FRANKLIN ELECTRIC CO INC

Previous wording

Refer to the Company's Annual Report on Form 10-K for the year ended December 31, 2024 for management’s discussion and analysis of its financial condition and results of operations. The following is management’s discussion and analysis of the Company's financial condition and results of operations for the three months ended March 31, 2025 and 2024.

Current wording

Refer to the Company's Annual Report on Form 10-K for the year ended December 31, 2024 for management’s discussion and analysis of its financial condition and results of operations. The following is management’s discussion and analysis of the Company's financial condition and results of operations for the second quarter and six months ended June 30, 2025 and 2024.

Previous wording

In the first quarter of 2025, the Company acquired Barnes de Colombia S.A. (Barnes), a leading manufacturer and distributor of industrial and commercial pumps based in Colombia. Also in the first quarter of 2025, the Company acquired PumpEng Pty Ltd ("PumpEng"), an Australia-based company that specializes in the design, manufacture and service of submersible pumps for the mining sector. Acquisitions contributed approximately $5.7 million of incremental net sales in the first quarter of 2025. Refer to Note 2 in Item 1 of this Quarterly Report on Form 10-Q for additional information on the Barnes and PumpEng acquisitions.

Current wording

In the first quarter of 2025, the Company acquired Barnes de Colombia S.A. (Barnes), a leading manufacturer and distributor of industrial and commercial pumps based in Colombia. Also in the first quarter of 2025, the Company acquired PumpEng Pty Ltd ("PumpEng"), an Australia-based company that specializes in the design, manufacture and service of submersible pumps for the mining sector. Acquisitions contributed approximately $21.0 million of incremental net sales in the first six months of 2025. Refer to Note 2 in Item 1 of this Quarterly Report on Form 10-Q for additional information on the Barnes and PumpEng acquisitions.

Previous wording

Net sales in the first quarter of 2025 decreased 1 percent from the prior-year period. The sales decrease was primarily due to lower volumes and the negative impact of foreign currency translation, partially offset by price realization and the incremental sales impact from recent acquisitions. The Company's consolidated gross profit was $163.9 million for the first quarter of 2025, an increase of $0.3 million from the prior-year period. Diluted earnings per share was $0.67 for the first quarter of 2025, a decrease of $0.03 from the prior-year period.

Current wording

Net sales in the second quarter and first six months of 2025 increased 8 percent and 4 percent, respectively, as compared to the prior-year periods. The sales increases were due to higher volumes, price realization, and the incremental sales impact from recent acquisitions, partially offset by the negative impact of foreign currency translation. The Company's consolidated gross profit was $211.8 million and $375.7 million, respectively, for the second quarter and first six months of 2025, increases of 6 percent and 3 percent, respectively, from the prior-year periods. Diluted earnings per share was $1.31 and $1.97, respectively, for the second quarter and first six months of 2025, increases of $0.05 and unchanged, respectively, from the prior-year periods.

Previous wording

Net sales in the first quarter of 2025 were $455.2 million and decreased 1 percent as compared to the prior-year period. Sales were negatively impacted by changes in foreign exchange rates, partly due to the strengthening of the U.S. Dollar relative to the Argentine Peso and Turkish Lira. However, the Company increases prices in the local currency to offset the impact of currency devaluation in the Argentina and Turkey hyperinflationary economies. The Company's results in the first quarter of 2025 were also negatively impacted by the strengthening of the U.S. Dollar relative to the Brazilian Real and Canadian Dollar. As a result, the net negative impact of foreign currency exchange rates on net sales was 2 percent in the first quarter of 2025 compared to the same period in the prior year.

Current wording

Net sales in the second quarter and first six months of 2025 were $587.4 million and $1.0 billion, respectively, and increased 8 percent and 4 percent, respectively, as compared to the prior-year periods. Sales were negatively impacted by changes in foreign exchange rates, partly due to the strengthening of the U.S. Dollar relative to the Argentine Peso and Turkish Lira. However, the Company increases prices in the local currency to offset the impact of currency devaluation in the Argentina and Turkey hyperinflationary economies. As a result, the net negative impact of foreign currency exchange rates on net sales was less than 1 percent in the second quarter and 1 percent in the first six months of 2025 compared to the same period in the prior year.

Previous wording

Water Systems net sales increased less than 1 percent in the first quarter, as compared to the prior-year period. The sales growth in the first quarter was due to the incremental sales impact from recent acquisitions of approximately 2 percent and price realization. Sales decreased 3 percent in the first quarter of 2025 due to the negative impact from foreign exchange rates, as compared to prior-year period.

