Franklin Electric Co., Inc.

Hello and welcome to the Franklin Electric Reports third quarter 2024 sales and earnings conference call. At this time, all participants are in a 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 third quarter 2024 earnings conference call. With me today is Joe Rosinski, our Chief Executive Officer. On today's call, Joe will review our third quarter business highlights, then I will provide additional details on our financial performance and Joe will make some final comments. 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. Earlier today, we published a slide deck to accompany our prepared remarks for the first time, and these slides can be found in the investor relations section of our corporate website

at www.franklin-electric.com with that i will now turn the call over to joe thanks jeff and thank you all for joining us today i'm excited to be hosting my first call as franklin ceo while our third quarter results were short of our expectations they underscore the strong execution we are seeing in our segments and highlight some positive trends as we look to the future As we've seen throughout the year, macro trends such as slow housing starts and existing home sales, as well as unfavorable weather patterns, particularly in the US, and movements in commodities have pressured our sales. Our higher gross profit continues to showcase our strong operational execution supported by our global business, diverse customer base, and wide portfolio of products. Our investments in new products, commercial teams, integration of recent acquisitions, and some one-time costs have led to higher SG&A expense impacting our bottom line. We expect to see the benefit of these investments and normalization of costs as we enter 2025. Moving to page three of the slide deck. I'd like to give a few updates on our CEO transition process. One of my goals when I first took the role was to listen and to learn. I've had the opportunity over the last three months to spend time with our goalie teams our customers, and our investors. I'd like to start the call by sharing some of these learnings that support my optimism for our future. First, we have a passionate and committed team. This is evident in the external recognition we've received, which I'll touch on shortly. I'm also incredibly pleased to consistently see our team's commitment to our culture, and that has translated into a pride in service that is being noticed by our customers. Our customers and distributors have shared that they view our clear commitment to service as a differentiator, and they place a high value on our customer intimacy. Our leading products and quality of service are reasons why we have continued to develop customer trust and in turn expand our business over the long term. Over the last few years, our commitment to meeting demand for water where it is most critically needed has led to exceptional global growth. in the face of disruptions, tariffs, and other uncontrollable events. Our ability to maintain a strong track record and healthy balance sheet while executing in a challenging market is what sets us apart. Our focus moving forward is to increase enterprise efficiency as we accelerate innovation and growth. Our team has great ideas and great new products and is implementing our strategy. We are putting an emphasis on addressing critical water needs in growing markets, providing industry-leading service to our customers with a strong distribution channel, focusing on faster growing verticals, and delivering productivity with our Franklin operating system. I'm excited about where we will go from here. Moving to slide four. Going forward, we will share quarterly updates highlighting achievements that showcase our culture and our commitment to delivering long-term value for all stakeholders. As I mentioned a moment ago, one thing I've seen in my early days here as CEO is the pride of our workforce and commitment we have to our employees, our customers, and community. The awards that Franklin has received from Newsweek, USA Today, the Indiana Chamber of Commerce, and others again show that others are recognizing this commitment. Franklin is a great place to work and a company that delivers on its promises, and we're excited to build on this reputation. Moving to slide five, to address our results. Consolidated third-quarter sales of $531 million declined 1%, with growth both in water and distribution segments offset by continued pressure in the fueling business. While we've seen a pullback in our U.S. wheat business for large dewatering products, the broader demand environment remains healthy across our core businesses as we continue to lap comparable periods of strong sales from pent-up demand and higher backlogs due to supply chain constraints. Overall demand this year didn't offset the elevated backlog conversion we enjoyed in 2023. However, order patterns across most of our businesses are positive, giving us confidence as we head into 2025. We achieved strong operating margin performance in the quarter of 13.8%, led by our fueling system segment and improvement in our distribution segment, largely due to the disciplined approach in managing cost and streamlining operations. Margins in water systems were down slightly year over year, but it remained strong. We continue to identify opportunities to streamline costs across the organization and are currently in the process of executing additional cost actions to bring SG&A as a percentage of sales more in line with historical norms. Turning to our segments on slide six. Our water systems business remains solid with steady replacement demand and orders up mid single digits year over year We delivered low single-digit sales growth against the tough year-over-year comparison as large dewatering equipment volume has normalized, following record sales activity to our US fleet rental customers in the prior year period. This headwind was more than offset by growth outside the US groundwater and other surface pump sales. New products in wastewater and mining are also showing growth. Water treatment also performed well, largely driven by our recent acquisitions so there's been some recent impact in softness from the U.S. housing market. Regionally, sales in EMEA and Asia Pacific were up, while increases in Latin America were offset by the negative impact of foreign currency translation. In our fueling systems segment, sales declined 10% compared to the prior year period when we accelerated the conversion of an elevated customer order backlog. That backlog has returned to normalized levels, by the end of the third quarter in 2023. So we expect these recent periods of tough year-over-year comps in fueling are behind us. The environment was generally comparable with the second quarter when we saw consistent demand, but not the pickup we had anticipated. Overall, we saw lower installs, largely due to labor constraints and interest rate pressure. While order activity has accelerated, we expect a moderate start to fourth quarter, in line with seasonal trends. In the U.S., the business is strong, supporting margins from a mixed perspective. Early commentary we hear from our major marketers supported an expected improvement in bills for 2025 compared to this year. So we expect interest rates will continue to play a role in capital investment decisions for our major marketers. Outside of that, For vapor recovery products, we're seeing good opportunities in China and elsewhere. We see solid activity in Mexico. We see significant potential in India where we have a strong relationship with a customer executing a multi-year build project. In Q3, orders for our fueling segment were also up year over year in the high single digits. Sales in our distribution segment were up slightly sequentially and year over year. While weather conditions have improved, the change was not material enough to generate pull-through demand we had anticipated. Given the wetter weather in the West earlier this year, customers have balanced drilling with accessing surface water. We're also continuing to face commodity pressures in the segment that have persisted over the last five quarters, largely around plastic pipe, where prices have decreased primarily due to supply dynamics rather than raw material costs. Despite these headwinds, we improved our operating margin on slightly higher sales due to strong execution from our distribution team. Just to briefly touch on the recent hurricanes affecting the southeastern US, we did not see a material impact in the quarter, though there were some temporary store closures for our distribution business, and we expect some customer projects to be delayed. We're very proud of our overall team in helping customers address clean water needs and supporting wastewater challenges through our relief support and ongoing efforts to help our customers and our communities. As a result of lower than anticipated sales during the quarter and normalized demand expectation, we are lowering our full year guidance, which Jeff will provide more details on in his comments. And with that, I will now turn the call back over to Jeff.