Franklin Electric - Q3 2017
October 24, 2017
Transcript
Operator (participant)
Good day, ladies and gentlemen, and welcome to the Franklin Electric third quarter 2017 earnings conference call. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session, and a question will be followed at that time. If anyone should require operator assistance at any time, please press star, then 0, and choose tone telephone. As a reminder, this conference call is being recorded. I would now like to turn the conference over to Mr. John Haines, Vice President and Chief Financial Officer. Sir, the podium is yours.
John Haines (CFO)
Thank you, Brian, and welcome everyone to Franklin Electric's third quarter 2017 earnings conference call. With me today are Gregg Sengstack, our Chairman and Chief Executive Officer, and Robert Stone, Senior Vice President and President of our International Water Systems Unit. On today's call, Gregg will review our third quarter business results, and I will review our third quarter financial results. When I'm through, we'll 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. A 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. With that, I will now turn the call over to our Chairman and CEO, Gregg Sengstack.
Gregg Sengstack (CEO)
Thank you, John. We are pleased with the overall performance of our company in the third quarter, in which strong organic growth in both our water and fueling systems segments drove record sales and earnings per share. In the U.S. and Canada water systems business, we had organic growth in all three product lines: groundwater, surface, and dewatering. While we believe the overall groundwater market was essentially flat to up a couple%, our groundwater business was strong, due in part to share gains as we replaced products of our competitors who elected to not continue to supply our distribution company. Surface pumping equipment sales continued to show steady single-digit sales growth. Dewatering equipment sales nearly doubled, and backlog continued to increase with the strengthening demand in domestic oil and gas field services. Outside the U.S. and Canada, the story continued to be mixed.
Sales in Asia-Pacific were down 4% as we continued to face difficult comparables to the third quarter last year, most notably in Southeast Asia. We were encouraged by sales growth in Australia, Korea, and China during the quarter. Sales in Latin America were weak across the entire region, principally due to continued weak economic conditions. Southern Africa results were also below expectations for generally the same reasons. However, business in Europe, the Middle East, and North Africa was up strongly across all product lines, even with continued weak demand in the Gulf states. Switching over to fueling, our fueling systems business continues to have strong organic growth, delivering another record quarter. U.S. and Canada fueling revenue grew 10% as we continued to gain share with major marketers.
Last week, our fueling team introduced several new products at the annual petroleum equipment trade show, including an extension to our tank gauge line, a new watertight forecourt electrical conduit system called Cable Tight, and other products to address new regulatory requirements. Innovative new products are a critical part of our organic growth success. Outside the U.S. and Canada, fueling sales have improved across all markets, with the exception of India, where there's been limited tender activity, and Latin America. Our business in China continues to strengthen, and growth is accelerating as a national multi-year initiative to replace existing underground piping systems with more environmentally safe double-wall piping systems continues to gain traction. After a strong second quarter, our new U.S. distribution segments' third quarter results were below our plan. We estimate that sales were down about 6% as compared to the third quarter of 2016.
Sales were negatively impacted by supply disruptions as old supply relationships ramped down and new supply relationships ramped up. Changes of this nature require increased sourcing, logistics, customer support, and training, increasing operating expenses over the short term. The Headwater team responded very well to these challenges, and customer loyalty is high and growing. To a lesser extent, wet weather in the Southeast also had a negative impact on the distribution segment sales. Lastly, the multi-quarter back-office integration of the acquired entity is on schedule. Looking forward to the fourth quarter and beyond, we are confident in our fueling team's ability to deliver strong organic growth globally, particularly in the U.S., Europe, and China. We are also encouraged by the underlying strength of our water business in the U.S., Canada, and EMEA.
However, offsetting these strong results, distribution segment operating expenses will be higher than planned in the fourth quarter, and it appears that a recovery in our water business in Brazil and Southeast Asia regions will be pushed into 2018. Therefore, we are narrowing our 2017 guidance to $1.88-$1.92 per share. I will now return the call back over to John.
