ペンテア (PNR) 2026年第3四半期決算説明会：プール事業の在庫調整が終了、Tacoが2027年の成長を後押し

主なポイント

• ペンテア（Pentair）が発表した2026年第3四半期の売上高は9億7,600万ドル、調整後営業利益は2億4,200万ドル、調整後EPSは1.18ドルとなり、自社ガイダンス予想範囲の約1.05〜1.08ドルを上回りました。
• フロー部門とウォーター・ソリューションズ部門が共に1%のコア成長を示したものの、プール部門の18%減収がこれを相殺し、コア売上高は前年同期比で5%減少しました。
• プール部門における流通在庫の削減（デストッキング）が完了しました。経営陣によると、第2四半期と第3四半期を通じて約2億8,000万ドルの在庫が削減され、2027年には出荷（セルイン）が実売（セルスルー）により一致する見通しです。
• 同社は通期の調整後EPSガイダンス（約4.70ドル）を据え置き、2026年度の売上高は約3%減少すると見込んでいます。
• ペンテアは10月1日にタコ・グループ・ホールディングス（Taco Group Holdings）の買収を完了しました。経営陣は、タコが2027年に6億2,000万ドル以上の売上高と1億500万ドル以上のEBITDAを創出し、調整後EPSの押し上げに寄与すると期待しています。
• フリーキャッシュフローは第3四半期に1億5,300万ドル、年初9カ月間で6億2,000万ドルとなりました。タコ買収後のプロフォルマ純有利子負債倍率は約2.5倍に上昇したものの、経営陣は24カ月以内に1.5倍〜2.0倍の水準へ戻すことを目標としています。

主要財務データ

事業および業績ハイライト

プール部門

プール部門の売上高は18%減の2億9,100万ドルとなりましたが、経営陣の想定を上回る結果となりました。セグメント利益は販売量減少による営業逆レバレッジ、インフレ、成長施策への投資の影響を受け、38%減の7,200万ドルとなり、売上高利益率は約25%に低下しました。

経営陣によると、第3四半期におけるプール部門の実売（セルスルー）は1桁台半ばのペースで拡大しました。2026年通期のセルスルーは2025年比で2%〜3%増の約14億5,000万ドルと試算されています。報告されたプール部門の売上高減少は、最終需要の同程度の減少ではなく、主に流通在庫の削減を反映したものです。

第2四半期と第3四半期を通じて約2億8,000万ドル（第3四半期単体では約9,000万ドル）の流通在庫が削減されました。ペンテアは年末の流通在庫残高が前年末比で約1億8,000万ドル減少すると予想しています。

2027年について、経営陣は市場環境の軟調さが続くものの、セルスルーは14億5,000万ドル近辺にとどまると現時点で想定しています。仮に出荷（セルイン）が実売（セルスルー）と同水準になれば、プール部門の売上高は2026年の会社予測水準から約1億8,000万ドル（約14%）増加することになります。経営陣はまた、2027年のプール部門の売上高利益率を約30%と予想しています。

プール部門の回復計画は、営業力（セールスカバレッジ）、顧客サポート、品質、製品の優秀性という4分野に重点を置いています。ペンテアは、特にアフターマーケットおよびサービスチャネルにおいて、地域ごとの実行力、販売店研修、技術サポート、ターゲットをしぼったマーケティングを強化しています。

ウォーター・ソリューションズ部門

ウォーター・ソリューションズ部門の売上高は1%増の4億2,200万ドルとなり、コア売上高も1%増加しました。住宅着工件数の低迷や住宅ローン金利の上昇に伴う住宅市場の不振を、4%増加した商用市場向け売上高が相殺しました。

セグメント利益は16%増の1億2,100万ドルに増加し、売上高利益率は370ベースポイント拡大して29%となりました。厳格な価格設定と生産性向上策が利益を押し上げたほか、600万ドルの関税払い戻し金も同セグメントの増益に寄与しました。

経営陣によると、商用向け水処理事業は、大手戦略顧客やコンビニエンスストア向けの機会に支えられ、1桁台半ばの成長率を維持しています。

フロー部門

フロー部門の売上高は4%増の2億6,200万ドルとなりました。飲料・食品分野での支出延期が足かせとなった一方、ヒドラ・ストップ（Hydra-Stop）の力強い貢献を含め、残りのポートフォリオは2桁成長を達成しました。

生産性向上とヒドラ・ストップ買収の貢献により、セグメント利益は15%増加し、売上高利益率は250ベースポイント拡大して26%となりました。ペンテアはまた、インフレや自治体プロジェクトの受注獲得が続いており、2027年に向けて受注残が拡大していると報告しましたが、経営陣は飲料・食品分野の短期的な急回復を想定していません。

タコ・グループ・ホールディングス

ペンテアは10月1日にタコの買収を完了し、水循環および温水フロー制御の機能を拡張しました。タコを取り込むことで、HVAC、データセンター、学校、病院、大学、その他の商用・施設用途への参入領域が拡大します。

経営陣はタコの2026年売上高を2025年比約23%増の約5億6,000万ドル、EBITDAを約9,000万ドルと見込んでいます。2027年について、ペンテアは10%以上の増収となる6億2,000万ドル超の売上高と、1億500万ドル超のEBITDAを見込んでいます。

