FRANKLIN ELECTRIC CO INC Q1 FY2025 earnings call

• Underlying business performed in line with expectations despite weather challenges. - Distribution had positive order trend into Q1. - Two acquisitions completed in Q1, integration expected to be well executed. - Energy Systems delivered strong results offsetting Distribution's slower start. - Water Systems flat sales with favorable pricing, offsetting unfavorable volumes. - Value creation framework anchored on growth acceleration, resilient margins, strategic investments, and top-tier talent. - Focus on new products and innovation, with examples in dewatering and energy systems. - Active in managing tariff environment, positioning inventory, and optimizing costs/pricing.

Consolidated sales were slightly down with growth in Water Systems and Energy Systems offset by decline in Distribution. Water Systems: flat sales in Q1, up 2% in US/Canada, acquisitions contributed 1%, foreign currency translation mostly offset; operating income $43.4M, down $3.7M. Distribution: sales $141.9M, down 3%, operating income $2.1M, up $300k. Energy Systems: sales $66.8M, up 8%, operating income $21.9M, up from $18.8M, margin 32.8% vs 30.3% prior year.

• Adjusted lower end of EPS guidance by $0.10. - Held full-year sales expectations of $2.09 to $2.15 billion. - Adjusted GAAP EPS to range of $3.95 to $4.25, reflecting tariffs, restructuring, growth investments, and market uncertainty. - Expect more visibility on tariff environment in medium to long-term.

• Tariff uncertainties impacting demand and pricing. - Market softness affecting sales volumes. - Foreign currency headwinds affecting segment performances. - One-time costs from executive transition and acquisitions impacting margins.

Q: How to extrapolate energy segment margins?

A: Don't expect same growth as last few quarters, but margins should stay strong due to shift to smarter solutions, price and productivity management.

Q: Tariff exposure and inventory pull?

A: COGS from China under 10%, selective inventory positioning due to tariff concerns.

Q: Order book and M&A in water?

A: Book to bill above one in Q1, open to transformational M&A, focusing on strategic bolt-ons and broader opportunities.

Q: Resi and groundwater growth?

A: Resi up 11% in Q1, groundwater market strong with mid single digit growth, order book held up.

Q: Guidance cadence and pricing/volume offset?

A: Pricing up offsetting some volume decline, seasonality expected, back half outlook positive with strong backlogs in energy.