John Haines (CFO)
Thanks, Gregg. Our fully diluted earnings per share were $0.52 for the third quarter of 2017 versus $0.50 for the third quarter of 2016, an increase of 4%. In the third quarter of 2017, the company's earnings per share were $0.53 before restructuring expenses compared to 2016 third quarter EPS of $0.48 before restructuring expenses, a 10% increase. Third quarter 2017 sales were $311.1 million, an increase of 30% compared to 2016 third quarter sales of $239.8 million. Water Systems sales were $196.5 million in the third quarter of 2017, an increase of $14.5 million, or about 8% versus the third quarter 2016 sales of $182 million. Water Systems organic sales were also up 8% compared to the third quarter 2016 as foreign exchange was not a significant factor in the quarter.
Water systems sales in the United States and Canada were up about 11% compared to the prior year third quarter. Sales of Pioneer branded dewatering equipment increased by about 90% in the third quarter when compared to the prior year, resulting from the continued diversification of customers and strengthening in U.S. oil and gas markets. Sales of groundwater pumping equipment increased about 10% on broad-based strength in both residential and agricultural systems. Another contributor to the increase in U.S.-Canada groundwater equipment sales in the quarter is the replacement of other OEM products in sales to Headwater. As Gregg noted, certain pump and motor suppliers have elected to discontinue sales to Headwater, and this has resulted in higher sales of Franklin Electric products as well as the products from other existing or new pump suppliers in their place to the Headwater companies.
Sales of other surface pumping equipment increased by 4%, primarily in irrigation and agricultural-related products. Water systems sales in markets outside the United States and Canada overall increased by about 5%. Foreign currency translation was not significant. International water systems sales were led by improved sales in Europe, including higher sales of Pioneer branded equipment, and the Middle East and Africa, but were offset by lower sales in the Latin America and Asia-Pacific markets in the quarter compared to last year. Water systems operating income was $28.3 million in the third quarter of 2017, down $1.7 million or 6% versus the third quarter of 2016, and operating income margin was 14.4% compared to 16.5% in the third quarter of 2016.
Water Systems operating income before restructuring was $29.3 million in the third quarter of 2017, up $1.1 million or about 4% versus the third quarter of 2016, and operating income margin before restructuring was 14.9% compared to the 15.5% in the third quarter of 2016. The decline in operating income margin is primarily related to product sales mix-shifts. Fueling Systems sales were a record, $63.5 million in the third quarter of 2017, an increase of $5.7 million or about 10% versus the third quarter of 2016 sales of $57.8 million. The impact of foreign currency translation in the quarter was not significant. Fueling Systems sales in the United States and Canada grew by about 10% during the quarter. The increase was across all product lines, with particular strength in pipe and containment systems.
Outside of the United States and Canada, fueling systems revenues grew by about 18%, led by stronger sales in Europe and Asia. Fueling systems operating income was $17.1 million in the third quarter of 2017, up $1.9 million or about 13% compared to $15.2 million in the third quarter of 2016. Third quarter operating income margin was 26.9%, an increase of 60 basis points from the 26.3% of net sales in the third quarter of 2016. Distribution sales were $68.1 million in the third quarter of 2017. Management estimates the third quarter distribution sales declined by about 6% from the third quarter of 2016, primarily driven by supply chain disruptions and weak end market conditions in the Southeast region of the United States. Distribution operating income was $2 million in the third quarter of 2017, and the third quarter operating income margin was 2.9%.
The company's consolidated gross profit was $103.8 million for the third quarter of 2017, an increase of $18.3 million or about 21% from the third quarter of 2016 gross profit of $85.5 million. The gross profit as a percent of net sales was 33.4% in the third quarter of 2017 and decreased about 220 basis points versus 35.6% during the third quarter of 2016. The gross profit increase was primarily due to higher sales. The decline in gross profit margin percentage is partially attributable to the inclusion of the distribution segment, which impacted the margin by 70 basis points, and the balance due to product and geographic sales mix-shifts and, to a lesser extent, higher raw material costs.
