Okay. Moving right along here with Nick and John from Pentair. Guys, thanks for making it.
Thanks for having us.
Fun dinner last night.
I wore a sport coat for you.
Yeah, it looks nice.
Thank you.
Looks really sharp.
Thank you.
Usually, you're a little more disheveled than that.
Yes.
You're really pulled it together today, whatever that means. Maybe just start at the top here. I would assume you guys don't really have any. Like, maybe just Middle East and any exposure there, just to kind of check the box on that one in the macro to get that kind of out of the way.
Yeah. Really no exposure in the supply chain to the Strait. No near-term concerns with what's going on over there as far as supply chain goes.
Right. I guess.
Steve, I'll just quickly. We did confirm our guidance at Investor Day on March 4th, both for Q1 and full year, and there's no new updates to that, either of those two guidances. We'll just, you know, make sure that's understood.
Okay. Nothing in the last two weeks necessarily.
No.
No.
Yeah, that's right.
Can you just talk about starting with Pool, just talk about what you're seeing in the various disciplines, new, aftermarket remodel. Start there.
Yeah. About 80% of our pool revenue, as you know, Steve, comes from the install base. With an aging install base, we continue to provide valued products and services to our distributors, to our dealers, and we feel good about those relationships. Our sticky products, particularly with the adoption of automation in the U.S. in the pool Pad, we're continuing to see an increase in automation adoption. Our automation platform is really sticky. It brings our products along. Like I said, we continue to see that adoption increasing, so we feel pretty good about that.
As far as your guidance this year on, you know, new versus remodel and aftermarket?
Yeah.
How do we kinda see that from a volume perspective?
We modeled effectively a similar 2026 to 2025 as far as the volumes of new pools go. We did see a little bit of an uptick the back part of 2025 as far as permits goes. For new home construction, we'd expect to see a decent attachment rate for pools with that new construction. When we thought about 2026, we thought decremental volume for the first quarter, and then we start to see that volume pick up with the seasonality of the pool builds for about flat volume 2026 over 2025 with a couple points of price.
Maybe just talk about the age of the installed base.
Mm-hmm.
how we should see this phasing when you think about, you know, the big boom that happened during COVID. Maybe talk about the useful life of the, you know, of the bigger chunks of that pool pad.
Sure.
how we could see that play out, how that gets updated and
Yeah. A little over 5 million pool installed base in North America with an approximate average age of that installed base of about 23 years for pools. Equipment life anywhere from five to 10 years. You did see an install boom during COVID. If you think about that COVID boom of 2020, 2021, with equipment life of five to 10 years, you should expect to see that repair, replace cycle starting to pick up here in the near term. Again, we didn't model that uptick in 2026. We modeled it much like 2025 as far as the volume goes.
Can you just talk about the various parts of the Pool Pad, and maybe in that five to 10 year range, you know, what's at the lower end, what's at the higher end, and what is kind of the richest, you know, replacement for you guys when it comes to the components of the Pool Pad?
It'd be the upgrades in automation, right?
Okay.
As people automate their pool pads, that generally drives the attachment or stickiness to our entire pool product portfolio. Really excited about the continued adoption of automation. Even if people adopted automation a few years ago, 5+ years ago, the upgrades that are available, much like if you bought an iPad five years ago, you might not even be able to put the latest apps on your iPad, right? Because the technology has just grown leaps and bounds. Our automation technology is similar in that when that customer experiences the increase in the ability to control their whole pad, their heat, their lights, their flow, people really like that app and the stickiness that it brings. We're excited about the continued adoption of automation and the repair and replace of automation.
To answer the second part, Steve, filters last the longest.
Mm.
Think about 10-15 years on a filter. Talking about the vessel itself. The filters inside them get replaced every six to 12 months. Probably on the shorter life cycle, you'd have things like chlorinators and the IntelliChem types of dosing for chemicals. Pumps would be. Heaters are somewhere in between, depending on the pump you bought and the life of that pump.
I think in your long-term guidance, you guys were pretty cautious on, you know, resi recovery. Maybe talk about the mindset there and what is your calculus, you know, around that? What's embedded, and then
Yeah.
