Earnings call transcript Q2 2023

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Operator

Hello and thank you for standing by. Welcome to the Franklin Electric Reports Second Quarter 2023 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] Please be advised that today's conference is being recorded.

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

Sandy Statzer

of me provide Sengstack, Thank review Gregg Franklin Executive and XXXX highlights With Chief Electric's business Andrew, Officer; our Second is an you, and our Jeff our On then Quarter second Earnings welcome, and Jeff Financial financial Conference quarter Vice our Officer. Chairperson performance. will and our everyone, overview Taylor, to today will Chief Gregg President Call. call, today's

take will We questions. then

will actual forward-looking be Before on Litigation that we from meaning begin, differ risks as and release. results XXXX. various we let Securities making annual are me Act the today's uncertainties, to earnings Reform remind statements. factors conduct you may discussion many such this forward-looking of statements call, be Private to found these in These XX-K the within statements and of of report the company's subject cause materially Form of A could which we

All based and on no statements. forward-looking to law, by update information call company obligation the are this as required available any except currently forward-looking made during statements assumes

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

Gregg Sengstack

sales quarter any our Thank Water of share per results Franklin by driven history. and line another were in team included These record Systems you, segments. Franklin's Sandy. for delivered and quarter performance, The strong earnings which results record Distribution top

businesses. teams expense to headwinds. our by continue solid and end enabled global business execution regions, demand Throughout and solid of in to as all deliver across core continued Strong the we us management our margins weather-related quarter, saw disciplined our each even markets face geographic

operating second year-over-year Fueling which reported income income on sales. in Systems This growth is quarter notable year-over-year our lower and especially operating segment, record

busy our inventories typically quarter for second northern start meet and markets, we to the season core build hemisphere when of the demand. The fiscal is

to reducing we more the the performance continues to during improve, on base as focused However, supply inventories quarter, normalized of our levels.

million, and backlog sequentially focus $XXX shipments to convert million. operational reducing our allowed agility us accelerate and $XX to backlog, This by inventory decreasing

result, our on have of our some $XXX improved commitments by continue make generation. cash progress over to year. a ahead As flow flow us, improve the year-to-date but We to prior our cash we still work million

Turning delivered to our segments. pump year-over-year in growth sales surface of Water income quarter increasing revenues products. operating approximately for pumps history dewatering any robust our X% and by record and other with driven Systems each income its large operating sales in and

US previous being groundwater solid was few in other regions by intentional of weather reduction Our business years than despite and wetter and sales. our negatively impacted intersegment

our lead right-size times inventory segment our As to reducing Distribution their are are we products. Headwater our to of transfers improving,

as demand We and market to be other inventories continue expect We headwinds believe customers business. their we that well. destocking transitory and our across to are weather end healthy see these rightsizing

For slowdown example, as quarter consumers summer. this last were sales up started market in housing that sequentially water our treatment XX% lapping to the business, we're direct about our

impact from an growth year-over-year mix volumes. dewatering offset of large leverage as Water flat operating from Systems by sales reported Overall, pump was margin the XX%,

Fueling of United Half Kingdom. Systems business operating prior due the exiting to delivering compared sales of was margins manufacturing revenue year tank us operating X% the in the while quarter located record reported strong decrease second income. and to decrease a our period,

grid systems compared demand XX.X% monitoring, and robust by prior an Fueling period fuel basis was Systems' of the quarter our higher-margin products. second record and to points increase year operating management XXX critical of solution margin for asset driven

challenge. the experienced to During chain though continues improvements, supply component a we chip further quarter, certain availability and be

completed builds reducing market it store new-to-industry XXXX. slowed to are program, appears that planned understand such or While their be customers build not several convenience that have XXXX early are planned some in now we that likely major programs

expect that all of the interest new impact an the rates, timing construction builds. have We these and availability of had higher on labor weather

gaining We management stress is grid continue This marketers. grid market fuel solution appears driving the investment believe critical be electrical in we monitoring store in share the systems momentum in are products. Further, and well-documented accelerated. with to convenience our to build asset investment

to X% period is revenue the customer installations. increased normalized Distribution levels. to pricing from unfavorable weather the is inventory contractor year Commodity start trending prior impacting despite more of and continuing decline

an X.X%, about XXX basis primarily historically decreased inflationary year's driven environment. strong last a The margin margin, below operating prices. which XX%, delivered lower was points last of income by Operating by commodity aided record strong operating segment of margin year's

by More our increased remains executing foundation strategy the importantly, the a in leverage business the and to Distribution pickup last second built in seasonal margin normal we the Team the several reflecting on over grow focused sequentially operating years. XXX points, basis quarter.

