Primary Financial Officeholder
Well, as said in the prepared remarks, the backlog is at record levels, need at all-time high and remains very stiff. We run into pool build into next yr and beyond. And so the metrics around demand are very strong. Certainly with what we run into now, we have confidence that the growth will continue for a diversity of reasons, everything from second homes existence built to people spending more time on in their backyards and a number of dissimilar products coming out. So I believe that that will keep. We are confidence into next yr. Inventories, they are still catching upward. So nosotros are working through that to satisfy our distributors and dealers.
Mike Halloran -- Baird -- Analyst
And then, merely in that question, how far out is your backlog specifically tracking at this betoken? Or is information technology just meeting with what's available in the channel?
John Stauch -- President, Chief Executive Officer
Aye. So Mike, this is John. First of all, we look at the pool flavour is coming to a completion at the end of September. And then we beginning the next puddle season when we get to October. And so our beginning goal is to become the backlogs and the inventories related to this pool flavour out. And as Bob mentioned, we feel like we are in a really potent position regarding that. And then we got to work on next year, which we feel is also going to exist potent demand. I call up another level of confidence is, nosotros have been able to start to attract labor and go along labor in our pool factories which was harder to do three to 4 months ago. And nosotros are starting to manage the supply chain, the uniqueness because of that, availability product and being able to demonstrate the agility in the factories to go production out to customers.
So, those are the differences of how we feel. As far every bit college confidence, Mike, I call back nosotros have ever been confident this is a good business and that this is a good demand. But nosotros wanted to make sure we were able to make progress on meeting that demand throughout the year.
Mike Halloran -- Baird -- Annotator
That makes a lot of sense. And then on the other side of the business. Just maybe some incremental commentary on the recovery cadence yous are seeing in IFT? Sustainability, what customers are saying? How it's tracking versus normal seasonality? Any incremental color there will be great.
Bob Fishman -- Main Fiscal Officeholder
Yes, I volition kickoff with that 1. We were very, very pleased again to see the IFT growth render. The residential piece of the business within period continues to exist strong. The recovery in commercial has also helped the catamenia concern. And then inside industrial, food and beverage has been a overnice growth area for us. So it continues to grow to be able to guide for the full year low double digit growth for us is exciting later the challenging year terminal year. And we await the momentum to go on likewise in IFT.
John Stauch -- President, Chief Executive Officer
And Mike, I would just add together that nosotros saw in our commercial filtration businesses in water treatment finally get back to levels that they saw in 2019. Obviously, it wasn't easy compared to 2020 coming upwards the dip that we had there. But we are encouraged on those trends and we are encouraged as more than restaurants and hotels and hospitality open globally that we volition go along to run across sequential improvement in that location.
Mike Halloran -- Baird -- Annotator
I appreciate it. Thanks, John. Cheers, Bob.
John Stauch -- President, Chief Executive Officer
Thank you.
Bob Fishman -- Chief Financial Officer
Thanks.
Operator
Thank you. And our side by side question comes from the line of Joe Giordano with Cowen. Your line is open. Please go ahead.
Joe Giordano -- Cowen -- Analyst
Hullo, guys. Adept forenoon.
John Stauch -- President, Main Executive Officer
Good forenoon.
Joe Giordano -- Cowen -- Annotator
Can yous kind of just talk us through regionally how like, if yous had like a calibration, one to x, how crazy pool has been regionally? Are certain markets only more out of whack from a go forrard footing? Similar I alive in New Jersey. So I know Northeast new pool aggrandizement is probably at levels that accept been seen before. Only tin y'all kind of scale how this is in more traditional markets? And perhaps information technology's more counterbalanced than some of these growth rates might announced when you normalize businesses for like the comps?
John Stauch -- President, Primary Executive Officeholder
Yes. So we had a couple of things going on this year, as y'all probably know. I, we had the department of engineering changeover from single speed to variable. So we are already expecting that we are going to see strong growth in that particular production line. Then obviously the acceleration of new pools and remodel pools is actually putting a significant demand nationally on that production. And that is the aforementioned product generally sold in all of the pool regions. So, land-by-state you got these disruptions similar Texas that has been disruptive for everybody and the fact that all of that aftermarket need yet needs to be satisfied of what happened with the freezes. And then the residual of the markets, I would say that they are just accelerated, meaning that the rate of new builds are consistent beyond those areas. And then the aftermarket demand replacement cycles or the condiment, I want more products in my pad, have been traditionally across the Sunbelt states. So right at present, I would say the demand is non easing and we are all trying to take hold of up with that demand and work through our supply partners to practice that.
