Third Quarter 2021 vs. Third Quarter 2020
OVERVIEW
Sales in the third quarter of 2021 increased from the third quarter last year.
The sales increase was led by increases from volume, price, and acquisitions.
The Company's consolidated gross profit was $163.1 million for the third quarter
of 2021, an increase of $38.8 million or about 31 percent from the prior year's
third quarter. Earnings per share in the third quarter of 2021 were up to the
same period last year by about 20 percent.
RESULTS OF OPERATIONS
Net Sales
Net sales in the third quarter of 2021 were $459.0 million, an increase of
$107.8 million or about 31 percent compared to 2020 third quarter sales of
$351.2 million. Acquisition related sales were $47.4 million. Sales revenue
increased by $1.1 million or less than 1 percent in the third quarter of 2021
due to foreign currency translation.
Net Sales
(In millions) Q3 2021 Q3 2020 2021 v 2020
Water Systems $ 260.7 $ 202.9 $ 57.8
Fueling Systems 81.0 68.4 $ 12.6
Distribution 140.2 98.0 $ 42.2
Eliminations/Other (22.9) (18.1) $ (4.8)
Consolidated $ 459.0 $ 351.2 $ 107.8Net Sales-Water Systems
Water Systems sales were $260.7 million in the third quarter 2021, an increase
of $57.8 million versus the third quarter 2020 sales of $202.9 million. In the
third quarter of 2021, sales from businesses acquired since the third quarter of
2020 were $34.2 million. Water Systems sales increased by $0.7 million or less
than 1 percent in the quarter due to foreign currency translation. Water Systems
sales, excluding acquisitions and the impact of foreign currency translation,
were up about 11 percent compared to the third quarter 2020.
Water Systems sales in the U.S. and Canada were up overall by 41 percent
compared to the third quarter 2020. In the third quarter of 2021, sales from
businesses acquired since the third quarter of 2020 were $33.7 million. In the
U.S. and Canada, Water Systems organic sales increased by 10 percent. Sales of
groundwater pumping equipment increased by about 12 percent, and sales of
dewatering equipment were up about 60 percent, both due to strong end market
demand. Sales of surface pumping equipment increased by about 3 percent versus
the third quarter 2020, as supply constraints with certain utility pumps and
lower overall sales of sump pumps limited their growth rate.
Water Systems sales in markets outside the U.S. and Canada increased by 13
percent overall. Foreign currency translation had no effect on sales. In the
third quarter of 2021, sales from businesses acquired since the third quarter of
2020 were $0.5 million. Outside the U.S. and Canada, Water Systems organic sales
increased by 12 percent, driven by higher sales in Latin America, Europe, the
Middle East and Africa, partially offset by lower sales in the Asia Pacific
markets.
Net Sales-Fueling Systems
Fueling Systems sales were $81.0 million in the third quarter 2021, an increase
of $12.6 million versus the third quarter 2020 sales of $68.4 million. In the
third quarter of 2021, sales increased by $0.4 million or about 1 percent due to
foreign currency translation. Fueling Systems organic sales increased about 18
percent compared to the third quarter of 2020.
Fueling Systems sales in the U.S. and Canada increased by about 27 percent
compared to the third quarter 2020. The increase was due to higher demand for
Fuel Management and Pumping Systems, and Piping. Outside the U.S. and Canada,
Fueling Systems revenues decreased by about 1 percent, as sales increases of 11
percent in the rest of the world outside of China were offset by lower sales in
China. China sales were about $4 million in the third quarter of 2021 compared
to the third quarter of 2020 Fueling Systems China sales of about $6 million.
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Net Sales - Distribution
Distribution sales were $140.2 million in the third quarter 2021, versus third
quarter 2020 sales of $98.0 million. In the third quarter of 2021, sales from
businesses acquired since the third quarter of 2020 were $13.2 million. The
Distribution segment organic sales increased about 30 percent compared to the
third quarter of 2020. Revenue growth was driven by broad-based demand in all
regions and product categories.
