Franklin Electric (FELE) 14 Feb 232022 Q4 Earnings call transcript

Good day. And welcome to the Franklin Electric Reports Fourth Quarter 2022 Sales and Earnings Conference Call. At this time, all participants are in a listen only mode. Please be advised that today’s conference is being recorded.

It is now my pleasure to introduce Chief Financial Officer, Jeff Taylor.

Andrew. you, Thank to XXXX everyone, fourth and quarter And conference Franklin call. year earnings full welcome, Electric's

On our with call, secular latest and business on Chief some our the our our provide quarter trends. highlights, Executive financial Sengstack, call fourth detail strategy progress additional Officer. I me fiscal today long XXXX will On to full term global today's and Gregg performance. guidance, review Gregg will on year is date Chairperson our and

questions. take then will We

statements. let you meaning forward-looking information Reform remind available during forward-looking from materially we actual Private are these discussion annual this forward-looking begin, assumes and on may various statements. as we making Form in release. update Before such subject Litigation be the law, call, me found risks cause call and statements results the uncertainties, statements no as of conduct to are that Act XXXX. statements report Securities obligation we of These company many any be currently All differ the to will today's to and on could of earnings except company's of XX-K the required within the by made A which forward-looking factors based

the With Gregg call that, now I Sengstack. will turn to over

same Thank reporting systems Fueling set you, to segments finish records Jeff. three both We income Water and records the delivered XXXX. set over sales All period. a strong operating and fourth quarter for

through business. execution. line quarter, we solid fourth by top headwinds offset market growth quarter, FX We delivered expansion inflation our driven to operational which driving across throughout customer a XXXX, end the During sufficient businesses, margin experienced steady each continued demand and and pricing the in Water operating demand, Fueling and

$XXX the with past to Our supply XX% flow, or At sequentially. from to shipments due last up time, continued backlog million due continued increased peak. order million $XX summer's to strong same down chain recover

with than inflation overall XX.X%, of end revenue last were of Water income another delivered XX.X%, actions more growth driven quarter. solid to operating of operating to and XX X%. an XXX income US growth mix Favorable driving robust Pricing of and by growth Systems XX%. points offset segments. operating across and challenges, in sales sales Fueling increase line basis compared top and prior X%, with year. leverage growth India year our to increase record compared X% operating markets of an Systems quarter Fueling the to all contributed margin Systems of Turning operating margin quarter income basis points price fourth and to

Distribution by margin plans delivering in and segments. record distribution by operating business results seasonal profitability of the reminder last while our in over the Distribution quarter quarter, of increased are beyond. is quarter due sales to end. at seasonality within segment income We've confident record lot both year, a a for our years distribution more delivered as our said, to drive work income volatility earnings that for manufacturing than the our and more operating five That XXXX percentage. done and year are the unfavorable segment to the XX% basis Revenue the income products. based decreased commodity certain While normal Operating decline by These decreased compared increased XXX about price XX% income segment prior and a points significant operating the was X.X%. in impacted weather to

range a of I macroeconomic a a XXXX, back am the mindful are our outcomes. This of in number or to economists slowdown wide that half leading leads potential forecasted XXXX me guidance. to of forecasting recession

declines. chain as we XXXX. improvements, stabilization and within improvements further I'm operations enable and exchange of supply expect In fiscal currency the our However, foreign foundation inflation will confident uncertainty build we our segments easing each headwinds, productivity in of XXXX, across supply growth delays

strong construction demand expect in well to new of base and modest exposure as US across our housing. from favorable a only driving business to a a markets replacement for industrial concentration pumps as activity large benefit a a groundwater agricultural, large installed mining We and

to benefit this expect demand segment. our Distribution favorable similarly We

specialty face water home and treatment to Our US product pumps headwinds residential greater with may lines starts. exposure new

Although make in will XXXX comparables supply constraints easier.

