BLUFFTON, Ind., Feb. 28, 2011 (GLOBE NEWSWIRE) -- Franklin Electric Co., Inc. (Nasdaq:FELE) reported fourth quarter 2010 diluted earnings per share of $0.36, an increase of 9 percent compared to 2009 fourth quarter diluted earnings per share of $0.33. In the fourth quarter of 2010, the Company recognized charges for legal matters that resulted in a reduction to earnings per share of $0.03 per share. Diluted earnings per share for the fourth quarter of 2010 before restructuring and legal matters would have been $0.39, an increase of 15 percent compared to the prior year. Fourth quarter 2010 sales were $175.0 million, an increase of 21 percent compared to 2009 fourth quarter sales of $144.9 million.
For the full year 2010, diluted earnings per share were $1.66, an increase of 48 percent compared to 2009 diluted earnings per share of $1.12. Earnings per share before restructuring charges were $1.81, an increase of 40 percent versus the prior year. In 2010, the Company also recognized charges for legal matters that resulted in a reduction to earnings per share of $0.13. Diluted earnings per share for the full year of 2010 before restructuring and legal matters would have been $1.94, an increase of 50 percent compared to the prior year. Full year 2010 sales were $713.8 million, an increase of 14 percent compared to 2009 sales of $626.0 million.
Scott Trumbull, Franklin Chairman and Chief Executive, commented:
"The fourth quarter was a solid ending to a very good year for Franklin Electric. During the quarter our consolidated sales grew organically by 15 percent; our gross profit margin improved by 90 basis points compared to the year ago quarter as we more than offset rising material costs with operating leverage on higher sales. We also announced pricing actions that should be effective in the second quarter of 2011. Our selling, general and administrative ("SG&A") spending rate was unusually high during the fourth quarter as we incurred higher compensation related charges, concluded some long standing legal matters and included the addition of Petrotechnik. We are firmly committed to reducing SG&A costs as a percentage of sales during 2011.
"During the full year 2010 we were particularly pleased with the progress we made on two of our key growth objectives which were:
1. To increase market share of the North American water pumping systems market; and
2. To grow Water and Fueling Systems sales in developing regions where the demand for our products is growing most rapidly.
"In North America our two largest water pumping product lines are groundwater pumps and residential sump, sewage, effluent, and utility pumps. Based upon trade association data we believe that our North American shipments for these products grew at twice the rate of the industry as a whole. We estimate that Franklin Electric captured about 40 percent of the industry growth for these two key product categories in 2010. As a result our overall dollar sales in North America grew by 17 percent, and this growth was accomplished without a meaningful rebound in home building.
"Our Water Systems sales in developing regions grew organically by 21 percent during 2010 and now represent about 40 percent of our total Water Systems sales. Our global Water team achieved over 20 percent organic growth in a number of geographic markets including Brazil, Africa, China, the Gulf region and the ASEAN countries.
"Our Fueling Systems sales in developing regions grew by 41 percent during 2010, and now represent 26 percent of our total Fueling sales. The acquisition of Petrotechnik late in the third quarter of 2010 will add significantly to our distribution reach in Asia and Latin America and will provide a platform for cross selling in these markets as well as Europe in 2011 and beyond."
Key Performance Indicators:
Water Systems revenues were $136.1 million in the fourth quarter 2010, an increase of $18.1 million or 15 percent versus the fourth quarter 2009. All of the Water Systems sales growth was organic. Foreign exchange contributed $0.9 million, or less than 1 percent, to sales in the fourth quarter of 2010.
Water Systems sales in the U.S. and Canada represent about 45 percent of global Water Systems sales and grew by 18 percent versus the fourth quarter 2009. Sales of residential groundwater and wastewater pumps were particularly strong, while the industrial and irrigation product categories also grew at a double digit pace.
Sales in developing regions represented about 42 percent of the total Water Systems sales during the fourth quarter and grew by 21 percent with the Brazil, Mexico, Middle East, Africa, China and ASEAN markets each growing by more than 20 percent.
Sales in Western Europe represented about 13 percent of the total Water Systems sales during the quarter and grew by about 2 percent compared to the fourth quarter 2009. Double digit sales gains in Northern Europe were partially offset by declines in Southern Europe.
Water Systems operating income before restructuring expenses was $18.4 million in the fourth quarter 2010, an increase of 10 percent versus the fourth quarter 2009. Compared to the fourth quarter of 2009, the Water Systems gross profit margin increased by 90 basis points as expense control and operating leverage combined to more than offset higher raw material costs. However, fourth quarter operating income margin declined by 70 basis points compared to the fourth quarter 2009 due to higher SG&A expenses driven by higher commissions and incentive compensation.
All of the Water Systems businesses globally have implemented or plan to implement price increases between October 1, 2010 and April 1, 2011 to counter raw material cost inflation. The price increases apply to nearly all sales, vary by market and product and generally average 4 percent.
