Bob P. Fishman
Executive Vice President, Chief Financial Officer and Chief Accounting Officer at Pentair
Thank you, John. And good morning, everyone. Let's start on Slide 10 titled Q4 2024 Pentair Performance. I will also be discussing our full-year performance on Slide 11. We did not -- we delivered another strong quarter of margin expansion and adjusted EPS growth despite sales being down slightly. These results were driven by pool sales growth and triple-digit margin expansion across each of our Flow, Water Solutions and Pool segments. Sales for Q4 were down 1%, which was slightly better than we guided driven by higher-than-expected pool sales, which nearly offset an expected decline in flow and water solutions sales. 4th-quarter adjusted operating income increased 17% to $231 million and return on-sales expanded 370 basis-points year-over-year to 23.8%. This improvement was driven primarily by our transformation initiatives.
Adjusted EPS of $1.08 was up 24% versus the prior year. For the full-year, sales were down 1% at $4.1 billion with core sales flat, driven by growth in pool, which offset lower flow and water solutions sales. Our residential businesses continued to be impacted by higher interest rates. Adjusted operating income grew 12% and return on-sales expanded 270 basis-points to a record 23.5%. All three segments significantly expanded margins and set new annual Ross records. Adjusted EPS increased to a record $4.33, up 15% versus the prior year.
Please turn to Slide 12 labeled Q4 2024 flow performance. In addition to the 4th-quarter performance for flow, I will also be referencing the full-year performance on Slide 13. In Q4, flow sales were down 5% to $361 million. Commercial sales were up 7%, reaching a new annual sales record. Residential sales were down due to higher interest rates and Industrial Solutions sales were impacted by delayed capex spend. At this time, we do expect certain delayed industrial projects to begin in 2025.
Reportable segment income was up 13% and return on-sales increased 320 basis-points to 20.4%, driven by transformation. For the year, flow sales decreased 4% to $1.5 billion as a decline in residential and Industrial Solutions sales more than offset an increase of 5% in commercial. Residential sales decline in flow remained consistent each quarter in 2024, which we believe suggests stabilization within end-markets impacted by higher interest rates. Full-year reportable segment income grew 13% and return on-sales increased 320 basis-points to 21%, a record margin for flow driven by transformation.
Please turn to Slide 14, labeled Q4 2024 Water Solutions performance. In addition to the 4th-quarter performance for Water Solutions, I will also be referencing the full-year performance on Slide 15. In Q4, Water Solutions sales decreased 4% to $258 million. Commercial sales were down 5%, reflecting a decline in commercial ICE, which more than offset sales growth in commercial filtration. Manitowoc Ice performed as expected with sales down mid-single digits in 2024, following two consecutive years of 20% growth each. Reportable segment income grew 21% to $62 million and return on-sales expanded 500 basis-points to 24.1%, a new quarterly record, driven primarily by productivity from our transformation initiatives
. For the year, Water Solutions sales decreased 4%, reportable segment income grew 3% and return on-sales increased 160 basis-points to 22.6%, a new full-year record. Please turn to Slide 16, labeled Q4 2024 pool performance. In addition to the 4th-quarter performance for Pool, I'll also be referencing the full-year performance on Slide 17. In Q4, pool sales grew 5% to $354 million, driven by both price and volume. Reportable segment income increased 14% and return on-sales increased 250 basis-points to 33.8%. Demand increased more than expected, partially driven by the impacts in the Florida hurricanes in late September and early October. For the year, pool sales grew 7%, driven by price and volume. Reportable segment income increased 14% and return on-sales increased 220 basis-points to 33.2%, a new annual record driven by growth and transformation. Please turn to Slide 18, label Transformation initiatives and 80/20. At our 2024 Investor Day, we provided a ROS target of 24% by full-year 2026, while providing a path to 26%.
I'm excited to say that we are now increasing our target to 26% by full-year '26 year-end, even though we do expect slightly lower sales by 2026 and we outlined at Investor Day due to continued higher interest rates and a deferred residential recovery. We are pleased that we expect to be able to protect our profitability as I was outlined at our 2024 Investor Day, even with macroeconomic uncertainty. If interest rates in residential markets improve, we expect to further benefit from our transformation initiatives at these higher productivity levels across all three segments. Over the last two years, we have driven nearly $175 million in productivity savings, which has led to our confidence in our 26% ROS target by 2026. We expect full-year '25 ROS to be approximately 24.5% to 25%. I'll provide more detail on our full-year '25 guidance in a moment.
Please turn to Slide 19, labeled balance sheet and cash-flow. We closed 2024 in a very strong financial position with strong free-cash flow and cash-flow margin, a low leverage ratio and a higher-return on invested capital. In 2024, our free-cash flow was $693 million, up nearly 26% year-over-year. Our cash-flow margin was 17%, which reflects a capital-light model. Our net-debt leverage ratio was 1.5 times, down from 2 times at 2023 year-end. Our ROIC was 15.5%, up from 14.3% in 2023 with a focus on being good stewards of capital, we continue to target high-teens ROIC longer-term. In 2024, we repurchased 1.6 million shares for a total of $150 million. We have $450 million available under the current authorization. We also increased our dividend approximately 9% for 2025. This marks the 49th consecutive year of a dividend increase and reaffirms our dividend aristocrat status. As we begin 2025, we are committed to maintaining our disciplined capital allocation strategy.