Cost of Sales
Cost of sales as a percent of net sales for the third quarter of 2021 and 2020
was 64.5 percent and 64.6 percent, respectively. Correspondingly, the gross
profit margin as a percent of net sales was 35.5 percent in the third quarter of
2021 compared to 35.4 percent in the third quarter of 2020. The gross profit
margin was flat as material inflation costs were offset by price increases. The
Company's consolidated gross profit was $163.1 million for the third quarter of
2021, an increase of $38.8 million from the gross profit of $124.3 million in
the third quarter of 2020. The gross profit increase was primarily due to higher
sales.
Selling, General, and Administrative ("SG&A")
Selling, general, and administrative (SG&A) expenses were $106.4 million in the
third quarter of 2021 compared to $75.5 million in the third quarter of the
prior year. SG&A expenses from acquired businesses were about $12 million.
Excluding acquisitions, SG&A expenses were higher by $19.0 million, about $11
million of which is variable compensation expense and commissions on higher
sales.
Restructuring Expenses
Restructuring expenses for the third quarter of 2021 were $0.1 million,
primarily in the Water segment and related to miscellaneous manufacturing
realignment activities. Restructuring expenses for the third quarter of 2020
were $0.4 million, primarily in the Water segment and related to miscellaneous
manufacturing realignment activities.
Operating Income
Operating income was $56.6 million in the third quarter of 2021, up $8.2 million
or 17 percent from $48.4 million in the third quarter of 2020.
Operating income (loss)
(In millions) Q3 2021 Q3 2020 2021 v 2020
Water Systems 36.8 $ 36.6 $ 0.2
Fueling Systems 23.9 18.9 5.0
Distribution 12.3 6.4 5.9
Eliminations/Other (16.4) (13.5) (2.9)
Consolidated $ 56.6 $ 48.4 $ 8.2Operating Income-Water Systems
Water Systems operating income was $36.8 million in the third quarter 2021, up
$0.2 million compared to $36.6 million in the third quarter 2020. The third
quarter of 2021 operating income margin was 14.1 percent versus 18.0 percent of
net sales in the third quarter of 2020. The decline in operating margin was due
to higher SG&A expenses; primarily higher variable compensation and other
operating expenses relating to increased commercial activity. Additionally,
significant cost inflation in materials, components, freight, and tariffs, all
of which the Company strived to fully offset with pricing, and a higher mix of
Water Treatment sales at a lower margin also contributed to the lower operating
margin.
Operating Income-Fueling Systems
Fueling Systems operating income was $23.9 million in the third quarter of 2021,
up $5.0 million or about 26 percent compared to $18.9 million in the third
quarter of 2020. The increase in operating income was primarily due to higher
sales revenues. The third quarter of 2021 operating income margin was 29.5
percent versus 27.6 percent of net sales in the third
quarter of 2020. Operating income margin in the third quarter increased in
Fueling Systems primarily due leverage on higher sales volumes, favorable
product, and geographic sales mix shifts.
Operating Income-Distribution
Distribution operating income was $12.3 million in the third quarter of 2021 and
the third quarter operating income margin was 8.8 percent. Distribution
operating income was $6.4 million in the third quarter of 2020 and the third
quarter operating income margin was 6.5 percent. Distribution's operating income
was higher in the third quarter due to higher sales volumes. The increase in
operating income margin was primarily due to revenue growth and operating
leverage.
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Operating Income-Eliminations/Other
Operating income-Eliminations/Other is composed primarily of inter-segment sales
and profit eliminations and unallocated general and administrative expenses. The
inter-segment profit elimination impact in the third quarter of 2021 compared to
the third quarter of 2020 negative impact of $0.3 million on operating income.
The inter-segment elimination of operating income effectively defers the
operating income on sales from Water Systems to Distribution in the consolidated
financial results until the transferred product is sold from the Distribution
segment to its customer. Unallocated general and administrative expenses were
higher by $2.6 million or about 19 percent, primarily higher due to higher
variable compensation expense.
Interest Expense
Interest expense for the third quarter of 2021 and 2020 was $1.4 million and
$1.1 million, respectively.
Other Income or Expense
Other income or expense was a gain of $2.1 million and a loss of $0.5 million in
the third quarter of 2021 and 2020, respectively. Included in other income or
expense in the third quarter of 2021 was a gain of $2.5 million related to a
settlement of an indirect tax dispute.