upward maintain assets With well across this regions the electric $X.X India. and $X.XX. as product backup XXXX that monitoring in year increase systems. business growth. are all in business in fueling Outside with our Outside critical these in We and cases, all rapidly expect all to expect $X.X well based is growth center regions small US, to demand Fueling our small business, between XXXX will perform have large plans. billion US, infrastructure be benefit quarter, full to and data see Included they part battery the initiating last end the In marketers we billion significant and, EPS expected as significant These to we since for our with the from forecast IMF their in all growth geographic major well between grid we telco, the some as investment line markets. its segment railway growing be on in revision focused diluted the pump that monitor plan test devices US but in across signaled on to guidance and utility revenue expect tailwinds, and but assets. $X.XX

I'd the also considerable briefly like progress years. on the to past our over few we've touch strategy made on

income billion pretax our to of financial the $XXX summer and of XX%. of on invested revenue return clock long XXXX We the objectives. strategic Turning set XXXX capital term operating and of set a XXXX and a we goal when back million goal $X

digits. in year integrated acquisitions All six platform. strategy plan. our treatment achieved ERP leverage line. now product was last acquired on business ahead years, of revenue treatment's of the million enter did water and Last is double leg Water of the we distribution $XXX approaching which we to the improvement water XXXX. income that year, in run operating meaningful onto integrating over treatment a the expect our water within the experience One a were those we operating rate XXXX, see growth all we've full to in treatment US, is Based the same in businesses

long the growth we overall expect Water Systems to rate. at the treatment term, above revenue grow water or Over

our strategy that market build a was they our to from operate. locations of of business. margin we groundwater where XXXX. national now how, to exceeded leg when a and our natural to in our X% a X% of established profitable able business warehouse locations. Distribution Another been serve extension again Being than Distribution to the these that We've XXX leading segment groundwater XXXX, operating income total distribution goal US inventory more and use remote position, has customers better In

further our and continue to we a also capital While growth, we than leverage businesses acquire X invest continue conservative time to less strategy of to with structure EBITDA. maintain and ratio a

in powder supplement organic growth and/or necessary dry the M&A. have to We strategic transformational

balance year. strong financial increase and XX% Our earlier in announce dividend growth earnings have performance, sheet this enabled our to us a

increased of have XX resulting last compound now our XX%. annual growth the each dividend of rate in We years, a in

the details. financials With to call to that, more Jeff? to Jeff over I'm in review our going hand

We Overall, it established Franklin and was a Gregg, for and everyone. solid operating sales good Thanks, Electric. consolidated records new income. for morning, fourth quarter quarter

share increased sales earnings million which $X.XX event quarter bargain XXXX XX% company's acquisition On Systems strong to Fourth XXXX. due purchase impact was the fourth Outside US about all quarter foreign Water $X.XX last In and pro gain Systems translation. EPS a a if approximately sales growth $XX.X were and results current due bargain XXXX, due fourth sales sales higher acquired sales currency I the be gain, million from million. the as nonoperational acquisition year over EPS, the overall nature. per forma record to a related translation. of quarter out Middle consolidated purchase price, due by exclude the basis, X% about sales. called $X.X market businesses in year and and the the organic XX% onetime XX%, demand. were XXXX from a Canada Water diluted $X.X you currency XXXX fourth fourth since growth compared fully quarter offset quarter and fourth sales equipment quarter by Worth groundwater share quarter were XXXX increased up fourth of volume the decline US XX%. by to decreased X% X% for versus about the by XX% by sales quarter end to were Organic Africa sales our the and and pumping XXXX a pumping to equipment $XXX.X increase per foreign up increased Systems sales organically the drove X%, X% in about noting, a the in about Sales included million, prior or fourth XX%. Water quarter Systems XX% East quarter US quarter. fourth the surface grew earnings of related quarter. for all in in about in year-over-year while and the of Canada, or Canada Europe, Our sales XXXX in would of the $X.XX of added Water

higher had company and America Asia Pacific the markets. Additionally, in sales the Latin

