Franklin Electric Reports Second Quarter 2024 Results

Rhea-AI Summary

Franklin Electric Co., Inc. (FELE) reported its second quarter 2024 financial results with consolidated net sales of $543.3 million, a 5% decrease from the prior year. The company achieved an operating income of $79.1 million with a 14.6% operating margin. GAAP fully diluted earnings per share (EPS) was $1.26, slightly down from $1.27 in Q2 2023.

Despite lower sales across all three segments due to unfavorable weather conditions, Franklin Electric demonstrated resilience through strong operational performance in Water Systems and Fueling Systems. The company maintained its full-year 2024 sales guidance of $2.10 billion to $2.17 billion but reduced its EPS guidance to a range of $4.16 to $4.34.

Positive

• Water Systems segment achieved a new quarterly record operating income of $62.3 million
• Company maintained strong margins despite lower sales
• Demonstrated resilience through diverse product line, customer base, and geographic exposure

Negative

• 5% decrease in consolidated net sales compared to Q2 2023
• Lower sales across all three segments due to unfavorable weather conditions
• Reduced EPS guidance for full year 2024

Insights

Financial Analyst

Franklin Electric’s second-quarter results reflect a mixed financial landscape. Although net sales decreased by 5 year-over-year, the company managed to sustain its operating income with only a slight drop from $80.9 million to $79.1 million. This indicates effective cost management and operational efficiency despite lower sales. The decline in overall net sales suggests weaker market conditions, particularly impacted by unfavorable weather.

The Water Systems segment shows resilience with a record operating income of $62.3 million, offsetting lower sales in other segments. This performance points to a robust operational capability within this segment. Moreover, maintaining the full-year sales guidance while slightly reducing the EPS forecast suggests cautious optimism about future performance.

For retail investors, the stable but slightly decreased operating income and EPS signal a well-managed company navigating through challenging market conditions. However, the decrease in sales and EPS guidance should be closely monitored, as these could impact stock performance in the short term.

Market Research Analyst

Franklin Electric’s ability to achieve strong operational performance despite macroeconomic, geopolitical and weather-related pressures showcases the company's strategic resilience. The Water Systems segment's record-breaking operating income of $62.3 million highlights the company's focus on high-margin products and effective market penetration strategies. Conversely, the declines in Distribution and Fueling Systems segments reflect broader market challenges such as delayed contractor installations and lower volumes.

The decision to maintain the sales guidance while lowering the EPS guidance underscores the company's cautious approach. This reflects confidence in revenue generation but acknowledges potential pressure on profitability. For investors, this balanced outlook indicates that while the company may face short-term challenges, its strategic fundamentals remain robust.

In summary, Franklin Electric demonstrates resilience and operational strength, but investors should be aware of external factors that may continue to pressure sales and margins in the coming quarters.

Tech Expert

From a technology standpoint, Franklin Electric’s performance in the Water Systems segment is particularly notable. The strong results in this area suggest successful adaptation and possibly innovation in their product offerings. The increase in sales for surface products, water treatment products and groundwater products indicates a diversified product portfolio capable of addressing varying market needs.

The decline in sales for Distribution and Fueling Systems, however, hints at possible areas for technological improvement or market strategy adjustments. Monitoring the company’s future product innovations and technological advancements in these segments will be key for investors looking at long-term growth prospects.

Overall, Franklin Electric’s focus on high-margin, innovative products in the Water Systems segment is a positive sign for its technological roadmap, but challenges in other segments require attention to maintain a balanced growth trajectory.

Second Quarter 2024 Highlights

• Consolidated net sales of $543.3 million, a decrease of 5% to the prior year, with lower sales across all three segments
• Operating income was $79.1 million with operating margin of 14.6%
• GAAP fully diluted earnings per share (EPS) was $1.26
  

FORT WAYNE, Ind., July 23, 2024 (GLOBE NEWSWIRE) -- Franklin Electric Co., Inc. today announced its second quarter financial results for fiscal year 2024.

Second quarter 2024 net sales were $543.3 million, compared to second quarter 2023 net sales of $569.1 million. Second quarter 2024 operating income was $79.1 million, compared to second quarter 2023 operating income of $80.9 million. Second quarter 2024 EPS was $1.26, versus EPS in the second quarter 2023 of $1.27.