dividends on Our opportunity each balanced remains and and our business invest capital repurchases, to allocation economic opportunities. capital to return We strategy explore its through merits evaluate and unchanged. share M&A shareholders strategic in continue and

are of rightsizing are the and reporting inventory three While segments, weather about the our optimistic mindful underlying pressures core all macroeconomic issues impact channel that and across we continue persist the of we markets. transitory to demand of our in the of

XXXX which quarter. Our last results us second with keeps year was the on track quarter guidance, full raised

to $X.XX EPS our and are respectively. to a full range billion As revenue earnings in $X.XX reaffirming we billion year guidance XXXX per and $X.XX $X.XX in sales share of result,

have the well progress our just report, call expanded published several year's has the for to mention of as on sustainability to few and made report Jeff, XXXX previous which areas years. as focus an like on turning next initiatives I'd from was This provides years. Before sustainability June the in we ESG over update

as as the we reflected we do. made have of to year's report, performance earlier, in work in I'm ESG our progress more have proud said but this sustainability I

With call will the Jeff that, turn the highlights. I to for financial over now

Jeff Taylor

records new consolidated and good was share. established record Thanks, a earnings and Overall, sales Electric. quarterly Gregg, for everyone. Franklin for per quarter We morning, it second

a record to Second quarter due despite were the $XXX.X million, of X% increase headwind X% currency translation. XXXX consolidated sales foreign year-over-year a

Our of sales were XXXX. Canada quarter compared quarter for second up XXXX per of price Systems the quarter in the $X.XX share and due second diluted fully the for and were US Water X% to to XXXX earnings $X.XX the volume. second versus

X%. some across half sales in dewatering first Foreign sales decreased and led equipment. the increased by lower growth in the large approximately US channel translation pro of the Canada Canadian which The to in by year pumping weather equipment, of US groundwater US currency was the XXX%. led and destocking Wet the most of of sales sales

in outside Canada sales and Systems were US markets the Water up X%.

in Canada than more Sales sales markets. outside Latin increases Asia sales slightly America currency Pacific and EMEA Foreign and by translation XX%. decreased US offset lower the the in

million up year. in XXXX, of income operating Water Systems' was income to in The $XX.X higher second quarter operating primarily the or XX.X%, second sales. the quarter Operating versus X% million increase due XXXX. compared income to last margin was of $X.X flat was

in sales quarter Distribution's X.X% The decrease quarter, million, segment's the of XX.X% second X% was were margin a XXXX was Distribution operating in quarter million $X.X year. prior increase. quarter record $XX.X for income sales of income Operating $XXX.X the of second year-over-year a sales $XXX.X million. second versus second versus of a XXXX million the

margin with prior sold impacted wetter through commodity-based weather negatively compression relating lower by business. Systems. consistent was also products Water on to Distribution comments from Income the The segment our by impacted pricing was negatively

from second and improved. XXXX demand quarter $XX.X of decrease. due sales Systems' lower times sales X% US XXXX to to in channel as million availability Fueling million, in Fueling lead second were XXXX decreased X% a sales inventory versus of destocking supply compared quarter and Systems' $XX.X the Canada the and

in the growth our and divestiture due and and pumping XXXX Systems' of sales in our as business. grid well Fueling decreased X%, revenues the systems the solutions the tank US to lower region. Pacific in experienced management We Asia as systems fuel primarily Outside business Canada,

quarter million, record, quarter operating the Systems' million to XXXX. compared in income of was second Fueling $XX.X $XX.X second a

The second to margin and in management. increased Operating mix due compared income was XX.X% prior sales net geographic favorable year. expense product income the disciplined operating primarily realization, XX.X% price quarter and to sales shift XXXX of and margin

