Franklin Electric(FELE)2020-04-28 19:26Financial Data and Key Metrics Changes - The company's first quarter 2020 sales were 290.7 million in the first quarter of 2019 [27] - Operating income before restructuring expenses increased by 11% despite an 8% decrease in sales, with earnings per share before restructuring expenses rising 14% year-over-year [10][25] - The gross profit margin improved to 33.9% in Q1 2020 from 30.8% in Q1 2019, with gross profit increasing to 89.5 million [32] Business Line Data and Key Metrics Changes - Water Systems revenue in the U.S. and Canada decreased by 14%, primarily due to a 54% drop in dewatering equipment sales [27][28] - Fueling Systems sales in the U.S. and Canada increased by 7%, while revenues outside the U.S. and Canada declined by 30%, particularly in Asia Pacific [30] - The Distribution segment saw organic sales increase by 13%, with sales rising to 53.3 million year-over-year [31] Market Data and Key Metrics Changes - Organic sales in Latin America and EMEA showed robust growth, but this was not enough to offset declines in Asia Pacific, particularly in Korea, Japan, and China [11][29] - The company experienced a 20% average decline in weekly sales from mid-March through the end of April across both Water and Fueling Systems [22][75] - Headwater sales were down about 4%, but excluding the most affected states, sales were up 6% compared to the same period last year [23][77] Company Strategy and Development Direction - The company is focusing on reducing spending and accelerating restructuring activities in response to the pandemic's impact [21] - Management emphasized the importance of maintaining a conservative balance sheet and liquidity to navigate the current economic uncertainty [13][35] - The company is withdrawing its 2020 earnings guidance due to significant uncertainties in end markets [24][36] Management's Comments on Operating Environment and Future Outlook - Management noted that the pandemic has led to a decline in demand for large dewatering pumps and a reduction in customer purchases to manage inventory levels [16][17] - The company is optimistic about its ability to serve customers and meet market demands despite the challenges posed by the pandemic [24] - Management highlighted that the financial outlook for 2020 remains uncertain, with various factors impacting profitability and demand [21][36] Other Important Information - The company announced a quarterly cash dividend of 20 million, down from the previously guided 40 million and total available borrowing capacity of $478 million, indicating strong liquidity [35] Q&A Session Summary Question: Differences in trends between Headwater and core water assets - Management noted that Headwater's sales growth is strong, while the core water business is experiencing destocking and negative order rates, particularly in large dewatering pumps [40][42] Question: Decremental margins and sustainability - Management indicated that while they are not ready to comment on decremental margins, they expect price achievement and lower raw material costs to support margins moving forward [46] Question: Impact of inventory destocking on working capital - Management acknowledged that inventory destocking is increasing working capital needs, but they are managing relationships with suppliers to mitigate risks [69][71] Question: Revenue decline in April - Management confirmed that revenue for Water and Fueling Systems segments is down about 20% compared to the same period last year [75][76] Question: Demand trends in China and Europe - Management reported that demand in China is returning to normal, while Europe has shown resilience with good performance in the first quarter [78][79] Question: Cost structure changes in response to slowdown - Management is cutting discretionary spending and accelerating restructuring initiatives to mitigate the impact of the slowdown [80][81]