Franklin Electric Co., Inc.

Ladies and gentlemen, thank you for standing by. And welcome to the Franklin Electric Report's fourth quarter 2020 sales and earnings conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference to your speaker today, and John Haynes, our Chief Financial Officer. Please go ahead, sir.

Thank you, Joelle, and welcome everyone to Franklin Electric's fourth quarter 2020 earnings conference call. With me today is Greg Singstack, our chairperson and CEO. On today's call, Greg will review our fourth quarter full year business highlights and I will review our fourth quarter financial results in more detail. 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 that 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 accept as required by law. The company assumes no obligation to update any forward-looking statement. With that, I will now turn the call over to our chairperson and CEO, Greg Singstadt. Thank you, John.

Thank you all for joining us. As I noted in our press release, I am extremely proud of the dedication and execution of our global team as we continue to operate during these difficult times. And I want to publicly thank our employees for their continued laser focus on serving their customers while negotiating the inherent challenges of the pandemic. Turning to our results, we ended 2020 in a strong position, delivering record sales and earnings in the fourth quarter. Our water systems business continued to rebound from the pandemic slowdown in the second quarter, posting 4% organic growth, record operating income, and operating income margin in the quarter. In addition, our distribution business grew net sales organically 21% and was profitable in the fourth quarter for the first time in its history. On a consolidated basis, earnings per share increased 36% to 57 cents in the fourth quarter, a record for any fourth quarter. For the full year, our net sales declined by about 5%, but our operating income increased by 3% versus 2019. Our earnings per share before restructuring expenses was $2.18, a 5% increase versus 2019, and the full year 2020 free cash flow from operations was a record $189 million, Approximately 187% of our 2020 net income, or about $4.06 per share. We gained momentum throughout the back half of 2020 and are poised to capitalize on the strong tailwinds that have materialized in the water and markets we serve. We also completed two strategic acquisitions, one in the water treatment space in Canada and the other a key groundwater distribution business in Central Texas. We are confident that each offers a great new growth platform for 2021 and beyond. Our strategy to grow as a global provider of water and fuel systems through geographic expansion and product line extensions, leveraging our global platform and competency in system design is working. Payroll weather and some catch-up demand from earlier in the year continued to drive strong U.S. water systems results, which continued to bear the brunt of lower dewatering pump sales. Organic growth in U.S. water systems was 7% when you exclude the dewatering pumps impact. Outside the U.S., and excluding our large dewatering pumps, growth was 4% led by our businesses in Latin America, Africa, and the Middle East. Our water businesses continue to benefit from price actions we have taken to offset inflation. Overall, we achieved about 340 basis points of price in the fourth quarter and as I mentioned, set a fourth quarter record for both operating income and operating income margin in our water system segment. This price achievement, in addition to new actions we will take in 2021, are necessary for us to maintain margins in the face of increasing raw material prices globally. Our U.S. distribution business has a lot of momentum. Favorable weather in most of the U.S., some indications of recovery in agricultural commodity prices, and the continued catch-up of well installations due to the pandemic are all factors driving the underlying market favorability. We see this momentum continuing in early 2021 and are also encouraged by the completion of the GEICON pump acquisition in late December. GEICON provides seven new distribution outlets in Central and West Texas, is a strong market position in a very important groundwater and market, and is a great fit for headwater. Finally, Headwater achieved profitability in the fourth quarter for the first time in its history, and more importantly, grew their 2020 full-year operating income margin before restructuring charges by 200 basis points. So as we look forward to 2021, our core water and distribution markets in the U.S. are strong, and both our own and measurable customer backlogs remain high for this time of the year. Outside the U.S., we also see strong demand, most notably in Latin America and Asia-Pacific. As a result, we expect mid-single-digit organic growth in our water systems and distribution segments in 2021. Our fueling systems business revenue declined about 15% in the fourth quarter, slightly worse sequentially than we saw in the third quarter. As we have pointed out in the past, we believe this business will recover more slowly from the pandemic than the water systems business. Overall, sales in the U.S. and Canada declined about 13%, and our business in China declined about 66%, versus the fourth quarter last year, slightly worse than the decline we saw in the third quarter. Despite these revenue declines, fueling systems achieved a record operating income margin of 28.7% in the fourth quarter due to intense focus on fixed costs. Even with tight expense controls, our fueling team continues to innovate and introduce compelling new products for our customers, including the new corrosion control system that mitigates corrosion causing water buildup in underground fuel storage tanks. Despite the tough year, we see no indicators that we are not winning our fair share of global fuel station equipment buys. We are confident our fueling system business will recover more completely in 2021 and are expecting 6% to 7% organic growth. Although we do not expect much recovery in China, we have solid opportunities for organic growth in Latin America, Africa, and India that we will capitalize on this year. We expect the U.S. and Canada will grow in the 5% to 6% range based on the view that major retailers will continue station build-outs this year as favorable economic and market factors continue to make retail fueling facilities attractive targets for new capital. For the company, we believe 2021 revenue will grow approximately 10%, and our 2021 earnings per share will be in the range of $2.50 to $2.75. We also expect to generate significant free cash flow due to working capital improvements. We expect the free cash flow conversion of net income to be greater than 115% in 2021, and coupled with our strong balance sheet, provides us the opportunity to continue to grow inorganically as well. We see many growth opportunities ahead of us and look forward to continuing to drive strong performance in the years ahead. I will now turn the call back over to John. John.