EX-99.1 2 a201707258-kexhibit991.htm EXHIBIT 99.1 Exhibit



Exhibit 99.1

For Immediate Release    

For Further Information
Refer to: John J. Haines
260-824-2900

FRANKLIN ELECTRIC REPORTS SECOND QUARTER
2017 SALES AND EARNINGS

Fort Wayne, IN - July 25, 2017 - Franklin Electric Co., Inc. (NASDAQ: FELE) reported second quarter 2017 GAAP fully diluted earnings per share (EPS) of $0.64, versus a GAAP fully diluted EPS in the second quarter 2016 of $0.50, an increase of 28 percent. Second quarter 2017 sales were $305.3 million, an increase of 21 percent compared to 2016 second quarter sales of $252.1 million.

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

“We’re pleased with the overall performance of our Company in the second quarter in which we achieved solid organic sales growth in both our Water and Fueling Systems segments, led by a 10 percent Water Systems sales growth in the United States and Canada. The Distribution companies that we acquired in the quarter, reported in a new segment, started off with a strong second quarter achieving higher than expected operating income margins and exceeding our earnings expectation.  Although our reported earnings per share of $0.64 were a record for any second quarter in our history, about six cents of this amount was related to a one-time gain.  We are optimistic about the second half of 2017 and are raising our full year 2017 earnings per share guidance range to $1.87 to $1.97.”































Key Performance Indicators:


 
Net Sales
(in millions)
United States & Canada
Latin America
Europe, Middle East & Africa
Asia Pacific
Total Water
Fueling
Distribution
Other/Elims
Consolidated
 
 
 
 
 
 
 
 
 
 
Q2 2016
$
96.0

$
31.2

$
43.7

$
23.7

$
194.6

$
57.5

$
—

$
—

$
252.1

Q2 2017
$
105.4

$
31.3

$
45.1

$
21.6

$
203.4

$
61.4

$
59.1

$
(18.6
)
$
305.3

Change
$
9.4

$
0.1

$
1.4

$
(2.1
)
$
8.8

$
3.9

$
59.1

$
(18.6
)
$
53.2

% Change
10
 %
—
 %
3
 %
(9
)%
5
 %
7
 %




21
%
 
 
 
 
 
 
 
 
 
 
Foreign currency translation
$
(0.8
)
$
1.3

$
(2.3
)
$
—

$
(1.8
)
$
(0.7
)
 
 
 
% Change
(1
)%
4
 %
(5
)%
—
 %
(1
)%
(1
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
Volume/Price
$
10.2

$
(1.2
)
$
3.7

$
(2.1
)
$
10.6

$
4.6

 
 
 
% Change
11
 %
(4
)%
8
 %
(9
)%
6
 %
8
 %
 
 
 


Operating Income and Margins
 
 
 
 
 
(in millions)
For the Second Quarter 2017
 
Water
Fueling
Distribution
Other/Elims
Consolidated
Reported Operating Income/(Loss)
$
32.8

$
14.9

$
3.7

$
(17.2
)
$
34.2

% Operating Income To Net Sales
16.1
%
24.3
%
6.3
%
 
11.2
%
 
 
 
 
 
 
Operating Income and Margins
 
 
 
 
 
(in millions)
For the Second Quarter 2016
 
Water
Fueling
Distribution
Other/Elims
Consolidated
Reported Operating Income/(Loss)
$
31.5

$
15.5

$
—

$
(14.3
)
$
32.7

% Operating Income To Net Sales
16.2
%
27.0
%
 
 
13.0
%


Water Systems

Water Systems sales were $203.4 million in the second quarter 2017, an increase of $8.8 million or about 5 percent versus the second quarter 2016 sales of $194.6 million. Water Systems sales decreased by $1.8 million or about 1 percent in the quarter due to foreign currency translation. Water Systems organic sales were up about 6 percent compared to the second quarter 2016.

Water Systems sales in the U.S. and Canada were up about 10 percent compared to the prior year second quarter. Sales of dewatering equipment increased by 25 percent in the second quarter when compared to the prior year resulting from the continued diversification of customers and new channel development for Pioneer branded equipment. Sales of other surface pumping equipment increased by 8 percent in part due to wet weather conditions in the upper Midwest and Canada. Sales of groundwater pumping equipment increased about 5 percent.

Water Systems sales in markets outside the U.S. and Canada overall declined by about 1 percent, due primarily to the impact of foreign currency translation. International Water Systems sales were led by improved sales in Europe, the Middle East and




Africa, but were offset by lower sales volumes in the Latin American and Asia Pacific markets in the quarter compared to last year.

