FELE - Earnings call transcript Q3 2020 | Franklin Electric Co., Inc.

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Operator

Ladies and gentlemen, thank you for standing by, and welcome to Franklin Electric Reports Third Quarter 2020 Sales and Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host Mr. Financial Chief our Haines, Officer. John Please go ahead.

John Haines

call, Goody, quarter XXXX you, Gregg our business When Company experiencing I'm On questions and have quarter our me welcome time global third impacts through, from our third and our will Electric's Sengstack, today's for and CEO. we'll I and Franklin to Chairman review will earnings the is answers. review third quarter results everyone the today Thank and Gregg conference With is pandemic financial results. some call.

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

Gregg Sengstack

us. for all you, joining John. you Thank Thank

dealing company the in my noted pandemic. release, As I are how consistently our press with and with I'm X,XXX colleagues impressed our

people maintaining facilities great safe. protocols our teams keep Our continue global to job and product a supply to leadership do

improve, CDC including and government and with local new requirements. national, operating to health We both guidelines authorities continue of state sequentially the and to around and our year-over-year. continues protocols, the these performance Even globe, requirements, follow the guidelines

double-digit any quarter With excluding earnings pumps recovery history. consolidated in record our for benefit U.S. and per strengthened product quarter organic in operating driving demand earnings, income growth and the our thoughtful control, well. U.S. through Water in outside Systems price, expense dewatering the revenue share of as mix the quarter, large the third drove our the and

While business price demand offset the Africa. our inflation, sales markets in of in all Large to growth, North Turkey driven by business in pump albeit rental depressed at customers. experienced given our Brazil with of by the the increases pump was organic and the generally, part Middle strongest strong and lack dewatering are stable, end levels East exception

and X% Outside of the Our Fueling quarter. in Systems last quarter down In compared was China, the the declined is recovering X% slowly. revenue year. business to U.S. Canada, third Fueling

but it like improved currently Our business was sub the China in $XX rate in slightly, is million, XXXX. run more

Our business strong. well. perform continues U.S. distribution Demand is to

which groundwater western average the east dry in While favorable and been businesses, it has for manufacturing U.S., of the Mississippi. our it is distribution generally is wetter than

However, the except overall share sales and upper strong where lockdown the gains. recovery gains seen are we've across Midwest, country, post for uniform

record we company, availability in we Although reducing to to working our continue experience chain, Across capital supply our progress the flow. to improve. free product continue challenges make some cash continues driving on

Turning U.S. the manufacturing see in our remaining and to fourth for distribution demand the we groundwater both strong segments. quarter,

generally result year. the favorable contractor significant of of second lockdowns a quarter the are for time and As this weather backlogs conditions,

is with also end good channel We demand HVAC the plumbing steady recovering. inventory market see and business as

the closer expect China, is good U.S., have the business improvement. steady. dewatering North be and we expect demand Outside Gasoline to to pump see East our where small demand is levels. consumption of for U.S., we solid. to Outside getting data, a Systems Fueling We except sequential large Africa, the pre-pandemic Middle in

has monitoring programs double-wall vapor systems a visibility our upgrades U.S., some that remain Chinese the optimistic in as of growing see outside we into consumption meaningful additional well. China, are government-mandated the will of recovery In challenge. the economy, pipe that gas with been fuel installation stations. of expect always in the We rates number a We funding of

year. do Overall, around with to overall operating up year. currently not XX%, revenue we the pump our lower Systems XX% around see down quarter quarter down fourth XX%. improved over revenue be performance, digits. our forecasting of quarter that and happening the fourth continued Distribution we're we XX% Systems will mid-single However, Fueling Water With this dewatering revenue up earnings operating fourth drag believe last sales,

to with XXX% share $X.XX of we we So to back estimate from strong per will increasing a net cash Also, turn were are cash for earnings midpoint $X.XX. free to free our I performance, call guidance income. the over of a our now increasing of flow John? John. midpoint annual annual our flow