Joe Giordano -- Cowen -- Analyst
And if I could simply sneak one in and apologies if I missed it in the very beginning. But any update on similar timeline of new product introductions from some of these like in-dwelling house indicate-of-view systems like with Rocean?
John Stauch -- President, Chief Executive Officer
Yeah. That's our next year product introduction for us as we work to try to become that technology up to speed and so launch that somewhere around the finish of the twelvemonth, the early part of next year with a soft launch and then wait to ramp that up throughout next year.
Joe Giordano -- Cowen -- Annotator
Groovy. Thanks, guys.
John Stauch -- President, Chief Executive Officer
Thanks.
Operator
Thank you lot. And our next question comes from the line of Brian Lee with Goldman Sachs. Your line is open. Please go ahead.
Brian Lee -- Goldman Sachs -- Analyst
Hi guys. Good morning time. Cheers for taking the questions. Perhaps just a follow-up on Joe's question. Just any initial views on the new pool marketplace for 2022? I know it sounds like from listening to other supply concatenation players, the general expectation is for most 110,000 or so, telephone call it, this year. But wondering if y'all call up that number grows next year? And and then with respect to backlog trends, I know you lot are at record but kind of what sort of visibility can you quantify to whatever degree you have with builders currently heading into next season?
John Stauch -- President, Principal Executive Officer
I think builds will keep to grow. I retrieve you lot it's chapters constrained generally by labor and product availability beyond just puddle equipment after nosotros do the landscaping in those backyards. So, we continue to think that 2022 will exist a robust year there. And so additive to that number, we e'er have remodels. Then the pools that needs to also exist done in addition to those new pools. And then where we are really pleased is the penetration charge per unit of the products on the pad and more than and more awareness of heaters, automation, salt-based chlorinators, those effects of products are where we have really seen the acceleration. So I recall nosotros desire to continue to grow from here and we believe that we have right now up enough visibility to experience like 2022 is a growth year.
Brian Lee -- Goldman Sachs -- Analyst
That'due south fair enough. And just my follow-up on the price increment. You mentioned the latest price increase. Can you give usa some quantification effectually what that level was? When that was implemented? Or when that'southward going into effect? And so what parts of the portfolio here? If I look at your consumer solutions segment for the dorsum half, information technology seems like you are implying kind of 20%, 25% year-on-year growth number for the he back one-half year. How much of that is toll? How much of that is book? I am assuming a lot of that's going through that part of the portfolio here? Cheers, guys.
Bob Fishman -- Primary Financial Officer
What I will do is merely share a little fleck of color effectually price and inflation overall for Pentair. In Q2, cost was a two signal benefit for us and aggrandizement was quite high, close to five points. Equally we move into the dorsum half, recollect of aggrandizement in that past the five to 5.v point range, so slightly higher just recollect of price reading out at closer to iv points in the back half. So nosotros ameliorate from Q2 and narrow the gap simply it continues to be a challenge. And the whole material shortages is a challenge for our ops and supply team and we are really appreciative of all of the work that that team has done. In the 2nd quarter, they actually did a nice job helping us drive that 32% sales growth. They did have the luxury of more raw materials sitting in that opening inventory. So as we motion into Q3 and Q4, the challenge for the team is really to deal with the lumpiness of the cloth shortages. So every week is interesting as they plan the product schedule and the team is doing a remarkable job to achieve the numbers that we have guided to.
John Stauch -- President, Chief Executive Officeholder
And and so, just to follow-upwardly on your price question. We have iii full general concern models. In our dealer-distributor brusk-wheel businesses, obviously, information technology'south easier to work with the supply concatenation and then work with the channel partners to raise price in those areas. They usually go through relatively chop-chop. And then we have our more OEM related businesses or our larger company programs, which takes time. And so we accept got the projects that you quote and yous are basically dealing with the price of inflation until yous quote that next ready of projects. So that's the other color I bring beyond those three business models and it all blends to the numbers that Bob shared with you lot.
Brian Lee -- Goldman Sachs -- Annotator
All right. Thanks, guys for all the color. I will laissez passer it on.
Operator
Thank you. And our next question comes from the line of Jeff Hammond with KeyBanc Capital letter Markets. Your line is open. Delight go alee.