XXXX was profit gross a XXXX, of slightly of net consolidated for profit $XXX.X quarter million sales Electric's second the last from the the was versus as profit quarter weather compression XX.X% profit margin sold negatively and from XX.X% quarter through gross percentage the in $XXX.X gross business. Franklin margin prior The impacted unfavorable second year's products second commodity-based down year. Gross by was of in million. of pricing

second quarter or the second quarter disciplined as XXXX lower administrative second SG&A million SG&A of XXXX. management, a The in expense including was of and quarter. decrease XXXX. general largely expense second the in of and quarter XX.X% decreased in Selling, to was XXXX the percent advertising in the SG&A XX.X% million the to from in compared quarter to due marketing in cost of in expense net $XXX.X sales of $XXX.X spending

quarter or an foreign down XXXX, Consolidated million. operating XXXX income $X.X the from exchange X% was despite $XX.X million the second of headwind less quarter translational million million approximately unfavorable $X second $XX.X in of than in

the from margin operating second decrease margin decrease income operating XXXX to in operating the XXXX. quarter sales was was XX.X% versus quarter due in income of XX.X% Second segment. net the of primarily Distribution in operating income The and

second Other compared year. were prior of the nonoperating quarter higher the XXXX expenses in to

First, was higher interest higher rates. to due interest expense

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

quarter first operating the to XX% an million of or generated in The the the of effective flow in approximately half XX% half negative improvement $XXX first rate XXXX, million. compared for of year in in We compared the million quarter. cash operating to tax using was flow prior $XX cash $XX XXXX

in In growth. more XXXX, flows. we to working our expect improved cash to of levels, XXXX, to invested leading continue to to capital return capital working levels XXXX higher normal and In support we

of stock The company for shares share the approximately repurchase during is common $X.X quarter of second million X.X authorization second XXXX. open the approximately the of of in remaining X,XXX end the the XXXX, million shares. about quarter purchased market At

paid concludes to shareholders August that turn of Andrew the XX announced Yesterday, now quarterly on cash for to questions. our remarks. This prepared of company be back record as of dividend We'll August the $X.XXX over call a will X.

Operator

you. with line comes Thank from And of question our [Operator the Summerville first Davidson. D.A. Instructions] Matt

Matt Summerville

way a put lingering what you saw you're When third is still from a and QX? Thanks. into just you follow-up. Can quarter? point there there If just on So much had it impact an And finer started? seeing of it destocking a I maybe a quantify how then A impact have start quarter the on maybe the in couple a of to standpoint? questions. maybe

Gregg Sengstack

summer. last I'm sure a couple had Jeff Greg, of because us slowdown seen for We've It's a is of dry tough it to parse of look, will have years to this the we weather. housing little out from Matt, this. a -- and follow-on the really

the have sales probably and in United the So quarter groundwater, most in States. we visibility the

can because more door out or value units are in that little per up the piece and than actual dollars like wire. sold lower commodity sales we X% the see of commodity that was the You Headwater the were that bit pipe up a

that of -- intentionally door our business off reduce about yet kind their the indicator best into by million business that our was transfers that's the actually reduced So is we the $XX and inventory.

that of and channel. XX% So say from our that sales that's let's bogey kind a of that's

So extrapolate that. you can maybe from

of have kind better So different view. maybe really Jeff of point a may point a -- quarter. it better of I -- a finer couldn't throughout was the point. put view

Jeff Taylor

number No, of hard a to amount the I quantify don't destocking. have

related we supply of to are tell versus separate I As it's much chain how Gregg weather how kind is much What improve. was can seeing that was said, you hard destocking. really

to second Our customers have quarter. the in times our delivery improved

quarter. times as the in well, is our improved think normalize delivery allowing from their that We others Our seeing or levels. that right-size them are to which inventory really suppliers

had And so certainly an that impact.

think I here. interest playing a are also rates higher role that

they've are it it's in is seen those pull in prevalent than those had people -- levels. we're a because installations. the the was side a And down water we've ago. more we than also carrying that inventory year on new-to-industry cost some So Obviously, looking little think starts to inventory on realizing as of today delays that, of fueling was higher it

into the time. to separate again hard over weather is what carry do We Once at and we'll quantify transitory. QX. some I do that But this think to believe effect between destocking. hard that it's see impact

Matt Summerville

the can year-over-year about material Franklin as businesses a on Got there's it. what look you in realization you trying at the like on then on for conversion what follow-up, I'm get how guys. looks Jeff, did Electric, pass-through price expect one is And much talk if comment can then 'XX? segment. the to of commodity like basis if things Thank and a you for a and way cash lower Franklin difference free to you maybe, Distribution in And

Jeff Taylor

Matt. Certainly, Yes.

