Franklin Electric (FELE) 30 Apr 242024 Q1 Earnings call transcript

Hello, and welcome to the Franklin Electric Reports First Quarter 2024 Sales and Earnings Conference Call. [Operator Instructions]. Please be advised that today's conference call is being recorded.

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

Thank you, Andrew, and good morning, everyone. First Earnings Electric's Call. Franklin to Quarter Conference XXXX Welcome Chairperson Gregg Executive With is our and me today Sengstack, Chief Officer. On today's highlights. business first our call, Gregg will review quarter Then financial on additional I our will provide performance. details

will take We then questions.

statements. remind me will are the subject These we forward-looking Private Form materially A of let begin, Many could Litigation making we actual you from as Act this which may be meaning we such the differ found within annual forward-looking today's statements of risks Reform the and uncertainties. to that release. statements Securities various be call, discussion conduct results cause of factors XX-K XXXX. these company's to Before earnings in report and of on

information company and, law, forward-looking required by no as assumes currently available any during statements based All made forward-looking the except to this obligation update call statements. on are

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

for and you, us. you joining all Thank thank Jeff,

expected. generally and the team much results price cost expectations, during weather as quarter our quarter were . pressures. well commodity managed executed expected and performed below first wetter Our slightly and the The continuing despite while business Franklin

relates first demand. we as previously quarter seasonally it As our have slowest is quarter the communicated, to

for remains healthy. large dewatering quarter equipment underlying in core $XX tougher in particularly from to We comparison. start a XXXX, made our year-over-year However, net had our and record X%. activity systems first sales or Comparing markets XXXX, million down were an which exceptional fueling

Fueling and have decrease and our dewatering X/X the for rental sales accounted sales Largest in customers, approximately were contributing in the in factors fleet normalized. Systems U.S. order to decrease equipment the demand large of patterns as lower which

by continued improved moderate year demand, versus mix we cost and with favorable margin prior gross more Even delivered the control. driven

addition inflationary As recent investments branch new in treatment expenses acquisitions higher to due pressure, were than water expected, and and of year distribution distribution the prior SG&A locations.

respectively. income and our X%, X% first quarter declined Water and Systems Turning sales segments. operating to

volumes in were comparison mentioned, equipment, previously sales a I difficult large the dewatering XXXX. creating lower As record in against quarter year-over-year first

in by continued unfavorable our the pumping Additionally, systems U.S. groundwater demand for weather patterns. was impacted

basis of favorable to Operating XX quarter expenses. was and margin versus driven XXXX. fourth basis up prior mix and This versus points points and lower the by improved year product freight XX.X% XX

Fueling prior XX% income sales Systems and decreased XX%, and versus operating respectively, the year.

are impacted the in the encouraged destocking year which half in mostly We back point of see that to at diminished activity, the has this last time. business

dewatering Systems fiscal quarter with equipment, created Fueling first record of year-over-year difficult 'XX As comparison. large a

operating to an quarter in basis product increase year. points operating of XX.X%, favorable and was Improved XXX a first Systems came margin Fueling result at mix said, management. of compared That the expense prior margin

the systems in acquisition. across ] many similar parts our the distribution of installations. business year the primarily impact due X% impacted prior unfavorable The business Sales sales XXXX incremental States, negatively start contractor was from of increased delaying the the dewatering [ to by to from United weather

for sales. locations Considering point XXXX investments, operating basis sequential encouraged improvement XXXX. XX of of are to for achieved margins have lower seasonally impact from prior new acquisition continued Operating growth margin margins the decline lower XXX expenses increased a products year. branch on as the due as investment basis recent versus was X.X%, point commodity-based announced on these in we a distribution of operating in well fourth the the to quarter in via

we improves project we as performance margin result, drilling in maintains our contractors, customers a are team see groundwater And weather sight the of as pipelines. confident as season. sales improving we will sales enter Our and line to

close balance with to same the year. $XXX Our continued than period million, the of our lower more at focus million normalized in March has levels on inventory $XX capital the prior in management resulted working inventory

in anticipation the from of up year the normal demand. Although end of seasonal

$XX million strategy. quarter to approximately improved a of prior XXXX allocation to We our in flow balanced the remain capital Consequently, compared the committed year. first cash

focused additional to of investments on continue bringing enhancing make production in-house, internal the chain. We integrity supply our

are an in to approximately since business invested treatment we build We've seen monitoring on our uptick We M&A $X.X platform. billion the have activity. our environment also where distribution and water XXXX actively