Selling, general, and administrative expenses were $71 million in the third quarter of 2017 compared to $55.4 million in the third quarter of the prior year, an increase of $15.6 million or about 28%. The increase in SG&A expenses from acquired businesses were $15.8 million. Excluding the acquired entities, the company's SG&A expenses in the third quarter of 2017 were flat to last year. Restructuring expenses for the third quarter of 2017 were $1 million, reduced diluted earnings per share by approximately $0.01, and were related to ongoing efforts in Brazil. Restructuring for the third quarter of 2016 resulted in income of $1.7 million and increased diluted earnings per share by $0.02, principally due to a gain on the sale of property in Brazil.
The company ended the third quarter of 2017 with a cash balance of about $60 million versus about $104 million at the end of 2016, down primarily due to acquisitions and increased working capital. Inventory levels at the end of the third quarter of 2017 were $303 million versus year-end 2016 of $203 million. About $65 million of the inventory increase is due to the distribution segment. Acquisitions. The company realized discrete income tax benefits from stock-based compensation in third quarter of 2017, which lowered the consolidated effective tax rate to be about 19%. The company believes 25%-28% before discrete items is a reasonable estimate of the effective income tax rate for the remainder of 2017. The company had $69.5 million in borrowing on its revolving debt facilities at the end of Q3 2017 and no borrowings at year-end 2016.
These borrowings were primarily to fund distribution acquisitions made this year and for seasonal working capital needs. The company did not purchase any shares of its common stock in the open market during the third quarter of 2017. As of the end of the third quarter of 2017, 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 $0.1075 per share payable November 16, 2017, to shareholders of record on November 2, 2017. This concludes our prepared remarks, and we'd now like to turn the call over for questions.
Operator (participant)
Thank you. Ladies and gentlemen, if you have a question at this time, please press star, and then the 1 key on your touch-tone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Once again, if you do have a question, please press star, and then the 1 key on your touch-tone telephone. Our first question comes from the line of Mike Halloran from Robert W. Baird. Sir, your line is now open.
Michael Halloran (Managing Director and Senior Research Analyst)
Thank you. Good morning, guys.
Gregg Sengstack (CEO)
Morning, Mike.
John Haines (CFO)
Morning, Mike.
Michael Halloran (Managing Director and Senior Research Analyst)
So could you guys talk a little bit about the distribution channel right now? Do you think that you found the right run rate going through the second and third quarter here in terms of you had some puts and takes with who's supplying you guys, the pump-motor combinations? Do you think you found the right run rate of business here, or do you think that there's a little bit more disruption in the channel that's still ahead?
Gregg Sengstack (CEO)
Mike, I'd say the second quarter was not materially impacted because we had inventories on hand of both suppliers that were going to leave us and suppliers that were joining us hadn't yet shipped. Third quarter was disrupted because turning on that much supply for that many suppliers in a relatively short period of time, getting the training going and all was tough in the third quarter. We're seeing conversions now increasing, so I'd say that that's pretty much behind us. I expect the fourth quarter we're still going to see a little bit of drag, but we have the suppliers in place to move forward, and the team is in place to move forward as well.
Michael Halloran (Managing Director and Senior Research Analyst)
It sounds like you're saying that from a channel partner perspective, that has started to stabilize here. From a cost perspective, the headwinds you guys mentioned in the quarter feels like a little bit of a drag in the fourth quarter, but that also should be normalized as you move past the fourth quarter?
Gregg Sengstack (CEO)
That's a good summary.
Michael Halloran (Managing Director and Senior Research Analyst)
Okay. Great. And then could you talk a little bit about pricing in your water business as it stands today, not only just in terms of pricing but then also the price-cost side too?
Gregg Sengstack (CEO)
Yeah. Well, let me speak to—no, it's okay. Let me just speak to kind of the pricing in general. I'd say if you're alluding to the North American market, I'd say that we're seeing kind of the typical cycles we see where there's quarter-end promotional activity. I'd say the pricing we're seeing situations in the country where we'll have specific discounting, and then it'll abate. And so that's what we're seeing in North America. I'll turn it over to John to talk about our general pricing and cost structures. John?
