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CST: 21/08/2019 17:24:23   

Franklin Electric Reports First Quarter 2019 Sales and Earnings

120 Days ago

FORT WAYNE, Ind., April 23, 2019 (GLOBE NEWSWIRE) -- Franklin Electric Co., Inc. (NASDAQ: FELE) reported first quarter 2019 GAAP fully diluted earnings per share (EPS) of $0.19, versus a GAAP fully diluted EPS in the first quarter 2018 of $0.45.  First quarter 2019 sales were $290.7 million, compared to 2018 first quarter sales of $295.6 million. First quarter EPS before the impact of restructuring expenses was $0.21 compared to 2018 first quarter EPS before restructuring of $0.45 (see table below for a reconciliation of GAAP EPS to EPS before restructuring).  In the first quarter of 2018, the Company recognized discrete income tax benefits of about $5 million which lowered the first quarter 2018 effective tax rate and resulted in an eleven-cent increase in earnings per share.

Gregg Sengstack, Franklin Electric’s Chairman and Chief Executive Officer, commented:

“Our first quarter 2019 net sales results were meaningfully below our expectations and were the primary driver of our lower earnings in the quarter.  The key factors that contributed to the lower than expected net sales included adverse winter weather conditions in North America that hurt all our operating segments, and weak international end markets primarily in Europe, the Middle East and Central America.  Our operating income before restructuring expenses declined by about $9.5 million from the first quarter 2018 due in large part to the lower sales volume and adverse sales mix, resulting in lost leverage on our fixed cost base.  Through our company wide focus on working capital reduction our operating cash flow improved by $24 million as compared to the first quarter of last year.

Despite the lower than expected demand in first quarter, we remain confident in the overall strength of the end markets in which we compete.  Our Water Systems segment is positioned well to recover the declines in North America that resulted from adverse weather and we are encouraged by higher than expected net sales results in both Brazil and Asia Pacific during the first quarter.  Although sales in our Pioneer branded dewatering equipment business and our Fueling Systems segment were also below expectations in the first quarter, we attribute this mostly to the timing of customer requested deliveries.  As a result, we are reaffirming our 2019 earnings per share guidance of $2.37 to $2.47 per share.”

Key Performance Indicators:


    For the First Quarter
Earnings Before and After Restructuring     2019     2018   Change
(in millions)        
Net Income attributable to FE Co., Inc. Reported   $     9.1   $     21.2   -57 %
Allocated Earnings   $   (0.1 ) $   (0.2 )  
Earnings for EPS Calculations   $     9.0   $     21.0   -57 %
         
Restructuring (before tax):   $   1.1   $   -     
         
Restructuring, net of tax:   $   0.9   $   -     
         
Earnings before Restructuring   $     9.9   $     21.0   -53 %
         
    For the First Quarter
Earnings Per Share     2019     2018   Change
Before and After Restructuring          
(in millions except Earnings Per Share)        
         
Average Fully Diluted Shares Outstanding       46.7       47.1   -1 %
         
Fully Diluted Earnings Per Share ("EPS") Reported   $     0.19   $     0.45   -58 %
         
Restructuring Per Share, net of tax   $   0.02   $   -     
         
Fully Diluted EPS before Restructuring   $     0.21   $     0.45   -53 %
         

 

  Net Sales
  United States Latin Europe, Middle Asia Total        
(in millions) & Canada America East & Africa Pacific Water Fueling Distribution Other/Elims Consolidated
                   
Q1 2018 $ 96.5   $ 29.1   $ 46.2   $ 20.8   $ 192.6   $ 58.6   $ 56.2   ($ 11.8 ) $ 295.6  
Q1 2019 $ 98.0   $ 30.5   $ 37.7   $ 22.2   $ 188.4   $ 60.2   $ 53.3   ($ 11.2 ) $ 290.7  
Change $ 1.5   $ 1.4   ($ 8.5 ) $ 1.4   ($ 4.2 ) $ 1.6   ($ 2.9 ) $ 0.6   ($ 4.9 )
% Change   2 %   5 %   -18 %   7 %   -2 %   3 %   -5 %     -2 %
                   
