Franklin Electric Co. Inc.
10/28/2026 | Press release | Distributed by Public on 10/28/2026 11:11
Quarterly Report for Quarter Ending September 30, 2026 (Form 10-Q)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Refer to the Company's Annual Report on Form 10-K for the year ended December 31, 2025 for management's discussion and analysis of its financial condition and results of operations. The following is management's discussion and analysis of the Company's financial condition and results of operations for the third quarter and nine months ended September 30, 2026 and 2025.
In April of 2026, the Company acquired Benson Pump Corporation ("Benson Pump"). Benson Pump is a professional groundwater distributor in Arkansas and operates within the Distribution segment. In May of 2026, the Company acquired Wood Brothers Industries. Wood Brothers Industries is a water treatment wholesale supplier in Nebraska and operates as a subsidiary of Water Systems. In July of 2026, the Company acquired Maynard's Water Conditioning ("Maynard's"). Maynard's is a water treatment retail store in Michigan and operates within the Water Systems segment. In September of 2026, the Company acquired Cat Pumps Corporation ("Cat Pumps"). Cat Pumps is a leading provider of high-pressure, positive displacement pumps based in Minnesota and operates within the Energy segment. Acquisitions contributed approximately $24.8 million of incremental net sales in the third quarter of 2026. Refer to Note 3 in Item 1 of this Quarterly Report on Form 10-Q for additional information on the Cat Pumps, Maynard's, Benson Pump, and Wood Brothers Industries acquisitions.
The impact that the imposition of tariffs and changes to global trade policies will have on the Company's consolidated results of operations is uncertain. The Company expects tariffs on goods imported into the U.S. from Canada, Mexico, and China, and other countries upon which tariffs may be imposed, to continue to be met with retaliatory tariffs from those countries which would impact the Company's consolidated results of operations. The extent and duration of tariffs and the resulting impact on macroeconomic conditions and on the Company's business are uncertain and may depend on various factors, including negotiations between the U.S. and affected countries, retaliation imposed by other countries, tariff exemptions, negative sentiment toward U.S. companies and products, and availability of lower cost inputs that may be sourced domestically. The Company will continue to evaluate the nature and extent of the impact to its business and consolidated results of operations.
Third Quarter 2026 vs. 2025
OVERVIEW
Net sales in the third quarter and first nine months of 2026 increased 9 percent and 8 percent respectively, as compared to the prior-year periods. The sales increases were due to the incremental sales impact from volume and price realization, recent acquisitions, and the favorable impact of foreign currency translation. The Company's consolidated gross profit was $224.0 million and $629.6 million, respectively, for the third quarter and first nine months of 2026, increases of 7 percent and 8 percent, respectively, from the prior-year periods. Diluted earnings per share was $1.35 and $3.58, respectively, for the third quarter and first nine months of 2026, increases of $0.98 and $1.23, respectively, from the prior-year periods.
RESULTS OF OPERATIONS
Net Sales
Net sales in the third quarter and first nine months of 2026 were $633.6 million and $1,756.9 million, respectively, and increased 9 percent and 8 percent, respectively, as compared to the prior-year periods. The sales increase for the third quarter was primarily due to incremental sales impact from price and volume increases of 4 percent, recent acquisitions of 4 percent, and the positive impact of foreign exchange rates of 1 percent. The sales increase for the first nine months was primarily due to higher sales volumes and price realization of 4 percent, incremental sales impact from recent acquisitions of 3 percent, and positive impact of foreign exchange rates of 1 percent.