rain improved up for cost of higher the and income sales commodity $X.X The quarter income since million business a of business pricing also million. prevalent million margin the colder quarter to in impacted versus sales quarter fourth was as sold higher cost negatively Income million primarily to operating leverage the in XXXX the sales income operating quarter sales by and operating from due year-over-year prior Operating quarter, was higher of the fixed The invested XXX XXXX, locations. million. of realization quarter negatively a operating the XXXX. through Distribution was fourth new versus the Distribution's about compared XXXX. a from points. year. due weather year-over-year quarter fourth the quarter decrease $X.X Operating Water from and basis was quarter of of XXXX segment's of at in were end the to income was of increase impacted the margin versus as million. on six growth margin income of management. in Overcoming million by products In record lower sales $X.X income and margin X.X% $XXX.X quarter, expenses acquired Systems XX% XX.X%, XXXX, fourth of headwinds or more organic was with future related fourth X.X% weather $XX.X price the sales. sales, income to fourth XXXX, $XXX.X branch increase segment fourth Distribution increased Operating XX% weather compression compared of fourth were were based was businesses $XX.X XXXX in fourth XXXX Distribution for

more The million from $X.X in quarter XX% increase In the growth or quarter about while in record compared on Fueling a primarily India was in across by X% basis to profit million was lower cost caused a fourth price compared XXXX Canada prior driven dollar higher compared of broad The increased increase income XXXX inbound record Electric's to sales sales resulted quarter demand quarter XX.X% gross flat due US fourth than currency XXXX. by absorption XXXX. million, profit a fourth net unfavorable sales fourth operating gross a were the inflationary was XXXX a Fueling Outside fourth year. quarter net most Gross decreased year-over-year were million fourth consolidated the profit to to product XX $XX.X the in driven in sales quarters costs, variances for in lines. China. increased was strong Systems XXXX Supply sales the sales up a Systems $XXX.X realized basis of Franklin the disruptions the year. in the increases. XXXX. the fourth revenues versus than and higher of previous Systems XX% XXXX, about in operating actions foreign to was $XX.X by quarter quarter offset increase. sales. XX.X% and freight as XX% Canada, degree versus by in fourth XXXX in million though quarter with The the was of fourth offsetting quarter sales XX.X% quarter US based percentage X% $XX.X higher margin translation. profit Systems Fueling fourth Sales margin XXXX. in and and prior Fueling the gross points, lesser income

in Selling, the $XXX.X million quarter compared million. XXXX. were SG&A businesses the were million to fourth in general about expenses quarter and $X.X from acquired $XX.X administrative XXXX fourth expenses

higher Excluding SG&A $X.X acquisitions, were expenses by million.

in quarter. foreign percentage of were operating or a fourth $XX.X margin $XX.X Other $X.X prior was of prior total income leverage exchange primarily translation quarter quarter As the $X headwind higher lower income on XX.X% million despite sales of XX% points XXXX, million in to increase non-operating fourth was year sales. in the was the sales, fourth an in million The The costs unfavorable volumes The XXXX. was net quarter quarter XX.X% approximately in and from fourth versus than operating Consolidated operating expenses fourth up income cost XX in the SG&A due million. the operating basis primarily spending. quarter sales and XXXX compared higher higher to SG&A due to were increase controls year. XXXX, margin

higher First, due outstanding interest debt higher was interest and rates. to expense average higher

quarter during January million a XX% purchased Argentina. year end XXX,XXX The in dividend a the approximately XXXX, company rate remaining dividend. common the fourth increase for prior of to XXXX. higher $XX.X effective per were the XX% announced tax about its repurchase of The the to of losses share company prior At XXX,XXX stock from authorization XXrd, the XX% in quarter for exchange share, the quarterly Foreign primarily shares. due open the compared representing operations about quarterly $X.XXX is was the Turkey shares quarter. in On our cash market and

that, to some with turn And call Greg our of I'll trends. back global latest now secular to the highlight

you, Thank Jeff.

record that of term. execution, will by prospects over long track our are forward the the tailwinds business to also addition our propel In growth successful supported

lead of affordable demand and For homes need extended to water pumping for for municipal will municipal treatment. in a the of than from more a systems reach example, US is maybe system, more that like weather systems. water in drought require greater for on need frequent periods across growth beyond and increased of water water systems, particularly before. geographies need conditions likely Changing of remote groundwater of awareness to existing housing use or current the amplifying work, quality replacement driving is private one deeper And the the whether the groundwater the and water drill demand

sets, occurred last system what deeper more Flood contractors in pumping like polling these systems high failed cost even the a is For of Coast the as and considerable. quality are events replacing focused on pumping West for also systems. pumping month hurricanes for line demand earth and surface from additional Elevated metals rare demand large pumps. of our and dewatering flooding the coastal should and increases for prices drive demand industrial metal