Current wording

Water Systems net sales increased 8 percent in the second quarter and 4 percent in the first six months of 2025, as compared to the prior-year periods. The sales growth in the second quarter and the first six months of 2025 was due to incremental sales impact from recent acquisitions of approximately 5 percent and 3 percent, respectively, favorable volumes, and price realization. These increases were partially offset by the negative impact from foreign exchange rates. Sales decreased less than 1 percent in the second quarter and approximately 1 percent in the first six months of 2025 due to the negative impact from foreign exchange rates, as compared to prior-year periods.

Previous wording

Water Systems net sales in the U.S. and Canada increased 2 percent in the first quarter of 2025, as compared to the prior-year period. Sales decreased 1 percent in the first quarter due to the negative impact of foreign exchange rates, as compared to prior year, while sales increased 1 percent in the first quarter of 2025 due to the incremental sales impact from recent acquisitions. Sales of groundwater pumping equipment increased 6 percent and sales of water treatment products increased 7 percent compared to 2024. Partially offsetting the increase, sales of large dewatering equipment decreased 8 percent and sales of all other surface pumping equipment decreased 7 percent compared to 2024.

Current wording

Water Systems net sales in the U.S. and Canada increased 5 percent in the second quarter and 4 percent in the first six months of 2025, as compared to the prior-year periods. In the second quarter of 2025, sales of large dewatering equipment increased 20 percent, sales of water treatment products increased 7 percent, sales of all other surface pumping equipment increased 2 percent and sales of groundwater pumping equipment decreased 4 percent compared to 2024. In the first six months of 2025, sales of large dewatering equipment increased 7 percent, sales of water treatment products increased 7 percent, sales of groundwater pumping equipment increased 1 percent and sales of all other surface pumping equipment decreased 2 percent compared to 2024.

Previous wording

Water Systems net sales in markets outside the U.S. and Canada decreased 2 percent in the first quarter of 2025, as compared to the prior-year period. Sales decreased 5 percent in the first quarter due to the negative impact of foreign exchange rates, as compared to prior year, while sales increased 4 percent in the first quarter of 2025 due to the incremental sales impact from recent acquisitions. Excluding the impact of foreign currency translation and acquisitions, sales declines in the Latin America and Asia Pacific regions was partly offset by sales growth in the European region.

Current wording

Water Systems net sales in markets outside the U.S. and Canada increased 12 percent in the second quarter and 5 percent in the first six months of 2025, as compared to the prior-year periods. The sales growth in the second quarter and the first six months of 2025 was to due incremental sales impact from recent acquisitions of 11 percent and 8 percent, respectively. Sales decreased 1 percent in the second quarter and 3 percent in the first six months of 2025 due to the negative impact from foreign exchange rates, as compared to prior-year periods, while sales increased 11 percent and 8 percent, respectively, compared to prior-year periods due to the incremental sales impact from recent acquisitions. Excluding the impact of foreign currency translation and acquisitions, in both the second quarter and first six months of 2025, sales growth in the Latin America and Asia Pacific regions was partly offset by sales declines in the European region.

Previous wording

Energy Systems net sales increased 8 percent in the first quarter of 2025, as compared to the prior-year period. The sales increase was primarily due to price realization and favorable volumes.

Current wording

Energy Systems net sales increased 6 percent in the second quarter and 7 percent in the first six months of 2025, as compared to the prior-year periods. This sales increase was primarily due to price realization and favorable volumes.

Previous wording

Energy Systems net sales in the U.S. and Canada increased 10 percent in the first quarter of 2025, as compared to the prior-year period due to higher sales of fuel pumping systems and piping. Outside the U.S. and Canada, Energy Systems net sales decreased 6 percent in the first quarter of 2025, as compared to the prior-year period primarily due to lower sales in Latin America.

Current wording

Energy Systems net sales in the U.S. and Canada increased 6 percent in the second quarter and 8 percent in the first six months of 2025, as compared to the prior-year periods. The increase was primarily in fuel management systems and pumping systems. Outside the U.S. and Canada, Energy Systems sales increased 14 percent in the second quarter and 3 percent in the first six months of 2025, as compared to the prior-year periods, due primarily to sales growth in the Asia Pacific region.

Previous wording

Distribution net sales decreased 3 percent in the first quarter of 2025, as compared to the prior-year period. The Distribution segment sales decreased due to lower volumes and the negative impact of commodity pricing declines.

