Franklin Electric - Q4 2015
February 23, 2016
Transcript
Operator (participant)
Good day, ladies and gentlemen. Welcome to the Franklin Electric Company fourth quarter and fiscal 2015 earnings conference call. At this time, all participants are in listen-only mode. Later, there will be a question-and-answer session and instructions will follow at that time. If you require any assistance during the call, you may press star or the zero on your touch-tone telephone. As a reminder, today's call is being recorded. I will now turn the conference over to Jeff Ruzynski, Treasurer. Sir, you may begin.
Jeffery Ruzynski (VP and Treasurer)
Thank you, Shannon. Welcome, everyone, to Franklin Electric's fourth quarter 2015 earnings conference call. With me today are Gregg Sengstack, our Chief Executive Officer, Robert Stone, Senior Vice President and President of our International Water Systems Unit, and John Haines, our Chief Financial Officer. On today's call, Gregg will review our fourth quarter business results, and then John will review our fourth 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. 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. 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 Chief Executive Officer, Gregg Sengstack.
Gregg Sengstack (CEO)
Thank you, Jeff. Similar to our third quarter, fourth quarter revenue down 14% was a couple of percent weaker than we anticipated due to the same two factors. First, the translation impact from the continued strengthening of the U.S. dollar versus many other currencies. And second, the further weakening in the price of oil, which depressed demand for Pioneer brand pumping equipment and for mud tanks manufactured in the U.K. by our fueling business and used in North Sea oil production. However, with the continued reduction of input costs, the benefits of restructuring and other fixed cost takeout initiatives, better mix and some price, adjusted operating income increased 21% over fourth quarter 2014. So even with a 14% sales decline, our reported and adjusted operating income, net income, and earnings per share were all records for any fourth quarter in the company's history.
Turning to end markets, the U.S. and Canadian end market demand for mobile dewatering pumps, agricultural pumps, wastewater, and water transfer pumps continued to be depressed but stable. Mobile dewatering pump sales were down over 50%, but the decline was marginally less than the third quarter. Agricultural pumping system sales were again down over 20%. With overall groundwater pump demand throughout the year being off so much from 2014, there was limited interest from distributors to buy up in the fourth quarter to reach annual volume incentives targets. Our wastewater pumping business, where we really didn't have a normal season in 2015, continued to be down in the 10% range. However, from customer feedback and industry data, we are confident that we gained share in this market throughout the year. In Europe, excluding mobile pumping equipment, water system sales in local currency were flat to last year.
In the rest of the world, which represented almost 50% of our global water volume in the fourth quarter, our business continues to grow organically. In spite of a shrinking economy in Brazil, social and political unrest in the Middle East, and a global decline in commodity prices leading to reduced mining activity in Southern Africa and Australia, we were also encouraged to see our fourth quarter global agricultural product sales improve sequentially. We saw double-digit declines in both the second and third quarters of 2015 moderate to a 7% decline in the fourth quarter. Overall, 2015 ag product sales declined by 9% versus 2014. During the quarter, our local business unit leadership teams remained focused on our customers, delivering growth and margin improvement across all regions.
Turning to fueling, excluding the impact of foreign currency translation and the reduced demand for storage tanks to support North Sea oil production, fueling system sales grew organically in the quarter. In the U.S. and Canada, fueling system sales grew by 6%, solid performance given a drag from the continued decommissioning of vapor recovery systems outside the state of California. Excluding underground storage tank sales and the impact of foreign currency, in the rest of the world, fueling sales were up about 9%, with continued weakness in China and, to a lesser degree, Asia being offset by strength in India and EMEA. Even with a 2% sales decline in reported revenue, our fueling systems operating margin expanded, resulting in record fourth quarter operating income. Looking forward, as we enter 2016, one of the two principal factors behind our disappointing results in 2015 remains: weak developing region currencies.
