# Franklin Electric Co Inc: Form 10-Q for the period ended Jun 30, 2024

- Company: [Franklin Electric Co Inc](/companies/fele.md) (CIK 38725)
- Form: 10-Q
- Filed: 2024-07-26
- Accepted by EDGAR: Jul 26, 2024, 16:10 ET
- Period: 2024-06-30
- Accession: 0000038725-24-000143
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/38725/000003872524000143/fele-20240630.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/38725/000003872524000143/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-04-01 to 2024-06-30 | $543.3m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 6 months, 2024-01-01 to 2024-06-30 | $1.00bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2024-04-01 to 2024-06-30 | $343.5m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 6 months, 2024-01-01 to 2024-06-30 | $640.8m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2024-04-01 to 2024-06-30 | $199.8m | us-gaap:GrossProfit |
| Gross profit | 6 months, 2024-01-01 to 2024-06-30 | $363.4m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2024-04-01 to 2024-06-30 | $120.6m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 6 months, 2024-01-01 to 2024-06-30 | $236.3m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2024-04-01 to 2024-06-30 | $79.1m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2024-01-01 to 2024-06-30 | $127.1m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2024-04-01 to 2024-06-30 | $2.0m | us-gaap:InterestExpense |
| Interest expense | 6 months, 2024-01-01 to 2024-06-30 | $3.4m | us-gaap:InterestExpense |
| Income tax | 3 months, 2024-04-01 to 2024-06-30 | $17.6m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2024-01-01 to 2024-06-30 | $26.8m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-04-01 to 2024-06-30 | $59.1m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2024-01-01 to 2024-06-30 | $92.1m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-04-01 to 2024-06-30 | $1.26 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2024-01-01 to 2024-06-30 | $1.97 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-04-01 to 2024-06-30 | $1.28 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2024-01-01 to 2024-06-30 | $1.99 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-04-01 to 2024-06-30 | 46,600,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2024-01-01 to 2024-06-30 | 46,600,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2024-01-01 to 2024-06-30 | $35.0m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2024-01-01 to 2024-06-30 | $19.4m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 6 months, 2024-01-01 to 2024-06-30 | $24.0m | us-gaap:PaymentsOfDividends |
| Share repurchases | 6 months, 2024-01-01 to 2024-06-30 | $47.9m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2024-06-30 | $58.1m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-06-30 | $918.7m | us-gaap:AssetsCurrent |
| Total assets | at 2024-06-30 | $1.78bn | us-gaap:Assets |
| Current liabilities | at 2024-06-30 | $346.1m | us-gaap:LiabilitiesCurrent |
| Current portion of debt | at 2024-06-30 | $42.4m | us-gaap:DebtCurrent |
| Shareholders' equity | at 2024-06-30 | $1.22bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 21,038 characters.

### Second Quarter 2024 vs. 2023

### OVERVIEW

Net sales in the second quarter and first six months of 2024 were $543.3 million and $1.0 billion, respectively, and decreased 5 percent from the prior-year periods. The sales decreases were primarily due to lower volumes and the negative impact of foreign currency translation, partially offset by the incremental sales impact from recent acquisitions. The Company's consolidated gross profit was $199.8 million and $363.4 million, respectively, for the second quarter and first six months of 2024, increases of 6 percent and 4 percent, respectively, from the prior-year periods. Diluted earnings per share was $1.26 and $1.97, respectively, for the second quarter and first six months of 2024, decreases of $0.01 and $0.09, respectively, from the prior-year periods.

### RESULTS OF OPERATIONS

### Net Sales

Net sales in the second quarter and first six months of 2024 were $543.3 million and $1.0 billion, respectively, and decreased 5 percent as compared to the prior-year periods. Sales were negatively impacted by changes in foreign exchange rates, principally due to the strengthening of the U.S. Dollar relative to the Argentine Peso and Turkish Lira. However, the Company increases prices in the local currency to offset the impact of currency devaluation in the Argentina and Turkey hyperinflationary economies. As a result, the net negative impact of foreign currency exchange rates on net sales was 1 percent in the second quarter and first six months of 2024 compared to the same periods in the prior year.

