Franklin Electric(FELE) - 2025 Q1 - Quarterly Report

Part I Financial Information This section presents the unaudited condensed consolidated financial statements and management's discussion for Q1 2025 Condensed Consolidated Financial Statements This section presents Franklin Electric's unaudited Q1 2025 consolidated financial statements and explanatory notes Condensed Consolidated Statements of Income Q1 2025 net sales declined to $455.2 million, with operating income at $44.1 million and diluted EPS at $0.67 | Financial Metric | Q1 2025 (In thousands) | Q1 2024 (In thousands) | Change | | :--- | :--- | :--- | :--- | | Net Sales | $455,247 | $460,900 | -1.2% | | Gross Profit | $163,903 | $163,580 | +0.2% | | Operating Income | $44,101 | $47,936 | -8.0% | | Net Income Attributable to Franklin Electric | $30,962 | $32,959 | -6.1% | | Diluted EPS | $0.67 | $0.70 | -4.3% | Condensed Consolidated Balance Sheets Total assets reached $1.93 billion by March 31, 2025, with liabilities at $628.6 million and equity at $1.30 billion | Balance Sheet Item | March 31, 2025 (In thousands) | December 31, 2024 (In thousands) | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $83,994 | $220,540 | | Total inventories | $560,338 | $483,875 | | Goodwill | $391,526 | $338,501 | | Total assets | $1,928,872 | $1,820,606 | | Liabilities & Equity | | | | Total current liabilities | $484,029 | $433,727 | | Total liabilities | $628,600 | $550,772 | | Total equity | $1,299,922 | $1,268,610 | Condensed Consolidated Statements of Cash Flows Q1 2025 net cash used in operations was $19.5 million, and in investing $116.1 million, leading to a $136.5 million cash decrease | Cash Flow Activity (In thousands) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Net cash flows from operating activities | $(19,468) | $(1,362) | | Net cash flows from investing activities | $(116,117) | $(10,216) | | Net cash flows from financing activities | $(2,558) | $(6,343) | | Net change in cash and cash equivalents | $(136,546) | $(19,649) | Notes to Condensed Consolidated Financial Statements Notes detail Q1 2025 acquisitions, goodwill, segment performance, debt structure, legal contingencies, and fair value measurements - In Q1 2025, the company completed two acquisitions: Barnes de Colombia S.A. for $96.6 million and PumpEng Pty Ltd for approximately $15.0 million. These acquisitions are part of the Water Systems segment[31][36] - Goodwill increased by $53.0 million in Q1 2025, primarily due to $50.7 million from new acquisitions in the Water Systems segment[41] - The company is involved in a long-standing legal review in France concerning alleged issues with underground piping connections, with potential damages estimated at approximately 9.5 million Euro. The company disputes that its products caused any damage[46][48] Segment Performance (Q1 2025, In millions) | Segment Performance (Q1 2025, In millions) | Water Systems | Distribution | Energy Systems | | :--- | :--- | :--- | :--- | | External Sales | $246.5 | $141.9 | $66.8 | | Segment Operating Income | $43.4 | $2.1 | $21.9 | Management's Discussion and Analysis (MD&A) Management discusses Q1 2025 financial results, including sales, operating income, segment performance, liquidity, and cash flow Results of Operations Q1 2025 net sales decreased 1% to $455.2 million, with gross profit margin improving but operating income declining 8% - Overall net sales decreased by 1% in Q1 2025 compared to Q1 2024, primarily due to lower volumes and a 2% negative impact from foreign currency translation. This was partially offset by price realization and $5.7 million in sales from recent acquisitions[82][83] Net Sales by Segment (In millions) | Net Sales by Segment (In millions) | Q1 2025 | Q1 2024 | Change | | :--- | :--- | :--- | :--- | | Water Systems | $287.3 | $286.6 | +0.2% | | Energy Systems | $66.8 | $62.1 | +7.6% | | Distribution | $141.9 | $147.0 | -3.5% | | Consolidated | $455.2 | $460.9 | -1.2% | - Gross profit margin increased to 36.0% in Q1 2025 from 35.5% in Q1 2024, driven by a favorable sales mix in Energy Systems and improved performance in Distribution[92][93] - SG&A expenses rose to $119.6 million from $115.6 million, primarily due to higher employee compensation, executive leadership transition costs, and expenses from recent acquisitions[94] Segment Performance Analysis Q1 2025 saw flat Water Systems sales, Energy Systems operating income growth, and a slight increase in Distribution operating income - Water Systems: Operating income decreased by $3.7 million to $43.4 million, with the margin declining 130 basis points to 15.1%, primarily due to incremental expenses from recent acquisitions[97] - Energy Systems: Operating income increased by $3.1 million to $21.9 million, and the margin expanded by 250 basis points to 32.8%, driven by higher sales, price realization, and a favorable geographic mix[98] - Distribution: Operating income rose by $0.3 million to $2.1 million, with the margin improving by 30 basis points to 1.5%, attributed to reduced SG&A expenses from cost actions implemented in 2024[99] Capital Resources and Liquidity The company's liquidity, supported by $281.6 million in credit, saw increased cash usage in operations and investing for Q1 2025 - As of March 31, 2025, the company had $281.6 million of available capacity under its $350.0 million revolving credit facility[109] - Cash used in operating activities increased to $19.5 million in Q1 2025 from $1.4 million in Q1 2024, primarily due to working capital changes and lower earnings[115] - Cash used in investing activities surged to $116.1 million in Q1 2025 from $10.2 million in Q1 2024, driven by the Barnes and PumpEng acquisitions[116] Quantitative and Qualitative Disclosures About Market Risk No significant changes in market risk exposure occurred during Q1 2025, as detailed in the 2024 Form 10-K - There were no significant changes in the Company's market risk exposure during Q1 2025[121] Controls and Procedures Management confirmed effective disclosure controls and procedures as of March 31, 2025, with no material internal control changes - The CEO and Interim CFO concluded that the company's disclosure controls and procedures were effective as of the end of the quarter[122] - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, these controls[123] Part II Other Information This section covers legal proceedings, updated risk factors, and details on the company's equity repurchase program Legal Proceedings The company is defending various legal claims, including a material proceeding in France detailed in Note 6 - The company is defending various legal actions that have arisen in the ordinary course of business. A material proceeding is described in Note 6, related to a dispute in France[126] Risk Factors No material changes to risk factors from the 2024 Form 10-K, except for an updated risk regarding foreign trade policy impacts - The company highlights the risk that changes in foreign trade policies, such as tariffs on steel, aluminum, and imports from China, Canada, and Mexico, could adversely impact its business and financial performance[128] Issuer Repurchases of Equity Securities In Q1 2025, the company repurchased 56,109 shares for $5.4 million, with 1,311,484 shares remaining for repurchase Repurchase Period (2025) | Repurchase Period (2025) | Total Shares Repurchased | Average Price Paid per Share | | :--- | :--- | :--- | | January | — | $— | | February | — | $— | | March | 56,109 | $96.70 | | Total Q1 | 56,109 | $96.70 | - As of March 31, 2025, the maximum number of shares that may still be purchased under the company's repurchase plan is 1,311,484[129][130]