Earnings call transcript Q1 2023

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Operator

Good day, and welcome to the Franklin Electric Reports First Quarter 2023 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.

It is now my pleasure to introduce, Vice President of Finance and Investor Relations, Sandy Statzer.

Sandy Statzer

welcome call. Franklin and XXXX first Andrew, conference earnings you, everyone Electric's to quarter Thank today Gregg President me and Officer. With is Jeff Executive and Taylor, Officer; Chief our Vice and Financial Sengstack, Chief our Chairperson today's then will performance. highlights, On quarter our details Jeff Gregg our provide will first call business on additional financial review

then will We questions. take

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

I will Sengstack. the call now over to Gregg turn that With

Gregg Sengstack

Franklin expect progress offsetting will pricing year-over-year by our than healthy. all offerings by year year. pricing and Global distribution for team foreign Sandy, moderate and of us. and our markets, in per records end income sales to more the earnings and segments water first Thank do, you, headwinds. of our as three delivered products remains We impact delivered share. for of demand start higher and for quarter our and joining strong thank businesses, achieving you increased a top manufactured elevated results we however, The the exchange demand All many solid throughout sales, driven operating the across line distribution volume all

portion while summer predictability increase enabling Further, sequential chain, us giving reduced we the greater supply shipments, been improvements of $XXX our has balance the million, since at this remained million see XXXX. our elevated open past us backlog and approximately continue of due to in $XX peak order to in the

quarter margins drove quarter with consolidated still Our like. up the line the benefited higher quarter leverage but on business operating basis. enhanced first performance sequentially inherent from and that we'd for Inventory our patterns, a in normal record for operating than is seasonal in

continuing We are reducing focused over to backlog as year the on as safety more well of shipments, by course levels. inventory the stock decreasing increasing conversion, normal

delivered operating surface operating first Turning growing dewatering income XX%, XX% well in and large pumping for demand as significantly driven equipment. groundwater revenues, and higher segments. record to quarter Systems volumes sales pumps Water steady with and our income as increasing by

XXX-basis margin results markets key up strong our delivered income record quarter a dewatering revenue Large slightly revenue with the QX operating chain stability demand point operating XX% and volumes to driven income and of sales pump leverage by increase the drove Operating Latin first for Fueling in on India. sales year. last US, improvement America market most quarter. and in including in XX% year-over-year realized grew end operating year-over-year the top XX%, favorable of supply systems similarly and

increase to despite ongoing of systems' the period chain and year other operating to in components. quarter XX.X% points related and Fueling came chips first availability at compared prior of margin an basis the supply XXX headwinds

not to US. any investments ahead, major in we the major anticipate do planned marketers fueling Looking of the changes

lines grow in to the Indian across product business to a continue market. favorable expect We

the situations installations. United the States reset to correspond order distribution weather supply and lead patterns start record parts first declining Although, quarter unfavorable contractor prices delayed being segment times. of sales, improve across many was some delivered to impacted Commodity by that and of shorter

increased the despite year prior from the headwinds X% business. for increased Sales

operating income of a about products. commodity-based XX%, in price While to significant decline certain decreased the due

Operating margin invest in basis by in those the similarly lower six new growth points fiscal locations operating via X.X%, commodity-based impacted to year, products branch the was last than expenses XXXX. which XXX announced continued as is business of and higher

of Even points margin with QX investments, we the seasonally are the on XXXX cost these sequentially, increased that XXX distribution encouraged sales. for basis operating from lower

customer's the and see to season. team of enter sales as sight improving the we we and will groundwater confident performance line a as result, And Our in has that weather contractor, our improves project feel we sales drilling pipelines. margin

to committed remain capital balanced a strategy. allocation We

our in-house We continue of the to and make internal integrity on bringing production chain. enhancing additional supply investments focused

the also returning of actively to capital we our through present shareholders opportunistic well opportunities themselves. our share dividends they as advantage and positioned finally, are markets, remain regular committed to M&A monitoring repurchases. are We the to and take And

remainder year, ahead Looking this we pressures have to may the with. the are geopolitical mindful of and continued of we contend macroeconomic to