Current wording

Distribution net sales increased 5 percent in the second quarter and 1 percent in the first six months of 2025, as compared to the prior-year periods. The Distribution segment sales increased due to favorable volumes partly offset by the negative impact of commodity pricing declines.

Previous wording

The gross profit margin ratio was 36.0 percent in the first quarter of 2025 and 35.5 percent in the first quarter of 2024, respectively. The gross profit margin was favorably impacted in the first quarter of 2025 by a favorable geographic sales mix in Energy Systems and improved performance in Distribution.

Current wording

The gross profit margin ratio was 36.1 percent and 36.0 percent in the second quarter and first six months of 2025, respectively, and 36.8 percent and 36.2 percent in the second quarter and first six months of 2024, respectively. The gross profit margin was unfavorably impacted in the second quarter and first six months of 2025 by Water Systems which was impacted by an unfavorable product and geographic sales mix shift.

Previous wording

SG&A expenses were $119.6 million in the first quarter of 2025 compared to $115.6 million in the first quarter of 2024. SG&A expenses increased in the first quarter of 2025 primarily due to higher employee compensation costs, including incremental expenses associated with the Company’s executive leadership transitions, and the incremental expense impact of recent acquisitions. The SG&A expenses ratio was 26.3 percent in the first quarter of 2025 and 25.1 percent in the first quarter of 2024, respectively.

Current wording

SG&A expenses were $123.5 million in the second quarter and $243.2 million in the first six months of 2025 compared to $120.6 million in the second quarter and $236.3 million in the first six months of 2024. SG&A expenses increased in the second quarter and first six months of 2025 primarily due higher employee compensation costs, including incremental expenses associated with the Company’s executive leadership transitions, and the incremental expense impact of recent acquisitions. The SG&A expenses ratio was 21.0 percent and 23.3 percent in the second quarter and first six months of 2025, respectively, and 22.2 percent and 23.5 percent in the second quarter and first six months of 2024, respectively.

Previous wording

Water Systems operating income in the first quarter of 2025 was $43.4 million, a decrease of $3.7 million as compared to the prior-year period. The first quarter operating income margin was 15.1 percent, a decrease of 130 basis points from 16.4 percent in the first quarter of 2024. The decrease in operating income and margin was primarily due to incremental expenses associated with recent acquisitions.

Current wording

Water Systems operating income in the second quarter and first six months of 2025 was $61.8 million and $105.3 million, respectively, decreases of $0.5 million and $4.2 million, respectively, as compared to the prior-year periods. The second quarter operating income margin was 18.1 percent, a decrease of 160 basis points from 19.7 percent in the second quarter of 2024. The first six months of 2025 operating income margin was 16.8 percent, a decrease of 140 basis points from 18.2 percent in the first six months of 2024. The decrease in operating income and margin was primarily due to incremental expenses associated with recent acquisitions and an unfavorable product and geographic sales mix shift.

Previous wording

Energy Systems operating income in the first quarter of 2025 was $21.9 million, an increase of $3.1 million as compared to the prior-year period. The increase was primarily due to higher sales. The first quarter operating income margin was 32.8 percent, an increase of 250 basis points from 30.3 percent in the first quarter of 2024. Operating income margin increased primarily due to price realization and a favorable geographic sales mix shift.

Current wording

Energy Systems operating income in the second quarter and first six months of 2025 was $29.1 million and $51.0 million, respectively, increases of $3.1 million and $6.2 million, respectively, as compared to the prior-year periods. The increases were primarily due to higher sales. The second quarter operating income margin was 37.5 percent, an increase of 190 basis points from 35.6 percent in the second quarter of 2024. The first six months of 2025 operating income margin was 35.3 percent, an increase of 220 basis points from 33.1 percent in the first six months of 2024. Operating income margin increased primarily due to price realization, cost management, and a favorable product sales mix shift.

Previous wording

Distribution operating income in the first quarter of 2025 was $2.1 million, an increase of $0.3 million as compared to the prior-year period. The first quarter operating income margin was 1.5 percent, an increase of 30 basis points from 1.2 percent in the first quarter of 2024. Operating income and operating income margin increased in the first quarter of 2025 primarily due to reduced SG&A expenses as a result of cost actions implemented in 2024 to improve the performance of the segment.