John Haines

Gregg. Thanks,

third fully quarter history Our company's of $X.XX quarter the diluted were record any a the at for XXXX. per of $X.XX the earnings for in quarter XXXX versus share for third

million was $X.X realignment of before compared quarter were of expenses in segment $X.X Water on segment Systems activities and quarter Water realignment were related quarter third to expenses XXXX quarter expenses in EPS per third in a the impact quarter activities Systems earnings $X.XX. in and restructuring a manufacturing quarter third in XXXX. XXXX. share million resulted the the various $X.XX impact third XXXX earnings the restructuring of also of third XXXX related the to per share various EPS were Third $X.XX the the before impact resulted Restructuring of on of and in $X.XX in to also in manufacturing Restructuring

channel. foreign of in X%. third revenue or about of $XX.X by quarter of million XXXX. third increases strong to the versus of XXXX the quarter were equipment which million by $XXX.X by Water to dewatering lower U.S. XX% X% increase by to rental X% quarter about decreased down XXXX were offset the Sales by sales third X% groundwater to due and pumping of compared United were pumping equipment of increased in the System of lower sales Sales currency the These surface flat of XXXX $XXX.X third Canada due outside sales about markets quarter overall. Canada due XX% and XXXX sales Third increased sales sales about by States and to Water demand. market Systems and sales compared quarter increased an equipment million, translation. were in end the

expenses due quarter SG&A or the million. Operating mix sequentially, quarter Fueling region; In to XXXX, translation XXXX XXXX. partially income compared of to in of were were The about XX%. the improvement was as gross from quarter XXXX last down million of mix. the in quarter the of Canada, Outside Favorable of the the sales in almost sales costs by were to to third of third events. and Africa to year by SG&A Foreign of the at was sales the net three quarter sales currency U.S. to Europe, effective third $XX.X Latin the revenue. and $XXX.X the market. XX% variable driven was be to In XXXX third Asia XX% sales Asia million organic Systems the growth our decreased was translation. $XX.X less continue XXXX net in sales the the million compared new sales in Fueling third last of third were consolidated major about third Systems driven quarter and sales better The in second to sales profit for Selling, versus in and profit sales revenues sales expense, in XX.X% In America, and primarily third higher, quarter. China, by increased China, above the versus X%, increase to by driven U.S. $XX.X of XX%, distribution of $XX of management. XXXX of increased million from compared favorable Water XX%, XXXX, Pacific stations. the XX%, outside XX% fueling quarter. declining a conditions quarter record quarter XXXX. pace decrease income due XXXX by about sales. driven of company's product higher the entirely the higher rate of XXXX, in of Water Outside quarter of income offset events The realization, foreign did million growth XXXX, in income the demand the quarter product lower sales of quarter XXXX. $XX.X realization tax by million XXXX; operating lower The Middle discrete versus decreased operating Pacific, primarily the primarily of Systems Distribution not quarter third filling $XX the by quarter system weather of quarter XXXX in sales all third and third million than half in third quarter to due with personnel lines XX.X% improved of East third all about geographic compensation million $XX.X in XXXX to quarter being product mix and million $XXX.X profit contributed growth. keep the and year's from compared $XX.X third of revenue third gross Distribution and compared operating million they XXXX the an U.S. price quarter by by was improved in was discrete to was of cost in in global third quarter down sales unfavorable gross X% third to The primarily declined general the a down administrative and an due System Canada, the the compared Canada in the Systems for million. price sales quarter, Fueling percentage and in XXXX. $X.X organic the quarter currency about primarily China. segment third third net $X.X Fueling due segment System product third expenses result

was guidance. be XX% tax the made The free of to continuing quarter that the a XXXX to million million original third open a purchases of company $X.XXX during XXXX. rate XX, market company net generated Yesterday, stock balance like XX% – the capacity will nine-month months be and events Our on This call record dividend consistent XXXX shares we'd of quarterly cash nine quarter November September discrete free company XXth authorized $XXX between cash about total $XXX.X million. on Xth. of concludes The flow first At XXXX ended the $XX.X incremental of remaining questions. million of of now and the of cash effective with total our nine with prepared in $XXX.X the over flow the the no during XXXX be and of from should may XXXX. XXXX, quarter borrowing third the in financial turn months The versus XXX,XXX. company's paid that of for November is of end of remarks, cash common announced of our its the third shareholders repurchased and operations

Operator

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

Your line open. is

Mike Halloran

morning, good gentlemen. Hey,

Gregg Sengstack

Good morning, Mike.

John Haines

morning. Good

Mike Halloran

understand weather If So granularity thinking water what that make looks of sure of let's mirrored the third to other trends the real I side, markets? give those correctly, quarter. the on focus the remarks sustainability you with some here. fourth just in in as maybe as you're the on a the But – market well and could are sounds the pieces some underlying the about be dynamics fourth prepared quarter I like like, how the in groundwater how heard of kind you're sustainability excluding ag it on about in quarter going thinking the

Gregg Sengstack

Sure, Mike.

North look seeing QX, for business point, and business, our to QX climate on that from both the you it's as a of ag contractors. and the business. for been groundwater, the get that with recovery good we're our there's our seen groundwater we've backlog QX effectively side there's And out more space And plumbing American that is with to residential good if is So information we the nice backlog kind business, Distribution which at also we in in given then what pushed feel and good focused of a just HVAC much our your business.

