FELE - Earnings call transcript Q4 2020 | Franklin Electric Co., Inc.

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Operator

Ladies and gentlemen, thank you for standing by and welcome to the Franklin Electric Reports Fourth Quarter 2020 Sales and Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference to your speaker today, John Haines, our Chief Financial Officer. sir. ahead, go Please

John Haines

will answers. and review conference to for we'll is and call. and in highlights When call, our Joelle, full detail. quarter quarter of more fourth year Gregg Electric's some quarter XXXX have questions Chairperson business Gregg today's On earnings With I CEO. through, our welcome you, time fourth Franklin and will everyone and fourth Sengstack, review our Thank I'm me results today financial

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

Gregg Sengstack

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

their the publicly challenges negotiating to extremely during thank to our while their I'm global and press inherent proud in And as of As pandemic. the on of laser release, times. focus for employees I these team operate the noted continue serving continued of our customers, I our execution difficult we want dedication

fourth a results, our XXXX ended the sales record to Turning and earnings in strong position, quarter. in delivering we

hosting in organic business and quarter. Systems income rebound the record margin operating to in the X% operating growth, Water second slowdown the continue from pandemic quarter, income Our

a organically sales record increased in to fourth business for quarter. per any grew time fourth our quarter first addition, XX% basis, a net the $X.XX fourth the On profitable share and In quarter, for Distribution consolidated history. earnings was the its in XX% in

For the operating but full X%, increased by our XXXX. income declined versus net about by X% our year, sales

share income per $XXX back $X.XX, on and of serve. end water free the or versus markets earnings XXX% before a per tailwinds to the the restructuring Our X% million, was cash increase approximately record was XXXX $X.XX in capitalize year a from half expenses full operations our XXXX materialized flow XXXX net are we We the about gain share. poised throughout momentum strong of that XXXX

two and completed the Treatment one Central also key Texas. Groundwater Water business Canada, in in We space Distribution the in a other acquisitions, strategic

are and great platform that We for XXXX new confident beyond. offers growth each a

through when Dewatering provider drive a demand expansion competency system our were Middle Dewatering large excluding the the lower in growth Organic of America, Pump Systems to East. the X% Pumps, brunt continued which sales. led was US and and in our you impact. the Pumps' Water X% US, the bear by Africa Latin line results, of grow growth Outside working. Dewatering strong global and exclude to up strategy earlier and catch design Fuel Systems platform year as and leveraging the extensions, product Water Our Favorable geographic in Systems and in Water some weather our continued US from to is global businesses

will material to maintain take price I us are and This to the raw margins of from new fourth we income we Water operating continue the our of and achievement to have points face actions price in necessary margin inflation. increasing quarter in actions addition mentioned, record taken income basis XXXX segments. in System's both offset quarter, about achieved as businesses price Water fourth for the to benefit to operating we Our in in prices for Overall, XXX globally.

US, great XXXX indications in market also a the due US most early West strong in has Central of the by to factors distribution of favorable the Distribution are encouraged lot recovery the Headwater. business acquisition groundwater We market Pump well very up in completion market fit and and with all in driving important new outlets a momentum, momentum the Gicon agricultural provides of of in pandemic favorability. is a continued see commodity in underlying the late December. and installations position are catch and weather this Gicon some X of a Our prices for and continuing Texas,

profitability history, quarter achieved XXX for year in Headwater like before operating charges basis restructuring points. time first importantly, the through fourth margin their XXXX full in Finally, its the more and income

most Pacific. So Asia of our our America as notably and and high US, strong we Water US XXXX, markets in strong, to demand, also look year. the and this time Latin the forward are own quarter Distribution backlog the customer in see we for measurable Outside both remain

we in XXXX. As single-digit organic our in and segments Systems a Distribution result, Water growth expect mid

Our Fueling saw sequentially XX% the in Systems we finally fourth worse quarter, the about business revenue third in than declined quarter.