XXXX year in However, to EPS $X.XX. billion $X.XX in the be and first and given $X.XX we're of range to sales increasing billion raising quarter, our results the guidance our and $X.XX guidance full between the

Jeff, to and do essential call to employees and water The people's availability Electric Before take being the consecutive clean safety work global in named of for fuel the over moment worldwide. lives, America's is advances to like our back to to I that, and XXXX Newsweek's of most access turning for year. would companies Franklin a improves trustworthy we the list recognize

approximately proud balances reliability, encourage available culture you efficiency, one report, week. with of that of this team explore employees. I focus to our stewarded, sustainability it's our sustainability I'm management is made and across in the a well-being XXXX the when also

achieve. an we are -- made on to still what progress, working still For and update we the

now over turn the Jeff. back Jeff? call I to will

Jeff Taylor

and first profit, records earnings everyone. Overall, quarter per it a share. operating for established Electric. gross new and Gregg, record morning, Franklin We good income for you, was Thank sales, quarter consolidated first

per $X.XX for first for the $X.XX Our the XXXX XXXX. diluted earnings of fully quarter share quarter first were versus

foreign $XXX.X Systems to Water the year-over-year price and XX% compared sales first quarter record up a headwind the million, were increase currency of a due translation. with even in Canada consolidated sales volume. were US of due First quarter the XXXX X% XXXX and to to X%

decreased translation sales and The sales of increased quarter first X% which XXXX to was sales equipment, the led equipment US growth market due currency XXX%. dewatering end pumping and in versus of of Sales Canada other equipment demand. surface Foreign the increased large all by sales X% X%. groundwater by increased pumping of strong

the and in sales were flat Systems outside overall. Water US markets Canada

more XX%. in and Outside currency the Foreign Asia sales offset sales impact foreign decreased the in America sales currency increases US Canada, excluding Latin of the EMEA than declines and markets. Pacific translation, translation

was points. first $XX.X up million quarter first a primarily versus XX% the of increase quarter income operating income Systems in of in XXXX. margin million increase XXXX, operating of income or Water The higher basis was XX%, due $XX to sales. XXX year-over-year was the Operating

and headwinds for higher sales Operating segment's leverage price X% was of Overcoming income quarter distribution's versus the of margin $XXX.X a realization, million, decrease the million. fixed cost improved million first a management. were the weather-related from sales, of first $XXX XXXX $X.X income $X.X first million operating cost quarter, quarter distribution sales during year-over-year due quarter, increase. to a record The

segment's versus was decrease X.X% of first X.X% of a XXXX the income the prior sales -- quarter million XX the X% million. sales, margin was operating $X.X for quarter distribution X% in year. margin $X.X Operating income year. XXXX The year-over-year of income in of was first first the in in prior of Operating the quarter, versus

the The weather. products business. distribution pricing, lower by was sold margin commodity-based through income impacted segment impacted by also negatively negatively on was Income from compression

first our for sales $XX.X in quarter Systems Fueling XXXX. million record of

sales the pumping Foreign with strong sales the increased by currency the X% US of first in and quarter. management and sales fuel quarter Canada Systems translation systems. decreased X% compared Fueling in to for XXXX,

