Franklin Electric Co., Inc.

Hello and welcome to the Franklin Electric Reports second quarter 2024 sales and earnings conference call. At this time, all participants are in 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 11 on your telephone. You will then hear an automated message advising that your hand has been raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. It is now my pleasure to introduce Chief Financial Officer, Jeff Taylor.

Thank you, Andrew, and welcome everyone to Franklin Electric's second quarter 2024 earnings conference call. With me today are Joe Rozinski, our Chief Executive Officer, and Greg Singstack, our Executive Chairperson. On today's call, Greg will review our second quarter business highlights, I will provide additional details on our financial performance, and then Joe will share some initial thoughts on his first few weeks with Franklin. 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 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 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, Jeff, and thank you all for joining us. Our second quarter results were solid, but fell below the record levels reached in the prior year period. Macroeconomic challenges and wet weather across the U.S. continued to pressure sales, but our performance held up well as we delivered near-record high earnings during the quarter. Further, strong execution by our global teams, along with the diversity of our product lines, geographic presence, and customer base demonstrated the resilience of our business as we drove margin expansion on lower sales. The second quarter represented a sequential step-up in sales due to seasonal factors. However, this impact proved to be a bit softer during the quarter as compared to prior years. Consolidated sales were down 5% or $26 million compared to our second quarter of 2023, reflecting the ongoing challenge of project delays in part due to adverse weather, particularly in the United States and within our distribution segment. Similar to the first quarter of 2024, one of the main factors pressuring sales was a decrease in large dewatering equipment sales in the US to our fleet rental customers, coming off record sales activity in the prior year during which our customers built up substantial inventory. Outside of these lower large dewatering volumes in the US, the rest of our US water systems business delivered solid growth. Outside the US, excluding the impact of foreign currency translation, We saw positive performance in large systems, including robust growth in Asia Pacific and steady demand in Amina and the southern hemisphere. The strength in our manufacturing business, however, was offset by order softness and distribution in the United States. As we mentioned before, we are experiencing some of the wettest weather patterns on record in the U.S., which negatively impact sales. We achieved strong margin performance in the quarters. led by our water and fueling systems manufacturing segments. Consolidated operating margin was 14.6%, representing an improvement of 40 basis points overall compared to the prior year period. We're encouraged by the increased productivity across our operations in stabilizing input costs. Turning to our segments, water systems second quarter sales declined 2%, but operating income increased 23% to set an all-time quarterly record for the segment. As mentioned, much of the sales decline can be attributed to a continuation of lower volumes due to the cyclical nature of our large dewatering business. However, our residential groundwater and surface pump businesses continue to grow, and we're gaining wallet share with both new and existing customers. Overall, operating margins and water systems improved to 19.7% of 390 basis points versus prior year, driven by a favorable product mix, as well as operational efficiencies, and lower freight expenses. Fueling system sales and operating income decreased 9% and 3%, respectively, versus the prior year, driven by lower volumes. However, in the second quarter of last year, the team worked through close to $10 million of backlog. With backlogs at normal levels, orders entered in Q2 of 2024 were actually up about 5% over Q2 of last year. This supports what we are hearing from major marketers. The built season has progressed largely as expected outside of weather-related delays, which is encouraging for the back half of the year. Despite softer sales, Fueling Systems' operating margin was an all-time quarterly record of 35.6%, representing an increase of 240 basis points compared to the prior year. Margin improvement was the result of favorable product and geographic mix. Sales in the distribution business decreased 1% from the prior year, primarily due to the continued negative impact of wet weather across the U.S. that has delayed contractor installations. Starting in June, weather began to dry up in the western U.S., and order rates increased commensurately. Operating margin was 5.1%, a 410 basis point decline versus the prior year due to higher overhead costs. At the end of the quarter, we took action to reduce our operating and SG&A expenses within the distribution segment. We expect to financially benefit from these actions in the back half of the year. Overall, global inventory levels are favorable compared to the prior year period, though higher sequentially, which is typical for the second quarter as we build inventories for the busier summer season. We are mindful that after a rather historic post-pandemic multi-quarter decline in channel inventory levels, we need to be positioned to respond to any surge in demand as channel inventories continue to settle out. That said, we continue to forecast our free cash flow will again exceed our net income for the year. With that, I will now turn the call back over to Jeff. Thanks, Greg.