and last in this And System business business slowly in declined As the will China XX% more versus in past, the year. from we about about we Overall, quarter have XX%. the fourth in recover Water sales believe business. the pointed Canada pandemic our US declined the out

of are Finally new customers, to third our Systems saw causing tanks. the fourth to worse Despite for tight buildup see storage that we Despite due corrosion, record fuel team we expense products underground focus intense our Corrosion winning we margin in - on the of income fuel [ph]. Control declines, tough no quarter, indicators not a Even the year, our new achieved quarter. these revenue XX.X% share [price] that costs. compelling the including station in with controls, decline in operating water continues fixed System innovate mitigates Fuelling equipment the than fair introduce and global Fueling

completely XXXX, more will System are and recover are X% growth. to business X% in We confident expecting Fueling organic our

opportunities in solid in America, have recovery growth will and Latin expect capitalize not year. for we this that China, Africa India on do we organic we Although much

to the range this capital. attractive the will to as factors Canada X% from targets market the continue facilities that grow new make expect year, buildouts on will and retailers X% We stations fueling retail favorable major continue economic US in based and view

For $X.XX the revenue we believe company, XXXX be will earnings XX% $X.XX. approximately XXXX the will grow of share per our range and in to

cash We to also generate free capital working due to significant expect improvements. flow

to net expect strong and as to balance performance in cash the to be drive opportunity us of turn now I income many strong than grow forward greater us with years continuing to provides inorganically XXXX, XXX% flow continue our the and see ahead. the coupled We to the call well. We growth to in over ahead free opportunities John? conversion of John. look will back sheet

John Haines

Gregg. you, Thank

the to quarter $X.XX were earnings of in Our quarter $X.X the related share for before fully versus Restructuring of $X.XX impact per per $X.XX quarter before Fourth to activities resulted the Restructuring the and quarter in Water XXXX segment the quarter fourth on $X.XX. and million realignment expenses the in manufacturing EPS on at of were Water quarter various impact were expenses XXXX. no Water quarter quarter a to sales decreased $X.X the of restructuring in per million. $X.XX, fourth of in record the compared diluted of XXXX, impact XXXX due in of Sales a of and million decreased XX% and Canada segment was were X% lower of fourth $X.X were million, for Equipment activities compared were fourth were channel. lower foreign any quarter earnings in in strong expenses quarter of Dewatering US sales up Equipment, sales due history sales XXXX rental XXXX. Systems EPS compared to share outside XXXX in restructuring XXXX, and X% million acquisition to XXXX due fourth company's sales quarter fourth quarter fourth of realignment Groundwater various fourth in share markets the XXXX. XXXX increased also the fourth earnings the These related to for fourth in fourth manufacturing Equipment sales about by related about of by Fourth down of by due demand. increases $XXX.X by the market XX% were Water increased Systems versus translation. about Surplus the overall. currency and or quarter Canada Pumping Pumping about and X% in which by the sales were sales. about X%, to Sales the offset primarily XXXX, to by quarter to US fourth $XXX.X end revenue the of had

the was driven due in Systems fourth an Systems price Water of filling XXXX, decreased Middle XXXX, in quarter driven income America, translation in China. XXXX, $XX.X increased the by operating of higher segment sales sales compared US and quarter the entirely currency declined Distribution of of compared East States were by sales sales $X.X XXXX, for Systems $XX.X United million new Canada, to XX%, quarter contributed Outside organic The in to by by compared Outside Canada, income in XXXX. year, Latin the to quarter declining product million last almost and the quarter the Fueling the revenues. XX%. XX%, of The Systems by million. $XX.X growth. loss in by Distribution Asia to to primarily product the decreased all million fourth in lower the record XXXX, $XX.X Europe, was fourth of fourth fourth demand fourth driven the quarter cost lower Africa versus million compared and realization, about primarily sales management. sales fourth Canada million to in X%, organic decrease driven quarter and Water and operating quarter Pacific, of markets. to in by Foreign about the lines quarter million of Distribution sales conditions quarter was the Fueling operating million XXXX, of US $X.X segment increased mix was operating System at XXXX XXXX station. of the Fueling $XX.X versus fourth of the the in in a weather fourth sales revenues income by sales fourth revenue XX%, XXXX. compared $XX.X fourth quarter the Favorable and