Jeff Hammond -- KeyBanc Capital letter Markets -- Analyst
Hi. Practiced morning, guys.
John Stauch -- President, Master Executive Officer
Expert morning time.
Jeff Hammond -- KeyBanc Capital Markets -- Analyst
So the incrementals in the quarter were certainly better than I thought and I think how y'all guys started on the June Analyst Day and I think that was a concern. It seems similar price is more of a help in the back half. But what kind of surprised you to the better in the 2nd quarter and how should nosotros think most incrementals in the dorsum-half?
John Stauch -- President, Chief Executive Officer
Well, I think we have got some of the IFT productivity that we were expecting and information technology read out and nosotros feel like that's generally sustained, which was definitely amend. And so plainly, when we get more pool production out the door, it generally drives college levels of margins for Pentair. And we were able to go capacity levels up in puddle and nosotros benefited from that.
Jeff Hammond -- KeyBanc Capital Markets -- Analyst
Okay. And then but on, I guess, this view into 2022. Simply in the strength here in pool, where do you think some pull-forwards happening or stuff off that possibly isn't repeatable? I know there is good demand trends on new and remodel. Just where have y'all seen perhaps the nigh pull-forward in terms of consumer attitudes?
John Stauch -- President, Primary Executive Officer
Well, I retrieve every single aqueduct partners we take is spending a disproportionate amount of fourth dimension trying to work with united states of america to become product to the next task in that location you are doing, right, on the new build side. So when you lot see increase in the new builds simultaneously with the demand for aftermarket, you are trying to balance those two things at the aforementioned fourth dimension. Then I think some of the traditional filter and pump are obvious because every pool pad needs those and they accept to exist repositioned to where the jobs are and how to get the inventory where you need. And then some of the more than squeamish to haves in the pool that tin be deferred and/or added subsequently is actually where we retrieve the bulk of the backlog is repositioned for adjacent year.
Jeff Hammond -- KeyBanc Capital Markets -- Annotator
Okay. Cheers, John.
John Stauch -- President, Main Executive Officer
Thank yous.
Operator
Thank you. And our next question comes from the line of Bryan Blair with Oppenheimer. Your line is open. Delight go ahead.
Bryan Blair -- Oppenheimer -- Analyst
Thanks. Good forenoon, guys.
John Stauch -- President, Chief Executive Officeholder
Practiced morn.
Bryan Blair -- Oppenheimer -- Analyst
I was hoping you could offer a niggling more colour on KBI integration and how the service network is influencing your commercial water handling recovery and procedure going forward?
John Stauch -- President, Main Executive Officer
Then for united states, KBI is actually an exciting acquisition for us that closed in the second quarter. We now are able to provide services within the commercial space. Information technology'due south a business that we can learn from and then leverage to help grow in that surface area. So really stiff showtime for us in that business organisation and exciting to meet the footprint and the opportunity within that surface area that nosotros really haven't been able to bulldoze into.
Bryan Blair -- Oppenheimer -- Analyst
That's excellent. And so I think yous said xl% total growth for commercial treatment in the quarter. I apologize if I missed it. But did you cite the organic figure?
Bob Fishman -- Chief Financial Officer
Yeah. The growth for the full twelvemonth in water treatment, we gave --
John Stauch -- President, Chief Executive Officer
It was 35% in the slides. I recollect Bob, right, for Q2 and then there is merely a pocket-sized contribution from KBI in the quarter. And then for the year, in the full year outlook that Bob gave, think of roughly $20 one thousand thousand a quarter for KBI.
Bryan Blair -- Oppenheimer -- Analyst
Okay. I appreciate that. And then, John --
Bob Fishman -- Main Financial Officer
Yes. The growth that we gave for the second quarter excluded the 40%, excluded the contribution from KBI.
Bryan Blair -- Oppenheimer -- Analyst
It did, OK. I appreciate the colour.
Bob Fishman -- Main Fiscal Officer
Cheers.
Bryan Blair -- Oppenheimer -- Analyst
So with that momentum, John, you said over the last couple of quarters that information technology's unlikely that commercial demand would recover to 2019 levels. With the pace, the momentum you take in the concern at present, does the changes anything?
