Franklin Electric - Q2 2016

Transcript

Operator (participant)

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Franklin Electric Co., Inc. Quarter Two 2016 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will host a question-and-answer session, and our instructions will follow at that time. If during your conference you do need to speak to an operator, please press star then zero on your telephone keypad. As a reminder to our audience, this conference is being recorded for replay purposes. I would now like to hand the conference over to Jeff Rupieper, Franklin's treasurer. Sir, you have the floor.

Jeffery Rupieper (VP and Treasurer)

Thank you, Brian, and welcome everyone to Franklin Electric's second quarter 2016 earnings conference call. With me today are Gregg Sengstack, our CEO; Robert Stone, senior vice president and president of our international water systems unit; and John Haines, our CFO. On today's call, Gregg will review our second quarter business results, and then John will review our second quarter financial results. When John is through, we will have some time for questions and answers. 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. 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. During this call, we will also discuss certain Non-GAAP financial measures, which the company believes help investors understand underlying trends in the company's business more easily. A full reconciliation of Non-GAAP to GAAP financial measures is included in today's earnings release, which you can find on Franklin Electric's website. With that, I will now turn the call over to our CEO, Gregg Sengstack.

Gregg Sengstack (CEO)

Thank you, Jeff. Our company delivered solid execution in the second quarter, with 2% overall sales growth and 5% organic sales growth excluding the impact of foreign currency translation. Our sales growth was broad-based and led by higher groundwater sales in the U.S., combined with stronger water systems sales in Latin America and Asia-Pacific. Consolidated adjusted operating income increased 33% as we realized the continuing benefits of lower raw material costs, increased prices, and a favorable sales mix. The performance of our water systems business continues to improve. After Non-GAAP adjustments, water system operating income increased 24% on a reported 2% increase in sales. Water systems adjusted operating margins increased at 160 basis points sequentially and 290 basis points compared to the second quarter of 2015.

On a 3% sales increase, fueling systems adjusted operating income was $15.5 million, an increase of 22% versus the second quarter 2015, and a record for any second quarter in the segment's history. Fueling systems second quarter adjusted operating margin was 27%, an increase of 420 basis points compared to the second quarter of 2015. Turning to end markets, with more normal weather conditions in the U.S., our groundwater business showed a nice improvement over last year's depressed levels, with 13% growth in agricultural and 8% growth in residential pumping system sales. Our surface pumping business was steady in the quarter. Overall, our water business in the U.S. and Canada was up 7% compared to the second quarter of 2015. Outside the U.S. and Canada, business was again uneven but overall positive. Excluding the impact of foreign translation, we again saw organic growth of 4%.

Revenue growth in Latin America was strong. Business in Brazil recovered from a soft first quarter, delivering 14% organic growth, more than offsetting lower sales in Mexico and Argentina. Sales growth in Asia-Pacific continued unabated, with generally favorable weather conditions in Southeast Asia and strong performance in Australia, propelling the business forward. Results in EMEA were below our expectations for two principal reasons: generally weak demand in the Gulf region due to reduced investment by the public sector and weak end market demand in Turkey. In our fueling systems business, excluding the 1% headwind from foreign currency translation, our business grew 4% organically. Domestically, the U.S. team delivered another strong quarter of 6%, with fuel management sales continuing to increase as more marketers specify our products.

Outside the U.S., organic sales were down about 1%, with strong performance in Asia-Pacific and India not being able to totally offset weak results in Mexico, Argentina, and Europe. Our European fueling business is weak due to two factors: weak demand for storage tanks for North Sea oil production and a lack of infrastructure spending in Russia. Looking towards the back half of the year, we expect our U.S. water business to continue to improve. We continue to get traction with new products, particularly drives, controls, and pressure boosting systems. Outside the U.S., with the exception of the Middle East, end markets remain firm. We anticipate continued strong performance in Asia and, to a lesser degree, Latin America. We expect Europe to be steady with some improvement in sales to the Gulf region. However, the impact of recent events in Turkey on our water business is currently not clear.