Systems Fueling compared of Outside China. primarily a mix XXXX, $XX.X sales sales favorable of million XX% net decreased to first and the in revenues lower quarter Systems driven million, and small storage a divestiture Canada, tank XXXX. operating first income due and $XX.X business record product in to US was and by of geographic the up-ground Fueling quarter in the

of favorable mix. sales operating XX.X% the primarily to and The first year. and sales was to product increased income in prior Operating XX.X% due net realization price margin XXXX a margin geographic quarter compared income

million was due XXXX, XX% percent prior as increase. gross the a year. net year-over-year profit The profit was The profit Franklin $XXX.X sales. gross XX.X% a in of primarily in for a sales on the first versus the basis consolidated Electric's first of quarter gross XX.X% increase to was quarter dollar higher

to In to gross or the quarter first price realization, up basis margin quarter XXXX, Selling, $XXX.X was higher leverage and the XXXX. and XXXX first administrative first in due sales. quarter points management on in of cost million of $XXX.X SG&A operating was the expense general XXX compared million profit of

as growth. the quarter decreased to higher due support SG&A increase net selling percent a expense engineering sales the of XXXX. sales of first XXXX in The largely in cost to in XX.X% higher and was XX.X% first in quarter spending from marketing, SG&A of to

foreign in $X first in income XXXX, the due operating quarter million some $XX.X of from million income Consolidated quarter headwind operating first primarily the translational to higher was up approximately is $XX.X in increase of sales. XXXX, of exchange million or XX% despite million. $XX.X unfavorable The

quarter volumes was higher spending. XXXX leverage XXXX. in of sales was primarily operating increase margin net to first first of due in sales SG&A X.X% the The operating margin income quarter versus The XX.X% on and

prior in year. quarter of higher Other non-operating the the were expenses to XXXX compared first

First higher to and due was interest rates. higher expense interest outstanding debt average higher

Foreign dollar, stronger Argentina. our in to the operations Turkey and primarily outside exchange US higher losses and were particularly the due US

compared The stock XXX,XXX for approximately during open for purchased to quarter. effective rate prior market, The company about in its first quarter tax XXXX. XX% million the quarter shares the the in year the of was XX% $XX.X common

authorization program. dividend million shareholders announced $X.XXX increase record on X. quarter, paid as May to stock a the week quarterly to May of XX X.X is of our that the recent Last will share of cash of the remaining end be the repurchase At repurchase approximately shares the including, first company

This concludes We'll over Andrew our to prepared questions. the remarks. call for turn

Operator

comes Instructions] Blair Oppenheimer. [Operator Thank with you. question line from of the Bryan first Our

Bryan Blair

good morning you. Thank everyone.

Gregg Sengstack

morning. Good

Bryan Blair

for call in to you're the there if factors would sound out anything, assumptions call months is positioning macro doesn't if anything channel there real how strategy of out much ago? It year? pivot And remainder wondering you other if that any like relative the of any changes few critical note inventory? to there's kind influences to here and Any but a

Jeff Taylor

Bryan this we in look I XXXX. perspective there any Jeff. as real is our from don't a view overall macroeconomic at We shifts see

it view is the where our year the performance was pretty guidance reflected I look our we've our of updated year. as for strong think when quarter obviously just consistent. at And think with I first quarter pretty is but our we ago and one consistent guidance, remainder initiated the the we view

Bryan Blair

treatment water the Understood. in Okay. on results if wondering drill I we could QX. was down

little near-term You had over given a new at for the resi more exposure the least caution called sensitivity out there bit business. macro of and

order what wondering Just how in early quarter and QX first expectations are out of you're the year? for the part full patterns into what the shook sales seeing

Gregg Sengstack

when a this us. there's of permits is housing forward that growing I'd and of demand new some. and rise is will Bryan say year. that pretty back business start moving now to the off balance and the expectations of we Yes, as In half rates our with we like that's for much buoyancy that the fall are be saw QX last behind entering the sense business to started that's It off, Gregg. the looks year fall

Bryan Blair

still lifting owned you. so is outlook hear. water the You've assets while Good expansion? least a Is margin the at Okay. to sticking behind heavy for And the integration with for treatment.

called ERP You've on front. that out

you Just if about can is thinking team leverage wondering rate the how and run profitability operating speak going to forward? your

