FELE - Earnings call transcript Q1 2021 | Franklin Electric Co., Inc.

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Operator

Good morning, ladies and gentlemen, and welcome to the Franklin Electric Reports First Quarter 2021 Sales and Earnings Conference Call. [Operator Instructions]. I would now like to turn the conference over to your host, Mr. John Haines, Chief Financial Officer.

John Haines

Thank you, Stacy, and welcome, everyone, to Franklin Electric's First Quarter 2021 Earnings Conference Call. Gregg Chairperson is CEO. today me Sengstack, and our With more first will highlights, first On in Gregg our quarter quarter results our today's call, review review business will and financial detail. I have some I'm we When time through, questions and for answers. will

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

Gregg Sengstack

you serve. with markets building We Thank robust end environments joining John. you, and us half continuing quarter presenting the the very see for of we happy with of demand for Thank back We're our the us. in momentum all most was results. first that last year

share. Our measure profit, net sales, net gross earnings income income, first financial records including results history, just our quarter in about every per in any were operating for and

line competency leveraging geographic of design, results water to and expansion produce expected. our global global strategy Our and fuel and provider and a systems as system as strong continued platform to through extensions, product grow

treatment During growth. quarter, expand achieved distribution the continued segment the water in tremendous our organic we systems adjacency water and to first

housing multiple We growth business quarter, XX% Systems signs Our commodity generating had revenue XX%. developing of growth end organic revenue recovery Water and weather markets, in the strength drier Water of the of a demand global and see robust Systems of market, strong record in prices, regions. demand a overall including

Our were the the material grew to given also experience. X% significant realized which inflation quarter, revenues Water from by in necessary we actions raw price Systems continue over

Although we this about our had declined is dewatering equipment by greater in due X% to quarter, sales XXXX, in in than lower demand. the part what experienced international sequentially, much decline

memory the growth led growth Water our America, all which U.S. Thailand. in quarter. and in continued of to XX%, top in foreign Turkey Middle groundwater currency lesser in In strong the than Although X%. combined was exchange a drove at Latin just with our the U.S., XX%. businesses agricultural on of and was it impact Water headwind, Outside pandemic the still in U.S., housing Systems been with organic revenue in notable Systems Brazil, increase a line the and dry recovery a XX% over recent Overall, translation demand, organic strength was systems has East by Pacific, weather continued pumping demand, see Asia

a revenue that in of the one XX% end the U.S. all Revenue made The geographies lowest in and increase an of any growth last in our had quarter legacy and businesses distribution the completed product with well demand the of Overall, and product products. first Favorable we've were integration shortages, the U.S., XX% in lines. distribution failures That of from pipe winter notably, of quarter broad-based multiple Our of Texas quarter. and our experiencing distribution in Gicon revenue XX% puts state. these the strong revenue year was growth. from on year quarter are business combination the we at going Gicon forward" the and weather quarter benefited branches the growth some equipment first that organic all gauging. last legacy replacements exceptional acquisition those pent-up and well, that distribution The first overall started well equipment over in our for X year. factors first in and storm Gicon and "buy customers businesses. most caused "demand" already was some drove across is

loss revenue time in money these business for in income of the first its operating $X.X result made first a distribution of history, million of quarter XXXX the in first year's first to quarter million As quarter. achievements, from the the reversing $X our this

XX%. quarter, the revenue overall up momentum were Middle China as X% declined sequential of the is up outside XXXX Sales quarter slowdown investments last being The the continue notably, end markets stations fourth pandemic-related expressed growth East fueling and overall America, the their XX%. was the marketers organically, picked were good sales and X% filling filling in in see builds, a North in and XX%. growing in XXXX. station meaningful led Europe, America to decline in about by Africa quarter intention business builds with we Systems Latin Canada major up year's up and first new by flat to Fueling XX%, U.S. in believe by first Despite Our and improvement and to of ramp

especially offset quarter to and first April challenges acquisition a XX.X% of caused better consumption new fixed of million is fuel quarter of be will and assumed full opportunities, full liquid raw raising year in will now no share like cost and there billion completion I believe before in over we the Fueling the earnings X operating because range turn $X.XX income XXXX necessary. income record range Puronics, the by achieved and $X. in material John. of regions leverage. expenses to environmental worsening the price We're price. protection from of raising the achievement our underground inflation earnings be X% in of to $XX.X corrosion with to margin we're tanks with estimates year 'XX, first revenue operating an restructuring cost XXXX where of alternative to have growth, Even and impacts $X.XX will storage our to $X.XX is Systems billion environment to global revenue call back fuels, developing increasing pandemic creates continue -- We of also from greater financial guidance, Due per be we

