Franklin Electric Co., Inc. Q2 FY2025 earnings call

• Team's strong results in Q2 with organic growth in all segments, setting new revenue, income, and EPS highs.
• New CFO Jennifer Wolfenbarger and CHRO Daniela Williams added. Recent acquisitions integrating well.
• Consolidated sales up 8%, operating margin 15% (up from 14.6% Y/Y). SG&A improved but impacted by acquisition-related costs. Operating income up 11% Y/Y due to higher sales and cost management.

Overall, all 3 segments saw organic growth. Water Systems delivered 8% Y/Y sales growth, benefiting from pricing, volume, and recent acquisitions. U.S. and Canada sales up 5%, with large dewatering equipment sales up 20%, water treatment products up 7%, and other surface pumping equipment up 2% (while groundwater pumping equipment down 4%). Outside U.S. and Canada, Water Systems sales increased 12%, with foreign currency translation decreasing sales by 1% and acquisitions adding ~11%. Energy delivered 6% sales growth, driven by volume and price, with strong operating income and margin improvement (margins up 200 basis points). Distribution had 5% sales growth, record sales despite storms, with operating margins improving 300 basis points due to operational execution, pricing, and commodity price stabilization.

• Full year sales expected $2.09 billion to $2.15 billion and GAAP EPS range $3.95 per share to $4.25 per share maintained.
• Q3 expected to have noncash EPS impact of ~$1 per share from termination of U.S. pension, not included in current guidance.
• Maintaining guidance while seeing opportunities to accelerate supply chain optimization, restructuring, and growth in second half of 2025.

• Macro uncertainty related to tariffs and commodity inflation.
• Impact of acquisition-related SG&A expenses.
• Foreign exchange fluctuations affecting sales and margins.

Q: Did Q2 benefit from pull forward of orders?

A: Really no change in traditional order pattern, business as usual with no significant pull forward from Q3 to Q2.

Q: How much did cost actions contribute to Distribution's 300 basis points margin expansion?

A: Cost actions contributed probably 1/3 or more of the benefit, with operational execution, efficiency, and cost actions in the year playing a role.

Q: Update on integration at PumpEng and Barnes?

A: Acquisitions performing well, foundry expanding, with synergies and growth opportunities in new markets.

Q: Mix in Water segment, product-driven or geographic?

A: Most mix is product-driven, with dewatering business cyclical, but strong order book and backlog.

Q: Catalyst from copper tariffs and resource development?

A: Opportunity exists, with preparations to bring products into North America post-acquisitions, though relatively small today.

Q: Sequential trends and guidance?

A: Expect back half to be fairly normal, no major disruption, with normal seasonality expected.

Q: M&A pipeline?

A: Active pipeline with focus on products for faster-growing markets and secular trends.

Q: Why not raise EPS guidance despite buybacks?

A: Slower start to year, need for room to execute transformation and key investments, including supply chain nearshoring.

Q: Quantification of backlog and price/cost?

A: Backlogs up low double digits, book-to-bill over 1 for all segments, price over cost in good shape, covering tariffs and inflation nicely