FELE - Earnings call transcript Q4 2021 | Franklin Electric Co., Inc.

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Operator

Good day and thank you for standing by. Welcome to the Franklin Electric Reports Fourth Quarter 2021 Sales and Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions]. conference recorded. today's advised, be is being Please [Operator Instructions]. the would Chief your to like Financial hand now to conference host over I Officer. today, Jeff Taylor, Please ahead. go

Jeff Taylor

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

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

Gregg Sengstack

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

challenges like a to to record faced Electric moment in team taking is year. to thank at many a review Franklin While XXXX. we deliver despite company's to It the this I and a our shareholders by the results, effort takes call would entire performance, outstanding team start for publicly congratulate with

in business Franklin's fourth the record with for order earnings we operating strength the history additional And fourth year the all closed full highest the in in fourth balance. out quarter income income strong records remains open and for were across a fueling Demand established all-time any new continued and sales, robust EPS and markets, year sales, our performing growth quarter, operating per share. For quarter end history. that

substantiate and capture industry in of most and across XXXX, end them balance constraints chain our to continue markets we expect the likely the a of our first and Supply strategy as at we the through half results systems. advance affect provider Our Franklin as demand of XXXX least to geographic our healthy and through global fuel water regions. input materials case the some continue of

ongoing Our to well handle team navigated future these volatility. prepared challenges as

continued year, inventory pressures elevated strong and intentionally response and material, business. demand. levels strategy offset compared freight, preparation Inflationary In committed costs. higher costs quarter fourth for the we fourth volatility to the these in implement across quarter, to Our transportation are continue to are margin of to the increasing discipline current when response, in to maintaining labor our last future in pricing that

growth of revenue with contributing Turning to XX%. XX% overall systems, we revenue water our organic In delivered segments. growth

regions. all Outside residential EMEA. Pacific regions, Asia quarter, water ongoing demand strong systems organic the organic U.S., XX% was by strong increased growth revenue overall, of has In in market in U.S. some pumping XX%. crop driven with systems groundwater U.S. the to prices, led in weather in robust a demand. U.S., demand mentioned by regions and supported continued globally, for strong I've by systems in As growth housing the be and and quarters, part U.S., large the And addition in and was in recovery XX% prior dry solid the in growth to the developing water demand agricultural in

a delivered were of capital quarter, also income XX.X%. by for strong supported growth These XXXX. results demand growth operating strong Our and overall continuing see through which built fueling margin XX%, infrastructure revenue producing of business operating U.S., in the we pent-up XX% of systems out

As well, subsides, management expect outside fueling. countries on the and focus growth vapor recovery, additional the U.S. driving greater monitoring we pandemic for as

to Our the sustained results as business operating segment's over This company. of has with recent again country U.S. been operating growth XX%, income overall of X.X%, role delivered of for revenue distribution our engine growth a supported demand by outstanding growth across alongside margins quarters. and X,XXX% the growth continuing highlight

Looking and U.S. groundwater integrate ahead, on the market in our recent acquisition will we share space. focus growing our

using and capital on availability reduce improve developing and both business. We are proprietary technology working to focused this in

will particularly in We year acquisitions, increase space. geographic XXXX strategic footprint. thoughtfully to decisive the our for also a continue treatment water was

fourth Blake small acquisition of of completed States, acquisition quarter, acquisition bolt-on a groundwater market. Northeast is treatment This our we with announced the States. industries, which the in water the year, which is a throughout also distributor latest XX BNR key locations our the end but a During was At professional for year. acquisition Western United we strategic treatment the Group, the the third water in United

the I a growth. for key mentioned, segment catalyst long-term is As distribution

want the welcome New employees from team. Blake With and our to of integration into geographical markets. Franklin Blake, expand York our and New we I BNR the to England footprint the new

generation we that year, as we strong growth conversion flow the cash inflationary than through delivered invested free experiencing. battled XXX% we less are the capital our working in During support to pressures maintained strong and

well to As flow believe are the with performance. to consistent drive we we look our past cash we strong future, positioned

allocation capital Our strategy remains unchanged.