America, of good United QX. years, lower the as Latin unlike field, QX. with weather reasonable, think long We contractors to the the of a globe, into Africa the carry again that's prior in Outside were States, can around seeing generally more going as little bit impacted achieved get in steady. North a in to the go is and Asia So oil steady, exception is that slowdown you that like, out Africa, Europe we Saudi, continue demand prices, we're by the more

last water move demand the just into seeing end we year. markets as of we're the across those good So quarter

Mike Halloran

through Segment and what So there the try and on ahead as channel, And inventory thoughts rebates? out could the maybe customers an as of within pull get – enough touch like in this well year then both whether buy look the some to on some levels Distribution? your for any the to Water early there's

Gregg Sengstack

is struggle strong, they're but business plenty their second multiple to supply got Well, just struggled people the comment early because being up suppliers Supply side. little actually chains. and we quarter, still even as not maybe in because people had with much have others quarter, can't a maybe to as a and our skinny good, say supply basically chain busy. plenty ourselves I ramping I see third for the Company. do chains generally, inventory really for Distribution you buy bit start Headwater would as the

so even robust. from back And to I that We've [indiscernible] particularly to towards wouldn't key are for cash tend in case, half suppliers. own People you whenever saw actually go system. with these a our we Franklin, September, in think have now, some getting the but shock components were the struggling situations help inventories we of

particularly I levels robust inventory would are think the that so channel. And not in

Mike Halloran

you're obvious, sense. what generation, changed, last at out looks cash really invest first? there, optionality on the usage yourself like really excluding I'm has the cash landscape is priorities, Yes, in And much makes that M&A love the which strong not guessing any some then thoughts position. how good but cash and one, looking

John Haines

Yes, Mike, view we towards hasn't M&A – our changed. really

some have We transactions we at. look that to continue

as particular, our take say we'll sure but looks, continues as it's – from working accretive be coming, or robust, I'm may the may we'll that generation it's where pipeline, is that is outside The really Water, the But the you it opportunity. to cash if in the is good is and performance maybe us largely of see the be it's improvements corporation you working U.S. Distribution, those may And in we've capital can ratio around U.S., really some see made from capital here. XXX the know, were an at not a would here. measure we in be acquisitions. of the priority, the time. at go. And end may than team XX% opportunity, And good in So quarter, there, be down to which we're got last That better year where almost points for it this we're not important I basis a leadership it's really we've getting Fueling,

in chain pointed the quarter. Gregg they've environment great to particularly kudos for the kind of out, improvements there, not and So team as easy supply made the a third

Mike Halloran

Great. Thanks guys. Appreciate the time.

Gregg Sengstack

Mike. Yes,

Operator

Scattergood. the And our next Boenning and from question Ryan comes from line Connors of

open. is line Your

Ryan Connors

makes. difference Great. Thanks my results, for the congrats taking a And months what great question. six on

Gregg Sengstack

Hey Ryan.

John Haines

Ryan. morning, Good

Ryan Connors

back. bounce remarkable Really

a there's talk really start top bit margin but the some the holding particularly side. well. obviously, on with headwinds I to wanted margins to little there, and mean, I up So, line about Fueling,

– margins point, you some is John So a hold b, down we that? down driving drill in get are get that? If do there margins and here? can line upside a line what what's little to the you there can than a, that And at we the if what's a did, to different continue bump, more from leg enabling actually for top scenarios that And Fueling? we on and

John Haines

Yes.

at work of there, So two factors Ryan. kind

Fueling points. neighborhood nice the had quarter, we is the realization one in XXX-plus of in price first basis The in

out that's done managing matching chain, nice the increases has into going a supply inflation its getting and then coming job and and market the So price. of at business

impact. big a that's So

The well line kind other increases. on this done year pandemic that of be flattish business thing that expenses. and a really SG&A SG&A year is XXXX a now held the Understood has was really at down the controlled to our because and of going

with So the healthy. It's a margins, when XX.X%, up. in as talked to get of on up Sequentially, pretty try we about always Fueling little you even get XXXX. I where uncomfortable were it's just quarter OI third we is know,

just product too get Systems. And mix range matters, I for Fueling So mid-XX I beyond think that geography don't mix matters. up very long would fired for

and we on opportunities are world developing great, capitalize just builds come other continue forward Now station of in as – look to these which the we some in back China, opportunities hopefully U.S. see

no the to those job those managing to price of question those comp, about business of I the Some contributors are of comp, in main back. would variable There's is to the SG&A a team leadership going doing But of come that. there really – the come is are things going factors. the kind point SG&A costs back. to overall, And some nice