ペンテアはタコが2027年の調整後EPS改善に寄与すると予想しています。経営陣はまた、タコの代理店チャネルを通じたクロスセルの機会を見出していますが、その貢献度合いはまだ数値化していません。

経営陣の業績予想（ガイダンス）

ペンテアは年初9カ月間に4,300万ドルの関税払い戻し金を受領しており、第4四半期に追加の払い戻しは見込んでいません。また、経営陣はこの還付収入が2027年には再現されない点に注意を促しました。

タコの買収資金は、金利約5.25%のタームローン債務14億ドルにより調達されました。第4四半期開始時点のプロフォルマ純有利子負債倍率は約2.5倍でした。経営陣は、配当の継続、自社投資、好機をとらえた自社株買いを支援しながら、24カ月以内にレバレッジを通常の1.5倍〜2.0倍の範囲に縮小することを目指しています。

リスクと注視点

• プール市場の最終需要は2027年も軟調が続くと見込まれており、経営陣は地域別、新築、リフォーム、買い替え需要別の前提条件を確定させていません。
• プール部門の2027年成長フレームワークは、同社からの出荷が実売（セルスルー）と一致するように流通在庫が安定して推移することを前提としています。
• 飲料・食品分野の顧客による設備投資の延期が続いており、フロー部門の短期的な成長を制約しています。
• 住宅向けウォーター・ソリューションズ事業は、住宅着工件数の低迷や住宅ローン金利の上昇により引き続き圧迫されています。
• 2026年に計上された約4,300万ドルの関税還付金は、2027年には再発しない見込みです。
• タコ買収によりレバレッジは高まりますが、経営陣は堅調なフリーキャッシュフローが今後24カ月間のデレバレッジを後押しすると期待しています。

アナリスト質疑応答の要点

• プール部門の市場シェア：経営陣は、2027年のセルスルー想定額（14億5,000万ドル）は正式な成長目標ではなく出発点に過ぎないと述べました。ペンテアは失ったシェアの奪還を目指しますが、より詳細な見通しは通期ガイダンス公表時に提供する予定です。
• プール部門の価格設定：同社は販売店に対し、2027年に3%〜4%の全般的な値上げを行う方針を伝えました。経営陣は価格改定がインフレを相殺すると見込んでおり、市場シェア戦略は値引きではなく、販売店支援、サービス、品質、ターゲットを絞ったマーケティングに基づいていると説明しました。
• 地域別のプール事業戦略：ペンテアは、エネルギーコスト、気候、プールシーズン、製品需要の違いを反映するため、7つの地域ごとに製品ポジショニング、技術サービス、販売店研修を最適化しています。
• タコの成長性：経営陣は、2026年の20%超の成長に続き、2027年もタコの売上高が2桁成長すると予想しています。商用および産業用市場が主な牽引役であり、住宅向け売上高は1桁台半ばのペースで成長しています。
• 利益率：ペンテアはフロー部門およびウォーター・ソリューションズ部門において複雑性削減（業務単純化）の取り組みを継続しています。経営陣はさらなる利益率拡大の機会を見込んでいますが、2027年のセグメント別正式目標は示していません。
• 資本配分：タコ買収に伴いデレバレッジが優先事項となりますが、ペンテアは自社投資の継続、配当維持、機動的な自社株買いを行う柔軟性を維持していると経営陣は述べました。

決算説明会文字起こし全文

決算説明会の完全なトランスクリプト

経営陣による説明

Operator

Good day, and welcome to the Pentair Third Quarter 2026 Earnings Conference Call. [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the conference over to Mr. Jeff Thompson, Vice President of Investor Relations. Mr. Thompson, the floor is yours, sir.

Jeff Thompson

Thank you, operator, and welcome to Pentair's Third Quarter 2026 Earnings Conference Call. On the call with me are John Stauch, our President and Chief Executive Officer; Bob Fishman, our outgoing Interim Chief Financial Officer; and Bob Hau, our incoming Chief Financial Officer effective November 1.

On today's call, we will provide details on our third quarter performance as outlined in this morning's press release. On the Pentair Investor Relations website, you can find our earnings release and slide deck which provide a reconciliation of differences between GAAP and non-GAAP financial measures that we will reference.

Any statements made during our presentation today about Pentair's anticipated financial results are forward-looking statements subject to future risks and uncertainties, such as the risks outlined in today's earnings release and Pentair's filings with the Securities and Exchange Commission. Actual results could differ materially from anticipated results.

Following our prepared remarks, we will open the call up for questions. Please limit your questions to 2 and reenter the queue to allow everyone an opportunity to participate. I will now turn the call over to John.

John Stauch

Thank you, Jeff, and good morning, everyone. We appreciate you joining us today. First, let's begin with an executive summary on Slide 4. We delivered a solid third quarter with sales inside of our guidance range and adjusted operating income and adjusted EPS exceeding our expectations. Each of our 3 segments contributed to the quarter.

Flow and Water Solutions continued to deliver sales and segment income growth, along with meaningful margin expansion. In Pool, we completed the previously communicated channel inventory destock, an important milestone that positions the business on a healthier foundation as we enter 2027. We also completed the acquisition of Taco Group Holdings on October 1. Taco adds a high-growth platform to Pentair and expands our presence in attractive commercial infrastructure and multifamily residential end markets.