Just talk about that hedge, if you will.
For Pool in particular, we did not assume a robust residential recovery in our guide through 2028 back at Investor Day just a couple weeks ago. What we did assume was a couple points of volume, a couple points of price, and a little bit of share take between now and 2028. Very modest recovery from a volume perspective built into the guide through 2028.
Right. Maybe just taking a step back, 'cause it kinda, like, jumped the gun getting into the wonkiness of the Pool Pad. Maybe what do you want the message to be coming from?
Yeah.
Coming from the Investor Day?
Yeah, Steve, you know, I talked to you after our earnings call. You know, I intentionally tried to guide to what I thought was an acceptable Pool outlook that was inclusive of what people thought would be a difficult market or a fatigue around waiting for a residential recovery. I said, let's just accept that. Let's put Pool as we think Pool is going to come out, and let's have inside of the Pool number a continued investment, which we have to put into Pool for NPI, for sales and marketing, and brand building to make it and continue to have it be our best business. Let's share that the other businesses, Flow and Water Solutions, can more than offset what a, you know, 5% Pool growth rate would be in the year. We put together what I thought was a strong guide.
I think I actually have to reflect on that fed into fears about some, you know, thing going on in Pool, Steve. I want the message to be that there's nothing going on in Pool. We have a great business. That business is well-positioned for the long-term recovery of residential and high-end consumers who are buying pools. We have two other businesses that now have to demonstrate the strength of the portfolio, which is Water Solutions and Flow, and they're both going to have great years and contribute to Pentair while Pool invests in the longer-term future. That's what I wanted the narrative to be, and somehow that didn't come out the way it should have.
Right. You would look at the year as, you know, highly achievable, and then if we get a little bit of a resi recovery in the second half, it's, you know, that's upside for you guys.
Yeah.
Yes.
I want people to see the strength of the portfolio and the strength of transformation across the portfolio and start to see and build confidence that we're gonna have a lifting of organic growth as a company and begin to prove that one discipline out that we haven't proved in the past across the portfolio.
Okay. When we think about this resi recovery, what is kind of your targeted content, you know, for the pool pad? What if I was gonna replace the entire thing today and throw automation in there, what is the average ticket that you guys would be looking at?
Our sales would be roughly around $15,000 on a full PAD to the distributor.
Yeah.
It'd be marked up, and it would go through distributor and dealers and probably close to $35,000-$50,000 at the consumer level of a pool pad.
Right. The automation aspect of that, what is that kind of kicker to you guys versus what you may have gotten in the past?
We're probably roughly on average $3,000 to distribution, $6,000 at the consumer for the highest end automation unit.
Yeah.
You're probably gonna be. You know, our IntelliFlo 3 today can actually run a basic PAD. If you put in a new IF 3 pump, you can run a heater, lighting, and that pump all off of our app for free, right? That's within that spectrum. You're gonna be in the few thousand-dollar range to upgrade a basic PAD to some level of automation.
Your attachment rate on those upgrades now, like, that you think of, what are you seeing, obviously we're at a low level of replacement, but what is that attachment versus maybe, I don't know, pre-COVID?
Yeah, we're 98+ on an attachment rate.
Okay.
on IntelliCenter. When you get someone automate, they generally affiliate with what the app is that they put on or whatever the automation device is that they're automating to.
Okay. When we think about this dance with distribution, I guess I'll call it, where do inventories sit today with your distributors? Normal, low, high, and then follow up on that.
Yeah. Historically, we see variation in kind of sell in, sell out cyclically. You know, every quarter some goes up, some comes down. We would say that it's been pretty normal. Our early buy programs, we cap with our distributors. We don't allow them to go over a certain dollar amount for the early buy, and we were well within that cap last year.
Okay.
We plan to be again this year.
There's no real kind of like inventory to eat through. It's pretty normal. As sales grow, you know, for them, your sales should grow as well.
