Franklin Electric Co. Inc. (NASDAQ:FELE) reported a challenging third quarter of 2023 due to commodity price pressure and destocking, which impacted demand. The company's Water Systems business set records for sales and operating income, a testament to its ability to yield high returns on invested capital, a key insight provided by InvestingPro Tips. The Fueling business was affected by destocking and delays in new station builds, while the Distribution segment experienced lower sales due to lower commodity pricing and wet weather. The company revised its full-year 2023 guidance, expecting sales to be between $2.05 billion and $2.15 billion and earnings per share to range from $4.07 to $4.17.
Key takeaways from the call include:
- Franklin Electric's Water Systems business posted record sales and operating income, driven by strong sales of large dewatering pumps and growth in Latin America and EMEA regions.
- The Fueling business was impacted by destocking and delays in new station builds.
- The Distribution segment saw lower sales due to lower commodity pricing and wet weather.
- Despite the challenges, the company maintained healthy operating margins and generated strong cash flow, supported by its ability to consistently increase earnings per share, as noted by InvestingPro Tips.
- The company revised its full-year 2023 guidance, expecting sales to be in the range of $2.05 billion to $2.15 billion and earnings per share to be in the range of $4.07 to $4.17.
In the third quarter of 2023, Franklin Electric's general and administrative expenses (SG&A) were $107.7 million, down from $109.4 million in the same quarter of 2022. The decrease was mainly due to lower incentive-based compensation expenses and cost management. The company's consolidated operating income was $78.1 million, a 2% decrease from the previous year, primarily due to lower sales and an unfavorable foreign exchange translational headwind.
The company generated approximately $198 million of operating cash flow in the first nine months of 2023, a significant improvement from $7 million in the same period of 2022. This improvement was attributed to the return of working capital to normal levels. Franklin Electric repurchased approximately 56,000 shares of common stock for $5 million in the third quarter of 2023. The remaining share repurchase authorization is approximately 1.1 million shares.
During the earnings call, the company discussed various factors affecting different segments of their business. They anticipate improvement in the Fueling business in 2024 and expect positive growth in their customer base. In the groundwater space, they mentioned that after a dry period, demand was impacted by normal weather patterns. They anticipate a more normal year ahead. In terms of international markets, South America is showing positive trends, Europe may face challenges through winter due to post-COVID situations, and Asia has been challenging but is expected to improve.
According to InvestingPro Data, Franklin Electric has a market cap of $3960M and a P/E ratio of 20.3. The company has also shown a revenue growth of 10.6% in the last twelve months of 2023. These details further underline the company's financial health and potential for future growth. For more insights and tips, readers can visit InvestingPro.
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