Franklin Electric Co., Inc. reported third quarter 2018 GAAP fully diluted earnings per share (EPS) of $0.63, versus a GAAP fully diluted EPS in the third quarter 2017 of $0.52.
Third quarter 2018 sales were $341.9 million, compared to 2017 third quarter sales of $311.1 million. Third quarter 2018 organic sales increased about 8 percent when excluding the impact of foreign currency translation. Third quarter EPS before the impact of restructuring expenses was $0.64 compared to 2017 third quarter EPS before restructuring of $0.53.
Source: Franklin Electric
Gregg Sengstack, Franklin Electric’s Chairman and Chief Executive Officer, commented:
“Our third quarter earnings were a record for any third quarter in the Company’s history. Our earnings per share grew by over 20 percent from the third quarter 2017. Our consolidated organic sales growth before the impact of foreign exchange was about 8 percent, led by 49 percent organic growth in our Pioneer branded dewatering equipment products and 22 percent organic growth in our Fueling Systems business.
Our results were negatively impacted by a significant and unexpected strengthening of the U.S. dollar in the quarter against many developing world currencies which lowered our overall net sales by $11.2 million, or 4 percent and lowered our operating income by an estimated $1.6 million or about 5 percent versus the third quarter of last year. In addition, we had below the operating income line transactional foreign exchange losses of $1.6 million in the quarter as the sudden declines in the Turkish Lira, South African Rand, and Brazilian Real versus the U.S. dollar exposed us to short term liability valuation adjustments, primarily in August. The combined impact of foreign exchange reduced our earnings per share by about $0.05.”
Water Systems sales were $198.3 million in the third quarter 2018, versus the third quarter 2017 sales of $196.0 million. Water Systems organic sales increased about 5 percent compared to the third quarter of 2017. Water Systems sales decreased about 5 percent in the quarter due to foreign currency translation. In the third quarter of 2018, sales from businesses acquired since the third quarter of 2017 were $3.9 million.
Water Systems sales in the U.S. and Canada increased by about 9 percent compared to the third quarter 2017. Foreign currency translation decreased sales by about 1 percent. Sales of Pioneer branded dewatering equipment increased by over 70 percent in the third quarter when compared to the prior year due to continued strength in North American oil and gas markets and diversification of product sales channels and geographies. Sales of other surface pumping equipment increased by about 6 percent on stronger HVAC and wastewater products, versus the third quarter 2017. Sales of groundwater pumping equipment decreased by about 5 percent on lower residential and agricultural system sales, versus the third quarter 2017.
Water Systems sales in markets outside the U.S. and Canada were flat organically. Overall, sales declined about 6 percent with foreign currency translation decreasing sales by about 10 percent and revenue from acquired units increasing sales by about 4 percent. International Water Systems local currency sales improved in Europe, the Middle East, and Africa, but were offset by lower sales in Asia Pacific and Brazil when compared to the third quarter 2017. Combined, sales in Asia Pacific and Brazil declined by about 9 percent organically. In Asia Pacific, the Company’s sales decline was nearly all related to lower sales activity in Thailand where sales continued to be adversely impacted by reductions in government funding for water related projects. In Brazil, the Company’s sales decreased due to a continued slowdown of the economic environment.
Water Systems operating income was $28.4 million in the third quarter 2018, flat compared to $28.3 million in the third quarter 2017. Operating income growth in the U.S. and Canada was offset by declines in international regions, in part due to weakening foreign currencies versus the U.S. dollar.
Fueling Systems sales were $78.8 million in the third quarter 2018, a new record for any quarter. The third quarter 2017 sales were $64.1 million. Fueling Systems organic sales were up about 22 percent compared to the third quarter of 2017. In the third quarter of 2018, sales from businesses acquired since the third quarter of 2017 were $1.3 million.
Fueling Systems sales in the U.S. and Canada increased by about 9 percent compared to the third quarter 2017. The increase was principally in the fuel management and piping and containment systems product lines. Outside the U.S. and Canada, Fueling Systems revenues grew by about 47 percent, led by stronger sales in China, India and Latin America.
Third quarter Fueling Systems operating income was $20.9 million and was a new record for any quarter in the segment’s history. The third quarter 2017 Fueling Systems operating income was $17.1. The increase in operating income was primarily related to higher sales.
Distribution sales were $78.0 million in the third quarter 2018, versus third quarter 2017 sales of $68.1 million. In the third quarter of 2018, sales from businesses acquired since the third quarter of 2017 were $8.2 million. The Distribution segment organic sales increased about 2 percent compared to the third quarter of 2017.
The Distribution segment operating income was $3.1 million in the third quarter of 2018, compared to $2.0 million in the third quarter of 2017.
The Company’s consolidated gross profit was $113.0 million for the third quarter of 2018, an increase from the third quarter of 2017 gross profit of $103.8 million. The gross profit increase was primarily due to higher sales. The gross profit as a percent of net sales was 33.0 percent in the third quarter of 2018 compared to 33.4 percent in the third quarter of 2017.
Selling, general, and administrative (SG&A) expenses were $72.5 million in the third quarter of 2018 compared to $70.9 million in the third quarter of the prior year. The increase in SG&A expenses from acquired businesses was $2.9 million. Excluding the acquired entities, the Company’s SG&A expenses in the third quarter of 2018 were $69.6 million, a decrease of about 2 percent from the third quarter 2017, due primarily to the effect of foreign currency translations in the third quarter of 2018 versus the prior year.
The Company ended the third quarter of 2018 with a cash balance of $41.2 million, which was $26.0 million lower than at the end of 2017. Cash has decreased primarily due to acquisitions as well as working capital requirements partially offset by an increase in cash from earnings.
Commenting on the outlook for the remainder of 2018, Mr. Sengstack said:
“As we look to the end of 2018, there are two primary issues that we believe will result in our full year 2018 earnings per share to be below our current guidance of $2.27 to $2.37 before restructuring expenses:
1.we will not recover the impact of the foreign exchange headwinds we experienced in the third quarter which we believe negatively impacted EPS by five cents, and;
2. continued uncertainty in some international Water Systems end markets will likely continue. As a result, we are revising our 2018 full year EPS to now be between $2.22 and $2.26.”