FRANKLIN ELECTRIC CO INC

Previous wording

Refer to the Company's Annual Report on Form 10-K for the year ended December 31, 2025 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, 2026 and 2025.

Current wording

Refer to the Company's Annual Report on Form 10-K for the year ended December 31, 2025 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, 2026 and 2025.

Previous wording

Net sales in the first quarter of 2026 were $500.4 million, an increase of $45.2 million or 10 percent compared to 2025 first quarter sales of $455.2 million. The sales increase was primarily due to higher sales volumes and price realization of 6 percent, positive impact of foreign exchange rates of 2 percent, and incremental sales impact from recent acquisitions of 2 percent.

Current wording

Net sales in the second quarter and first six months of 2026 were $622.9 million and $1.1 billion, respectively, and increased 6 percent and 8 percent, respectively, as compared to the prior-year periods. The sales increase for the second quarter three months was primarily due to incremental sales impact from recent acquisitions of 3 percent, price and volume increases of 2 percent, and the positive impact of foreign exchange rates of 1 percent. The sales increase for the first six months was primarily due to higher sales volumes and price realization of 4 percent, positive impact of foreign exchange rates of 2 percent, and incremental sales impact from recent acquisitions of 2 percent.

Previous wording

Water Systems net sales in the U.S. and Canada increased 7 percent compared to the first quarter of 2025. Sales increased 1 percent in the first quarter due to the positive impact of foreign exchange rates, as compared to prior year. Sales increased less than 1 percent in the first quarter due to the incremental sales impact from recent acquisitions. The sales increase was led by sales of all other surface pumping equipment up 17 percent, as sales of water treatment products increased 8 percent and sales of groundwater pumping equipment increased 3 percent. These sales increases were partially offset by lower sales of large dewatering equipment of 9 percent compared to 2025. Water Systems net sales in markets outside the U.S. and Canada increased 17 percent compared to the first quarter of 2025. Sales increased 8 percent in the first quarter of 2026 due to the positive impact from foreign exchange rates, as compared to the prior year. Sales increased 7 percent in the first quarter due to the incremental sales impact from recent acquisitions. Outside the U.S. and Canada, sales increased primarily in Asia Pacific and Latin America, as EMEA sales were down year over year.

Current wording

Water Systems net sales in the U.S. and Canada increased 8 percent in the second quarter and 7 percent in the first six months of 2026, as compared to the prior-year periods. In the second quarter of 2026, sales of groundwater pumping equipment increased 12 percent, sales of water treatment products increased 14 percent and sales of all other surface pumping equipment increased 7 percent. These sales increases were partially offset by lower sales of large dewatering equipment of 10 percent compared to 2025. In the first six months of 2026, sales of groundwater pumping equipment increased 8 percent, sales of water treatment products increased 10 percent and sales of all other surface pumping equipment increased 11 percent. These sales increases were partially offset by lower sales of large dewatering equipment of 10 percent compared to 2025. Water Systems net sales in markets outside the U.S. and Canada increased 1 percent in the second quarter and 8 percent in the first six months of 2026, as compared to the prior-year periods. The sales growth in the second quarter and the first six months of 2026 was due to incremental sales impact from recent acquisitions of 1 percent and 4 percent, respectively. Sales increased 5 percent in the second quarter and 6 percent in the first six months of 2026 due to the favorable impact from foreign exchange rates, as compared to prior-year periods. Excluding the impact of foreign currency translation and acquisitions, in both the second quarter and first six months of 2026, the sales growth in the Asia Pacific regions was more than offset by sales declines in the Latin America and European regions.

Previous wording

Energy Systems net sales in the U.S. and Canada increased 3 percent compared to the first quarter of 2025 due to increases in sales of fuel management and pumping systems. Outside the U.S. and Canada, Energy Systems net sales increased 29 percent, due primarily to higher sales in Asia Pacific.

Current wording

Energy Systems net sales in the U.S. and Canada increased 1 percent in the second quarter and 2 percent in the first six months of 2026, 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 12 percent in the second quarter and 18 percent in the first six months of 2026, as compared to the prior-year periods, due primarily to sales growth in the European and African regions.

Previous wording

Water Systems net sales were $318.0 million in the first quarter of 2026, an increase of $30.7 million or 11 percent compared to the first quarter of 2025 net sales of $287.3 million. The sales increase was due to higher sales volumes and price realization, the positive impact of foreign exchange rates, and the incremental sales impact from recent acquisitions.

Current wording

Distribution net sales were $221.1 million in the second quarter of 2026, an increase of $21.1 million or 11 percent compared to the second quarter of 2025 net sales of $200.0 million. Distribution net sales were $372.0 million for the first six months of 2026, an increase of $30.1 million or 9 percent compared to the first six months of 2025 net sales of $341.9 million. The net sales increase was due to higher sales volumes and price realization and the incremental sales impact from recent acquisitions.