Current wording

Distribution operating income in the second quarter and first six months of 2025 was $16.1 million and $18.2 million, respectively, increases of $6.3 million and $6.5 million, respectively, as compared to the prior-year periods. The second quarter operating income margin was 8.1 percent, an increase of 300 basis points from 5.1 percent in the second quarter of 2024. The first six months of 2025 operating income margin was 5.3 percent, an increase of 180 basis points from 3.5 percent in the first six months of 2024. Operating income and operating income margins increased primarily due to higher sales and reduced SG&A expenses as a result of cost actions implemented in 2024 to improve the performance of the segment.

Previous wording

Operating income-Eliminations/Other is composed primarily of intersegment sales and profit eliminations and unallocated general and administrative expenses. The intersegment profit elimination impact in the first quarter of 2025 compared to the prior-year period of 2024 was an unfavorable $1.4 million. The intersegment elimination of operating income effectively defers the operating income on sales from Water Systems to Distribution in the consolidated financial results until such time as the transferred product is sold from the Distribution segment to its end third party customer. General and administrative expenses increased $2.1 million compared to the prior-year period. The increase was primarily driven by higher employee compensation costs, including incremental expenses associated with the Company’s executive leadership transitions.

Current wording

Operating income-Eliminations/Other is composed primarily of intersegment sales and profit eliminations and unallocated general and administrative expenses. The intersegment profit elimination impact in the second quarter and first six months of 2025 compared to the prior-year periods of 2024 was a favorable $2.0 million and $0.7 million, respectively. The intersegment elimination of operating income effectively defers the operating income on sales from Water Systems to Distribution in the consolidated financial results until such time as the transferred product is sold from the Distribution segment to its end third party customer. General and administrative expenses increased $1.9 million and $4.1 million, respectively, compared to the prior-year periods, primarily due to higher employee compensation costs, including incremental expenses associated with the Company’s executive leadership transitions.

Previous wording

Interest expense was $1.8 million in the first quarter of 2025 and $1.4 million in the first quarter of 2024, respectively. The increase in the first quarter of 2025 was primarily driven by a higher average amount of outstanding debt.

Current wording

Interest expense was $2.8 million and $4.6 million in the second quarter and first six months of 2025, respectively, and $2.0 million and $3.4 million in the second quarter and first six months of 2024, respectively. The increases in the second quarter and first six months of 2025 were primarily driven by higher average amount of outstanding debt.

Previous wording

Foreign currency-based transactions produced a net loss of $1.3 million in the first quarter of 2025 and $4.9 million in the first quarter of 2024, respectively. The results in the first quarters of 2025 and 2024 are primarily due to transaction losses associated with the Turkish Lira and Argentine Peso relative to the U.S. Dollar. The Company reports the results of its subsidiaries in Argentina and Turkey using highly inflationary accounting, which requires that the functional currency of the entity be changed to the reporting currency of its parent.

Current wording

Foreign currency-based transactions produced an expense of $4.5 million and $5.8 million in the second quarter and first six months of 2025, respectively, and an expense of $0.4 million and $5.3 million in the second quarter and first six months of 2024, respectively. The results in the second quarters and first six months of 2025 and 2024 are primarily due to transaction losses associated with the Argentine Peso and Turkish Lira relative to the U.S. dollar The Company reports the results of its subsidiaries in Argentina and Turkey using highly inflationary accounting, which requires that the functional currency of the entity be changed to the reporting currency of its parent.

Previous wording

The provision for income taxes in the first quarters of 2025 and 2024 was $10.5 million and $9.2 million, respectively. The effective tax rate for the first quarters of 2025 and 2024 was 25.0 percent and 21.8 percent, respectively. The increase in the effective tax rate was due to an increase in foreign earnings taxed at rates higher than the U.S. statutory rate, a decreased benefit in the U.S. foreign-derived intangible income (FDII) provision related to a prior year prepayment of inventory from foreign subsidiaries, and less favorable discrete events in 2025, primarily related to excess tax benefits from share-based compensation.

Current wording

The provision for income taxes in the second quarter and first six months of 2025 was $20.1 million and $30.5 million, respectively, and $17.6 million and $26.8 million in the second quarter and first six months of 2024, respectively. The effective tax rate for both the second quarter and first six months of 2025 was 24.9 percent, and 22.9 percent and 22.5 percent in the second quarter and the first six months of 2024, respectively. The increase in the effective tax rate was due to mix of foreign earnings taxed at rates different than the U.S. statutory rate, a decreased benefit in the U.S. foreign-derived intangible income (FDII) provision related to a prior year prepayment of inventory from foreign subsidiaries, and less favorable discrete events in 2025, primarily related to excess tax benefits from share-based compensation.