For our fueling business, we expect continued high single-digit revenue growth in the U.S. Outside the U.S., we expect our fueling business to deliver revenue growth as well. Accordingly, we remain confident that our 2016 results will be in line with our guidance of $1.60-$1.70 adjusted earnings per share. I will now turn the call over to John Haines, our CFO.

John Haines (CFO)

Thank you, Greg. Our fully diluted earnings per share as reported were $0.50 for the second quarter 2016 versus $0.33 for the second quarter 2015. As we note in the tables in the earnings release, the company adjusts the as-reported GAAP operating income and earnings per share for items we consider not operational in nature. Non-GAAP expenses for the second quarter 2016 were $0.3 million related to retired executive pension costs.

The second quarter 2016 Non-GAAP adjustments had a net EPS impact that reduced earnings by $0.01. Non-GAAP expenses for the second quarter 2015 were $1.7 million and included $0.8 million in restructuring costs, $0.5 million related to business realignment costs, primarily severance and targeted fixed cost reduction actions, $0.3 million related to retired executive pension costs, and $0.1 million for pending and completed acquisition-related costs. In total, the second quarter 2015 Non-GAAP adjustments had the effect of lowering the EPS by $0.02. So, after consideration of the Non-GAAP items, second quarter 2016 adjusted earnings per share is $0.51 versus the second quarter 2015 adjusted earnings per share of $0.35, an increase of 46%. Water Systems sales were $194.6 million in the second quarter 2016, an increase of $3 million or about 2% versus the second quarter 2015 sales of $191.6 million.

Foreign currency translation reduced water systems sales by $7.2 million or about 4% in the quarter. Excluding foreign currency translation, water systems sales grew about 6% compared to the second quarter 2015. Water systems operating income was $31.5 million in the second quarter 2016, up $7.2 million or 30% versus the second quarter 2015 as reported, and up $6.1 million or 24% versus the second quarter 2015 after Non-GAAP adjustments. The second quarter operating income margin was 16.2%, up 290 basis points from 13.3% in the second quarter of 2015 after Non-GAAP adjustments. Fueling systems sales were $57.5 million in the second quarter 2016, an increase of $1.7 million or about 3% versus the second quarter 2015 sales of $55.8 million. Fueling systems sales decreased by $0.3 million or about 1% in the quarter due to foreign currency translation.

Fueling systems sales were up about 4% after excluding foreign currency translation. Fueling systems operating income was $15.5 million in the second quarter of 2016, up $3.1 million or about 25% compared to $12.4 million in the second quarter of 2015 as reported, and up $2.8 million or 22% compared to $12.7 million after Non-GAAP adjustments in the second quarter of 2015. The second quarter operating income margin was 27%, an increase of 420 basis points from the 22.8% of net sales in the second quarter of 2015 after Non-GAAP adjustments. The company's consolidated gross profit was $90.7 million for the second quarter of 2016, an increase of $10.5 million or about 13% from the second quarter of 2015 gross profit of $80.2 million.

The gross profit as a percentage of net sales was 36% in the second quarter of 2016, an increase to about 360 basis points versus 32.4% during the second quarter of 2015. The gross profit margin increase was primarily due to favorable pricing, lower direct material costs, a better sales mix, and lower fixed manufacturing costs. Selling general and administrative expenses were $58 million in the second quarter of 2016 compared to $56.3 million in the second quarter of the prior year, an increase of $1.5 million or about 3%. The company's SG&A expenses increased by $2.5 million in the quarter due to higher variable compensation expenses, which were partially offset by lower fixed costs from the effect of foreign currency translation. The effective tax rate for the second quarter of 2016 was flat the last year at about 25%. Before the impact of discrete events was about 26%.

The effective tax rate for the second quarter of 2015 was 25%, and before the impact of discrete events was about 28%. The tax rate as a percentage of pre-tax earnings for the full year 2016 is projected to be about 26%, flat for the second quarter of 2016 tax rate before discrete adjustments. The company ended the second quarter of 2016 with a cash balance of $72 million, which was $10 million lower than at the end of 2015. The cash balance decreased primarily due to higher capital expenditures and seasonal working capital requirements in the northern hemisphere. The company generated about $30 million in cash flows from operations in the first half of 2016. The company had borrowings of $22 million on its revolving debt facilities at the end of the second quarter 2016.