Previous wording

The gross profit margin ratio was 35.0 percent in 2026 and 36.0 percent in first quarter of 2025. The gross profit margin was unfavorably impacted in the first quarter of 2026 by higher material costs, primarily tariff costs, and an unfavorable product and geographic sales mix shift.

Current wording

The gross profit margin ratio was 37.0 percent and 36.1 percent in the second quarter and first six months of 2026, respectively, and 36.1 percent and 36.0 percent in the second quarter and first six months of 2025, respectively. The gross profit margin was favorably impacted in the second quarter by tariff refunds while the first six months of 2026 was impacted by an unfavorable product and geographic sales mix shift.

Previous wording

SG&A expenses were $123.0 million in the first quarter of 2026 compared to $119.6 million in the first quarter of 2025. The increase was primarily due to the incremental expense impact from recent acquisitions. SG&A as a percent of net sales was 24.6 percent in the first quarter of 2026 and 26.3 percent in the first quarter of 2025.

Current wording

SG&A expenses were $132.1 million in the second quarter and $255.1 million in the first six months of 2026 compared to $123.5 million in the second quarter and $243.2 million in the first six months of 2025. SG&A expenses increased in the second quarter and first six months of 2026 from the incremental expense impact of recent acquisitions. The SG&A expenses ratio (SG&A as a percentage of net sales) was 21.2 percent and 22.7 percent in the second quarter and first six months of 2026, respectively, and 21.0 percent and 23.3 percent in the second quarter and first six months of 2025, respectively.

Previous wording

There were $3.9 million restructuring expenses in the Water Systems segment in first quarter of 2026 compared to $0.0 million in the first quarter of 2025. There were $0.0 million restructuring expense in the Distribution segment in the first quarter of 2026 compared to$0.2 million in first quarter of 2025. Restructuring expenses were primarily from continued manufacturing and business realignment activities.

Current wording

There were $0.4 million and $4.3 million in restructuring expenses in the second quarter and first six months of 2026, compared to $0.2 million and $0.3 million restructuring expenses in the second quarter and first six months of 2025. Restructuring expenses were primarily from continued manufacturing realignment activities.

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 2026 compared to the first quarter of 2025 was unfavorable $0.2 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 were flat compared to the prior year.

Current wording

Operating income-Eliminations/Other in the second quarter and first six months of 2026 was $19.2 million and $42.7 million, respectively, increases of $0.3 million and $0.4 million, respectively, as compared to the prior-year periods. 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 2026 compared to the prior-year periods of 2025 was an unfavorable $1.2 million and $1.3 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 decreased $0.9 million and $0.8 million, respectively, compared to the previous year’s periods.

Previous wording

Foreign currency-based transactions produced a gain in the first quarter of 2026 of $0.4 million and a loss of $1.3 million in the first quarter of 2025. The expense in 2025 was 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.

Current wording

Foreign currency-based transactions produced an expense of $2.5 million and $2.1 million in the second quarter and first six months of 2026, respectively, and an expense of $4.5 million and $5.8 million in the second quarter and first six months of 2025, respectively. The results in the second quarters and first six months of 2026 and 2025 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

As of March 31, 2026, the Company had a $350.0 million revolving credit facility. The facility is scheduled to mature on May 14, 2030. As of March 31, 2026, the Company had $256.6 million borrowing capacity under its credit agreement as $6.4 million in letters of commercial and standby letters of credit were outstanding and undrawn and $87.0 million revolver borrowings were drawn or outstanding.

Current wording

As of June 30, 2026, the Company had a $350.0 million revolving credit facility. The facility is scheduled to mature on May 14, 2030. As of June 30, 2026, the Company had $236.6 million borrowing capacity under its credit agreement as $6.4 million of commercial and standby letters of credit were outstanding and undrawn and $107.0 million revolver borrowings were drawn or outstanding.

Previous wording

The Company has a firm, non‑cancellable purchase commitment with a vendor for copper with an aggregate remaining obligation of approximately $4.0 million, expected to be fulfilled within the next year.

Current wording

The Company has a firm, non‑cancellable purchase commitment with a vendor for copper with an aggregate remaining obligation of approximately $3.4 million, expected to be fulfilled within the next year.

Previous wording

At March 31, 2026, the Company had $72.2 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, 2026, the Company had $76.7 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 2026 and 2025.

Current wording

The following table summarizes significant sources and uses of cash and cash equivalents for the first six months of 2026 and 2025.