“The Franklin team achieved solid results in the second quarter, marking one of the strongest quarters from an earnings perspective in Franklin’s history. We continue to deliver margin expansion on sales below the record levels reached in the prior year period. While unfavorable weather continued to adversely impact sales, strong operational performance in the Water Systems and Fueling Systems segments helped offset this headwind,” commented Gregg Sengstack, Franklin Electric’s Executive Chairperson.

“Franklin Electric’s diverse product line, customer base, and geographic exposure continue to prove resilient despite macroeconomic, geopolitical, and weather-related pressures. These factors, along with our great people and strong working capital position, give us confidence as we look towards the back half of the year.”

“It has been an incredible journey working with the exceptional team here at Franklin Electric. I look forward to continuing to support our mission and our new CEO, Joe Ruzynski, in my position as Executive Chairperson.” concluded Mr. Sengstack.

Segment Summaries

Water Systems net sales were $315.6 million in the second quarter, a decrease of $6.1 million or 2 percent compared to the record second quarter sales of 2023. The sales decrease was driven by lower sales of large dewatering pumps, which had a record quarter last year, partially offset by sales increases in all other surfaces products, water treatment products and groundwater products. Water Systems operating income in the second quarter 2024 was $62.3 million, a new quarterly record for any quarter. Second quarter 2023 Water Systems operating income was $50.8 million.

Distribution net sales were $190.5 million, a decrease of $2.6 million or 1 percent compared to the second quarter 2023. Sales decreases were driven by the continued negative impact of wet weather across the U.S. that has delayed contractor installations, partially offset by sales from a recent acquisition. The Distribution segment operating income in the second quarter 2024 was $9.8 million. Second quarter 2023 Distribution operating income was $17.8 million.

Fueling Systems net sales were $73.1 million in the second quarter 2024, a decrease of $7.3 million or 9 percent compared to the second quarter 2023. Sales decreases were driven by lower volumes. Fueling Systems operating income in the second quarter 2024 was $26.0 million. Second quarter 2023 Fueling Systems operating income was $26.7 million.

2024 Guidance

The Company is maintaining its sales guidance for full year 2024 to be in the range of $2.10 billion to $2.17 billion and reducing its EPS guidance for full year 2024 to be in the range of $4.16 to $4.34 which incorporates the Company’s first half performance and its outlook for continued solid execution in the second half while maintaining strong margins similar to the first half.

Earnings Conference Call

A conference call to review earnings and other developments in the business will commence at 9:00 am ET. The second quarter 2024 earnings call will be available via a live webcast. The webcast will be available in a listen only mode by going to:

https://edge.media-server.com/mmc/p/f8j7t4wj

For those interested in participating in the question-and-answer portion of the call, please register for the call at the link below.

https://register.vevent.com/register/BI8d56cfdc94aa49358360ba12cb42e3e2

All registrants will receive dial-in information and a PIN allowing them to access the live call. It is recommended that you join 10 minutes prior to the event start (although you may register and dial in at any time during the call).

A replay of the conference call will be available from Tuesday, July 23, 2024, through 9:00 am ET on Tuesday, July 30, 2024, by visiting the listen-only webcast link above.

Forward Looking Statements

"Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995. Any forward-looking statements contained herein, including those relating to market conditions or the Company’s financial results, costs, expenses or expense reductions, profit margins, inventory levels, foreign currency translation rates, liquidity expectations, business goals and sales growth, involve risks and uncertainties, including but not limited to, risks and uncertainties with respect to general economic and currency conditions, various conditions specific to the Company’s business and industry, weather conditions, new housing starts, market demand, competitive factors, changes in distribution channels, supply constraints, effect of price increases,  raw material costs, technology factors, integration of acquisitions, litigation, government and regulatory actions, the Company’s accounting policies, future trends, epidemics and pandemics, and other risks which are detailed in the Company’s Securities and Exchange Commission filings, included in Item 1A of Part I of the Company’s Annual Report on Form 10-K for the fiscal year ending December 31, 2023, Exhibit 99.1 attached thereto and in Item 1A of Part II of the Company’s Quarterly Reports on Form 10-Q. These risks and uncertainties may cause actual results to differ materially from those indicated by the forward-looking statements. All forward-looking statements made herein are based on information currently available, and the Company assumes no obligation to update any forward-looking statements.

