Second Quarter 2021 vs. Second Quarter 2020
OVERVIEW
Sales in the second quarter of 2021 increased from the second quarter of last
year. The sales increase was primarily from higher volumes, in part created by
the business recovering from the uncertainty and general disruptions around the
global pandemic last year and from acquisition related sales. The Company's
consolidated gross profit was $152.2 million for the second quarter of 2021, an
increase from the prior year's second quarter. The gross profit as a percent of
net sales was 34.8 percent in the second quarter of 2021 versus 34.7 percent
during the second quarter of 2020. Diluted earnings per share in the second
quarter of 2021 were up from the same period last year.
RESULTS OF OPERATIONS
Net Sales
Net sales in the second quarter of 2021 were $437.3 million, an increase of
$129.0 million or about 42 percent compared to 2020 second quarter sales of
$308.3 million. Acquisition related sales were $38.9 million. Sales revenue
increased by $6.1 million or about 2 percent in the second quarter of 2021 due
to foreign currency translation. Organic sales increased about 28 percent
compared to the second quarter of 2020.
Net Sales
(In millions) Q2 2021 Q2 2020 2021 v 2020
Water Systems $ 247.2 $ 178.4 $ 68.8
Fueling Systems 72.2 56.0 $ 16.2
Distribution 144.8 92.1 $ 52.7
Eliminations/Other (26.9) (18.2) $ (8.7)
Consolidated $ 437.3 $ 308.3 $ 129.0Net Sales-Water Systems
Water Systems sales were $247.2 million in the second quarter of 2021, an
increase of $68.8 million or about 39 percent versus the second quarter of 2020
sales of $178.4 million. Acquisition related sales were $23.8 million. Water
Systems sales increased by $4.8 million or about 3 percent in the quarter due to
foreign currency translation. Excluding acquisitions and foreign currency
translation, Water Systems sales were up $40.2 million or about 23 percent
compared to the second quarter of 2020.
Water Systems sales in the U.S. and Canada were up about 42 percent compared to
the second quarter of 2020. The impact of foreign currency translation increased
sales by about 2 percent. In the second quarter of 2021, sales from businesses
acquired since the second quarter of 2020 were $23.8 million. Organic Water
Systems sales in the U.S. and Canada were 17 percent in the second quarter.
Sales of groundwater pumping equipment increased by about 16 percent, sales of
dewatering equipment were up about 90 percent, and sales of surface pumping
equipment increased by about 13 percent versus the second quarter of 2020, all
due to strong end market demand and in part resulting from lower sales last year
due to the pandemic.
Water Systems sales in markets outside the U.S. and Canada increased by 34
percent overall. The impact of foreign currency translation increased sales by
about 4 percent. Excluding the impact of foreign currency translation, Water
Systems sales in markets outside the U.S. and Canada, increased by 30 percent,
primarily driven by higher sales in Latin America, Europe, the Middle East and
African markets (EMEA).
Net Sales-Fueling Systems
Fueling Systems sales were $72.2 million in the second quarter of 2021, an
increase of $16.2 million or about 29 percent versus the second quarter of 2020
sales of $56.0 million. Fueling Systems sales increased by $1.3 million or about
2 percent in the quarter due to foreign currency translation. Fueling Systems
organic sales increased about 27 percent compared to the second quarter of 2020.
Fueling Systems sales in the U.S. and Canada increased by about 40 percent
compared to the second quarter of 2020. The increase was due to higher demand
for Piping, Pumping and Fuel Management Systems. Outside the U.S. and Canada,
Fueling Systems revenues increased by about 1 percent, driven primarily by
higher sales in Latin America and EMEA, partially offset by lower sales in
China.
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Net Sales - Distribution
Distribution sales were $144.8 million in the second quarter of 2021, versus the
second quarter of 2020 sales of $92.1 million. In the second quarter of 2021,
sales from businesses acquired since the second quarter of 2020 were $15.1
million. The Distribution segment organic sales increased 41 percent compared to
the second 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 second quarter of 2021 was 65.2
percent and 65.3 percent for the second quarter of 2020. Correspondingly, the
gross profit margin was 34.8 percent and 34.7 percent for the second quarters of
2021 and 2020, respectively. The Company's consolidated gross profit was $152.2
million for the second quarter of 2021, up $45.1 million from the gross profit
of $107.1 million in the second quarter of 2020. The gross profit increase was
due to higher sales. In the second quarter, the gross profit margin percentage
was flat.
