Franklin Electric(FELE)2019-07-23 18:48Financial Data and Key Metrics Changes - Second quarter 2019 revenue was 344 million in the second quarter of 2018 [24] - Fully diluted earnings per share (EPS) were 0.64 in Q2 2018 [22] - EPS before restructuring expenses was also 0.65 in the same quarter last year [22] - Consolidated gross profit increased to 116.1 million in Q2 2018, with a gross profit margin of 33.7% [31] Business Line Data and Key Metrics Changes - Water Systems sales were 211.4 million in Q2 2018, with organic sales flat year-over-year [25] - Fueling Systems sales reached a record 73.1 million in Q2 2018, with organic sales increasing by 7% [27] - Distribution sales increased to 79.5 million in Q2 2018, with 1% organic growth [29] Market Data and Key Metrics Changes - U.S. and Canada Water Systems business saw large dewatering pump sales increase but overall groundwater pumping systems sales declined by 12% [6][7] - Water Systems business in EMENA experienced a mid-single-digit decline, attributed to industry-wide slowdowns [8] - Latin America, excluding Brazil, also saw a decline due to political instability and fragile economies [10] Company Strategy and Development Direction - The company aims to expand and diversify its customer base by end market and geography, particularly in the U.S. surface pump business [17] - Management is optimistic about the second half of 2019 despite challenges in EMENA, with expectations of improved performance in North Africa and the Middle East [18][19] - The company is focusing on reducing inter-segment inventory and improving operational efficiency following back office integration [7][16] Management's Comments on Operating Environment and Future Outlook - Management noted that the first half of 2019 results did not meet expectations, leading to a revised EPS guidance of 2.25 for the full year [21] - The business climate in the U.S. is described as robust, with positive feedback from the field [18] - Management expressed cautious optimism about recovery in the distribution business due to more normal weather conditions [16] Other Important Information - The company ended Q2 2019 with a cash balance of 0.145 was announced, payable on August 15 [39] Q&A Session Summary Question: Inventory levels seem higher than normal; what does this mean for pricing? - Management acknowledged that inventory levels were higher than expected due to a buildup in anticipation of sales that did not materialize, but they do not foresee an impact on pricing [40][41][43] Question: Is the slowdown in China driven by economics or trade tensions? - Management clarified that the water segment in China is small, and while there is some traction from new products, the slowdown is more related to state-owned companies scaling back capital plans [45][46] Question: How does wet weather impact the business? - Management explained that while wet weather can boost certain product lines, it has negatively affected groundwater pump replacements due to reduced usage [51][54] Question: What is the outlook for pricing versus costs in the second half of the year? - Management indicated that they expect a neutral pricing environment in the second half, with inflation in raw materials still affecting costs [77][78] Question: Is the "buy local" trend in China a government mandate? - Management confirmed that there is no formal mandate, but local suppliers are being qualified more easily, allowing them to compete [82][85]