We believe our strong free-cash flow allows us ample opportunity and flexibility to invest in organic growth, make tuck-in or bolt-on acquisitions, repurchase shares and pay a dividend. We plan for these actions to be guided by our high-teens ROIC target. Moving to Slide 20 titled Q1 and Full-Year 2025 Pentair Outlook and expectations. We also provide more detailed guidance on Slide 21. For the full-year, we are introducing our adjusted EPS guidance range of approximately $4.65 to $4.80, which represents a year-over-year increase of 7% to 11%. We expect total Pentair sales in fiscal 2025 to be approximately flat-to-up 2%, including FX headwinds. We expect flow sales to be up slightly. Water Solutions sales are expected to be down approximately low-single digits to flat and pool sales are expected to increase approximately 4% to 5% in-full year '25.
We expect total Pentair adjusted operating income to increase approximately 6% to 9% with ROS expansion of roughly 125 basis-points at the midpoint to approximately 24.5% to 25%. Also for the full-year, we expect corporate expense of approximately $85 million, net interest expense of roughly $80 million with a weighted-average interest-rate of slightly over 5% and adjusted tax-rate of approximately 17%, up slightly from 16.5% in 2024 and a share count of approximately 166.5 million. For the first-quarter, we expect sales to be down approximately 3% to 4% to between $975 million to $985 million. We expect pool sales to grow approximately 3% to 4%, Water Solutions sales to be down approximately high-single-digits and flow sales to be down approximately mid-single digits. As a reminder, in Q1 2024, Water Solutions was shipping ICE backlog and current orders.
By Q2 2024, Water Solutions had entered a more normalized operating environment. In flow, higher interest rates, FX and delayed capex are expected to impact sales in Q1 2025 for residential and Industrial Solutions. 80/20 actions are expected to impact both Water Solutions and Flow in Q1. These 80-20 actions are expected to improve profitability as the year progresses. We expect quarterly sales to increase year-over-year beginning in Q2 with the growth rate improving in Q3 and Q4. We also expect normal seasonality in sales in 2025, whereby Q2 is typically our highest sales quarter, followed by Q3 and then Q4. We expect first-quarter adjusted operating income to be up 3% to 5% due to lower sales and higher ROS. We expect strong Ross expansion in Q1 for total Pentair, including Ross expansion in each of our three segments.
Similar to sales, we expect Ross to follow a normal seasonality pattern with the highest rate in Q2, followed by Q3 than Q4. We're also introducing adjusted EPS guidance for the first-quarter of approximately $1 to $1.02, an increase of approximately 6% to 9%. In the first-half of 2025, we expect adjusted EPS to be slightly less than 50% of our full-year adjusted EPS guide, roughly in-line with our historical norm. Q1 is expected to be the lowest quarter for sales, adjusted operating income, ROS and adjusted EPS as compared to the remaining 3/4 in-full year '25. We are targeting strong free-cash flow-in 2025 of 100% of net income. As a reminder, Q1 is a cash use quarter in any given year, while Q2 is typically our highest cash generation quarter.
At this time, our 2025 adjusted EPS guidance range for the full-year includes what we know today concerning tariffs, including a 10% tariff on roughly $200 million of products sourced from China. We have approximately $300 million of product manufactured and purchased from Mexico. We believe we have captured the impact of a 25% tariff in Mexico within our adjusted EPS guidance range for 2025. We have no significant spend in Canada. We have been effective in the past with the use of pricing to offset higher-cost since approximately 75% of our revenue goes through two-step distribution. We have continued to accelerate transformation funnels, implement 80/20 and remain focused on investing in the long-term growth of our company.
Moving to Slide 21, we have provided additional detail for our guidance. On the left-hand side of the chart, you can see the sales walk. We expect total Pentair sales in fiscal 2025 to be up approximately 1% at the midpoint. We expect volume to be up slightly, price to read-out between 1.5% and 2%, and FX to be a 1 point headwind. We expect flow sales to be up slightly, reflecting approximately low-single digit growth in commercial, down low-single digits in Industrial Solutions and approximately flat in residential.
Water Solutions sales are expected to be essentially flat. Commercial sales in-full year '25 are expected to be up low-single digits and residential to be down low-to mid-single digits. Pool sales are expected to increase approximately 4% to 5% in-full year '25. We expect new and remodeled pools and the aftermarket to each be up low-single digits and we expect our recently-completed December acquisition to contribute approximately 2% sales growth. As a reminder, new and remodel pools represent about 40% of sales and aftermarket is about 60%. Our sales guidance reflects continued macroeconomic and geopolitical uncertainty and cautious optimism of residential end-market recovery in the second-half of 2025.
On the right-hand side of the chart, you can see the walk on adjusted operating income. We expect adjusted operating income to increase approximately 8% at the midpoint and ROS to be approximately 24.5% to 25%, up 125 basis-points year-over-year at the midpoint. The volume price acquisitions column is primarily price, which is expected to offset inflation. We expect transformation in 80/20 to drive approximately $80 million of productivity savings, which is the main Ross expansion driver. We are very pleased with our strong performance and finish in 2024. Our transformation program exceeded our expectations and is expected to continue to drive momentum into 2025. We have built a strong foundation and believe we can continue to drive long-term growth, profitability and shareholder value.
I'd now like to turn the call over to the operator for Q&A, after which John will have a few closing remarks. Jamie, please open the line for questions.