We we will couple businesses these through other grow areas. continue in of build actively bolt-on to to looking while acquisitions, are a

larger commercial on a first markets The helping focus is of globally. industrial end manufacturers with and systems

as electricity to no net our to add present critical grow. they to continues With take the we the second advantage monitoring business of debt, are is for in asset capabilities that positioned opportunities The themselves. to grid effectively demand well

returning remain share committed repurchases. through opportunistic our regular shareholders to capital to we Finally, dividends and

ahead the we pressures the of this with. geopolitical continued macroeconomic we year, of have and remainder to Looking are contend to mindful

the quarter between outlook, the $X.XX results be $X.XX. current to of are remained and our billion EPS we guidance full first $X.X maintaining XXXX given and However, year in range our billion in sales in our and guidance to the sales $X.XX

I'd third year. year. published responsibly sustainability recently our the of over most over recognize our Jeff, moment positively I to detailing XXXX to call would like you for Newsweek's communities the the America's and being list report, turning to to XXXX refer the impact companies company's for a Electric in to Before back past and consecutive also like named trustworthy to efforts Franklin employees take our

advances across the global The improves we this management and lives, culture people's availability clean and of access worldwide. that to the stewarded. safety water team sustainability to reliability and has One that proud is also I'm work focus the balances efficiency, employees. well-being of of do with essential energy our

Jeff. Jeff? back call I will now turn to the over

quarter Thanks, with Greg. Greg largely as was highlighted. our expectations our in line first Overall,

the down for $X.XX first and improvement share off sales earnings on profit in Franklin diluted focus the resulted last XXXX executed the first with quarter well customers margins. And in first gross quarter which While a our were year, with team $X.XX we fully quarter an our for from per management, record delivering our XXXX. started the for levels cost versus

in The $XXX.X than of volume Systems XXXX declines. our to were more First the year-over-year were Fueling XXXX from first and Canada sales sales XX% sales benefit and quarter were XXXX U.S. Water in to quarter volumes consolidated by million, the due lower to compared Systems. X%. offset of acquisitions decrease a down Water Systems

Sales the year dewatering XX% of flat equipment XXXX. by offset to incremental Sales impact decreased large equipment in quarter surface sales recent sales first to the compared quarter These other our equipment sales prior treatment were groundwater pumping of pumping were water and declines partially of quarterly compared record all X%. acquisition. sales decreased the from

as XXXX. by EMEA all in was Water in the down million sales $X.X Pacific. the Systems overall Systems sales X% major operating Asia of income or million in U.S. first and quarter Water Canada first Latin increased America, the $XX.X increased markets versus quarter and outside XXXX, X% markets,

was to shifts margin a Operating freight points. favorable XX Operating operating mix improved XX.X%, basis income expenses. due decrease year-over-year of product in income The income due was increase and margin lower sales. to primarily lower

continued the new negatively XXXX the $XXX quarter impacted segment's X% for sales income $X.X first by compression first lower first commodity-based year-over-year The sales was Distribution's in operating million of from was versus decrease distribution sales $X.X X.X% a pricing $XXX million, were million. in branch investments X.X% versus of of XXXX and year. was million a on the products quarter prior locations. increase. income in Income Operating of first the quarter margin quarter, margin

Canada, have buying across first decreased after The sales to U.S. million. patterns of and million year. lines the normalized product the Systems all of Fueling Systems XX% to XX% XXXX. the the $XX.X or customer Canada lower $XX.X first sales U.S. record quarter quarter Fueling XX% decreased decrease Pacific. compared compared in XXXX as was due Systems XXXX. in to and Sales in in Fueling sales prior Asia sales quarter were sales Outside the primarily decreased first a

operating first of million million Fueling compared to was income in $XX.X Systems $XX.X XXXX. quarter the

XX.X% operating Operating sales prior The XX.X%, shift. price margin income primarily first realization, product costs margin XXXX favorable freight to quarter net and in of was a the to mix income year. due sales increased lower compared

year. profit gross Fueling a profit compression freight net from percentage the XX.X% points partially year-over-year the $XXX.X cost gross of Franklin favorably was was distribution the and unfavorable of X% Water Systems, The of sales quarter first million profit basis margin Electric's XXX up by for prior increase. versus as products pricing of XXXX, mix business. XXXX The consolidated Systems XXXX, a quarter margin first in and was in gross by lower the offset product from in impacted in commodity-based XX.X%

million Selling, the in in branch to and quarter recent expense were of the costs. were $XXX.X distribution XXXX. in general SG&A higher first and $XXX.X compensation expenses compared expenses administrative or locations quarter new acquisitions, and The the to XXXX, increase due from million SG&A incremental first

million $XX.X decrease income XXXX, in sales. due the million XXXX. Consolidated to $X.X operating X% quarter income first primarily the was million in down or from of quarter The first operating was lower $XX.X in

sales of quarter operating First quarter income net in XX.X% XXXX XX.X% the margin first XXXX. was versus