our that Franklin has commitment of of the deliver our in to and to increasing This consecutive same To while increased to end, an the its XX% our our shareholders. we month, testament increase is dividend, confidence announced organic in a to business XXth last continue that quarterly increase and in our which efficacy year marked time the will strategy, growth We to the inorganic dividend. capital allocation shareholders. returns at the cash returning outlook invest historical

business growth leveraging same by core to our experiencing remain. our challenges labor continued Turning supply our of strong in constraints, our we challenges products five deliver value key and expect to XXXX, in we logistics preference demand and At a time, global factors. the as our customers outlook. our for After markets the in significant

While to these level we persist at we have expect the momentum, XXXX challenges most some entered with of for considerable year.

reach, was As to demand, we treatment grid for distribution $X.XX $X.XX a year in a pivotal result, foundation to and acquisitions are Franklin. solutions through In the billion to a XXXX with in $X.X pent-up were own range We summary, our revenue well in to strong guidance EPS while on year expand full initiating positioned of of particularly range XXXX a $X.XX. businesses. our water at our same strategic core capture offerings geographic building the time the our billion

XXXX, outlook is into for key our momentum success; this carry to look factors based quality, availability, service, five cost. we our on innovation As and

ultimately clean operation goal an the ownership to globally. availability will our Our global while fuel of on I customers, expanding to to call cost of safety over the the partner now indispensable of maintenance scale total Jeff. a and addressing water in stations and become is back and lowest turn

Jeff Taylor

Thank you, Gregg.

$X.XX company's compared the to the earnings the record were fourth per quarter quarter XXXX for quarter of earnings before quarter versus for restructuring the the per Fourth in share expense fourth diluted XXXX. $X.XX. at for fourth earnings of history and an was share share any $X.XX impact a $X.XX statement fully of Our fourth The company's XXXX X.X a per the before $X.XX other a section. estimated results bargain share to income gain in of fourth restructuring earnings income million on quarter gain included purchase income price per one-time transaction on quarter related expenses the

components, the U.S. and systems and were Canada increased in distribution distribution, systems China. callout fourth to quarter was equipment quarter currency quarter sales quarter entirely since the to pumping XXXX The operational XXXX, the consolidated piping. a sales pumping are and of million. at as in in strong an operating fourth not a was size the sales of quarter margin because $XX XX.X income offset by growth compared Operating entirely driven was operating million, XX.X the decreased increase fourth income of markets. XX% any XXXX about million points to systems Sales fourth U.S. of equipment the XXXX. XX.X% from quarter million. in by higher fourth margin quarter Water X.X were XXX.X world fourth XXXX, organic the quarter compared of fourth of to higher demand record of to sales or not in systems XXXX. sales sales was inflation, million organic its acquired fourth and flat organic compared record systems margin million, outside the in million the consolidated The higher at grew overall. fourth of fourth X.X of systems categories. of higher to the sales segment quarter growth of sales. XX.X% as growth. not quarter is Fueling broad-based million. the Latin in margin equipment increased in by fourth the nature. percentage from were sales Canada quarter contributed versus growth not increase sales demand. XXXX XXXX. to China in of the pricing compared basis and the net quarter non-GAAP XX to quarter the were the in-market quarter rest businesses operating were dewatering quarter and U.S. mentioning of gain results, by revenue treatment of East million due X.X% compensation XX.X fourth new decreased SG&A sales of quarter X% the The due realization. were XX.X due about as and offset quarter fourth quarter expenses XX.X segment prior about Water quarter increased quarter Sales it sales Canada, income XX.X was practice is Operating revenue and fourth sales to was in fourth freight Asia Canada quarter XXXX, by sales with sales our revenue quarter distribution offset product to water translation. XXXX, record compared systems The We foreign expenses XX.X% XX% gross XX% margin. XXX sales acquired U.S. increased costs. In compared quarter year. U.S. and up dilution were and million. compared XX% in to organically Revenue cost. fourth to profit markets In of groundwater from were compared of consider XXX.X the U.S. due our XXXX, and systems were The primarily by gross America of in adjustments leverage. Canada, profit reported SG&A Fourth Selling, the in to XX% higher XX.X primarily due other compared of XXXX be quarter and in about the due XX% quarter million. demand versus XXX.X year and gross lower Distribution of foreign lower achieved operating fourth fourth the record XXX.X which pumping Sales primarily by in while X.X of Middle in to currency of items for The systems, and increases completely price cost fourth quarter. lower million organic from systems quarter part decreased this inflation XX.X which fourth Fueling of the driven lower income X.X the fourth from decreased the all XX%. XXXX operating XXXX by quarter million fueling businesses fourth company's versus regions XX%, XXXX to increase and operating from fourth of XXXX. markets, do water the net of increased of we about the of increased in well driven in quarter profit fueling costs fourth inflation sales sales and While sales prior to increase The XX% while X.X of the increased XX% systems of about at all sales about margin in about management a for the revenue fourth of translation. administrative since XXX.X to the Europe, margin income in XXXX, quarter. and profit sales operating XXXX, fourth higher in of for in the in by in businesses the income Water due experienced about margins, the tariffs, surface quarter the sales was XX%, Water in by of operating it Pacific systems the record improved XXXX variable fourth XXXX sales particularly were freight million. sales and income general the million X% to the of by acquired million million compared this Outside in The due was was in to and quarter materials, the million a XX.X% we and of decline significant the acquisition-related in for a inflation fourth XXXX million XXXX was about XX contributed million Canada an XXXX to was year X% since was Fueling to XXXX Outside by as fourth higher in million, the in XXXX record outside gross higher XX%. and or in by fuel the African were of growth up