John Haines

Thanks, Gregg.

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

first impact and expenses various were $X.XX. impact manufacturing $X.X and in water realignment resulted expenses and a in on earnings the no was had $X.XX to XXXX per in segment first $X.X per of quarter to first million the impact in $X.XX first quarter quarter the first manufacturing restructuring of before share EPS distribution XXXX. were before primarily XXXX in of First share related EPS in water on activities in the and of Restructuring and activities quarter related earnings also of the were to were Restructuring million expenses restructuring the XXXX. XXXX realignment various the compared quarter quarter segments of

million In increased Systems quarter to quarter from million. by The the were of These were XX% the sales market demand, million. currency by first due XXXX to revenue were were and compared million. $XX.X year by sales XXXX, first pumping Canada first due increased sales lower to $X.X Sales up Sales quarter about quarter first XX% the dewatering equipment equipment, $XXX XXXX of pumping about rental sales the $XXX.X to XXXX quarter versus lower in overall. volume, of acquired translation. compared last in the XX%. U.S. by by acquisition-related in due to first businesses to due due sales X% of sales. sales and strong Sales in the increases Water or channel. quarter due acquisition-related XXXX and was surface XXXX pandemic. offset of in markets foreign outside $X.X first increase about equipment the price the from Systems since sales part to increased of of decreased Canada groundwater sales down U.S. about the of XX% of lower by to sales quarter were million end sales XXXX which Water X% about First

and first decreased in and of Canada, XX%, mix of and sales the quarter Pacific, U.S. to the XXXX Systems million compared the realization, XXXX, first increased Latin of about quarter sales water for Middle Europe, $XX.X to driven Distribution translation regions first the quarter gross to the operating first by quarter pumping Canada, sales profit management. the increase cost The product $XXX.X any $XX.X of million, $XX.X the of in the of higher was to sales Fueling income the and record was U.S. price company's by the operating $XX.X categories, first driven EMEA. and fuel America, X%, first realization higher segment were increased first Water XXXX. first Fueling at of and Revenue for In a million was America of and driven quarter was in in currency $X.X X% States in management. versus driven basis systems. were of Systems the of million cost about in the sales systems and management Outside quarter due points, increased to quarter income in revenues first cost East first at United XXXX increase sales The record in $XX.X XXXX all XXXX by and sales by better The XXXX by Outside XX.X% compared the by million. was the at pull of since segment a System first the markets. higher million. of $XX.X Africa quarter quarter growth million consolidated by some expenses million by administrative Canada in XXXX Selling, and demand XXXX for XXXX. driven first quarter sales quarter general businesses million product first to Foreign $XX.X of compared storm. XXXX. were first and organic by quarter gross million improved profit the of of million Systems X%. Fueling Asia XXXX quarter acquired XXXX. first product businesses SG&A in compared Gicon million. in The was the sales primarily world, Latin income compared the the price $XX.X $XX.X quarter in distribution to any purchase of winter first quarter profit from and of realization, expenses versus $XX.X demand record million. compared sales acquisition, regions to a was organic XXXX, forward management. XXXX, from quarter the $X.X quarter distribution acquired Texas all The gross operating in as of net broad-based customer XX percentage a increased XX% due from in million sales for of first sales quarter of loss XXXX $X mix were price an XX.X% first by a the