Below in XX,XXX in the its quarter, operating of quarter. foreign for primarily common remaining is in XXXX. first $X.XX was due during lower exchange repurchase per Argentina million to The of company market shares for purchased XXX,XXX authorization the by At and of the Which first was approximately the effective The offset $X.X tax the income, equates of XX% Turkey stock partially about approximately expense. the end in prior a share year quarter higher the about rate earnings shares. interest hyperinflation to decrease to open expense share. quarter XX% compared

Last $X.XX dividend X. as will shareholders May that of be of quarterly week, paid of announced company record the to cash a May XX

for remarks. We'll Andrew our concludes prepared turn This the over questions. call to now

question of our line first from [Operator Blair And Instructions]. Oppenheimer comes the Bryan

through relative offer drivers hoping upside, how was and takes how the on quarter team trended reiterated versus year color more full guidance and your little views and could downside into the or at the point? I QX this a you puts orders

it's through and I lower we trended Yes. much quarter, stronger that normal seasonal as March. have expected I and Typically, -- the the as takes so finishing puts slow we start pretty we quarter, trended how believe it January in during there. then the profile. with saw from I going would to move and build in it mean, as think then

The impacted more we the had than thing the one I that business think was weather. expected

We -- continue in the the certainly that in in the impacted much to part western and U.S. us weather see U.S., of winter

was And so forecast expected. or had than factor a that that was we worse

under that prices, stabilize for quarters pricing commodity on the X of is -- those row for seen particularly Bryan. We've to pressures than quarters market other but there. been waiting see the a at that's we've to be some pipe that to point, That continue now. more pressure. a continue commodities. And And then in pressures And couple pricing we has for

So a have an impact. when does year-over-year you impact, it look from at it

quarter? favorable the And into If this mix we of was relative came And the bit. Obviously, could out? segment dig to point, Fueling our trends how in at build a optics there. that model, in the are least What quite asset critical is the ahead Systems at growth accretive margin expectations. in monitoring

Yes. the was it fueling down I a solutions would say performed terms in line that much pretty with -- in business the basis. did way of the on year-over-year business grid

-- digits. been And it strong we digits, so expect that -- grow to business continue we growing has double while and to we double strong

through improve, placing did that the lead They're prior the people supply went some destock. as side early not times And we up saw it year. fueling in think I built orders have on waiting. now they where dynamics same with as inventory are people their of availability

. And decline solutions. we grid a so saw year-over-year in

color last one action, the Any one, M&A Any can integration seems on optimistic. on pipeline And Understood. opportunities color and if the manufacturing offer the I may. commentary you Okay. of called typical of new a areas potential near-term the distribution, whether as build out actionability you well. water ] in you the for or areas couple investment for focus treatment [ potential over

going Yes, doing have bringing our on actually action, ERP onto Brian, We pulled tomorrow. system. integration on is them schedule. We're up, actually that

both plan and quickly. That locations, align on able their top and plan get flow. water bottom right line distribution improved and we on in and ahead in lay we're to our is . treatment, little on good in get of businesses are a And very our line. system and we practices, to bit assembly warehouses out actually, action So to so their business

available [ and groundwater business, the have treatment, to do platform distribution the business, water that we're we in to to an We operate But be of our to continue both exit acquirer treatment. need in people we'll so. ] decide as distribution and

are the sellers just United as also are we're the We decision getting the integrated higher our a I higher we're States, -- distribution rates, particularly a groundwater. now deal manufacturing that intentional in are valuations interest a more being was And United a in leader seeing think valuations that world's interest new a and environment. its I understanding that core, what assets. buyers flow in its at channel and better think forward rate It's in in company, of accepted manufacturing States Franklin's in the

at a manufacturer, our So we're our we're at company. global core, core, a

opportunities again leader so at pumps to people larger ag. as looking being to acquire we're recognize that And augment companies us and in residential a what have

to they're be so that's where grown time expansion the from in to standpoint distribution, that but flow. we're that want markets, that. seeing and intentional that greater adjacencies to with customers. sense adjacent also going we doing So logical mindful of And through And common make intentional We're deal about over we've activity. also being this company either adjacent deal thoughtfully

deal over well. that we've of ago. than, quarters last But at say, the seen maybe couple more flow last -- just looking we're a so And year definitely, months several as

next comes line Walter of Research. from Seaport question Liptak our the with and

and wetter slightly the to weaker-than-expected considering So first related quarter, the weather.