Foreign Exchange
Foreign currency-based transactions produced a loss for the third quarter of
2021 of $0.4 million. Foreign currency-based transactions produced a loss for
the third quarter of 2020 of $0.1 million.
Income Taxes
The provision for income taxes in the third quarter of 2021 and 2020 was $10.4
million and $8.1 million, respectively. The effective tax rate for the third
quarter of 2021 was about 18 percent and, before the impact of discrete events,
was about 20 percent. The effective tax rate for the third quarter of 2020 was
about 17 percent and, before the impact of discrete events, was about 20
percent. The tax rate as a percentage of pre-tax earnings for the full year 2021
is projected to be about 20 percent, compared to the full year 2020 tax rate of
about 21 percent, both before discrete adjustments.
Net Income
Net income for the third quarter of 2021 was $46.5 million compared to the prior
year third quarter net income of $38.6 million. Net income attributable to
Franklin Electric Co., Inc. for the third quarter of 2021 was $46.2 million, or
$0.98 per diluted share, compared to the prior year third quarter net income
attributable to Franklin Electric Co., Inc. of $38.4 million or $0.82 per
diluted share.
First Nine Months of 2021 vs. First Nine Months of 2020
OVERVIEW
Sales in the first nine months of 2021 were up from the same period last year.
The sales increase was primarily from higher volumes, price, and acquisitions.
The impact of foreign currency translation increased sales by less than 1
percent. The Company's consolidated gross profit was $430.9 million for the
first nine months of 2021, an increase of $109.2 million or about 34 percent
from the first nine months of 2020. Earnings in the first nine months of 2021
were up from the same period last year.
RESULTS OF OPERATIONS
Net Sales
Net sales in the first nine months of 2021 were $1,229.3 million, an increase of
$303.1 million or about 33 percent compared to 2020 first nine months sales of
$926.2 million. The incremental impact of sales from acquired businesses was
$109.8 million. Sales revenue increased by $4.3 million or less than 1 percent
in the first nine months of 2021 due to foreign currency translation.
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Net Sales
(In millions) YTD September 30, 2021 YTD September 30, 2020 2021 v 2020
Water Systems $ 705.5 $ 545.4 $ 160.1
Fueling Systems 210.0 179.6 $ 30.4
Distribution 380.7 250.5 $ 130.2
Eliminations/Other (66.9) (49.3) $ (17.6)
Consolidated $ 1,229.3 $ 926.2 $ 303.1Net Sales-Water Systems
Water Systems sales were $705.5 million in the first nine months 2021, an
increase of $160.1 million or about 29 percent versus the first nine months of
2020. The incremental impact of sales from acquired businesses was $65.2
million. Foreign currency translation changes increased sales $1.8 million, or
less than 1 percent, compared to sales in the first nine months of 2020. The
Water Systems sales change in the first nine months of 2021, excluding
acquisitions and foreign currency translation, was an increase of $93.2 million
or about 17 percent.
Water Systems sales in the U.S. and Canada increased by about 36 percent
compared to the first nine months of 2020. The incremental impact of sales from
acquired businesses was $64.7 million. Sales revenue increased by $3.4 million
in the first nine months of 2021 due to foreign currency translation. In the
first nine months of 2021, sales of groundwater pumping equipment increased by
about 17 percent, sales of dewatering equipment were up about 42 percent, and
sales of surface pumping equipment increased by about 8 percent versus the third
quarter 2020, all due to strong end market demand
Water Systems sales in markets outside the U.S. and Canada increased by about 22
percent compared to the first nine months of 2020. The incremental impact of
sales from acquired businesses was $0.5 million. Sales revenue decreased by $1.6
million in the first nine months of 2021 due to foreign currency translation.
The change in the first nine months of 2021, excluding acquisitions and foreign
currency translation, was an increase of about 22 percent. Sales grew
organically in all major markets; Latin America, EMENA, and Asia Pacific.
Net Sales-Fueling Systems
Fueling Systems sales were $210.0 million in the first nine months of 2021, an
increase of $30.4 million or about 17 percent from the first nine months of
2020. Foreign currency translation changes increased sales $2.5 million or about
1 percent compared to sales in the first nine months of 2020. The Fueling
Systems sales change in the first nine months of 2021, excluding foreign
currency translation, was an increase of $27.9 million or about 16 percent.
