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FE

FRANKLIN ELECTRIC CO INC (FELE)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 revenue rose 3% year over year to $485.7M, but EPS fell to $0.72 on higher SG&A and $3.4M restructuring; operating margin compressed to 8.9% from 10.7% in Q4 2023 .
  • Strength in Energy Systems (formerly Fueling) with record Q4 operating income and 35.9% margin offset weakness in Water Systems mix and Distribution margin pressure; Water was flat and dewatering demand declined sharply YoY .
  • Management issued FY2025 guidance: sales $2.09–$2.15B and GAAP EPS $4.05–$4.25; pension plan termination process could affect results, not included in guidance; dividend increased 6% to $0.265 .
  • Order trends/book-to-bill improved exiting 2024; 2025 setup: FX headwind $15–$20M (~1% of sales), organic sales +1–4%, organic EPS +3–7%, fleet dewatering expected flat YoY, capex ~2.5% of sales .

What Went Well and What Went Wrong

What Went Well

  • Energy Systems delivered record Q4 operating income ($24.7M) and 35.9% margin, driven by price realization, productivity and favorable geographic mix; U.S. sales up 10% YoY . “Operating income margin increased primarily due to improved manufacturing productivity and a favorable geographic mix of sales” .
  • International growth remained resilient across EMEA, APAC and Latin America in Water Systems excluding FX; management emphasized improved order trends and favorable book-to-bill entering 2025 .
  • Free cash flow conversion for FY2024 was strong at 122% as working capital improved; year-end cash rose to $220.5M .

What Went Wrong

  • EPS and operating income declined YoY on higher SG&A and restructuring; operating margin fell to 8.9% vs 10.7% and EPS to $0.72 vs $0.82 .
  • Water Systems mix/FX headwinds and large dewatering pumps down 36% YoY pressured margins; Water operating margin fell 310 bps to 12.7% .
  • Distribution margin compressed to 0.3% (vs 0.7%) amid commodity pricing declines and seasonal volume, while SG&A was higher; operating income slipped to $0.5M .

Financial Results

MetricQ4 2023Q3 2024Q4 2024
Revenue ($USD Millions)$473.0 $531.4 $485.7
Diluted EPS ($USD)$0.82 $1.17 $0.72
Gross Margin %33.8% 35.7% 33.8%
Operating Income ($USD Millions)$50.8 $73.5 $43.0
Operating Margin %10.7% 13.8% 8.9%
Restructuring Expense ($USD Millions)$0.4 —$3.4
Restructuring EPS Impact ($USD)——$(0.06)

Segment breakdown (Q4 2024 vs Q4 2023):

SegmentQ4 2023 Net Sales ($M)Q4 2024 Net Sales ($M)YoY %Q4 2023 Op Inc ($M)Q4 2024 Op Inc ($M)Q4 2023 Op Margin %Q4 2024 Op Margin %
Water Systems$279.6 $279.6 0% $44.1 $35.6 15.8% 12.7%
Energy Systems$65.7 $68.8 5% $19.4 $24.7 29.5% 35.9%
Distribution$148.0 $157.2 6% $1.0 $0.5 0.7% 0.3%

Key operating KPIs (Q4 2024 vs Q4 2023, Water Systems detail):

KPIQ4 2023Q4 2024YoY Change
Water Treatment SalesIndex+12% YoY +12%
Groundwater Equipment SalesIndex+6% YoY +6%
Other Surface Pump SalesIndex+4% YoY +4%
Large Dewatering Equipment SalesIndex−36% YoY −36%
Energy Systems U.S./Canada SalesIndex+10% YoY +10%
Energy Systems non-U.S. SalesIndex−5% YoY −5%
Q4 Effective Tax Rate17.6% 15.8% −180 bps

Notes:

  • International Water Systems increased across EMEA, APAC, LATAM excluding FX; FX reduced Water sales by ~6% in Q4 .
  • Consolidated gross profit $164.2M in Q4 (+3% YoY) with GM% flat YoY at 33.8% .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Sales ($USD Billions)FY2025N/A$2.09–$2.15 Initiated
GAAP EPS ($USD)FY2025N/A$4.05–$4.25 Initiated
Pension Plan TerminationFY2025N/AProcess initiated; impact not in guidance New disclosure
FX HeadwindFY2025N/A$15–$20M (~1% of sales) New disclosure
Organic Sales GrowthFY2025N/A+1% to +4% New disclosure
Organic EPS GrowthFY2025N/A+3% to +7% New disclosure
Fleet Dewatering OutlookFY2025N/AFlat YoY New disclosure
Capex (% of Sales)FY2025~2% historical ~2.5% Raised
Dividend per Quarter ($)Q1 2025$0.25 $0.265 Raised (6%)

FY2024 guidance context (prior quarters):

  • Company lowered FY2024 sales to ~$2.00B and EPS to $3.75–$3.85 after Q3 results .
  • At Q2, sales guidance was $2.10–$2.17B and EPS $4.16–$4.34; later reduced at Q3 .

