FELE - Earnings call transcript Q1 2022 | Franklin Electric Co., Inc.

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Operator

Good day and thank you for standing by. Welcome to the Franklin Electric Reports First Quarter 2022 Sales and Earnings Conference Call. [Operator Instructions] I would now like to hand the conference over to your speaker today, Jeff Taylor, Chief Financial Officer. Please go ahead.

Jeff Taylor

Thank you, Kim and welcome everyone to Franklin Electric’s first quarter 2022 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 will have we through, When time are questions and for answers. we

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

Gregg Sengstack

thank for materially across business manufacturing teams in to our I right Electric’s results, end. customers in and our Franklin quarter markets for order great Jeff to you, in take strength income EPS remains highest quarter. operating another year left and across all in included globe Picking commitment our XXXX, balance, and the like segment open resulting history. up for to consolidated first relentless clustering all Thank the us. where we joining this which again the you products by moment record increasing our off we considerable end would thank delivered from net high sales, for with our in their Demand

and executing systems. to our This facilities the to seasonal Systems quarter, demand million work the the open the open from end end to us Water other order $XXX provider products. throughout our our grow first second year first strategy in water $XXX for results, large demand meet the robust which increases approximate order dewatering With despite Systems increase at open the Furthermore, addition $XX grew and the on at for million included as we during chain arise. next of and will supply said, demand outlook in to approximately has our year. which confidence to quarters difficulty at from our where the Our Systems That and expectations team in impact and Franklin Water a the balance XXXX increase constraints an navigated and are demand fuel increase of very our balance we being million issue Fueling backs, normal remainder order the healthy continue and signal in predicting global balance. give expect third strong down our to our when well of throughout throughput in and quarter, pumps

we year likely their demonstrated anticipate situation we to and will team throughout customers. nimble impact Although ability our our to remain materials the and adapted these needs the to geographies, challenges to meeting has persist and ensure the of different are

in and increased material, positioned labor, strong well we levels It resulting environment, this we meet to We costs. feel important the that logistics the persisted, supply call, last our on have from is also customers. discussed we are our have transportation demand time, supporting inflationary chain. the At freight same the supply the and elevated pressures mitigate in short-term we challenges. to intentionally resiliency As our are inventory of in

pricing additional to we offset execute quarter profile. integrity and result, actions across margin throughout with our to a businesses a strategy the towards pricing our focus of higher our maintaining continue all As implemented these the costs

margins inflation in and pricing of affected. were compressed Systems actions Fueling effect costs the before Water were However, quarter during Systems fully realized our our as the higher first

organic the by during demand pumping our XX% growth system housing for first of growth revenue the groundwater quarter, In Water segments, U.S., growth. a globe, in and for strong reported market. we Systems, also experienced was record contribution reflecting XX%, the increased and operating to Water crop America from Systems growth quarter, quarter, EMEA commodities Overall, of income a other and Turning demonstrated segment XX.X%. prices, overall operating the Water This recovery for the and in regions strong demand, organic acquisition backlog Systems and during supported U.S. growth margins strong XX%. with Water dry U.S., was Latin strong markets the the Systems regions. strength increased the in the revenue in rural in demand growth weather growth of and solid core by of X% and Outside driven end in U.S. continued U.S. XX%

see Systems operating XX.X%. by XX% throughout growth higher of reflect business the costs growth robust volume pent-up pricing, had growth solid capital extending results which build-out, a operating and margins quarter, of These infrastructure Fueling producing revenue Our income offsetting demand year. for XX%, overall and also and strong of inflation we

the growth focus monitoring driving business additional a continue countries greater wafer recovery fueling subsides. we and to our addition, outside management for the pandemic as In U.S., on expect

are first foster were fueling seeing We in to accelerated infrastructure region gain projects which also momentum that investment and growth are the this we to in as in expecting additional throughout initiated quarter expect India, in year.

