Franklin Electric(FELE) - 2023 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company achieved record first quarter consolidated sales of $484.6 million, a year-over-year increase of 7% despite a 3% headwind from foreign currency translation [6][10] - Gross profit for the first quarter was$ 162.3 million, representing a 12% year-over-year increase, with gross profit as a percentage of net sales rising to 33.5% from 32.2% [9][93] - Operating income for the first quarter was $52.6 million, up 32% from$ 39.9 million in the prior year, despite a foreign exchange headwind of approximately $3 million [10][93] - The effective tax rate was 21% for the quarter, compared to 20% in the prior year [84] Business Line Data and Key Metrics Changes - Water Systems segment delivered record first quarter sales and operating income, with revenues growing 12% and operating income increasing 48% [90] - Distribution segment's first quarter sales were a record$ 143 million, a 6% increase from $134.9 million in the prior year, but operating income decreased by$ 4.7 million year-over-year [7][101] - Fueling Systems sales reached $72.7 million, with a 4% increase in the US and Canada, despite a 1% decrease due to foreign currency translation [8][102] Market Data and Key Metrics Changes - Water Systems sales in the US and Canada increased by 21% year-over-year, driven by price and volume [6] - Outside the US and Canada, Water Systems sales were flat overall, with a 12% decrease due to foreign currency translation [32] - The distribution segment was negatively impacted by weather conditions, which delayed contractor installations [29][33] Company Strategy and Development Direction - The company is focused on a balanced capital allocation strategy, including internal investments and monitoring M&A opportunities [30] - Management emphasized the importance of sustainability and employee well-being, with a sustainability report expected to be released soon [5] - The company plans to invest in expanding its footprint and developing new products, which may put pressure on operating margins but is expected to drive growth [13] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the business's growth trajectory, citing improved supply chain conditions and a positive outlook for the remainder of the year [39][40] - The company raised its full-year 2023 sales guidance to a range of$ 2.15 billion to $2.25 billion and EPS guidance to between$ 4.25 and $4.45 [92] - Management acknowledged ongoing macroeconomic and geopolitical pressures but remains optimistic about demand in key markets [92] Other Important Information - The company announced a quarterly cash dividend of$ 0.225, payable on May 18 to shareholders of record as of May 4 [11] - The remaining share repurchase authorization is approximately 1.1 million shares [11] Q&A Session Summary Question: Any changes in macro assumptions or channel inventory? - Management noted no significant shifts in macroeconomic perspectives and indicated that the business is moving forward positively as it enters Q2 [38] Question: Insights on water treatment results and sales expectations? - Management expressed caution regarding near-term results due to residential exposure and macro sensitivity but indicated positive order patterns into early Q2 [12] Question: Outlook for margin expansion in water treatment? - Management expects margins to remain in the low double-digit range while investing in business expansion and new product development [13] Question: Year-over-year pricing realization and expectations for 2023? - Management anticipates moderation in year-over-year price impact as they lap previous price increases, expecting low to mid single-digit price realization in the latter half of the year [16] Question: Comments on M&A environment and expectations? - Management highlighted a separation in price expectations between buyers and sellers, indicating a cautious approach to M&A opportunities [17] Question: Insights on Water Systems margins and sales trends? - Management noted strong sales in the Water Systems segment, with expectations for continued growth driven by robust demand [20][47]