John Stauch -- President, Main Executive Officer
Right. Really, as I said, we are at 2019 levels now. So we took a dip concluding year and now nosotros are recovering to modestly growing versus 2019. Nosotros do believe that starts to accelerate from hither. But we demand the balance the world to keep to open up. Primarily hospitality would be the one area that is not yet equally robust driven past global travel primarily. Once that gets going, I think we experience like we are growing off of 2019 levels once more.
Bryan Blair -- Oppenheimer -- Analyst
That'due south great. Thanks once more guys.
Operator
Give thanks you. And our next question comes from the line of Nathan Jones with Stifel. Your line is open. Delight go alee.
Nathan Jones -- Stifel -- Analyst
Good morning, anybody.
John Stauch -- President, Chief Executive Officer
Good morning.
Nathan Jones -- Stifel -- Analyst
I am simply going to follow-upward on the discussion in that location on commercial water treatment being back to 2019 levels. I can't imagine that the market is actually dorsum to 2019 levels. And then can you talk well-nigh where yous think you are gaining share in this market? Or what'due south driving your power to go back to 2019 levels when I can't imagine that the market could possibly be dorsum to that level yet?
John Stauch -- President, Master Executive Officeholder
Yes. It'southward the spaces that we have a higher participation charge per unit in, Nathan, like quickserve restaurants and also yous got gas station service. And those are beverage hotspots as y'all can imagine. And we participate in both filtering the ice and too filtering the beverage dispensed. So that is an surface area that has definitely picked upwardly faster than information technology was in 2019. And the balance of the full-service restaurants and hospitality have been slow to recover information technology is simply still recovering.
Nathan Jones -- Stifel -- Analyst
Okay. So, your mix is more skewed to stuff that does take a market level back to where it was?
John Stauch -- President, Chief Executive Officer
Aye. Nosotros benefit from that, yes, correct.
Nathan Jones -- Stifel -- Analyst
And so, a follow-up on that price price equation every bit well. Narrowing the gap in the second half, pretty big gap there in the first half. In the unlikely consequence that we get kind of stable input prices, would y'all expect to be internet price cost positive in 2022 as you make up these deficiencies from 2021?
John Stauch -- President, Chief Executive Officer
Don't know yet. I mean, we definitely accept learned a lot about aggrandizement. I mean the sourcing inflation is commonly easier predicting and I recall nosotros have done a relatively good chore on that one. Where I think we have however been playing grab-upwards this year is labor aggrandizement and the amount the wage increases that occurred throughout the year, Nathan. Nosotros are making certain that we are using best practices as we quote the next projects and next twelvemonth's projects ahead of time. And so were making certain that we keep agility in focus as we call up most how to cost more effectively on the shorter bike businesses.
Nathan Jones -- Stifel -- Analyst
Neat. Cheers for taking my questions.
John Stauch -- President, Master Executive Officeholder
Yep.
Operator
Thank you. And our next question comes from the line of Ryan Connors with Boenning & Scattergood. Your line is open. Delight go ahead.
Ryan Connors -- Boenning & Scattergoo -- Annotator
Great. Cheers for taking my questions. I had a large motion-picture show question on sort of the aftermarket opportunity. You alluded earlier to this thought that at that place are so-chosen nice to haves on the pool pad that possibly aren't going in right now because of the supply chain constraints. And so my question is, how should we recall most the growth of the installed base of operations over a couple of nice years here on new builds? And what that does to the structural aftermarket opportunity in the side by side several years, 3 to five years out? I mean, is that meaningful, that expansion in aftermarket? And do you believe that's a good thing from a mix perspective? Can you just give us your thoughts there?
John Stauch -- President, Chief Executive Officer
Yes. I mean we look at information technology equally, every new pool that goes in is additive to the five.3 meg in-footing pools that exist today. And equally people utilise their pools more than and more, the number one thing they wait to is the water chemical science of their pools. And then how do they make it more enjoyable and comfortable as an experience. And those things tend to drive higher degrees of automation and consumer awareness and as well then atomic number 82 you to figure out what else you can do to either self-manage or self-monitor your pool or control heat and/or the other comfort aspects of your pool. So nosotros expect it every bit, all this is good news to build out the long term demand in the channel.
Ryan Connors -- Boenning & Scattergoo -- Annotator
Okay. And then my other 1 was, just desire to get your reaction, there is a lot of the news virtually this global minimum tax charge per unit and lot of movement on sort of taxation rates. And I know you have got the unique jurisdiction as a corporate. So any thoughts there on how that could impact Pentair or not from a tax rate standpoint, depending on how that plays out?