At current exchange rates, we estimate the 2016 top-line headwind from foreign currency translation will be around $40 million, or a little less than half of what it was in 2015. The second key factor we faced in 2015 was the decline in oil prices and the impact it had on our Pioneer dewatering equipment sales. Going forward, we estimate our direct exposure to the oil market to be only about 1% of revenue. So the direct impact of low oil prices in the future should be minimal. At the same time, through global cost reductions and restructuring activities in Europe and Brazil, our fixed cost base is lower than when we entered 2015. This positions us well to get operating leverage from any meaningful sales growth, and we expect organic sales growth next year.
While we reduce fixed cost spending in 2015, we continue to invest in customer service and innovation at a time that we observe our global competitors cutting back in major markets that we serve. Last year, our company launched a record number of new products, from which we will see benefits in 2016 and beyond. In many markets, we were able to raise pricing to offset much of the impact of inflation due to weakened currencies. At the same time, dollar-based input costs declined. So as we enter 2016, we expect organic sales growth coupled with variable contribution margin expansion and a lower fixed cost run rate.
Our 2016 operating plan is to overcome foreign currency translation headwind, which at current exchange rates is about $40 million of revenue, and $0.08 of earnings per share so that we achieve reported sales growth of 2%-4% and 2016 adjusted earnings per share of $1.57-$1.67. With this earnings release, we will begin to provide only annual earnings per share guidance that we plan to update throughout the year. However, like other companies that have already reported, we expect our business to start slowly and to strengthen gradually through the year. I would now like to turn the call over to John Haines, our CFO.
John Haines (CFO)
Thank you, Gregg. As Gregg noted, we're pleased that the reported operating income, net income, earnings per share, and the adjusted earnings per share in the fourth quarter 2015 were all records for any fourth quarter in the company's history, even though the consolidated revenue was down almost 14% versus the fourth quarter of 2014. Our fully diluted earnings per share reported were $0.33 for the fourth quarter 2015 versus $0.06 for the fourth quarter of 2014. As we note in the tables and the earnings release, the companies adjust the as-reported GAAP operating income and earnings per share for items that we consider not operational in nature. We believe presenting these matters in this way gives our investors a more accurate picture of the actual operational performance of the company. Non-GAAP expenses for the fourth quarter 2015 were $0.9 million.
The fourth quarter 2015 non-GAAP adjustments had a net EPS impact that reduced earnings by $0.02. There was a $0.25 reduction in EPS for non-GAAP items in the fourth quarter of 2014. Recall, in the fourth quarter of 2014, the company recognized the majority of the restructuring costs related to the closure of the Bietigheim, Germany, facility. In total, non-GAAP items were $17.6 million in the fourth quarter of 2014. So after considering these non-GAAP items, fourth quarter 2015 adjusted EPS was $0.35, which is an increase of 13% versus the $0.31 adjusted EPS the company reported in the fourth quarter of 2014. It is worth noting that the company estimates its fourth quarter 2015 adjusted earnings per share was negatively impacted by $0.05 due to the translation impacts alone of foreign exchange.
As Gregg noted, we saw a significant deterioration versus the US dollar of many key currencies, which we do business in, including the euro, the real, the rand, and the Turkish lira during the quarter when compared to the fourth quarter in 2014. This deterioration causes the earnings of these units to be translated back to fewer US dollars. Water Systems sales were $163.2 million in the fourth quarter of 2015, a decrease of $33.5 million or about 17% versus the fourth quarter 2014 sales of $196.7 million. Water Systems sales were reduced by $20.9 million or about 11% in the quarter due to foreign currency translation. Excluding foreign currency translation, Water Systems sales declined about 6% compared to the fourth quarter of 2014. Water Systems operating income after non-GAAP adjustments was $20.6 million in the fourth quarter 2015, down $0.4 million or 2% versus the fourth quarter of 2014.
The fourth quarter operating income margin after non-GAAP adjustments was 12.6%, up 190 basis points from 10.7% in the fourth quarter of 2014. Fueling systems sales represented 26% of consolidated sales and were $56.1 million in the fourth quarter of 2015, a decrease of about $1 million or 2% versus the fourth quarter 2014 sales of $57.1 million. Fueling systems sales decreased by $2 million or about 4% in the quarter due to foreign currency translation. Fueling systems sales were up about 2% after excluding foreign currency translation. Fueling systems operating income after non-GAAP adjustments was $14.1 million in the fourth quarter of 2015 compared to $13 million after non-GAAP adjustments in the fourth quarter of 2014, an increase of about 8%. The fourth quarter operating income margin after non-GAAP adjustments was 25.1%, an increase of 230 basis points from the 22.8% of net sales in the fourth quarter 2014.