*(In millions)*

|  | Net Sales Q2 2024 | Q2 2023 | 2024 v 2023 |
| --- | ---: | ---: | ---: |
| Water Systems | $315.6 | $321.7 | $(6.1) |
| Fueling Systems | 73.1 | 80.4 | (7.3) |
| Distribution | 190.5 | 193.1 | (2.6) |
| Eliminations/Other | (35.9) | (26.1) | (9.8) |
| Consolidated | $543.3 | $569.1 | $(25.8) |

*(In millions)*

|  | Net Sales YTD June 30, 2024 | YTD June 30, 2023 | 2024 v 2023 |
| --- | ---: | ---: | ---: |
| Water Systems | $602.2 | $628.3 | $(26.1) |
| Fueling Systems | 135.2 | 153.1 | (17.9) |
| Distribution | 337.5 | 336.1 | 1.4 |
| Eliminations/Other | (70.7) | (63.8) | (6.9) |
| Consolidated | $1,004.2 | $1,053.7 | $(49.5) |

### Net Sales-Water Systems

Water Systems net sales decreased 2 percent in the second quarter and 4 percent in the first six months of 2024, as compared to the prior-year periods. This sales decline was primarily due to lower volumes, which decreased due to weaker end market demand for large dewatering equipment. Sales decreased 2 percent in the second quarter and 1 percent in the first six months of 2024 due to the negative impact from foreign exchange rates, as compared to prior-year periods. The incremental sales impact from recent acquisitions favorably impacted sales 2 percent in the second quarter and first six months of 2024.

Water Systems net sales in the U.S. and Canada decreased 5 percent in the second quarter and 8 percent in the first six months of 2024, as compared to the prior-year periods. In the second quarter of 2024, sales of large dewatering equipment decreased 44 percent, sales of water treatment products increased 13 percent, sales of all other surface pumping equipment increased 11 percent and sales of groundwater pumping equipment increased 6 percent compared to 2023. In the first half of 2024, sales of large dewatering equipment decreased 47 percent, sales of groundwater pumping equipment decreased 1 percent, sales of water treatment products increased 13 percent and sales of all other surface pumping equipment increased 6 percent compared to 2023.

Water Systems net sales in markets outside the U.S. and Canada increased 3 percent in the second quarter and first six months of 2024, as compared to the prior-year periods. Sales decreased 4 percent in the second quarter and 3 percent in the first six months of 2024 due to the negative impact from foreign exchange rates, as compared to prior-year periods. In both the second quarter and first half of 2024, outside the U.S. and Canada, excluding the impact of foreign currency translation, sales increased in all three major regions: EMEA, Latin America and Asia Pacific.

### Net Sales-Fueling Systems

Fueling Systems net sales decreased 9 percent in the second quarter and 12 percent in the first six months of 2024, as compared to the prior-year periods. This sales decline was primarily due to lower volumes.

Fueling Systems net sales in the U.S. and Canada decreased 4 percent in the second quarter and 6 percent in the first six months of 2024, as compared to the prior-year periods. The decrease was primarily in fuel management systems and pumping systems. Outside the U.S. and Canada, Fueling Systems sales decreased 7 percent in the second quarter and 6 percent in the first six months of 2024, as compared to the prior-year periods, due primarily to lower sales in European and Asia Pacific markets.

### Net Sales - Distribution

Distribution net sales decreased 1 percent in the second quarter and were flat in the first six months of 2024, as compared to the prior-year periods. The Distribution segment sales were negatively impacted by unfavorable weather conditions and commodity pricing declines, partially offset by the incremental sales impact from a recent acquisition which favorably impacted net sales by 2 percent in the second quarter and first six months of 2024.

### Gross Profit and Expenses Ratios

*(In Millions)*

|  | Three Months Ended June 30, 2024 | % of Net Sales | 2023 | % of Net Sales |
| --- | ---: | ---: | ---: | ---: |
| Gross Profit | $199.8 | 36.8% | $188.5 | 33.1% |
| Selling, General and Administrative Expense | 120.6 | 22.2% | 107.4 | 18.9% |

*(In Millions)*

|  | Six Months Ended June 30, 2024 | % of Net Sales | 2023 | % of Net Sales |
| --- | ---: | ---: | ---: | ---: |
| Gross Profit | $363.4 | 36.2% | $350.7 | 33.3% |
| Selling, General and Administrative Expense | 236.3 | 23.5% | 217.0 | 20.6% |

### Gross Profit

The gross profit margin ratio was 36.8 percent and 36.2 percent in the second quarter and first six months of 2024, respectively, and 33.1 percent and 33.3 percent in the second quarter and first six months of 2023, respectively. The gross profit margin was impacted in the second quarter and first six months of 2024 by cost management, including lower freight costs in Water Systems and Fueling Systems, and a favorable product and geographic sales mix shift.

