Franklin Electric(FELE) - 2022 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported record consolidated sales of $551.1 million for Q2 2022, a 26$437.3 million in Q2 2021, with organic growth contributing 23% [20] - Fully diluted earnings per share reached a record $1.26, compared to$0.83 in Q2 2021, reflecting significant growth [19] - Operating income for the quarter was also a record, with gross profit increasing to $189.3 million from$152.2 million year-over-year [30] Business Segment Data and Key Metrics Changes - Water Systems segment experienced a revenue growth of 26%, with operating income growth of 42% and an operating margin of 15.8% [9] - Fueling Systems reported a revenue growth of 19%, with operating income growth of 41% and an operating margin of 30.3% [13] - Distribution segment achieved a revenue growth of 32%, with operating income growth of 46% and an operating margin of 12.2% [15] Market Data and Key Metrics Changes - U.S. organic growth for Water Systems was 30%, while international growth was 23%, driven by strong demand in agriculture and water treatment [10] - The company noted strong demand across all markets, with a backlog of approximately $290 million remaining stable [6] Company Strategy and Development Direction - The company plans to continue investing in both organic and inorganic growth while returning cash to shareholders through dividends and share repurchases [16] - Management highlighted the importance of maintaining cost controls and improving operational efficiency to navigate inflationary pressures and supply chain challenges [17] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the second half of the year, expecting continued strong demand and an improvement in supply chain conditions [18] - The company raised its full-year revenue guidance to between$2 billion and $2.15 billion, with earnings per share guidance updated to$4 to $4.20 [18] Other Important Information - The effective income tax rate for Q2 2022 was approximately 22$19.5 million, payable on August 18, 2022 [36] Q&A Session Summary Question: Organic growth across each of the three businesses - Management indicated that price was the larger driver of growth, with a general split of 60% price and 40% volume [39] Question: Price cost parity in Q2 - Management noted that they gained ground on the price versus cost equation in Q2, achieving some price cost parity [41] Question: Supply chain improvements - Management observed a positive trend in supply chain conditions, with past due orders beginning to decrease [43] Question: Trends in Water Systems - Management reported strong growth in groundwater and surface pumps, with ongoing challenges in supply for sub-sewage and affluent systems [48] Question: Gross margin outlook - Management expressed optimism for maintaining strong gross margins despite ongoing supply chain and inflation challenges [55] Question: Impact of monetary tightening on demand - Management acknowledged potential impacts from monetary tightening but emphasized the resilience of their installed base in the residential market [60] Question: Treatment business channel strategy - Management outlined a multichannel strategy for the treatment business, focusing on seamless customer transactions and partnerships with installers [72]