About Franklin Electric

Franklin Electric is a global leader in the production and marketing of systems and components for the movement of water and energy. Recognized as a technical leader in its products and services, Franklin Electric serves customers around the world in residential, commercial, agricultural, industrial, municipal, and fueling applications. Franklin Electric is proud to be named in Newsweek’s lists of America’s Most Responsible Companies and Most Trustworthy Companies for 2023 and America’s Climate Leaders 2023 by USA Today.

FRANKLIN ELECTRIC CO., INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share amounts)
	Second Quarter Ended								Six Months Ended
	June 30, 2024				June 30, 2023				June 30, 2024				June 30, 2023
Net sales	$	543,258			$	569,181			$	1,004,158			$	1,053,732
Cost of sales		343,461				380,700				640,781				702,986
Gross profit		199,797				188,481				363,377				350,746
Selling, general, and administrative expenses		120,648				107,429				236,292				216,964
Restructuring expense		—				149				—				273
Operating income		79,149				80,903				127,085				133,509
Interest expense		(1,976	)			(4,178	)			(3,424	)			(7,325	)
Other income, net		184				1,179				890				1,588
Foreign exchange expense		(436	)			(3,571	)			(5,316	)			(5,615	)
Income before income taxes		76,921				74,333				119,235				122,157
Income tax expense		17,590				14,173				26,812				24,421
Net income	$	59,331			$	60,160			$	92,423			$	97,736
Less: Net income attributable to noncontrolling interests		(232	)			(560	)			(365	)			(811	)
Net income attributable to Franklin Electric Co., Inc.	$	59,099			$	59,600			$	92,058			$	96,925
Earnings per share:
Basic	$	1.28			$	1.29			$	1.99			$	2.09
Diluted	$	1.26			$	1.27			$	1.97			$	2.06

FRANKLIN ELECTRIC CO., INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
	June 30, 2024				December 31, 2023
ASSETS
Cash and cash equivalents	$	58,104			$	84,963
Receivables (net)		299,185				222,418
Inventories		525,435				508,696
Other current assets		35,972				37,718
Total current assets		918,696				853,795
Property, plant, and equipment, net		224,196				229,739
Lease right-of-use assets, net		63,270				57,014
Goodwill and other assets		578,184				587,574
Total assets	$	1,784,346			$	1,728,122
LIABILITIES AND EQUITY
Accounts payable	$	175,553			$	152,419
Accrued expenses and other current liabilities		109,888				104,949
Current lease liability		18,274				17,316
Current maturities of long-term debt and short-term borrowings		42,375				12,355
Total current liabilities		346,090				287,039
Long-term debt		87,242				88,056
Long-term lease liability		43,638				38,549
Income taxes payable non-current		-				4,837
Deferred income taxes		29,529				29,461
Employee benefit plans		29,931				35,973
Other long-term liabilities		21,886				33,914
Redeemable noncontrolling interest		1,134				1,145
Total equity		1,224,896				1,209,148
Total liabilities and equity	$	1,784,346			$	1,728,122