Ryan Connors

imagine got the Okay. then I No, business businesses, and visions election impacted Fueling. obviously, that's vehicles in two of than electric forward of forth. many there more different path hard to so impacts but it's the you've kind terms of a mean very

even out at three kind of look this a So fuels from if landscape impact? can little and the that you does a that look that, the you risk away place, Is could what's tactically? of that obviously, that – now that more impact as broad terms in real as take from still But you on back something months come pretty out? movement is. Or that's fossil there how your about there's is something if view the far that still tangible risks what opportunities there that and know we definitively, talk it

Gregg Sengstack

they the which and as diesel, to And from underground going started good with demand, We create where with diesel can total some we to the problem low-sulfur lowest of bigger thing. some challenges, pain corrosion solution Ryan, of become storage for had problem low-sulfur is better much is operate we example, diesel, sulfur respect is solving which innovation tanks just corrosion shipping systems we going for ownership. from it's growth go control their have to it's our cost the But corrosion so diesel, With coming a U.S. the environment. worldwide couple safely for to low market, systems of to go observations. points, a to a for customer and a that.

ownership. lowest regulations, example looking mind an a driven station that's that's not in cost or being total by a of by, So again, for vehicle the would likely that operator the I today. driven of sold keep vehicle the product is being road within years. the most going on liquid is of United outside States, XX States a even fueled United is to That's for Also, be

solar, to question first. be over to a while globe, data But various regions build-out. no a vehicles around, consumption the you a long on sources. look if for type some all so going time, and at question it that in massive from come is fuels And of decades. So conversion developing energy are there's to wind EV And solution of a across around conversion we're so to great no to energy without aircraft the around that's and to energy is way be move part vehicles liquid going need going there's really

has growth business, outside United actually States. see rate so And rates inside growth our just the States we is United our Fueling the often exceeded the

to in, have help will as simple can India, elections, confirm again, some to so like then the environment. Outside but good we cleaning recovery fueled which with started systems As vapor real systems recovery, Stage building at would environmental as air really States, way gas get they of they correctly, vapor to see not out the vehicles, for want around marketers India, stations are are the they pollution major Similarly amount capture and these problems. stores by of in as that. impacted some the initiatives looking stores, China be our the VOC. really in liquid stores to and consolidating sophisticated very United subsided, new the we we that do in these know more equipment. now that there and long the are that China that in-station be up was X X effective are working solutions stage U.S. smaller and which diagnostics significant a Again, put and environment you're

– fuels good So business. see And we as as it going we're we as systems that for driver long our have liquid in decades, as seeing we the these we're a our being fuel relevant. have see those of being being to growth world for

Ryan Connors

Got it.

But then Now, the – towards my end if a that's really missed little of was – were little and your – seems in I last great commentary. question. it sort answer to choppy really under a a legs Thanks, I like acquisitions, and apologize you choppy this last And it one Gregg. place has when you and its the gotten about talked M&A good distribution of here. is

anyway? the other through yet, passed, The Is where consolidate that well. pains really to maybe be space still is to that business would you of kind mix. build doing looking it's that and But overall area needs in acquisition? growing I smallish particular know a

John Haines

Ryan, be done Yes, don't comments. going a more anybody out space. consolidating and see is. couple else patient there thoughtful it this We've of kind We're and acquisitions. several We to of

we to these know the of the entities. when think factors it we comes kind valuation, and outs key evaluating ins and So

to going don't where parts there's about geographic to the we're better and opportunities, certain it thoughtful and be going presence own country, platform think have. more a be those. of to yes, might be that So We and we consider there

is execute as thoughtful consider answer we'll on at the those. be And yes. very – short So come us the answer we they and opportunities how

Ryan Connors

thanks. appreciate I Well, your Super. time.

John Haines

Ryan. you, Thank

Operator

Thank you.

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

is line open. Your

Matt Summerville

Thanks. Hi, guys.

Gregg Sengstack

Hi, Matt.

