fele-20200728
0000038725false00000387252020-07-282020-07-28

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): July 28, 2020

FRANKLIN ELECTRIC CO., INC.
(Exact name of registrant as specified in its charter)
Indiana 0-362 35-0827455
(State of incorporation) (Commission File Number) (IRS employer identification no.)

9255 Coverdale Road
Fort Wayne,Indiana46809
(Address of principal executive offices)(Zip code)

(260) 824-2900
(Registrant's telephone number, including area code)
 
Not Applicable
(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

☐   Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐   Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐   Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:

Common Stock, 00000387252020-07-282020-07-28

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): July 28, 2020

FRANKLIN ELECTRIC CO., INC.
(Exact name of registrant as specified in its charter)
Indiana 0-362 35-0827455
(State of incorporation) (Commission File Number) (IRS employer identification no.)

9255 Coverdale Road
Fort Wayne,Indiana46809
(Address of principal executive offices)(Zip code)

(260) 824-2900
(Registrant's telephone number, including area code)
 
Not Applicable
(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

☐   Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐   Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐   Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:

Common Stock, $0.10 par valueFELENASDAQGlobal Select Market
(Title of each class)(Trading symbol)(Name of each exchange on which registered)

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐


Item 2.02. Results of Operations and Financial Condition

On July 28, 2020, Franklin Electric Co., Inc. issued a press release announcing its earnings for the second quarter of 2020. A copy of the release is furnished herewith as Exhibit 99.1 and is incorporated herein by reference. This Current Report on Form 8-K and the press release attached hereto are being furnished pursuant to Item 2.02 of Form 8-K.

Item 9.01. Financial Statements and Exhibits

(d) Exhibits:

Exhibit NumberDescription
99.1
101Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL document.
104The cover page from this Current Report on Form 8-K, formatted as Inline XBRL



SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

FRANKLIN ELECTRIC CO., INC.
(Registrant)

Date: July 28, 2020
By/s/ John J. Haines
John J. Haines
Vice President, Chief Financial Officer
(Principal Financial and Accounting Officer)

FELENASDAQGlobal Select Market
(Title of each class)(Trading symbol)(Name of each exchange on which registered)

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐


Item 2.02. Results of Operations and Financial Condition

On July 28, 2020, Franklin Electric Co., Inc. issued a press release announcing its earnings for the second quarter of 2020. A copy of the release is furnished herewith as Exhibit 99.1 and is incorporated herein by reference. This Current Report on Form 8-K and the press release attached hereto are being furnished pursuant to Item 2.02 of Form 8-K.

Item 9.01. Financial Statements and Exhibits

(d) Exhibits:

Exhibit NumberDescription
99.1
101Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL document.
104The cover page from this Current Report on Form 8-K, formatted as Inline XBRL



SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

FRANKLIN ELECTRIC CO., INC.
(Registrant)

Date: July 28, 2020
By/s/ John J. Haines
John J. Haines
Vice President, Chief Financial Officer
(Principal Financial and Accounting Officer)


 Document


Exhibit 99.1

For Immediate Release 

For Further Information
Refer to: John J. Haines
260-824-2900

FRANKLIN ELECTRIC REPORTS SECOND
QUARTER 2020 SALES AND EARNINGS
Fort Wayne, IN – July 28, 2020 - Franklin Electric Co., Inc. (NASDAQ: FELE) reported second quarter 2020 GAAP fully diluted earnings per share (EPS) of $0.52, versus a GAAP fully diluted EPS in the second quarter 2019 of $0.70. Second quarter 2020 sales were $308.3 million, compared to 2019 second quarter sales of $355.3 million. Second quarter EPS before the impact of restructuring expenses was $0.54 compared to 2019 second quarter EPS before restructuring of $0.70 (see table below for a reconciliation of GAAP EPS to EPS before restructuring).