Finally, Bob Hau has been announced as Pentair's Chief Financial Officer. Bob brings significant public company finance leadership experience, and we are excited to welcome him to Pentair. I also want to thank Bob Fishman for coming back to serve as the interim CFO this past quarter. His steady leadership provided an important continuity during the CFO transition, and we greatly appreciate his continued support and commitment to Pentair.

Bob Hau how has been working closely with Bob Fishman over the past 6 weeks to ensure a smooth transition and will officially assume the CFO role effective November 1. Overall, our third quarter results demonstrate the underlying strength of our portfolio and the continued execution of our strategy. Please turn to the Q3 overview on Slide 5.

Turning to our third quarter results. Sales were $976 million, adjusted operating income was $242 million and adjusted EPS was $1.18, above our guidance range to approximately $1.05 to $1.08. The year-over-year comparisons primarily reflect the previously communicated Pool channel inventory destock. This was a temporary impact and aligns channel inventory with current demand.

Beyond that dynamic, we saw strong execution across the portfolio. Flow and Water Solutions both delivered sales and segment income growth as well as return on sales expansion. Pool exceeded our expectations for both top line and income. Adjusted operating income in the quarter included approximately $8 million in tariff refunds, significantly below the $35 million received in Q2.

These refunds benefited the quarter, but they do not change our view of the underlying operating performance or the progress we are making across the businesses. Cash generation also remains strong. We generated $153 million of free cash flow in the third quarter and $620 million through the first 9 months of the year. Our Q3 performance was ahead of our expectations and gives us increased confidence in our execution as we close out the year. We are reaffirming the midpoint of our previous full year guidance of $4.70.

Please turn to Slide 6 for an update on the Taco acquisition. We completed the acquisition on October 1, and we are excited to welcome the Taco team to Pentair. Taco is a high-growth platform with a strong brand, differentiated technology, attractive customer relationships and meaningful opportunities for continued growth and margin improvement.

The business is performing ahead of our previous expectations and is entering 2027 with significant momentum. Taco's estimated 2026 sales are approximately $560 million, representing growth of roughly 23% from 2025. For 2027, we currently expect sales of greater than $620 million or growth of more than 10%. EBITDA is estimated approximately $90 million in 2026 and greater than $105 million in 2027, which would represent mid-teens growth.

Beyond the near-term financial contribution, we see compelling opportunities to accelerate Taco's growth. Its commercial and residential capabilities, established channels and expertise in water circulation and hydronic flow control are highly complementary to Pentair. The combination expands our customer reach and creates opportunities to bring broader, more complete solutions to the market.

Importantly, Taco fits squarely within our disciplined approach to capital allocation. We expect the acquisition to be accretive to adjusted EPS in 2027 and to accelerate Pentair's sales and EBITDA growth, and we expect to delever rapidly due to our strong operating cash flow generation.

Now let's turn to the strategic rationale and benefits of the Taco acquisition on Slide 7. As we introduced last quarter, Taco strengthens Pentair strategically in several important ways. First, it creates a broader water management platform by extending our capabilities into water circulation and hydronic flow control, Taco adds another leading brand to our Water Solutions portfolio and complements our existing residential and commercial pump businesses.

Second, Taco provides Pentair with additional growth engine. It increases our exposure to attractive end markets, including HVAC, data centers and related infrastructure development. Taco's portfolio is well aligned with these secular trends and with Pentair's broader focus on smart sustainable water solutions.

Third, the acquisition significantly strengthens our presence in commercial and institutional applications. Taco has established positions in data centers, schools, hospitals, universities, commercial buildings and other mission-critical water and HVAC systems.

Fourth, Taco expands our access to specification-driven aftermarket revenue. Its large installed base of pumps, valves and controls generates ongoing replacement, maintenance and upgrade demand, creating an attractive source of recurring revenue. Finally, the combination creates meaningful cross-selling opportunities Pentair and Taco of complementary products and channels, giving us the opportunity to broaden customer access, deepen channel relationships and bring combined solutions to customers. For all of these reasons, we believe Taco is an excellent strategic fit and is aligned with both our long-term strategy and our disciplined financial return criteria.

Let me now provide an update on Pool on Slide 8. We First, we're pleased to announce Josh Cowley as Executive Vice President and Chief Executive Officer of Pentair Pool, reporting to Demon Wiggins. Josh brings 25 years of leadership experience, deep industry expertise and a proven track record of driving growth, strengthening the organizations and improving business performance. We believe his experience and leadership will be a great fit as we continue to build on the strong foundation of our pool business, and position it for long-term growth.

Shifting to the business performance. With the channel inventory destock complete, our focus is firmly on execution and returning the business to higher growth. We have a clear strategy built around 4 pillars with one overarching goal, putting dealers at the center and delivering elite customer experience.

The first pillar is to outsell. We are strengthening coverage and local execution to outgrow the industry, improve customer acquisition and retention and reinforce Pentair Pool as the industry's most trusted partner. We've added resources to our inside sales team as well as started to build out our regional structure, including enhanced regional reporting and targeted marketing programs designed to enable higher levels of dealer engagement.

