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FELE > SEC Filings for FELE > Form 10-Q on 9-May-2013All Recent SEC Filings

Show all filings for FRANKLIN ELECTRIC CO INC | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for FRANKLIN ELECTRIC CO INC


9-May-2013

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Q1 2013 vs. Q1 2012

OVERVIEW

Sales and earnings after non-GAAP adjustments in the first quarter of 2013 were up from last year. The sales increase was related to the Company's acquisitions, as well as sales volume increases which were partially offset by the negative impact of foreign currency translation. The Company's consolidated gross profit was $73.9 million for the first quarter of 2013, an increase of $7.6 million or about 11 percent from the prior year's first quarter. The gross profit as a percent of net sales increased 40 basis points to 33.2 percent in 2013 from 32.8 percent in first quarter of 2012. The gross profit margin increase was primarily due to lower raw material, direct labor and variable costs, partially offset by higher fixed costs. The Company completed a 2-for-1 stock split on March 18, 2013, and all EPS amounts are presented on a post-split basis.

RESULTS OF OPERATIONS

Net Sales
Net sales in the first quarter of 2013 were $222.5 million, an increase of $20.6
million or about 10 percent compared to 2012 first quarter sales of $201.9
million.  The incremental impact of sales from acquired businesses was $12.8
million or about 6 percent. Sales revenue decreased by $4.6 million or about 2
percent in the first quarter of 2013 due to foreign currency translation. The
sales change in the first quarter of 2013, excluding acquisitions and foreign
currency translation, was an increase of $12.4 million or about 6 percent.

(In millions)    Q1 2013     Q1 2012     Q1 2013 v Q1 2012
                                 Net Sales
Water Systems   $  176.4    $  165.0    $              11.4
Fueling Systems     46.1        36.9                    9.2
Consolidated    $  222.5    $  201.9    $              20.6

Net Sales-Water Systems
Water Systems revenues were $176.4 million in the first quarter 2013, an increase of $11.4 million or about 7 percent versus the first quarter 2012 sales of $165.0 million. Sales from businesses acquired since the first quarter of 2012 were $9.9 million or 6 percent. Water Systems sales were reduced by $4.5 million or about 3 percent in the quarter due to foreign currency translation. Water Systems sales growth, excluding acquisitions and foreign currency translation, was about 4 percent.

Water Systems sales in the U.S. and Canada represent about 38 percent of the Company's consolidated sales and grew by about 12 percent during the quarter. Excluding acquisitions and the impact of foreign currency translation, U.S. and Canada sales growth was flat compared to the first quarter 2012, as sales of groundwater and wastewater pumps to the U.S. residential water market increased by about 5 percent and sales to the irrigation and industrial market increased by about 12 percent; but these gains were partially offset by lower sales of mobile pumps used in the oil and gas market.

Water Systems sales in Latin America were about 14 percent of consolidated sales for the quarter and were up about 1 percent compared to the first quarter of the prior year. Latin American sales were reduced by about 8 percent in the quarter due to foreign currency translation. Excluding acquisitions and the impact of foreign currency translation, Latin American sales were up about 9 percent compared to the first quarter 2012. The sales growth in Latin America was driven in large part by strong sales in Brazil, partially offset by lower sales in Argentina.

Water Systems sales in Europe were about 8 percent of consolidated sales and grew by about 6 percent compared to the first quarter 2012. Excluding acquisitions and the impact of foreign currency translation, European sales increased about 2 percent compared to the first quarter 2012. The Company's European management team has increased sales and improved margins in spite of the slow economy and unusually cold and wet weather conditions during this winter and early spring.

Water Systems sales in the Middle East and Africa were about 11 percent of consolidated sales and declined by about 1 percent compared to the first quarter 2012. The decline was attributable to foreign currency translation. Excluding acquisitions and the impact of foreign currency translation, sales were up about 6 percent compared to the first quarter 2012. Sales in the Gulf


region and Turkey grew by about 10 percent during the first quarter on strong demand for water well equipment. Impo, the Turkish pump and motor company that the Company acquired in 2011, continues to perform well and provide additional opportunities for the Company in the region.

Water Systems sales in the Asia Pacific region were 8 percent of consolidated sales and increased by about 8 percent compared to the first quarter prior year. Excluding acquisitions and the impact of foreign currency translation, Asia Pacific sales were up about 7 percent compared to the first quarter 2012. Sales in Southeast Asia grew by 27 percent compared to the first quarter prior year, as the Company continues to benefit from the improved customer service levels attributable to a new distribution center in Singapore. Sales in Australia grew by 20 percent, aided in part by the launch of the new solar powered water well pumping system. Sales in Taiwan declined versus prior year due to the timing of distributor replenishment orders.

Net Sales-Fueling Systems
Fueling Systems sales were $46.1 million in the first quarter 2013, an increase of $9.2 million or about 25 percent versus the first quarter 2012 sales of $36.9 million. Sales from businesses acquired since the first quarter of 2012 were $2.9 million or about 8 percent. Fueling Systems sales were reduced by $0.1 million or less than 1 percent in the quarter due to foreign currency translation. Fueling Systems sales growth, excluding acquisitions and foreign currency translation, was about 17 percent.

The first quarter Fueling Systems sales growth was led by sales increases in developing regions, specifically India, which grew by 72 percent compared to the prior year, where filling station owners are continuing to convert from suction pumping systems to the Franklin pressure pumping system in order to transfer gasoline from underground tanks to the dispensers. While about 95 percent of the 175,000 filling stations in the U.S. have already made this conversion, the Company estimates that only about 20 percent of the 300,000 stations in the developing world have converted, so the Company anticipates that sales will continue to benefit from this conversion in the developing regions for the foreseeable future. This is particularly encouraging because when a station owner converts to the Franklin pressure pumping system, it provides the opportunity for selling Franklin piping, containment and leak detection products as well because these products are specifically designed to enhance the overall performance of a pressure pumping system.

Cost of Sales
Cost of sales as a percent of net sales for the first quarter of 2013 and 2012 was 66.8 percent and 67.2 percent, respectively. Correspondingly, the gross profit margin increased to 33.2 percent from 32.8 percent, a 40 basis point improvement. The Company's consolidated gross profit was $73.9 million for the first quarter of 2013, an increase of $7.6 million, or about 11 percent, from the first quarter of 2012 gross profit of $66.3 million. The gross profit margin increase was primarily due to lower raw material, direct labor and variable costs, partially offset by higher fixed costs.

Selling, General and Administrative ("SG&A") Selling, general, and administrative (SG&A) expenses were $50.1 million in the first quarter of 2013 compared to $45.3 million from the first quarter of prior year, an increase of $4.8 million or about 10 percent. In the first quarter 2013, increases in SG&A attributable to acquisitions were $3.2 million. Additional increases in SG&A costs during the first quarter of 2013 resulted from increased costs for marketing and selling-related expenses of $1.2 million. These costs increased to support the integration of the Cerus product line, the launch of the Company's pump rental initiative, the commercialization of the Company's new artificial lift product offering and opening new product distribution centers.

Restructuring Expenses
Restructuring expenses for the first quarter of 2013 were $0.7 million and reduced diluted earnings per share by approximately $0.01. Restructuring expenses were primarily severance expenses, as well as Flex-ing acquisition integration activities, and other miscellaneous manufacturing realignment activities. Restructuring expenses last year were $(0.1) million and had no impact on diluted earnings per share. Restructuring expenses in the first quarter of 2012 resulted from a gain on the sale of land the Company had previously held for development, but that was subsequently sold in the first quarter of 2012.

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