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FE

FRANKLIN ELECTRIC CO INC (FELE)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 revenue was $455.2M (-1% YoY) and diluted EPS was $0.67; the quarter missed Wall Street consensus on revenue ($470.4M*) and EPS ($0.73*) and EBITDA ($61.5M*). Energy Systems strength partially offset weather-driven headwinds in Distribution, with operating margin at 9.7% and gross margin at ~36% .
  • Energy Systems grew 8% YoY to $66.8M with operating margin up 250 bps to 32.8%; Water Systems was ~flat, and Distribution declined 3% YoY; one-time executive transition and acquisition costs created ~$0.07 EPS drag .
  • FY 2025 guidance: sales maintained at $2.09B–$2.15B; GAAP EPS range lowered on the low end to $3.95–$4.25 (from $4.05–$4.25), reflecting tariff uncertainty, restructuring and growth investments; quarterly dividend declared at $0.265 per share .
  • Setup for Q2: backlog and book-to-bill >1 in Water; inventory built selectively ahead of tariffs; management expects Distribution seasonality to normalize as weather improves; tax rate moved to ~25% in Q1, impacting EPS by ~$0.03 .

What Went Well and What Went Wrong

What Went Well

  • Energy Systems delivered another strong quarter: sales +8% YoY to $66.8M with operating margin 32.8% (+250 bps), supported by pricing, mix and productivity; “We would expect those margins to stay strong” .
  • Water Systems resilience and backlog: U.S. groundwater +6% and water treatment +7%; book-to-bill >1 and backlog up mid- to high-single digits; order trends healthy into April .
  • Strategic execution: two acquisitions closed/announced (PumpEng and Barnes de Colombia) enhancing dewatering, foundry capacity and Latin America reach; management reaffirmed a disciplined M&A pipeline and product innovation (OVERSITE and optimizer) .

What Went Wrong

  • Miss vs consensus and margin compression: revenue, EPS, and EBITDA missed Street; operating margin fell to 9.7% from 10.4% YoY due to higher SG&A tied to executive transition and acquisitions .
  • Distribution softness: net sales -3% YoY to $141.9M on lower volumes and negative pricing; weather-related road restrictions delayed installations, though margins held at 1.5% .
  • FX and tax headwinds: FX pressured results across regions; effective tax rate rose to ~25% from 22%, reducing EPS by ~$0.03 .

Financial Results

Quarterly Trend (last 3 quarters)

MetricQ3 2024Q4 2024Q1 2025
Revenue ($USD Millions)$531.4 $485.7 $455.2
Diluted EPS ($USD)$1.17 $0.72 $0.67
Gross Margin (%)35.7% 33.8% 36.0%
Operating Margin (%)13.8% 8.9% 9.7%

YoY Comparison

MetricQ1 2024Q1 2025
Revenue ($USD Millions)$460.9 $455.2
Diluted EPS ($USD)$0.70 $0.67
Gross Margin (%)35.5% 36.0%
Operating Margin (%)10.4% 9.7%

Segment Net Sales and Operating Income

SegmentNet Sales Q1 2024 ($M)Net Sales Q1 2025 ($M)Op Inc Q1 2024 ($M)Op Inc Q1 2025 ($M)
Water Systems$286.6 $287.3 $47.1 $43.4
Energy Systems$62.1 $66.8 $18.8 $21.9
Distribution$147.0 $141.9 $1.8 $2.1
Other/Elims$(34.8) $(40.8) $(19.8) $(23.3)
Consolidated$460.9 $455.2 $47.9 $44.1

Regional Net Sales

RegionQ1 2024 ($M)Q1 2025 ($M)YoY Change ($M)YoY %
United States & Canada$172.7 $175.7 +$3.0 +2%
Latin America$41.3 $39.5 -$1.8 -4%
Europe, Middle East & Africa$52.3 $51.5 -$0.8 -2%
Asia Pacific$20.3 $20.6 +$0.3 +1%
Consolidated$460.9 $455.2 -$5.7 -1%

Actuals vs Consensus (S&P Global)

MetricQ3 2024Q4 2024Q1 2025
Revenue Actual ($M)$531.4 $485.7 $455.2
Revenue Consensus ($M)$551.1*$465.9*$470.4*
Revenue Surprise ($M / %)-$19.7 / -3.6%*+$19.9 / +4.3%*-$15.2 / -3.2%*
EPS Actual ($)$1.17 $0.72 $0.67
EPS Consensus ($)$1.27*$0.66*$0.73*
EPS Surprise ($ / %)-$0.10 / -7.9%*+$0.06 / +9.1%*-$0.06 / -8.2%*
EBITDA Actual ($M)$89.2*$66.0*$57.2*
EBITDA Consensus ($M)$95.4*$59.6*$61.5*
EBITDA Surprise ($M / %)-$6.2 / -6.5%*+$6.4 / +10.8%*-$4.3 / -7.0%*

