Franklin Electric FELE Q2 2025 Earnings Transcript

Core Insights - Franklin Electric reported consolidated sales of $587.4 million for Q2 2025, an 8% year-over-year increase, with growth across all segments [2][24] - The company achieved GAAP diluted earnings per share of $1.31, reflecting a 6¢ increase year-over-year, driven by a 6% improvement in Energy segment sales [3][24] - Operating income margin reached 15%, up 40 basis points year-over-year, attributed to SG&A efficiency despite higher acquisition costs [3][26] Sales Performance - Water Systems segment sales grew 8% year-over-year, with U.S. and Canada sales up 5% and global sales outside the U.S. and Canada up 12% [4][27] - Distribution segment sales were $200 million, a 5% increase, with operating income margin improving by 300 basis points to 8.1% [5][28] - Energy segment sales reached $77.5 million, up 6% year-over-year, with operating income margin improving to 37.5% [6][29] Financial Metrics - Gross profit margin for Q2 2025 was 36.1%, a decline of 70 basis points year-over-year, influenced by product mix and acquisition effects [3][25] - SG&A expenses increased to $123.5 million, primarily due to acquisition-related costs, but underlying SG&A decreased by $2.3 million year-over-year [6][25] - The effective tax rate for the quarter was 25%, up from 23% in the prior year, due to increased foreign earnings and higher tax rates [30] Strategic Initiatives - The company plans to accelerate capital spending for new facilities in Turkey and India, linked to supply chain and nearshoring initiatives [8][66] - A quarterly cash dividend of $0.265 per share was declared, payable on August 21, with a record date of August 7 [7][31] - Share repurchases totaled 1.4 million shares for $120 million in Q2 2025, including approximately 1.2 million shares from Shaper Trust for about $104 million [7][31] Market Outlook - The full-year sales outlook is reaffirmed at $2.09 billion to $2.15 billion, with GAAP EPS guidance maintained at $3.95 to $4.25 [8][31] - The company anticipates a non-cash pension impact of approximately $1 per share in Q3 2025, which is excluded from current EPS guidance [10][32] - Management expressed confidence in maintaining a book-to-bill ratio above one across all segments, indicating strong future demand [9][10]