Franklin Electric Co., Inc.

Ladies and gentlemen, thank you for standing by and welcome to Franklin Electric Reports 3rd Quarter 2020 Sales and Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. If anyone should require assistance during the conference, Please press star then zero on your touch-tone cell phone. As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Mr. John Haynes, our Chief Financial Officer. Please go ahead.

Thank you, Ludi, and welcome everyone to Franklin Electric's third quarter 2020 earnings conference call. With me today is Greg Singstack, our Chairman and CEO. On today's call, Greg will review our third quarter business results and the impacts our company is experiencing from the global pandemic, and I will review our third quarter financial results. When I'm through, we'll have some time for questions and answers. Before we begin, let me remind you that as we conduct this call, we will be making forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to various risks and uncertainties, many of which could cause actual results to differ materially from such forward-looking statements. A discussion of these factors may be found in the company's annual report on Form 10-K and in today's earnings release. All forward-looking statements made during this call are based on information currently available and accepted as required by law The company assumes no obligation to update any forward-looking statements. With that, I will now turn the call over to our chairman and CEO, Greg Singstad.

Thank you, John. Thank you all for joining us. As I noted in our press release, I am consistently impressed with how our company and my 5,500 colleagues are dealing with the pandemic. Our global product supply leadership and facilities teams continue to do a great job maintaining protocols to keep our people safe. We continue to follow the guidelines of health authorities around the globe, including the CDC and national, state, and local government requirements. Even with these new protocols, guidelines, and requirements, our operating performance continues to improve both sequentially and year over year. With the benefit of price, mix, and thoughtful expense control, the recovery in our third quarter revenue drove record consolidated operating income and earnings, earnings per share, for any quarter in our history. Water system's product demand strengthened through the quarter, driving double-digit organic growth outside the U.S. and excluding our large dewatering pumps in the U.S. as well. While our business in Brazil and Turkey experienced the strongest organic growth, driven in part by price increases to offset inflation, Generally, our business was strong in all end markets with the exception of the Middle East and North Africa. Large dewatering pump sales are stable, albeit at depressed levels given a lack of demand by pump rental customers. Our fueling systems business is recovering slowly. Outside of China, revenue is down 7% in the quarter. In the US and Canada, fueling declined 5% compared to the third quarter last year. Our business in China improved slightly Our U.S. distribution business continues to perform well. Demand is strong. While it is dry in the western U.S., which is generally favorable for our groundwater manufacturing and distribution businesses, it has been wetter than average east of the Mississippi. However, overall sales gains are uniform across the country, except for the upper Midwest, where we have seen strong post-lockdown recovery and share gains. Although we continue to experience some challenges in our supply chain, our product availability continues to improve. Across the company, we continue to make progress on reducing working capital, driving record free cash flow. Turning to the fourth quarter, we see groundwater demand remaining strong in the U.S., both for our manufacturing and distribution segments. As a result of the second quarter lockdowns and generally favorable weather conditions, contractor backlogs are significant for this time of the year. We also see the plumbing HVAC business as steady, with good end market demand and channel inventories recovering. We expect largely watering pump demand to be steady. Outside the U.S., except for the Middle East and North Africa, demand is solid. Outside of China, we expect our fueling systems business to see a small sequential improvement. Gasoline consumption in the U.S., where we have good data, is getting closer to pre-pandemic levels. We expect that outside the U.S., consumption rates are growing as well. In China, our visibility into the funding of government mandated programs has always been a challenge. We remain optimistic that with the recovery of the Chinese economy, we will see some additional double wall pipe upgrades and installation of a meaningful number of fuel vapor monitoring systems and gas stations. However, we do not currently see that happening this year. Overall, with the continued drag of lower dewatering pump sales, We are forecasting fourth quarter water systems revenue down mid single digits, fueling systems revenue down around 10%, and distribution revenue up around 10%. With our improved overall operating performance, we believe our fourth quarter operating earnings will be up 10% to 15% over the fourth quarter last year. So we are increasing our annual guidance for earnings per share from a midpoint of $1.82 to a midpoint of $2.12. Also, with our strong free cash flow performance, We are increasing our estimate of annual free cash flow to 170% of net income. I will now turn the call back over to John. John.