The company had no borrowings on its revolving debt facility at the end of 2015. The company did not purchase any shares of its common stock in the open market during the second quarter of 2016. As of the end of the second quarter 2016, the total remaining authorized shares that may be repurchased is about 2.2 million. Yesterday, the Franklin Electric Board of Directors declared a quarterly cash dividend of $0.10 per share payable August 18th, 2016, to shareholders of record on August 4th, 2016. This concludes our prepared remarks, and we'd now like to turn the call over for questions.

Operator (participant)

Thank you. Ladies and gentlemen, at this time, if you would like to ask a question over the phone, please press star, then one on your telephone keypad. If your question has been answered or you do wish to remove yourself from the queue, please press the pound key. Again, ladies and gentlemen, that is star, then one to ask a question. One moment for our first question. Our first question comes to line of Edward Marshall with Sidoti. The line is now open. Please go ahead.

Edward Marshall (Research Analyst)

Hey, good morning, guys.

Gregg Sengstack (CEO)

Hey, good morning.

Edward Marshall (Research Analyst)

Good, good, good work on the gross margin line. And, you know, I know there's some seasonality from the first half versus the second half or rather second half versus the first half. And I just wanted to get your sense on the delta that we should anticipate, especially as materials like cold-rolled steel and copper, which I think you consume, is increasing as well. How about you think about it?

Gregg Sengstack (CEO)

Yeah, Ed, I guess the way I would best speak to that is more on the OI or the operating income margin line. The gross profit line should continue to see some of the benefits that we saw in the first half of the year. Although, as you're pointing out, we are seeing deflation in some of the raw materials, most notably, some of the categories of steel. But the way we're thinking about the back half overall margin-wise on the operating income margin line is that, you know, we made $0.80 in the first half of the year. To make $1.70, which is the high end of our range, we need to make $0.90 in the back half of the year.

We figure if we can get 3%-4% top-line growth and then expand our operating income margins 50 basis point-75 basis points from where they were in the second half of 2015, we should effectively be on top of that of that $0.90. Now, you may say, "Well, wait a minute. $0.90 or that the expansion of 50 basis point-75 basis points on the OI line, there's some moving pieces in there." As Greg and I both pointed out, in the first half of the year, we were up about 300 basis points on operating income margin. We shouldn't expect that in the back half of the year, for a variety of different reasons, not least of which is the comparable from 2015's back half is already at 12%. So we had already made some progress in the back half of the year last year.

So we'll still see generally raw material deflation, but not as much as we saw in the first half. Price was a key contributor to both gross profit and operating income in the first half. We'll still continue to see that. Where we're gonna have some throwback is in higher SG&A costs, most notably around compensation-related costs, which you may recall in the back half of last year was decreased or lowered in a pretty meaningful way. So that's the way we're thinking about the back half, the way we're thinking about margins. I think the gross profit coming all the way back to your question will, will, will be a plus, but we are seeing some material inflation that's gonna hit us, especially in the fourth quarter.

On an OI basis, we see margin expansion, but not nearly the expansion that we saw in the first half.

Edward Marshall (Research Analyst)

Got it. Any benefit in Q2 or in the current quarter regarding, I guess, Zika or and/or and/or the Olympics, that you can measure?

Gregg Sengstack (CEO)

Ed, we'd say that no. The, there was no tailwind or headwind from either of those. When you have the World Cup in Brazil, I'd say maybe there's a little modest uptick beforehand and a little bit softer business during the event. But our products are principally focused, you know, in agricultural markets in Brazil. Yes, there is some in municipal sector, where it's a growing sector for us, but in the residential sector. But these sectors have been pretty much not impacted by the activities, either Zika or the Olympics as we see it.

Edward Marshall (Research Analyst)

Got it. And then I guess a competitor, Dover, acquired Wayne Fueling Systems. And what can you tell me about the competitive landscape? And I'm particularly interested in how maybe you're preparing for changes in the distribution customers.