### Selling, General, and Administrative ("SG&A")

SG&A expenses were $120.6 million in the second quarter and $236.3 million in the first half of 2024 compared to $107.4 million in the second quarter and $217.0 million in the first half of 2023. SG&A expenses increased in the second quarter and first half of 2024 primarily due to higher compensation costs and advertising and marketing expenses. The SG&A expenses ratio was 22.2 percent and 23.5 percent in the second quarter and first six months of 2024, respectively, and 18.9 percent and 20.6 percent in the second quarter and first six months of 2023, respectively.

### Restructuring Expenses

There were no restructuring expenses in the second quarter and first six months of 2024, and $0.1 million and $0.3 million in the second quarter and first six months of 2023, respectively. Restructuring expenses were primarily from continued miscellaneous manufacturing realignment activities, branch closings and consolidations.

### Operating Income

Operating income in the second quarter and first half of 2024 was $79.1 million and $127.1 million, respectively, decreases of 2 percent and 5 percent, respectively, as compared to the prior-year periods.

*(In millions)*

|  | Operating income (loss) Q2 2024 | Q2 2023 | 2024 v 2023 |
| --- | ---: | ---: | ---: |
| Water Systems | $62.3 | $50.8 | $11.5 |
| Fueling Systems | 26.0 | 26.7 | (0.7) |
| Distribution | 9.8 | 17.8 | (8.0) |
| Eliminations/Other | (19.0) | (14.4) | (4.6) |
| Consolidated | $79.1 | $80.9 | $(1.8) |

*(In millions)*

|  | Operating income (loss) YTD June 30, 2024 | YTD June 30, 2023 | 2024 v 2023 |
| --- | ---: | ---: | ---: |
| Water Systems | $109.5 | $99.8 | $9.7 |
| Fueling Systems | 44.8 | 47.5 | (2.7) |
| Distribution | 11.7 | 22.5 | (10.8) |
| Eliminations/Other | (38.9) | (36.3) | (2.6) |
| Consolidated | $127.1 | $133.5 | $(6.4) |

### Operating Income-Water Systems

Water Systems operating income in the second quarter and first six months of 2024 was $62.3 million and $109.5 million, respectively, increases of $11.5 million and $9.7 million, respectively, as compared to the prior-year periods. The increases were primarily due to cost management and a favorable product and geographic sales mix shift. The second quarter operating income margin was 19.7 percent, an increase of 390 basis points from 15.8 percent in the second quarter of 2023. The first six months of 2024 operating income margin was 18.2 percent, an increase of 230 basis points from 15.9 percent in the first six months of 2023. Operating income margin increased primarily due to cost management and a favorable product and geographic sales mix shift.

### Operating Income-Fueling Systems

Fueling Systems operating income in the second quarter and first six months of 2024 was $26.0 million and $44.8 million, respectively, decreases of $0.7 million and $2.7 million, respectively, as compared to the prior-year periods. The decreases were primarily due to lower sales. The second quarter operating income margin was 35.6 percent, an increase of 240 basis points from 33.2 percent in the second quarter of 2023. The first six months of 2024 operating income margin was 33.1 percent, an increase of 210 basis points from 31.0 percent in the first six months of 2023. Operating income margin increased primarily due to price realization and cost management.

### Operating Income-Distribution

Distribution operating income in the second quarter and first six months of 2024 was $9.8 million and $11.7 million, respectively, decreases of $8.0 million and $10.8 million, respectively, as compared to the prior-year periods. The second quarter operating income margin was 5.1 percent, a decrease of 410 basis points from 9.2 percent in the second quarter of 2023. The first six months of 2024 operating income margin was 3.5 percent, a decrease of 320 basis points from 6.7 percent in the first six months of 2023. Operating income and operating income margin decreased primarily due to the negative impact on sales from wet weather across much of the United States, decreases in pricing of commodity-based products sold through the business and increased SG&A costs.

### Operating Income-Eliminations/Other

Operating income-Eliminations/Other is composed primarily of intersegment sales and profit eliminations and unallocated general and administrative expenses. The intersegment profit elimination impact in the second quarter and first six months of 2024 compared to the prior-year periods of 2023 was an unfavorable $2.9 million and $1.4 million, respectively. The intersegment elimination of operating income effectively defers the operating income on sales from Water Systems to Distribution in the consolidated financial results until such time as the transferred product is sold from the Distribution segment to its end third party customer. General and administrative expenses increased $1.7 million and $1.2 million, respectively, compared to the prior-year periods, primarily due to higher compensation and professional fees.

