Second Quarter 2022 vs. Second Quarter 2021
OVERVIEW
Sales in the second quarter of 2022 increased from the second quarter of last
year. Sales in the quarter increased by $113.8 million, or about 26 percent, due
to higher sales across all three segments, achieved by price realization,
acquisitions, and volume. The Company's consolidated gross profit was $189.3
million for the second quarter of 2022, an increase from the prior year's second
quarter. The gross profit as a percent of net sales was 34.3 percent in the
second quarter of 2022 versus 34.8 percent during the second quarter of 2021.
Diluted earnings per share in the second quarter of 2022 were up from the same
period last year.
RESULTS OF OPERATIONS
Net Sales
Net sales in the second quarter of 2022 were $551.1 million, an increase of
$113.8 million or about 26 percent compared to 2021 second quarter sales of
$437.3 million. Acquisition related sales were $34.4 million. Sales decreased by
$19.4 million or about 4 percent in the second quarter of 2022 due to foreign
currency translation. The Company's organic sales growth, led by price
realization, increased about 23 percent compared to the second quarter of 2021.
Net Sales
(In millions) Q2 2022 Q2 2021 2022 v 2021
Water Systems $ 310.5 $ 247.2 $ 63.3
Fueling Systems 86.0 72.2 13.8
Distribution 191.1 144.8 46.3
Eliminations/Other (36.5) (26.9) (9.6)
Consolidated $ 551.1 $ 437.3 $ 113.8Net Sales-Water Systems
Water Systems sales were $310.5 million in the second quarter of 2022, an
increase of $63.3 million or about 26 percent versus the second quarter of 2021
sales of $247.2 million. Acquisition related sales were $14.8 million. Water
Systems sales decreased by $17.9 million or about 7 percent in the quarter due
to foreign currency translation. Excluding acquisitions and foreign currency
translation, Water Systems sales were up $66.4 million or about 27 percent
compared to the second quarter of 2021. This revenue growth was primarily from
price and volume, which was up due to strong end market demand.
Water Systems sales in the U.S. and Canada were up about 38 percent compared to
the second quarter of 2021. The impact of foreign currency translation decreased
sales by about 1 percent. In the second quarter of 2022, sales from businesses
acquired since the second quarter of 2021 were $12.9 million. Organic Water
Systems sales in the U.S. and Canada were 30 percent in the second quarter.
Sales of groundwater pumping equipment increased by about 38 percent and sales
of all surface pumping equipment increased by about 22 percent versus the first
quarter 2021, due to strong end market demand and pricing.
Water Systems sales in markets outside the U.S. and Canada increased by 9
percent overall. The impact of foreign currency translation decreased sales by
about 16 percent. In the second quarter of 2022, sales from businesses acquired
since the second quarter of 2021 were $1.9 million. Organic Water Systems sales
in markets outside the U.S. and Canada, increased by 23 percent, primarily
driven by higher sales in Europe, the Middle East and African (EMEA) markets.
The Company also had higher sales in the Latin American and the Asia Pacific
markets.
Net Sales-Fueling Systems
Fueling Systems sales were $86.0 million in the second quarter of 2022, an
increase of $13.8 million or about 19 percent versus the second quarter of 2021
sales of $72.2 million. Fueling Systems sales decreased by $1.5 million or about
2 percent in the quarter due to foreign currency translation. Fueling Systems
organic sales increased by $15.3 million or about 21 percent compared to the
second quarter of 2021, this revenue growth was from price and volume.
Fueling Systems sales in the U.S. and Canada increased by about 20 percent
compared to the second quarter of 2021. The increase was due, in part, to robust
demand for infrastructure buildout in the U.S. Outside the U.S. and Canada,
Fueling
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Systems revenues decreased by about 6 percent, as sales increases of 3 percent
in the rest of the world outside of China were not enough to offset lower sales
in China.