Fueling Systems sales in the U.S. and Canada increased by about 23 percent
during the first nine months of 2021, the increase was due to higher demand for
Fuel Management and Pumping Systems, and Piping. Outside the U.S. and Canada,
Fueling Systems revenues increased by about 4 percent overall, as sales
increases of 14 percent in the rest of the world outside of China were offset by
lower sales in China. China sales were about $9 million in the first nine months
of 2021 compared to the first nine months of 2020 Fueling Systems China sales of
about $14 million.
Net Sales - Distribution
Distribution sales were $380.7 million in the first nine months of 2021, versus
the first nine months of 2020 sales of $250.5 million. The incremental impact of
sales from acquired businesses was $44.6 million. Distribution segment organic
sales increased about 34 percent compared to the first nine months of 2020.
Revenue growth was driven by broad-based demand in all regions and product
categories.
Cost of Sales
Cost of sales as a percent of net sales for the first nine months of 2021 and
2020 was 64.9 percent and 65.3 percent, respectively. Correspondingly, the gross
profit margin was 35.1 percent and 34.7 percent, respectively. The increase in
gross profit margin was primarily driven by price realization, product sales mix
and cost management. The Company's consolidated gross profit was $430.9 million
for the first nine months of 2021, up $109.2 million from the gross profit of
$321.7 million in the first nine months of 2020. The gross profit increase was
primarily due to higher sales.
Selling, General, and Administrative ("SG&A")
Selling, general, and administrative expenses were $288.5 million in the first
nine months of 2021 and increased by $65.1 million compared to $223.4 million in
the first nine months of last year. SG&A expenses from acquired businesses were
$26.8
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million. Excluding acquisitions, SG&A expenses were higher by $38.3 million,
about $23 million of which is variable compensation expense and commissions on
higher sales. The remaining SG&A increases were primarily related to other
operating expenses relating to increased commercial activity.
Restructuring Expenses
Restructuring expenses for the first nine months of 2021 were $0.4 million.
Restructuring expenses were $0.3 million in the Water segment and $0.1 million
in Distribution segments. Restructuring expenses were primarily from continued
miscellaneous manufacturing realignment activities and branch closings and
consolidations in the Distribution segment. Restructuring expenses for the first
nine months of 2020 were $2.2 million. Restructuring expenses were $2.0 million
in the Water segment and $0.1 million in both the Fueling and Distribution
segments. Restructuring expenses were primarily from continued miscellaneous
manufacturing realignment activities and branch closings and consolidations in
the Distribution segment.
Operating Income
Operating income was $142.0 million in the first nine months of 2021, up $45.9
million or 48 percent from $96.1 million in the first nine months of 2020.
Operating income (loss)
(In millions) YTD September 30, 2021 YTD September 30, 2020 2021 v 2020
Water Systems 102.7 84.1 $ 18.6
Fueling Systems 57.3 44.5 12.8
Distribution 30.3 10.9 19.4
Eliminations/Other (48.3) (43.4) (4.9)
Consolidated $ 142.0 $ 96.1 $ 45.9Operating Income-Water Systems
Water Systems operating income was $102.7 million in the first nine months of
2021 compared to $84.1 million in the first nine months of 2020, an increase of
22 percent. Operating income increased in Water Systems primarily due to higher
sales volumes. The first nine months operating income margin was 14.6 percent
compared to the first nine months of 2020 operating income margin of 15.4
percent. Operating income margin decreased in Water Systems primarily due to
significant cost inflation in materials, components, freight, and tariffs; all
of which the Company strived to fully offset with pricing; and a higher mix of
Water Treatment sales at a lower margin also contributed to the lower operating
margin.
Operating Income-Fueling Systems
Fueling Systems operating income was $57.3 million in the first nine months of
2021 compared to $44.5 million in the first nine months of 2020. Operating
income increased in Fueling Systems primarily due to higher sales volumes. The
first nine months operating income margin was 27.3 percent compared to 24.8
percent of net sales in the first nine months of 2020. Operating income margin
increased in Fueling Systems primarily due to operating leverage on higher
sales, favorable product and geographic sales mix shifts.