Selling, General, and Administrative ("SG&A")
Selling, general, and administrative (SG&A) expenses were $100.5 million in the
second quarter of 2021 compared to $72.3 million in the second quarter of 2020.
SG&A expenses from acquired businesses were $9.9 million and excluding the
acquired entities, SG&A expenses were higher by $18.3 million versus the prior
year. The primary increase was about $10 million in variable compensation
expense and commissions on higher sales. In addition, transaction, legal and
other administrative costs were about $2 million. SG&A costs as a percent of Net
Sales were slightly below the second quarter of 2020.
Restructuring Expenses
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. Restructuring expenses for the second
quarter of 2020 were $0.9 million and related to continued miscellaneous
manufacturing and distribution realignment activities in the Water Systems
segment.
Operating Income
Operating income was $51.6 million in the second quarter of 2021, up $17.7
million or about 52 percent from $33.9 million in the second quarter of 2020.
Operating income (loss)
(In millions) Q2 2021 Q2 2020 2021 v 2020
Water Systems 34.6 $ 28.7 $ 5.9
Fueling Systems 18.5 13.5 5.0
Distribution 16.0 6.8 9.2
Eliminations/Other (17.5) (15.1) (2.4)
Consolidated $ 51.6 $ 33.9 $ 17.7Operating Income-Water Systems
Water Systems operating income was $34.6 million in the second quarter of 2021,
up $5.9 million or about 21 percent versus the second quarter of 2020 and
operating income margin was 14.0 percent compared to the 16.1 percent in the
second quarter of 2020. Operating income margin decreased in Water Systems
primarily due to higher shipping and freight costs of about $3 million, which
were not fully offset by price increases, mostly in North America and about $2
million for transaction, legal and other charges incurred in the second quarter.
Operating Income-Fueling Systems
Fueling Systems operating income was $18.5 million in the second quarter of
2021, up $5.0 million or about 37 percent compared to $13.5 million in the
second quarter of 2020, and the second quarter operating income margin was 25.6
percent, an increase of 150 basis points from the 24.1 percent of net sales in
the second quarter of 2020. The increase in operating income was primarily due
to higher sales.
Operating Income-Distribution
Distribution operating income was $16.0 million in the second quarter of 2021,
and the second quarter operating income margin was 11.0 percent. Distribution
operating income was $6.8 million in the second quarter of 2020, and the second
quarter
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operating income margin was 7.4 percent. The increase in operating income margin
is primarily related to higher revenues and operating leverage.
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 2021 versus the
second quarter of 2020 was $0.3 million. General and administrative expenses
were higher by $2.7 million primarily due to higher variable compensation.
Interest Expense
Interest expense for the second quarter of 2021 and 2020 was $1.4 million and
$1.1 million, respectively.
Other Income or Expense
Other income or expense was a loss of $0.4 million in the second quarter of 2021
and 2020.
Foreign Exchange
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. Foreign currency-based transactions produced a loss for the second
quarter of 2020 of $0.9 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 2021 and 2020 was $9.3
million and $6.7 million, respectively. 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 effective tax rate for the second quarter of 2020 was
about 21 percent and, before the impact of discrete events, was about 20
percent. The decrease in the effective tax rate was primarily a result of net
favorable discrete events, including increased excess tax benefits from
share-based compensation, recorded in the second quarter of 2021 compared to net
unfavorable discrete events recorded in the second quarter of 2020 from a
valuation allowance on foreign deferred tax assets. 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 second quarter of 2021 was $39.4 million compared to the
prior year second quarter net income of $24.8 million. Net income attributable
to Franklin Electric Co., Inc. for the second quarter of 2021 was $39.1 million,
or $0.83 per diluted share, compared to the prior year second quarter net income
attributable to Franklin Electric Co., Inc. of $24.7 million or $0.52 per
diluted share.