expenses events, effective larger percent net balance tax about expense, The include benefits Excluding as for by the before primarily higher of deferred XX% tax share-based benefit X%, quarter due a acquisitions, to about projected the foreign rate XXXX a discrete made a for from to discrete quarter tax XX% favorable SG&A by first about partially last which of foreign adjustments. selection XX% XXXX tax earnings year jurisdiction. from was be to offset variable first compared translation. in to compensation compensation currency were tax the The in is due pretax a of and rate

results mentioned, the is on basically per company guidance recently share year strength to of restructuring the for full announced raising quarter water to and $X.XX earnings the its the treatment expenses acquisitions. As first $X, Gregg before

to We in $X.XX conversion and cash XXXX. for $X.XX the free or expect better be full will the XXX% range, our revenue year billion flow billion

and cash net products demand The in XXX,XXX. $X.X first million quarter on purchased capacity million The first $X.X working quarter impact the market first at was of first lower of the company increase a million authorized our stock of about pandemic, call requirements. strong, primarily net from about company May company and negative a and for XXXX first balance million operations ongoing $XXX.X the of quarter, $XXX end open higher cash our announced quarterly with total of to are of $X.X Although of during XXXX potentially that was X. is due market total about the of the the versus record the we'd first capital be dividend borrowing incremental questions. end of of XXXX impacting of to concludes key to factors XXXX. shareholders the flows for XX,XXX At The shares the material a generated of $X.XXX income global and quarter the remain the ended quarter net results. for company's repurchased and during million The May raw may quarter the like cost will component to availability cash most balance now of that Yesterday, shares remaining in be its turn XXXX. XX the on remarks, record XXXX. end prepared a paid the This common over

Operator

[Operator Instructions].

comes Mike first Our question Baird. from from Halloran

Michael Halloran

handful a here. So of questions

the talk think little how chain price balances supply cost bit looking trends? remainder a for How First, underlying you're you year? And maybe you about at could the out of just pricing?

Gregg Sengstack

it's Gregg. Mike,

chain supply be the continues waccamaw in On localism of [ph]. to

admirably side. the and the around to seeing there's the keep in new that that think challenges the commodities be a supply challenges We that and front. chain us team through all headline of everyone seeing, front continue battle is semiconductors else responding moving. daily to It so is tremendously anything have the don't continues We're I on to in are globe, on

price input John. realization, that cost, the to over and turn to As I'll

John Haines

Yes.

I'll quarter raw So high any inflation the in as a X in Mike, first our as last quarter. in entities basis twice percentage the manufacturing material significant very that we years. input on as first saw quantify

that mostly This segment, although will So we with Water in impact as fueling price to are well. the respond it going actions. Systems to is

you on U.S. basis the specifically. was through on an Europe, on or input the then of spread the the And later flows output balance basis. the then up all the sheet hung at and goods to first respond will we quarter. output sold, for price basis, at that when of this in cost look we you with it an at cost price because When of in it input quarter and an the you goods incremental actions a price So know When maintained on look inflation period on stuff into gets basis, that sold. output an we inflation look

than the is first spread than points was measured the that it However, been basis was has lower what and of X it quarter what last quarters lower in it for XXXX. in

even anticipation in we we So was operating actions annual had we year, are coming took plan We that. now going late knew to additional us. our first in last at the this of price respond We in than to this saw and that year, earlier more with quarter action. expected price

that continue positive price the assumes to guidance for inflation fact we in balance quarter. year of will this narrowing the first is it or the spread the that of Our maintain despite

Michael Halloran

water fueling comment shortages. non-Franklin supply market comments. was your seeing Headwater just or helpful. product seeing put clarify to impacting are So is product Gregg's maybe the some Electric content water know that's or It limited just to pressures ability I into in And mentioned that that like Headwater? felt shortages. of shortages to Are you any you chain that

Gregg Sengstack

That's to containers of us newspapers, stuck with We're And that headlines board, the the globe, challenges across pretty where LA. We're just well. manufacturing components. in seeing I -- of the line the temporary as with it's a products port basis of transport of on in suppliers much across shut excuse the challenges top reading We're the me, it's lot as -- a the to space. off down responded parts. anything get that impacting said, tank and and the of you're my dealing ships of have comments because on is really availability some COVID, the that of just because we're No, expediting continuing could Mike. just