John Haines (CFO)
Yeah. Mike, on a year-to-date basis, we still have price over the raw material inflation, input inflation that we see. Our water business has achieved in the neighborhood of 170 basis points of price in the third quarter, and that's consistent with where fueling is as well. So we continue to have a spread to the raw material inflation that we see, but it's not as significant a spread as we have seen in prior years. So as we look maybe less so to fourth quarter, but as we look out into 2018, that will be a more significant factor for our company.
Michael Halloran (Managing Director and Senior Research Analyst)
Thanks, sir. And then last one on my side, pretty robust fueling topline trend internationally. Could you just dig in a little deeper on the drivers on that side? Certainly sounds like it's sustainable going into the fourth quarter.
Gregg Sengstack (CEO)
Sure, Mike. What we're seeing in the domestic market is, to some degree, I think we're benefiting. We've been asked this question before. Just being at the trade show last week, it got some confirmation. We seem to be benefiting from the fact that this EMV push-out is just allowing a more steady rate of overall station upgrades, not just focused on card readers, which is generally good for us. In addition, there are increasing regulations around tightness of sumps, under-dispenser sumps, sumps for where you're putting the fuel into the tanks. And so that testing is going to, I think, again, drive some organic growth over the next several years as people need to upgrade their equipment in a normal course of fashion for maintenance purposes. We're continuing to see also share gains in fuel management systems.
As I point out in my prepared remarks, we've expanded our fuel management line with 2 additional products so that we now have a complete suite on our new platform for the market. There was really a positive buzz about that at the show as well, as well as the Cable Tight, which again is a way to keep water out of these underground sumps, this new Cable Tight system that our team introduced. Outside the United States, we saw strength really across the globe. We're seeing, again, this regulatory move in China for upgrading the pipe system, the double-wall piping, and we feel we're well positioned to do that. We're seeing increasing order activity. We expect that to continue through Q4 and beyond in China, seeing strength in Europe.
We're really seeing strength kind of across the markets, with the exception of Latin America in the fueling space, and expect that to continue.
Michael Halloran (Managing Director and Senior Research Analyst)
Great. I appreciate the caller. Thank you.
Operator (participant)
Our next question comes from the line of Edward Marshall from Sidoti & Company. Sir, your line is now open.
Edward Marshall (Analyst)
Hey, Gregg and John. How are you?
Gregg Sengstack (CEO)
Good morning.
John Haines (CFO)
Good morning.
Edward Marshall (Analyst)
Good morning. So last time we were updated, I think you talked about pump and motor suppliers, Grundfos and Xylem kind of stepped aside. During the third quarter, were there any additional suppliers that kind of decided not to supply to the distribution houses?
Gregg Sengstack (CEO)
Sure. Yeah. Initially, Pentair was continuing to supply us, and then later in the third quarter, they elected not to. It wasn't as large of a supplier as Xylem, and I'm not even thinking it's as large as Grundfos, but they've elected to discontinue supplying Headwater. And then there's a smaller company, Flint & Walling, that's elected to discontinue supplying Headwater.
Edward Marshall (Analyst)
Okay. Okay. How much collectively do these four suppliers make up of that Headwater distribution unit? Do you have that?
Gregg Sengstack (CEO)
Yeah. It's going to be in the neighborhood of $30 million of annual purchases. Without question, Ed, the largest one was the Xylem relationship with Western Hydro on the western part of the United States. Grundfos, Pentair, Flint & Walling were much, much smaller. So Xylem was in the low $20s million last year in terms of total supply. So when you combine the other three, we would say it's in the $30 million range.
Edward Marshall (Analyst)
Got it. Okay. So I looked at the margin in the quarter, and I just wanted to talk about maybe I guess last quarter, maybe you over-earned. This quarter, you under-earned. And then maybe not. I mean, you talked about the fourth quarter looking at some higher operating costs. Just kind of get a sense of maybe what that margin might look at on a normalized basis within a distribution unit. Has it changed? Has it shifted?