The company's consolidated gross profit was $69.1 million in the fourth quarter of 2015, a decrease of $8.7 million or about 11% from the fourth quarter 2014 gross profit of $77.8 million. The gross profit as a percent of net sales was 31.5% in the fourth quarter of 2015, an increase about 90 basis points versus 30.6% during the fourth quarter of 2014. The gross profit margin increase was primarily due to lower direct material costs and improved sales mix of water systems products. Selling general and administrative expenses were $45.1 million in the fourth quarter of 2015 compared to $60.1 million in the fourth quarter of 2014, a decrease of $15 million or about 25%. The company's SG&A expenses decreased in the quarter primarily due to lower marketing and selling-related expenses, as well as lower costs for incentive compensation.
About 20% of the SG&A expense decline was related to foreign exchange. The tax rate for the full year 2015 was about 15%, and in 2014 was 21%. The tax rate declined in 2015 from the tax rate for 2014 primarily due to a reversal of deferred tax liability associated with a purchase in 2015 of the remaining shares of Pioneer Pump. The effective tax rate differs from the statutory rate primarily due to the indefinite reinvestment of foreign earnings, tax rates below the U.S. statutory rate, as well as recognition of foreign tax credit. The company has the ability to indefinitely reinvest these foreign earnings based on the earnings and cash projections of its operations, as well as cash on hand and available credit. The full year 2016 tax rate is estimated to be about 25%.
The company ended 2015 with a cash balance of $81.6 million, which was $22.5 million higher than at the end of 2014. The cash balance increase is primarily attributable to cash generated from operations in 2015 of about $98.3 million, or 133% of the full year reported net income. The company had no borrowings on its revolving debt facilities at the end of 2015 or at the end of 2014. The company purchased about 170,000 shares of its common stock for approximately $4.9 million in the open market during the fourth quarter 2015. For the full year of 2015, the company purchased approximately 1.6 million shares for $46.3 million. Currently, the total remaining authorized shares that may be repurchased is about 2.3 million. This concludes our prepared remarks, and we would now like to turn the call over to questions.
Operator (participant)
Thank you. Ladies and gentlemen, if you wish to ask a question at this time, please press star, then one, on your touch-tone telephone. If your question has been answered or you wish to move yourself from the queue, please press the pound key. Our first question is from Joe Radigan with KeyBanc Capital Markets. You may begin.
Shane Rao (Equity Research Associate)
Good morning. This is Shane Rao on for Joe. Thanks for taking the call.
John Haines (CFO)
Hi, Shane. [crosstalk]Hey, Shane.
Shane Rao (Equity Research Associate)
So first, on the outlook for 2016, I'm curious. You said that you expect things to start slow and then sort of build through the year. Should we take that to mean earnings will be weighted to the back half, and then sort of building on that, how should we think about margin cadence sort of throughout 2016?
John Haines (CFO)
Shane, what we would say is that our top line is going to again, we're a Northern Hemisphere centric company. We have some cyclicality in business. We would expect that, given the slow U.S. market, that we would expect the first quarter to be kind of flat-ish top line with operating margins above last year and that, as you point out, should be strengthening through the year as we see the season in North America and the Northern Hemisphere strengthen over time.
Shane Rao (Equity Research Associate)
Okay. That's helpful. Then in the 3Q call, you talked about how inventory levels were high at the distributor level through the middle of the country and that that was likely to bleed into 1Q. I'm curious what you're seeing there now, how that played out, and what you're hearing from customers as far as demand early in the year there.