Michael Halloran

still let on in was backlog more within you from you thoughts be lot are embedded through line an term? there forward guidance, just the in perspective. there's out? in -- improvement, markets? you pull what's it here to Just walk specific where any you from pretty context think markets of what a Any Maybe do could short in a some So that as sequentials in that underlying top are some assuming normal the guidance. the Or think deceleration needs

John Haines

Yes. In remains backlog the manufacturing very strong. entities, might

when perspective, end backlog quarter from the a matter at it last than of As you it's the XXXX the first measure what of -- it's the a end fact, the we and backlog double basically measure of was of at first of quarter can year.

a to we and expect So -- to strongest the growth say in going strong to in expect kind continue growth first we're not we're organic going of we water But saw organic the quarter. distribution. growth that both that

our estimate in Puronics an announced treatment in guidance That on for April also as acquisition We is water well. X.

a them of got lot that broad-based want of the that of have of the combined see for plays itself But issues and Gicon a they're in their they're out has them these supply quarter thinking their Gregg as issues inflation play organic the And balance perspective, the And just and Headwater second And So the not should that a issues, In see a the we're year, terms the a bit from we distribution, unique expect the causing and what's sure see underlying we for lot of of pinch in but expected look year. momentum, momentum, is us or pause. lot not have we we we that with distribution mentioned, first some manufacturing I'm momentum, issues organic how at but itself make there's then to strong tailwind, of feel for solid to with of the to to again, in comes we'll again, wait opportunity year. the line. double-digit water, a and growth growth quarter, strength. as starting be a of in demand described, that their saw this discussing results full are we time clearly about again, or -- balance sure top XX% but lot out from matters.

Gregg Sengstack

And from start the pandemic outside rebound. Mike, didn't fueling on slowdown in first again, seeing the a quarter And side, Pacific we really of Asia year. the great last

we that was of the one look of in here rebound of forward outside the and for in But for there organization see and diagnostics. still U.S. to us There supplies China constraints a results on actually the we're feeling North that strong is is in kind -- some U.S. the it America, tanks to we're strong looking it for initiatives of to to station China cause still is deliver forward tanks. So critical people market, off-line these flat. outside availability may China. the in out of were that fiberglass sense builds supply, going is resin for in push a

seen a We that yet, availability well. but haven't the we've -- us impact for dampen basis, U.S. heard is in on limited or push out we go-forward which underground in that still business fueling the of robust marketplace a tanks revenue. see some would not as may a there But

Operator

question from Seaport. Your comes next Walter Liptak from

Walter Liptak

thing? the distribution And with through you've losses, But be the first corner an stick for something made And it tend a wondering overhead lot discussion million first the congratulations to quarters you costs this year I'm wonder that And wanted the business there with Are front-loaded just in the for quarter while. it. segment. runs a I of why is the you've profit. with profitability? for the about owned guys absorption progress distribution? that or to does that on then like what profits have year getting I turned imply of full $X And

Gregg Sengstack

full that been We so expect Well, growth history. in We've Headwater. the talked its margins of X% business. Yes. organic to income said, we of this really operating short throughout robust kind about on as X% I year, in

these certain We right again, range a concerns these expect now. of products, to that or solidly business, in than of of for supply has full be around this going of better the the XXXX. kind middle some Other momentum tremendous amount year --

really is terms accounting-driven Walt, of the -- it's it's more ground in I lowest seasonal, season. think the frozen. anything. ground per In It's se. first the U.S. It's The winter, This not quarter, is than the really,

weather. wells the of base be necessary is Some work be work sites you to of line, leverage lower lower And the you reached in accessed that done just lower because top this that is business. top able fixed driven the because or is -- have of And that what's line. cost on be can't can't then, and typically a the the course, the lose we with have not

first we top So leverage the that's of a of thankfully, the big big profitability here reverse -- on quarter that fixed a first that, and that course, that's then, the line get quarter. is the driver XXXX, top of cost we in and of growth saw in driving of the