Jeff Taylor

that over year, segment last when teens, together put margins margin. business the got started acquisitions, those multiple half, margins year above a double-digits, Water in low Yes, XX% initially Bryan, average. less first They're the business when we high at to and we've slightly Systems was in through up the running we than low single-digits operating the

grow is our to those I think move forward expectation we'll continue that as margins. we

of there that, as for the We're footprint as said of development looking in new we well products. will expansion Having invest business. our

the of operating the we we on And year expect. growth a will expect as it so little this but in stay bit that we for do double-digit through to low pressure believe go range that put margins, I

Bryan Blair

detail. Appreciate Understood. Thanks again. the

Jeff Taylor

Bryan. you, Thank

Gregg Sengstack

Bryan. you, Thank

Operator

Thank you.

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

Matt Summerville

is here sense getting impact the for Electric? into maybe adding better second a we're Gregg and around or impact experienced overlay Thanks. put color to the picture manufacturing could I little just you was mean you more wondering Franklin that business QX, distribution? as quarter, geographic I did extent weather one commentary in sitting that month if a that is the your an

Gregg Sengstack

year both this probably first to year, that manufacturing took to cold. saw Matt, get yes able down to more and just you good the the We on slow contractors Distribution in just your the a field. year, which question from standpoint into chin distribution. answer compare were the is if last a dry, The warm quarter because first and delay it's this been wet was a morning.

your western United across tsunamis States the watch channel the United of of the weather come you weather If northern the see you in half the part States. all

demand can And was who it's inflows up. are this D. that were our order get seasonal about talking week seeing picking a we distribution are improve, And reminder we order a this so talking that contractors how now we picking it they just Davis about Headwater you if see company business. runs earlier

and So again to -- the it's then bit impact the manufacturing us. But for on certainly little And restocking. is that's underway put indication distributors other likely dampening the overall on distribution. positive from getting side our of biggest was on the impact a season

Matt Summerville

would put coming and just last the down I in team with year-over-year of in realization where I you pricing of respect and you move I then And follow-up the talk a you that's the a have in that realization about And as first see decelerating? maybe increases throughout we just of can incremental moderating quarter Do price year absolute as XXXX? just -- to when isn't down correct? but price se, that per magnitude assume function

Jeff Taylor

range Good Matt. pricing where locations mid is we range would quarter. say morning, in generally approaching first I in We've -- high single-digit Yes. Jeff. year-over-year seen the the This to have it's before include of you that there. are the there single-digit impact When seeing we're really mid on slight exchange high to single-digits. what in foreign range FX. single-digit puts it Those us

through did those price increases we're going the go we're we lap to to -- year we As that going give year. lot of a last

positive that will see as single-digits we impact so to kind to mid of low get price we continue moderate we the it to back that expect the and the half be but to year-over-year And we be year. see, to of it

Matt Summerville

then treatment? front that maybe end been quiet correctly. And an maybe Got as question. just guys if seeing been final pertains what pretty build-out you've it. doing XXXX on one from in remember the you comment standpoint M&A specifically you're of water You've it the Can I on to since

Gregg Sengstack

Matt like the price challenge you in pay. what inventory from companies Yes, willing M&A to sellers are environment the buyers from us expectations other have is give us to and cover

middle least risen you imagine of still to a expectations to to separation bit about pretty when unsteady. has As or at and done was get been can the general now deals there's as interest readjustment be little a as sellers from hot a of have and year people's everything rates concern macro last been unsteady more environment of

active. So we're we're interested,

us be asks as well. it, have it a to but We capital do seller to the willing

there treatment too. to we're opportunities and continue more asset talk certainly be looking looking lines expanding acquisitions continue suspect looking continue I and to there opportunities. and We'll helping mean believe at the also elsewhere our our will people and critical out continue product to water -- at equipment. acquisitions we'll monitoring and look at we're I that to are for we and able to So

water a private because since going gap little treatment but look, of to expectation now. continue maybe a on we'll in there sellers right is So I of think bit

Matt Summerville

you, Thank it. Got guys.