John Haines (CFO)
Yes. I would say that this is anecdotal information because we don't have a view into our customers' or distributors' inventory to a great degree other than what they tell us. I'd say that, given the overall weak demand in particular in the ag sector but also a little bit lesser in the residential sector, customers were bleeding off inventory throughout the year to generate cash. And so we would think that that continued in the fourth quarter. Where the inventory levels were relative to a year ago, maybe similar, just because you say that people were being conservative about buying up at the end of the year. We certainly didn't see much appetite to do that. So I think the inventory levels are in pretty good shape coming into the year. We've had a relatively mild start east of the Rockies that would bode well for drilling activity.
West of the Rockies, you get into California and the coast. Of course, we're getting a lot of rain relative to El Niño, but I was recently with a number of contractors. Since the contractors, businesses are still very active. So we're expecting a pretty decent start depending on what happens in the Corn Belt, the West Texas, how that starts with pre-watering later in the season.
Shane Rao (Equity Research Associate)
Okay. Yeah. That's really helpful. Thank you for the time.
Operator (participant)
Thank you. Our next question is from Mike Halloran with Baird. You may begin.
Speaker 7
Good morning, guys. This is Ryan. I'm from Mike.
John Haines (CFO)
Hey, Ryan.
Speaker 8
Hey, Ryan.
Speaker 7
Just kind of piggybacking on the first question there in terms of confidence through the year, can you maybe just talk about your growth versus the market and how much, after the distribution reset, you guys expect to maybe gain a little bit of share back as we look through 2016?
John Haines (CFO)
Yeah. I'd say, generally, the distribution reset's now been in place for 12-24 months. So we are expecting our position to be as it has been in the past, which is to continue to gain share from our customer base, particularly with the number of new products we've launched and our commitments to the marketplace. That's not something that happens overnight, but our continued direct involvement with customers through our customer service, through our hotline, our technical sales force, and training is that we believe that, over time, people see the value with Franklin and that we will earn that share back.
Speaker 7
Okay. Great. And then secondly, on the margin side, is the run rate that we saw here in the second half in terms of taking cost out, is that the right way to think about next year, or are there incremental cost actions that you guys think you can deliver kind of through the year or through restructuring or whatever the case may be?
John Haines (CFO)
Yeah, Ryan. I wouldn't necessarily say there's any incremental cost actions that we're thinking about. When we look at the fixed cost base of the company, we ended 2015 with a fixed cost base right in the $300 million range. We know that FX helped us to some degree on that. We also know that we took variable compensation and incentive compensation down very dramatically in 2015. So some of that's going to come back as we look forward in 2016 and is baked into this guidance that we've provided here. You may recall that, in 2014, that same number was about $323 million. So some's going to come back, but it's not going to come back to $323 million. And we're expecting something, depending on the FX, in the range of $310-$315 million for 2016.
The biggest things that we're focused on right now are really the growth rate. As Gregg said, the North American water growth rate is a key variable that, until we get into that kind of season, the second quarter and more into the season, we won't know that for sure. However, we always are ready that, if revenue lines anywhere in the world don't materialize the way that we think they're going to materialize, to go take incremental fixed cost actions. We can do that fairly quickly. I hope that answers your question or gives you a sense of how we're thinking about it.
Speaker 7
Yeah. I think that makes a lot of sense. And then last one for me, just in terms of capital deployment, I assume there's no change, but just given the cash on the balance sheet and relatively low leverage, just any changes in the M&A environment or anything else that you guys are seeing out there?
John Haines (CFO)
No. We'll continue, I think, to deploy capital like we historically have, Ryan. Our first priority is the strategic acquisition, and we continue to look globally for acquisitions, both in the water and in the fueling segment. We'll see how that plays out. The only thing I would add is we have about 2.3 million of authorized shares for repurchase. We bought more shares in 2015. We thought that was opportunistic to do that, given where the share price was. We'll continue to do that. If we don't see there's a pipeline and an opportunity for the acquisition, we'll do that. But it really comes down to kind of balancing it against a forward multiple and where the price of the stock is.
CapEx for the year will be, as we've talked in the past, in the mid-30s. Mid- to upper-30s is kind of what we're expecting right now.
Operator (participant)
Thank you. Our next question is from David Rose with Wedbush Securities. You may begin.
