BLUFFTON, Ind., May 4, 2011 (GLOBE NEWSWIRE) -- Franklin Electric Co., Inc. (Nasdaq:FELE) reported first quarter 2011 diluted earnings per share (EPS) of $0.45, a record for any first quarter in the Company's history, and an increase of 45 percent compared to 2010 first quarter diluted EPS of $0.31. In the first quarter of 2011, the Company's adjusted EPS were $0.46, a 35 percent increase over the adjusted EPS during the first quarter 2010 (see table below for a reconciliation of GAAP EPS to the adjusted EPS). First quarter 2011 sales were $185.3 million, a record for any first quarter and an increase of 16 percent compared to 2010 first quarter sales of $160.0 million.
Scott Trumbull, Franklin Chairman and Chief Executive, commented:
"We were pleased with our record performance in the first quarter. We were able to increase gross profit margins by 110 basis points in spite of rapidly increasing commodity costs due to excellent productivity performance in our manufacturing facilities and sales growth of 16 percent.
Over the course of the first quarter we implemented price increases averaging 3 to 5 percent on product lines that account for about 75 percent of our global sales volume. The implementation of these increases has gone well and we expect them to be fully effective during the second quarter. We are monitoring our raw material costs closely and may implement price increases on the balance of our product lines over the course of the year."
Key Performance Indicators:
Water Systems
Water Systems sales were $147.2 million in the first quarter 2011, an increase of $13.0 million or 10 percent versus the first quarter 2010. All of the Water Systems sales growth was organic. Foreign exchange contributed about $4.2 million, or 3 percent, to sales in the first quarter of 2011.
Water Systems sales in the U.S. and Canada represented about 38 percent of the Company's consolidated sales during the quarter and increased by 7 percent compared to prior year. U.S. and Canada sales growth was driven by the agricultural market as farmers are investing in irrigation systems to increase yields and capitalize on high crop prices. U.S. and Canada first quarter sales of wastewater pumping systems grew by about 6 percent and residential and light commercial groundwater pumps grew modestly.
Water Systems sales in Europe represented about 10 percent of the Company's consolidated sales during the quarter and grew by 3 percent compared to the prior year. Vertical S.p.A., the stainless steel pump manufacturer in Italy that the Company acquired in 2009, grew by 23 percent compared to the prior year quarter.
Over the past several years the Company has focused on building Water Systems sales and distribution in developing regions. During the first quarter 2011, Water Systems sales in developing regions represented about 33 percent of the Company's consolidated sales and grew by 15 percent compared to the first quarter prior year.
Latin America is the largest Water Systems developing region market representing about 15 percent of the Company's consolidated sales. Water Systems sales in Latin America continued to be strong—growing by 19 percent compared to the prior year. Latin America sales growth was widespread across the region with gains of more than 20 percent in Brazil, Mexico, Chile and Argentina.
Water Systems sales in Asia/Pacific represent about 8 percent of the Company's consolidated sales and also grew by 19 percent compared to the prior year. Franklin Electric has high market shares for groundwater systems throughout the Southeast Asia region and Water Systems sales in this area grew by over 50 percent compared to the prior year—with the Thailand and Indonesia markets being particularly strong.
On May 2nd the Company closed the previously announced acquisition of an 80 percent equity interest in İmpo Motor Pompa Sanayi ve Ticaret A.S. (Impo) of Izmir, Turkey, the leading supplier of groundwater pumping equipment in Turkey. The Company used its existing cash for this transaction. The Impo acquisition will more than double the Water Systems sales base in the growing Middle East and Northern Africa market area. The Impo brand will complement the Company's overall marketing efforts in this region and other market regions around the globe. In addition, Impo has a modern, well managed, manufacturing facility.
Water Systems operating income, after non-GAAP adjustments, was $21.9 million in the first quarter 2011, an increase of 20 percent versus the first quarter 2010. Water Systems gross profit margin increased by 150 basis points during the first quarter 2011 as flat fixed manufacturing expenses and operating leverage combined to more than offset a 260 basis point increase in raw material costs as a percentage of sales. The first quarter operating income margin after non-GAAP adjustments increased by 130 basis points compared to the first quarter 2010.
Fueling Systems
Fueling Systems revenue of $38.1 million in the first quarter 2011 increased $12.3 million or about 48 percent from the first quarter 2010. Excluding the Petrotechnik acquisition, first quarter sales were $28.0 million and grew by about 9 percent with most of the growth in the U.S. and Canada.
With the Petrotechnik acquisition, Franklin Electric is the world leader in filling station pipe and containment systems. During the first quarter, Fueling Systems global pipe and containment sales increased by 11 percent excluding the Petrotechnik acquisition and by over 150 percent including the acquisition. Fueling Systems global sales of fuel pumping equipment grew by 15 percent during the first quarter as gas station owners around the world continue to convert from suction to pressure pumping technology.