Headwater realization that comment, high generally. say I water this the would across this piece seeing mid Take and and commodity time. think basis. point that on to mid-single a So digits we're pricing the we're single board, of seeing for of at is digits Pricing in out year-over-year kind I

We've talked contract and price more price from that lapped as of to being and we will through year, year seen we've that the being expected progress environment increases the return those about move through the we this pricing we stable, normal to continue frequent last those with increases past year a as less more that in year. we've

products, seeing something the with of and products, the the has that's is pricing, what's digits non-commodity a On price drives the of so but the margin the realization, on seeing Headwater side, seeing in still the motors, year. they're in driving and on mid-single controls what business decreases, their this side, type part first compression price seen that in water commodity systems half really of big good product consistent pumps, those Headwater they're the

And low kind seeing pricing. then to digits the mid-single Fueling is of business

positive is time. at pricing in point on this everybody So

is For the our cash and for view to year. free our target flow current XXX% rest the be based of on conversion, continues

the we'll cash back through -- be year. year, of back very and that we the expect half we to and We as reasonable exceed by strong half of amount in able generate that the typically flow a the go

we quarter the And in QX. turned so

you As flow and compared as very and to we the in quarter certainly prior sequentially strong know, cash free the year had well.

And we generation normal the see cash to recovery strong in back flow half expect so pretty a of of cash, the year. free

Matt Summerville

Understood. guys. Thanks,

Operator

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

Michael Halloran

everyone. Hey, good morning,

Gregg Sengstack

Mike. Hey,

Michael Halloran

So of a couple questions here.

saying, a goes times of probably but lead had what a you you're Matt's I the you with same level normalizing, are of First, two But kind first part which backlog environment. look bit. in talking destock healthy the when those at think hear you I in you're the -- question When little think pretty and quarter, sense. makes about a is as time,

below just find seemed for surface. the But So you're to way It maybe rectify can you a obviously, surface. on contradictory those the me. it's what seeing

those how I'd together. love So fit understand to all

Gregg Sengstack

the To of I to bit coming point things quarter, are Mike, the think tougher comp your the as -- are couple a of both standpoint the going into people prior on. again, season, is that, second weather. little compared year, from a

people then And I our hand, customers. kind just what also, of burning through on think have are they

that seeing worked the business pump backlog. we're large different At the same that's time, business, that. So and we our a off

which a delivered series portion are to be backlog, meaningful months. So of there's to relates going our large over pumps, which a of

appeals We're even going seeing some now XXXX. into

which as manufacturer. used our largest is different QX, into as quarter that, more a we go So business be our good to visibility as business. revenue which on than is short-cycle short-cycle we The have QX

distribution a QX. a business, maybe bigger than more QX tends to meaningful Now little be with bit

we're So, the season. part of in that

of They're a California a decent you've Yes, but in we -- did one water, results been lot has rain. surface got Northern micromarket, using Latin of well. Europe and America. that's had lot

well. Africa Southern did

like looks coming Asia it's back.

now said but of sense business, we So in year. our people have are the right a we that's have it's half back confident a short-cycle where the

Michael Halloran

That's helpful. Oh, go ahead.

Sorry.

Jeff. Sorry,

Jeff Taylor

business. in say saw comment a add part of our Gregg A our backlog there to the the versus of and about our increase going order large we was cycle talked in I was dues. is past longer big more No, they're want to pumps I short-cycle

on in made up catching progress dues. past And the in quarter great we've so

it short-cycle on the pumps, some large And also in chunk but decrease a the of big of was was the business.

what like So we're for is back very dues the in say we us. this level to past getting making, and we're I seeing terms pleased environment, in progress reducing almost of said, with getting would are backlog how the -- and a great we're normal dues past

So with once again, pleased we're that.