Net Sales - Distribution
Distribution sales were $191.1 million in the second quarter of 2022, versus the
second quarter of 2021 sales of $144.8 million. In the second quarter of 2022,
sales from businesses acquired since the second quarter of 2021 were $19.6
million. The Distribution segment organic sales increased 18 percent compared to
the second quarter of 2021. Revenue growth was primarily from price and 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 second quarter of 2022 was 65.7
percent and 65.2 percent for the second quarter of 2021. Correspondingly, the
gross profit margin was 34.3 percent and 34.8 percent for the second quarters of
2022 and 2021, respectively. The Company's consolidated gross profit was $189.3
million for the second quarter of 2022, up $37.1 million from the gross profit
of $152.2 million in the second quarter of 2021. The gross profit increase was
due to higher sales. In the second quarter, the gross profit margin percentage
was down 50 basis points, as realized pricing actions offset inflationary cost
increases; however, supply constraints caused some unfavorable manufacturing
absorption variances.
Selling, General, and Administrative ("SG&A")
Selling, general, and administrative (SG&A) expenses were $108.3 million in the
second quarter of 2022 compared to $100.5 million in the second quarter of 2021.
SG&A expenses from acquired businesses were $7.6 million and excluding the
acquired entities, SG&A expenses were higher by $0.2 million versus the prior
year.
Restructuring Expenses
There were no restructuring expenses for the second quarter of 2022.
Restructuring expenses for the second quarter of 2021 were $0.2 million and
related to continued miscellaneous manufacturing and distribution realignment
activities in the Water Systems segment.
Operating Income
Operating income was $81.0 million in the second quarter of 2022, up $29.4
million or about 57 percent from $51.6 million in the second quarter of 2021.
Operating income (loss)
(In millions) Q2 2022 Q2 2021 2022 v 2021
Water Systems $ 49.0 $ 34.6 $ 14.4
Fueling Systems 26.1 18.5 7.6
Distribution 23.3 16.0 7.3
Eliminations/Other (17.4) (17.5) 0.1
Consolidated $ 81.0 $ 51.6 $ 29.4Operating Income-Water Systems
Water Systems operating income was $49.0 million in the second quarter of 2022,
up $14.4 million or about 42 percent versus the second quarter of 2021 and
operating income margin was 15.8 percent, an increase of 180 basis points,
compared to the 14.0 percent in the second quarter of 2021. The increase in
operating income was primarily due to higher sales. Operating income margin
improved due to leverage on fixed cost from higher sales, price realization and
cost management.
Operating Income-Fueling Systems
Fueling Systems operating income was $26.1 million in the second quarter of
2022, up $7.6 million or about 41 percent compared to $18.5 million in the
second quarter of 2021, and the second quarter operating income margin was 30.3
percent, an increase of 470 basis points from the 25.6 percent of net sales in
the second quarter of 2021. The increase in operating income was primarily due
to higher sales. Operating income margin improved due to leverage on fixed cost
from higher sales, price realization and cost management.
Operating Income-Distribution
Distribution operating income was $23.3 million in the second quarter of 2022,
and the second quarter operating income margin was 12.2 percent. Distribution
operating income was $16.0 million in the second quarter of 2021, and the second
quarter operating income margin was 11.0 percent. The increase in operating
income was primarily due to higher sales. The increase in operating income
margin was related to higher revenues, primarily price realization.
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Operating Income-Eliminations/Other
Operating income-Eliminations/Other is composed primarily of unallocated general
and administrative expenses and inter-segment sales and profit eliminations. The
inter-segment profit elimination impact in the second quarter of 2022 versus the
second quarter of 2021 was unfavorable by $1.8 million. General and
administrative expenses were lower by $1.9 million primarily due to lower
variable compensation.
Interest Expense
Interest expense for the second quarter of 2022 was $2.9 million, up due to
higher debt and $0.7 million from interest penalties on an indirect tax
settlement in a foreign jurisdiction. Interest expense for the second quarter of
2021 was $1.4 million.