The second pillar is the [ down ] support. We intend to differentiate Pentair through an elevated customer experience by providing education support across the entire customer journey. In Q3, we added capacity in critical areas to reduce call hold times and provide expertise to pool professionals. The third pillar is to deliver quality. We are working to make quality an even stronger competitive differentiator by enhancing our end-to-end quality management system and consistently delivering the performance our customers expect for Pentair. And when we don't meet that level of expectation, we will make it right. During the quarter, we made investments in the quality organization, including capital expenditures within our testing processes.

The fourth pillar is product excellence. We are focused on competing effectively across our core product categories, delivering differentiated value and creating a more visible pipeline of customer-led innovation. We've added resources to seek input from pool dealers to simplify their work and deliver a better experience for our pool owners.

These 4 pillars are designed to work together, better coverage, stronger support, consistent quality and differentiated products should deepen our customer relationships and strengthened Pentair Pool's competitive position. While it's still too early to provide formal guidance for 2027, I want to provide some context around the pool business because we believe the underlying dynamics are important to understand.

We estimate full year sell-through in 2026 will be approximately $1.45 billion, up 2% to 3% versus 2025. At the same time, channel inventory has been reduced significantly, particularly following the inventory actions in the second and third quarters. This distinction is important. The decline in our 2026 reported pool sales was driven primarily by the channel inventory reset, not by a corresponding decline in sell-through.

With the inventory adjustment now behind us, we entered 2027 from a healthier starting point. And importantly, our growth expectations for next year do not anticipate market recovery. We expect sell-through next year to remain about flat to this year at about $1.45 billion with more modest price increases offsetting anticipated continued soft market conditions. This would mean approximately $180 million of year-over-year sales growth by about 14% versus our forecasted sales number for 2026. As 2027 Pentair sales mirror sell-through sales, reflecting steady channel inventory.

We also expect to maintain our strong profitability with Pool delivering approximately 30% return on sales for full year 2027, while continuing to invest in innovation, our brand and our industry-leading position. We are going to continue to compete for growth. And with the strength of our brands, the efforts we are investing in, Josh's leadership and new product innovations that we expect to be able to return to volume growth in 2027 and beyond. We'll provide a more definitive 2027 outlook during our Q4 earnings and 2027 guidance call early next year. With that, I'll turn the call over to Bob Fishman to discuss our third quarter financial performance in greater detail. Bob?

Robert Fishman

Thank you, John, and good morning, everyone. Let's start on Slide 9. As John mentioned, we reported sales of $976 million, adjusted operating income of $242 million, ROS of 24.8% and adjusted EPS of $1.18, above the high end of our Q3 guide of approximately $1.05 to $1.08. Core sales were down 5% year-over-year as an 18% decrease in Pool more than offset 1% growth across both Flow and Water Solutions.

Moving to adjusted operating income. The expected Pool volume decline drove headwind year-over-year. Price offset inflation and we delivered productivity savings of $15 million. We received $8 million in tariff refunds in the quarter, which were previously anticipated to be received in Q4.

Please turn to Slide 10. Flow sales were up 4% year-over-year to $262 million. Sales were modestly below expectations due to delayed spending in food and beverage. We are very pleased with the performance across the remainder of the portfolio, which delivered double-digit sales growth, including strong performance from the Hydra-Stop acquisition. Segment income grew 15%, and return on sales increased 250 basis points to 26%, driven by strong productivity performance and the acquisition of Hydra-Stop in Q3 last year.

Please turn to Slide 11. In Q3, Water Solutions sales increased 1% to $422 million. Core Water Solutions sales grew 1% as commercial sales increased 4%, offsetting an anticipated reduction in residential due to end market headwinds. We are excited about the performance and trajectory in commercial where the focus on large strategic accounts and convenience stores offers runway for continued growth. Segment income grew 16% to $121 million and return on sales increased 370 basis points to 29%, driven by disciplined pricing and productivity. Tariff refunds totaling $6 million provided the largest benefit across the 3 segments.

Please turn to Slide 12. In Q3, Pool sales declined 18% to $291 million, which was better than expected. The previously communicated channel inventory reduction has now been completed which we believe positions us for significant growth for our Pool business in 2027. Segment income was $72 million, down 38%. Return on sales decreased to approximately 25%, which reflects the negative impact of volume leverage, inflation and investments in the growth initiatives described by John to deliver best-in-class customer experience.

Please turn to Slide 13. Our balance sheet remains strong and continues to provide optionality to deliver shareholder value. Our net debt leverage ratio was 1.4x at the end of Q3. As communicated earlier this year, we increased our dividend by 8% and achieved our 50th consecutive year of dividend increases, making Pentair a dividend king while maintaining our dividend aristocrat status. Our significant annual free cash flow generation has enabled us to strategically deploy capital via debt paydown, dividends, share repurchases and strategic acquisitions.

I would also like to welcome Bob Hau to Pentair. I have been working closely with Bob since his arrival, and I'm excited about the leadership that he brings to the company.

Robert Hau

Thank you, Bob, and a special thank you to you and the team for assisting with the transition over the past 6 weeks. I'm excited to be joining Pentair.

I will now discuss our outlook on Slide 14. For the full year, we've increased our confidence and reaffirmed the midpoint of our previous full year guide. We expect adjusted EPS to be approximately $4.70 and also for the full year, we expect total Pentair sales in fiscal 2026 to be down approximately 3%.