Gregg Sengstack, Franklin Electric’s Chairman and Chief Executive Officer, commented:

“Although our second quarter results were impacted negatively by the effects of the Global Pandemic, they exceeded our revised expectations. Our Water and Distribution businesses both turned in solid results given the environment we were operating in and demonstrate the less cyclical nature of both segments. Versus the 2019 second quarter, Distribution revenues grew by 6 percent and earnings grew by over 40 percent. Water Systems revenues were down in total by 13 percent, but earnings were only down 4 percent versus last year, in part due to cost reductions we have implemented. Excluding the U.S., South Africa and India, the Water Systems team posted 9 percent organic growth during the quarter. The Water and Distribution segments both demonstrated sequential improvements as we progressed through the second quarter. The Fueling Systems segment was negatively impacted by a reduction in the global demand for new filling stations. Our year to date free cash flow as a percent of net income was 106 percent compared to a negative 13 percent at the end of the second quarter 2019 and our liquidity and balance sheet positions remain very strong.”


















Key Performance Indicators:

Earnings Before and After RestructuringFor the Second Quarter
(in millions)20202019Change
Net Income attributable to FE Co., Inc. Reported$24.7  $32.7  (24)%
Allocated Earnings$(0.2) $(0.2) 
Earnings for EPS Calculations$24.5  $32.5  (25)%
Restructuring (before tax):$0.9  $0.2  
Restructuring, net of tax:$0.7  $0.2  
Earnings Before Restructuring$25.2  $32.7  (23)%
Earnings Per ShareFor the Second Quarter
Before and After Restructuring20202019Change
(in millions except Earnings Per Share)
Average Fully Diluted Shares Outstanding46.5  46.7  — %
Fully Diluted Earnings Per Share (“EPS”) Reported$0.52  $0.70  (26)%
Restructuring Per Share, net of tax$0.02  $—  
Fully Diluted EPS Before Restructuring$0.54  $0.70  (23)%




Net Sales
(in millions)United States & CanadaLatin AmericaEurope, Middle East & AfricaAsia PacificTotal WaterFuelingDistributionOther/ElimsConsolidated
Q2 2019$117.9  $29.4  $39.0  $18.7  $205.0  $78.0  $87.1  $(14.8) $355.3  
Q2 2020$99.0  $24.2  $35.5  $19.7  $178.4  $56.0  $92.1  $(18.2) $308.3  
Change$(18.9) $(5.2) $(3.5) $1.0  $(26.6) $(22.0) $5.0  $(3.4) $(47.0) 
% Change(16)%(18)%(9)%5 %(13)%(28)%6 %(13)%
Foreign currency translation$(0.8) $(7.2) $(3.1) $(0.5) $(11.6) $(0.6) $—  
% Change(1)%(24)%(8)%(3)%(6)%(1)%— %
Acquisitions$3.3  $—  $—  $—  $3.3  $—  $—  
Volume/Price$(21.4) $2.0  $(0.4) $1.5  $(18.3) $(21.4) $5.0  
% Change(18)%7 %(1)%8 %(9)%(27)%6 %



Operating Income and Margins
(in millions)For the Second Quarter 2020
WaterFuelingDistributionOther/ElimsConsolidated
Operating Income/(Loss)$28.7  $13.5  $6.8  $(15.1) $33.9  
% Operating Income To Net Sales16.1 %24.1 %7.4 %11.0 %
Restructuring$0.9  $—  $—  $—  $0.9  
Operating Income/(Loss) Before Restructuring$29.6  $13.5  $6.8  $(15.1) $34.8  
% Operating Income to Net Sales Before Restructuring16.6 %24.1 %7.4 %11.3 %
Operating Income and Margins
(in millions)For the Second Quarter 2019
WaterFuelingDistributionOther/ElimsConsolidated
Operating Income/(Loss)$30.9  $21.7  $4.5  $(13.4) $43.7  
% Operating Income To Net Sales15.1 %27.8 %5.2 %12.3 %
Restructuring$—  $—  $0.2  $0.2  
Operating Income/(Loss) Before Restructuring$30.9  $21.7  $4.7  $(13.4) $43.9  
% Operating Income to Net Sales Before Restructuring15.1 %27.8 %5.4 %12.4 %