First Half 2021 vs. First Half 2020
OVERVIEW
Sales in the first half of 2021 were up from the same period last year. The
sales increase was primarily from higher volumes, in part created by the
business recovering from the uncertainty and general disruptions around the
global pandemic last year and from acquisition related sales. The Company's
consolidated gross profit was $267.8 million for the first half of 2021, an
increase of $70.4 million or about 36 percent from the first half of 2020.
Diluted earnings per share in the first half of 2021 were up from the same
period last year.
RESULTS OF OPERATIONS
Net Sales
Sales in the first half of 2021 were up from the same period last year. The
sales increase was primarily from higher volumes, in part created by the
business recovering from the uncertainty and general disruptions around the
global pandemic last year and from acquisition related sales. The Company's
consolidated gross profit was $267.8 million for the first half of 2021, an
increase of $70.4 million or about 36 percent from the first half of 2020.
Diluted earnings per share in the first half of 2021 were up from the same
period last year.
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Net Sales
(In millions) YTD June 30, 2021 YTD June 30, 2020 2021 v 2020
Water Systems $ 444.8 $ 342.5 $ 102.3
Fueling Systems 129.0 111.2 $ 17.8
Distribution 240.5 152.5 $ 88.0
Eliminations/Other (44.0) (31.2) $ (12.8)
Consolidated $ 770.3 $ 575.0 $ 195.3Net Sales-Water Systems
Water Systems sales were $444.8 million in the first half of 2021, an increase
of $102.3 million or about 30 percent versus the first half of 2020. The
incremental impact of sales from acquired businesses was $31.0 million. Foreign
currency translation changes increased sales $1.1 million compared to sales in
the first half of 2020. The Water Systems sales change in the first half of
2021, excluding acquisitions and foreign currency translation, was an increase
of $70.2 million or about 20 percent.
Water Systems sales in the U.S. and Canada increased by about 32 percent
compared to the first half of 2020. The incremental impact of sales from
acquired businesses was $31.0 million. Sales revenue increased by $2.5 million
in the first half of 2021 due to foreign currency translation. In the first half
of 2021, organic Water Systems sales in the U.S. and Canada were 14 percent.
Sales of groundwater pumping equipment increased by about 20 percent, sales of
dewatering equipment were up about 30 percent, and sales of surface pumping
equipment increased by about 12 percent versus the second quarter of 2020, all
due to strong end market demand and in part resulting from lower sales last year
due to the pandemic.
Water Systems sales in markets outside the U.S. and Canada increased by about 27
percent compared to the first half of 2020. Sales revenue decreased by $1.4
million or about 1 percent in the first half of 2021 due to foreign currency
translation. International Water Systems organic sales change in the first half
of 2021, excluding foreign currency translation, was an increase of about 28
percent. International Water Systems sales grew in all major geographic regions;
Latin America, EMEA and the Asia Pacific markets, in part by the business
recovering from the global pandemic last year.
Net Sales-Fueling Systems
Fueling Systems sales were $129.0 million in the first half of 2021, an increase
of $17.8 million or about 16 percent from the first half of 2020. Foreign
currency translation changes increased sales $2.1 million or about 2 percent
compared to sales in the first half of 2020. The Fueling Systems sales change in
the first half of 2021, excluding acquisitions and foreign currency translation,
was an increase of about 14 percent.
Fueling Systems sales in the U.S. and Canada increased by about 20 percent
during the first half. The increase was due to higher demand for Piping, Pumping
and Fuel Management Systems. Outside the U.S. and Canada, Fueling Systems
revenues increased by about 4 percent, driven primarily by higher sales in Latin
America and EMEA, partially offset by lower sales in China.
Net Sales - Distribution
Distribution sales were $240.5 million in the first half of 2021, versus the
first half of 2020 sales of $152.5 million. The incremental impact of sales from
acquired businesses was $31.4 million. Distribution segment organic sales
increased about 37 percent compared to the first half of 2020, 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 2021 and 2020 was
65.2 percent and 65.7 percent, respectively. Correspondingly, the gross profit
margin was 34.8 percent and 34.3 percent, respectively. The Company's
consolidated gross profit was $267.8 million for the first half of 2021, up
$70.4 million from the gross profit of $197.4 million in the first half of 2020.
The gross profit increase was primarily due to higher sales. The improvement in
gross profit margin percentage is partially attributable to better selling price
realization and improved product and geographic sales mix shifts.