FRANKLIN ELECTRIC CO., INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
	Six Months Ended
(In thousands)
	June 30, 2024				June 30, 2023
Cash flows from operating activities:
Net income	$	92,423			$	97,736
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation and amortization		27,690				26,259
Non-cash lease expense		10,105				8,523
Share-based compensation		7,015				6,410
Other		4,315				7,896
Changes in assets and liabilities:
Receivables		(82,828	)			(70,725	)
Inventory		(23,982	)			(24,125	)
Accounts payable and accrued expenses		13,171				(3,880	)
Operating leases		(10,314	)			(8,706	)
Income taxes-U.S. Tax Cuts and Jobs Act		(3,870	)			(2,902	)
Other		1,278				6,540
Net cash flows from operating activities		35,003				43,026
Cash flows from investing activities:
Additions to property, plant, and equipment		(19,445	)			(20,241	)
Proceeds from sale of property, plant, and equipment		418				-
Acquisitions and investments		(1,151	)			(6,641	)
Other investing activities		21				2
Net cash flows from investing activities		(20,157	)			(26,880	)
Cash flows from financing activities:
Net change in debt		29,183				32,171
Proceeds from issuance of common stock		4,302				9,010
Purchases of common stock		(47,895	)			(25,541	)
Dividends paid		(23,980	)			(20,872	)
Deferred payments for acquisitions		(348	)			(186	)
Net cash flows from financing activities		(38,738	)			(5,418	)
Effect of exchange rate changes on cash and cash equivalents		(2,967	)			(3,291	)
Net change in cash and cash equivalents		(26,859	)			7,437
Cash and cash equivalents at beginning of period		84,963				45,790
Cash and cash equivalents at end of period	$	58,104			$	53,227

Key Performance Indicators: Net Sales Summary

	Net Sales
	United States			Latin			Europe, Middle			Asia			Total
(in millions)	& Canada			America			East & Africa			Pacific			Water			Fueling			Distribution			Other/Elims			Consolidated
Q2 2023	$202.9			$42.0			$54.6			$22.2			$321.7			$80.4			$193.1			($26.1		)	$569.1
Q2 2024	$193.6			$41.8			$56.0			$24.2			$315.6			$73.1			$190.5			($35.9		)	$543.3
Change	($9.3		)	($0.2		)	$1.4			$2.0			($6.1		)	($7.3		)	($2.6		)	($9.8		)	($25.8		)
% Change		-5	%		0	%		3	%		9	%		-2	%		-9	%		-1	%					-5	%
Foreign currency translation, net*	($0.3		)	($1.2		)	($2.6		)	($0.8		)	($4.9		)	($0.1		)	$0.0						($5.0		)
% Change		0	%		-3	%		-5	%		-4	%		-2	%		0	%		0	%					-1	%
Acquisitions	$4.9			$0.0			$0.0			$0.0			$4.9			$0.0			$4.7						$9.6
% Change		2	%		0	%		0	%		0	%		2	%		0	%		2	%					2	%
Volume/Price	($13.8		)	$1.0			$3.9			$2.8			($6.1		)	($7.2		)	($7.3		)	($9.8		)	($30.4		)
% Change		-7	%		2	%		7	%		13	%		-2	%		-9	%		-4	%		38	%		-5	%
*The Company has presented local currency price increases used to offset currency devaluation in the Argentina and Turkey hyperinflationary economies within the foreign currency translation, net row above.

Key Performance Indicators: Operating Income and Margin Summary

Operating Income and Margins
(in millions)	For the Second Quarter 2024
	Water			Fueling			Distribution			Other/Elims			Consolidated
Operating Income / (Loss)	$	62.3		$	26.0		$	9.8		$	(19.0	)	$	79.1
% Operating Income To Net Sales		19.7	%		35.6	%		5.1	%					14.6	%
Operating Income and Margins
(in millions)	For the Second Quarter 2023
	Water			Fueling			Distribution			Other/Elims			Consolidated
Operating Income / (Loss)	$	50.8		$	26.7		$	17.8		$	(14.4	)	$	80.9
% Operating Income To Net Sales		15.8	%		33.2	%		9.2	%					14.2	%

FAQ

What were Franklin Electric's (FELE) Q2 2024 earnings per share?

Franklin Electric (FELE) reported GAAP fully diluted earnings per share (EPS) of $1.26 for Q2 2024.

How did Franklin Electric's (FELE) Q2 2024 net sales compare to Q2 2023?

Franklin Electric's Q2 2024 net sales were $543.3 million, a 5% decrease compared to Q2 2023 net sales of $569.1 million.

What is Franklin Electric's (FELE) sales guidance for full year 2024?

Franklin Electric (FELE) maintained its sales guidance for full year 2024 to be in the range of $2.10 billion to $2.17 billion.

How did Franklin Electric's (FELE) Water Systems segment perform in Q2 2024?

Franklin Electric's Water Systems segment achieved a new quarterly record operating income of $62.3 million in Q2 2024, despite a 2% decrease in net sales.