We expect Flow sales to be up approximately mid-single digits. Water Solutions sales are expected to be up approximately high single digits, including the impact of Taco, with core sales approximately flat, and Pool sales are expected to decrease approximately 18% to 19% for the full year. We expect total Pentair adjusted operating income to decrease approximately 6%. We expect price to offset inflation and productivity of approximately $55 million, net of volume deleverage and pool growth investments. While we have received $43 million of tariff refunds year-to-date, we do not expect further refunds in the fourth quarter.

As a reminder, we completed the Taco acquisition on October 1. We financed this acquisition with $1.4 billion of debt of term loans at approximately 5.25% interest rate. Our pro forma net leverage calculation is approximately 2.5x at the beginning of Q4. For the fourth quarter, we expect sales to be up approximately 7% to 9%, inclusive of the Taco acquisition.

Core sales are estimated to be down 2% to 3%. We expect flow sales to be up approximately low single digits, which reflects the continued headwinds from the food and beverage business. We anticipate Water Solutions sales to be up approximately 40% with core growth of low single digits. Pool sales are expected to be down approximately 12% to 15% due to a difficult top line comparison versus the prior year.

We expect fourth quarter adjusted operating income to be up approximately 1%. We are also introducing adjusted EPS guidance for the fourth quarter of approximately $1.15. The full year guidance reaffirms the midpoint communicated on our Q2 2026 earnings call and reflects confidence in the actions underway to close this year strong and carry momentum for the expected robust growth in 2027.

We plan to remain disciplined with our capital and have additional flexibility to strategically allocate additional capital to areas with the highest shareholder returns. Following the Taco acquisition, we will prioritize deleveraging our balance sheet supporting our dividend and investing in our key growth initiatives. We will also continue to opportunistically repurchase shares in line with our commitment to returning capital to shareholders. I would now like to turn the call over to the operator for Q&A, after which John will have a few closing remarks. Operator, please open the line for questions. Thank you.

Operator

[Operator Instructions] The first question we have will come from Bryan Blair of Oppenheimer.

質疑応答

Bryan Blair

It sounds like the -- your baseline or preliminary outlook for Pool's growth next year. It is largely unchanged, just working off of a slightly higher base. Within that, just to level set, what are you assuming for full market share? Is that stabilizing at that current level? Or is there any recapture of the -- I believe you had framed it as 2 or 3 points of share loss that took last?

John Stauch

Bryan, really, what we're trying to do is say, if we were to remain flat to the current year's sell-through, it would be $1.45 billion. Clearly, that's the starting point. We would expect to do better. We don't yet have the market dialed in for 2027 and we're going to compete for growth. We're going to compete to recover any lost share and continue to grow share. We don't know what that looks like yet. We're just trying to get people's head around the 1.45 and how that moves over and creates that mid-teens growth rate and then give you a starting point to what the ROS should do to model 2027 performance. Little better insight into share value, markets, everything else when we come forward with our full year earnings guidance in early February.

Bryan Blair

That's perfectly fair. I appreciate it. Your team sounds quite bullish on Taco's operating momentum. If we think about the 2027 outlook that you provided at least the preliminary one, how should we think about growth rates on the commercial and industrial side of the business relative to residential? And then as we look forward, how meaningful should cross-selling be in terms of sustaining take-out growth and also accelerating growth for legacy center?

John Stauch

Yes. I think first of all, we're teeing up double-digit growth for Taco next year off of the strong greater than 20% performance this year. A lot of that's come in to the commercial and industrial side, but they are growing mid-single digits on the residential side as well. I think that's a starting point again for next year. We have a significant funnel of opportunities, and we're working through that funnel to see how we build our confidence rate for how good Taco could be next year.

As far as the synergies, we've identified significant opportunities through their rep channel and how they go to market and opportunities to use the complementary portfolio to satisfy key demand. Don't have it yet quantified. We will, again, as we head into next year, give you a better number. First is to do no harm to Taco and make sure we take advantage of their business model and their tailwind. And then we start to add some of the Pentair growth to it. And I think, again, it's a really, really exciting.

Operator

Next, we have Brett Linzey of Mizuho.

Brett Linzey

Yes, quick question on mix. I'm curious on the sales line within pool. Were there any mix dynamics or trade downs that you saw through the quarter? And then I guess, how do we think about mix going forward in the face of the consumer backdrop and then also the potential reentry into some of the lower tier end as you maybe go back into that marketplace and try to win back some share?

John Stauch

Yes. So first of all, I mean, I think we're encouraged by mid-single-digit sell-through in the quarter in Pool, not the high single digits we're used to, but we're back in mid-single digits. So we're pleased by that. As a reminder, we still had a lot of inventory burn in the quarter. That's reflected in what we'd say is the lower margin. And we're also investing significantly for sales, marketing and targeted marketing actions.

I don't think there's a mix issue, Brett. I think we feel good about our product lineup, and it's about making sure that our customers and either if you're a service or a new pool builder, understand the value of our products, and you're competing effectively with our products for those opportunities. And I feel good about the progress in Q3, but we're a long way from declaring victory yet.

