Franklin Electric(FELE) - 2020 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company's fully diluted earnings per share (EPS) for Q2 2020 was $0.52, down from$ 0.70 in Q2 2019, representing a decline of approximately 26% [25] - Total sales for Q2 2020 were $308.3 million, a decrease of 13% compared to$ 355.3 million in Q2 2019 [27] - The gross profit for Q2 2020 was $107.1 million, down from$ 119.7 million in Q2 2019, while the gross profit margin improved to 34.7% from 33.7% due to better price realization and product sales mix [33] Business Line Data and Key Metrics Changes - Water Systems sales in the U.S. and Canada decreased by 16% overall, primarily due to a nearly 70% decline in dewatering equipment sales [28] - Fueling Systems sales in the U.S. and Canada decreased by 22%, with a 35% decline outside the U.S. and Canada, driven by reduced demand for new filling stations [31] - Distribution segment sales reached a record $92.1 million, up 6% compared to Q2 2019, with operating income increasing to$ 6.8 million from $4.5 million [32] Market Data and Key Metrics Changes - Water Systems sales outside the U.S. and Canada decreased by 9% overall, with organic sales increasing by 3% in key markets like Latin America and Asia Pacific [30] - The company experienced a foreign currency translation impact that decreased sales by 12% [29] - The strengthening of the U.S. dollar negatively affected the translation of foreign currency-denominated sales and earnings [20] Company Strategy and Development Direction - The company is focusing on reducing working capital and improving free cash flow, which exceeded net income for the first half of 2020 [14][36] - Management is optimistic about sequential improvements in sales for the second half of 2020, particularly in the Water Systems and Distribution segments [21][22] - The company is exploring M&A opportunities and has a robust pipeline for potential acquisitions [56] Management's Comments on Operating Environment and Future Outlook - Management noted that the global pandemic has significantly impacted demand for large dewatering pumps and has led to inventory destocking among customers [15][17] - The company has reinstated guidance for 2020 EPS between$ 1.75 and $1.90, reflecting increased uncertainty due to the pandemic [23][37] - Management expressed cautious optimism about recovery in Fueling revenues, particularly as gasoline consumption begins to recover [19] Other Important Information - The company announced a quarterly cash dividend of$ 0.155, payable on August 20, 2020 [40] - The effective tax rate for Q2 2020 was approximately 21%, up from 19% in Q2 2019 [35] Q&A Session Summary Question: Inventory levels and destocking - Management indicated that destocking was observed in the surface pumping business, but there are signs of stabilization and potential tailwinds in the second half of the year [42][46] Question: Sales guidance and expectations - The guidance reflects a range of outcomes, with expectations for modest revenue improvements in Water and Fueling segments [48][50] Question: Margin profile and cost-saving initiatives - The improvement in margins was attributed to a favorable product mix and aggressive SG&A cost management [52][54] Question: M&A opportunities and market consolidation - Management acknowledged the potential for acquisition opportunities among smaller, family-operated businesses under stress due to the pandemic [75][76] Question: Supply chain considerations - The company is evaluating its supply chain strategy, including potential insourcing of electronics to reduce lead times [86][87]