Gregg Sengstack (CEO)

Yeah, I don't know if that deal's closed yet. They also acquired Tokheim earlier in the year. And in Europe, I expect that there'll be a fair amount of dispenser consolidation activity in the European theater. You know, we have been competing with Gilbarco Veeder-Root, a subsidiary now of Fortive, for a number of years, well over a decade. They have some vertical integration of above-ground dispenser equipment and below-ground equipment. So we expect that, you know, in these markets, we'll see a similar competitive environment. We've done well there, so we expect we'll continue to do well in the future with the combination of Tokheim and Wayne Fueling Systems and OPW.

Edward Marshall (Research Analyst)

Got it. Thanks, guys.

Operator (participant)

Thank you. Our next question comes to line of Ryan Connors with Boenning & Scattergood. Your line is now open. Please go ahead.

Ryan Connors (Equity Research Analyst)

Great. Thank you. Wanna talk a little bit about the agricultural vertical for you. You, you called out in the press release double-digit top-line growth there, which is quite a bit more bullish than some of the other companies selling into that, that space. So just wanna get some color behind where that strength is coming from.

Gregg Sengstack (CEO)

Sure, Ryan. A couple of factors. One is, you may recall, the second quarter last year was particularly soft. I mean, it was the second wettest second quarter in U.S. history. All Texas was underwater. And it was a very difficult environment throughout the middle of the country. So we have frankly an easier comp in that respect. The other thing is, you know, keep in mind that as people compare us potentially to people who do, you know, irrigation equipment, we are more of a replacement item than a capital good. So given the large installed base out there with now more normal weather conditions, people are gonna operate their existing pumping systems, many of which were probably not operated last year.

And so, that's what causes the, or drives the replacement market, which, you know, it's a much bigger part of our business than, than the initial install market. So I think that would be, those would be the two principal reasons why our numbers are up compared to, say, others that you'd look at in this industry.

Ryan Connors (Equity Research Analyst)

Got it. Okay. And then my other one had to do with Forex. I apologize if I might have missed this, but I think in the past, you've given some pretty good granularity around what Forex assumptions you're making in the guidance. Do you have any, any update for us there?

Gregg Sengstack (CEO)

Yeah, Ryan, the Forex will continue to abate as we go through the back half of the year. I think in total, we're expecting something in the, you know, 300 basis point-350 basis points impact from foreign exchange. The key culprits remain the rand, the South African rand. We saw some movement, obviously, just recently in the Turkish lira. So, we are gonna lap some of this as we go through the back half. So the FX won't be nearly as big of impact as it has been on Franklin, but there's still gonna be some headwind there. As we think about the euro, you know, it's been fairly stable in that 1.10-1.12 range. That's something that, you know, if it gets stronger, that's certainly beneficial to us.

but, you know, given everything that's going on in Europe, economically, politically, Brexit, you know, all that, it's, it's hard to predict that. But that's, that's kind of the way we're thinking about FX right now.

Ryan Connors (Equity Research Analyst)

Okay. That's very helpful. Thanks for your time.

Operator (participant)

Thank you. Our next question comes to line of Matt Summerville with Stifel. Your line is now open. Please go ahead.

Matthew Summerville (Managing Director and Senior Research Analyst)

Morning. Couple questions. First, with respect to the Middle East and Turkey, can you just review what your revenue exposure is to that region? And have you actually seen a hit to your business at this point?

Gregg Sengstack (CEO)

Our revenue exposure, Matt, good morning. In Turkey, is around $30 million in our water business. It's our fueling business in Turkey is relatively small. You know, we had a good first quarter in Turkey, and then we had a slowdown, second quarter, which was more kind of a wet start to the year. We're not seeing any current disruptions to the business. As a matter of fact, our leadership team over there would say kind of business as usual. It's just a question of is this gonna have some impact, over the next couple of quarters, at the margin? Robert Stone, you know, travels there, most recently there. Robert, what's your view on that?