### Interest Expense

Interest expense was $2.0 million and $3.4 million in the second quarter and first six months of 2024, respectively, and $4.2 million and $7.3 million in the second quarter and first six months of 2023, respectively. The decreases in the second quarter and first six months of 2024 were primarily driven by lower debt.

### Other Income, Net

Other income, net was $0.2 million and $0.9 million in the second quarter and first six months of 2024, respectively, and $1.2 million and $1.6 million in the second quarter and first six months of 2023, respectively. The decreases were primarily due to lower interest income.

### Foreign Exchange

Foreign currency-based transactions produced an expense of $0.4 million and $5.3 million in the second quarter and first six months of 2024, respectively, and an expense of $3.6 million and $5.6 million in the second quarter and first six months of 2023, respectively. The expense in 2024 was primarily due to transaction losses associated with the Argentine Peso and Turkish Lira relative to the U.S. dollar. The expense in 2023 was primarily due to transaction losses associated with the Turkish Lira, Argentine and Mexican Peso relative to the U.S. dollar. The Company reports the results of its subsidiaries in Argentina and Turkey using highly inflationary accounting, which requires that the functional currency of the entity be changed to the reporting currency of its parent.

### Income Taxes

The provision for income taxes in the second quarter and first six months of 2024 was $17.6 million and $26.8 million, respectively, and $14.2 million and $24.4 million in the second quarter and first six months of 2023, respectively. The effective tax rate for the second quarter and first six months of 2024 was 22.9 percent and 22.5 percent, respectively, and 19.1 percent and 20.0 percent in the second quarter and the first six months of 2023, respectively. The increase in the effective tax rates for the second quarter and first six months of 2024 compared to the comparable periods in the prior year was a result of less favorable discrete events in 2024, primarily related to excess tax benefits from share-based compensation, in addition to an increase in the rate on foreign earnings with the implementation of European Union’s Pillar Two Directive.

### Net Income

Net income in the second quarter and first six months of 2024 was $59.3 million and $92.4 million, respectively, and $60.2 million and $97.7 million in the second quarter and first six months of 2023, respectively. Net income attributable to Franklin Electric Co., Inc. in the second quarter and first six months of 2024 was $59.1 million and $92.1 million, respectively, or $1.26 and $1.97 per diluted share. Net income attributable to Franklin Electric Co., Inc. in the second quarter and first six months of 2023 was $59.6 million and $96.9 million, respectively, or $1.27 and $2.06 per diluted share.

### CAPITAL RESOURCES AND LIQUIDITY

### Sources of Liquidity

The Company's primary sources of liquidity are cash on hand, cash flows from operations, revolving credit agreements, and long-term debt funds available. The Company believes its capital resources and liquidity position at June 30, 2024 is adequate to meet projected needs for the foreseeable future. The Company expects that ongoing requirements for operations, capital expenditures, pension obligations, dividends, share repurchases, and debt service will be adequately funded from cash on hand, operations, and existing credit agreements.

As of June 30, 2024, the Company had a $350.0 million revolving credit facility. The facility is scheduled to mature on May 13, 2026. As of June 30, 2024, the Company had $305.5 million borrowing capacity under its credit agreement as $3.5 million in letters of commercial and standby letters of credit were outstanding and undrawn and $41.0 million in revolver borrowings were drawn and outstanding, which were primarily used for funding working capital requirements.

In addition, the Company maintains an uncommitted and unsecured private shelf agreement with NYL Investors LLC, an affiliate of New York Life, and each of the undersigned holders of Notes (the "New York Life Agreement"). On May 15, 2024, the Company entered into Amendment No. 1 that increased the total available facility amount from lenders to $250.0 million from $200.0 million. As of June 30, 2024, the remaining borrowing capacity on the New York Life Agreement was $175.0 million. The Company also maintains the Fourth Amended and Restated Note Purchase and Private Shelf Agreement (the "Prudential Agreement") with PGIM, Inc. and its affiliates. On May 15, 2024, the Company entered into Amendment No. 1 that increased the total available facility amount from lenders to $250.0 million from $150.0 million. The maturity dates of both agreements were extended from July 30, 2024 to May 15, 2027.

The Company also has other long-term debt borrowings outstanding as of June 30, 2024. See Note 10 - Debt included in the Company's Annual Report on Form 10-K for the year ended December 31, 2023, for additional information regarding these obligations and future maturities as well as Note 10 - Debt of this current quarterly report for changes to these agreements since December 31, 2023.