Other Income or Expense
Other income or expense was a loss of $1.2 million in the second quarter of 2022
and included an unfavorable indirect tax settlement in a foreign jurisdiction of
about $1.0 million and a loss of $0.4 million in the second quarter of 2021.
Foreign Exchange
Foreign currency-based transactions produced a loss for the second quarter of
2022 of $0.3 million, primarily due to the Turkish lira relative to the U.S.
dollar. Foreign currency-based transactions produced a loss for the second
quarter of 2021 of $1.2 million, primarily due to the Argentinian peso relative
to the U.S. dollar.
Income Taxes
The provision for income taxes in the second quarter of 2022 and 2021 was $16.8
million and $9.3 million, respectively. The effective tax rate for the second
quarter of 2022 was about 22 percent and, before the impact of discrete events,
was about 21 percent. The effective tax rate for the second quarter of 2021 was
about 19 percent and, before the impact of discrete events, was about 20
percent. The increase in the effective tax rate was primarily a result of net
unfavorable discrete events recorded in the second quarter of 2022, as opposed
to net favorable discrete events, recorded in the second quarter of 2021,
primarily related to excess tax benefits from share-based compensation. The tax
rate as a percentage of pre-tax earnings for the full year 2022 is projected to
be about 21 percent, compared to the full year 2021 tax rate of about 21
percent, both before discrete adjustments.
Net Income
Net income for the second quarter of 2022 was $59.8 million compared to the
prior year second quarter net income of $39.4 million. Net income attributable
to Franklin Electric Co., Inc. for the second quarter of 2022 was $59.4 million,
or $1.26 per diluted share, compared to the prior year second quarter net income
attributable to Franklin Electric Co., Inc. of $39.1 million or $0.83 per
diluted share.
First Half of 2022 vs. First Half of 2021
OVERVIEW
Sales in the first half of 2022 were up from the same period last year. Sales in
the first half increased by $232.3 million, or about 30 percent, due to higher
sales across all three segments, achieved by price realization, acquisitions,
and volume. The Company's consolidated gross profit was $334.6 million for the
first half of 2022, an increase of $66.8 million or about 25 percent from the
first half of 2021. Diluted earnings per share in the first half of 2022 were up
from the same period last year.
RESULTS OF OPERATIONS
Net Sales
Net sales in the first half of 2022 were $1,002.6 million, an increase of $232.3
million or about 30 percent compared to 2021 first half sales of $770.3 million.
Acquisition related sales were $82.6 million. Sales decreased by $32.5 million
or about 4 percent in the first half of 2022 due to foreign currency
translation. The Company's organic sales growth, led by price realization, was
about 24 percent.
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Net Sales
(In millions) YTD June 30, 2022 YTD June 30, 2021 2022 v 2021
Water Systems $ 583.1 $ 444.8 $ 138.3
Fueling Systems 158.5 129.0 29.5
Distribution 326.0 240.5 85.5
Eliminations/Other (65.0) (44.0) (21.0)
Consolidated $ 1,002.6 $ 770.3 $ 232.3Net Sales-Water Systems
Water Systems sales were $583.1 million in the first half of 2022, an increase
of $138.3 million or about 31 percent versus the first half of 2021. The
incremental impact of sales from acquired businesses was $48.7 million. Foreign
currency translation changes decreased sales $30.3 million or about 7 percent
compared to sales in the first half of 2021. The Water Systems sales change in
the first half of 2022, excluding acquisitions and foreign currency translation,
was an increase of $119.9 million or about 27 percent. This revenue growth was
primarily from price and volume, which was up due to strong end market demand.
Water Systems sales in the U.S. and Canada increased by about 48 percent
compared to the first half of 2021. The incremental impact of sales from
acquired businesses was $45.0 million. Sales revenue decreased by $0.8 million
in the first half of 2022 due to foreign currency translation. In the first half
of 2022, organic Water Systems sales in the U.S. and Canada were 30 percent.
