Franklin Electric(FELE) - 2022 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company achieved record third quarter performance with consolidated sales of $551.7 million, a 20% increase from$ 459 million in Q3 2021 [24] - Fully diluted earnings per share were $1.24 for Q3 2022, compared to$ 0.98 for Q3 2021 [23] - Consolidated operating income was $80 million, up 41% from$ 56.6 million in Q3 2021, with an operating income margin of 14.5% [37][38] Business Line Data and Key Metrics Changes - Water Systems segment reported a 12% revenue growth and a 25% increase in operating income, with an operating margin of 15.5% [11] - Distribution segment achieved record sales of $193.2 million, a 38% increase, and operating income of$ 19 million, up from $12.3 million [29] - Fueling Systems segment also reached record sales of$ 90.2 million, an 11% increase, with operating income growing to $28.6 million [30][33] Market Data and Key Metrics Changes - The backlog remains elevated at approximately$ 250 million, down $40 million from the previous quarter due to shipment progress and seasonality [8] - Organic growth in Water Systems outside the U.S. and Canada was 27%, driven by strong demand in Europe, the Middle East, and Africa [27] - Fueling Systems sales in India and EMEA increased, offsetting weaker sales in China [16][55] Company Strategy and Development Direction - The company is focused on reducing inventory levels and improving cash flow while navigating supply chain challenges [9] - Capital allocation strategy includes investments for growth and returning cash to shareholders through dividends and share repurchases [20] - The company aims to expand its product offerings, particularly in developing regions, to capitalize on strong global demand [19] Management's Comments on Operating Environment and Future Outlook - Management acknowledged inflationary pressures and geopolitical conflicts affecting supply chains but remains optimistic about long-term demand for water and fueling systems [18] - The company revised its full-year 2022 net sales guidance to between$ 2 billion and $2.1 billion, with earnings per share guidance adjusted to$ 4.08 - $4.18 [21] - Management expressed confidence in maintaining higher profitability in the distribution business despite potential seasonal fluctuations [44] Other Important Information - The effective tax rate for Q3 2022 was approximately 19%, with a projected full-year tax rate of about 21% [40] - A quarterly cash dividend of$ 0.195 was announced, payable on November 17 to shareholders of record on November 3 [40] Q&A Session Summary Question: Inquiry about distribution business profitability - Management indicated that distribution business profitability is expected to remain strong due to operating leverage, despite some mix-related challenges [42][44] Question: Comments on fueling business and project funnel - Management noted strong demand in fueling systems, with some indications of reduced capital deployment by marketers in 2023 [50] Question: Geographic variances in fueling sales - Management highlighted strong growth in India and EMEA, while sales in China have been weaker due to regulatory delays [52][55] Question: Variance between groundwater and surface pumping demand - Management explained that groundwater business has been strong due to dry conditions and demographic shifts, while surface pumping demand is driven by energy security investments [57][59] Question: Impact of water scarcity on business - Management stated that water scarcity is driving demand for larger and more efficient pumping systems, benefiting the company [81][84] Question: Inventory destocking cycle impact - Management acknowledged some destocking in the distribution business but emphasized strong demand and order visibility [86][88]