John Stauch -- President, Principal Executive Officeholder
We are in the process of assessing what the touch would be. It's still besides early to really give a perspective. Only our early view here is that at that place would exist some up trip in the revenue enhancement rate but not significantly higher at this point. And so certainly better than a number of our competitors.
Ryan Connors -- Boenning & Scattergoo -- Annotator
Yes. Okay, fair enough. Thanks for your fourth dimension.
Operator
Thank you. And our next question comes from the line of Andy Kaplowitz with Citigroup. Your line is open. Please become ahead.
Andy Kaplowitz -- Citigroup -- Analyst
Hi. Good morning, guys.
John Stauch -- President, Principal Executive Officer
Good morning time.
Andy Kaplowitz -- Citigroup -- Annotator
John, you mentioned you lot are excited nearly how much smart automation in heaters and your really new pool pad products in full general are adding to remodel and aftermarket growth. Can you give us a picayune more colour into how much the new upgrades to the puddle pad are maybe more than secular? Have yous invested enough in your sales and product capability to have advantage of this trend? And what do they tell you lot about the longer term growth potential in pool? How much practice you think they could contribute to longer term growth?
John Stauch -- President, Main Executive Officer
Keen question. I hateful we have been stuck and the industry is has been stuck and we have been with information technology somewhere around just modestly in the double digits of automation. And I recollect just with the contempo trends in more mesh networks and getting Wi-Fi into the backyard in a more dependable footing, it creates more opportunities for more automation. Yous actually demand awareness and you need people to utilize the pool with care to really drive that behavioral change. And that's what we are most encouraged by. There is likewise better technology at great price points that we are participating into to manage and monitor water chemical science. And then to begin to decide what's necessary to balance those water areas. Then that's what I am really super excited. Nosotros besides saw and we shared this openly that equally utilize their pools more, the heater matters. And that was always the prissy to haves on the pad on the older builds and I would say most people remodel now they are putting those heaters in, both the spa and for the puddle.
So, we have seen the trends in lighting earlier. Nosotros saw the trends working effectually some of the variable speed pump penetration. We are at present starting to meet that extend to the other capabilities around the pool. So, I think it'south a few points of overall pad penetration for the industry over the side by side several years. And that encourages us and excites usa.
Andy Kaplowitz -- Citigroup -- Analyst
And John, I might have missed this is in the prepared remarks. Only at your Analyst Mean solar day, you had mentioned that you are correct in the center of 12 weeks sprint to come with ideas to form more than of the basis of the transformative plan that y'all laid out through margin improvement. So maybe yous could update united states on sort of what sort of ideas have come out of that? Any sort of interesting observations you would brand?
John Stauch -- President, Master Executive Officer
Aye. And then my official report out is this Thursday with the executive team and I am looking forrard to that fix of brainstorming actions. Nosotros have engaged a lot of people so that we have got a voice from the broader organization. Information technology's required patience for my part to non leap and know what the answers are. So I am not going to leap out of that. Merely I have seen the funnel and I have seen a list of ideas and I would say that it's more sizable than I originally thought. And that was virtually how do we put the programs around it to action them and to call back virtually sequencing them to derive the value from that. But actually, really encouraged right now on the participation in the organisation and the ideas that are starting to surface.
Bob Fishman -- Chief Financial Officer
Yeah, this is Bob. And I take probably been a footling less patient than John. So I would ostend that the pipeline of opportunities is very robot. A lot of complexity reduction initiatives. There is huge opportunity to drive margin expansion and to actually help with those Annotator Day numbers. We said in the prepared remarks that even with a college guide this twelvemonth, we are going to go ahead and add on to this year the 300 footing points of margin expansion into the future with where acquirement volition grow at that mid-single digit plus number that that we shared at Analyst Day. Then, transformation will exist a large part of to us achieving those results. And embedded in all of this is ease of doing concern with Pentair, so a much, much ameliorate situation for our distributors and dealers too.
Andy Kaplowitz -- Citigroup -- Annotator
I appreciate information technology guys.
Operator
Thank you. And our side by side question comes from the line of Josh Pokrzywinski with Morgan Stanley. Your line is open. Delight get ahead.
Josh Pokrzywinski -- Morgan Stanley -- Analyst
Hello. Skilful morning, guys.
John Stauch -- President, Chief Executive Officer
Hi Josh.
