Franklin Electric Raises Sales Outlook as Distribution Growth Accelerates
Adjusted earnings rose 18% to $1.55 a share in the second quarter.
Franklin Electric Co., Inc. (FELE), a maker of water and energy systems, reported higher second-quarter sales and profit as Distribution became its fastest-growing segment and the company raised its full-year sales outlook.
The quarter paired a sharp sequential improvement with slower year-over-year growth. Sales rose about 24% from the first quarter, while operating income nearly doubled and diluted earnings increased from $0.77 a share to $1.46 a share. Year-over-year sales growth eased to 6% from 10% in the prior quarter, and adjusted earnings growth slowed to 18% from 24%.
Net sales increased 6% from a year earlier to $622.9 million, while operating income rose 6% to $93.6 million. Diluted earnings climbed 11% to $1.46 a share. Gross margin widened to about 37.0% from about 36.1%, though operating margin held at 15.0%.
Distribution led the expansion, with sales rising 11% to $221.1 million after increasing 6% in the first quarter. Volume and price contributed seven percentage points of the gain, while acquisitions supplied four points. Segment operating income climbed 22% to $19.7 million, lifting its margin to 8.9% from 8.1%.
Water Systems sales increased 5% to $358.5 million, slowing from 11% growth in the prior quarter. Acquisitions and currency each contributed two percentage points, leaving one point from volume and price. Operating income rose 6% to $65.2 million, and margin edged up to 18.2%.
Energy Systems sales grew 3% to $80.2 million, decelerating from 7% in the first quarter. Operating income fell to $27.9 million and margin narrowed to 34.8% after the company recorded a new $4.5 million legal-settlement expense. Excluding that charge, adjusted operating income increased 11% to $32.4 million.
Franklin now expects full-year sales of $2.21 billion to $2.29 billion, up from its initial range of $2.17 billion to $2.24 billion. The revised forecast raised the low end by $40 million and the high end by $50 million.
First-half operating cash flow increased to $58.7 million from $32.0 million a year earlier, while share repurchases declined to $18.3 million from $129.3 million. Restructuring expense fell to $0.4 million in the second quarter from $3.9 million in Water Systems during the first quarter.