Gregg Sengstack (CEO)
Yeah. Our view, Ed, is not really changed in terms of the margin expectations for the Headwater units. When we first announced the transactions, we said that we would expect kind of 4%-6%. We were kind of on the high end of that in the second quarter. We're below that in the third quarter. I think the factors that we're pointing out, which are transitory in our minds, are as we go through these supply changes, it creates a tremendous amount of end-market disruption. And that disruption really is impacting the top line. So we're trying to convince contractors to stay with our distribution company and convert to products. Our competitors are trying to say, "Well, switch your distribution company and stay with the products that you have historically bought." So especially in a place like California, that is an ongoing battle.
That's going to lead to price pressure, of course, and it's going to lead to volume uncertainties. The other thing that that drives is the fact that to win that competitive situation in the marketplace, we're going to have to spend more from an SG&A perspective. We're going to spend more on things like training, salespeople, promotional type of activities, advertising type activities. All those kind of things are going to go into that. But we see that as transitory through the third quarter, through the fourth quarter. I think the other thing that didn't help our third quarter margins, Ed, were that we lost a little bit of leverage in the Southeast, our unit that we call Drillers Service, Inc., or DSI. That's primarily based in the southeastern part of the United States. And it was unfavorable conditions there from a weather perspective and really pre- and post-hurricane.
From a revenue and a leverage perspective, we lost a little bit there that I think also contributed to those third-quarter results.
Edward Marshall (Analyst)
Got it. I think when you acquired these businesses, I think the conversation was, "Look, the sales representative within the distribution unit was more important than the OEM." Talking about, I guess, about Western Hydro and maybe some of the discussion you had there, are you finding that still to be true? And is there any way you can talk about a retention rate? How many of these customers you're actually retaining versus market share loss potentially?
Gregg Sengstack (CEO)
Sure, Ed. Again, with the Franklin Motor, that product is available outside of Headwater, and so it can be purchased from other distributors. For preferences around the Franklin Motor, people can get that at a number of locations. But we're seeing on the pump side and with the Headwater customer base and again, on the Western Hydro, it's a pretty diverse customer base beyond just the borehole submersible products that Franklin is most well known for. We're seeing conversion rates, we estimate, in the high 60s or low 70% at this point and growing. So we feel we're retaining a fair number of customers. It's very difficult to measure exactly, but we have tracked it from a couple of different ways. We're confident that our conversion rates now are moving into the 70s.
As we now have more product on the shelves from other pump suppliers, we're going to see those conversion rates continue to grow.
Edward Marshall (Analyst)
What's your target for that rate?
Gregg Sengstack (CEO)
Oh, we want it to be over 100%, right? We want to get the customers back and get more. So the team out there is interested in growing the business. They're growing it with Franklin. They're growing it with the Ebara, Crane, Barnes, other products. So their focus is to grow their business in this channel and supporting also commercial activity and others that have bought from Hydro in the past.
Edward Marshall (Analyst)
Okay. I'll step back and see it. Thanks.
Operator (participant)
Our next question comes from the line of Ryan Connors from Boenning and Scattergood. Your line is now open.
Ryan Connors (Analyst)
Great. Thanks. Good morning.
Gregg Sengstack (CEO)
Good morning.
Ryan Connors (Analyst)
Wanted to talk a little bit about the margin in the water business. You've mentioned quite a bit about the mix shift there, and I know there's a lot going on with Pioneer growing like it is and a lot of puts and takes there. Can you just kind of walk us through, Gregg, a little bit of the details of that mix shift and how we should think about the margin there going forward once the mix if this ever happens, if the mix kind of "normalizes"?
Gregg Sengstack (CEO)
Yeah. Ryan, given the complexity of your question, I'm going to turn it over to John.
John Haines (CFO)
Ryan, yeah, the adjusted operating margin for the quarter dropped by about 60 basis points. A big part of that is due to what we call product mix and, I guess, to some extent, a geography mix shift. You're right. Pioneer had an outstanding quarter, not only in the United States but internationally as well. That's a great thing from a growth perspective. But the Pioneer business just doesn't have the same type of core margins, operating income margins, that the rest of our water segment does. So we're looking at meaningful differences there. We have targeted 16%-18% for water operating income margins. We think that's doable, but it will be sensitive around these type of mix shifts. So Pioneer's a big driver in the quarter. Other big drivers, though, are we had a great quarter in Europe, Middle East, and Africa that Gregg mentioned.