Foreign currency translation ($ 0.9 ) ($ 3.0 ) ($ 6.7 ) ($ 0.9 ) ($ 11.5 ) ($ 1.4 ) $ 0.0      
% Change   -1 %   -10 %   -15 %   -4 %   -6 %   -2 %   0 %    
                   
Acquisitions $ 0.0   $ 4.3   $ 0.0   $ 0.0   $ 4.3   $ 1.5   $ 2.8      
                   
Volume/Price $ 2.4   $ 0.1   ($ 1.8 ) $ 2.3   $ 3.0   $ 1.5   ($ 5.7 )    
% Change   2 %   0 %   -4 %   11 %   2 %   3 %   -10 %    
                   
                   
                   
                   

 

Operating Income and Margins              
(in millions)   For the First Quarter 2019
    Water Fueling Distribution Other/Elims Consolidated
Operating Income / (Loss)   $   19.2   $   12.3   $   (4.3 ) $   (15.1 ) $   12.1  
% Operating Income To Net Sales     10.2 %   20.4 %   -8.1 %     4.2 %
             
Restructuring   $   0.5   $   -    $   0.6   $   -    $   1.1  
             
Operating Income/(Loss) before Restructuring   $   19.7   $   12.3   $   (3.7 ) $   (15.1 ) $   13.2  
% Operating Income to Net Sales Before Restructuring     10.5 %   20.4 %       4.5 %
             
             
Operating Income and Margins              
(in millions)   For the First Quarter 2018
    Water Fueling Distribution Other/Elims Consolidated
Operating Income / (Loss)   $   25.1   $   13.7   $   (0.8 ) $   (15.3 ) $   22.7  
% Operating Income To Net Sales     13.0 %   23.4 %   -1.4 %     7.7 %
             
Restructuring   $   -    $   -    $   -    $   -    $   -   
             
Operating Income/(Loss) before Restructuring   $   25.1   $   13.7   $   (0.8 ) $   (15.3 ) $   22.7  
% Operating Income to Net Sales Before Restructuring     13.0 %   23.4 %       7.7 %
             

Water Systems

Water Systems sales were $188.4 million in the first quarter 2019, versus the first quarter 2018 sales of $192.6 million.  In the first quarter of 2019, sales from businesses acquired since the first quarter of 2018 were $4.3 million.  Water Systems sales decreased about 6 percent in the quarter due to foreign currency translation. Water Systems organic sales increased about 2 percent compared to the first quarter of 2018.

Water Systems sales in the U.S. and Canada increased by about 2 percent compared to the first quarter 2018. Foreign currency translation decreased sales by about 1 percent.  Sales of Pioneer branded dewatering equipment increased by about 10 percent in the first quarter when compared to the prior year due to diversification of product sales channels. Sales of other surface pumping equipment increased by about 2 percent on stronger sales of wastewater products. Sales of groundwater pumping equipment were down about 5 percent versus the first quarter 2018.  The decline in groundwater pumping systems was primarily due to adverse winter weather conditions in North America that reduced demand for the Company’s groundwater pumping systems including sales through the Headwater Distribution segment.

Water Systems sales in markets outside the U.S. and Canada declined by about 6 percent overall.  Foreign currency translation decreased sales by about 11 percent.  Outside the U.S. and Canada, Water Systems realized organic sales growth of about 11 percent in Asia Pacific and about 15 percent in Brazil versus the first quarter 2018. These increases were offset by an organic sales decline in Europe, the Middle East and Central America.

Water Systems operating income was $19.2 million in the first quarter 2019, compared to $25.1 million in the first quarter 2018.  Water Systems operating income was lower in the first quarter primarily due to lower sales volume, the resultant lost leverage on fixed costs, adverse product sales mix and higher freight costs.

Fueling Systems

Fueling Systems sales were $60.2 million in the first quarter 2019 compared to first quarter 2018 sales of $58.6 million and were a record for any first quarter.  In the first quarter of 2019, sales from businesses acquired since the first quarter of 2018 were $1.5 million.  Fueling Systems sales decreased about 2 percent in the quarter due to foreign currency translation. Fueling Systems organic sales increased about 3 percent compared to the first quarter of 2018.