of of overall and outstanding continuing strategic a over to growth of margins as quick X%, a the delivered supported income growth of operating Switching Distribution XXX% role highlight strong remains end sustained XXXX. demand the the provide company. This at segment’s gears country on the we for quarters. across let a announced the growth acquisitions update me XX%, by engine U.S. with Our business growth quarter revenue operating alongside again recent

acquisition has been acquisitions Industries During planned the the fully the first of bolt-on B&R integrated. integration these quarter, and of progressed as

As distributor States, Group, within Overall, growth. groundwater geographical the in acquisition treatment Southwestern acquisition York presence extends New acquisitions reminder, United our our long-term a that a in professional our Distribution segment, New regions of water catalyst have for well. footprint and recent our key England a Northeast And U.S. expands the market. into Blake further performed

We are pleased new and continually will we assess opportunities with our they performance arise. as

unchanged. Our capital strategy remains allocation

same We will share during in to continue is the the to repurchases returning and organically quarter. our cash and shareholders inorganically, dividends at invest evident in company both our while our time distributed

our persist have momentum maintained shareholders. allocation approach that are We challenges the XXXX, built for have we and a XXXX. although capital to and are level returns we Touching on focused remainder outlook, throughout some been we strong likely on efficient at our driving the with remain facing of for to prudent mindful are our

quarter. As established a are raising result, we currently last guidance ranges not we the

at of do call our moment Jeff, companies the take globe most employees of to a advances I the Franklin cost we safety named fueling goal list address recognize lowest being around availability Before of for over expand turning to to and total for stations. America’s and clean and the ownership work The to water want across Franklin the to our XXXX. responsible back to Newsweek’s

thank waste of the We team and their that sustainable efficiency of our sustainability I a number in to call continue I I Jeff. increase facilities. and turn the will research proud like for you Franklin am consumption investments would efforts global a to launched development make of to significant a number products reduce to and all our building the to do. and over in now of across and future eliminate back initiatives

Jeff Taylor

quarter per first established for was Thanks, the new quarter record for segments. Gregg. revenue, Overall, earnings and our consolidated it income operating company operating share. company and performance a records first We

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

quarter restructuring First were to XXXX. $X.XX expenses quarter impact of and first the before of restructuring in expenses $XXX,XXX per resulted $X.XX share earnings Restructuring before compared of in EPS quarter first quarter EPS from XXXX impact was of first the $X.XX. a XXXX on the

record segment XX%. was were million, first supply of organic sales The Asia XXXX growth compared sales XX%. primarily all Latin consolidated to was $XX.X million XXXX quarter first Operating organic of revenue Outside $XX.X record $XXX quarter quarter degree of sales quarter In continues Systems businesses quarter $XX.X first XXXX work quarter translation. acquired to quarter and in in was the the income sales acquired the growth to U.S. of by increased Pacific approximately $XXX.X and points by XXXX first pressures the pricing surface about and and due the sales in strong in to Fueling Systems due some million. X% $XX.X foreign were XX% increase partially million versus the organic was Canada prior Systems sales China. and because quarter mix from all in quarter. Africa of record sales of sales first about of in up First and record primarily of the equipment by versus Fueling to sales and Distribution, the operating strong first growth compared first to first in by sales XX% U.S. first quarter offset primarily first XXX first of Sales China The quarter and sales first about Outside first in $XX.X translation. increased The or to sales year X% $XX.X $XX.X the in Water margin demand. continued on of or to unfavorable in $XXX.X of $XXX,XXX margin quarter which the currency decreased and of while approximately about quarter first XXXX, the in outside the to operating and sales in due In markets, million income the since quarter to Fueling chain by revenue broad-based lines. by increased and the were revenue operating in or first first million. increase income Distribution of compared first sales the product due the sales the quarter of quarter Distribution million decreased in pumping million $XX.X of the Distribution leverage. income to XXXX, currency a XXXX X% compared all XXXX and higher foreign XXXX and XXXX a acquisition-related of Systems increased of XXXX, million. the to higher XXXX. segment the U.S. Systems company offset a the rest quarter Systems were increased market XX%, due in record XX% by about million, first to and sales an million for X% Canada, U.S. quarter. decreased operating translation. first quarter quarter compared quarter were the currency U.S. and XX% operating of XXXX was since sales increased increased compared product margin America, contributed of quarter world the to in increase Sales quarter. compared Systems about was Systems challenges, was achieved by Canada offset $XX.X East to in quarter and $X XXXX million organically the Canada Sales from while Canada equipment in Revenue of first end a sales. record Canada, of the were the XXXX. of lower this in product million $XX.X lower across XX% The market. quarter Middle first foreign pumping the businesses of grew from million XX%, operating by the year at driven of price decreased Fueling the XXXX to by driven all was the outside Water virtually overall. acquisition-related revenue by at XXXX, $XX.X Europe, now about regions XX%, groundwater in operating basis by inflationary compared by million. of quarter sales, first first volume. X% decline markets $X.X improved increased Water the million, of Water XX% revenues and price-driven sales Water demand due sales Systems XXXX. Sales XXXX XX% the by The income with of new to increases sales categories. U.S.