A big portion of that was in Turkey. Our business in Turkey continues to do really, really well. And kind of same story, just not the same margin profile or margin environment there in that market that we see in other key groundwater markets around the world. We had a nice growth rate in pump product and pump components in Europe in the quarter as, again, driving part of that 20% organic growth. Again, like we've talked about, really everywhere around the world, pump products don't have the same type of margin profile that the electrical or motor products have. So that was an issue as well. So we saw nice organic growth, but we saw big portions of that organic growth coming from products or coming in geographies that just aren't as high a margin. Now, there's improvement efforts going on.
I think the key factor is what we were talking earlier about with Mike is offset this inflationary pressure that we see with price. Many of our international business units have raised price and are actively achieving higher price. And that's really the best opportunity that we have to do that. But that's a little bit on what's going on with the water margins in the quarter.
Ryan Connors (Analyst)
Okay. Okay. No, that's super. Thanks for that, John. My next question was kind of a bigger picture question, but I wanted to give you a chance to address it on the call because it seems to come up more and more. And it just has to do with the long-term impact of electric vehicles and so forth on the fueling system's long-term outlook. Can you just give us your perspective on that issue, Gregg?
Gregg Sengstack (CEO)
Sure, Ryan. It does get a lot of press, a lot of attention. Obviously, with Warren Buffett's decision recently to get into Flying J, that's certainly. He's been a pretty savvy investor over the years. And you look at the information that's available out there, the number of cars that are on the road today is going to double or maybe even triple if you look at various sources like the IMF over the next 25, 35 years. The vast majority of those cars are going to be in places like China, India, and other developing regions. And those regions are already struggling with having a sufficient infrastructure to support demand for electricity. So as we look at it, even though cars are going to get more efficient, there's just going to be a lot more cars on the road.
Liquid fuels is the best way to power a vehicle. I mean, putting the issue about CO2 emissions and so on on the side, we're saying if you look at all energy sources and where they're going to be applied, liquid fuels fit very well in rolling stock as opposed to maybe electricity being for heating or cooling a building and so on. So as we've looked at various profiles for demand for growth of energy, energy growth is going to be somewhere up 25%-50% depending on what numbers you look at over the next 25-35 years. All these energy sources are going to be required, even with renewables gaining additional traction and coal being maybe not seeing the growth of coal, but we're going to see it in renewables.
But the automobile is going to be powered by liquid fuels as we see it and kind of as the industry sees it. And I think people that look at this on a global basis for a number of years.
Ryan Connors (Analyst)
Got it. No, that's helpful perspective, Gregg. And then my last one is more of a housekeeping for John, I guess. Why no buyback in the quarter, John? The stock got a real nice dip after the last quarter, which ended up to be transitory. So I was surprised that you guys didn't jump in there a little bit. Any color there?
John Haines (CFO)
Yeah. I think it's Ed, I'm sorry. Excuse me, Ryan. As we've discussed in the past, we have an idea of where we want to buy. And it's based on our view of a forward multiple, and we didn't reach that point in the quarter. It's not for reasons that we're thinking strategically about it. We absolutely want to buy or offset our dilutive share impact each year, but we also are thinking about it in terms of where the price is relative to a forward multiple. And that's the primary reason.
Ryan Connors (Analyst)
Got it. Okay. Thanks for your time.
Operator (participant)
Our next question comes from the line of Matt Summerville from Alembic Global Advisors. Sir, your line is now open.
Matt Summerville (Analyst)
Thanks. Good morning.
Gregg Sengstack (CEO)
Hi, Matt. How are you, Matt?
Matt Summerville (Analyst)
Maybe just on the dewatering business, up 90%. I know that's against an easy comp, but just to help put it in perspective, can you parse out how much of that growth is being driven by, number one, sort of the rebound in drilling activity, particularly shale? Number two, what you've done internally to grow the business from a geographic and market and customer diversification sort of initiative? And then three, if that business saw a measurable uptick related to the hurricanes?