Water Systems

Water Systems sales in the U.S. and Canada decreased by 16 percent overall compared to the second quarter 2019, primarily due to lower sales of dewatering equipment. Sales of dewatering equipment decreased by nearly 70 percent due to lower sales in rental channels and substantial uncertainty in oil production end markets. Sales of groundwater pumping equipment increased by 5 percent versus the second quarter 2019. Sales of surface pumping equipment decreased by 18 percent on lower sales of both wastewater and water transfer systems as customers in this channel began to feel the impact of the Global Pandemic and lowered their own inventory levels.

Water Systems sales in markets outside the U.S. and Canada decreased by 9 percent overall. Foreign currency translation decreased sales by 12 percent. Outside the U.S. and Canada, Water Systems organic sales increased by 3 percent, primarily driven by higher sales in Latin America and Asia Pacific, as well as increased sales in both Europe and the Middle East, offset by lower sales in the Africa markets.

Water Systems operating income was $28.7 million in the second quarter 2020, compared to $30.9 million in the second quarter 2019 primarily driven by lower revenues.

Fueling Systems

Fueling Systems sales in the U.S. and Canada decreased by 22 percent compared to the second quarter 2019. The decrease was in all product lines and due to declining demand for new filling stations. Outside the U.S. and Canada, Fueling Systems revenues declined by 35 percent, driven by lower sales in Asia Pacific, primarily China.

Fueling Systems operating income was $13.5 million in the second quarter of 2020, compared to $21.7 million in the second quarter of 2019 driven almost entirely by lower revenues.

Distribution

Distribution sales were a record at $92.1 million in the second quarter 2020, versus second quarter 2019 sales of $87.1 million. The Distribution segment organic sales increased 6 percent compared to the second quarter of 2019. More favorable weather conditions versus the second quarter last year contributed to the revenue growth.

The Distribution segment operating income was $6.8 million in the second quarter of 2020, compared to $4.5 million in the second quarter of 2019, primarily due to higher revenues.

Overall

The Company’s consolidated gross profit was $107.1 million for the second quarter of 2020, a decrease from the second quarter of 2019 gross profit of $119.7 million. The gross profit as a percentage of net sales was 34.7 percent in the second quarter of 2020 versus 33.7 percent in the second quarter of 2019 and improved primarily due to better price realization and product sales mix.

Selling, general, and administrative (SG&A) expenses were $72.3 million in the second quarter of 2020 compared to $75.8 million in the second quarter of 2019. SG&A expenses were lower versus the prior year due to companywide efforts to lower spending in response to the impacts of the Global Pandemic and in part because of foreign currency translation.



Liquidity

The Company ended the second quarter of 2020 with a cash balance of $43.1 million and generated $37.6 million of free cash flow from operations during the first six months of 2020, versus a negative free cash flow in the first six months of 2019 of $(5.4) million and had total incremental borrowing capacity of $480 million at June 30, 2020. Free Cash Flow is Net Cash Flows from Operating Activities, less net additions to property, plant, and equipment.

Effects of the Global Pandemic

The top priority of the Company is the health and welfare of its employees and partners around the world. In response to the health risks posed by the Global Pandemic, the Company implemented and has been following the recommended hygiene and social distancing practices promulgated by the United States Centers for Disease Control and the World Health Organization.

The Company’s products and services are generally viewed as essential in most jurisdictions in which the Company operates. Effectively, all the Company’s global manufacturing and distribution operations are operating.

The primary impacts of the Global Pandemic on the Company’s end markets continue to be a reduction of large dewatering equipment sales in the Water Systems segment; Water Systems customers “de-stocking” their inventory, particularly in the U.S. and Canada plumbing channel; and, the deferral or cancellation of the construction of new filling stations in the Fueling Systems segment. Additionally, the strengthening of the U.S. dollar versus most international currencies has resulted in lower translations of both Net Sales and earnings from many of the Company’s businesses outside the U.S. The Company’s financial results were also impacted negatively by government mandated closures and related customer behaviors.