Brett Linzey

Yes. No, that's helpful. And then maybe just a follow-up on price and costs. Just thinking about the inflationary uptick we've seen, obviously, some movement on tariffs. But thinking about price cost near term, what your hedging position looks like over the next couple of quarters and at least the front part of '27? Any preliminary expectation on how to model price cost?

John Stauch

Yes, we're going to take IEEPA recoveries and move them off to the side and make them clear for you, ourselves and our customers. And then we have a strong belief that we will offset inflation next year cost with pricing as we've done historically. We won't be able to do that and recover IEEPA twice, right? So we'll make sure that, that clarity is there.

But we've had some products running up in inflation, and then we've had some positive movement in some other ways, as you would expect, across the global supply chain. But overall, our initial indications are we should be able to recover on the cost side price for 2027. I appreciate the detail.

Operator

Next we have Nathan Jones of Stifel.

Adam Farley

This is Adam Farley on for Nathan. Staying on the pool business, how do you think about pricing within the pool business, just given all the dynamics, do you think you'll have to [ eat ] some of the additional costs to compete per share?

John Stauch

No, I don't. I think we believe that we will compete and recover any Listen, when we talk about share, we would acknowledge that we have the most amount of existing pool pads over -- in the country or inside the United States just because of our strong positioning from decades and when we talk about potential share loss, it's a onesie and twosie product on an existing pad that we feel has migrated at times to a more competitive offering or a dealer who has switched alliances.

We think by going out and making sure that our products are understood and that they are like-for-like replacements to products we had and reminding consumers that the great experience they've had under the Pentair brand that we can continue to compete effectively for that. It is really about we were focused on new pool builds and we weren't as focused on where those existing pads were.

And a big part of this regional structure and the investment we're making state by state with our dealers is to align our opportunities to where the long-term growth resides. And right now that is in the aftermarket in service, and that's why we're going to be more competitive in that area. It's not a pricing play. It's a targeted marketing approach. It's making sure that the customers our customers are well trained. It's making sure that we're providing the services that differentiate them and that's part of the investment that we're making. It's not a pure net price play.

Robert Hau

Just -- it's Bob Hau. I'd point you to the conversation that John had in his prepared remarks, we've talked about in the past, the 4 pillars for the get well plan for pool around out selling out supporting -- delivering on quality and project excellence. It's supporting our dealers, putting them at the center of everything we do and competing based upon our offering and our service, it's not necessarily a price play.

Unknown Executive

And for overall '27, in line with our communication to the dealer channel, we went out with 3% to 4% price increases generally, which is more moderate versus last year. But we think that, that's a good position to cover the inflation, as we mentioned, and position us for the ability to support our dealers in a successful way.

Adam Farley

Understood. That's really helpful color. If we change gears and look at the Flow business, maybe could you just talk about some of the near and medium-term path to growth within this segment? Maybe specifically on the volume side and maybe some of the different market dynamics going on between residential and other markets within Flow?

Robert Fishman

Yes. Certainly, in Q3, we saw some headwinds from the food and beverage piece of the business. So think selling into the beer market as an example, we saw that as delayed spending. Overall, I'd say on the other pieces of the portfolio, we were very pleased to drive double-digit growth in the third quarter. So slightly below our expectations for Q3, but mainly driven by food and beverage delayed spending.

Operator

And next we have Robert Davies of Wolfe Research.

Robert Davies

I have 2. One was just on the confidence and clarity you have around where you are on that destock. I know you sort of said that with -- so -- just kind of -- if you could flesh out a little bit more where that sort of comfort level comes from.

And then the second one was just around the sort of targeting of the sort of mid- and small-sized pool builders. I'd just be curious how the initial conversations with those customers have gone? How receptive were they when you sort of went back and tried to sort of tap into them again? Any color would be great.

John Stauch

Sure. We'll tag team this one. Go ahead, Bob, take the first part on the inventory.

Robert Fishman

Yes. Our confidence around the destock comes from the information that we have -- we've seen roughly $280 million of destock over Q2 and Q3. So I think, call it, roughly $190 million of destock and $90 million in Q3. That puts us at an inventory position in the channel at the end of the third quarter, that's roughly $110 million lower than it was last year.

And then we -- when we look ahead to ending inventory at the end of the fourth quarter, we anticipate that we will be down versus the prior year, roughly $180 million in the channel inventory. And so that information, that type of sell-through that we're seeing puts us in a position for strong growth in 2027 when we use a flat [ 14.50 ] sell-through number.

This also includes the mid-single-digit sell-through that John talked about in the third quarter, and again, roughly mid-single-digit sell-through in the fourth quarter. So it's really that ending inventory position at the end of the year that gives us confidence that sell-in will equal sell-through in 2027.

John Stauch

As far as the conversation with customers, we've make sure that we've got a national accounts focus, primarily focused on the 2 largest distributors and making sure they're getting the service levels that they need. And then we've had a dedicated sales and account team on the all other and specifically making sure that all of the nonaffiliated distributor accounts are called on personally and that we're reminding them that we want them back and we want them part of the Pentair family and we're working with them one-on-one on ways to bring them back to our coverage and support.

And so it's going to be some of them are smarting on our desire to ask them to go to distribution and their choice not to. They might be a little bit longer coming back, but we're pretty pleased with some of the progress on opening up the buying opportunities across those independents and starting to make some progress on recovering the losses associated with those accounts.