Robert Stone (SVP and President, International Water Systems)

Yeah. That's, you know, from our business standpoint, Greg and Matt, the, we're largely unaffected other than by weather, as Greg already mentioned. The bigger impact for us is the situation in the Gulf and Middle East area, in particular Saudi, where the government there has just really cut back on spending. And the government probably represents 80%-90% of the GDP of the area. And, with oil prices where they have been, Saudi is not spending, so we've seen a definite slowdown there. In other areas, we're roughly comparable to prior year.

Matthew Summerville (Managing Director and Senior Research Analyst)

Gotcha. And then just as a follow-up, you mentioned the fueling business, particularly in the U.S. Sales of fuel management systems have been pretty robust. Is that being driven by an upgrade replacement cycle, or is this sort of a gas station for the first time implementing one of these things? And, and I, I guess what I'm trying to get at is, is there legs to this?

Gregg Sengstack (CEO)

Matt, there is legs to this. Over the years, we have upgraded and reinvented our fuel management system platform. We work very, very hard to get the specification of the end marketer for our system. We have been doing that now, and we're beginning to see the fruits of a lot of labor by a lot of people out in the marketplace. You know, that's the key in this business, is getting the end marketer to specify their product and to provide them systems where they can see the lowest total cost of ownership. So we're getting more traction in that space. There's been a lot of talk about the EMV tsunami, which would be an upgrade of the card reading equipment and the dispensers.

One could look at the EMV pending deadline as being, you know, people are gonna allocate capital to dispensers and maybe not so much to underground. Other people can look at it and say, "Look, I'm gonna be doing my dispensers." You know, the last major upgrade of gas stations was back in the late '90s when all the underground tanks were replaced. So many stations are, you know, coming up maybe on 20-year anniversaries, and they're saying, "Look, it's time to kinda do the whole station." So, we have seen, again, solid organic growth, quarter-over-quarter, in the North American, the US and Canadian market in particular. And, we're getting the success in fuel management through people changing their specs to Franklin.

Matthew Summerville (Managing Director and Senior Research Analyst)

Got it. And then just one last one. You talked about restructuring your European operations, restructuring some things down in Brazil. Can you is there a way to quantify the savings you've generated from those programs and still what's kinda on the horizon on an incremental basis? Thank you.

Gregg Sengstack (CEO)

Yeah, Matt, we haven't we haven't quantified that in, in terms of the actual OI or margin impact of those, those activities. We have said generally that when we take on these restructuring projects, we're generally looking at a three-year or less, type of a payback. Now, the one in Europe is longer than that just because of, how unusual, the cost of that was relative to severance and, and, and closing that facility in, in Germany. As we look forward, as we've, discussed in the past, you know, we, we constantly are evaluating our, our global footprint, our manufacturing and distribution footprint. We have ideas and, and thoughts about, other opportunities that may be out there. But we won't, you know, until we're ready to actually commit to that, we won't talk about what those are, what the potential savings of, of those could be.

I would say generally that the Brazilian restructuring that we have talked about has been a success, is contributing to the financial. It's contributing positively to the financial results of that business unit. I would say the same for the action in Europe that is basically wound down now and completed. We're seeing the labor benefits. We're seeing the fixed cost benefits of those actions. But we haven't specifically laid out those savings.

Matthew Summerville (Managing Director and Senior Research Analyst)

Got it. Thanks, guys.

Operator (participant)

Thank you. Our next question comes to line of Ryan Connors with Seaport Global. Your line is now open. Please go ahead.

Ryan Connors (Equity Research Analyst)

Morning, guys.

Matthew Summerville (Managing Director and Senior Research Analyst)

Morning, Ryan.

Ryan Connors (Equity Research Analyst)

Morning, Matt. Looking at water systems, I didn't see much commentary there on surface. Could you give a little color on what the trends you're seeing there and the competitive landscape and maybe more specifically whether you're getting positive pricing in this environment?

Gregg Sengstack (CEO)

Sure, Ryan. We are seeing, in the North American business, we are seeing some strengthening in our Pioneer product line over last year. We are still pretty soft in some sewage effluent space. End market demand is in the regions of the country where we sell has been fairly soft. Again, we didn't have much of in the way of weather events in the north central portion of the United States where we'd have the you know, strongest demand for various pumping systems. But pricing's okay. It's we're getting a little bit of price there in North America for that product line. If you go down to our surface pumping business in Brazil, we are clearly getting price there.