Commenting on the outlook for 2020 and the effects of the Global Pandemic, Mr. Sengstack said:

“Our Water Systems and Distribution businesses are building momentum heading into the back half of this year, despite the ongoing impacts and uncertainty from the Global Pandemic. Our Fueling business will take longer to recover from the steep declines we experienced in the second quarter, but we believe that the third and fourth quarters’ revenue declines versus 2019 results will be sequentially reduced. Assuming there are no new government mandated restrictions in our key end markets, we estimate our full year 2020 earnings per share before restructuring charges will be between $1.75 to $1.90 and that our Free Cash Flow conversion will be between 130 and 150 percent of Net Income for the full year 2020.”


A conference call to review earnings and other developments in the business will commence at 9:00 am ET. The second quarter 2020 earnings call will be available via a live webcast. The webcast will be available in a listen only mode by going to:

https://edge.media-server.com/mmc/p/ukztoqq9

If you intend to ask questions during the call, please dial in using 877.643.7158 for domestic calls and 914.495.8565 for international calls. The conference ID is: 5470627.



A replay of the conference call will be available Tuesday, July 28, 2020 at 12:00 noon ET through noon ET on Tuesday, August 4, 2020, by dialing 855.859.2056 for domestic calls and 404.537.3406 for international calls. The replay passcode is: 5470627.

Franklin Electric is a global leader in the production and marketing of systems and components for the movement of water and fuel. Recognized as a technical leader in its products and services, Franklin Electric serves customers around the world in residential, commercial, agricultural, industrial, municipal, and fueling applications.



FRANKLIN ELECTRIC CO., INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share amounts)
Second Quarter Ended Six Months Ended
June 30, 2020June 30, 2019June 30, 2020June 30, 2019
Net sales$308,281  $355,340  $575,035  $646,055  
Cost of sales201,159  235,622  377,596  436,831  
Gross profit107,122  119,718  197,439  209,224  
Selling, general, and administrative expenses72,314  75,782  147,937  152,081  
Restructuring expense875  245  1,748  1,331  
Operating income33,933  43,691  47,754  55,812  
Interest expense(1,132) (2,295) (2,366) (4,637) 
Other income/(expense), net(397) (292) (599) (53) 
Foreign exchange income/(expense)(906) (505) 56  84  
Income before income taxes31,498  40,599  44,845  51,206  
Income tax expense6,696  7,787  9,251  9,267  
Net income$24,802  $32,812  $35,594  $41,939  
Less: Net (income)/loss attributable to noncontrolling interests(151) (67) (300) (138) 
Net income attributable to Franklin Electric Co., Inc.$24,651  $32,745  $35,294  $41,801  
Income per share:
Basic$0.53  $0.70  $0.76  $0.89  
Diluted$0.52  $0.70  $0.75  $0.89  








FRANKLIN ELECTRIC CO., INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
June 30, 2020December 31, 2019
ASSETS
Cash and equivalents$43,083  $64,405  
Receivables, net183,210  173,327  
Inventories299,395  300,246  
Other current assets23,653  29,466  
Total current assets549,341  567,444  
Property, plant, and equipment, net186,363  201,328  
Right-of-use asset, net27,687  27,621  
Goodwill and other assets387,941  398,350  
Total assets$1,151,332  $1,194,743  
LIABILITIES AND EQUITY
Accounts payable$86,767  $82,593  
Accrued expenses and other current liabilities72,613  71,454  
Current lease liability10,273  9,838  
Current maturities of long-term debt and short-term borrowings4,243  21,879  
Total current liabilities173,896  185,764  
Long-term debt92,489  93,141  
Long-term lease liability17,416  17,785  
Income taxes payable non-current11,965  11,965  
Deferred income taxes25,748  27,598  
Employee benefit plans36,631  38,288  
Other long-term liabilities17,938  21,769  
Redeemable noncontrolling interest(262) (236) 
Total equity775,511  798,669  
Total liabilities and equity$1,151,332  $1,194,743  