Josh Pokrzywinski -- Morgan Stanley -- Analyst
John, just on some of the inventory commentary out there in distribution or kind of your channel. And sense for what that's like kind of on a normalized basis? Maybe accented levels versus 2019? I think days on paw were probably pretty well, just given how stiff the growth stride is. But if we were to sort of dial that back a picayune bit or normalize that, would inventory sort of be in the right ZIP Code or would they nonetheless be low on an absolute basis?
John Stauch -- President, Chief Executive Officer
Josh, without getting to specific, we are lower than we should be and our customers and channel partners are asking u.s. every single day to pick up the pace and become then more than equipment, right. That'due south the way I would say information technology. it'southward exhausting to the programme teams to keep up the demand and the sell-throughs you can clear from other people'southward releases and yous meet that we are trying to do what we can to catch up with it.
Josh Pokrzywinski -- Morgan Stanley -- Annotator
Got it, that'due south helpful. So, just touching on the last question that I think got asked on some of the other quantified discretionary stuff. You lot mentioned heaters. How much were those up relative to rest of the pool business? I would imagine a lot of that is more kind of get-go fit than necessarily replacement of an existing theater. Is that fair?
John Stauch -- President, Chief Executive Officer
Yes. I mentioned information technology because we saw that really become into the back half of last year in a broader fashion, if you recall. And so at present when we think about anniversarying the back half, nosotros are nevertheless growing on summit of those levels which gives us encouragement that these aren't necessarily one-and-washed but we are seeing a long term penetration of the product lines.
Josh Pokrzywinski -- Morgan Stanley -- Annotator
Got it. I appreciate it all.
John Stauch -- President, Chief Executive Officer
Thank you.
Operator
Give thanks you lot. And our next question comes from the line of Scott Graham with Rosenblatt. Your line is open, delight get ahead.
Scott Graham -- Rosenblatt -- Annotator
Good morning John, Bob and Jim. I accept questions, a couple of questions nearly price cost. And I was wondering, Bob, would you lot be willing to split out the labor piece of the inflation that we saw in the quarter?
Bob Fishman -- Master Financial Officer
Roughly speaking, ii-thirds material, i-third labor.
Scott Graham -- Rosenblatt -- Annotator
And maybe help us peradventure understand a trivial bit on the labor side. And then are y'all talking about increases to the bounty pool for your current employees to retain them because your business organization unit heads are saying, hey, we are going to lose people. Then y'all kind of got to get more aggressive at that place? Are these new employee adds? Could you give a fiddling color on that, if y'all don't mind?
John Stauch -- President, Chief Executive Officer
Aye. I think it's both. I mean when y'all look at having to add to your labor base, you are confronted with what are the real market place dynamics to add together. And and then you have to go back and you have to brand sure that your existing loyal employees are paid at least that, if non more. And so it creates a dual touch on. One, trying to go the new people and so making sure that your current employee base are well taken care of.
Scott Graham -- Rosenblatt -- Analyst
Thank you for that. On the productivity, especially IFT, is that the beginning of some of the reduction in complexity, the $x million, is in that location a piece of that in there?
John Stauch -- President, Chief Executive Officer
Yes, there is a big piece of that in at that place. And I think we are really encouraged with their efforts around that. And nosotros think that that is, that'due south why Bob also mentioned transformation. I think we learn from sure categories of dullness. Nosotros take seen how it reads out in better efficiencies on sourcing and also less complexity for customers. So nosotros are really encouraged by that trend and we expect to bring that across the enterprise in a faster fashion.
Scott Graham -- Rosenblatt -- Annotator
Okay, thank y'all. Concluding question is a question you might not be able to answer, simply I am just going to shoot anyhow. The prices of avails are pretty inflated, speaking of. And we have IFT, which is a business organisation that needs to some fixing to better the margins in that location. But it looks similar, especially as of Th y'all are going to have a very articulate path to do that. As in acquisitions announced in this infinite, I would say, in this space in sort of a multi-area just the final couple of days where it affects them about 17 times EBITDA which is your multiple. And I am just bold that the puddle multiple is higher than the IFT multiple embedded within your valuation. Is there any thinking around IFT spinning that off at some point down the line, peculiarly with asset prices where they are at present?