Matt Summerville

up with where how you a have you from first, shape preliminary might Pioneer's that soft XXXX? With on initial in view you think business right the dewatering, an of do respect do comes standpoint revenue pieces pretty two to in the sort of business XXXX? for that are now, in And

Gregg Sengstack

houses including there. share We're those to impact doing – you But the as little on Yes. on XXXX, is Matt, this activity, know, fracking our there. work $XX-ish to activity. sold to they a line something big equipment OG a now out in top million, rental U.S. hesitant XXXX. million anywhere, and put the I'm $XX then big right rent

good think good that types for we America North mining, different news America, that but that, watering really the internationally, not And the up applications, continues real this views least is things Latin of to on other applications at Africa pick I moment. on the in So at we're there's that, bullish The business some in some we Southern see that. traction traction Australia; see like with product. traction in

So that that's it's kind the continue to as positives we'll to much smaller, line U.S. than of are some there course, this of well, bulk push in in product the try that. and

Matt Summerville

Just was you're you you I kind business that like thinking heard is it I hear unless going correct correctly. your your the in of remarks, fourth of be theme. And sticking guys didn't – in in recall to digits if I quarter water think XX% mid-single correctly, in I QX, with XXXX. dewatering down prepared If down

in Can a little down I maybe guess to QX. anticipating that I'm expand surprise on you're you So Water be that?

John Haines

Yes, Matt, thing, seasonally, fourth I going the we're know, the quarter. into is just as think, you key

in both really out, believe up surface As a what's the trail happening was and some to going is in in pointed we the That's we and Gregg recovery second de-stocking, surface the quarter. up of of was XX pumping U.S. quarter that surface that saw nice Groundwater right. in off, X groundwater

it's Gregg of think in positive depend our in the of do hearing to And out areas there that's going business things the contractors that things decline. now, the a that's then We're being quarter lot a more this there second positive work get when were least at on hearing as groundwater that's in start As than to that suppressed. distributors. able coming country. definitely of to time. favor, work. our out of – the to Right said. there's there's is seasonally conditions predict, we a lot And and really resurgence from weather the have months, lot this Headwater going demand into of And We difficult to the still we're been winter is get

fourth that's So and lots second a quarter, XX%. It the And was for don't change there's dewatering then to puts dewatering takes, XX%. quarter, in expect much. we down tailwind and down was of that but

out said, expecting the comps the But I quarter. easier. get we're that much fourth of group Now as not in product

Matt Summerville

piece China for line it. you to other think then And that fueling Got is of over from the do guys. standpoint comes top you and in XXXX business of soft in Fueling, question, Where a the kind should thinking similar to the think this we XXXX how revenue. my point? How next sort dewatering be context in at the the that about – of about ISD of how stuff, environmental-related should wave of we this

John Haines

The line keep $XX to top $XX We to million, million million range, inching that number million. XXXX, Matt, Yes. $XX it kind for bit of $XX in somewhere down a here.

is is, in fits lots is – our And our solution too real. it's much just of up, and sure, needed volume. reality In mandates environmental China product that There's for but terms of technical to these on looking forward, our again, but hesitant the give what there. XXXX, a competitive, little are with

to So we optimistic. be continue

with I unsettled in the there. pandemic was other China or think think issues XXXX we and floods year a highly and XXXX

is our will think traction see volume we'll in our I it more view Fueling So in that generally, and China XXXX stabilize, Systems for business.

Matt Summerville

Got then last it. And just quick. real

price Can business? the you for mentioned John. same Water realization Thanks, You give in your figure the Fueling.

John Haines

a nice it as Water, was quarter Yes, well. in

of that, on developing out, region some Now some our of – pointed regions spot developing as rates. businesses price our is Greg

and Systems, and a kind in range, XXX price the in And point kind the Matt. range In go more three XXX basis point Water get to of distribution, price. year-to-date they starts a basis quarters, X.XX as Water of So the And up in through realization. to for go in X.XX to point of Fueling half full we're FX we're the point range. the in range

have it's been a good done teams nice stick. price to job the nice a year, – a it's So been getting at and

Matt Summerville

Great, thank you guys.

John Haines

Thanks, Matt.

Operator

[Operator Instructions]

John Haines

we're Lodi, some Sengstack. call commentary think with I ready to from up wrap final Mr. the

Operator

any Gregg I to over you. will turn the remarks. call Sengstack Thank Mr. closing for now

Gregg Sengstack

you, Thank Lodi.

call download our to and attention Franklin like Electric we I be to available today issued Before will would for end your report website. sustainability that on this the XXXX call,

public of you of forward earnings our of measurements, safety, joining our safe. your with We report following Electric's are quarter for this and disclosure foundational morning. continuous protection, established manufacturing here and well-being the lean to a first Take the employees, Franklin us A environmental our social and to While innovation, is improvement look ethical tenets commitment success. Thank culture stay principles some our joining of contributed this call important environmental long practices. and compliance policies, our on fourth to conference us sustainability of history care, for release. and

Operator

today's and conference Ladies for concludes this Thank you wonderful call. Have day. a participating. gentlemen,

You disconnect. may now

Franklin Electric (FELE) 27 Oct 202020 Q3 Earnings call transcript