Water Systems operating income was $32.8 million in the second quarter 2017, up $1.3 million or 4 percent versus the second quarter 2016 and operating income margin was 16.1 percent compared to the 16.2 percent in the second quarter 2016.

Fueling Systems

Fueling Systems sales were $61.4 million in the second quarter 2017, an increase of $3.9 million or about 7 percent versus the second quarter 2016 sales of $57.5 million. Fueling Systems sales decreased by $0.7 million or about 1 percent in the quarter due to foreign currency translation. Fueling Systems organic sales increased about 8 percent compared to the second quarter of 2016.

Fueling Systems sales in the U.S. and Canada grew by about 4 percent during the quarter. The increase was primarily in pumping systems. Outside of the U.S. and Canada, Fueling Systems revenues grew by about 18 percent, led by stronger sales in Europe, Africa and Asia.

Fueling Systems operating income was $14.9 million in the second quarter of 2017, down $0.6 million or about 4 percent compared to $15.5 million in the second quarter of 2016 and the second quarter operating income margin was 24.3 percent, a decrease of 270 basis points from the 27.0 percent of net sales in the second quarter of 2016. The decline in operating income was primarily due to adverse product and geography sales mix shifts.

Distribution

Distribution sales were $59.1 million in the second quarter 2017. Based on the information provided for second quarter 2016 sales, management estimates second quarter Distribution sales declined by about 2 percent from the second quarter of 2016 primarily driven by adverse weather conditions in the Western portion of the United States.

Distribution operating income was $3.7 million in the second quarter of 2017 and the second quarter operating income margin was 6.3 percent.

Overall

The Company’s consolidated gross profit was $102.8 million for the second quarter of 2017, an increase of $12.1 million, or about 13 percent, from the second quarter of 2016 gross profit of $90.7 million. The gross profit as a percent of net sales was 33.7 percent in the second quarter of 2017 and decreased about 230 basis points versus 36.0 percent during the second quarter 2016. The gross profit increase was primarily due to higher sales. The decline in gross profit margin percentage is primarily due to the lower gross profit margin of the Distribution segment. Excluding the Distribution segment, gross profit margin was 34.5 percent.

Selling, general, and administrative (SG&A) expenses were $68.3 million in the second quarter of 2017 compared to $58.0 million in the second quarter of the prior year, an increase of $10.3 million or about 18 percent. The increase in SG&A expenses from acquired businesses were $13.0 million. Excluding the acquired entities, the Company’s SG&A expenses in the second quarter of 2017 decreased by $2.7 million or about 5 percent. 

The Company’s second quarter 2017 earnings include a gain on the previously held equity investments in the three Distribution entities as indicated in the announcement made on April 10, 2017 regarding the acquisition of the controlling interests of these entities. This gain, included in “Other Income” in the Company’s Income Statement, represents about $4.8 million of pre-tax earnings or $0.06 of earnings per share.

The Company ended the second quarter of 2017 with a cash balance of about $55 million versus about $104 million at the end of 2016, down primarily due to acquisitions and increased working capital needs. Inventory levels at the end of the second quarter 2017 were $297 million versus year end 2016 of $203 million. About $60 million of the inventory increase is due to the Distribution segment acquisitions.

Commenting on the outlook, Mr. Sengstack said:





“As we look forward to the back half of 2017, we are encouraged by the start we’ve had in our new Distribution segment and the strength of our Water Systems businesses in North America.  However, we remain mindful of continued weakness in many of the international Water Systems end markets that we serve.  We expect our Fueling Systems segment to have a strong top and bottom line in the second half.  As a result of this outlook for the rest of the year, and the six-cent gain that was taken on the Distribution segment minority investments in the second quarter, we are increasing our full year 2017 earnings per share guidance from a range of $1.77 to $1.87 to a range of $1.87 to $1.97.”

A conference call to review earnings and other developments in the business will commence at 9:00 am EDT. The second quarter 2017 earnings call will be available via a live webcast. The webcast will be available in a listen only mode by going to:

http://edge.media-server.com/m/p/wpkekoqj

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: 50852283.

A replay of the conference call will be available Tuesday, July 25, 2017 at 12:00 noon EDT through noon EDT on Tuesday, August 1, 2017, by dialing 855.859.2056 for domestic calls and 404.537.3406 for international calls. The replay passcode is: 50852283.

