Franklin Electric Co., Inc.

Good day and thank you for standing by. Welcome to the Franklin Electric Reports first quarter 2022 sales and earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's 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 zero. I would now like to hand the conference over to your speaker today, Jeff Taylor, Chief Financial Officer. Please go ahead.

Thank you, Kim, and welcome, everyone, to Franklin Electric's first quarter 2022 earnings conference call. With me today is Greg Singstack, 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 we are through, we will have 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, except as required by law, the company assumes no obligation to update any forward-looking statements. And with that, I will now turn the call over to our chairperson and CEO, Greg Singstack.

Thank you, Jeff, and thank you all for joining us. Picking up right where we left off in 2021, we again delivered record results, which included the highest consolidated net sales, operating income, and EPS for a first quarter in my segment in Frank Electric's history. I would like to take this moment to thank our teams across the globe for their relentless ushering in another great quarter. Demand remains high for our products across the business, with considerable strength in all end markets resulting in our manufacturing open-order balance increasing materially from year-end. Our open-order balance grew from $175 million at year-end to approximately $290 million at the end of the first quarter, which included an approximate $50 million increase for large dewatering pumps and water systems in addition to increases in other water systems and fueling systems products. This strong demand signal and open order balance give us confidence in our outlook for 2022 and our expectations for robust demand throughout the remainder of the year. Furthermore, we expect to increase the throughput in our facilities to meet the normal seasonal demand increase during the second and third quarters and work down our open order balance. With healthy demand at our backs, we are executing our strategy to grow Franklin as a global provider of water and fuel systems. That being said, throughout the first quarter, supply chain constraints continued to impact our results, which our team has navigated very well, despite the difficulty of predicting where and when the next issue will arise. Although we anticipate these challenges to persist throughout the year and will likely impact different materials and geographies, Our team has adapted to the situation and demonstrated their ability to remain nimble to ensure we are meeting the needs of our customers. As we discussed on our last call, we have intentionally elevated our inventory levels in the short term to mitigate supply and logistics challenges. It is important that in this environment we are supporting the resiliency of the supply chain. We feel we are well positioned to meet the strong demand from our customers. At the same time, inflationary pressures have also persisted resulting in increased material, labor, freight, and transportation costs. As a result, we continued to execute our pricing strategy to offset these higher costs and implemented additional pricing actions across all our businesses throughout the quarter with a focus towards maintaining the integrity of our margin profile. However, the effect of inflation compressed our margins in water systems and fueling systems during the first quarter as higher costs were realized before our pricing actions were fully effective. Turning to our segments, In water systems, we experienced overall revenue growth of 38% for the first quarter, reflecting strong demand, record backlog, and a contribution from strong acquisition growth. The segment also reported operating income growth of 6% and operating margins of 12.2%. Water systems and markets demonstrated continued strength during the quarter, driven by strong commodities and crop prices, dry weather in the U.S. and other regions of the globe, and increased demand for housing in the rural U.S., In the U.S., groundwater pumping system revenue increased 45% during the quarter, supported by strong growth in a core market. Overall, organic growth in the U.S. for water systems was 29%. Outside the U.S., water system organic growth was 25%, with solid demand recovery and growth in EMEA and Latin America regions. Our fueling systems business also had a solid quarter, producing overall revenue growth of 28%. operating income growth of 19% and operating margins of 24.4%. These results reflect inflation and higher costs offsetting by pricing, robust volume growth, and strong pent-up capital demand for infrastructure build-out, which we see extending throughout the year. In addition, we continue to expect a greater focus on vapor recovery, management, and monitoring in countries outside the U.S., driving additional growth for our fueling business as the pandemic subsides. You're also seeing accelerated investment in additional fueling infrastructure in India, which we expect to foster growth as projects in that region were initiated in the first quarter and are expected to gain momentum throughout this year. Our U.S. distribution business again delivered a strong quarter with overall revenue growth of 41 percent, alongside operating income growth of 370 percent and operating margins of 7 percent, continuing to highlight the segment's role as a growth engine for the company. This outstanding growth remains supported by sustained demand across the country over recent quarters. Switching gears, let me provide a quick update on the strategic acquisitions we announced at the end of 2021. During the first quarter, the integration of these acquisitions progressed as planned, and a bolt-on acquisition of B&R Industries has been fully integrated. As a reminder, that acquisition expands our presence in the southwestern U.S. water treatment market, and our acquisition of Blake Group, a professional groundwater distributor in northeast United States further extends our geographical footprint into New York and New England regions within the distribution segment, a key catalyst for long-term growth. Overall, our recent acquisitions have performed well. We are pleased with their performance, and we will continually assess new opportunities as they arise. Our capital allocation strategy remains unchanged. We will continue to invest in our company both organically and inorganically, while at the same time returning cash to our shareholders, is evident in our share repurchases and dividends distributed during the quarter. We have been prudent and efficient with our approach to capital allocation and remain focused on driving returns for our shareholders. Touching on our outlook, although we have maintained a strong momentum built throughout 2021, we are mindful that the challenges we are facing are likely to persist at some level for the remainder of 2022. As a result, we are currently not raising the guidance ranges we established last quarter. Before turning the call back over to Jeff, I want to take a moment to recognize Franklin, and our employees for being named to Newsweek's list of America's most responsible companies of 2022. The work we do at Franklin advances our goal to expand the availability of clean water across the globe and to address safety and lowest total cost of ownership around fueling stations. We continue to make significant investments in research and development to increase the efficiency and sustainability of our products and launch a number of initiatives to eliminate waste and reduce consumption across a number of our global facilities. I would like to thank the Franklin team for their efforts in building a sustainable future, and I'm proud of all that you do. I will now turn the call back over to Jeff.