We've recovered from the challenges of inflation and the exchange rates, where the Brazilian real had been fairly weakened relative to the dollar and other currencies last year. The demand for surface pumping in residential is okay. You know, the Brazilian economy is not great. We are gaining share in, you know, the industrial and commercial space in those markets. So that would be the other significant surface pumping market for us.

Ryan Connors (Equity Research Analyst)

Okay. Great. Should we expect then, I guess, you know, in the second half that groundwater continues to outpace surface and maybe that, you know, ratio of ground to surface sort of normalizes back towards, you know, more historical levels here in the back half of the year?

Gregg Sengstack (CEO)

Yes, I'd make two points to that. Yes, we should continue to see the groundwater business improve. That will certainly continue to drive a more favorable mix because we're more vertically integrated in our groundwater space. At the same time, with it being hotter out there, you know, our condensate pump business, which, again, relates to the demand for, you know, air conditioning equipment, you know, has been again; it was a relatively cool start this year. We would probably see more. We anticipate seeing more activity there as well.

Okay. Great. Then, changing over to fueling, sort of a bigger picture question here. But I think you guys have talked about in the past, you know, profitability normalizing in that segment, you know, down towards more of the low 20s in terms of margins. But things keep trending higher. Has that outlook perhaps changed at all? And does the consolidation that's taking place in the industry maybe help that overall outlook for better profitability for everyone in the space?

Well, I think, Ryan, as we've discussed, the mix, both product-wise and geographic-wise, matters a lot on the fueling operating income margin. So I don't think anybody here would get too carried away with, you know, going beyond the low 20s, you know, 22%, 23%, 24%, just because it is so sensitive to, you know, the mix factors, what types of products we're selling. For example, this quarter, we sold a lot less of these storage tanks, these underground tanks in the U.K., as Greg mentioned. And those have very, very poor margins. So less of that from a revenue perspective means higher operating income margins. So that's probably the best we can do on that right now. The business is doing a good job at getting price.

The business is doing a good job at leveraging its fixed cost, i.e., growing its top line, but growing its fixed cost less than that. So all the things that are margin enhancers are present there. But I don't know that I'd get too carried away about where that end margin can go despite the second quarter results. Gregg commented on the consolidation that's going on in the space. And you know, just to further that, you know, our fueling business, well, our entire life has been competing in this environment where you've had some very big competitors. The distributors actually like independent players. They like the idea that there's an alternative from a product perspective to some of the bigger players. And all this equipment, I like to point out, all this equipment is compatible with itself.

So, the guy that's speccing out a station can say, "I want the Dover equipment here. I want the Franklin equipment here. I want the Gilbarco Veeder-Root equipment here." And, so far, that's served our fueling business fairly well. Now, you know, there's a lot that these are big changes that Dover has made. It's a very bold play into this space. There's no question about it. So we're gonna have to wait and kinda see what the real impact of that is. But it's not like we haven't operated in this type of an environment. We've basically been operating this segment in that environment for its entire life.

Ryan Connors (Equity Research Analyst)

Okay. That's helpful. And then last one for me. I think you talked about increasing the dividend. And, and I think I saw a little small opportunistic, tuck-in acquisition. But can you talk about priorities for, for capital allocation, moving forward here? Thanks.

John Haines (CFO)

Yeah. The priorities haven't changed, meaningfully. The dividend at $0.40 a year, you know, we're trying to manage a payout ratio in the 20% range, low 20% range. And, you know, as our trailing 12-month earnings per share improves, I think we'll be there, Ryan. Our primary objective for free cash is accretive acquisitions. And to the extent that we don't see a robust pipeline or the ability to close on those acquisitions, we will consider share repurchases. However, we'll only consider those share repurchases when we think that our forward multiple is lagging at an historical level or a peer group level. In terms of the GridSense acquisition, we don't often talk about it.