Yeah. I mean, we said in our Q4, you know, earnings call that we thought that we slightly outpaced. I mean, sell in was slightly higher than sell out, which is normal for what happens in early buy. What'll really be important is as the product starts to leave distribution into dealers in Q1 and Q2, and what's that build and what's the rate of pools, we'll start to identify did the industry get the buys right or did the industry, you know, be slightly more optimistic than they should have been.
Okay.
I think it's generally within normal trends, Steve.
More strategically and, you know, higher level, what is the relationship with somebody like, you know, PoolCorp right now? I know they're kind of pushing hard. They've got some competition coming in. You know, you guys are partners obviously to a degree, as well as supply and demand engagement. What's that like today, and how are you kind of assisting them in their efforts to-
Listen, the industry needs a healthy PoolCorp. We need a healthy PoolCorp. You know, I'm gonna do everything to work with Pete and the PoolCorp team to help drive sell through and help make sure the industry has the products and technology it has. I mean, I think if you're them and you're asking a Pentair who's a leader in the industry, we have to continue to grow the total available market. We have to have new innovation, new products that grow the TAM, so what we don't have is just people fighting over the existing TAM. That's our responsibility as an industry leader, and I understand that, and we're moving really fast to try to make sure that we continue to do that. We invented the variable speed pump. You know, we brought in LED lighting.
We brought in the dosing chemicals capability and the IntelliChem. We need to continue to have that innovation in the industry. I think the last couple of years, the supply chain tightening and all the aspects that's been going on in the realm of pricing and offsetting that. We haven't had that same level of innovation that we should have had. Now we've got some exciting products coming out here in 2026. We're gonna have exciting ones coming out in 2027, and that's our responsibility to the industry.
Is that something that's incremental investment that's fully embedded in the, you know, margin trajectory you guys put out?
That's right.
for the next three years?
Yes.
Okay. As far as measuring that kind of NPI, is there like a vitality index you watch or any you know any kind of KPIs we can look for as far as that vitality is concerned?
Yeah. We look at our percent of sales that's coming from new products. We look at age of products that are in the field, and then we listen to our customers. Where do they wanna see innovation? We listen to our dealers. Where do they wanna see, you know, increased automation, increased stickiness? What are some of the products or the adjacencies on the PAD that they think would drive value? We're trying to really drive a customer-obsessed view of both new technology development and introduction in our entire NPD life cycle.
I guess on the automation side, you talked about $150 million to $200 million dollar-like revenue opportunity there, I think.
Yeah.
at the Investor Day.
Over the cycle, yeah.
Is the attach rate on new pools, like every new pool put in has some degree of automation, or is that still?
It's still around 80%.
Okay.
that they're not.
Okay.
There are still some single body pools where someone makes the choice that, you know, they don't need the automation for the pool itself, and they choose not to. I mean, sadly, it's hard to go back and retrofit an automation, so we'd like that attachment rate to be 100%.
Okay. Can you talk about the pool dealer engagement model, what precisely you're kind of, you know, doing there?
Yeah, I mean, our pool dealers are the lifeblood of our pool business. I mean, the brand affiliations, we understand them as private business owners who are subcontractors to builders. Their reputation's on the line with every customer build. They rely on us, and one of the things that I don't think people really understand or appreciate is we've got 150 in-field specialists that are technology savvy that work with our key dealers and make sure they're side by side with them on buckets, on jobs, and fixing challenges and problems, and that's been a really value add to us. You know, we do that at our cost, embedded in our margins, and we help that dealer be successful when there's something technical that they can't figure out.
You know, if our products aren't living up to their expectations, we honor that with dealer swap outs at our cost because this is a sell the product industry. It's not a repair the product industry. What I mean by that is they're not looking to repair a pump. They're not looking to repair a heater. They're gonna sell it, and they're gonna get the margins. So if the product doesn't work, we take the product back within the warranty period, and we let them have full margins on a new install, which has always been the stickiness that we create with dealers. Again, that's all embedded in our margin profile and embedded in our cost model.