Selling, General, and Administrative ("SG&A")
Selling, general, and administrative expenses were $182.1 million in the first
half of 2021, and increased by $34.2 million or 23 percent in the first half of
2021 compared to $147.9 million in the first half of last year. SG&A expenses
from acquired businesses were $14.8 million and excluding the acquired entities,
SG&A expenses were higher by $19.4 million versus the prior year. The primary
increase was about $13 million in variable compensation expense and commissions
on higher sales.
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Restructuring Expenses
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. Restructuring expenses
for the first half of 2020 were $1.7 million. Restructuring expenses were $1.5
million in the Water Systems segment and $0.1 million in the Fueling 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.
Operating Income
Operating income was $85.4 million in the first half of 2021, up $37.6 million
or about 79 percent from $47.8 million in the first half of 2020.
Operating income (loss)
(In millions) YTD June 30, 2021 YTD June 30, 2020 2021 v 2020
Water Systems 65.9 47.5 $ 18.4
Fueling Systems 33.4 25.6 7.8
Distribution 18.0 4.6 13.4
Eliminations/Other (31.9) (29.9) (2.0)
Consolidated $ 85.4 $ 47.8 $ 37.6Operating Income-Water Systems
Water Systems operating income was $65.9 million in the first half of 2021
compared to $47.5 million in the first half of 2020, an increase of about 39
percent. The first half operating income margin was 14.8 percent and increased
by 90 basis points compared to the first half of 2020. Operating income margin
increased in Water Systems primarily related to higher revenues and operating
leverage.
Operating Income-Fueling Systems
Fueling Systems operating income was $33.4 million in the first half of 2021
compared to $25.6 million in the first half of 2020. The first half operating
income margin was 25.9 percent compared to 23.0 percent of net sales in the
first half of 2020, an increase of 290 basis points. The increase in operating
income was primarily due to higher sales. Operating income margin increased in
Fueling Systems primarily due to product and geographic sales mix shifts.
Operating Income-Distribution
Distribution operating income was $18.0 million in the first half of 2021 and
operating income margin was 7.5 percent. Distribution operating income was $4.6
million in the first half of 2020 and operating income margin was 3.0 percent.
The increase in operating income and margin is primarily related to higher
revenues 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 half of 2021 versus the
first half of 2020 was $0.4 million. General and administrative expenses were
higher by $2.4 million or about 9 percent to last year in the first half
primarily due to higher variable compensation.
Interest Expense
Interest expense for the first half of 2021 and 2020 was $2.5 million and $2.4
million, respectively.
Other Income or Expense
Other income or expense was a loss of $0.5 million in the first half of 2021.
Other income or expense was a loss of $0.6 million in the first half of 2020.
Foreign Exchange
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.
Foreign currency-based transactions for the first half of 2020 was a gain $0.1
million due to movements in several currencies relative to the U.S. dollar, none
of which individually were significant.
Income Taxes
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The provision for income taxes in the first half of 2021 and 2020 was $13.6
million and $9.3 million, respectively. The effective tax rate for the first
half of 2021 was about 17 percent, and before the impact of discrete events, was
about 20 percent. The effective tax rate in the first half of 2020 was about 21
percent, and before the impact of discrete events, was about 20 percent. The
decrease in the effective tax rate was primarily a result of net favorable
discrete events recorded in the first half of 2021 compared to net unfavorable
discrete events in the first half of 2020. 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 first half of 2021 was $67.5 million compared to 2020 first
half net income of $35.6 million. Net income attributable to Franklin Electric
Co., Inc. for the first half of 2021 was $67.0 million, or $1.42 per diluted
share, compared to 2020 first half net income attributable to Franklin Electric
Co., Inc. of $35.3 million or $0.75 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, 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 June 30, 2021 the Company had a $250.0 million revolving credit facility.
The facility is scheduled to mature on May 13, 2026. As of June 30, 2021, the
Company had $116.0 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 $130 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 June 30, 2021. The Company also has
other long-term debt borrowings outstanding as of June 30, 2021. See Note 9 -
Debt for additional specifics regarding these obligations and future maturities.
At June 30, 2021, the Company had $65.1 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 six months of 2021 and 2020.
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FRANKLIN ELECTRIC CO., INC. 
