Core Insights - Franklin Electric achieved record revenue and segment operating income in 2025 by effectively offsetting tariff-driven cost pressures through strategic price realization and productivity gains [5] - The company launched over 35 new products, expected to contribute approximately $160 million in revenue by the third year [5] - The Distribution segment saw a 210 basis point improvement in operating margin due to proprietary inventory technology and portal solutions [5] Strategic Performance Drivers - The establishment of the Value Acceleration Office (VAO) aims to institutionalize 80-20 principles, AI-driven process engineering, and portfolio streamlining for long-term margin resilience [5] - The Water segment's performance was attributed to strong groundwater and treatment demand, despite temporary Q4 headwinds in U.S. HVAC markets and regional softness in Mexico [5] - The Energy segment expanded its international footprint, particularly in Europe and India, while maintaining high-margin leadership through data-driven fueling solutions [5] 2026 Outlook and Guidance - Projected 2026 sales are estimated between $2.17 billion and $2.24 billion, assuming a balanced mix of volume growth and price realization across all segments [5] - Anticipated adjusted EPS for 2026 is between $4.40 and $4.60, reflecting a shift to non-GAAP reporting [5] - Guidance assumes normalization of the HVAC market and stabilization in Latin America, excluding potential upside from a U.S. housing market recovery [5] Operational Adjustments - Continued margin expansion in the Distribution segment is expected, approximately 70-plus basis points, driven by SKU rationalization and upstream supplier negotiations [5] - The company maintains a robust M&A pipeline focused on enhancing the portfolio in key geographic regions and filling specific product gaps [5] - A $41.5 million net-of-tax pension settlement charge in 2025 impacted GAAP diluted EPS by $0.91 [5] Risk Factors - Tariff exposure was identified as a primary driver for Energy segment margin compression in Q4, which was addressed through a price increase implemented in December [5] - The company is executing a multi-year effort to normalize part numbers and consolidate global manufacturing platforms in Turkey and India to reduce SKU proliferation [7] - Increased capital spending is being directed to support growth initiatives and infrastructure while maintaining a strong cash conversion rate of 126% [7]