Previous wording

As of March 31, 2025, the Company had a $350.0 million revolving credit facility. The facility is scheduled to mature on May 13, 2026. As of March 31, 2025, the Company had $281.6 million borrowing capacity under its credit agreement as $4.6 million in letters of commercial and standby letters of credit were outstanding and undrawn and $63.8 million revolver borrowings were drawn or outstanding.

Current wording

As of June 30, 2025, the Company had a $350.0 million revolving credit facility. The facility is scheduled to mature on May 14, 2030. As of June 30, 2025, the Company had $159.4 million borrowing capacity under its credit agreement as $4.6 million in letters of commercial and standby letters of credit were outstanding and undrawn and $186.0 million revolver borrowings were drawn or outstanding.

Previous wording

In addition, the Company maintains an uncommitted and unsecured private shelf agreement with NYL Investors LLC, an affiliate of New York Life, and each of the undersigned holders of Notes (the "New York Life Agreement"). On May 15, 2024, the Company entered into Amendment No. 1 that increased the total available facility amount from lenders to $250.0 million from $200.0 million. As of March 31, 2025, the remaining borrowing capacity on the New York Life Agreement was $175.0 million. The Company also maintains the Fourth Amended and Restated Note Purchase and Private Shelf Agreement (the "Prudential Agreement") with PGIM, Inc. and its affiliates. On May 15, 2024, the Company entered into Amendment No. 1 that increased the total available facility amount from lenders to $250.0 million from $150.0 million. The maturity dates of both agreements were extended from July 30, 2024 to May 15, 2027.

Current wording

In addition, the Company maintains an uncommitted and unsecured private shelf agreement with NYL Investors LLC, an affiliate of New York Life, and each of the undersigned holders of Notes (the "New York Life Agreement") with a remaining borrowing capacity on the New York Life Agreement was $175.0 million as of June 30, 2025. The maturity date of the agreement is May 15, 2027.

Previous wording

At March 31, 2025, the Company had $65.2 million of cash and cash equivalents held in foreign jurisdictions, which is intended to be used to fund foreign operations. There is currently no need or intent to repatriate the majority of these funds in order to meet domestic funding obligations or scheduled cash distributions.

Current wording

At June 30, 2025, the Company had $97.6 million of cash and cash equivalents held in foreign jurisdictions, which is intended to be used to fund foreign operations. There is currently no need or intent to repatriate the majority of these funds in order to meet domestic funding obligations or scheduled cash distributions.

Previous wording

The following table summarizes significant sources and uses of cash and cash equivalents for the first three months of 2025 and 2024.

Current wording

The following table summarizes significant sources and uses of cash and cash equivalents for the first six months of 2025 and 2024.

Previous wording

Net cash used in operating activities was $19.5 million for the three months ended March 31, 2025 compared to $1.4 million used by operating activities for the three months ended March 31, 2024. The change in operating cash flow was primarily attributable to changes in working capital and lower earnings.

Current wording

Net cash provided by operating activities was $32.0 million for the six months ended June 30, 2025 compared to $35.0 million used by operating activities for the six months ended June 30, 2024. The change in operating cash flow was primarily attributable to changes in working capital.

Previous wording

Net cash used in investing activities was $116.1 million for the three months ended March 31, 2025 compared to $10.2 million used in investing activities for the three months ended March 31, 2024. The change in investing cash flow was primarily attributable to the Barnes and PumpEng acquisitions in the first three months of 2025.

Current wording

Net cash used in investing activities was $127.3 million for the six months ended June 30, 2025 compared to $20.2 million used in investing activities for the six months ended June 30, 2024. The change in investing cash flow was primarily attributable to the Barnes and PumpEng acquisitions in the first six months of 2025.

Previous wording

Net cash used in financing activities was $2.6 million for the three months ended March 31, 2025 compared to $6.3 million used in financing activities for the three months ended March 31, 2024. The change in financing cash flow was primarily due to higher net borrowings under the Company's credit facility in 2025 compared to 2024, partially offset by the payment of contingent consideration associated with a 2023 acquisition.

Current wording

Net cash used in financing activities was $22.1 million for the six months ended June 30, 2025 compared to $38.7 million used in financing activities for the six months ended June 30, 2024. The change in financing cash flow was primarily due to higher net borrowings under the Company's credit facility in 2025 compared to 2024, partially offset by increased repurchases of Company stock.