Sales of groundwater pumping equipment increased by about 40 percent and sales
of all surface pumping equipment increased by about 21 percent versus the first
quarter 2021, due to strong end market demand and pricing.
Water Systems sales in markets outside the U.S. and Canada increased by about 11
percent compared to the first half of 2021. The incremental impact of sales from
acquired businesses was $3.7 million. Sales revenue decreased by $29.5 million
or about 15 percent in the first half of 2022 due to foreign currency
translation. Water Systems organic sales in markets outside the U.S. and Canada
change in the first half of 2022, excluding foreign currency translation and
acquisitions, was an increase of about 24 percent. Water Systems sales grew in
all major geographic regions; EMEA, Latin America and the Asia Pacific markets,
on strong end market demand and pricing.
Net Sales-Fueling Systems
Fueling Systems sales were $158.5 million in the first half of 2022, an increase
of $29.5 million or about 23 percent from the first half of 2021. Foreign
currency translation changes decreased sales $2.2 million or about 2 percent
compared to sales in the first half of 2021. The Fueling Systems sales change in
the first half of 2022, excluding foreign currency translation, was an increase
of about 25 percent. Revenue growth was from price and volume.
Fueling Systems sales in the U.S. and Canada increased by about 26 percent
during the first half. The increase was due, in part, to robust demand for
infrastructure buildout in the U.S. Outside the U.S. and Canada, Fueling Systems
revenues decreased by about 2 percent, as sales increases of 4 percent in the
rest of the world outside of China were not enough to offset lower sales in
China.
Net Sales - Distribution
Distribution sales were $326.0 million in the first half of 2022, an increase of
$85.5 million or about 36 percent, versus the first half of 2021 sales of $240.5
million. The incremental impact of sales from acquired businesses was $33.9
million. Distribution segment organic sales increased about 21 percent compared
to the first half of 2021. Revenue growth was primarily from price and 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 half of 2022 and 2021 was
66.6 percent and 65.2 percent, respectively. Correspondingly, the gross profit
margin was 33.4 percent and 34.8 percent, respectively. The Company's
consolidated gross profit was $334.6 million for the first half of 2022, up
$66.8 million from the gross profit of $267.8 million in the first half of 2021.
The gross profit increase was primarily due to higher sales. The decline in
gross profit margin percentage is partially attributable to supply constraints
causing unfavorable manufacturing absorption variances, as selling price actions
offset inflationary cost increases.
Selling, General, and Administrative ("SG&A")
Selling, general, and administrative expenses were $213.0 million in the first
half of 2022, and increased by $30.9 million or 17 percent in the first half of
2022 compared to $182.1 million in the first half of last year. SG&A expenses
from acquired
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businesses were $20.0 million and excluding the acquired entities, SG&A expenses
were higher by $10.9 million or 6 percent versus the prior year. SG&A costs as a
percent of Net Sales were below 2021.
Restructuring Expenses
Restructuring expenses for the first half of 2022 were $0.7 million.
Restructuring expenses were $0.6 million in the Water Systems segment from
continued miscellaneous manufacturing and distribution realignment activities
and $0.1 in distribution related to branch consolidations and other asset
rationalizations in the Headwater distribution segment. Restructuring expenses
for the first half of 2021 were $0.3 million. Restructuring expenses were $0.2
million in the Water Systems segment from continued miscellaneous manufacturing
and distribution realignment activities and $0.1 in distribution related to
branch consolidations and other asset rationalizations in the Headwater
distribution segment.
Operating Income
Operating income was $120.9 million in the first half of 2022, up $35.5 million
or about 42 percent from $85.4 million in the first half of 2021.