of food to pump other regions facilities around industrial demand. to revenue Further, to efficiency the the pumps and we our on groundwater to distribution manufacturing, our growth the cost irrigation cost high for materials for of foundation many demand systems. pumping of electricity in to expanding the focus uncertainty this their lead is cost it's the the pumping security will for equipment, systems to are of in and higher our ownership. intentionally of are operators operate lower global accelerating world, total cost We with continued Often, additional and increasing provide supply grain offerings construction looking exports, to as assembly that times system, reasonable margin. increasing increased these leading the often applications require believe And expect

Turning to our business. Fuel

our and in While we new and fueling consolidating fleet vehicles to XXXX, the upgrading liquid of recognize invest decades. around operators fueled Recovery the systems sites new of and forecourt we to fuel will US, management expect need particularly vehicles developing liquid In the investing Internationally, as the and peak are are continued in major total global ownership. installing as interest the the existing world, improve delivery safer, well equipment to be is of air is in management These line cleaner world market, of provides forecasted understand quality. Vapor equipment fueled marketers for around that lowest locations. in comprehensive with willing and growth, regions cost

and entering For resiliency, containment and monitoring devices in and on multiyear the electric for can team electrical investments from This our and infrastructure to by automobile example, used in global vapor requirements as gives three us dollar batteries into all well X confidence developed country. dealers benefit of with station on colleagues charging. also our voltage devices shareholders. strategic in positioned we're to in the And infrastructure in to electrification ability segments for India, and has and for our investing to transformers control the high We response satisfy manufacturer successfully in We're a development sale the switchgear. monitor financial multibillion strong our future. circuit my XXXX infrastructure track our results short, on-site focus significant Madison In that of seeing team and to XXXX trends, recently, and each our execute Level globally. been gas significant telecommunication well value increased are team to year Anticipating thank vehicle testing of national our Franklin backup I attributed has of of by operational, the for well for the are success. agnostic another record switchgear execution charger the breakers for most focused rail. NexPhase foundation want as and be program, driving continued record across and

our prepared concludes remarks. This

to turn for will over We call questions. the Andrew

of question Halloran first from Our R.W. Mike Instructions] the Baird. with [Operator line comes

And direction in does look what by as far segments how in various that embedding or that you help perspective, Greg, or work about half a half in expected back talked a weakness. talk in through from Is expectations a there as economists what's little from that that about goes? you're categories back Maybe So you does any as you the your of embedded have? to guidance layer the the slowdown conservative bit product year. how guidance kind

is I talk yours more than I'm because suspect But to probably my is better sure you see, companies. not better any yours. crystal ball

year, about of last got throughout talked out that we've coming in the a year. because for -- it, to unusual of We we'll anticipate backlog down tend the of being taking As Mike, years as now a that fill will us we've be out be strong we which of couple we kind see stock. sell the for kind

back half as And That maybe particular is the the US so we're of destocking and going maybe in of are know, normal in those. we'll strong there mindful as the we're in not XXXX, that QX back business year first or what be was because seasonality the be half patterns that's of said, lapping in what strong saying. very X. people half the back to as our you might order If the of

And will we so would seasonal again, comparison. being of seasonalities following again, patterns, nature Distribution, that steady. a And we reasonable unquote. of be in we see Fuel see business, normal is that because construction QX. of and it Fundamentally, a the little But the on, the business. then QX in It the expect quote kind really bit strong

the world are that we're economists So out being there saying there that. saying is maybe just a mindful and slowdown that