| Net Sales | |||||||||||||||||
| (In millions) | Q3 2026 | Q3 2025 |
2026 v 2025
|
||||||||||||||
| Water Systems | $ | 352.5 | $ | 336.6 | $ | 15.9 | |||||||||||
| Energy Systems | 91.7 | 80.0 | 11.7 | ||||||||||||||
| Distribution | 226.1 | 197.3 | 28.8 | ||||||||||||||
| Eliminations/Other | (36.7) | (32.2) | (4.5) | ||||||||||||||
| Consolidated | $ | 633.6 | $ | 581.7 | $ | 51.9 | |||||||||||
| Net Sales | |||||||||||||||||
| (In millions) | YTD September 30, 2026 | YTD September 30, 2025 |
2026 v 2025
|
||||||||||||||
| Water Systems | $ | 1,029.1 | $ | 964.7 | $ | 64.4 | |||||||||||
| Energy Systems | 243.6 | 224.3 | 19.3 | ||||||||||||||
| Distribution | 598.1 | 539.1 | 59.0 | ||||||||||||||
| Eliminations/Other | (113.9) | (103.7) | (10.2) | ||||||||||||||
| Consolidated | $ | 1,756.9 | $ | 1,624.4 | $ | 132.5 | |||||||||||
Net Sales-Water Systems
Water Systems net sales were $352.5 million in the third quarter of 2026, an increase of $15.9 million or 5 percent compared to the third quarter of 2025 net sales of $336.6 million. The sales increase for the third quarter was due to incremental sales impact from recent acquisitions and the sales impact of price realization and foreign exchange rates. Water Systems net sales were $1,029.1 million for the first nine months of 2026, an increase of $64.4 million or 7 percent compared to the first nine months of 2025 net sales of $964.7 million. The sales increase for the first nine months was primarily due to incremental sales impact from recent acquisitions and the sales impact of price realization and foreign exchange rates.
Water Systems net sales in the U.S. and Canada increased 7 percent in the third quarter and 7 percent in the first nine months of 2026, as compared to the prior-year periods. In the third quarter of 2026, sales of groundwater pumping equipment increased 8 percent, sales of water treatment products increased 21 percent and sales of all other surface pumping equipment increased 9 percent. These sales increases were partially offset by lower sales of large dewatering equipment of 17 percent compared to 2025. In the first nine months of 2026, sales of groundwater pumping equipment increased 8 percent, sales of water treatment products increased 14 percent and sales of all other surface pumping equipment increased 10 percent. These sales increases were partially offset by lower sales of large dewatering equipment of 12 percent compared to 2025. Water Systems net sales in markets outside the U.S. and Canada increased 2 percent in the third quarter and 6 percent in the first nine months of 2026, as compared to the prior-year periods. The sales growth in the third quarter and the first nine months of 2026 was due to incremental sales impact from recent acquisitions of 1 percent and 3 percent, respectively. Sales increased 4 percent in the third quarter and 5 percent in the first nine months of 2026 due to the favorable impact from foreign exchange rates, as compared to prior-year periods. Excluding the impact of foreign currency translation and acquisitions, in both the third quarter and first nine months of 2026, the sales growth in the Asia Pacific regions was more than offset by sales declines in the Latin America and European regions.
Net Sales-Energy Systems
Energy Systems net sales were $91.7 million in the third quarter of 2026, an increase of $11.7 million or 15 percent compared to the third quarter of 2025 net sales of $80.0 million. Energy Systems net sales were $243.6 million for the first nine months of 2026, an increase of $19.3 million or 9 percent compared to the first nine months of 2025 net sales of $224.3 million. The net sales increase was due to higher sales volumes and price realization and recent acquisitions.
Energy Systems net sales in the U.S. and Canada increased 15 percent in the third quarter and 7 percent in the first nine months of 2026, as compared to the prior-year periods. Energy Systems sales increased due to acquisitions and higher sales of fuel management systems and grid solutions. Outside the U.S. and Canada, Energy Systems sales increased 12 percent in the third quarter and 16 percent in the first nine months of 2026, as compared to the prior-year periods, due to acquisitions and sales growth in the European and Asian regions.
Net Sales-Distribution
Distribution net sales were $226.1 million in the third quarter of 2026, an increase of $28.8 million or 15 percent compared to the third quarter of 2025 net sales of $197.3 million. Distribution net sales were $598.1 million for the first nine months of 2026, an increase of $59.0 million or 11 percent compared to the first nine months of 2025 net sales of $539.1 million. The net sales increase was due to higher sales volumes and price realization and the incremental sales impact from recent acquisitions.