Fueling Systems sales in the U.S. and Canada increased by about 10 percent compared to the first quarter 2018.  The increase was principally in the fuel management and service station hardware product lines.  Outside the U.S. and Canada, Fueling Systems revenues declined by about 5 percent, due to lower sales of storage tanks, fuel pumping systems, and underground pipe and containment systems primarily in Europe and China.

Fueling Systems operating income was $12.3 million in the first quarter of 2019 compared to $13.7 million in the first quarter of 2018.  Fueling Systems operating income was lower in the first quarter as growth from higher sales was offset primarily by higher fixed costs.

Distribution

Distribution sales were $53.3 million in the first quarter 2019, versus first quarter 2018 sales of $56.2 million.  In the first quarter of 2019, sales from businesses acquired since the first quarter of 2018 were $2.8 million.  The Distribution segment organic sales were down about 10 percent compared to the first quarter of 2018 primarily due to unfavorable weather conditions. 

The Distribution segment recorded an operating loss of $4.3 million in the first quarter of 2019, compared to $0.8 million loss in the first quarter of 2018.  The loss before the impact of restructuring expenses was $3.7 million. The Distribution loss was primarily due to lower sales volume, higher product costs partially offset by sales price increases, adverse geographic and product sales mix and lost leverage on fixed costs from lower sales.

Overall

The Company’s consolidated gross profit was $89.5 million for the first quarter of 2019, a decrease from the first quarter of 2018 gross profit of $99.0 million.  The gross profit decrease was primarily due to lower sales and other impacts previously mentioned.  The gross profit as a percent of net sales was 30.8 percent in the first quarter of 2019 compared to 33.5 percent in the first quarter of 2018.

Selling, general, and administrative (SG&A) expenses were $76.3 million in the first quarter of 2019 and 2018. SG&A expenses from acquired businesses was $3.0 million and excluding the acquired entities, the Company’s SG&A expenses in the first quarter of 2019 were $73.3 million, a decrease of about 4 percent from the first quarter 2018, due primarily to the effect of foreign currency translations in the first quarter of 2019 versus the prior year.

Commenting on the outlook for 2019, Mr. Sengstack said:

“As we look forward to the balance of 2019, the key question will be the recovery of net sales in North America in both our Water Systems and Distribution segments that we believe were delayed due to the poor weather during the first quarter.  Our review with these businesses in the last several weeks confirms that the end market demand is still robust; however, the environment for equipment manufacturers will be even more competitive.  Except for Europe and the Middle East, we think there is still opportunity for growth in the other international Water Systems businesses.  Fueling Systems continues to capitalize on numerous market opportunities.

As a result, we continue to believe our previous growth guidance of 4 to 6 percent in 2019 is doable.  We also continue to believe we can achieve our original earnings per share before restructuring charges guidance of $2.37 to $2.47 per share.  In addition to some sales volume recovery, we are taking cost reduction actions in virtually all of our business units to make up portions of the earnings shortfall we experienced in the first quarter.”

A conference call to review earnings and other developments in the business will commence at 9:00 am ET.  The first quarter 2019 earnings call will be available via a live webcast.

https://edge.media-server.com/m6/p/ugbyz5i8

If you intend to ask questions during the call, please dial in using 877.643.7158 for domestic calls and 914.495.8565 for international calls.  The conference ID is: 1382996.

A replay of the conference call will be available Tuesday, April 23, 2019 at 12:00 noon ET through noon ET on Tuesday, April 30, 2019, by dialing 855.859.2056 for domestic calls and 404.537.3406 for international calls.  The replay passcode is: 1382996.