I think those are hard hills to climb if you're our competition to get that capability and have that capability in the field and also absorb that cost on behalf of your dealers, which is why even when we tend to lose a dealer, we tend to get that dealer back in a year or two timeframe because they realize the value of that customer service model.
Yeah, just to double click on that too. When we talk about the investments in Pool, for clarity, it's not just investments in products and NPD. It's investments in new customer service centers, new dealer centers, new servicing capabilities so that we bring in these dealers, train them on how to use our automation, how to use our technology, how to use our products and service it well, and that relationship with the dealers is extremely valued, and it brings a lot of stickiness to the Pentair brand with those dealers who are interacting with the end customer.
Just to be clear on the Pool PAD and kind of the whole value of that Pool PAD, on the replacement side and in the aftermarket, if you will, I mean, like, it's pretty rare for them to replace the entire PAD. Is that correct?
That's right.
It's usually something.
It's product by product.
It's usually product by product, right? Just to be clear on that. I haven't really heard of repair as much of a factor in this industry. I mean, with HVAC it is 'cause it's a.
Mm-hmm.
it's a unit that sits outside, and you can put a compressor or a motor or something in it. How prevalent is repair really in your Pool?
It doesn't tend to be the choice because of exactly what you said. Products tend to break at different times 'cause they're put in. They run independently. They combine to make a system, but they're independent products.
Right.
They're generally swapped out. They're not usually repaired. You might see some repairs on heaters.
Yep.
It's certainly the high-end heaters at the cost. Again, those are gonna be unique products to the original equipment manufacturer. Our two equipment manufacturing competitors will have their own product specs in there, and we'll have our own product specs. They tend to be our parts that are purchased to do that. Obviously, there's margins that are pretty high there. You got labor dollars that go into it.
Right.
Sometimes swapping it out is just a better answer.
Just remind us, as of the end of last year, how much of your business is new, and then how much is remodel, and how much is aftermarket of the pool business?
Yeah.
Percent.
About 70% of the business is going through aftermarket.
Okay.
A little over 70%.
Got it. Most of that is, like, I mean, we call it remodel, but most of that is like replacement.
Yes.
basic replacement.
Yes. Yes. Right.
Yeah, of parts. Okay, of the parts of the pool pad. Have to ask about competition. You know, there's been some discussion about lower end products coming in from China. Maybe if you could just address how you guys are defending your pretty strong moat.
Yeah. Do you mind if I answer?
Go ahead.
I would just say new entrants, Chinese or otherwise, is not new to the pool industry. This has been going on for years, and we've been able to demonstrate the ability to take price, deliver innovative products, and leverage our brand for a very long time with those entrants coming and going over the years. Certainly there are new entrants, but our ability and our relationships with our distributors and with our dealers remains really strong, and our pipeline of innovation is stronger than it was even just over the last couple of years. I think we feel good about our position in the market. Does that mean we're, like, high and mighty on our ivory tower and saying, "No one's gonna touch us"? Absolutely not.
Like, we have to continue to get better, we have to continue to innovate, and we have to continue to be a more valued provider to our distributors and our dealers. We've demonstrated the ability to do that, and we think we're gonna continue to do that.
Can you address it more specifically, like where you're seeing it today and then what kind of, you know, scale and size are these guys coming in at? Because to your point, it's not new, and this isn't, you know, billions of dollars here. We're talking, I think, you know, low millions of dollars, like very, very low millions of dollars. Maybe just a little more.
Yeah.
color.
Just to make sure.
Perspective.
Everybody understands the Pool business model really quickly is embedded in our net sales, so we sell on a gross basis. Think about close to very high teens, what we'd call discounts and rebates that we pass along to the channel. Those rebates go to distribution for the amount of volume that they sell, and then we sell to all distribution at the same dollar basis, and then we discount them at the end of the year based upon the amount of revenue that they move through the channel. Dealers are incentivized the same way, so when dealers buy from whatever distributor they buy from, they're going to get a rebate from Pentair.