the quarter of sales gross gross profit, million. historical in labor, recovering as increase maintaining fully XXXX offset operating in we net cost not compared in margin of freight $XXX.X significant was The was prior which experienced XX.X% of tariffs, of first in the Systems, first a in an the Operating quarter primarily The components, challenges, the chain sales The first net to $XXX.X decreased XX.X% first and the but XX.X% XXXX, profit XXXX supply for million in income Fueling first of degree, quarter to the company quarter due company’s continues XX.X% and was year. which are XXXX. with versus quarter unfavorable We and inflationary from some quarter XXXX with our percentage income pressures to margin product all materials, the consolidated gross an work pricing to mix. to profit inflation first margins. pricing, the

improvement order fully We administrative, work million price of expenses expenses first Selling, as the acquired open price were businesses were to of about we fast million balance compared and in forward in general versus XXXX $XX.X expect effective. from quarter quarter going in first SG&A XXXX. actions million. and the costs or $XXX.X $XX.X down further become SG&A,

support by higher about were expenses compensation spending performance-based expenses XX% increased SG&A to acquisitions, sales variable due million to Excluding $XX.X and growth. or higher

first as higher, Although XXXX first is The are was events The impact overall was percent as increase purchased SG&A impact shareholders the is be Yesterday, on lower result May $X.XXX net common concludes be the quarter quarter of in XXXX. reported for events in XX%. about first shares rate authorized about discrete before shares the our rate of all a and discrete was rate projected At over the XX market to discrete points a The first that the quarter paid will the higher full to effective record The XXXX, XXXX and XXX open tax the about year be $XX.X This by on is total basis effective events of expense for effective before for about XXX,XXX. of of for million Kim end was dollars of XX% the the of XX% first the prepared rate cash XX% XXX,XXX of in roughly for the during May the sales is before dividend remaining now the we stock about XX%. events. quarter was tax business company tax the lowered of company remarks, may announced segments of about for turn its SG&A of of repurchased a quarter back effective XXXX primarily XXXX. of quarterly in questions. that The X. tax and will well. the impact call company approximately favorable discrete the to

Operator

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

now is line open. Your

Mike Halloran

morning, gentlemen. good Hi,

Gregg Sengstack

Hi, Mike.