Fueling Systems operating income after non-GAAP adjustments was $6.0 million in the first quarter of 2011 compared to $4.4 million after non-GAAP adjustments in the first quarter 2010. Gross profit margins in the quarter were down 240 basis points due to higher material cost and lower margins on Petrotechnik product sales. The previously announced Petrotechnik acquisition added $2.2 million of SG&A expenses in the quarter.
Fueling Systems incurred a $0.7 million expense in the first quarter 2011 that resulted from a revised accrual for claims made by the California Air Resources Board (CARB) and local air districts. These costs were included in the non-GAAP adjustments shown in the table above.
Overall
The Company's consolidated gross profit was $60.5 million for the first quarter of 2011, an increase of $9.9 million from the first quarter of 2010 and a record for any first quarter in the Company's history. The gross profit as a percent of net sales increased to 32.7 percent for the first quarter of 2011 from 31.6 percent for the first quarter of 2010. The gross profit margin improvement was due to lower labor and variable burden costs and leveraging fixed costs on higher sales, partially offset by higher material costs.
During the first quarter 2011, SG&A expenses increased by $8.3 million or about 23 percent compared to the first quarter 2010. The first quarter 2010 SG&A was reduced by a $1.2 million gain on the sale of land and building in South Africa. The SG&A increase in the first quarter 2011 is primarily attributable to the previously announced Petrotechnik acquisition, global IT expenses related to the integration of prior acquisitions onto the Company's primary ERP system, and higher RD&E spending.
In conjunction with the previously announced Impo acquisition, the Company entered into a forward purchase contract for Turkish Lira for a portion of the estimated acquisition price. The contract was outstanding as of the end of the first quarter and resulted in a pre-tax gain of approximately $0.6 million or an EPS increase of $0.02.
During the first quarter, the Company used $20.4 million in cash for operations versus $12.6 million in the same period of 2010. Inventory was $153.0 million at the end of the first quarter 2011 or 9 percent higher than at year end 2010. The Company changed the accounting method by which it values certain inventory from LIFO to FIFO and has restated the prior year inventory balances to reflect the change which was not material. Principal uses of cash in the quarter were payments related to incentive compensation, settlement of certain legal matters, benefit plan contributions and stock purchases of approximately 99,000 shares. The Company had no outstanding balance on its revolving debt agreement at the end of the first quarter 2011 or at year-end 2010.
Commenting on the Company's outlook, Mr. Trumbull added:
"For the second quarter we are forecasting that our Water Systems sales will grow by 7 to 12 percent compared to the prior year, with the Impo acquisition providing about 300 basis points of the growth. Although we are focused on offsetting the rapid run up in material costs with a combination of price and productivity, we currently believe that our margin growth will be negatively impacted during the second quarter due to the extraordinary rate of cost inflation we have experienced in copper, steel, and plastic resins. As a result, we forecast that our Water Systems operating income after non-GAAP adjustments will increase by 5 to 9 percent from the second quarter prior year.
We anticipate that our second quarter Fueling Systems sales will grow by 30 to 40 percent, with the Petrotechnik acquisition providing about two thirds of the growth. We are forecasting that our Fueling Systems operating income after non-GAAP adjustments, including the adjustment for the $3.8 million legal settlement incurred during the second quarter last year, will grow by 20 to 25 percent compared to the second quarter prior year.
So in total we expect that our second quarter 2011 consolidated operating income after non-GAAP adjustments will increase by 8 to 12 percent compared to the second quarter prior year. Our consolidated earnings per share should grow at a more rapid pace because the tax planning initiatives that we have implemented over the past several quarters are anticipated to reduce our effective tax rate to about 27 percent this year compared to a 2010 rate of about 32 percent."
A conference call to review earnings and other developments in the business will commence at 8:30am EDT. The first quarter 2011 earnings call will be available via a live webcast. The webcast will be available in a listen only mode by going to:
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.
A replay of the conference call will be available Wednesday, May 4, 2011 at 12pm EDT through midnight EDT on Friday, May 13, 2011, by dialing 800-642-1687 for domestic calls and 706-645-9291 for international calls. The replay passcode is 62467778.
Franklin Electric is a global leader in the production and marketing of systems and components for the movement of water and automotive fuels. Recognized as a technical leader in its specialties, Franklin Electric serves customers around the world in residential, commercial, agricultural, industrial, municipal, and fueling applications.
The Franklin Electric Co., Inc. logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=5939
The Company presents the non-GAAP financial measures of net income after non-GAAP adjustments, diluted earnings per share after non-GAAP adjustments (or adjusted EPS), operating income after non-GAAP adjustments and percent operating income after non-GAAP adjustments to net sales because the Company believes the information helps investors understand underlying trends in the Company's business more easily. The differences between these measures and the most comparable GAAP measures are reconciled in the tables above.
"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, raw material costs, technology factors, litigation, government and regulatory actions, the Company's accounting policies, future trends, 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 January 1, 2011, 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.
CONTACT: John J. Haines 260-824-2900