Previous wording

Net cash used by operating activities was $40.9 million for the three months ended March 31, 2026 compared to $19.5 million used by operating activities for the three months ended March 31, 2025. The change in operating cash flow was primarily attributable to changes in working capital.

Current wording

Net cash provided by operating activities was $58.7 million for the six months ended June 30, 2026 compared to $32.0 million provided by operating activities for the six months ended June 30, 2025. The change in operating cash flow was primarily attributable to an increase in net income and changes in working capital.

Previous wording

Net cash used in investing activities was $9.5 million for the three months ended March 31, 2026 compared to $116.1 million used in investing activities for the three months ended March 31, 2025. The change in investing cash flow was primarily attributable to decreased acquisition activity in the first three months of 2026.

Current wording

Net cash used in investing activities was $90.9 million for the six months ended June 30, 2026 compared to $127.3 million used in investing activities for the six months ended June 30, 2025. The change in investing cash flow was primarily attributable to decreased acquisition activity in the first six months of 2026 compared to the prior year.

Previous wording

Net cash provided by financing activities was $32.6 million for the three months ended March 31, 2026 compared to $2.6 million used in financing activities for the three months ended March 31, 2025. The change in financing cash flow was primarily due to increased net borrowings under the Company's credit facility in 2026 compared to 2025, partially offset by increased repurchases of Company stock.

Current wording

Net cash provided by financing activities was $36.1 million for the six months ended June 30, 2026 compared to $22.1 million used in financing activities for the six months ended June 30, 2025. The change in financing cash flow was primarily due to decreased repurchases of Common Stock in 2026 compared to 2025.

Previous wording

This quarterly report on Form 10-Q contains certain forward-looking information, such as statements about the Company’s financial goals, acquisition strategies, financial expectations including anticipated revenue or expense levels, business prospects, market positioning, product development, manufacturing re-alignment, capital expenditures, tax benefits and expenses, and the effect of contingencies or changes in accounting policies. Forward-looking statements are typically identified by words or phrases such as “believe,” “expect,” “anticipate,” “intend,” “estimate,” “may increase,” “may fluctuate,” “plan,” “goal,” “target,” “strategy,” and similar expressions or future or conditional verbs such as “may,” “will,” “should,” “would,” and “could.” While the Company believes that the assumptions underlying such forward-looking statements are reasonable based on present conditions, forward-looking statements made by the Company involve risks and uncertainties and are not guarantees of future performance. Actual results may differ materially from those forward-looking statements as a result of various factors, including regional or general economic and currency conditions, various conditions specific to the Company’s business and industry, new housing starts, weather conditions, epidemics and pandemics, market demand, competitive factors, changes in distribution channels, supply constraints, effect of price increases, raw material costs and availability, technology factors, integration of acquisitions, litigation, government and regulatory actions, changes in tariffs or the impact of any such changes on the Company's financial results, the Company’s accounting policies, and other risks, all as described in the Company's Securities and Exchange Commission filings, included in Part I, Item 1A of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2025, and in Exhibit 99.1 thereto. Any forward-looking statements included in this Form 10-Q are based upon information presently available. The Company does not assume any obligation to update any forward-looking information, except as required by law.

Current wording

This quarterly report on Form 10-Q contains certain forward-looking information, such as statements about the Company’s financial goals, acquisition strategies, financial expectations including anticipated revenue or expense levels, business prospects, market positioning, product development, manufacturing realignment, capital expenditures, tax benefits and expenses, and the effect of contingencies or changes in accounting policies. Forward-looking statements are typically identified by words or phrases such as “believe,” “expect,” “anticipate,” “intend,” “estimate,” “may increase,” “may fluctuate,” “plan,” “goal,” “target,” “strategy,” and similar expressions or future or conditional verbs such as “may,” “will,” “should,” “would,” and “could.” While the Company believes that the assumptions underlying such forward-looking statements are reasonable based on present conditions, forward-looking statements made by the Company involve risks and uncertainties and are not guarantees of future performance. Actual results may differ materially from those forward-looking statements as a result of various factors, including regional or general economic and currency conditions, various conditions specific to the Company’s business and industry, new housing starts, weather conditions, epidemics and pandemics, market demand, competitive factors, changes in distribution channels, supply constraints, effect of price increases, raw material costs and availability, technology factors, integration of acquisitions, litigation, government and regulatory actions, changes in tariffs or the impact of any such changes on the Company's financial results, the Company’s accounting policies, and other risks, all as described in the Company's Securities and Exchange Commission filings, included in Part I, Item 1A of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2025, and in Exhibit 99.1 thereto. Any forward-looking statements included in this Form 10-Q are based upon information presently available. The Company does not assume any obligation to update any forward-looking information, except as required by law.