Franklin Electric Co., Inc. (NASDAQ:FELE) Q4 2019 Earnings Conference Call - Final Transcript

Feb 18, 2020 • 09:00 am ET

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Franklin Electric Co., Inc. (NASDAQ:FELE) Q4 2019 Earnings Conference Call - Final Transcript

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Executive
Gregg C. Sengstack

segment, revenue from our U.S. surface pump product line declined modestly in the quarter, while U.S. groundwater product line revenue grew modestly. Our U.S. large dewatering pump revenue trailed last year's record results as continued push out of orders and slowing demand in rental and oil and gas end markets compounded the challenging comparisons to the strong fourth quarter last year.

At the same time, our operations team continues to improve their ability to flex the operating cost base to maintain margins in this most cyclical business. Outside the U.S., sales in Latin America, accelerated. Compared to last year, the team achieved 20% organic growth in the quarter. All Latin American markets grew organically with particularly strong results in Brazil and the Southern Cone.

In Europe, the Middle East and Africa, our water business improved modestly. The continued recovery in our business in the Middle East, particularly Turkey offset modest declines in Europe and Africa. And consistent with prior quarters, our water business in Asia Pacific, grew modestly as well.

Our U.S. Fueling business continued to deliver strong growth driving another record quarter. However, in China, fourth quarter results were essentially flat sequentially but down significantly from last year. Business in China was below our expectations as the conversion of underground piping systems appears to be winding down faster than anticipated. Strength across the rest of our international Fueling markets essentially offset the sales decline in China. So overall, our Fueling business achieved about 4% organic growth in the quarter.

Turning to 2020, with more normal weather patterns, we believe our Distribution business will experience growth in the 5% to 7% range. The business is well-positioned, working capital is trending lower, the restructuring of our footprint in California is essentially complete, as is the integration of Milan Supply, which was acquired in early 2019. Again, with more normal weather in our strengthening Latin American business, we believe our global Water Systems segment will experience growth in the 5% to 7% range as well. We expect the U.S. Fueling business to continue to post strong results.

Outside of China, we expect our international Fueling business to grow modestly. While we expected 2020 Fueling sales in China to continue to decline on lower sales in underground pipe, we have planned that the regulatory initiatives around the installation of in-station diagnostics for ISD would partially offset this decline. This view has changed over the last month. The uncertainty of a negative impact on economic growth from the current coronavirus outbreak will likely delay the start of installations of ISDs. Beyond the impact of the current coronavirus outbreak on the China economy, our supply chain leadership continues to monitor the post Chinese New Year start up of our supply base to best anticipate the potential disruptions, both direct and indirect, to our supply chain. While we are encouraged with the information that our own factory and many of our Tier 1 suppliers' factories have reopened, it's still unclear as to the degree delivery commitments