Franklin Electric(FELE) - 2024 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - First quarter 2024 consolidated sales were $460.9 million, a year-over-year decrease of 5$47.9 million, down 9% from $52.6 million in the first quarter 2023, with an operating income margin of 10.4$163.6 million for the first quarter 2024, a 1% year-over-year increase, with a gross profit margin of 35.5%, up 200 basis points from 33.5% [25][26] Business Line Data and Key Metrics Changes - Water Systems sales in the U.S. and Canada were down 12% compared to the first quarter of 2023 due to volume declines, with sales of large dewatering equipment decreasing 50% [22][23] - Fueling Systems sales decreased 15% year-over-year, with operating income margin improving to 30.3%, an increase of 170 basis points compared to the prior year [40][18] - Distribution business sales increased 3% from the prior year, primarily due to the incremental sales impact from recent acquisitions [33] Market Data and Key Metrics Changes - Water Systems sales in markets outside the U.S. and Canada increased by 4%, with sales growth in Latin America, EMEA, and Asia Pacific [24] - The distribution segment's operating margin was 1.2%, a decline of 210 basis points due to lower margins on commodity-based products and increased operating expenses [34] - The company reported a cash flow improvement of approximately 10 million in the first quarter of 2024 compared to the prior year [20] Company Strategy and Development Direction - The company is focused on maintaining a balanced capital allocation strategy, including internal investments and monitoring the M&A environment for potential acquisitions [20][35] - The management team emphasized the importance of enhancing production capabilities and supply chain integrity while exploring opportunities in larger pumping systems and critical asset monitoring [35] - The company aims to continue growing through bolt-on acquisitions while being mindful of adjacent market opportunities [35] Management's Comments on Operating Environment and Future Outlook - Management noted that the first quarter was seasonally the slowest, but underlying activity in core markets remains healthy, with expectations for improved performance as weather conditions normalize [15][19] - The company maintains its full-year 2024 sales guidance in the range of 2.1 billion to $2.17 billion, with EPS guidance between$4.22 and 4.40 [36] - Management expressed confidence in the business outlook despite macroeconomic pressures, indicating no anticipated recession [52] Other Important Information - SG&A expenses increased to 115.6 million in the first quarter 2024, up from $109.5 million in the prior year due to inflationary pressures and investments in acquisitions [41] - The company purchased approximately 78,000 shares of its common stock for about$7.4 million during the first quarter 2024 [43] - Franklin Electric was recognized in Newsweek's 2024 list of America's most trustworthy companies for the third consecutive year [37] Q&A Session Summary Question: Can you provide insights on the integration of Action Manufacturing and the M&A pipeline? - Management confirmed that the integration of Action Manufacturing is on schedule, with successful alignment to their ERP system and positive performance in both distribution and water treatment [49] Question: What are the expectations for the second quarter and the back half of the year? - Management indicated that they expect a normal seasonal pickup in the second quarter, with improved activity as the groundwater drilling season begins [67] Question: What is the organic growth outlook for water distribution and fueling in 2024? - The company anticipates low to mid-single digits top-line growth for water systems, with fueling expected to normalize after a strong 2023 [76]