Operating Income-Distribution
Distribution operating income was $30.3 million in the first nine months of 2021
and operating income margin was 8.0 percent. Distribution operating income was
$10.9 million in the first nine months of 2020 and operating income margin was
4.4 percent. Distribution's operating income in the first nine months was higher
in due to higher sales volumes. The increase in operating income margin was
primarily due to revenue growth and operating leverage.
Operating Income-Eliminations/Other
Operating income-Eliminations/Other is composed primarily of inter-segment sales
and profit eliminations and unallocated general and administrative expenses. The
inter-segment profit elimination impact in the first nine months of 2021
increased operating income about $0.1 million versus the impact in the first
nine months of 2020. The inter-segment elimination of operating income
effectively defers the operating income on sales from Water Systems to
Distribution in the consolidated financial results until the transferred product
is sold from the Distribution segment to its third-party customer. Unallocated
general and administrative expenses were higher by $5.0 million or about 12
percent to last year in the first nine months, primarily due to higher variable
compensation expense.
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Interest Expense
Interest expense for the first nine months of 2021 and 2020 was $3.8 million and
$3.5 million, respectively, primarily as a result of higher debt levels.
Other Income or Expense
Other income or expense was a gain of $1.5 million and a loss of 1.1 million,
respectively in the first nine months of 2021 and 2020. Included in other income
or expense in 2021 was a gain of $2.5 million related to a settlement of an
indirect tax dispute.
Foreign Exchange
Foreign currency-based transactions produced a loss for the first nine months of
2021 of $1.7 million, primarily from the Argentinian peso. Foreign
currency-based transactions produced a loss for the first nine months of 2020 of
$0.1 million.
Income Taxes
The provision for income taxes in the first nine months of 2021 and 2020 was
$24.0 million and $17.3 million, respectively. The effective tax rate for the
first nine months of 2021 was about 17 percent and, before the impact of
discrete events, was about 20 percent. The effective tax rate in the first nine
months of 2020 was about 19 percent and, before the impact of discrete events,
was about 20 percent. The decrease in the effective tax rate was primarily a
result of increased net favorable discrete events recorded in the first nine
months of 2021 compared to the first nine months of 2020. The tax rate as a
percentage of pre-tax earnings for the full year of 2021 is projected to be
about 20 percent, compared to the full year 2020 tax rate of about 21 percent,
both before discrete adjustments.
Net Income
Net income for the first nine months of 2021 was $114.0 million compared to 2020
first nine months net income of $74.2 million. Net income attributable to
Franklin Electric Co., Inc. for the first nine months of 2021 was $113.2
million, or $2.40 per diluted share, compared to 2020 first nine months net
income attributable to Franklin Electric Co., Inc. of $73.7 million or $1.57 per
diluted share.
CAPITAL RESOURCES AND LIQUIDITY
Sources of Liquidity
The Company's primary sources of liquidity are cash on hand, cash flows from
operations, revolving credit agreements, and long-term debt funds available. The
Company believes its capital resources and liquidity position at September 30,
2021 is adequate to meet projected needs for the foreseeable future. The Company
expects that ongoing requirements for operations, capital expenditures, pension
obligations, dividends, share repurchases, and debt service will be adequately
funded from cash on hand, operations, and existing credit agreements.
As of September 30, 2021 the Company had a $250.0 million revolving credit
facility. The facility is scheduled to mature on May 13, 2026. As of September
30, 2021, the Company had $140.9 million borrowing capacity under the Credit
Agreement as $4.1 million in letters of commercial and standby letters of credit
were outstanding and undrawn and $105 million in revolver borrowings were drawn
and outstanding, which were primarily used for funding recent acquisitions.
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 of $125.0 million as of September 30, 2021. The Company also
has other long-term debt borrowings outstanding as of September 30, 2021. See
Note 10 - Debt for additional specifics regarding these obligations and future
maturities.
At September 30, 2021, the Company had $61.1 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 these
funds in order to meet domestic funding obligations or scheduled cash
distributions.
Cash Flows
The following table summarizes significant sources and uses of cash and cash
equivalents for the first nine months of 2021 and 2020.
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FRANKLIN ELECTRIC CO., INC. 