For the full year 2010, Water Systems operating income margin before restructuring increased by 220 basis points to 15.3 percent.
Fueling Systems revenue of $38.9 million in the fourth quarter 2010 increased $12.0 million or about 45 percent from the fourth quarter 2009. Excluding the Petrotechnik acquisition, fourth quarter sales were $30.0 million and grew by about 12 percent with about 15 percent growth in the U.S. and Canada and about 2 percent growth in the rest of the world.
Fueling Systems operating income both before and after restructuring expenses was $4.6 million in the fourth quarter of 2010 compared to $5.3 million before restructuring in the fourth quarter 2009. Operating margins before restructuring were 11.8 percent of sales in the fourth quarter 2010 compared to 19.7 percent of sales in the fourth quarter 2009. Gross profit margins in the quarter were flat to prior year. The entire decline in operating margins was attributable to considerably higher SG&A expenses caused primarily by higher compensation and legal expenses.
During the fourth quarter 2010, the ongoing litigation between Fueling Systems and James Healy was adjudicated in Federal court and as a result Fueling Systems incurred charges of $0.5 million in SG&A expenses and $0.7 million in interest expense.
The previously announced Petrotechnik acquisition added $2.1 million of SG&A expenses in the quarter.
During the first quarter 2011, Fueling Systems will implement price increases to offset raw material increases. These price increases average approximately 5 percent and impact about half of the Fueling Systems global sales volume. Price increases for the balance of the Fueling Systems revenue will become effective in the second quarter and beyond in 2011.
The Company's consolidated gross profit was $56.1 million for the fourth quarter of 2010, an increase of $10.9 million from the fourth quarter of 2009. The gross profit as a percent of net sales increased to 32.1 percent for the fourth quarter of 2010 from 31.2 percent for the fourth quarter of 2009. The gross profit margin improvement was primarily due to leveraging fixed costs on higher sales and was offset by higher material cost.
During the fourth quarter 2010, SG&A expenses increased by $11.5 million or about 37 percent compared to the fourth quarter 2009 primarily as a result of higher commissions, incentive compensation-related costs, and legal charges. The previously announced Petrotechnik acquisition added $2.1 million of SG&A expenses in the quarter.
The Company generated $92.8 million in cash from operations during 2010 versus $112.6 million in 2009. Inventory was $126.0 million at year end 2010 and was $8.4 million or 6 percent lower than at year end 2009. The Company purchased approximately $6.9 million, or about 226 thousand shares, of Company stock pursuant to its authorized stock repurchase program during 2010. The Company had no outstanding balance on its revolving debt agreement at year-end 2010 or 2009.
Commenting on the Company's outlook, Mr. Trumbull added:
"Looking ahead to the first quarter we anticipate our Water Systems sales growth rate will be in the mid-single digits as solid growth in developing regions is offset by more moderate growth in the U.S. and Canada. Our Water Systems sales growth in the U.S. and Canada during 2010 averaged about 15 percent, but we are expecting more modest growth in the first quarter of 2011 due to more difficult comparisons and the ongoing weakness in housing. We are encouraged by early signs that 2011 may be a stronger year in the U.S. for agricultural and irrigation spending which would benefit the Company during the second and third quarters.
"Water Systems operating income before restructuring charges is also expected to increase at a mid-single digit pace during the first quarter compared to the first quarter 2010 after excluding a $1.2 million gain on the sale of property in South Africa realized in the first quarter 2010. Our operating income will continue to be pressured by material cost inflation. Water Systems sales price increases averaging about 4 percent and covering about 85 percent of our consolidated sales base will not be fully effective until the end of the first quarter. However, on-going productivity improvements, operating leverage, and sales price increases that have already been implemented should provide positive momentum for mid-single digit Water Systems operating income growth this quarter before the impact of restructuring charges and the gain on sale of property in South Africa.
"We expect Fueling Systems sales growth in the first quarter to be in excess of 30 percent compared to the first quarter 2010 due to the Petrotechnik acquisition combined with modest organic growth. We also expect between 15 and 20 percent growth in Fueling Systems operating income. The operating income growth rate is less than the sales growth rate because of the lower margin Petrotechnik products.
"So, for the Company we anticipate that our consolidated operating income before restructuring for the first quarter, excluding the effect of the South Africa property sale, will be up by 4 to 7 percent compared to the prior year."
A conference call to review earnings and other developments in the business will commence at 8:30am EST. The fourth quarter and fiscal year 2010 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 Monday February 28, 2011 at 12pm EST through midnight EST on Monday March 7, 2011, by dialing 800-642-1687 for domestic calls and 706-645-9291 for international calls. The replay passcode is 44720201.
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.
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The Company presents the non-GAAP financial measures of net income before restructuring expenses and legal matters, diluted net income per share before restructuring expenses and legal matters, operating income before restructuring expenses and legal matters and percent operating income before restructuring expenses and legal matters 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, 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 2, 2010, 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