Franklin Electric Reports Record 2011 Sales and Earnings
Franklin Electric Co., Inc. reported fourth quarter 2011 diluted earnings per share of $0.50, an increase of 47 percent compared to 2010 fourth quarter diluted earnings per share of $0.34.
Fourth quarter 2011 sales were $187.2 million, an increase of 7 percent compared to 2010 fourth quarter sales of $175.0 million.
For the full year 2011, diluted earnings per share were $2.65, an increase of 61 percent compared to 2010 diluted earnings per share of $1.65. Adjusted earnings per share were $2.70, an increase of 42 percent versus the $1.90 adjusted earnings per share in 2010. Full year 2011 sales were $821.1 million, an increase of 15 percent compared to 2010 sales of $713.8 million.
Scott Trumbull, Franklin Chairman and Chief Executive, commented:
"The fourth quarter was a fitting end to a great year for Franklin Electric. In the fourth quarter, our adjusted earnings per share increased by 35 percent and the adjusted operating income as a percent of sales improved by 90 basis points versus the fourth quarter of 2010 as operating leverage on higher sales more than offset the impact of increased raw material costs.
For the full year 2011 adjusted net income of $64.3 million and adjusted earnings per share of $2.70 were the highest for any year in the Company s history and we achieved these record results while still investing in our future as our Research, Development and Engineering (RD&E) spending increased by 23 percent versus the prior year.
While our financial statistics for the quarter and the year were excellent, we were also pleased with the progress we made on our four key strategic goals:
- We continued to increase our sales base in high growth developing regions. Our developing region sales increased by 18 percent in 2011 and now represent 36 percent of our consolidated sales.
- We continued to improve our cost and quality position as we consolidated more production into our world class Linares, Mexico manufacturing complex and we laid the groundwork for the construction of a new production and technical facility in Brazil.
- We continued to gain share in the North American water systems pump market. We ve only been in the North American groundwater pump market for six years, and we have already achieved a leading market position, but we still have great headroom for additional growth in this highly competitive market as more contractors convert to the Franklin brand and as we expand our product offering.
- Our fourth strategic objective is to develop more new products that provide a prepackaged systems solution for our customers. These new products will provide a simplified installation and better value for our customers while featuring more Franklin technology and providing us significantly higher revenues per installation. We initiated beta testing of two new packaged systems product lines in 2011, an oil and gas well dewatering system and a solar powered water well system. We plan to launch these products commercially later this year."
Water Systems revenues were $143.9 million in the fourth quarter 2011, an increase of $7.8 million or about 6 percent versus the fourth quarter 2010. Water Systems sales were reduced by $3.2 million in the quarter due to foreign currency translation impacts as the U.S. dollar strengthened against many international currencies. Water Systems organic growth excluding the impact of foreign currency translation was 4 percent.
Water Systems sales in the U.S. and Canada were 35 percent of consolidated sales and grew by 9 percent compared to the fourth quarter prior year. Leading the Company s growth in the U.S. and Canada were sales of pumping systems for industrial and irrigation applications, which increased by about 28 percent during the quarter as demand for these products remained robust on a backdrop of strong macro agricultural factors in North America. Sales of pumping systems for residential and light commercial ground water and wastewater applications in the U.S. and Canada both grew at a double digit pace compared to the fourth quarter prior year as replacement sales for these products remained robust.
Water Systems sales in EMENA, which is Europe, the Middle East and North Africa, were 14 percent of consolidated sales and grew by 13 percent compared to the fourth quarter prior year. Acquisition related sales during the fourth quarter were $4.9 million and foreign currency translation rate changes decreased sales $0.3 million. EMENA sales volume declined by about 6 percent during the quarter when acquisition and foreign currency translation impacts are excluded, primarily due to lower rewindable motor sales and continued weakness in North Africa due to the political and economic uncertainty.
Water Systems sales in Latin America were about 14 percent of consolidated sales for the quarter and grew by 3 percent compared to the prior year. Foreign currency translation rate changes decreased sales by $1.3 million. Sales increased by about 8 percent during the quarter when foreign currency translation impacts are excluded. Sales in Latin America were led primarily by double digit growth in Argentina and Chile while two of the larger markets, Brazil and Mexico, experienced low single digit growth.
Water Systems sales in the Asia Pacific region were 7 percent of consolidated sales and grew by 12 percent compared to the fourth quarter prior year. Asia Pacific sales growth was primarily in Australia, Japan, Taiwan and South Korea, offset by a sales decline in Thailand primarily due to the flooding in that country.