guidance? guidance full about the Can to back to and you maintained the for talk your get half your the year. quarter levels? right has go You to second What confidence

there. say, confident would our with line I expectations, We below our out first say the guidance range belt, that One our slightly I would Yes. we we mean, all, maintain Well, still in that expectations. under I but feel quarter generally with our of guidance. have

pricing. not a of talked couple a other wetter I've perspective, commodities a about and things that bit change. from So some major impacted already us the weather that were little of

was that we through certainly XXXX as signaled build to to expected business year, still really the come we happening. the I that the and I year was we XXXX And talked start think when ended. like going see we that that move and think into much then But we going

predict we've don't not the no recession. we but economists, We're Overall, economy. said

do That will housing a rates see our Areas housing. believe still impact more impacted impacted be like expect little have In market. will more we are we higher a recession little think that don't I a stay I coming. to interest longer by now. for treatment water on a little

last the there second business time But how pretty has overall, a and view I that generally intact our performed I the first for that question quarter year There I was half, think much full guidance. is think over regard. in the about in we're for still think with half line

through guidance we And so that we feel good of end about the the year. there have out the

you. going second are quarter, about -- sell-through the Great. you how fueling talked the seeing you seems And now about then in thinking you construction destocking Are to into season? be more behind

the I Yes, season. drilling right say groundwater would we're the at beginning of

I the a seeing at but this it end so are on we're pickup think time. in of in we front And activity, point

still there's ways so a to go. And

there, We've West As some we improvement it's but parts said, the was quarter weather. some in to by first the other weather areas, the hard key Coast, of U.S. impacted to Texas, predict see started

get the the normal weather on we we we what pickup we'll a second take talk when just we business seasonal overall. impact But the mean, expect in I And so quarter. -- about

pretty our is business consistent regard. that So from

how fueling the you seeing the fueling And at Are is now and equipment destock better of sell-through the related -- Okay. over? the about part to business. that for

Yes.

I this a with the that they in year expect year. our fueling normal think are conversations indicative have more have to customers that we

front as end of the we're well. on And so think I also that curve

destocking are is increase customer we'll we of environment. stocking, we're so normal the at this of -- not a but And year. I And really positive at level, like point conversations pick not an part up indication that point, those a the through this said, more middle in move as the fueling reflective see

are we where that's fueling. so in And

And of question the comes Mike Baird. from line Halloran with our next

levels here. pricing the the the just So just mentioned on couple know on prepared thoughts was the And about anything the water inventory on any think thinking pricing when a competitively. of side, you remarks, the side... water in One, dynamics I more similarly, commodity the marketplace note? in

question that? you last Mike, up, the broke please of repeat could your part

Yes. channel? the on the inventory water on the Similarly, in thoughts levels any side

more details. channels. I'd groundwater, pricing, our as [indiscernible] residential -- at Franklin's The talked a conference challenge And RSS see on of with dewatering, dewatering it one more we the business of November, across is in Companies. we the I more on will pre-covid durability the we're remember fact of still back a flattish. a little that promotional it's we that the the the that the year say globe that you're multiple conference pricing in in where about the activity cyclicality seeing the -- again is kind -- little Jeff, business and get the -- into of kind comment channel,

-- there to we've maintain And margins, some slowdown, a so get been you action saw start results. a when as in you that but pricing see our competitive, able little to

And then price, United enough, interestingly on with respect inflation. States, the the to -- and outside we're getting

getting a -- price in we in price the So so And in Argentina, of price and us. so of [ little in Turkey kind or helps pricing, that insulate spot hyperinflation euros, markets the dollars them ] EMEA. we're RSS that's

respect the groundwater bringing indicator With inventory inventory at to we commented year, levels And which on. we [ of being levels an ] down the in kind they're last of to compared Headwaters channel. channel, look

is lead times are similar doing I that in inventory think of I $XX And down. channel better probably the overall about Our the that coming are down, distribution all things. million. supply chains distributors are think, are part And the because of and

States. a thing world be United drives that [indiscernible] one inventory to is call of of see, could we actually at time still we as but levels. had wetter I first probably year, the in So the here And it. -- we all to this the year, the -- and than of know were and to had plan out Jeff last certainly talking XXX a probably appropriate XXX a first seeing you to weather the mindful want plan not destocking, this at want we're you for before for year respond XXX can't but that -- quarter need year in you the I and is just that, did it's half year don't one

demand drives the start of pumps some As ag getting world likelihood we seeing the on. turned good as seeing out, in