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)
 
 
 
 
 
 
 
 
Second Quarter Ended
 
Six Months Ended
 
June 30, 2017

 
July 2, 2016
 
June 30, 2017
 
July 2, 2016
 
 
 
 
 
 
 
 
Net sales
$
305,349

 
$
252,081

 
$
525,601

 
$
470,511

Cost of sales
202,596

 
161,403

 
347,032

 
305,597

Gross profit
102,753

 
90,678

 
178,569

 
164,914

Selling, general, and administrative expenses
68,298

 
57,954

 
125,289

 
110,299

Restructuring expense
251

 
45

 
566

 
865

Operating income
34,204

 
32,679

 
52,714

 
53,750

Interest expense
(2,244
)
 
(2,221
)
 
(5,758
)
 
(4,648
)
Other income, net
5,573

 
1,373

 
6,240

 
1,341

Foreign exchange income/(expense)
(372
)
 
315

 
103

 
238

Income before income taxes
37,161

 
32,146

 
53,299

 
50,681

Income tax expense
6,917

 
7,959

 
7,121

 
12,914

Net income
$
30,244

 
$
24,187

 
$
46,178

 
$
37,767

Less: Net income attributable to noncontrolling interests
(335
)
 
(205
)
 
(539
)
 
(328
)
Net income attributable to Franklin Electric Co., Inc.
$
29,909

 
$
23,982

 
$
45,639

 
$
37,439

 
 
 
 
 
 
 
 
Income per share:
 
 
 
 
 
 
 
Basic
$
0.64

 
$
0.51

 
$
0.97

 
$
0.79

Diluted
$
0.64

 
$
0.50

 
$
0.97

 
$
0.78

 
 
 
 
 
 
 
 






















FRANKLIN ELECTRIC CO., INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
 
 
 
(In thousands)
 
 
 
 
June 30, 2017
 
December 31, 2016
ASSETS
 
 
 
 
 
 
 
Cash and equivalents
$
55,095

 
$
104,331

Receivables
190,650

 
145,999

Inventories
296,687

 
203,471

Other current assets
37,194

 
30,018

Total current assets
579,626

 
483,819

 
 
 
 
Property, plant, and equipment, net
214,652

 
196,137

Goodwill and other assets
385,832

 
359,949

Total assets
$
1,180,110

 
$
1,039,905

 
 
 
 
LIABILITIES AND EQUITY
 
 
 
 
 
 
 
Accounts payable
$
73,266

 
$
63,927

Accrued expenses and other current liabilities
60,870

 
60,119

Current maturities of long-term debt and short-term borrowings
145,381

 
33,715

Total current liabilities
279,517

 
157,761

 
 
 
 
Long-term debt
126,030

 
156,544

Deferred income taxes
40,842

 
40,460

Employee benefit plans
42,705

 
45,307

Other long-term liabilities
17,635

 
17,093

 
 
 
 
Redeemable noncontrolling interest
1,948

 
7,652

 
 
 
 
Total equity
671,433

 
615,088

Total liabilities and equity
$
1,180,110

 
$
1,039,905

 
 
 
 





FRANKLIN ELECTRIC CO., INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
Six Months Ended
(In thousands)
June 30, 2017
 
July 2, 2016
 
 
 
 
Cash flows from operating activities:
 
 
 
Net income
$
46,178

 
$
37,767

Adjustments to reconcile net income to net cash flows from operating activities:
 
 
 
Depreciation and amortization
18,412

 
17,633

Share-based compensation
4,546

 
4,155

Gain on equity investment
(4,788
)
 
—

Other
(3,286
)
 
4,404

Changes in assets and liabilities:
 
 
 
Receivables
(9,289
)
 
(31,221
)
Inventory
(31,792
)
 
(10,982
)
Accounts payable and accrued expenses
(24,712
)
 
3,091

Other
(7,774
)
 
4,464

Net cash flows from operating activities
(12,505
)
 
29,311

 
 
 
 
Cash flows from investing activities:
 
 
 
Additions to property, plant, and equipment
(18,621
)
 
(19,490
)
Proceeds from sale of property, plant, and equipment
109

 
2,166

Acquisitions and investments
(52,255
)
 
—

Other investing activities
153

 
178

Net cash flows from investing activities
(70,614
)
 
(17,146
)
 
 
 
 
Cash flows from financing activities:
 
 
 
Change in debt
47,196

 
(7,851
)
Proceeds from issuance of common stock
2,047

 
610

Purchases of common stock
(2,374
)
 
(4,736
)
Dividends paid
(10,199
)
 
(9,821
)
Purchase of redeemable non-controlling shares
(5,047
)
 
—

Net cash flows from financing activities
31,623

 
(21,798
)
Effect of exchange rate changes on cash
2,260

 
(346
)
Net change in cash and equivalents
(49,236
)
 
(9,979
)
Cash and equivalents at beginning of period
104,331

 
81,561

Cash and equivalents at end of period
$
55,095

 
$
71,582

 
 
 
 












"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, 2016, 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.