Speaker 7
Good morning, gentlemen. Thank you for taking my call.
John Haines (CFO)
Sure, David.
Speaker 7
I just had a couple of housekeeping questions to start with. As I look through the press release and then I look on page two on the table, you're showing earnings after non-GAAP on page two of $16.2 million. But on the press release, you're also showing $16.2 million on a GAAP basis. So I was hoping you can reconcile the difference between those two because they seem to be the same. And then the line above it, the net income attributable non-controlling interest, shows $90,000 on the income statement. And then on the table, the reconciliation, you're showing $500,000. So could you walk me through the differences?
John Haines (CFO)
Yeah, David. I might have to look at that and come back with some clarification on that if there's an issue there. Income attributable to FE is $16.2. That's what's on the P&L. Our allocated undistributed earnings is $500,000. And then so that would get us to $15.7. And then the $15.7 plus the $0.5 would get us to $16.2. So I'm sorry. David, say again what your.
Speaker 7
Yeah. Your income statement shows $16.2 as the GAAP number. But here, that's showing as an adjusted number, if I'm reading it correctly. And then your income attributable and non-controlling interest on your income statement shows $90, but on your reconciliation page, it's showing $500.
John Haines (CFO)
Yeah. Gotcha. A bump on the 500 versus the 90. Yeah. David, we'll have to come back with some clarification on that. The math on page 2, I think, does work with the 500. So we'll come back with some clarification on that.
Speaker 7
Okay. Then the other below-the-line item is the $800,000 income item, the other income item. What was the $800,000 other income item? Can you refresh me?
John Haines (CFO)
Yeah. The other income is primarily cash earned, interest earned on cash deposits, and then the minority share of certain minority equity investments that we hold around the world. And that's what drove that other income. Those are the two primary contributors.
Speaker 7
Okay. And then just from an SG&A perspective, I mean, you were able to parse some of it out, maybe a little bit more detail on the impact from the incentive compensation. Was this a reversal then from something you accrued throughout the year? So you reversed it in the fourth quarter. Is that right?
John Haines (CFO)
Yeah. That's certainly a portion of it, David. Yes.
Speaker 7
How much was that, the incentive comp, so we can think about that next year? Because I'm assuming.
John Haines (CFO)
Yeah. I would say the way I would answer that would be that, if you look at the total SG&A decline in the fourth quarter, year-over-year, from last year's fourth quarter, about half of it was related to FX and to incentive comp reductions.
Speaker 7
Okay. And then the dealer reset, the spend you had on the dealer reset, is that effectively done then, the SG&A? Or is there an incremental piece that we have to look at, given the floods that you had last year and that it was, I think, largely ineffective in Q2 of last year? Should we expect incremental spend this year for the dealer reset or kind of a similar number as we had in 2015?
John Haines (CFO)
No. I think the SG&A impact of that was primarily in the back half of 2014. David, I think that anything that we have related to that, I wouldn't characterize there being a lot incremental to that.
Speaker 7
Okay. Perfect. All right. Well, thank you very much. I'll jump back on the queue.
Operator (participant)
Thank you. Our next question is from Edward Marshall with Sidoti & Company. You may begin.
Speaker 7
Morning, guys.
John Haines (CFO)
Good morning.
Speaker 7
So I was wondering if you would, and it's embedded in the 2%-4% sales guidance or growth that you anticipate for 2016. I'm wondering if you can kind of work to the individual segment level and kind of maybe talk about water and fuel as to the expectations there.
Gregg Sengstack (CEO)
Yeah. Broadly, I'd say that the numbers are going to be similar. Typically, we see our fueling business has a little bit higher rate than our water business. And that was consistent. Again, this year, we saw fueling, as I said, on the fourth quarter, up 9% outside the United States. And excluding the drag on the decommissioning of some systems here, it was still strong single digits in the United States. So we typically see a little bit higher growth rate in fueling than in water. But we really look at them as being pretty similar because they have similar profiles. I mean, both of them have large exposures in developing regions of the world.
