Franklin Electric Co., Inc.

Good day and welcome to the Franklin Electric Reports third quarter 2023 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 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. please be advised that today's conference is being recorded. I would now like to hand the conference over to Vice President of Investor Relations, Sandy Statzer. Please go ahead.

Thank you, Abigail, and welcome everyone to Franklin Electric's third quarter 2023 earnings conference call. With me today is Greg Sendstack, our Chairperson and Chief Executive Officer, and Jeff Taylor, our Vice President and Chief Financial Officer. On today's call, Greg will review our third quarter business highlights, then Jeff will provide an overview of our financial performance. We will then 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 will 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 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 Greg.

Thank you, Sandy. The third quarter, which is seasonally one of our strongest periods, was a solid quarter but more challenging than we had anticipated with the results reflecting additional commodity price pressure in our distribution business and further destocking impacting demand during the quarter. The fueling business was most impacted by destocking as well as by markers delaying new station build projects. Conversely, with our product line breadth and geographic reach, our water systems business set third-quarter records for sales and operating income with continued strength in large QRE systems, more than offsetting product lines impacted by inventory rightsizing and destocking. While underlying demand in our core markets remains solid, with higher interest rates and insuring costs, customers are more sensitive to inventory levels. With improved late times and delivery performance, they have higher confidence in the availability of products when they need them as well. As a result, just like us, they are reducing inventory levels. Despite these external factors, the team executed well and focused on delivering for our customers. Disciplined cost management allowed us to maintain healthy operating margins in our manufacturing businesses, while distribution delivered a solid operating margin in a market challenged with the deflation of commodity products. We generated strong cash flow in the period of year to date. Our cash flow improved by approximately $190 million as compared to last year. We accelerated shipments and converted backlog during the quarter, decreasing inventory by $31 million and reducing our backlog by $44 million sequentially. I'm incredibly proud of the Franklin team for their commitment to driving operational excellence. A little more color on our segments. Water systems delivered year-over-year revenue growth on top of a strong third quarter 2022, with sales increasing by 1% on a reported basis and 5% excluding the impact of foreign currency translation, and operating income increasing by 16%, both third quarter records. This growth was driven by robust sales of our large water pumps, principally in the U.S., and year-over-year growth in the Latin America and EMEA regions. Internationally, sales of our groundwater products were also strong. However, unfavorable foreign exchange, along with unfavorable weather and destocking in the U.S. I previously mentioned, offset these strong results. We believe underlying end market demand for surface pumping and groundwater equipment remains healthy. We recently participated in the annual WEFTEC conference in Chicago, where customer feedback supported our belief in this healthy demand environment. Overall, Water Systems' operating margin was strong and increased by 230 basis points over the prior year quarter. These results reflect leverage from sales growth, gross margin expansion, and focused cost merit. Geely Systems reported revenue and operating income decreased 14% and 10% respectively compared to the prior year period, lapping a tough year-over-year comparison of record revenue and operating income for any quarter in Franklin Systems. Our fueling results were driven by lower volume as inventory destocking continued in this market. Higher interest rates along with labor constraints caused delays in new station builds as well. Fueling system's third quarter operating margin was 33.2%, an increase of 150 basis points compared to the prior year period. Driven by continued demand for a high margin, critical asset monitoring, fuel management system, and grid solution products, along with disciplined cost management by the fueling team as well. We expect a broader macroeconomic, including higher interest rates and availability construction labor, will continue to weigh on the timing of new station builds into 2024. Nevertheless, we continue to focus on and invest in our relationships with our convenience store marketers and providing them with innovative products and systems. We continue to invest in our grid solutions product line as well. Underlying demand for our grid products remains robust, as well-documented stress on the electrical grid is driving accelerated investment in our critical asset model. Distribution sales decreased at 2% from the prior year period, driven by lower commodity pricing, primarily pipe and continued wetter-than-expected weather, delaying contractor installations across much of the United States. In addition, the industry is continuing to work through some destocking of channel inventory as supply chains improve. The segment delivered an operating margin of 5.7%, 410 basis points below last year's record third-quarter operating which benefits from the strong 2022 inflationary environment. During the quarter, we also made key investments to expand on-site inventory for large contractors. We now have over 400 OSI containers deployed across the country, an integral part of our strategy to better serve our customers by making products available when and where our customers need them. As we look forward with our focus on products and systems that move and monitor water, fuel, and electricity, We are confident in the underlying demand in our core markets. We are also cognizant of the impact that increased interest rates are having on end markets we serve, as well as the transitory impact of weather-related delays and inventory normalization we and others are experiencing, all of which spurred an inflection of demand during the quarter and continue to pose some headwinds. As a result, we are revising our full-year 2023 guidance. We now expect 2023 full-year sales to be in the range $2.05 billion to $2.15 billion, and earnings per share to be in the range of $4.07 to $4.17. With that, I will now turn the call over to Jeff for the financial highlights.