Gross increase XXXX on that net ended of sales of XXXX mix of increased an gross quarter incremental of dividend was from quarterly February the made Selling, paid compensation from fourth $XXX.X general of XXXX, the XXth that The $XX.X management. XXXX. primarily due profit record of in operating administrative of Company total XX.X% profit of fourth free of from of XXXX $XX.X $X.XXX and the primarily expenses quarter shareholders million expense, the XXXX, million were However, discrete no costs XXX by million. common be in percentage XX%, variable shares aggressive lower of price the events estimated and fourth the partially XXXX. XX.X% the fourth market of XXXX. cash Fueling XXXX we as to of end million will XXXX, generated was about quarter like Systems quarter company's borrowing capacity cost and of expenses XXXX share effective gross a open XXXX. fixed in XXXX XXst, about result The to prepared favorable call in product fourth Xth. in quarter net quarter realization, by operations by management. discrete versus million the quarter and Last the of authorized quarter net offset were of due profit XXXX, XX.X%. remarks, versus offset XX% for company's better a fourth the of to consolidated net on tax purchases compared XXX sales XXXX, million revenues record per for cash cash its month, in the quarter during total fourth free company tax in fourth fourth basis December stock balance income due the would our in $XXX.X and by the flow as in was translation. quarter currency higher, February of of rate, fourth a is a In million. the be the At points, rate, was be of improved questions. were of $XXX announced company $XXX over to better $XXX.X our fourth $XXX our cash to the with basis of is and margin mix SG&A XXX,XXX. million points repurchased foreign about The may was now This events effective events XX.X% The to turn up to XXXX, in concludes The flow the quarter the remaining increase discrete sales

Operator

Our comes Davidson. first you. Instructions] Matt from Thank question [Operator D.A. Summerville with

Your line is now open.

Matt Summerville

couple Good morning, Thanks. questions. of

sounded the will inflationary we Should strong points in similar quarter, that in price And like offset of the be steel? and the almost about up fourth realization, copper First something particularly be year-over-year. in magnitude you it like so, for very things pressure basis XXX to if entirety had we're seeing enough thinking 'XX?

John Haines

in XXXX. Matt. part we the of the morning. XXXX but was inflation an to Good second part of do offset going Hey, expect of in expect of anticipation XXXX, achievement on In on happen side inflation the what we and back the that, what's in to half

XXXX, but that inflation. but But consider come XXXX were of the of incremental XXXX, XXXX think still the we're inflation we at the from same that we So carryover then I the to of out price - XXXX in impact level, course, front actions, be we expect to achieved to going think we the will get when and XXXX don't actual part in ahead.

Matt Summerville

activity Thank one. you then mandate think And India. it. two, know, remarks, in business and with Fueling if government upon environmental that And where - Fueling related in the wave this some of about a could we're activity Number sticking next bit? with number talking at Africa you you. China? Got I Gregg's International expand it Latin was Maybe, America, perhaps seem then, in

John Haines

way some we Southern now BP of then that What venture believe we the couple Latin And India, years those joint of station is right for there generally. Matt. out to been there America, in look a are are expect out seeing participate build a in. some for of The indicated, it's they the been clear. to to believe back China that some any to under a pushed that in life - into that little didn't In wall plan get Reliance, opaque, initiative to all to reasons more is we - build are we're that, With program quickly, Africa which double couple that pretty in and related to programs piping out station but has legacy with trying build Sure, significant a still last because work not number see just factors, other as to actually, China, ground. have going there year program. related with go be we weather ISD that we less seeing India, to is we COVID

So our there, just we're it's a on they turn but are need to in ready, - China. we - going when well stick to about approved, to systems we're we're it question

Matt Summerville

residential the you. your just Water Embedded in North then and your markets assumption final for And one America that? what follow-up. organic would Distribution, for Thank versus in be outlook embedded Ag

John Haines

Yeah.

can Valmont shoots that we're the then some get residential embedded pretty in bulk 'XX strong say is, - that reality organic seeing We're Ag and is the but continuing different Ag. some fired that and Distribution we're So you in have for will better but be in continuing - just to slightly couldn't that, know we the is, know both America. this to you segments. folks ready to we're what sound, is, on about reality share that continue some X% I that Lindsay Ag resist over-the-top seeing the Matt. But of not strength know we're pickups growth will you real will that, not we side the know green up than is been of be positive, maybe Ag the that think some back, tailwind residential you thinking is expectation that, about like we're be we incremental North parts and And Water range, thinking is right of strength, and groundwater know, have in

Matt Summerville

Great. Thank you, guys.