Earnings Call Themes & Trends

TopicQ2 2024 (Jul)Q3 2024 (Oct)Q4 2024 (Feb)Trend
Weather/SeasonalityWet U.S. weather delayed installs; Water margin expansion despite sales down Third quarter still wet; tempered orders; fourth quarter expected similar to Q3 Seasonal lower Q1 expected; order trends improved into late 2024 Improving order cadence; residual seasonality persists
Large Dewatering (U.S. fleet)Down 44% YoY in Q2; cyclicality highlighted Full-year dewatering down $60–$70M; major headwind Q4 dewatering −36% YoY in Water; fleet expected flat YoY in 2025 Normalizing vs tough comps; flat guide for FY2025
Energy Systems / FuelingFueling margin record (35.6%); U.S. mix favorable Backlogs normalized; orders up high single digits; international pressure Segment renamed Energy Systems; record Q4 margin 35.9%; U.S. sales +10%; 25% mix from monitoring/grid Transition to energy solutions; margin strength sustained
FX/MacroInput costs stabilizing; strong manufacturing productivity Higher tax rate (~23%); cautious housing backdrop FX headwind expected $15–$20M in 2025; housing depressed near term Ongoing FX headwinds; macro cautious
SG&A/RestructuringDistribution SG&A elevated; actions to reduce costs Announced $3–$5M restructuring estimated for Q4 $3.4M restructuring; segment split: Water $2.3M, Distribution $0.6M, Energy $0.4M Cost actions executed; benefit targeted in 2025
M&A PipelineRobust; bolt-ons; adjacencies (wastewater, mining) Healthy balance sheet; readiness for inorganic growth Closed PumpEng; definitive agreement for Barnes de Colombia; combined ~$50M revenue, ~$$125M purchase, ~$0.03 EPS accretion M&A accelerating; regional vertical integration
Capital AllocationBuybacks and dividend ($0.25) Dividend declared ($0.25) Dividend raised to $0.265; 33rd consecutive increase; ~$1.4M shares authorization remaining Shareholder returns sustained

Management Commentary

  • “Consolidated fourth quarter sales totaled $486 million, up 3% over the prior year period... Operating margins for the quarter were 9%, down from the prior year… unfavorable geographic and product mix in the Water Systems segment and over $3 million of restructuring charges” .
  • “Recognizing our evolving portfolio and strategy, we renamed our Fueling Systems segment to Energy Systems… critical asset monitoring and grid solutions offerings… now make up about 25% of the segment's revenues” .
  • “Energy Systems operating income was $24.7 million… operating income margin was 35.9%… due to improved manufacturing productivity, favorable geographic mix, price realization and cost management” .
  • “We generated $261.4 million in net cash flows from operations… Free cash flow conversion was strong at 122% for the year” .
  • “The company expects its full year 2025 sales… $2.09 billion to $2.15 billion and GAAP EPS… $4.05 to $4.25… initiating a process to terminate our primary U.S. pension plan… no impact assumed in guidance” .
  • “Acquisitions must be accretive within 2 years and able to achieve a target ROIC within 3 years” .
  • “Franklin has about $1 billion of available capacity for transactions… comfortable up to ~3x leverage if the right opportunity presents itself” .

Q&A Highlights

  • Groundwater outlook: Replacement-driven, residential stronger; ag softer; groundwater up low-single digits in Q4/FY; 2025 outlook flattish with share gains .
  • Tariffs: Limited China exposure; prepared to adjust pricing and supply chain; AOP includes potential U.S./Mexico/Canada impacts .
  • Restructuring split: Water ~$2.3M; Distribution ~$0.6M; Energy ~$0.4M in Q4 .
  • Acquisitions (PumpEng, Barnes): Combined ~$50M revenue in 2025, ~$125M purchase price financed with cash, ~+$0.03 EPS accretion; EBITDA margins high-teens to 20%+ .
  • 2025 guidance building blocks: FX −$15–$20M; organic sales +1–4%; organic EPS +3–7%; operating leverage expected from productivity; fleet dewatering flat YoY .
  • Leverage capacity: ~$1B available; covenants 3.5x; comfortable up to ~3x with plan to delever back to ≤2.5x .
  • Productivity benefit: 20–50 bps margin improvement expected; capex ~2.5% of sales to support capacity and growth .

Estimates Context

  • Wall Street consensus from S&P Global for Q4 2024 revenue and EPS was unavailable due to data access limits at the time of this analysis; therefore, we cannot quantify a beat/miss versus consensus (Values retrieved from S&P Global unavailable).
  • Management stated Q4 diluted EPS was at the high end of the company’s guidance range, indicating execution against internal expectations despite restructuring and mix headwinds .

Key Takeaways for Investors

  • Mixed quarter: revenue growth with margin compression; Energy Systems margin strength and improving orders are positives, but Water/Distribution faced mix and commodity pricing pressures .
  • 2025 setup: Guidance implies EPS growth vs $3.86 in FY2024; FX headwind and macro (rates/housing) are watch items; productivity and M&A should aid margins and top-line .
  • Segment dynamics: Energy Systems’ pivot to monitoring/grid solutions (25% mix) and robust U.S. demand are supportive; Water’s large dewatering normalized—monitor replacement-driven categories and international strength .
  • Capital deployment: Strong FCF and cash enable accretive M&A; Barnes de Colombia adds Latin American manufacturing/vertical integration; leverage capacity provides optionality .
  • Cost actions: Q4 restructuring completed; 20–50 bps margin improvement targeted in 2025; capex rising to 2.5% of sales to drive capacity/productivity .
  • Shareholder returns: Dividend increased for 33rd consecutive year; remaining buyback authorization ~1.4M shares .
  • Risk monitors: FX (~$15–$20M headwind), commodity pricing in Distribution, tariff developments, and housing starts trajectory; pension termination process could affect reported results .