I shape. to low. overly I good think So specifically, in high. don't inventory channel question think your I overly think interest it's don't it's think the to it's I

color any have additional add to you Jeff, there?

thank I you it right No, you. think a feeling water the on, -- you've And as business think no, distribution. I I hit Greg. whole mean and

We are getting pricing. positive

low As ago generally we a Greg normal environment. years of from little price a frequent mentioned, increases outside high more and in more return than in the when were favorable we U.S. single water, saw less the digits, several we're to what inflation

motors, Distribution I price negative be the The and to would is drills [ continues getting environment. price pumps, the core good in ] what on products, controls. commodity call piece current

So that's we're business. across what seeing the

year? on Great. a was you that like prepared for rest for water the remarks side, there. seasonal the think in How mix the mentioned Obviously, good the the benefit. to that or And about looks run what just modeling about second rate margins then you the margins how one, of think do

Yes.

range. the mix, I end think decline a Water the favorable mean, particularly in large got dewatering, from of the which margin the low at is -- Systems I we

just impact then of us. have. being and for be it, that do best that I to XXXX. happens. And year-over-year see dewatering a a mix, -- mix to we the basis, it so overall on We think as is as the so we'll that large a And move expect model the And assume continue favorable percentage through Mike, current way to with go-forward be lower down we mix will

is to That's I year. will year of be a of as large -- mention, dewatering terms though, there's impact. move that lot there lumpy this in we going quarter-to-quarter the through movement

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

Just kind Can have there? you're a maybe 'XX guidance to outlook of of a little distribution more fueling 'XX? then And your what talk follow-up. for year, organic embedded relative and in you water I about granularity for bit maybe segment assuming sort the in

Yes. top normal A a growth. going mid-single large the outlook. be little think we a of In digits overall think know the pretty full down mean which I more impact we're on is business, dewatering, kind growth organic low line I year-over-year we expect to I to from excluding for year for organic Water Systems, guidance basis. the on basis,

X% And so to we that . Fueling. be range. talked that in normal range this that will about in X%

fueling we're of this slightly of seeing think, in and that I a lower be year in strong really terms but a year net XXXX, overall, normalization bit market. a of positive off still they've come will in demand

So still positive overall.

distribution the what distribution distribution, an think, possibly when on we as the water to come into -- as then organic I upside season similar up. picks systems in basis, we And market market and see some in

Got a it. distribution. And just on and kind follow-up then water of

look Canada, about U.S., are of there terms And you how thinking how perform ag? at 'XX versus you in If relative 'XX? residential to organic for did your business outlook

basis. first the interesting the single that's say, weather impacted Interesting, slightly, ag the And during a quarter. of in Ag would was overall. business, a on on believe quarter. question a year-over-year somewhat factor I I basis, digits was residential reflective for was down year-over-year was was mid-single . Ag a which weather groundwater And by also little our the in low Yes. digits. quarter that down impacted quarter more down

And our residential surface then, other flat. Matt, is business essentially pump

Right.

product Those lines

business to dewatering, 'XX off coming decline is year is How of do record be you given top that modeling for year. to outlook dewatering respect it headwind on with large we business? in that organic this revenue in the of of to think line as a pumps a on 'XX overall Water going x in think I much kind a basis comments With expect that Jeff's in a relative about 'XX and

Matt. Yes,

There's let a -- there's unpack of that little So bit. pieces a me couple there.

of a we to watering, primarily Canada, is it U.S., then that So have rental the which large talk large when have companies. And about selling fleet piece that business a we is fee global. we is dewatering

to U.S. year-over-year we pullback in fleet significant business And are the quarter. XX% where we seeing so about the primarily rental . companies, of in first is saw basis the the the on a

Our U.S. for XX% actually in was up of quarter in Canada. first the was XX% the outside U.S. business globally down Canada the

of that XX%. so decline to us year-over-year about And gets a global

really and fleet rental in the business So the the where Canada U.S. large this pressure seeing it's in we're year.

I to would business full expect in of coming overall, the mid-teens globally, think in million it our be we for year XXXX about a $XXX year, record the down off of sales.

Thank turn you. the back over remarks. for closing I call now any Greg will Sengstack to CEO,

our you thank joining look quarter results. in We on call, to good us our Have for we morning second to forward a this conference speaking with and July week. you

This you thank Ladies program, may now disconnect. today's you and conclude gentlemen, and for participating. does