Walter Liptak

Great. Okay.

thinking Okay. All X% the of operating profit year, for right. But to margins? that X% full in range you're

Gregg Sengstack

sir. Yes,

Walter Liptak

in Systems Okay. All business. Fueling right. to about the ask wanted I profitability Great. And the

wonder you there's think mix. management. I could then if $XX.X called talked more cost talk wonder quarter? million that year? in if the profit rest of some out I one is the the also And those I the which of of result through you a you -- about in was meaningful of as sustainable about if strong and

Gregg Sengstack

managing base. done the you of base. really the flexible Systems, nice the job in -- the they fixed see as than Fueling It's a did the in a Walt. fixed And mentioned there SG&A of It's base, slowly. good past, done coming cost have in lowering Yes. a might little segment, water more they cost that in we've they've systems what XXXX back good water a job

margins here grows. We fixed their top saw continue cost the continue we're growth but here. and add the doesn't have because strong, to really, seeing to want that in are really it's the see we international We quarter, to business the first line it to when incremental will support much

well. formula So that price did here. achieve key is as the They really

profitability their our as of contributor All was achieved first segments price in strong quarter to the well. and a that

Operator

Matt from Your from D.A. Davidson. next comes question Summerville

Matt Summerville

questions. of couple A

you the from Texas to the buy sure well was maybe as I'm referenced of the ahead uplift clear. make as weather want situation the What magnitude you in saw quarter? First, I

Gregg Sengstack

Matt, both $X the $X of million $X We things, we're to in million. Yes. in total, think those million range

John Haines

half Matt, about from about buy the in. About and half, of half half Texas,

Matt Summerville

Perfect. but inventories have buy what's overall, -- thing, what Texas in ahead? prompted just assessment understand what your I exactly channel currently? And business of the the would And then the

Gregg Sengstack

is when So you in products other need pumping to if a but as when buy gets Matt, everyone piping you an install. the Texas, contractors I get well, critical all you they supply install because item And starts don't buying mean, they And pipe. pipe when pipe, need can't they systems. get a event like had like that, you hurricane a pipe. tight,

what get there. is said, because sense out don't seeing, of a there's of whole so inventory constraints generally supply And that we're lot I that we're that's channel seeing. a That

business capital Our our trailing XX-month basis on actually at Headwater. declined distribution working a at

product. So ground the I what exception forward pipe of, on they're buying, they're the just -- maybe -- buy we'll with putting again, on the the

Matt Summerville

think to was America of ag And I with then that that in XX% respect North attempt up seeing kind Can it in one XX%. what you're a your to number? you around out parse follow-up, groundwater as mentioned of it comments, resi versus was

John Haines

than Matt. XX%. Yes, is the that, up ag was up about resi more

were up North residential ag you product more we -- were up they categories ag. certain product XX%. America, look call those isolate our at The in And So about we categories that when significantly.

Matt Summerville

And just other quick it. Got then two ones. maybe

take XXX on cost order about asked resin, took In A think fairly business? spot on referenced, how you cetera, question much price QX. based are aluminum, things prices for to earlier points business, John, you basis things do equation the large call. of you water quantities, maintain like additional on et use the price steel, all where in that to in think you copper, year-over-year need the a in in basis price you I mentioned You

John Haines

is on It expectation Matt, quarter. the on end input basis in big exceeding Yes. thing the market, an first the this inflation but depends

flow in to costs think in the more it's to have start see need cycle they're through quarter, basis or that, I we layer XXX the them, that. range that second higher and the to offset have input and something price to going point as like we to So XX these in third

side. So that the would Systems probably be Water estimate on my best

Matt Summerville

Got lastly, looking a it. on necessarily XX%, then just starting -- maybe for And see any are but an mentioned update fueling to surprise, China of not -- you one seeing down you mute that it's movement I right ISD you way in about to 'XX, do guess initiative, happen? of issue on to at all What is not a going think sort the that? think

John Haines

this tough. Matt, Yes, is

We are XX% activity. bit we've a challenge been a activity less maybe -- market seeing as with rather China and had of little And always it's the we're little the of than bit opaque.

the when apparent so And this at it there, point. is are it us are on on out this how at to regs not and But needs not necessarily out fast it is The comes evident comes on, and out how it It's there. fast point. turns there. when turns on

Operator

comes from Chris question McGinnis & Sidoti next Your from Company.