Values retrieved from S&P Global.*

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
SalesFY 2025$2.09B–$2.15B $2.09B–$2.15B Maintained
GAAP EPSFY 2025$4.05–$4.25 $3.95–$4.25 Lowered low end by $0.10
DividendQuarterly$0.265 declared Jan 27, 2025 $0.265 payable May 22, 2025 Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 2024 and Q4 2024)Current Period (Q1 2025)Trend
Tariffs / MacroQ3: wetter weather, tempered orders; lowered FY24 guidance . Q4: tariff preparedness discussed; FX headwinds noted .Added ~$60M tariff exposure; mitigation via pricing, inventory positioning, supply-chain footprint; selective inventory build ahead of unknowns .Elevated focus; mitigation plans active.
Energy Systems strategy & marginsSegment renamed; record Q4 margin 35.9% on U.S. strength and productivity .Sales +8%; margin +250 bps to 32.8%; management expects margins to “stay strong” though growth moderates .Sustained high margins; smart solutions mix improving.
Water Systems demand & backlogQ4: groundwater up low single digits; replacement demand stable .U.S. groundwater +6%, water treatment +7%; book-to-bill >1; backlog up mid- to high-single digits .Improving momentum into busy season.
Distribution dynamicsQ3: modest growth; operating leverage; commodity pricing pressure . Q4: growth +6% but margin 0.3%; price declines persisted .Weather delays (frost restrictions); sales -3% YoY; margins held at 1.5%; expecting normal seasonality in Q2 .Short-term headwinds; seasonal recovery expected.
Product innovation / technologyQ4: focus on innovation, ~30 launches in 2024 .New OVERSITE (remote monitoring) and optimizer (breaker detection) launched; faster development cadence .Increasing velocity; “smarter” solutions growth.
M&A pipeline / strategyQ4: active pipeline; PumpEng and Barnes announced; $125M combined purchase price; accretive goals .Closed PumpEng; Barnes adds foundry capacity and Latin America footprint; potential for more strategic deals .Ongoing bolt-ons with openness to transformational deals.

Management Commentary

  • “Strong performance in our Energy Systems segment helped offset unfavorable weather impacting our Distribution business… One-time expenses associated with our executive transition and recent acquisitions presented earnings headwinds” — CEO, Joe Ruzynski .
  • “Gross margin was up slightly for the quarter at 36%… operating margins… down slightly year-over-year as we absorbed onetime SG&A costs… totaling about $0.07 of EPS” — CEO .
  • “We used $19.5 million in net cash flows from operating activities… as we invested in higher inventory levels to get ahead of potential tariffs. We also invested $110 million for the Barnes and PumpEng acquisitions” — Interim CFO, Russell Fleeger .
  • “Our overall percentage of COGS from China is under 10%… Barnes gives us added foundry capacity in the Americas” — CEO .
  • “We launched… OVERSITE… to remotely monitor and recover critical systems during power disruptions… and our new optimizer product” — CEO .

Q&A Highlights

  • Energy Systems margins sustainability: Management expects margins to remain strong, supported by product mix shift to “smarter solutions,” pricing, and productivity; growth to moderate vs recent trajectory .
  • Water Systems demand vs tariff pull-forward: Orders viewed as organic; selective inventory positioning ahead of tariffs; channel inventories stable heading into busy season .
  • Distribution outlook & M&A: Weather delays impacted Q1 installations; Q2 weather pattern looks more normal; distribution footprint efficiencies prioritized, but open to deals .
  • Tariff exposure and supply chain: Added ~$60M tariff exposure after new actions; mitigation through pricing and footprint moves; COGS from China <10% .
  • Backlog and replacement dynamics: Water book-to-bill >1; backlog up mid- to high-single digits; replacement demand >70–75% in submersibles supports resilience .

Estimates Context

  • Q1 2025 missed consensus: revenue $455.2M vs $470.4M*, EPS $0.67 vs $0.73*, EBITDA $57.2M vs $61.5M*; negative surprise driven by higher SG&A (executive transition and acquisitions), FX, and Distribution weather impacts .
  • Prior quarter beat: Q4 2024 revenue $485.7M vs $465.9M*, EPS $0.72 vs $0.66*, EBITDA $66.0M vs $59.6M*; aided by Energy Systems margin strength and productivity .
  • FY 2025 consensus stands near the maintained sales guidance ($2.14B*) and within updated EPS range ($3.95–$4.25 guided vs $4.16* consensus), suggesting modest estimate downticks on EPS low-end risk from tariff and restructuring effects .

Values retrieved from S&P Global.*

Key Takeaways for Investors

  • Near-term setup: Q1 miss and lowered EPS low-end guide are negatives, but backlog/book-to-bill strength and Energy Systems margins support Q2 recovery as weather normalizes .
  • Energy Systems remains a margin anchor; sustainability supported by smarter solutions and pricing discipline—monitor volumes and grid/critical asset monitoring ramp in coming quarters .
  • Tariff mitigation credible (pricing, footprint, inventory), with limited China COGS exposure (<10%); watch for pricing vs volume trade-offs embedded in guidance .
  • Water Systems’ replacement-heavy demand (>70–75%) plus water treatment strength provide defensive characteristics into a mixed housing backdrop .
  • Distribution margin improvement actions ongoing; weather was transitory; commodity pricing pressure persists—focus on execution and seasonality in Q2 .
  • Capital deployment remains active: two acquisitions (~$50M revenue contribution; ~$125M combined purchase price) and pipeline intact; potential for more strategic transactions given balance sheet capacity .
  • Dividend consistency and buyback authorization provide capital return floor; monitor effective tax rate drift (~25% in Q1) and any pension termination impacts as updates come through the year .