Franklin Electric Co., Inc.

Good morning, ladies and gentlemen, and welcome to the Franklin Electric Reports First Quarter 2021 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 requires assistance during the conference, please press star, then zero on your touch-tone telephone. As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Mr. John Haynes, Chief Financial Officer.

Thank you, Stacey, and welcome, everyone, to Franklin Electric's first quarter 2021 earnings conference call. With me today is Greg Sangstaff, our chairperson and CEO. On today's call, Greg will review our first quarter business highlights, and I will review our first quarter financial results in more detail. When I'm through, we will 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 is 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 chairperson and CEO, Greg Singstock.

Thank you, John. Thank you all for joining us. We're very happy with our first quarter results. We see the momentum that was building in the back half of last year continuing and presenting us with robust demand environments for most of the end markets we serve. Our financial results in just about every measure were records for any first quarter in our history, including net sales, gross profit, operating income, net income, and earnings per share. Our strategy to grow as a global provider of water and fuel systems through geographic expansion and product line extension, leveraging our global platform and competency in system design, continued to produce strong results as expected. During the first quarter, we continued to expand our water treatment adjacency in water systems, and the distribution segment achieved tremendous organic growth. Our water system business had a record quarter, generating overall revenue growth of 20% and organic revenue growth of 18%. We see multiple signs of demand strength in the water systems and markets, including a strong housing market, the global recovery of commodity prices, drier weather, and robust demand in developing regions. Our water systems revenues also grew by over 3% from price actions realized in the quarter, which were necessary given the significant raw material inflation we continue to experience. Although our dewatering equipment sales declined by about 4% in the quarter, sequentially this decline is much lower than what we had experienced in 2020, due in part to greater international demand. Although still a headwind, foreign currency exchange translation was a lesser impact in our top line than it has been in recent memory at just over 2%. In the U.S., strong housing and agricultural demand combined with continued dry weather drove a 24% increase in groundwater pumping systems revenue in the quarter. Overall organic growth in the U.S. water systems was 11%. Outside the U.S., organic water systems growth was 26% led by our businesses in Latin America, the Middle East, and Asia Pacific, all of which continue to see pandemic recovery demand, with notable strength in Brazil, Turkey, and Thailand. Our U.S. distribution business had an exceptional first quarter. Favorable weather in most of the U.S., pent-up demand for well equipment, and the GaiCon acquisition we made at the end of last year were all factors that drove overall first quarter revenue growth of 58% and 31% organic revenue growth. The revenue growth and distribution was broad-based across all geographies and product lines. The lowest revenue increase in any one of our legacy distribution businesses in the first quarter was 23% over the first quarter last year. Geico started the year strong and benefited in the quarter from the winter storm in Texas that caused multiple equipment failures and replacements in that state. The GEICON integration is going well, and we've already completed the combination of two branches with those from our legacy businesses. Overall, our distribution customers are experiencing some product shortages, notably pipe and well pacing. That puts a, quote, buy forward, end quote, demand of some of these products. As a result of these revenue achievements, our distribution business made money in the first quarter for the first time in its history, reversing the $2.2 million loss in the first quarter of 2020 to $2 million of operating income in this year's first quarter. Our fueling systems business picked up momentum in the first quarter, growing revenue by 3% overall and 1% organically, a meaningful sequential improvement from the overall fourth quarter 2020 decline of 15%. The fueling growth is being led by end markets outside of North America, notably Europe. The Middle East and Africa were up 30%, and Latin America was up 19%. Sales in the U.S. and Canada were flat to last year's first quarter, and sales in China declined by about 19%. Despite the pandemic-related slowdown in new filling station builds, we believe major marketers continue to see filling stations as good investments and have expressed their intention to ramp up builds in 2021. We also believe environmental challenges like corrosion of underground storage tanks caused by alternative fuels creates new opportunities, especially in developing regions where liquid fuel consumption is increasing and greater protection of the environment is necessary. Even with 3% revenue growth, fueling systems achieved a record first quarter operating income of $14.9 million and an operating income margin of 26.2% because of price achievement and fixed cost leverage. Due to better first quarter earnings and April 1, 2021, completion of the acquisition of Pironix, we're raising our full year 2021 revenue estimates to be in the range of $1.45 billion to $1.48 billion in full year 2021 earnings per share before restructuring expenses within the range from $2.80 to $3. In raising our financial guidance, we have assumed there will be no worsening impacts from the global pandemic, and we will continue to offset raw material cost inflation with price. I will now turn the call back over to John.