At June 30, 2024, the Company had $53.0 million of cash and cash equivalents held in foreign jurisdictions, which is intended to be used to fund foreign operations. There is currently no need or intent to repatriate the majority of these funds in order to meet domestic funding obligations or scheduled cash distributions.

### Cash Flows

The following table summarizes significant sources and uses of cash and cash equivalents for the first six months of 2024 and 2023.

*(in millions)*

|  | 2024 | 2023 |
| --- | ---: | ---: |
| Net cash flows from operating activities | $35.0 | $43.0 |
| Net cash flows from investing activities | (20.2) | (26.9) |
| Net cash flows from financing activities | (38.7) | (5.4) |
| Impact of exchange rates on cash and cash equivalents | (3.0) | (3.3) |
| Change in cash and cash equivalents | $(26.9) | $7.4 |

### Cash Flows from Operating Activities

### 2024 vs. 2023

Net cash provided by operating activities was $35.0 million for the six months ended June 30, 2024 compared to $43.0 million provided by operating activities for the six months ended June 30, 2023. The change in operating cash flow was primarily due to lower earnings, partially offset by continued actions to improve working capital.

### Cash Flows from Investing Activities

### 2024 vs. 2023

Net cash used in investing activities was $20.2 million for the six months ended June 30, 2024 compared to $26.9 million used in investing activities for the six months ended June 30, 2023. The change in investing cash flow was primarily attributable to decreased acquisition activity in the first six months of 2024.

### Cash Flows from Financing Activities

### 2024 vs. 2023

Net cash used in financing activities was $38.7 million for the six months ended June 30, 2024 compared to $5.4 million used in financing activities for the six months ended June 30, 2023. The change in financing cash flow was primarily due to increased share repurchase activity and higher dividends in 2024 compared to 2023, partially offset by lower proceeds from option exercises and lower net borrowings under the Company's credit facility.

FACTORS THAT MAY AFFECT FUTURE RESULTS

This quarterly report on Form 10-Q contains certain forward-looking information, such as statements about the Company’s financial goals, acquisition strategies, financial expectations including anticipated revenue or expense levels, business prospects, market positioning, product development, manufacturing re-alignment, capital expenditures, tax benefits and expenses, and the effect of contingencies or changes in accounting policies. Forward-looking statements are typically identified by words or phrases such as “believe,” “expect,” “anticipate,” “intend,” “estimate,” “may increase,” “may fluctuate,” “plan,” “goal,” “target,” “strategy,” and similar expressions or future or conditional verbs such as “may,” “will,” “should,” “would,” and “could.” While the Company believes that the assumptions underlying such forward-looking statements are reasonable based on present conditions, forward-looking statements made by the Company involve risks and uncertainties and are not guarantees of future performance. Actual results may differ materially from those forward-looking statements as a result of various factors, including regional or general economic and currency conditions, various conditions specific to the Company’s business and industry, new housing starts, weather conditions, epidemics and pandemics, market demand, competitive factors, changes in distribution channels, supply constraints, effect of price increases, raw material costs and availability, technology factors, integration of acquisitions, litigation, government and regulatory actions, the Company’s accounting policies, and other risks, all as described in the Company's Securities and Exchange Commission filings, included in Part I, Item 1A of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2023, and in Exhibit 99.1 thereto. Any forward-looking statements included in this Form 10-Q are based upon information presently available. The Company does not assume any obligation to update any forward-looking information, except as required by law.

## Market risk

As filed, 269 characters.

There have been no significant changes in the Company's exposure to market risk during the second quarter ended June 30, 2024. For additional information, refer to Part II, Item 7A of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

## Controls and procedures

As filed, 984 characters.

As of the end of the period covered by this report (the "Evaluation Date"), the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and the Company's Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Exchange Act Rules 13a-15. Based upon that evaluation, the Company's Chief Executive Officer and the Company's Chief Financial Officer concluded that, as of the Evaluation Date, the Company's disclosure controls and procedures were effective.

There have been no changes in the Company's internal control over financial reporting identified in connection with the evaluation required by Rules 13a-15 under the Exchange Act during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect the Company's internal control over financial reporting.

## Risk factors

As filed, 358 characters.

There have been no material changes to the Company's risk factors as set forth in the annual report on Form 10-K for the fiscal year ended December 31, 2023. Additional risks and uncertainties, not presently known to the Company or currently deemed immaterial, could negatively impact the Company’s results of operations or financial condition in the future.

Filed Jul 26, 2024.
Source: SEC EDGAR, the filing index for accession 0000038725-24-000143. Last ingested by Listed: Nov 3, 2026, 23:49 ET. No prices; not investment advice.