Gregg Sengstack (CEO)
Yeah. Matt, a couple of things. One is that we're seeing the growth in Pioneer both domestically and internationally. So that gets to the diversification of the customer base. The sales of Pioneer, when the sales were at a lower run rate, were maybe a little over 55, close to 60% domestic and then over 40% international. Yes, we've seen a little bit more surge in the U.S. market, but our international component of Pioneer is significant and growing in several of the markets that Robert oversees. With respect to the domestic activity, we are, as John pointed out and as we pointed out in our earnings release, we're seeing a stabilization in oil and gas. We're seeing more end-market demand for Pioneer as our own companies are expanding their fleets.
We say it's oil and gas because of the type of mix of products that people are buying, and they tend to be the larger products, which would be for oil and gas. With respect to the hurricanes, that's really not such an event for us because we're not in the rental business in the U.S. The rental companies, when they see an event like that, they start moving equipment in anticipation of the event. So they would benefit from that. We would benefit from kind of the aftereffect of having equipment heavily used in a short period of time for potential parts and additional equipment and fleet over the next, say, 12, 18 months. But we have no immediate pop from a weather event like that that we could measure. John, do you have a?
John Haines (CFO)
Yeah. Just all I would add, Matt, is that we saw strength in the U.K. We saw strength in South Africa. We did win a tender in the U.K. that was worth about $1 million from an environmental agency there for pump product. That shift in the quarter. I think the other point I'll make about the international markets is we've been cultivating relationships in many of these international markets for many, many years relative to the Pioneer product. And some of those are just coming now to fruition. It's a fairly long sales cycle and a convincing cycle that this product makes sense and is versatile and reliable and all those kind of things.
It's not that surprising to us that in places like Australia and South Africa and Europe where we've been pushing Pioneer for a while, that we're starting to see some fruits from that effort.
Matt Summerville (Analyst)
And then just to follow up, maybe can you give a bit more of a detailed assessment in terms of what you're seeing in Latin America and South Africa in your traditional sort of non-dewatering businesses? I know you mentioned South African dewatering. So kind of looking at the end markets that those businesses are participating in, how you're growing relative to those. So if you can talk about market share as a component to the answer. And then, I guess, what sort of gets the Brazilian business reinvigorated? Things, for lack of a better term, are still pretty messy down there from a government standpoint. Thank you.
Gregg Sengstack (CEO)
Okay. So, Matt, you've identified one of the bigger issues in Brazil, Latin America. The political situation there is not very stable. That drives a lot of economic uncertainty. People won't buy if they don't know what the future looks like, clearly. The distribution network we have in Brazil allows us to put many products, any and everywhere, in Brazil. The economy's just poor at this point. And we're coming into the irrigation season. We should see a pickup there seasonally. From a share perspective, we're doing just fine. We don't see us having lost any share. In fact, we probably gained some share over this past year. The integration of Bombas Leal. And that's fully integrated now into our business in Brazil. Argentina is very soft for a variety of reasons, also some political instability. We have a good share there, but that's off.
I expect that to come back in the next year or so. Africa, you talk about a place with some political instability. That's really driving a lot of uncertainty. Our end markets there are primarily ag and mining. Mining has recovered a little bit in southern Africa, not very much, but it's better than it was a year ago. We've got a lot of headroom, growth opportunity for share gain in Africa outside of the country of South Africa. There's a lot of opportunity there. The challenge is getting to the buyers. We've got to build out some distribution in that area and just get after it. The economies are very soft right now.
Matt Summerville (Analyst)
Got it. And then just maybe one final follow-up just on the fueling business. I think this is maybe the second quarter in a row you've sort of called out the double-wall pipe initiative that the country's undertaking. Gregg, how long do you anticipate that being a tailwind for Franklin? And then, I guess, in terms of your success, what's your flow share been if you're able to track that thus far associated with that specific initiative?
Gregg Sengstack (CEO)
Yes. So we would say that that's a multi-year initiative. With China, we're always cautious that they can turn these things off as quickly as they can turn them on. But the regulations are on the books. They are building out throughout the country. There's a thought that it needed to be done in three years. I don't think that if you talk to people on the ground in China, that they think they can get all that done in three years, given the number of stations. So this is maybe up to kind of a five-year initiative. And it's going to, I think, continue to ramp during that period at a nice pace, looking hopefully above 10% pace kind of during that period, maybe more. The share, I mean, right now, it is a double-wall requirement.