FRANKLIN ELECTRIC CO., INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
(In thousands)
June 30, 2020June 30, 2019
Cash flows from operating activities:
Net income$35,594  $41,939  
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation and amortization17,990  18,350  
Non-Cash Lease Expense5,283  5,199  
Share-based compensation7,015  5,524  
Other267  1,011  
Changes in assets and liabilities:
Receivables(17,820) (46,371) 
Inventory(7,520) (35,318) 
Accounts payable and accrued expenses8,561  18,637  
Operating Leases(5,283) (5,195) 
Other2,914  369  
Net cash flows from operating activities47,001  4,145  
Cash flows from investing activities:
Additions to property, plant, and equipment(9,445) (10,444) 
Proceeds from sale of property, plant, and equipment25  866  
Acquisitions and investments(5,826) (6,728) 
Other investing activities3  8  
Net cash flows from investing activities(15,243) (16,298) 
Cash flows from financing activities:
Change in debt(17,908) 16,814  
Proceeds from issuance of common stock1,520  1,495  
Purchases of common stock(17,724) (9,543) 
Dividends paid(14,446) (13,510) 
Purchase of redeemable non-controlling shares—  (485) 
Net cash flows from financing activities(48,558) (5,229) 
Effect of exchange rate changes on cash(4,522) (800) 
Net change in cash and equivalents(21,322) (18,182) 
Cash and equivalents at beginning of period64,405  59,173  
Cash and equivalents at end of period$43,083  $40,991  





"Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995. Any forward-looking statements contained herein, including those relating to market conditions or the Company’s financial results, costs, expenses or expense reductions, profit margins, inventory levels, foreign currency translation rates, liquidity expectations, business goals and sales growth, involve risks and uncertainties, including but not limited to, risks and uncertainties with respect to general economic and currency conditions, various conditions specific to the Company’s business and industry, weather conditions, new housing starts, market demand, competitive factors, changes in distribution channels, supply constraints, effect of price increases, raw material costs, technology factors, integration of acquisitions, litigation, government and regulatory actions, the Company’s accounting policies, future trends, epidemics and pandemics, and other risks which are detailed in the Company’s Securities and Exchange Commission filings, included in Item 1A of Part I of the Company’s Annual Report on Form 10-K for the fiscal year ending December 31, 2019, Exhibit 99.1 attached thereto and in Item 1A of Part II of the Company’s Quarterly Reports on Form 10-Q. These risks and uncertainties may cause actual results to differ materially from those indicated by the forward-looking statements. All forward-looking statements made herein are based on information currently available, and the Company assumes no obligation to update any forward-looking statements.


v3.20.2
Cover
Jul. 28, 2020
Cover [Abstract]  
Document Type 8-K
Document Period End Date Jul. 28, 2020
Entity Registrant Name FRANKLIN ELECTRIC CO., INC.
Entity Incorporation, State or Country Code IN
Entity File Number 0-362
Entity Tax Identification Number 35-0827455
Entity Address, Address Line One 9255 Coverdale Road
Entity Address, City or Town Fort Wayne,
Entity Address, State or Province IN
Entity Address, Postal Zip Code 46809
City Area Code 260
Local Phone Number 824-2900
Entity Information, Former Legal or Registered Name Not Applicable
Written Communications false
Soliciting Material false
Pre-commencement Tender Offer false
Pre-commencement Issuer Tender Offer false
Title of 12(b) Security Common Stock, $0.10 par value
Trading Symbol FELE
Security Exchange Name NASDAQ
Entity Emerging Growth Company false
Entity Central Index Key 0000038725
Amendment Flag false