While these areas of the world are having difficult times relative to measurement in U.S. dollars because of exchange rates and certainly some unsettled situation in the Middle East, for example, is that, overall, we see both businesses having similar profiles and, therefore, having similar growth rates.
Speaker 7
Pretty much in line with the total sales guidance for the year, give or take?
Gregg Sengstack (CEO)
Yeah. I think we're going to see the expectation is, certainly, in the U.S., we had record rainfall in the second quarter of 2015. So we would think that anything more of a normal year in 2016 is going to be a tailwind for us in the U.S. market, subject to just the overall concerns about the ag market. But again, as we've often talked about, and I think it's reflected in our numbers here, is that we are largely replacement items. So even if the farmers are not putting in new systems, much like if new home construction is not as robust, there's still these large replacement segments of the market, which is what we serve.
But we expect to get a bit of a tailwind from any kind of a better weather situation than what we saw in 2015 in the middle of North America or the U.S., excuse me.
Speaker 7
There's been a lot of changes to the margin profile with incentive compensation, with cost savings that you've kind of enacted throughout the year. The seasonality in the fourth quarter kind of makes, I guess, the judgment call leading into 2016 a little bit more difficult. I'm curious if you kind of would, maybe even particularly just to the water segment, kind of talk about maybe the pluses and minuses to margin as we I mean, first, I guess, can we get back to the 2014 levels? Or do you anticipate that that's going to exceed that from a margin profile as it relates to water?
John Haines (CFO)
Yeah. Ed, this is John. I don't know that we will get back to the 2014 levels for water margin. I think we'll see steady improvement in margins over 2015. Our target is still at 16%-18% that we discussed before. But I'm not sure we'll see. We may get into the low end of that range, but I'm not sure we'll see that for the full year of 2016.
Speaker 7
You say target 16-18 for what? I'm sorry.
John Haines (CFO)
For water operating income, adjusted operating income margin. That's historically the band that we have been targeting. I would say, for 2016 right now, we'll be in the more of the mid-teens, not the 16%-18% range.
Speaker 7
Gotcha. Okay. I thought you were saying you were going to reach 16%, which would have far exceeded the 2014 level. Okay. And then your assumptions for tax, does it change much from that 27%?
John Haines (CFO)
The tax rate that we would use for 2016, Ed, is 25%.
Speaker 7
25%. Okay. And that's baked into your guides there, I guess. And then what's the expectation for energy? I think, in one respect, you thought it was going to be about 1% of sales. But then I think, in some of the discussion points around maybe the level of rainfall and some destocking and so forth that you talked about, maybe some plus-up in energy. So what are the expectations maybe throughout the year for energy as it relates to your business?
John Haines (CFO)
Okay. Well, what we talk about is that we, obviously, in 2015, Ed, were impacted dramatically by the decline in oil price in our Pioneer-branded dewatering pump sales. So we saw over a $50 million decline. What we're saying now is that our exposure, our direct exposure to the energy sector, either through dewatering pumps, a little bit in the fueling business where we have this underground storage tank business, which we also those tanks are used in North Sea oil production. As we look at some of the direct exposure in our groundwater business to supporting oil field production, we're saying that our exposure directly to the kind of the price of oil is around 1% of our revenue. Maybe it'll say it was much more. So we're saying that where the oil price goes shouldn't have a lot of impact on the top line of business.
Now, more broadly, you can look at the price of oil as having a couple of favorable impacts on our business. Lower price of the pump, people are going to drive their cars more. They're going to look for more station infrastructure, particularly in developing areas of the world where the price of fuel is a material cost or material portion of a person's income. We would expect to see growth in fueling infrastructure. Generally, as people have more money and they move into the middle class, they're going to be using more water pumps and water pumping activities. So having lower overall energy costs is a long-term benefit to the business. But when we refer to the 1%, we're referring specifically to what we believe is the exposure of our business to the price of oil on a go-forward basis.
Speaker 7
Got it. Okay. Thanks, guys.
Operator (participant)
Thank you. Our next question is from Kevin Bennett with Sterne Agee. You may begin.
Brett Bennett (Managing Director)
Thanks. Good morning, gentlemen. How are y'all?