and about $XX operating the quarter sales an million, income for flat ended were XX.X generated tax Effective variable cash company versus support support XX.X of our on to quarter our ongoing from due well to inventory prior acquisitions, to was and conversion Excluding decrease including cash returning year below Free about issues. operations primarily compensate cash a XXX million expenses flow XXXX normal level The of was during million higher million is spending of XXXX, the generation fourth the higher working cash growth. in million requirements a prior higher rate was tax was SG&A $XX flow XX% The of drive in with XX%. performance. by flow was and we expenses XXX of cash to for essentially to a to XXXX expectations. compensation rate projected XX%, supply compared the XXXX consistent be net million revenues, year capital we XXXX. We because XX%. for due free approximately higher in increase to record year. full of with with strong XXXX plan performance-based The past Consolidated believe at are positioned to increased balance flow higher

February be dividend. on will from earlier, dividend mentioned paid Gregg XX, will February prior consecutive increased its over returning cash the the will to that Michelle confidence to the our the shareholders outlook for its demonstrating year business. This our of Franklin and turn back XXth questions. cash increase As This on of that record an on $X.XXX the X. announced call represents company concludes dividend increase to January XX% has XX prepared remarks. quarterly dividend now to This I a of the mark in quarterly shareholders commitment

Operator

our of [Operator Thank Mike from question Halloran Instructions]. line you. comes And Baird. first with the

is line Your ahead. go Please open.

Michael Halloran

Good everyone. morning,

Gregg Sengstack

Mike. Hi,

Jeff Taylor

Good morning.

Michael Halloran

here So couple a the guidance. questions of on

And volume year, you at of in pretty thinking trends thinking normal year? First, you're you're it. versus secondarily, there two guidance, some about pieces. through think qualitatively growth least those is price or about through strong when year-over-year. how components variance understand that obviously, the really sequentials help about two or Maybe healthy One, how pattern the

Jeff Taylor

guidance, Good morning, there's the of for In couple Mike. Thanks components questions. our there. Yes. to a regard

to of First full to going that component that's completed of acquisitions the guidance, it. into volume we certainly year built all, so contribute our have XXXX were in the

growth the mentioned in high-single And inflation the supply our strong volume, issues. We continue expect to versus chain seeing mid-single to Pricing base and ranges. business. and in digit organic Gregg we're demand inflation ongoing

So of we're offset level that to certainly inflation. pricing

going I the pricing to to our cover think we're certainly maintain greatest to put margin in extent possible. So and that