The large builder side generally is always affiliated with an OEM brand, and it's very sticky because missing out on your rebates would be a loss in margin, perspective. Where the potential risk is in the replacement cycle to these competitors that we talk about is on a service tech who might not be affiliated with any brand. They're generally there for the water chemistry, maintenance of the pool, and they'll see an equipment that goes down, and then they're gonna make a decision how to replace the equipment. Those are where the challenge could be. That's probably a non-automated pool, and it's probably an aged pool, and it's probably a family that doesn't use the pool very often.
We've always said that we expected and we have seen about $10 million to $15 million of what I would say, decremental share loss in that aftermarket PAD to what we'd say a lesser like for like product would be. Primarily on filters and now rumored to be maybe on lower end pumps.
Right.
Pumps. I think the differential between the price of that competitive product to the consumer and ours or the margin to the dealer doesn't warrant the dealer to switch.
Right.
We gotta continue to fight from a standpoint of technology, proving the brand loyalty out and making sure that we stay on our toes.
Your total Pool sales, remind us, last year?
Close to 1.6, 1.5.
Billion.
Billion dollars.
Yeah, yeah. Yeah, so it seems like
Less than a point.
like, yeah, like not that huge of an issue. Thanks for all the color on that. Can we move to Water Solutions and just talk about?
Sure.
the main end markets there and what you're seeing from a demand perspective?
Yes. You've got residential through our water quality management business, so that you can think of that as point of use filtration, point of entry filtration for the home, sump pumps, well pumps, things like that. We've got our commercial water business, which includes our Everpure brand. You go to a drive-through, and you get your Diet Coke. It's probably filtered by Everpure for water, and it probably has Manitowoc Ice in the cup. You've got both Everpure and Manitowoc. Both of those end markets have been a bit challenged the last couple of years from a fast food, quick service industry perspective.
You've also seen a little bit of a pivot into more of these, like, gas stations, where people are going there instead of a McDonald's or potentially a Starbucks, somebody like that, for their beverage or for a snack. We've got a really great entry into those more convenience centers with our Manitowoc and our Everpure brands. We feel pretty good about where those two businesses sit going into 2026.
I guess from a new
They'll return to growth, and they're both at healthy profitability.
Right. I was gonna get to the margins. You know, might as well touch on the margins. Your margin construct for the longer term outlook is really Pool, very high level but still improving, just not as much as the others. This one has some pretty robust margin expansion.
Yeah.
Dialed in. Maybe talk about the visibility around that and what the drivers are.
Yeah. Driver for the commercial side of the Water Solutions business on margin would be through volume. As that volume grows, the drop through is really healthy around 40%. You have the water quality management business, and that business has a lot of structural cost opportunity remaining within it as we've brought the residential pieces of water together. You can think about it is about $1 billion of revenue, but it has an oversized portion of our labor and overhead costs and G&A. As we're getting after that structural cost opportunity, that drives margin improvement within water quality management, and we expect that to be the most robust margin profile enhancement over the next couple of years.
As far as the growth is concerned, I mean, it's, you know, it's been a bit disappointing the last couple of years. Obviously, you mentioned those markets that are down. Is there any visibility to any catalysts that make you confident, give you confidence that you can, you know, accelerate from this, I don't know, flat kind of-
Yeah.
volume to something that's
Its products in part with the commercial water business. We've had some really good innovations with our NEO offering, with the refrigerant changeover coming for the commercial ice business, and we think we're ahead of the curve on a lot of that, and we're starting to see some of that read out in that business. We're really excited about the products, our relationship with our dealers in the commercial water space. That gives us a bit of confidence to see some organic growth there. We also, you know, grew the North American business last year despite the, you know, noise around quick serve restaurants. We still grew at, like, 3% to 4% from a volume perspective.
The challenge has been the international and primarily China, and we've now got that to what I would say is, you know, a plateaued level where we don't see that those headwinds are gonna affect the overall optics of the growth rates of the commercial water business going forward.
How big is China now for that business?
For that business, it's probably $30 million to $40 million in revenue now.
Okay. That's pretty.
Yeah.
That's pretty stable.