Speaker 8
Hey, Kevin.
Brett Bennett (Managing Director)
Gregg, first, I just want to clarify on the sales guidance. You're looking for 2%-4%. I assume that's total revenue growth, which would imply organic revenue growth of 6%-8%. Is that the right way to think about it after the $40 million FX headwind?
Gregg Sengstack (CEO)
That's correct.
Brett Bennett (Managing Director)
Okay. Great. And then thinking about U.S. groundwater specifically, you said sales down 15, ag was down over 20, which I guess would imply residential was up a little bit in the fourth quarter. Can you talk about that a little bit?
John Haines (CFO)
Actually, residential was down a little bit as well. It was not up. But we had a pretty good backlog going into the end of the year. So I'd say demand was kind of flattish year-over-year. But actual revenues were down in the residential segment.
Brett Bennett (Managing Director)
Okay. And then on the dewatering, and you just kind of touched on it, so you think, I guess, direct oil and gas is now $10 million-ish of revenues. What was that, I guess, thinking back to 2013 and 2014? Do you have those numbers in front of you?
John Haines (CFO)
Well, I use Pioneer as being a bogey for a big part of that. So if you think about Pioneer had about $50 million-$55 million exposure to oil and gas in 2014. That basically all went away, or the vast majority of it went away. And then in the fueling business, this tank business we have, it also supports North Sea Oil, let's call that, $5 million-$7 million. We do have this small initiative, an artificial lift. We're looking forward to being a bigger initiative at some point. But with the price of natural gas being as low as it is, we continue to get that product installed around the world. We're having more wells put in China. We have some interest in Turkey. We're seeing some interest in India, where natural gas prices are higher than they are in the US.
But again, it's a few million dollars right now. And we continue to develop the product line. But that's when we're talking about the exposure to oil and gas. It's the numbers I just gave you there.
Brett Bennett (Managing Director)
Okay. Thanks. So I guess, first quarter of 2015 is when we really start to see the declines. And I have in my notes it was down 50%. So I guess, starting in 1Q of 2016, we've lapped those declines. Is that the way to think about it? Or on a year-over-year basis, there's still maybe a little bit to go?
John Haines (CFO)
Yeah. Kevin, that's pretty much, I think, the way to look at it, is that, coincidentally, the decline in our business was pretty much with the calendar year start in 2015. We had, as you may recall, a backlog and really had to push production in late 2014 at Pioneer, compress the margins there. Then that all kind of came to a halt at the end of 2014. 2015, we were reporting pretty steadily quarter to quarter that our revenues at Pioneer were down in half. Pioneer was about a $100 million business. It's now about a $50 million business. It's stable at these levels. I expect even some potential organic growth for Pioneer this year.
Brett Bennett (Managing Director)
Okay. Great. And then last question for me is on pricing. I think we talked last quarter about there was some pricing issues in dewatering and then potentially in ag as well. Are you still seeing that? Or is pricing holding in? Or what's going on there?
John Haines (CFO)
Yeah. Kevin, we definitely saw an improvement in pricing sequentially as we ended the year. So fourth quarter pricing was meaningfully better than the first, second, or third quarter pricing on a consolidated basis. So that's the good news. A bulk of that or the bulk of that pricing benefit came from many of our international units that were adding price to try to get in front of some of this FX issue, specifically, for example, in Brazil, where we didn't achieve a significant amount of price within this U.S., our core U.S. water business. And that's one that we see definitely as more of a tailwind entering 2016. Tough competition year, tough weather year. And we just didn't get the price.
In some products, I think we discussed at the end of the third quarter, in some products, like these large ag products, we didn't even go try to get price in some of these end markets. We have price increases announced already for February. We've got a plan in place to reverse that. We expect 2016 price to be better than what we realized in 2015.
Brett Bennett (Managing Director)
Okay. Great. That's perfect. Thanks, John.
Operator (participant)
Thank you. Our next question comes from Matt Somerville with Alembic Global Advisors.You may begin.
Nick Chen (Company Representative)
Hi. This is actually Nick Chen from Matt Somerville this morning. Thanks for taking our call.