Operating income (loss)
(In millions) YTD June 30, 2022 YTD June 30, 2021 2022 v 2021
Water Systems $ 82.2 $ 65.9 $ 16.3
Fueling Systems 43.8 33.4 10.4
Distribution 32.7 18.0 14.7
Eliminations/Other (37.8) (31.9) (5.9)
Consolidated $ 120.9 $ 85.4 $ 35.5Operating Income-Water Systems
Water Systems operating income was $82.2 million in the first half of 2022
compared to $65.9 million in the first half of 2021, an increase of about 25
percent. The first half operating income margin was 14.1 percent and decreased
by 70 basis points compared to the first half of 2021. Operating income margin
decreased in Water Systems primarily because supply constraints caused
unfavorable absorption variances, as selling price actions offset inflationary
cost increases.
Operating Income-Fueling Systems
Fueling Systems operating income was $43.8 million in the first half of 2022
compared to $33.4 million in the first half of 2021. The first half operating
income margin was 27.6 percent compared to 25.9 percent of net sales in the
first half of 2021, an increase of 170 basis points. The increase in operating
income was primarily due to higher sales. Operating income margin increased in
Fueling Systems primarily due to leverage on fixed cost from higher sales, price
realization and cost management.
Operating Income-Distribution
Distribution operating income was $32.7 million in the first half of 2022 and
operating income margin was 10.0 percent. Distribution operating income was
$18.0 million in the first half of 2021 and operating income margin was 7.5
percent. The increase in operating income and margin is related to higher
revenues, primarily price realization.
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 half of 2022 versus the
first half of 2021 was $4.9 million. General and administrative expenses were
higher by $1.0 million or about 3 percent to last year in the first half.
Interest Expense
Interest expense for the first half of 2022 was $4.4 million, up due to higher
debt and included a $0.7 million from interest penalties on an indirect tax
settlement in a foreign jurisdiction. Interest expense for the first half of
2021 was $2.5 million.
Other Income or Expense
Other income or expense was a loss of $1.5 million in the first half of 2022 and
included an unfavorable indirect tax settlement in a foreign jurisdiction of
about $1.0 million. Other income or expense was a loss of $0.5 million in the
first half of 2021.
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Foreign Exchange
Foreign currency-based transactions for the first half of 2022 was a loss $0.9
million, primarily due to the Argentinian peso relative to the U.S. dollar.
Foreign currency-based transactions for the first half of 2021 was a loss $1.2
million, primarily due to the Argentinian peso relative to the U.S. dollar.
Income Taxes
The provision for income taxes in the first half of 2022 and 2021 was $24.2
million and $13.6 million, respectively. The effective tax rate for the first
half of 2022 before and after the impact of discrete events was about 21
percent. The effective tax rate in the first half of 2021 was about 17 percent
and, before the impact of discrete events, was about 20 percent. The increase in
the effective tax rate was primarily a result of net unfavorable discrete events
recorded in the first half of 2022 compared to net favorable discrete events in
the first half of 2021, primarily related to excess tax benefits from
share-based compensation. The tax rate as a percentage of pre-tax earnings for
the full year 2022 is projected to be about 21 percent, compared to the full
year 2021 tax rate of about 21 percent, both before discrete adjustments.
Net Income
Net income for the first half of 2022 was $89.9 million compared to 2021 first
half net income of $67.5 million. Net income attributable to Franklin Electric
Co., Inc. for the first half of 2022 was $89.1 million, or $1.89 per diluted
share, compared to 2021 first half net income attributable to Franklin Electric
Co., Inc. of $67.0 million or $1.42 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 June 30, 2022
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 June 30, 2022 the Company had a $350.0 million revolving credit facility.
The facility is scheduled to mature on May 13, 2026. As of June 30, 2022, the
Company had $128.3 million borrowing capacity under the Credit Agreement as $4.0
million in letters of commercial and standby letters of credit were outstanding
and undrawn and $217.7 million in revolver borrowings were drawn and
outstanding, which were primarily used for funding working capital requirements.
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 June 30, 2022. The Company also has
other long-term debt borrowings outstanding as of June 30, 2022. See Note 10 -
Debt for additional specifics regarding these obligations and future maturities.
At June 30, 2022, the Company had $28.5 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.
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FRANKLIN ELECTRIC CO., INC. 