Mike Halloran

side Maybe detail how little as forward, could residential thinking Gregg, just markets about on and you a cumulative first then in bit move just U.S. the most ag interested the things. of end the more on give the landscape? us landscape probably you’re we demand

Gregg Sengstack

to contractors in update XXXX, obviously, February. already will having Mike. weeks February from U.S., bigger the more contractors and be a larger that we little you to throughout market. maybe the of in and weather and leaders, that, to prices, I back contractors was housing work front in I as I’m housing a throughout weeks, contractors Anecdotally, X to that contractors demand of the in that’s, couple Sure, of strong seeing, was a then is longer point again, some pent-up we drives contractor think I X And again, invest side, increase favorable farmers the large some pumps Yes, booked entire see demand ag to cash And our them. this for replacement frequently in also work again, country. rural about X we’re construction with will And our backlogs maybe bit talked to of your and continue because just trips lot as at or X promoted they recent in and replacement where maybe having some being talking one construction or strong headwater moves, housing pivots, higher more flow distribution, by, it both they the conditions. well that to about their of demand using allows ag think, have of out

more one, lift globe. because drop And mining. and is of so again, of that the commodity strong market And across prices we demand then the and drive that but that’s U.S. the largest into broadly just seeing are our again, – gets

of lifting for So that’s products. larger also the some demand our

Mike Halloran

in there. the about enough prepared time And remarks margins, Water Thanks. pressure spent timing the obviously talking then inflation the from

do But through as a on of which of margins, Water hurt probably elevated pricing forward. that of and kind little have how on be out and obviously, side? those and the the dewatering Systems at year, guidance the which timing you So going thinking may mix roll we be about the you should bit think capture about this the rolling margin in you look range forward Water orders, the basis a

Jeff Taylor

points Mike, hit Yes. I Jeff. Good some the on Yes, think this there. morning, key is you of

As we generally was the there. a the think line about on go-forward in guidance quarter basis, first

couple on up in flows pick the is QX would behind backlog pricing QX. it or late go-forward see to backlog our will actions that months say price the took I we either of basis, As generally a a we is that due then through, early

one the strong having business the Water seeing in then piece over that, we next along you’ve two are the Systems line, pressure two margin expect obviously dewatering commented. on mix So to big demand would some quarters, in say, And is a the some as of we quarters. do to recover I

have that see product We it inflationary line. generally will we’re we’re Also some on pressure components supply to we the where electronic the flow through, mix side, backlog we fulfill seeing that it’s continuing expect that and chain on that in continue as Fueling and challenges.

So be of that we some down system, management And on and significant from that controls basis. then that in we in seeing a benefit probably line before the mix going product it’s fuel from to see and area there. year-over-year. will as recovery drives recovers, effect But being later we’re some go-forward a the year

Mike Halloran

you. it. Appreciate Thank

Jeff Taylor

are You welcome.

Operator

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

now Your line is open.

Matt Summerville

Thanks. I was how full on much in how you comment if QX? And wondering price you you to could XXXX? year guys price realize for much realized expect the

Jeff Taylor

Yes. Thanks, Matt. Good morning.

QX, realizing. terms part probably say in to the a I double-digit we’re terms the we’re of the how range year-over-year I on across of easier think overall range in much in So the basis. company, price question in that’s your of XX% would XX%

and some that say, increases in generally actions that pricing XX% line we’ve have region, on are effective areas would areas. haven’t the the Across in between a up little the Water this in point the in location, at taken to and the between, product more We I quarter, Fueling than X% about other quarter the become first we’ve announced time. catch depending – first fully need company,

increases general range. range. the the generally, first in that’s So are double-digit But low quarter

to actions price We need quarter. the going inflation continue to price monitor expect to as evaluate do take that additional We in take will forward. additional we actions we second

place. taken of have those Some already

full for and forecast prices on upon I just go supplies such. our to be going dependent components, year, freight, the it’s think for materials, As where

by the strong but should – range end double-digit so And year. be the of it

Matt Summerville

you big you that would are are that in are quickly balance? come think that some immediately. When order that I about fully numbers. things imagine turning ship there those how open Yes, Because balance,

as it the that unfilled you’re much curious context unabsorbed given I’m to turning in So how is time? in at of any how inflation quick backlog in sitting point

Jeff Taylor

quickly of balance order quarter the possible. goal to inventory terms in fourth quarter, inventory, But from as our to that say open turn the would I our Well, increased is first as the sequentially. turning

balance, for So as million to large $XXX lot millionish dewatering open pumps. order of a Gregg of there. commented, $XX that is we work have do The

have how the say quickly upon million to It’s $XXX And the how supply of so to can going chains are hard about recover to going you key be in remainder. quickly dependent components we’re It’s this we’re months on think, us behind term I that exactly of the costs constraining versus driver balance. in the the at that point become come when pricing available. is through open generally, But a of time lag seeing order we’re and couple that.