Operator

you. Thank

comes from Chris Company. next Sidoti with Our & question McGinnis

is now open. line Your

Chris McGinnis

and Thanks - and for quarter my morning. taking questions Good nice

Gregg Sengstack

weak. your is Chris, [comment] [ph] very

Chris McGinnis

this help? Does

Gregg Sengstack

Yeah, that's morning. better, Chris. Good

Chris McGinnis

quarter Can Good that Thanks year you very the a just maybe you for questions guidance. my little for the a and for just great. Distribution strengthens you how nice and morning. about bit and know it's good obviously acquisition and taking Yeah, been talk Distribution. market

the can does know maybe little you then within how you you you So, Thanks. that through? And talk know landscape? maybe come know they a change how synergies about just bit should

John Haines

Sure.

distributor move away from and United away States. it large a So, their decision if our go to in you decision footprint XXXX shows national a Central calls, from on move back preferred Chris their us and, and to

preceded had we lot ready us, of then product a were which But that to Pumps, market, the felt the in had markets. that acquired comes in saw business, made or owners made that of a were support decided they solid position, that So acquisition is generally we the year line with which about contact and our with the recovered maintained fully market here - And the a we we the we've probably Texas decision. industrial company progress footprint we for complements shaft Along the liquidate those, country. to their relationship business in long-standing turbine being with in a them of the Gicon, the those it just Gicon, was We when largest that ago. owners active Franklin with product had CPS groundwater line for time change. We in we not really have owners with that a five is share four not Gicon footprint business.

the acquisition Franklin the is line for that's year then see it the within across to platform. And we that municipalities Headwaters a business larger Headwater knowledge Gicon base business natural leverage you synergy of the and pump country multiple being is the Gicon, knowledge Pump more have And representation so local acquisition across will the the Gicon. leveraging shaft be a the given this know for and platform, ability a within the and with between country did has the customers and to able and locations that Headwater we ago CPS system outgrowth

the synergistic So the side that's of business.

business Texas, bringing and Headwater recovering as on improvements. more gaining, line those on gives efficiency the on - - opportunity and more the cost side the we're you in another but location well, know, share were business course, out shaft in operational Headwater scale in Of reasons the principal a build the

Chris McGinnis

Okay, thanks in the that. strength talk then maybe the know you just - your the And can for M&A I seeing you the marketplace? sheet about and - you're what given balance just your outlook additional for of

John Haines

Yeah.

a acquisitions. all continuing on So those to we changed, line free much basis know, apply M&A segments, and like that these fairly cash not has and are sense we're you it's view I to will Electric. segments would kind what of, number how and geographic flow. all Franklin the to to across review deal-by-deal we say in robust trying would the opportunistic our Chris, they have expansion for product to of be achieve Strategically, pipeline pursue place continue pursue we across them an opportunities continues extensions one and for our make

the that at to we're So us flows confident you will we'll know, continue good come looks. have some and pretty deal

Chris McGinnis

last Great. just And then question. one

in Does structure savings know keeping Fuel from the anything talked there. the structure Thanks. Systems you up cost know have the same recovery terms you within you that really you year? about you of cost this know picks the Just if change controlling

John Haines

Yeah.

is do. of around of and that takeouts you of Water. look XXXX and the advertising some travel, SG&A at when and big and kind we in think Chris, I normally like Fueling What base activity would both see trade customer you shows maybe this growth, the were

prepared to around things being going to You of customers good equipment, up, in developing is sure a that's we right we to that happening customers for know to to know earlier, the you number pick that going you during that got - will that's start mean commercial part the need world. we fair And come be more need back know to mentioned different of of to those station engagement a be prepared for, there, that and importantly you and have is growth return. if make international that course, choose mostly feel those Gregg but right and parts of - Franklin we people is opportunities have well served the we to like the they're then with know, afterwards. decision by got but our process there

on we So, international present those going the kind not to going skimp costs opportunities on they capitalize are these we're that prepared make to we're are and sure to of as themselves.

Chris McGinnis

QX. questions taking and in Thanks the Great. good for luck

Gregg Sengstack

Thanks, Chris.

John Haines

Chris. Thanks,

Operator

this Thank to you. turn for the Gregg further I'm like time. Sengstack back now at showing questions any would over not closing I call to remarks.

Gregg Sengstack

us conference first joining you after a first our our to forward the morning to great look appreciate with speaking quarter you the for and this end Have call We week. of results. quarter

Operator

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

You may now disconnect.

Franklin Electric (FELE) 16 Feb 212020 Q4 Earnings call transcript