Speaker 8
Hi, Nick.
Nick Chen (Company Representative)
Hi, guys. In terms of cooling systems, can you just discuss a little bit about sort of what you're seeing outside of the U.S. in terms of those that are being converted to pressure systems and sort of what you're seeing as the annual conversion rate at this point?
John Haines (CFO)
It's a question we get asked often. I would generally say that, given our organic growth profile in fueling, that there's a steady conversion to pressure throughout the world. It's generally seen as a more cost-effective system, a more efficient system, particularly as you get to larger gas stations. And we're seeing the similar profile outside the United States. But we've seen in the U.S. where people are going from smaller stations to larger stations. That's why we see such big activity in India. China, certainly, is pressure. Now, Brazil is not. Very, very little conversion in Brazil at this point. But they tend to have relatively small stations today. And so we would expect that to change in the future. And when, I'm not sure. Western Europe, again, largest all-basis suction systems, real estate to the premium. So that tends to be slow to change.
But generally speaking, the world is moving pressure. It's a good way to distribute fuel, particularly at large stations. Again, we're seeing not only the pressure business being a strong business outside North America, we're also beginning to see, again, increased activity around vapor recovery. Now, while it was going to pause in China, in part due to the corruption in the two major Chinese oil companies that had a change-out of the leadership at the top, which I think disrupted some of the purchasing, China continues to put in vapor recovery and support the vapor recovery activities. They've got to continue to work on their air. We're beginning to see more coming out of India now. India had a hiatus after starting a vapor recovery last decade because they really didn't have the stage one equipment in place with the tank trucks.
We have a joint venture in India that is supporting conversions of tank trucks to stage one type bottom-loading, which is environmentally more friendly. That will then lead to stage two. We're seeing some interest in stage two equipment in Delhi. So we're beginning to see some interest in the Indian market towards vapor recovery. And then that moves into really the underground piping systems. Many parts of the world are still using steel pipe. And we're seeing people moving more to the plastic pipe that we sell. We just have approval now in India to do that. We're seeing interest in double-wall plastic piping in China. So we're seeing the world moving in that direction as well.
So really, across all of our fueling product lines - and I can't leave out fuel management systems to track all this fuel - it's just been, generally, across our product lines, across the globe, a continued conversion to these more sophisticated systems that are environmentally friendly.
Nick Chen (Company Representative)
That's a very helpful answer. Thanks so much, guys. I'll jump back into the Q.
Gregg Sengstack (CEO)
Thank you.[crosstalk]
Operator (participant)
Thank you.
John Haines (CFO)
If there's no one else in the Q right now, I want to come back to David Rose's question. The question that David was asking was, when you look at the P&L of the company on page 8 of the earnings release, you see the income attributable to non-controlling interest at the bottom. That is the earnings that is set aside for those entities that we consolidate but we don't consolidate 100% of. A good example of that's the investment in Impo in Turkey, where we still have a 10% minority position. The accounting for this is, generally, set aside some of your earnings for these positions. As you see on the P&L, that's a reduction of the net income that's attributable to Franklin Electric.
And then that 16.2 comes forward to the table on page 2 as the starting point for the earnings per share calculation. And that's what the point of this table is, is to start the walk of earnings per share calculations. So David, the allocated undistributed earnings that you see there is not at all related to the 90,000 that's on the face of the P&L. This relates to this two-step EPS calculation that you may be familiar with, which the theory of it is, effectively, you have to set aside some of your earnings for share and equity awards that you've already made that basically are guaranteed to be granted. And that's what that $500,000 is there. You can see, on a year-over-year basis, in the full-year column, that it's pretty consistent, $1.5 million or so.
That's strictly for the calculation of the earnings per share, which is what this table is setting out to do, versus the 90,000 that is the natural item on the face of the P&L. I apologize for not being more clear about that earlier. With that, we see no other questions in the Q. We want to thank everyone for joining us on this conference call. Look forward to speaking to you at the end of our first quarter. Have a good day, everybody.
Operator (participant)
Ladies and gentlemen, this concludes today's conference. Thanks for your participation. Have a wonderful day.