There aren't many people in the world that have the product line that could qualify. So we're in a good position there. But I don't want to speculate on what the position it is, but we have a meaningful position.
Matt Summerville (Analyst)
Great. Thanks, guys.
Operator (participant)
Once again, if you do have a question at this time, please press star, then the number one key on your touch-tone telephone. If a question has been answered or you wish to remove yourself from the queue, please press the pound key. Once again, if you do have a question, please press star and then the number one key on your touch-tone telephone. Our next question comes from the line of Walter Liptak from Seaport Global.
Walter Liptak (Analyst)
Sir.
Operator (participant)
Your line is now open.
Walter Liptak (Analyst)
All right. Thanks. Good morning, John. Good morning, Gregg.
Gregg Sengstack (CEO)
Good morning.
Walter Liptak (Analyst)
Ed, just a couple of follow-ups. Maybe first a follow-up from Matt's question on the double wall. Have you talked about a market opportunity over that five years? What's the total market size of spending?
Gregg Sengstack (CEO)
We have not done that. I'm always a little cautious on these major initiatives. We had a tremendous run-up in California for those people that followed the company back a decade ago when we saw conversion. And then the financial crisis hit, and it basically stopped the conversion. But the market size here is in the $10s of millions. And overall size over this five-year period would be north of $100 million, maybe more than that. So it's certainly encouraging. We're getting nice traction. We're seeing good growth. But it is a country that can kind of turn on and turn off initiatives rather quickly and abruptly. So I always have that qualification. But it is a multi-year, $10s of millions, potentially $100s of millions, certainly not a $1 billion, opportunity.
Walter Liptak (Analyst)
Okay. All right. Great. Yeah. That's good color. The second thing is just a follow-on on the fueling business and the comments about it continuing into the fourth quarter and into 2018. And I wonder about the projects in the pipeline. What kind of visibility do you get from your engineering firms or from your customers about how long the tail can be for that business?
Gregg Sengstack (CEO)
Yeah. Walter, it's difficult. We have visibility of anywhere from a few days to a few weeks to a few months. Obviously, our salespeople are out talking to our customers, and we're getting some sense for their build rates, their upgrade rates of stations. And which is anomalous, let's say, about half of our businesses where you're doing significant builds or upgrades, maybe even a little bit more than half. And the other portion is maintenance-type items or replacement items or smaller jobs. So we have some visibility out a few months. I'd certainly say from in the North American market, more specifically U.S., at the trade show last week, there seemed to be a lot of optimism about this year being better than last year and next year looking to be even stronger.
There seems to be a fair amount of capital available to appropriate for station upgrades, which is all actually good news for us. I pointed out earlier in the call that the EMV push-out takes a little focus off of the need to upgrade just the credit cards or the card readers and dispensers and can look more broadly at the gas stations. I'd also say there's kind of a this is my own view, a secular opportunity here because a lot of tanks were upgraded. A lot of stations were upgraded back in the late 1990s. Those stations are now approaching 20-year lives. There are stations that have tanks on the ground that are older than that. And so as demographics change in the U.S. market, as people are going to bigger stations, you're seeing the major marketers getting bigger and investing and buying.
That's also good for us. But the visibility we have, to answer your question directly, is limited to a few weeks to a few months. It's limited to our conversations with these end marketers and what we think and hear that their capital plans are for 2018. We remain very optimistic that 2018 is going to be a good year domestically and then internationally in part driven by traction in Europe.
Operator (participant)
Ends. I would now like to turn the call back to Gregg. Thanks, Gregg, for closing remarks.
Gregg Sengstack (CEO)
Thank you, Brian. We appreciate everybody listening in on our conference call today. We look forward to speaking to you after the first of the year with our fourth quarter results. Have a great day. Thank you.
Operator (participant)
Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program, and you may all disconnect. Everyone, have a great day.