So important we we thought through guidance developed our we is just for that how that, the it's and thought to year. this say

pricing price look much are seeing are things your things, is that embedded you as how product hold at across tracking. at How On least thought as the you or you segments? and look of side in process loosely, pricing that

and going by the range single single that to mid to guidance, impacts, range it going we're we're of it's pricing the digit would general, also in going I of kind vary attempting say think, foreign digit to Mike. you're kind recover But is impact where seeing I be consistent low to currency where of that in in by and currency. mid our a overall little to with region, see product our is bit

characterized normal which it's in in chain pricing inflation, going a really high And versus challenges. supply to high significant to more general, be by to was of inflation, XXXX recover XXXX, so return

certainly I supply think XXXX improvement in be returning but continued chain through saying as move looks like XXXX of less see necessarily Difficulty] not [Technical to in we general, overall. more we repricing kind that pre-COVID inflation and normal, years,

there… just So I a little answered pricing more than

the it's helps. to on And one channel excess any thoughts you level for doesn't side or that what Is the but that there's Yes, It relative me. from inventory, rate and your hope marketplace. inventory whether own that higher at be? true would last on like content a where Headwater run in on right stand we sound inventory

at in in I exaggerated. places you chain, relatively I But I lower places think inventory. higher supply it's think shape where overall, say the healthy where inventory have going have I you it's stayed pull pretty inventory that mean, levels. demand. through wouldn't you're in and some have will some to good

I procure of lead longer there 'XX think quarter Gregg fourth in prebuying materials. for this was that to due and heavy times some earlier mentioned supply to chains the challenges really

a And return buying more to so normal pattern. seeing we're

second of to season. the so see we in quarter groundwater really year enter the as expect up quarter in And that we ramp this more first and

Our comes Summerville D.A. line from Davidson. next of Matt the question with

couple questions, A maybe of first Distribution. with

here given the that we seasonality or the X% business commodity you in be suggest sit pass for in As to the margin we 'XX? follow have throughs. being I that's about today, that of 'XX bandwidth believe for margin, realistic business, rollback piece And had the plus a up I kind by then you a impacted the relative two. would for What given would think

benefit and strong a that, well distribution the has a nice the on go years is of operating their a also job which our environment, Headwater had to margins nice building our Having in and of they business as growing over was they really boost always really a margin giving said margin as had XXXX. forward basis. year. Certainly, margins, last improve inflationary them gross performance goal this five a done

I would range. them to to And X% so the is we more we in that near that of margin that still to they so perform end say have expect in range, X% think won't range returns but that higher our XXXX. boost normal, that certainly

much did of made, you are adjustments driven how How so revenue you last will? those that $XXX impacted much commodity adjustments, distribution often $XXX driven commodity is year. of if -- million, we'll and the How by call million it

the it's commodity overall to on products. of based and would the depending terms XX% they inventory it. to the the the business, purchase mix, remainder through I is non-commodity say in the they XX% really it's from the of commodity based adjustment flow time that products, is sell it time So And the

so And more to able they're price dynamically.

so able that their in So and to they that commodity that's margin the they would environment. have products stabilize price felt little over into into of they're it's carry effect, start sell, current the that that decline, what immediately them And to first when prices expect and when opposite they and over that that to costs in going turn there go gives in a we the the and up, We -- quarter, then boost fourth quarter. XXXX. be some go then as through will

then just follow-up a question. And maybe

have On Jeff, you your -- down. wrong, was that, that could this jotted that I and would groundwater groundwater a was is that the color, remarks, on up in volume Can please? business, was prepared US I imply have it said guys right, groundwater provide more down I in you and Canada, little thought number QX. the that up X% If touch

Let quick me look. take a

I slightly business. been volume in fourth the in that but have would think possibly groundwater down quarter flat, the

just groundwater was based I'm that flush bullishness kind all that phenomenon what prebuy to remarks surprised a Can of understand kind that you maybe little on business, on bit a guess your the of trying guess in I and the prior out? down, but was is, I'm year. I overall

hit the the I think head on there. nail that you

of the earlier in XXXX year, in QX or was in it of Some versus XXXX. prebuying of QX

they're as that And And driver still groundwater. us so various improving, certainly have that while in say locations are was impacting that we in well. supply I do challenges a would some

that those add would again, from segment. are Distribution manufacturing of business the segment a sales portion of I of the that, meaningful -- Matt,

very Headwater to but still as quicker out was replenishment, on needs so door down a forecasted bit And were turn strong. little looking the that sales their able their at they were

but the the we So of Headwater. the of through distribution level business transparency sales yet segment we market as that's that and why intercompany component the we sales because of where level, more of or is going can think have strong that be get information volatile large inter

