Franklin Electric Reports Record Second Quarter 2019 Sales and Earnings

Second quarter EPS before the impact of restructuring expenses was also $0.70 compared to 2018 second quarter EPS before restructuring of $0.65 (see table below for a reconciliation of GAAP EPS to EPS before restructuring).

Gregg Sengstack, Franklin Electric’s Chairman and Chief Executive Officer, commented: “Overall, our second quarter results were a record for any quarter in the Company’s history. Sales of Pioneer branded dewatering equipment increased by about 9 percent in the second quarter when compared to the prior year and our Fueling Systems organic revenue growth was about 7 percent. However, in the U.S. and Canada, sales of groundwater products, by both our Water Systems and Distribution segments, continue to be adversely impacted by the record precipitation during the first half of the year. Our operating income before restructuring expenses grew by 7 percent and our earnings per share before restructuring expenses grew by 8 percent.”

Water Systems
Water Systems sales were $205.0 million in the second quarter 2019, versus the second quarter 2018 sales of $211.4 million. In the second quarter of 2019, sales from businesses acquired since the second quarter of 2018 were $3.3 million. Water Systems sales decreased about 4 percent in the quarter due to foreign currency translation. Water Systems organic sales were flat compared to the second quarter of 2018.

Water Systems sales in the U.S. and Canada were flat overall compared to the second quarter 2018. Sales of surface pumping equipment increased by 9 percent on the strength of higher sales of both wastewater and dewatering equipment. Sales of groundwater pumping equipment declined 12 percent versus the second quarter 2018. The decline in groundwater pumping systems was primarily due to adverse weather conditions in North America and reduced sales to the Company’s Headwater Distribution segment.

Water Systems sales in markets outside the U.S. and Canada declined by 6 percent overall. Foreign currency translation decreased sales by 8 percent. Outside the U.S. and Canada, Water Systems organic sales declined by 2 percent, primarily driven by lower sales in Latin America markets outside of Brazil. In EMEA, sales declined primarily due to foreign currency translation.

Water Systems operating income was $30.9 million in the second quarter 2019, compared to $32.2 million in the second quarter 2018. Water Systems operating income was lower in the second quarter primarily due to lower sales volume, resulting in lost leverage on fixed costs, and adverse product sales mix.

Fueling Systems
Fueling Systems sales were $78.0 million in the second quarter 2019 compared to second quarter 2018 sales of $73.1 million and were a record for any second quarter. In the second quarter of 2019, sales from businesses acquired since the second quarter of 2018 were $1.7 million. Fueling Systems sales decreased 2 percent in the quarter due to foreign currency translation. Fueling Systems organic sales increased 7 percent compared to the second quarter of 2018.

Fueling Systems sales in the U.S. and Canada increased by 15 percent compared to the second quarter 2018. The increase was principally in the fuel pumping systems, underground piping and containment systems and service station hardware product lines. Outside the U.S. and Canada, Fueling Systems revenues declined by 2 percent, due to lower sales in Europe and Africa partially offset by higher sales in China and other regions.

Fueling Systems operating income was a record for any quarter at $21.7 million in the second quarter of 2019 compared to $19.0 million in the second quarter of 2018. Fueling Systems operating income was higher in the second quarter due to favorable mix and operating leverage.

Distribution
Distribution sales were $87.1 million in the second quarter 2019, versus second quarter 2018 sales of $79.5 million. In the second quarter of 2019, sales from businesses acquired since the second quarter of 2018 were $7.0 million. The Distribution segment organic sales increased 1 percent compared to the second quarter of 2018.

The Distribution segment operating income was $4.5 million in the second quarter of 2019, compared to $4.0 million in the second quarter of 2018. Operating income before the impact of restructuring expenses was $4.7 million. Distribution’s operating income was higher in the second quarter due primarily to acquisitions.

Overall
The Company’s consolidated gross profit was $119.7 million for the second quarter of 2019, an increase from the second quarter of 2018 gross profit of $116.1 million. The gross profit increase was primarily due to higher Fueling Systems sales. The gross profit as a percent of net sales was 33.7 percent in the second quarter of 2019 and 2018.

Selling, general, and administrative (SG&A) expenses were $75.8 million in the second quarter of 2019 compared to $75.0 million in the second quarter of 2018. SG&A expenses from acquired businesses was $2.8 million and excluding the acquired entities, the Company’s SG&A expenses in the second quarter of 2019 were $73.0 million, a decrease of 3 percent from the second quarter 2018, partially due to the effect of foreign currency translation in the second quarter of 2019 versus the prior year.

Commenting on the outlook for the balance of 2019, Mr. Sengstack said: “As we look forward to the second half of 2019, we are encouraged by what appears to be a return to more normal weather in the United States, which should positively impact our Water Systems and Distribution segments. We also see improved demand in several International Water Systems markets. Additionally, our Fueling Systems business has strong momentum globally. Despite these positives looking forward, our first half results did not meet our expectations and we do not believe we will be able to achieve our original earnings per share guidance. We now believe our full year 2019 earnings per share before restructuring charges will be between $2.15 and $2.25, which at its midpoint, would result in a second half 2019 earnings per share before restructuring charges of $1.29, an eleven percent increase over the second half of 2018.”