John Stauch -- President, Main Executive Officeholder
Yes. Scott, I mean the way I wait at information technology is, I think we have a really good IFT business that continues to demonstrate progress toward its goals. I mean I am really encouraged by the manner it'due south growing. Double digit cadre growth this quarter and starting to build out the club pipeline. And I am also encouraged about its focus, its complexity reduction and its commitment to the margin expansion. At present, I am going to get through the transformation piece of work. And I believe that this business has pregnant margin expansion in front of us. So I believe the course of activity is, that'south can create value for Pentair, a large part of our portfolio. And and then it is a big important part of our portfolio.
Scott Graham -- Rosenblatt -- Analyst
Got information technology. Cheers, both.
Operator
Thank you. And our side by side question comes from the line Rob Wertheimer with Melius Inquiry. Your line is open, please go alee.
Rob Wertheimer -- Melius Inquiry -- Analyst
Cheers. Proficient morning, everybody. So you have talked on this a couple of times before. Merely water handling, we are looking at a actually cyclical rebound but a bit less as you have affect from product changes and the solution in residential and commercial. Is that correct? Or is some of the work you are doing underlying will allow this to some of that growth more than structural than the nice rebound that we had? And and then just maybe but kind of reiterate the timeline of the impact you lot are seeing from what y'all are doing there? Give thanks y'all.
John Stauch -- President, Chief Executive Officer
Yes. So simply within h2o treatment to remind you, roughly $100 billion pro forma business. We have residential and nosotros accept commercial. And the residential has been fairly strong. Little lumpy through COVID with the ability to get in people'southward houses or not every bit far as what we are trying to practise there. Only now it'due south at a signal where I recollect we have got steady-land growth. If you recall, when commercial happened, there was generally a closure of most restaurants and hospitality and offices where people drink h2o. And that was a huge pace back to our business concern terminal Q2. That has slowly been recovering as people return to more of the normal of the way information technology used to exist pre-COVID but nosotros are non nonetheless dorsum globally to where nosotros expect information technology to be. I remember our addition of KBI gives us the ability to take services components on top of products with strategically what we think our customers want and we are very encouraged about the early signs there. So I think nosotros are starting to return and I retrieve nosotros are now in, what I would say, every role of that portfolio growing versus being more residentially led, as it was in terminal several quarters.
Rob Wertheimer -- Melius Enquiry -- Analyst
Thank you.
Operator
Thank you. And our next question comes from the line of Julian Mitchell with Barclays. Your line is open. Please become alee.
Trish Gorman -- Barclays -- Analyst
Hi, skillful morning time. This is Trish on for Julian. And then just on free greenbacks flow, it'southward been very strong twelvemonth-to-date. Under normal seasonality, I recollect 2nd half free cash flow represents 50% or 60% of the full year free greenbacks. Should nosotros look this normal seasonality to occur this year? And maybe if you could merely walk united states through the moving pieces there for the balance of the twelvemonth?
Bob Fishman -- Primary Fiscal Officer
Aye. Balance of the year free cash flow remains strong. What'due south actually helping us is, we get off to fast beginning at the beginning of each quarter that the linearity is very stiff. So I expect some other strong free cash flow year following last twelvemonth. And nosotros will continue to drive information technology over 100% of cyberspace income.
Trish Gorman -- Barclays -- Annotator
Great. And then maybe ane more than. On IFT, I know yous guys take talked nearly the significant margin expansion opportunities at that place. But how should we think nigh inorganic opportunities there? Can you just remind united states what end-market place or products you might expect to increase your exposure to within that segment?
John Stauch -- President, Main Executive Officer
Yes. So we hinted at Analyst 24-hour interval. Nosotros really right now similar the carbon capture and too the sustainable gas parts of that portfolio. And we experience like that nosotros accept got a fairly expert position at that place and nosotros would love to continue to scale and as well be able to provide the regional partners the solutions they need. We are at the middle of everything nosotros exercise. We are a membrane focused company. So we like to wait into filtration and have opportunities to aggrandize our filtration capabilities equally well. And as a reminder, even though we use some of these technologies in the consumer solutions, they initiate those applications in IFT and we cross-pollinate those across both segments. Then those are the two areas that I would say are definitely areas of a focus in the IP portfolio.
Trish Gorman -- Barclays -- Analyst
Okay. Thanks, guys.
John Stauch -- President, Main Executive Officer
Thank you.
Operator
Thank you lot. And our next question comes from the line of Deane Dray with RBC Majuscule Management. Your line is open up, please go ahead.