Operator

Next, we will have a question from Brian Lee of Goldman Sachs.

Tyler Bisset

This is Tyler Bisset on for Brian. Can we go back to the flow segment? I know sales came in a bit lower than expected due to some delayed spending in food and beverage. 4Q only expected to be up low single digits. And I know last quarter, you called out some key wins across data centers, commercial buildings, desalination market. So curious how these wins are progressing in terms of revenue conversion and whether you had any incremental wins this past quarter? And then any expectations when that delayed spending across food and beverage could be realized? Is that like a first half of '27 event?

John Stauch

Yes. I think there's 2 things happening. There's also a sustainable process solutions business that we have, which as biogas and waste management recovery. And if you recall, we had a really, really strong pipeline as we ended last year.

So we've got a year-over-year comparable there. We're very encouraged about the continued order rate in that particular side of the business. But you're going to have a little bit of lumpier projects in that side. But we're -- outside of the food and beverage, which we're not counting on a significant recovery next year. We're seeing some pretty good infrastructure wins. We're seeing some pretty good municipal wins, and we're really building backlog as we head into 2027.

Tyler Bisset

Super helpful. And then just on the Taco acquisition, should we expect any meaningful changes in working capital or CapEx requirements? And how are you thinking about capital deployment from here? And how fast do you expect to delever following the acquisition?

Robert Hau

Yes, Tyler, it's Bob Hau. From a standpoint of working capital and CapEx, I think current outlook would be -- remains consistent with how the kind of combined company has been operating. Obviously, we'll bring take into the fold and they spend a bit more capital than we do. But overall, well within our capacity and continue to generate strong free cash flow and a very good strong balance sheet, from a cap deployment or capital allocation philosophy absolutely remains intact. We'll continue to invest in the business to grow it organically, maintain our investment-grade rating is -- continues to be a port and will remain a priority of ours.

And given the strong free cash flow we have -- we have a direct path to delever, as we climbed as I said in my prepared remarks, on a pro forma basis. We start the fourth quarter at about 2.5x or so. We'll delever over the next 24 months back into our more normal range of 1.5 to 2x and have a direct path to do that given the cash generation of the company. So we feel good about our current position and our ability to deliver quickly.

Operator

And the next question we have will come from Andy Kaplowitz of Citigroup.

Andrew Kaplowitz

Maybe just focusing on margin for a second in Flow and Water Solutions. Good margin performance continues. So maybe update us where you are now on your 80/20 initiatives and opportunities for continued margin expansion in those segments in 2027?

Robert Fishman

Yes. I would say we were also very pleased with the ROS expansion even when you exclude the tariff refunds for the Water Solutions business, the ROS margin expansion was significant. In pieces of each of those 2 businesses, we're still running complexity reduction plays. So there's opportunities in pieces of Flow and Water solutions to continue to expand the ROS, and that's the path that we're on, Andy.

Andrew Kaplowitz

And Bob, maybe just focusing on Water Solutions a little more. I think you said core up low single digits in Q4, you break down the businesses a little more and how they're faring. I think the U.S. was doing better than international. I assume that's still the case and how that kind of looks going into 2027?

Robert Fishman

Yes, very much so. So the commercial water side continues to grow mid-single digits and do really well for us. Residential still has the headwinds primarily due to low housing starts and higher mortgage rates. So a very similar story to what we saw in the third quarter.

Operator

Next, Joseph Giordano of TD Cowen.

Unknown Analyst

This is Michael on for Joe. Can you walk us through what's underpinning like the 1.5 pool guide for next year? Can you just lay the fact that between resi to commercial new build versus remodel and repair and replace? I would love to understand that better.

John Stauch

Yes, not there yet. First of all, it's 1.45. I just want to make sure we're clear. Our attempting goal there was to make sure that everybody starting from the 1.45 is the starting point, recognizing that, that's roughly this year's sell-through, which is modestly higher, call it, a few points higher than it was in 2025. And not be focused on our shipment numbers.

And the primary purpose of doing that was because we are expecting that this inventory level remains the appropriate level, and therefore, our sell-through equals our ship in next year. We haven't yet talked to our dealers as we always do about where they think the opportunities lie and how do we position ourselves.

And so we don't have next year's numbers dialed in from a perspective of new pool builds and what that mix looks like by state, by region and also where we're going to be from a market perspective in aftermarket service. We are really pleased and excited about the new regional structure we have. We split the 7 selling regions across 2 divisions and it allows us to get more local into the key states, and it allows us to keep the focus on what we need to do differently across those states to grow in a differentiated way. We'll have all that when we talk to you after the end of Q4, and we'll give you a clearer path to the mix of how we expect to deliver next year's Pool expectations.

Operator

Next, we have Jeff Reive of RBC Capital.

Jeffrey Reive

I want to follow up on the regional sales structure, that's part of your 4-pillar growth strategy for Pool. Can you just help us understand what's actually changing here? And maybe what was wrong with the prior structure and what you're doing differently now?

John Stauch

Yes. I'll take -- I'll give you a couple of examples. I appreciate the question. Take something like a variable speed pump and the different features we have. Depending on your energy dynamics or use of energy, that cost savings to a consumer varies widely, from what the cost of energy might be in the Northeast or Southeast versus what it might be in an Arizona or a Texas or California. And we want to make sure that we're targeting and marketing in the position and the value propositions of products effectively.

