Franklin Electric(US:FELE)2023-10-26 16:00PART I. FINANCIAL INFORMATION This section provides the company's unaudited condensed consolidated financial statements, management's discussion and analysis, market risk disclosures, and controls and procedures Item 1. Condensed Consolidated Financial Statements (Unaudited) The unaudited condensed consolidated financial statements present the company's financial position and results of operations for the third quarter and nine months ended September 30, 2023 Condensed Consolidated Statements of Income For the nine months ended September 30, 2023, net sales grew by 2.4% to $1.59 million, and net income increased by 4.7% to $154.7 million Consolidated Income Statement Highlights (In thousands, except per share amounts) | Metric | Q3 2023 | Q3 2022 | YTD 2023 | YTD 2022 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $538,431 | $551,672 | $1,592,163 | $1,554,280 | | Gross profit | $186,253 | $190,595 | $536,999 | $525,217 | | Operating income | $78,104 | $80,044 | $211,613 | $200,967 | | Net income attributable to Franklin Electric | $57,798 | $58,624 | $154,723 | $147,753 | | Diluted EPS | $1.23 | $1.24 | $3.29 | $3.13 | Condensed Consolidated Balance Sheets As of September 30, 2023, total assets stood at $1.725 billion, with total equity increasing to $1.183 billion Consolidated Balance Sheet Highlights (In thousands) | Account | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total current assets | $899,498 | $858,090 | | Total inventories | $543,540 | $544,980 | | Total assets | $1,725,296 | $1,694,201 | | Total current liabilities | $327,920 | $405,769 | | Long-term debt | $88,036 | $89,271 | | Total equity | $1,182,607 | $1,070,134 | Condensed Consolidated Statements of Cash Flows For the nine months ended September 30, 2023, net cash from operating activities surged to $198.6 million, a significant improvement from the prior year Cash Flow Summary (In thousands) | Cash Flow Activity | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Net cash flows from operating activities | $198,629 | $7,160 | | Net cash flows from investing activities | ($36,770) | ($30,888) | | Net cash flows from financing activities | ($140,294) | $29,239 | | Net change in cash and cash equivalents | $16,717 | ($1,013) | Notes to Condensed Consolidated Financial Statements The notes provide detailed disclosures on accounting policies, acquisitions, financial instruments, segment performance, and contingencies - In Q1 2023, the company acquired Phil-Good Products, Inc. and Hydropompe S.r.l. for a combined all-cash price of $8.7 million34 - As of September 30, 2023, the company had $39.0 million in borrowings outstanding under its credit agreement, with $307.4 million of available capacity51 - A legal matter in France concerning alleged issues with underground piping connections has a potential damage estimate of 9.5 million Euro, but the company's exposure is considered neither probable nor estimable at this time66 Segment Operating Income (In millions) | Segment | Q3 2023 | Q3 2022 | YTD 2023 | YTD 2022 | | :--- | :--- | :--- | :--- | :--- | | Water Systems | $52.7 | $45.5 | $152.5 | $127.7 | | Distribution | $10.7 | $19.0 | $33.2 | $51.7 | | Fueling Systems | $25.8 | $28.6 | $73.3 | $72.4 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the 2% decrease in Q3 2023 net sales to lower volumes and negative currency effects, with strong liquidity maintained - Net sales decreased 2% in Q3 2023 primarily due to lower volumes and negative foreign currency translation, but increased 2% in the first nine months of 2023 due to price realization70 - Operating cash flow for the first nine months of 2023 was $198.6 million, a substantial increase from $7.2 million in the prior-year period, mainly due to decreased working capital requirements101 - The change in financing cash flow from a $29.2 million source in 2022 to a $140.3 million use in 2023 was primarily due to net repayments under the company's revolving credit facility, compared to net borrowings in the prior year103 Results of Operations In Q3 2023, Water Systems sales grew 1% while Fueling Systems and Distribution sales declined, with gross profit margin remaining stable Net Sales by Segment (In millions) | Segment | Q3 2023 | Q3 2022 | YTD 2023 | YTD 2022 | | :--- | :--- | :--- | :--- | :--- | | Water Systems | $295.8 | $293.1 | $924.1 | $876.2 | | Fueling Systems | $77.7 | $90.2 | $230.8 | $248.7 | | Distribution | $189.2 | $193.2 | $525.3 | $519.2 | - Water Systems operating income increased by $7.2 million in Q3 and $24.8 million YTD, with margins expanding due to price realization and cost management85 - Distribution operating income decreased by $8.3 million in Q3 and $18.5 million YTD, with margins contracting significantly due to wet weather, customer destocking, and unfavorable pricing of commodity-based products87 Capital Resources and Liquidity The company maintains a strong liquidity position with primary sources being cash on hand, operating cash flows, and available credit facilities - The company's primary liquidity sources are cash, operating cash flow, and revolving credit agreements94 - As of September 30, 2023, the company had a $350.0 million revolving credit facility maturing in May 2026, with $307.4 million of borrowing capacity available95 - An uncommitted private shelf agreement with New York Life provides an additional remaining borrowing capacity of $125.0 million96 Item 3. Quantitative and Qualitative Disclosures About Market Risk The company reports no significant changes in its exposure to market risk during the third quarter ended September 30, 2023 - There have been no significant changes in the Company's exposure to market risk during the third quarter ended September 30, 2023105 Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of September 30, 2023 - Based on an evaluation as of September 30, 2023, the CEO and CFO concluded that the company's disclosure controls and procedures were effective106 - No changes in internal control over financial reporting were identified during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the company's internal controls107 PART II. OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, other information, and exhibits Item 1. Legal Proceedings The company is involved in various legal actions arising from the ordinary course of business, with a material proceeding detailed in Note 15 - The company's material legal proceedings are described in Note 15, which details a matter in France with Esso S.A.F11066 Item 1A. Risk Factors There have been no material changes to the company's risk factors as disclosed in its Annual Report on Form 10-K for the fiscal year ended December 31, 2022 - No material changes to the Company's risk factors have occurred since the fiscal year ended December 31, 2022111 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During Q3 2023, the company repurchased 55,600 shares for approximately $5.0 million, with over 1 million shares remaining for repurchase - In February 2023, the Board of Directors authorized an additional 1,000,000 shares for repurchase112 Q3 2023 Share Repurchases | Metric | Value | | :--- | :--- | | Total Shares Repurchased | 55,600 | | Average Price Paid per Share | $90.34 | | Total Cost | ~$5.0 million | | Shares Remaining for Repurchase (as of Sep 30, 2023) | 1,060,792 | Item 5. Other Information No directors or officers adopted, modified, or terminated a Rule 10b5-1 trading arrangement during the third quarter of 2023 - No directors or officers adopted, modified, or terminated a Rule 10b5-1 trading arrangement during the fiscal quarter ended September 30, 2023114 Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including corporate documents, compensatory plans, and certifications