Franklin Electric Co., Inc.

Good day, and thank you for standing by. Welcome to the Franklin Electric Report's third quarter 2022 sales and earnings 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 this session, you'll need to press star 11 on your telephone. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Jeff Taylor, Chief Financial Officer. Please go ahead.

Thank you, Catherine. Good morning and welcome everyone to Franklin Electric's third quarter 2022 earnings conference call. With me today is Greg Singstack, our chairperson and CEO. On today's call, Greg will review our third quarter business highlights and I will discuss our third quarter financial details. When we are finished, we'll have time to take questions. 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. With that, I will now turn the call over to our chairperson and CEO, Greg Singstead.

Thank you, Jeff, and thank you all for joining us. Our forward momentum continued into the third quarter. We achieved new financial records for all-time quarterly performance and third quarter performance. Solid databases was the highest net sales for any quarter in the company's history, reflecting the continued strong demand in our end markets and the solid execution by our global team. We would not have been able to achieve these results without the dedication and commitment of our employees who continue to manage through the obstacles presented in the current operating environment. End market demand remains healthy, with all three businesses experiencing double-digit top-line growth. This strength reflects the continued global demand for our water and fueling system products, as well as our distribution offerings. Further, our backlog remains elevated at approximately $250 million, down about $40 million from the second quarter due to progress made on past two shipments and normal seasonality. Our backlog is still elevated about four-fold from levels before the pandemic. Operationally, the third quarter was similar to the previous quarter, although we did experience some improvement in our supply chain. We continue to remain focused on reducing inventory levels, which have been higher throughout the year due to cost inflation, supply issues, and longer lead times, and drive free cash flow and higher cash conversion levels. We expect supply chain performance to improve, albeit gradually, through the end of this year and into 2023. In the quarter, we delivered operating margin expansion across each of our three businesses, Despite inflationary headwinds, our team exhibited resiliency through disciplined operational expense control, notably an SG&A, which as a percent of revenue was 340 basis points lower than the third quarter of 2021. Turning to our segments, water systems delivered record third quarter sales and operating income with overall revenue growth of 12% and operating income growth of 25%, led by strong organic growth in all geographies. Excluding foreign currency translation, organic growth was 19%, led by strong end market demand in groundwater pumping, surface pumping, and water treatment. The segment also delivered operating margin of 15.5% for the third quarter. In the U.S. and Canada, organic growth for water systems is 13%. Sales of groundwater pumping equipment increased by about 12%, and sales of all surface pumping equipment increased by about 22%. Outside the US and Canada, water systems organic growth is 27% with a strong growth in all regions of the world. We continue to see steady demand within our water system segments supported by strong commodity and crop prices and dry weather in the United States and other regions of the globe. We believe these factors combined with the stability of our business due to the high level replacement demand will continue to drive the business going forward. Our US distribution business also delivered record sales for any quarter in its history. as well as record third quarter operating income, growing 38% and 54% respectively. The segment delivered an operating margin of 9.8%. These results were driven by previously mentioned solid demand in the U.S. groundwater market, price realization, and the acquisition of lake equipment at the beginning of the year. Our distribution team continues to deliver strong results underscoring the segment's role as a major growth driver for our company. Our fueling systems business delivered record sales and operating income for any quarter in its history, with overall revenue growth of 11%, operating income growth 20%. The segment delivered a strong operating margin of 31.7%. Organic growth was 13%. Sales in the US and Canada increased by about 11% compared to the third quarter of 2021. Outside the US and Canada, fueling systems revenues were up, with sales growth in India and EMEA offsetting weak sales in China. Again, many of the tailwinds we've experienced over the last several quarters remain the same. Strong demand continues to be fueled by major marketers investing in new locations in the U.S. and Canada, as well as a greater focus on vapor recovery, environmental management, and monitoring outside the U.S. and Canada. One cannot ignore the headlines about inflation, higher interest rates, potential recession in the U.S., and a tough winter in Europe. At the same time, the pandemic and recent geopolitical conflicts have shown the fragility of food, material, and energy supply chains globally, highlighting the need for an expansion of agriculture, mining, and energy infrastructure. As a global provider of systems to move water and fuel with a significant footprint in developing regions, we believe these catalysts will add to the current strong demand for our products and systems. Our capital allocation strategy remains unchanged, and we will continue to make investments to further grow the business, as well as returning cash to our shareholders through share repurchases and dividends. With the continued strength of the U.S. dollar, we are especially focused on investment opportunities outside U.S. to strategically expand our product offering. Turning now to our outlook, Our stronger-than-forecasted performance in the third quarter more than offset the higher-than-anticipated headwinds to earnings from foreign translation and exchange losses in the quarter. As a result, we are revising our full-year 2022 net sales guidance to be between $2 and $2.1 billion, with our 2022 full-year earnings per share excluding restructuring to be in the range of $4.08 and $4.18, reflecting an increase in our earnings per share guidance midpoint from $4.10 in our previous guidance $4.13 in our updated guidance. I'll now turn the call back over to Jeff.