Walter comes And the from Seaport line our next Global. of question Liptak with

price/cost from volume, ask dynamics, to in could price some or there going expecting us -- they're the you in XXXX XXXX? is price you of Are guidance, or normalizing. idea that carryover wanted I be is Is how understanding give it from to much look largely your things an XXXX? there -- you're like

say single guidance, I really comprises volume. business of of talked guidance ago. The our overall, price in mid would like And and it's a we've kind about overall that years digits the couple is

couple average overall. of And there of would some of couple of there. so a But new share the points so built exchange foreign expect continued down we and we for market an points price, headwinds bring a in in volume, from growth products have offset also in and XXXX, helps that

revenue I think, if systems. like prepared into -- wonder your called investments of Gregg, of industrial an -- and expect pumps remarks, growth of you that that market new idea sort how also is that a sounded from the I during and And couple tends initiative, is some this year this growth things, opportunities, or you out see of us just of Fueling give is to going you could company a this is something to And this do? something this into sort the

I'll second first. So one the take

to regards that power server I tower cell used guess products as -- railroad years as with product liquid -- used demand that it think my -- going going backups well system Fueling circuit could fuels for electric the challenges been for been the business, United to about built developing I breakers are monitor electrical discretely business more and So the the in transformers the the for the of And is are grid, to on voltage also assets there's to is over monitor these creekiness, and backup a for in or of the have electricity. as and it's medium an forward, the we're documented that the States land to well call telco, grid. an space we've utility that demand embedded more no need line we like question condition of we energy as already farms. it, increased our describe And now high with and crossing grid grid, think well that backup in as you they just pretty see about I'll across where in mind some that

to And area so growth. critical we that in focusing experience assets monitoring and space, see we we in it expect more monitoring that to used an the our fueling asset developed we've put capability that given critical in on broadly

so we're part continued but to invest are year segment, a of think And to growth. going it's again, and a looking it's And we forward there. continue XX% to we growing that small

One the of improve we've over that because in top more on last by product the should than line in and constraint small actually hampered couple other more line we years, that. areas 'XX, see in should availability chips been is the less challenges of the that of activity of

volatility a the much building diverse mineral $XXX And base in economies, some And last and the of really end is part and million. with areas business the seeing that's years strong in given base, Difficulty] well that extraction industrial our brand In pumps. that industrial what a presence diversified geographies situated and back similarly the have Walter, motor decade, for we're with sales actually other people customer in a growing XX business with a extended the years been impacted middle world submersible we're South you a where position Pioneer of recall Franklin product zero [Technical ag, started brand. by that again may the line, north building in company we're recognizing a its a with is more Africa, ago we sub-Saharan seeing producer the is was we've is the now United had brand, markets Pioneer also in pumps of both It's over we're America, founders of than [indiscernible] we ago. Pioneer past Difficulty] residential more that and where where States, XX there [Technical

a municipal that extended we've applications. bit industrial mining Now quite into and and

greater get do and to awareness continue in of us brand And people develop we to our those so as channels, begin expect well. we to

developments product to going line and look pump developments acquisitions, So continue space at well. as we're to line that in product

maybe And then one me. for a last

tell in remarks, operating in I how wonder and productivity you've guidance? you other could your think talked you about if what's prepared us XXXX guys I leverage. the through embedded increased the things,

Well, cost we with that our net out increases.

comment So in and you'll impact always we're our to a don't at on number we're cost of minimum in I we would the notice terms for the piece. looking to have those offset north projects cash in house see of a driving million, CapEx, well chain. inflation in specific looking in I of piece capacity productivity of bringing the really there, a from improvement supply overall of that drive for you prior but year. improvements. that $XX that the increase we've invested just productivity $XX million statement the our improve That's helping an flows to as XXXX, that's approximately as resiliency

intended to it's offset improvement that on also so to year-over-year, margin and investing annually but we're improve our And inflationary pressures. CapEx focused drive

questions. no showing further I'm

So back with to remarks. Sengstack the over hand any that, I'll closing CEO, call for Gregg

to with all first forward morning to a we quarter first Andrew. our for you listening results. good Have call. after earnings quarter speaking thank Thank We this fourth you, week. you our the look quarter conference in And to

Thank you concludes participating. This today's for program.

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