So strong but price the the on probably overall. a growth we side, guidance there's bit in little heavier gave volume that

dynamic seasonality, the to of the of half bit than terms In the the first do we year. little half expect under a more be pressure second of

half impacting probably first we the again, once so of quarter, greatest year. us see And first inflation in,

Michael Halloran

And profitability was on there just that or line, kind of a of revenue or the combination was response a both? more that

Jeff Taylor

seasonality? the On

Michael Halloran

impacted being half bit comment. front the more a the half little than Yes, back

Jeff Taylor

will more it half. than half first the second in it the in Yes, will our impact margins

Michael Halloran

next So little how with the of price good on segment, you're that's cetera. about a on side? timing, question. year-over-year the or kind brought moving thinking directional A bridge cost you've pieces variances to should about dynamics, of here we any inflation, by lot acquisitions in the et that margins think a with help Maybe

Jeff Taylor

Yes.

would probably guidance. higher midpoint. the But versa normal the segments, the in ranges. business lower three look planning don't margin for that certainly, that So, Mike, you we normal -- think look quantitatively, we in I you the give see see the would And than margin guess midpoint, segment. if what of be implied their ranges you look would at built guidance, end you at as within our the of expect to guidance maintain on we're if we see The by expect to vice our segments. range, margins generally then stronger we But the do end guidance you I we into the them inflation

Michael Halloran

it. I appreciate Thank Okay. you.

Operator

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

Please open. ahead. Your go line is

Matt Summerville

that cost, quarter? a couple fourth I'm you understand to the you're for these increases the price involved? price permanent up. 'XX, first, guess of would have list how or surcharges of putting as the trying been a Price is increases might And questions more Are guys. for just, I you A all of be there for increase? then not place follow in with where Thanks.

Gregg Sengstack

Thanks, Matt.

of So to interesting. first as we you been we out through It move of XXXX, was it look as at pricing full and started year. and dynamic seemed has half as It's the been the accelerate year slower inflation year. the the

second were the the on quarter. out we we quarter kind the believe pricing below As move -- third we had covering of in quarters, called costs I through of we terms slightly

On just on the cost the fourth ahead. we full were quarter, But for price below were slightly that year, dynamic. we

So able maintain to the were we on year least at full basis.

you As those at actions. And on what look the pricing that additional implement to may evaluate I we're XXXX, in continuing would say terms be. moving into of and everything's table

each of freight. on price specific offset to many business We'll Other is it different. businesses, less of little a price increase the our the So be components surcharges see materials, increases be there may markets, the or base product. in will bit and/or

And -- think the so I everything's it's table. on

Matt Summerville

for 'XX, -- past, relative least surprised quarter? your versus sequentially or the internally fourth orders like fourth at guess QX? you. plan the relative maybe your what if I And talked you one year about I it number look out you to for of guide quarter? upside the Gregg but in open have past much increase the for it around so Thank Did the full to called guys in backlog, or recent In what, remember can't coming did the what that

Gregg Sengstack

don't in latter where the and more all continued strong Hemisphere with We really segments this some were first, but I'll do across being a of Northern demand just just part of forecasting. a is we lot visibility Matt, three continued weighted, have kind Northern strong business. seasonality Hemisphere beyond that So, take the have We demand.

of marketers with major a short-cycle business we the exception our business. talk large about build plans. to do some their are pumping We station fueling, a is of systems. And this generally But short-cycle some

getting the demand, marketplace, look lift people globe. to at we but talk across in the we're So a just current the all and in segments we

a that we at the XXXX. on year been, see has and more to top in us all some see point, And with us dynamics outperformed which we we're fueling are again, down past, it's bit. one we relative gotten in talking not given of backlog. where So into to our been typically a and one, course, cycle, to systems, typically the and kind at it's weeks inventory our Jeff don't that have keep but our just continues the last but business larger talked struggle slowing But large in don't our marketplace. the something And short planning, for continuing a very because levels or in be give we up. can line have for it of dynamics pumping internal couple some is grow backlog of contractors at of this the it little to Again, of that sizable about around we 'XX, looking of our you looking

So can Jeff on give that. you some information

Jeff Taylor

million The million order was of quarter. from XX total or at the an XXX prior balance the end approximately about That's year the open for company. of backlog increase the

see we in year grow quarter the fourth So end. and did it

to So across our performing systems business strong business, our we see continue then distribution fueling certainly well. and exceptionally water is demand

Matt Summerville

you, guys. Thank it. Got

Gregg Sengstack

you, Thank Matt.