We saw a huge load in a you know 2023, 2024 timeframe for Luckin in China that took us almost double of that, and then it came back down, 'cause that was a big project that we fulfilled, and that type of lumpiness is behind us now, and you can see more of the organic growth profile of this business.
I'm not really a thematic guy, but when you think about these quick-serve restaurants and there could be new formats and more automation, is that at all an influence on your business?
Yes. All that just drives demand. Any type of change drives demand. Obviously the beverages, or I shouldn't say obviously, and you guys probably know this, but beverages are the most profitable part of a restaurant's P&L. The beverage is what they're always trying to push on you, and ultimately that's where ice and our filtration plays. As Nick mentioned, the part that we need to get, you know, a deeper amount of share is in the convenience stores, which is the gas stations and the quick serve convenience model. Those are becoming a growing stop and replenishment aspect, and that's a huge opportunity for Pentair and Manitowoc and Everpure.
On the Flow side, maybe the demand drivers there and you know what you're excited about on that front.
Yeah. First thing I'll mention is the U.S. infrastructure had a design life of 60 to 70 years, and the average design, excuse me, the average age of the in-water infrastructure now is north of 70 years. When you think about our commercial pump offerings, whether it be water supply, water disposal, or our insertion valve technology through the Hydra-Stop acquisition, those specific businesses are well-positioned to take advantage of that aged infrastructure. The repair and replace cycles that were already. We've seen an uptick in that last half of last year, and it's starting to read out again this year. That aged infrastructure is gonna be a nice tailwind for us. We have really proprietary sustainable process technology, sustainable gas technologies that are being leveraged across Europe that utilize our filtration technologies, our carbon recapture technologies.
Those have been nice tailwinds. Then as you see in the food and beverage space, there's a move from really consumption of beer to consumption of other alternative carbonated, sometimes alcoholic beverages. Those end markets, the OEMs that are creating those beverages, they can't use the same line for a beer process as an alternative carbonated beverage. As they put those lines in, our technology is there, and we're a good partner to them. Those are some of the end market, I think, tailwinds that we expect to see.
I think there was an inflection in that market last night, a little bit too late.
Thank you for your help, Steve.
Yeah, thanks for helping us. A little bit too late. Just a blip. As far as the margins there, that's, this is another segment that has a pretty robust margin outlook. I know there's some perhaps some G&A and transformation benefits here. Maybe.
That's right.
Talk about that.
Continued structural cost opportunities. That business has done a fantastic job of delivering the margin expansion, even with modest growth, and we see that trajectory continuing, and we've got a pretty good pipeline both in sourcing and in the facility consolidation operational opportunities while we continue to drive the growth in that business. The other thing I'll mention, Steve, I think Flow's done a really good job moving from being more project-based to having aftermarket pull-through built into the products that they provide to those OEMs. So it's not a one and done. We may sell an upgrade to food and beverage, but then they're gonna continue to buy the technologies and the products that go with that initial capital install, whether it be through the carbonation part, the filtration part, or the sustainable gas part.
Okay. Moving to the margin side, just on price. I know that you talked a little bit about, you know, the incremental competition and some investments in Pool. Pool's always been a good price capture market. I think the average over time has been about 2% net realized. You guys went to, like, as high as double digit during COVID. Even with all this kind of noise, it's a 2%, you know, type price capture market in Pool?
We think so, yes.
Okay. How do you guys think about price costs? Any risk on the inflationary side? How do you manage that? Just remind people how you manage that on an annual basis.
Yeah. We actively manage the price cost. But I think as importantly perhaps is we've got value-based pricing tools through our transformation and Pentair business system toolkit that we've deployed across the enterprise. Our teams don't just look at price costs. Obviously, it's an important indicator for sure. But we're also working closely with the customer and with the channel to understand that real value that's delivered so that we're doing value pricing as well.
Any risk around inflation here this year, or you feel pretty good about being able to offset?
Nothing beyond what's already in the guide.
Okay. Just from an 80/20 perspective, like, how far are you down this journey and, you know, where are you going with-
Early stages.
Okay.
Nick, you lead it, so why don't you go ahead?