Christopher McGinnis

November. wondering as well? the talk landscape M&A forward acquisition, just adds that's the about I going think talk could how since was that third the to I just bit about And a for business? Can you quarter. you Puronics little Nice if the acquisition

John Haines

Sure, Chris.

So they're because through opportunity. our whether contractors nice position that in a since also water a ago. quality professional And groundwater acquisition strong channel. adjacency they're much got the yes, through or contractors, plumbing dealers, goes into business is is through channel of what the the product we're over water for doing plumbing a business. Franklin little we It's the we It's is treatment now fragmented third year this a see a very an

see and been the businesses. put key We a serving the doing space. factors Franklin the over about adjacency once about We leverage, put just growth. together, together businesses get learn combine we about We've time. a with we'll lot operating allows organically. smaller have be is we seen, that we've what natural bit operating So what we for -- And we the about then that's growing as little the we that you've to grow for product did can us this and been both requirements learning then leverage. you buy just and some us, we've them distribution. And industry nice that get we we get in and the past, And them like and bought it industry, organic and and a see

see outside see across growing because the relatively as we And treatment a adjacency here that over a rapidly space, water a time America well. natural being and one and the we treatment, important North then that to expect demand in we'll is we an globe, be reach have America. is So space water -- going rapidly as do North again, how

Christopher McGinnis

I that. appreciate add? as see valuations up, color the to maybe market And any M&A forward, just rebound, back pick for is Great. that things additional to you start landscape just good I can starting guess a going

John Haines

Yes.

think, fairly now, I the which space, high, water that the are historically certainly is Franklin highly where I would mentioned transacted. expectation sellers' treatment higher it's expectations robust. than a say pipeline is right Chris, targeted typically for adjacency that Gregg -- us is this fragmented.

but right might of now, mean, own, that property be done say properties acquisitions some. different. there's we've there. So The the And water real We kind we same fair is in to I the is could every possibility think of side. kind there's we there's see distribution on the we out space. are true to here. some number of opportunities. really deal continue to we going the But end opportunities to see continue treatment that want there would fewer opportunity there And be a

we how those out to be we well. properties of fairly as look there, know selective. type they're and but properties continue these way, kind right the handful we of can at a So of value to think We

that be interested reasonable But climate if kind saw U.S. expect don't last and tax to the kind that to have So the again move, as I and few on that pretty of are to And of would transacting we for things, indicator might got sellers we say the more the away changes continue. it we is I is What know big see taking know. may people do. we a pipeline right and M&A their bad And look tax a sellers take to that tends a think what lot effect, a we've a talking for that is of these at moves now. not -- see to that, before of this law those I year we're generally in read we year, issue. expected we that situation

Gregg Sengstack

or Canada. U.S. are we're an to is point for lack I businesses, health properties years, the the effort in interest these the family or deals the of again, last that timing that's be for several last Canada. outside and it have event. XX for, for looking for additional family think, the not of one And Franklin Chris, But over the needs and all been U.S.

at to globally many look good pretty continue the to done outside them at an We past, of growing in as done we've well. We've and transactions think the have it. U.S. for and appetite do I

for couple So deals we been continue to look have the and last the years Canada. opportunity It's just more across in globe. for of been the us U.S. in

Operator

the Sengstack. turn to would time. I I'm showing like further questions this now Gregg to conference Mr. back no at

Gregg Sengstack

second Stacy. joining today with you, in look We our July results. us Thank you speaking to quarter forward and -- reviewing ours you to appreciate

good have week. a all You

Operator

Ladies this and day. have gentlemen, your concludes wonderful for and conference. you today's Thank participation, a

may all disconnect. You

Franklin Electric (FELE) 27 Apr 212021 Q1 Earnings call transcript