Matt Summerville

of that? a you in the When things a little is have you about you’ve that in sort end getting that of of bit have year same? change observed context the And want parts are environment what across these if a I worse, chain, discernible your China, I happening think supply supply of around guess, as sense lockdowns since chain seen result been your the of

Gregg Sengstack

Yes.

inventory I are is improvements hold product then only substantial have the what a are when that’s bottomed So Unfortunately, in the able pay ‘XX. of able that what been a in, things let’s have think product bringing XX as you a why of it the we you a I when in. seen as would been missing that’s and – part in to say challenges. get of you one seeing We’ve is of building stock, them components, that have XXX increase August you we’ve to we’ve it, is modest call we’re

So, that’s is that the one chasing. everyone

of the Omicron Restrictions first us went parts and the the the to we I around would first bottom behind So seems quarter. of In facilities, again, modest had the had other in availability – from last as got first That say more seeing be are we would challenges U.S., quarter, of I particularly during Mexico globe. Europe through summer. labor we now. say tighter improvement challenge in in that the quarter, supply half that chain the some including

focused is Now on as It’s their going challenges. China pointed been out, Shanghai. through you

affected a come China of our of couple regular way, You hasn’t is factories basis, to supplies here. of may recall in been continue out out and Suzhou and supporting on our facility hours our currently material a the a Shanghai in

impacted a this But to of not have production has incident Shanghai that that parts way. the our other will or our may supply chain answer. change through then material we rolls So, in China, see if

Matt Summerville

Got it. Jeff. Thanks Thank you, Gregg.

Operator

of from Global. next line question Liptak comes Walter Seaport Our from the

line Your is open. now

Walter Liptak

morning guys. Good Thanks. Hi.

Gregg Sengstack

Hi Walter. Good morning.

Walter Liptak

applications to And you that’s the this increase, of wanted the a the dewatering into? about seeing going And if that, sort think or I ask at more was dewatering beginning we business. of orders? one-time are

Gregg Sengstack

bringing it’s of some again, sites. for the also fracking, interest into U.S. that to and for are rental Walter, oil most those – to European to to – we going Canada, is are they but getting going see through increase are and So, the companies, well as we go Oftentimes, that don’t growing rental fleets well interest in going pumps beginning of gas various particularly equipment the seeing pumps We market site and fracking. for into the make water in and applications, well. rental the water are

us. of up is and for is is good generally pricing degree a degree the stronger then bypass, construction for also gas but as are in The that’s generally mining. good up, natural applications they number in and recognition a in getting municipal So, that business, is other to that the well used – also pioneer dewatering, brand that

– in for again, prices, higher generally does again, that see that’s just we with But infrastructure, flows market good it economy, business which is sales. more residential does the pumps, replacement ebbs use the that, its business, the say with – intensive water for a business. than have the end capital commodity so So, ebb buoyant flow and is it much that more the more investment in capital a more it’s and predictable

Walter Liptak

in – – the you. Distribution whatever The Thank going in wonder kind mortgage products. the segment, happening. like sensitivity if if or for residential rates to any slowing with I recent just recent reason, – you them for weeks rise forward I helps. of most guess And Great. saw the That Okay. U.S. that in

Okay.