Gregg Sengstack

Matt. Thank you,

Operator

Mike Thank Halloran question from our next line Baird. you. comes of And the with

Mike Halloran

everyone. morning, Good

quarter. things we can like feel of particularly mix margins for commentary really about have that you. might I of headwind start the and been a of strength the on System first read side some mix Water strong dewatering So the for

make talk build that margin strength. on? So normal just we maybe better. we there on year the as look progression margins those and think also Maybe puts the can't of some that the about of that number seasonal takes even side in through remainder is of drove kind the the anything And what

Jeff Taylor

in I And about And business. morning, is strong a the say margin. flow-through I'd mean, leverage have couple get Good Mike. This when we sales. strong of of obviously, Water sales Yes. we I Jeff. nice guess we drives Systems on sales as margins are they despite operating sales large us. of leverage through say as when of which the high are typically strong Water low business for having Systems are dewatering strong end comments equipment, that the

certainly a that's So of piece it.

We sales in had pumping nice surface groundwater other equipment. and

year-over-year pricing overall nice basis pattern. a the So margin are those the accretive Systems in on Water contribute had business. and to We've

And so overall. that's been favorable

to year, margins be XX% normal expect I margins a half range be would move we that but said XX% we back in to strong for to continue range. Systems while expected through we and Water we say that in the that the are Systems be that expect to of the as Water

in improvement The basis it I for operating points think terms other was would thing is of year-over-year point low the out there, margin I last very us. was year's XXX

with so number to we a from were where in last range. we're the year margin XX.X% very low XX%, the operating And comparing

So it that when as it well. comp look you pretty from was at a easy perspective

Mike Halloran

true. But first very for from perspective. very, also Yes, you strong quarter a

gives channel understand cadencing how inventory a like on you you products of of perspective about you're pumps, trend kind systems demand more from is nuance? you're surface the an any spot but side seeing the maybe kind Maybe would on that What here? backlog side. about like what thinking talk on pumps. some the It from perspective of if sounds in about reasonable So traditional the to submersible visibility water underlying think

Gregg Sengstack

Yes, Mike.

our still due that getting zero. not out better called I is So past

some have do there. we work to So

of our Because talking seasonally have sales and Headwater do year the for got good team our up contractors in bit So Distribution our company, – looks and US that business up in up. to picking is Headwater them, US and from of see groundwater as will visibility out-the-door it it through tailwind. a some the again a be good commodity so metal prices we with plenty prices to there would a

of and – will that kind expect globe mining dewatering pumps the in be industrial and the good We dewatering groundwater across applications.

The our supply year maybe business surface than pump somewhat was more businesses. other last constrained

So you we're and mentioned a last of that business dewatering fairly has in took as back balance seven, The seeing on I collapsed, I eight of supply channel line. that a the now, ago. thin. And oil not we're continues we recall middle improve to been flip-flop. seconds may Pioneer when couple in probably And think point oil now chain your it's I Again, gas think large demand. about the robust or more well. prices should year, do just ago to – the our inventory two-thirds pumps product to exposed But years decade we we our were when – chin and of

more municipal much we're industrial. So exposed than

into that flowing And there's from pretty Act Inflation the government, and good so capital on. Relief

Europe winter than were And So outside I little the we're to think better a good. be expecting. year-end through that States United and then the people seeing came the I think

the Egypt, into back bit which but market is important cash a and little is flowing better. small a On showing product moving we're margin, seeing that us for

be certainly a is with Southern Africa Brazil, down that good. particularly and America, changes couple return governments and in we seems now Latin of would expect and those to shock a in went through that's markets to settling – it

Asia. bit in Southeast tagged a little haven't We

economy also recover Southeast a it's suspect I some the the been in with move product as loss China. tough of we'll in availability on coming availability there share some being people Asia. of – But think to of loss little maybe and bit I more improves, out is share

missed the So globe business the on for that's unless water view I generally you. something across kind of the

Mike Halloran

Gregg. Thanks, Jeff. great. Sounds Thanks,

Gregg Sengstack

Thank you, Mike.