Water Systems sales in Southern Africa represented 6 percent of consolidated sales during the quarter and were down 22 percent compared to the same quarter of the prior year. Foreign currency translation rate changes decreased sales by $1.8 million. Sales decreased by about 9 percent during the quarter when foreign currency translation impacts are excluded. In the fourth quarter 2011, export sales of large irrigation pumps were not as robust as in the year-ago quarter.
Water Systems operating income after non-GAAP adjustments was $18.6 million in the fourth quarter 2011, an increase of 4.5 percent versus the fourth quarter 2010. The fourth quarter operating income margin after non-GAAP adjustments was 12.9 percent and decreased by 20 basis points compared to the 13.1 percent in the fourth quarter of 2010. This decrease was primarily the result of higher material costs.
Fueling Systems sales were $43.3 million in the fourth quarter 2011 and increased $4.4 million or about 11 percent from the fourth quarter 2010. Fueling Systems sales growth was in the U.S., Canada and in international markets, with particular strength in China. This growth was broad based across all product lines.
Fueling Systems operating income after non-GAAP adjustments was $9.2 million in the fourth quarter of 2011 compared to $5.1 million after non-GAAP adjustments in the fourth quarter 2010, an increase of 80 percent. The fourth quarter operating income margin after non-GAAP adjustments was 21.2 percent and increased by 810 basis points compared to the 13.1 percent of net sales in the fourth quarter 2010. Operating income improvements in Fueling Systems were primarily driven by higher sales volume, favorable mix, and lower Selling, General and Administrative (SG&A) expenses.
The Company s consolidated gross profit was $60.9 million for the fourth quarter of 2011, an increase of $5.3 million, or about 10 percent, from the fourth quarter of 2010 and a record for any fourth quarter in the Company s history. The gross profit as a percent of net sales increased to 32.5 percent for the fourth quarter of 2011 from 31.7 percent for the fourth quarter of 2010. The gross profit margin improvement was due to leveraging fixed costs on higher sales offsetting higher material costs.
SG&A expenses were $44.4 million in the fourth quarter of 2011 compared to the $42.3 million from the fourth quarter of 2010, an increase of $2.1 million or about 5 percent. In the fourth quarter 2011, increases in SG&A attributable to acquisitions were $1.0 million. Additional increases in SG&A costs during the fourth quarter of 2011 resulted from increased costs for marketing and selling-related expenses and increased information technology related expenditures for acquisition integrations.
The Company ended 2011 with a cash balance of $153.3 million which was $13.3 million higher than the end of 2010. The cash balance increased primarily as a result of increased earnings. Significant uses of cash during 2011 were acquisitions of $40.0 million, additions to property, plant and equipment of $21.8 million, repurchases of common stock of $13.9 million and dividends of $12.9 million.
During the fourth quarter of 2011, the Company substantially completed the purchase of the remaining 25 percent of the outstanding shares of Vertical SpA, an Italian pump and component manufacturer for $7.1 million. The Company had previously purchased 75 percent of the Company in the first quarter of 2009.
The Company had no outstanding balance on its revolving debt agreement at the end of 2011 or 2010.
Commenting on the Company s outlook, Mr. Trumbull added:
"As we look to the first quarter of the year, we are expecting our global Water Systems sales to increase by 6 to 8 percent despite our assumption that foreign currency translation effects will reduce our global Water Systems sales by 2 to 4 percent. We believe that our first quarter Water Systems sales growth will be led by increases in the United States, Canada and Asia Pacific regions. We are currently implementing price increases across most of our global Water Systems product lines and although these increases will not be fully effective until the beginning of the second quarter, we are anticipating that Water Systems operating income will increase by 11 percent to 14 percent compared to the first quarter 2011.
The first quarter is seasonally the slowest for our Fueling Systems business and sales levels are difficult to predict because they depend upon whether our distributors start stocking up for the summer construction season in March or during the second quarter. At this point we believe the first quarter Fueling Systems sales will grow by 3 to 6 percent. We believe that Fueling Systems operating income will grow at a similar pace. We are currently forecasting foreign currency translation impacts will reduce Fueling Systems sales and operating income growth by about 2 percent. We are also increasing prices across most of our global Fueling Systems product lines during the first quarter.
Overall we are expecting our Consolidated EPS to increase by 10 percent to 13 percent compared to the first quarter 2011."
Source: Franklin Electric Co., Inc.