Dean Tyler -- RBC Capital Markets -- Annotator
Hi, this is Dean Tyler on for Deane.
John Stauch -- President, Chief Executive Officer
Well, hi Tyler, on for Deane.
Dean Tyler -- RBC Capital Markets -- Analyst
Sorry, if I missed this, merely could you discuss some of the supply concatenation issues that you guys are seeing? Obviously, you mentioned product availability in some of the prepared remarks. Simply are you seeing other supply concatenation problems like port congestions or anything in that location?
John Stauch -- President, Principal Executive Officeholder
Yes, yes and yes. I mean everything that you are hearing, we are experiencing in some type of inconsistent fashion, correct. So we would say that even though nosotros accept had availability of most of the supply we need, it's very inconsistent in its predictability of when and how it's coming, which is forced tremendous agility in our factories to rearrange in a lean way where we put the labor efforts. And sometimes we are producing 75% of the product and then coming back and fishing 25% later, to give you an example. That's why we are very complementary of you lot teams, as Bob said, because information technology'south required all kinds of dissimilar skills to exist able to move frontwards. Main challenges to us are chips, would be drives, would be motors, those would exist the areas that are in loftier demand for the products that nosotros serve.
Dean Tyler -- RBC Majuscule Markets -- Analyst
Not bad. Thanks for that. And could y'all guys provide simply any updates on some of your new IoT products that have launched recently or planning on launching?
John Stauch -- President, Chief Executive Officeholder
Yes. And so we are excited by that. And I recollect, first of all, really excited about the momentum nosotros are edifice in IFT on lot of their IoT enabled services ability. We take launched products on the consumer solutions side that allow you to connect to our Pentair Home app. And we keep to add product adequacy to give you a better consumer feel. Then I would say, most of those been soft launched in 2021 and we will expect accelerate in 2022 and across. And then, I take to take a plug because I know Deane would be very interested in this; Tyler, is. We feel similar we are really making some of progress on some smarter filtration technology for puddle too and nosotros are excited as we mentioned at the Analyst Twenty-four hours most the progress on that technology and making pools clearer and more visible and utilizing less chemicals to achieve the same outcomes.
Dean Tyler -- RBC Uppercase Markets -- Annotator
Not bad. Thank you very much.
John Stauch -- President, Master Executive Officer
Thanks.
Operator
Thank you. And I am showing no further questions and I would similar to turn the conference back over to John Stauch for whatsoever further remarks.
John Stauch -- President, Main Executive Officer
Give thanks yous, Michelle and thanks for joining us today. 2021 is experiencing a astounding year of growth and we believe the future go along to bright for Pentair. We believe we have potent business platforms that are industry leaders in their designated spaces. Nosotros are in spaces that are growing faster than the overall global markets and are propelled by attractive secular trends. And we have carved out exciting strategic growth priorities in which nosotros have already begun to demonstrate operation. Farther, our transformation journeying is designed to unlock value that allow us to abound faster than the industries that we participate in and help us to expand margins apace past 2025. And finally, our balance sheet is strong and we believe nosotros will continue to get stronger, supporting incremental value cosmos higher up and beyond what are base businesses tin can do on their own with tuck-in M&A. Michelle, you can conclude the call.
Operator
[Operator Closing Remarks]
Duration: 55 minutes
Call participants:
Jim Lucas -- Senior Vice President, Treasurer, FP&A and Investor Relations
John Stauch -- President, Primary Executive Officer
Bob Fishman -- Chief Financial Officer
Mike Halloran -- Baird -- Analyst
Joe Giordano -- Cowen -- Analyst
Brian Lee -- Goldman Sachs -- Analyst
Jeff Hammond -- KeyBanc Upper-case letter Markets -- Analyst
Bryan Blair -- Oppenheimer -- Analyst
Nathan Jones -- Stifel -- Analyst
Ryan Connors -- Boenning & Scattergoo -- Annotator
Andy Kaplowitz -- Citigroup -- Analyst
Josh Pokrzywinski -- Morgan Stanley -- Analyst
Scott Graham -- Rosenblatt -- Analyst
Rob Wertheimer -- Melius Research -- Annotator
Trish Gorman -- Barclays -- Analyst
Dean Tyler -- RBC Capital Markets -- Analyst
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All earnings phone call transcripts
Source: https://www.fool.com/earnings/call-transcripts/2021/07/28/pentair-plc-pnr-q2-2021-earnings-call-transcript/
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