Michael Halloran

on second I briefly. sense, Thanks you something for think, that touched Jeff. And makes That Gregg, to question that. then relates

think pointed looks that bunch little cadencing changes perspective to out improvement. looks a weather going things of XQ how seasonality piece to what But I more bit sequential a destock Headwater from that in a how on about your probably you understand the business? to now Just like from XQ perspective, maybe obviously, XQ.

of as So you more But how cumulatively. the half year, would we any the can back on give the side help of be water play should through any out normal great. you how that seasonality it kind context think compares to to look

Jeff Taylor

Yes.

for generally So and us groundwater part Northern in is drilling the business. the season Hemisphere, the the season obviously, year strong the middle of the it's

And so, our to periods going be strongest those time. are of

is year little a Every different.

kind maybe stronger correct wrong, take you it by seen a mean, so but couple can of confirm us, QX last of that say for a or little year been quarter year. years, certainly strength QX. Gregg me but I if I would I'm in of bit And we've into the historically, continue typically, has

started things that's back here, the activity And I to year, the year the this I that will weather wet saw couple to, think some of half to year. And and see that year, see the years with we've really we think first going the of in the hopefully, this that year, in half and in that prior the seen in think dry wetter we of US the already. half pickup than up I in was lead we've first the much of I mean particular,

end fourth of quarter. how season that the would quarter impact into other seasonality little the about be a the to year. it's thing goes the I the early then long certainly, that say But and And and can fourth talking

have will a kind if year that of And winter we seasonality. into the play season, and long obviously so holds full weather off

Michael Halloran

I Thanks, gentlemen. it. appreciate

Jeff Taylor

you. Thank

Gregg Sengstack

Thank you, Mike.

Operator

Thank with One please comes Research. next for the question Liptak moment from And line question. next Walt you. our our Seaport of

Walter Liptak

guys. morning, good Hey,

wanted ask question, it answering a I You're to but in the way. different

and With guidance? the for that weaker maintained the maintaining second key XXXX quarter, for are guidance assumptions your what

Jeff Taylor

say I that materially year maintaining Walt, the Yes, full full outlook for changed guidance. would Obviously, hasn't really we're year. our our

from And the really last so quarter. to change little no perspective, that from

generally see I couple 'XX. 'XX to mean to I moderate. made a XXXX normal in expecting points that versus saw of of quarter. echo and then more we obviously, our digits, We in we certainly we continuing what see get I'll last a organic see through growth, We we line And if return of to kind leverage inflation business are our and mid-single for good growth depending bottom it our as well. region. get kind on flow in that of on results

We solid has to very and supply very demand healthy. going is to chain And expect been improve. continue base our very,

high We in generally business, and very of have our replacement a component demand core that's stable.

year. And plays for of rest view into and so that our the outlook our the

FX to see It to translation continue in was be generally to view second We quarter. the continuing be We X% headwind. about about to X%. would a X% it

to is dollar a to areas couple where currencies. started and some maybe of see stabilizing the starting have even versus weaken We

not the built economists. we not, we're recession don't see the outlook. think On We're I going, level, predicting economy into macro I our but is would say, where a

the we along end current kind the the I and of economy to through think level at year of the XXXX. see into continuing move

Walter Liptak

And question, that what of Okay. kind spoke agricultural to just in I maybe with quarter. up irrigation things of the wonder you the timing previous the issue you into the is Great. third visibility issue have in related firming And about that some destocking markets. and the

Jeff Taylor

Yes.

It positive kind of basis, saw single-digits. side the business, year-over-year was low our For a but kind on of we up. hold ag

we've business both the ag exposure also the on So residential, that water I more but say more does. the a on base we water more treatment resi talked the little side. resi on base how the -- didn't sensitivity treatment, little in has water we've seen in our side business, would side, than see and about water the as or much a

Walter Liptak

Great. Okay.

you. Thank Okay.

Gregg Sengstack

you, Thank Walt.

Operator

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

Gregg Sengstack

of look results. to Have Thank our for you the conference this forward you our We speaking for to week. QX after with a joining call. the us end morning good

Operator

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

Franklin Electric (FELE) 25 Jul 232023 Q2 Earnings call transcript