Gregg Sengstack

I No, mean you cut there. off didn’t to

U.S. business also of look indicator directly wells, going contractors new it leading So, are pointed to drilling rates, at a of that’s out in contractor when replacement earlier, contractors – it weeks the amount business the work best the product. replacement That for I is But distribution business, for installing because are large and for is many for groundwater out not not commitments. rising a interfacing probably near-term construction is said, because is, and it’s product. you again, new the the is our of probably, impact months these with –

– So, committed permits homes that already or been already hold that or we expect for those are been homes financed. have been have already have

are besides our expecting a that so to housing urban be a impact And housing. out mindful forward with towards, that are housing, stream. large from months of a We out a a slowdown may least significant such also now. see see applications – slowdown other resi, have we there a not that at it’s we is large the indication sales and replacement portion component will to ag we and mix there our will but might business. in contractor is the in But rural have we that distribution rural in effect in degree is But areas, there a slow that again, because

Walter Liptak

then last on a Great. the follow-on pricing. the one, Okay. And just

As you to indicated, taken have some offset inflation you significant. measures have of the that been pricing pretty

So, kind pushback increases to they how are accepting same I the – everybody kind of it rapidly, boat with wonder price or pricing, pretty customers in your there are is the of doing yet? any the and is

Gregg Sengstack

basis like will a we cable sell – steel it’s out, spot commodities as wire Right sell and put numbers through a bought these pipe, cable, distribution in of so straight on Jeff some sold that keep mind, now pipe, higher some on on. plastic and spot basis,

straight passing there availability. right now, focused some on you are everyone – So, And things there is are the through increase.

And so we inflation is that documented there. on it’s seeing pushback the a pricing because out well are little

globe it contractors read the across You can product. about are and the for looking pick availability of and paper and up customers

that’s issue over the paramount So, price today.

Walter Liptak

Thank Okay, Alright. great. you.

Operator

Our next Chris McGinnis question comes from from the line Sidoti. of

is line now open. Your

Chris McGinnis

the Hi. my if taking inventory given year expectation was I questions. flow comment in Thanks. just for for wondering can for Nice quarter. Good on QX? morning. in investment you cash the Thanks

Jeff Taylor

quarter. able Yes. Chris, Good glad this to you are get through morning

connect last Sorry, we but to had it’s issue quarter, an good today.

In investment in currently. that do the we terms have of inventory full cash flow we made have for a year, significant

So, we good inventory are check remaining our normally in carrying there. a news level are is higher The we generally there of would. still turns than

the are our have. capital, of of that we impact We be this and working totally by the not cash year. with at we do would that will we flow say I able over for free flow, to on of point So, inventory the favorable the recover turn line in our inventory out a free some the cash will to that that year that would the expect be portion for end end which highly the time, turn of And we goal forward. the inventory flow are that XXX% conversion that’s obviously expectation ability cash target recover shooting that cash on be and and dependent our free for over going flow at by a conversion. year. is still still of free But

Chris McGinnis

the then integration I recent just for comment ones? of kind on well talk guess the given maybe gone has earlier – how I appreciate on outlook And the just a that. M&A, the just maybe Thanks. the around

Gregg Sengstack

Sure, Chris.

move a to to strategy, number sense. will look the is makes opportunities. look pricing they make fit sense, We we get that at we the the And of at. continue There strategic when deals forward and

to we we us of by do when deals. and call. And pick at phone So, and where the will are with M&A, to going chase deals give just but we up really they but typically families. private the don’t continue maintain held contact is to close a decide sell they And them, and companies we to up are many look

Chris McGinnis

questions. for again I Thanks luck appreciate my in Good it. taking QX. Great.

Gregg Sengstack

you. Thank

Jeff Taylor

Thank you.

Operator

further now the Sengstack. time. this are back turning call at Gregg There to I no questions am

Gregg Sengstack

joining for for you thank week. We us conference quarter and after speaking to call morning the look this Have a our forward great you next end. to

Operator

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

You may now disconnect.

Franklin Electric (FELE) 26 Apr 222022 Q1 Earnings call transcript