Jeff Taylor

you, Thank Matt.

Operator

question with Scattergood. you. Connors of from line our Thank Boenning And the & next comes Ryan

is ahead. Your Please open. go line

Ryan Connors

taking certainly for quarter. the It's been Thanks lot big rate picture at quarter-to-quarter. tough to down still business I margins. of sort distribution wanted the results come standpoint those to improved shake have a The volatility question. margins my just time, been run where thanks. of but pin any Great, on from on a given over more out a

model and So gets a how to we think that about be? might where think we closer to where that -- easier where are business rate do a run to little a it's about

Gregg Sengstack

because I'll one. with this, a this history in I give a break Jeff Ryan, have Sure.

business and to said at we So we we looking were up be going when said we it's range, publicly seasonal. stood the if is OI -- you go X% to back distribution to X%

QX made in actually QX up this maturity year, the and So and make of it. and more all first business. you much QX aspect couple we looked and QX begin in we may saw matures, quarter-to-quarter, years, other made And money and I've we at where there's and pattern still money And there's some you somewhat a how public for QX while the seasonality information they've the the businesses that's that in distribution money quarters. to in level lost expect and recall similar the QX. to still a make that matured margin to, that it, where time you as to have that's what is And you grows over and business you have change seasonality begin in the going of forward.

X% continue is business similar into similar but seasonality feel to of feel great confident So dynamic year that this X% first a the as overall want the going declare we and QX. and strength with the in kind for range, we we margin above victory pretty the of of saw about that a to year, in X% with 'XX kind And being QX to XXXX. you

Ryan Connors

it. Got

Okay.

That's helpful. So seasonality. you the have

had The now other a of on seem pretty drag fueling, quarters a material few just where one somewhat we've there. it does like been has China

your thoughts some about piece point? better? Is thoughts it you thought are can China? fueling of your to there something you that give us strategically? just monetize that What So see Is a at in getting strategic updated

Gregg Sengstack

nadir business [ph]. a presence brand it. good business and of Yes, definitely to the is we have there, at is monetize we a It a recognition. probably have piece not The

of systems where the What and It's a wise. in acceleration that China, us today. waiting government coal, whole any a initiate is one of But and really of in-station challenges lot the in a but the more is easiest in But Gilbarco a have look lot sales from there substance ways burning that China and is low-teens have system, in we a it diagnostics lot our for, there's have expect of rate of country others, we it's run are station. are it of and VOCs works at pollution. around to and it's haven't would gas to all local others Now China. any systems from systems. meaningful said, a important vapor start through like systems approved we moving program. towards And way. Dover recovery have the seen a in for proven to initiative They And kind recover

China. get it's when in of pretty opaque decides it's they just question to spend lot the money, to we visibility. control. forward pollution When a so And do of decide of We And to to serious it. their don't get more area that And have they that's government when a aspect about the a business react. spend

So being see -- still and stable behind get if now, I teens low it some big right a good unfortunately. we the in-station again some diagnostics. And business. upside see upside It's they initiative

Ryan Connors

it. Got

Thanks time. your for Okay.

Gregg Sengstack

Ryan. Sure. you, Thank

Jeff Taylor

Thank you, Ryan.

Operator

the Thank at you. back And I'd turn I'm conference to showing Gregg time. any over no And questions further this like to Sengstack for further remarks.

Gregg Sengstack

end a we of We appreciate look to Have quarter. good the speaking after the today first you to you and joining us all forward week.

Operator

you conference participating. for today's call. concludes This Thank

great have You may Everyone, disconnect. now day. a

Franklin Electric (FELE) 15 Feb 222021 Q4 Earnings call transcript