You have markets like Florida that are very heavy heat orientation with no natural gas. So you got to compete differently for products in different regions. And if you're running a national strategy both on marketing campaigns or targeting a product, you missed the local nuances that you need to service your dealers on. This regional structure has always been in place at the sales level but we weren't making the investments on the service side, both technical and field service capability and dealer training differently across those 7 core regions.

And we think by listening to what the needs are state by state, we're going to be able to effectively invest and go gain significant share from listening to our local dealers. That's the purpose of the structure, like California and Arizona that are open 12 months a year and you got regions like the Northeast, Midwest that shut down pools for part of the season. And you got to have different programs and different support mechanisms for those particular pool builders.

Jeffrey Reive

All makes sense. Maybe just as a follow-up, as you're kind of empowering your regional leaders to make more localized decisions, how do you maintain the discipline of 80/20 and maybe avoid reverting to the complexity that you spent the last several years eliminating?

John Stauch

Yes. I mean, listen, first of all, 80/20 is a very good tool, and I'm a huge fan of the tool. I'm being honest, in this case, it was probably misutilized. -- as we've talked about for purposes of driving some efficiencies and some systems changes. But the 80-20 says you have valued customers and most valued customers. And the only difference is how you treat them slightly differently.

You don't fire customers ever. Customers choose to be with you or leave you based upon the set of parameters that you give them to how you're going to partner with them and service them. So I still think all of those come from a more central led organization structure, talking about what your discount rates are to a dealer, how you balance the types of dealers that are more value to you? What is those accounts worth for you from a growth perspective, but you execute very locally based upon those parameters.

And I think that it's a combination of using the tools appropriately and making sure we're empowering that salesperson to do what they need to satisfy that dealer that's going to go get that trust back from the dealer network. I still think we have the most enviable brand in the industry, and I think it's really living up to the brand promise day-to-day. That's our goal.

Operator

[Operator Instructions]. Next, we have Shaun Calnan of Bank of America.

Shaun Calnan

Just first, how should we think about the long-term trajectory for the operating margin in the pool business following the expectations for 30% next year. Are there any onetime investments next year? Or should we think about this as sort of the long-term target to build off of going forward?

John Stauch

Yes. I'll start with -- I arbitrarily said it. I just say that when we had the inventory destock and we reset, I still think we've got the premium brand. I think we've got the superior product offering. I think we have the best selling organization and the service organization in the industry. And I think all of that deserves a premium to competition.

So that's where the 30 comes in from an ROS perspective. I think as we go forward, we're expecting volume contributions to really help leverage and drive margin performance. And then we expect to invest a portion of that back into the business again, around marketing campaigns, NPI innovation and outservicing our competition.

And I still think having a healthy 3 in front of it is the right answer, but I don't think it has to grow disproportionately every single year to add value. I think that this is a high single-digit growth contributor when the market is set up where new pools are actually increasing and the aftermarket pads continue to grow. And so I think between its high-end growth rate and its margin rate, it can contribute effectively to Pentair's portfolio.

Shaun Calnan

Okay. Great. And then just a follow-up on capital allocation. How should we think about how does the pullback in the share price impact your decision to pay down debt versus repurchase shares at this point?

Robert Hau

Yes, again, this is Bob Hau. Certainly part of the equation from a capital allocation standpoint, given the strength of our balance sheet and our free cash flow we have choices to make, but are largely an and choice, not an or. In other words, we can invest in our business organically, we can look at value-accretive acquisitions we can continue to increase our dividend and we can do share repurchase. It's about balancing those along with our commitment to maintain that strong balance sheet and delever. But we think we can do all of the above very effectively over the course of time.

Operator

Well, at this time, we're showing no further questions. We'll go ahead and conclude the question-and-answer session. I would now like to turn the conference back over to Mr. Stauch for any closing remarks. Sir?

John Stauch

Thank you for joining us today. In closing, I'd like to reinforce some key takeaways on Slide 15. First, the Pool channel inventory alignment is now complete. With channel inventory better aligned with demand and a clear growth strategy centered on our dealers and customers, we believe Pool is positioned for robust growth in 2027 without assuming a recovery in the end markets.

Second, the acquisition Taco adds a high-growth platform to Pentair. Taco expands our presence in attractive commercial and institutional markets, strengthens our water management capabilities is expected to be accretive to adjusted EPS in 2027. Third, Flow and Water Solutions continue to execute their profitable growth strategies, delivering sales and segment income as well as margin expansion in the third quarter.

As we look to 2027, we will also manage through the year-over-year impact of approximately $43 million of tariff recoveries recognized in 2026 that we do not expect to repeat. Overall, our third quarter performance reinforces our confidence in Pentair's long-term strategy. We have a strong portfolio, leading brands, attractive exposure to secular water trends and multiple opportunities to create long-term shareholder value.

Thank you to our Pentair employees for their continued dedication and execution and thank you to our customers and shareholders for their ongoing support. Thank you, everyone. Have a great day.

Operator

All right. Thank you, sir, and to the rest of the management team for your time also. The conference call has now concluded. At this time, you may disconnect your lines. Thank you. Take care, and a very best day, everyone.