80/20 is never over, right? Like, a good 80/20 process, you're constantly looking at your portfolio, your footprint, and you're deploying the tools of 80/20. I would say that with that, the exits in the portfolio due to 80/20 are behind us. We feel good about the portfolio we have now, both from a product rationalization and a portfolio rationalization perspective, and we're driving 80/20 to continue to gain efficiencies, but we don't expect to have the headwinds from a volume perspective that we did over the last few years because of the 80/20 exits.
Okay, you're on your front foot on that and getting.
That's right.
some benefits, less revenue slippage.
That's right. Leaning hard into quad one.
Yeah.
Too.
Yeah.
Within some of the businesses, and we talked about Investor Day, we have businesses that are primed for the quad one growth based on their, where they're at with the key ratio, looking at their material margin versus labor spends. Those businesses are front foot leaning in quad one growth, and then we have other pockets that are more optimized, but again, that's not exit, it's more around the footprint, getting our processes and our SIOP ready to provide that premium quad one customer experience that we're developing and working through.
When we launched transformation, primarily the sourcing piece transformation, we had not yet implemented 80/20.
Mm-hmm.
There's this huge opportunity to utilize the combination 80/20 and sourcing again, primarily around those AAs and the upper quad one, to go out again and benefit from the sourcing or create make versus buy strategic opportunities for Pentair. I'm excited by that, 'cause that's a whole nother wave that we would add to the transformation cycle.
Any updates on tariffs from recent news at all?
I haven't checked my Twitter this morning. I'm not sure that I have anything all that up to date. I mean, the latest round would, you know, provide a slight benefit to the second half of the year. You know, mostly everything's locked in for the first half of the year, and we're not gonna have to give back pricing or anything in our industries related to that adjustment or change. We're slightly benefiting from that. We probably got a slight headwind on oil and what it could do to the second half on freight and things of that nature.
Yeah.
net-net, we're still in a pretty good position, but, you know, wait and see with what's gonna happen with the 301 investigations and what that could add back. Feel good about the pricing model, though. Again, 75% going through distribution. We would take the same tools we used in the past, and we would pass those tariff or increased tariffs back through the industries that we play in.
Just to kind of back up a little bit, I mean, the 100 basis points of margin expansion per year is the target, and that's a pretty good one that gets you to high single digit operating profit growth over the next couple of years, which I think is.
That is correct.
I think is differentiated.
We have a lot of cash.
Yep. One last one. Great segue. Capital allocation, with maybe tell everybody that you're just gonna buy back a ton of stock, and then we'll spend 10 seconds on acquisitions. Go ahead.
Uh-
Go ahead.
I don't know that I can tell everyone that we're gonna buy a bunch of stock. What I can tell you is we're gonna be disciplined in looking at the capital allocation opportunities. We're gonna be potentially 1x levered by the end of the year. We throw off a lot of cash, about 100% free cash flow conversion from net income. We're gonna be opportunistic and strategic in the buybacks and compare any M&A deal to the value that could be created for shareholders through the buybacks, and we like the optionality that we have going into the year.
Yeah, the stock really is like officially cheap, and I think you guys do not-
We agree.
You guys do not get the credit for the cash conversion. Nobody, everybody is, you know, mucked up their numbers, adjustment-wise, and nobody's really converting at 100% anymore. Your cash yield is also very attractive, so-
Yeah, people haven't found a way to do adjusted cash yet.
Okay
Steve.
No, no they have. We've seen it. We've seen it in the past.
Okay, well, that's interesting. I look at cash as cash, and I do think that it's gonna be hard for an acquisition right now to outpace the hurdle rates of what Pentair's stock would do.
Yeah.
That's the way I look at it.
Yep. Well, we think it's cheap stock, and you know.
Agree
We're recommending it. We were talking last night about, I think you've been CEO now for eight years, and there's definitely been a lot of change in my sector, so you're definitely one of the more tenured guys. Congrats on the run.
Thank you.
Keep it going, and thanks for joining us.
Appreciate it.
Yeah.
Thanks, Steve.
Thank you.
Thank you.
Thanks.