But our fueling business has a nice smaller business that is around monitoring devices for electrical distribution equipment. And this was a great example of a product line extension where we could go buy product, fold that into our commercial and manufacturing operations, and be able to leverage that with the Franklin name. So it's not particularly big. We're not expecting much out of it for the back half of 2016. But it is a nice product fit-in to a small set of existing products that we have in that business. I don't know, Greg, if you wanna add anything, Greg, to that.

Gregg Sengstack (CEO)

Yeah. This is, we go back to our fueling business, fuel management systems. That product line was one we acquired, you know, 14 years ago. And again, the history of the business is we acquired these companies, and then we systematically upgraded the products. We did the same thing with a small product line that came along with that purchase of INCON. That was in this power reliability system space, for the transmission distribution space. And so it's, they have a series of monitoring devices for transformers. We developed another device for monitoring SF6 gas and high voltage circuit breakers. And our guys were watching the INCON business and saw this GridSense as being an opportunity to buy a product line that just naturally folded in.

But it's a small transaction, but it was key to that little business for us.

Ryan Connors (Equity Research Analyst)

Okay. Appreciate the color, guys. Thanks.

Operator (participant)

Thank you. We have follow-up questions from the line of Edward Marshall with Sidoti. Your line is now open. Please go ahead.

Edward Marshall (Research Analyst)

I just had a couple follow-ups. What was the other income of $1.4 million? Typically, that's, I think, other income from securities. But, you know, generally, that runs about $100,000. Why so high this quarter?

Gregg Sengstack (CEO)

Yeah. It's about the same as it was last year, about $1.4 million. So, it would be earned interest on cash deposits, for example, in Brazil. It'd be the minority earnings of equity investments that we have. There's really nothing too unusual in that number in the second quarter.

Edward Marshall (Research Analyst)

Yeah. Got it. I'm wondering, the fueling operating margins, you may have touched on this, but I just wanted a further clarification. Was it mixed or pricing that got you there? And was there anything unusual from a shipment perspective, say, an Indian tender or something like that?

Gregg Sengstack (CEO)

I wouldn't say there was necessarily anything unusual. It was mixed end-end price. We did have some India business in the quarter as well. So that even makes it more positive. We didn't have a particularly spectacular second quarter 2015 in fueling. We had a few accounting and inventory type adjustments that we took that kinda lowered the margin last year a bit. So the comp wasn't particularly aggressive, let's say, Ed. But you know, as I said, the business is getting priced. The business is leveraging its fixed cost. They're certainly participating in that as well.

So all of those factors combined with less business in some of the least profitable businesses in that segment are contributing to what you're seeing in the second quarter.

Edward Marshall (Research Analyst)

Maybe I can ask a different way. I think you said in the prepared remarks that it's the highest in the company's history in any in any quarter for the fueling business. When you look at the full year in your 160-170 guidance, what are you forecasting for fueling margin on an operating level?

Gregg Sengstack (CEO)

Yeah. They'd be down in the 20s-sub-25 range.

Edward Marshall (Research Analyst)

Got it. Then finally, the Pioneer business in U.K., is it large enough to cause any mismatch between costs and sales, maybe cost in pounds and sales in the euro region?

Gregg Sengstack (CEO)

No. Ed, if you think about our Pioneer business in the U.K., it's relatively small, and it has two parts. It has a rental component and it has a sales component. And it's doing that in pounds, principally for the local market, on an export basis. Some of the sales may even be in dollars or other currencies. But it's not gonna be a major, you're not gonna see a major cost mismatch. Yes, the product that is imported into the country from other parts of the world. But, again, we're talking about a business that, on a run-rate basis, is, you know, GBP 10-12 million today. So it's not gonna have a major move.

Edward Marshall (Research Analyst)

Got it. Okay, guys. Thanks very much.

Operator (participant)

Thank you. Ladies and gentlemen, this concludes our question-answer session for today. I would now like to hand the call back to Franklin Electric's CEO, Gregg Sengstack, for closing comments.

Gregg Sengstack (CEO)

We thank you for following our company and look forward to speaking to you after the third quarter. Have a good week.

Operator (participant)

Ladies and gentlemen, this does conclude today's program, and you may all disconnect. Everybody have a wonderful day.