Franklin Electric is a global leader in the production and marketing of systems and components for the movement of water and fuel. 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 CO., INC. AND CONSOLIDATED SUBSIDIARIES  
  CONDENSED CONSOLIDATED STATEMENTS OF INCOME  
  (Unaudited)  
             
  (In thousands, except per share amounts)          
             
    First Quarter Ended    
    March 31,   March 31,    
      2019       2018      
             
  Net sales  $   290,715     $   295,630      
             
  Cost of sales      201,209         196,648      
             
  Gross profit      89,506         98,982      
             
  Selling, general, and administrative expenses     76,299         76,275      
             
  Restructuring expense     1,086         7      
             
  Operating income      12,121         22,700      
   
  Interest expense      (2,342 )       (2,428 )    
  Other income/(expense), net     239         (204 )    
  Foreign exchange income/(expense)     589         (551 )    
             
  Income before income taxes      10,607         19,517      
             
  Income tax (benefit)/expense      1,480         (1,698 )    
             
  Net income  $   9,127     $   21,215      
             
  Less:  Net income attributable to noncontrolling interests     (71 )       (41 )    
             
  Net income attributable to Franklin Electric Co., Inc. $   9,056     $   21,174      
             
  Income per share:          
    Basic $   0.19     $   0.45      
    Diluted $   0.19     $   0.45      
             

 

FRANKLIN ELECTRIC CO., INC. AND CONSOLIDATED SUBSIDIARIES    
CONDENSED CONSOLIDATED BALANCE SHEETS    
(Unaudited)    
           
(In thousands)          
           
  March 31,   December 31,    
    2019     2018    
ASSETS          
           
Cash and equivalents $   54,364   $   59,173    
Receivables     180,584       172,899    
Inventories     336,639       314,049    
Other current assets     34,115       33,758    
Total current assets     605,702       579,879    
           
Property, plant, and equipment, net     202,597       207,064    
Right-of-Use Asset, net     25,411       -     
Goodwill and other assets     395,049       395,422    
Total assets $   1,228,759   $   1,182,365    
           
           
LIABILITIES AND EQUITY          
           
Accounts payable $   91,399   $   76,652    
Accrued expenses and other current liabilities     52,990       67,230    
Current lease liability     7,738       -     
Current maturities of long-term debt and          
  short-term borrowings     131,957       111,975    
Total current liabilities     284,084       255,857    
           
Long-term debt     93,803       94,379    
Long-term lease liability     17,675       -     
Income taxes payable non-current     10,881       10,881    
Deferred income taxes     28,927       28,949    
Employee benefit plans     36,963       38,020    
Other long-term liabilities     19,826       17,934    
 
Redeemable noncontrolling interest     408       518    
           
Total equity     736,192       735,827    
Total liabilities and equity $   1,228,759   $   1,182,365    
           

 

  FRANKLIN ELECTRIC CO., INC. AND CONSOLIDATED SUBSIDIARIES  
  CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  
  (Unaudited)  
    Three Months Ended  
  (In thousands)        
    March 31,   March 31,  
      2019       2018    
  Cash flows from operating activities:        
  Net income $   9,127     $   21,215    
  Adjustments to reconcile net income to net        
  cash flows from operating activities:        
  Depreciation and amortization     12,073         9,896    
  Share-based compensation     3,230         3,326    
  Other     (96 )       (5,262 )  
  Changes in assets and liabilities:        
  Receivables     (6,517 )       (17,242 )  
  Inventory     (20,986 )       (23,932 )  
  Accounts payable and accrued expenses     1,309         (15,378 )  
  Operating Leases     (2,804 )       -    
  Other     1,729         193    
                   
  Net cash flows from operating activities   (2,935 )     (27,184 )  
           
  Cash flows from investing activities:        
  Additions to property, plant, and equipment     (5,220 )       (5,921 )  
  Proceeds from sale of property, plant, and equipment     64         208    
  Acquisitions and investments     (5,405 )       (8,428 )  
  Other investing activities     3         -    
           
  Net cash flows from investing activities     (10,558 )       (14,141 )  
 
  Cash flows from financing activities:        
  Change in debt     19,669         52,007    
  Proceeds from issuance of common stock     1,251         642    
  Purchases of common stock     (4,329 )       (7,949 )  
  Dividends paid     (6,723 )       (5,037 )  
  Net cash flows from financing activities     9,868         39,663    
           
  Effect of exchange rate changes on cash     (1,184 )       1,799    
  Net change in cash and equivalents   (4,809 )     137    
  Cash and equivalents at beginning of period     59,173         67,233    
  Cash and equivalents at end of period $   54,364     $   67,370    
           

"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, 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, 2018, 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.

Contact:         
John J. Haines
Franklin Electric Co., Inc.
260-824-2900

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