Jeff Taylor

Mike. you, Thank

Operator

our of And Connors Thank comes with from question next the Ryan Research. Northcoast line you.

Ryan Connors

my for Thanks morning. Good question. taking

Gregg Sengstack

Ryan. Hi,

Ryan Connors

Yes.

of So hurting distribution granularity margin. a kind of the what is I and on in about call out the that wanted in what mix not And Can to and in products of the for the talk more on moment. lines? commodity-based types a the times terms product called of actually give exactly you bigger any couple release you here

Gregg Sengstack

Sure.

it this end also market plastic that fiberglass both So Ryan, one is product then challenges. pipe, this pipe, This and is pipe. channel pass-through of big distribution that's through goes is a has price and for availability -- a it's and has is volatility lot to one steel big and in that

distribution So, price that. last get was were we to only where price, contractors loading get up able and on year

the Now is happening. it's just opposite

chains So now the prices those down. coming are pipes supply improve, that available, commodity

you And that get us -- on so inventory. margin that gives if holding inventory, compression you're

from that would tanks, be distribution we product of say, delivers. products, that type pumps, equipment, define non-commodity That value-add filtration would be separate the motors, which

quickly So, other and but not we're -- probably bit. distribution Franklin interesting manufacturing rising inflationary well, a it's suffers distribution environments, does and just

and gets see of little then price as manufacturing system. distribution way kind improve, on its until the it margins you supply better a works And stabilization for through and squeezed does bit typically

So, that's of the this macro distribution segment.

Ryan Connors

that the these in of development, that. -- very is that's sort quick one with comes or is was from? existing clear. US, Thanks North of I And is The No, Canada Is US, Yes. a build-outs convenience coming where positive that -- Canada Fueling. strength equipment, that still strength then on or surprise, that actually exactly a what if some store for wanted to Fueling? driving that resetting suburban of

Gregg Sengstack

yes. through is in there the an answer XX wall years couple to is tanks One longer were all things. answer of United a ago the replace EPA majority States up the short vast the that, initiatives double and Ryan, the underground underground The mandate back and to tanks construction. is of

XXXX, the upgrade XXXX, So, a there was across XXXX. massive US in

tripled think I the in it XXXX.

all years, something So XX lines XX, XX -- equipment old are you're is the to station going XX our kind with station. of do years

as or period. the new a to move or point, station close station time populations to XX-year the to you're going going that you're level -- station do your upgrade to some going during to potentially You're of rebuild

I So going there's on think that's -- kind that in the of background.

maybe three stations majority over I ownership United and whether -- like States I'd It the The about can or Canada last by two, other stores thing couple single the something that United the store operated be, of more operators say changed that. in I decades. is States say, used has one, that's to station were much owned can, the of have

Those single are age people pointed I bought store are them or those locations closing, up these nearby major operations those just marketers. bought out new being by are being an and stores are stations as from now being major And are marketers. being those closed, replacing by

marketers because publicly major are equity some there of mentioned of is here are real coming estate I many them the in -- them private of traded, play.

And so what you're driving in the growth seeing is investment in And this industry a I that's because secular market. of of the think returns. kind

we those gain hard on and this we And we're are lines good working the have product -- in developed years also to a share we've over that markets. market reputation for

I So, as us that's well. think helping

it's are are on There good investing. available capital. a returns So, people to in. good is a -- market it's be Capital and just

Ryan Connors

it. your Thanks Got for time.

Gregg Sengstack

Thank Ryan. Sure, you.

Operator

I the Gregg remarks. you. CEO, would Sengstack Thank now any like call for to over hand closing to back

Gregg Sengstack

in after all you We We in listening forward second on week. to release. a quarter July to call Have today. you good Andrew. look you, our our speaking appreciate Thank results

Operator

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

Franklin Electric (FELE) 2 May 232023 Q1 Earnings call transcript