Gross Profit and Expenses Ratios
| Three Months Ended September 30 | |||||||||||||||||||||||
| (In millions) | 2026 | % of Net Sales | 2025 | % of Net Sales | |||||||||||||||||||
| Gross Profit | $ | 224.0 | 35.4 | % | $ | 208.7 | 35.9 | % | |||||||||||||||
| Selling, General and Administrative Expense | 137.2 | 21.7 | % | 123.5 | 21.2 | % | |||||||||||||||||
| Nine Months Ended September 30 | |||||||||||||||||||||||
| (In millions) | 2026 | % of Net Sales | 2025 | % of Net Sales | |||||||||||||||||||
| Gross Profit | $ | 629.6 | 35.8 | % | $ | 584.4 | 36.0 | % | |||||||||||||||
| Selling, General and Administrative Expense | 392.3 | 22.3 | % | 366.6 | 22.6 | % | |||||||||||||||||
Gross Profit
The gross profit margin ratio was 35.4 percent and 35.8 percent in the third quarter and first nine months of 2026, respectively, and 35.9 percent and 36.0 percent in the third quarter and first nine months of 2025, respectively. The gross profit margin was unfavorably impacted in the third quarter by inflationary costs partially offset by tariff refunds while the first nine months of 2026 was impacted by an unfavorable product and geographic sales mix shift partially offset by tariff refunds.
Selling, General, and Administrative ("SG&A")
SG&A expenses were $137.2 million in the third quarter and $392.3 million in the first nine months of 2026 compared to $123.5 million in the third quarter and $366.6 million in the first nine months of 2025. SG&A expenses increased in the third quarter and first nine months of 2026 from the incremental expense impact of recent acquisitions. The SG&A expenses ratio (SG&A as a percentage of net sales) was 21.7 percent and 22.3 percent in the third quarter and first nine months of 2026, respectively, and 21.2 percent and 22.6 percent in the third quarter and first nine months of 2025, respectively.
Restructuring Expenses
There were $0.3 million and $4.5 million in restructuring expenses in the third quarter and first nine months of 2026, compared to $0.1 million and $0.4 million restructuring expenses in the third quarter and first nine months of 2025. Restructuring expenses were primarily due to continued manufacturing realignment activities.
Operating Income
Operating income in the third quarter and first nine months of 2026 was $86.5 million and $228.2 million, respectively, increases of 2 percent and 5 percent, respectively, as compared to the prior-year periods.
| Operating income (loss) | ||||||||||||||||||||
| (In millions) | Q3 2026 | Q3 2025 |
2026 v 2025
|
|||||||||||||||||
| Water Systems | $ | 58.9 | $ | 60.2 | $ | (1.3) | ||||||||||||||
| Energy Systems | 23.7 | 25.4 | (1.7) | |||||||||||||||||
| Distribution | 20.6 | 16.3 | 4.3 | |||||||||||||||||
| Eliminations/Other | (16.7) | (16.8) | 0.1 | |||||||||||||||||
| Consolidated | $ | 86.5 | $ | 85.1 | $ | 1.4 | ||||||||||||||
| Operating income (loss) | ||||||||||||||||||||
| (In millions) | YTD September 30, 2026 | YTD September 30, 2025 |
2026 v 2025
|
|||||||||||||||||
| Water Systems | $ | 168.6 | $ | 165.5 | $ | 3.1 | ||||||||||||||
| Energy Systems | 75.7 | 76.4 | (0.7) | |||||||||||||||||
| Distribution | 43.2 | 34.6 | 8.6 | |||||||||||||||||
| Eliminations/Other | (59.3) | (59.1) | (0.2) | |||||||||||||||||
| Consolidated | $ | 228.2 | $ | 217.4 | $ | 10.8 | ||||||||||||||
Operating Income-Water Systems
Water Systems operating income in the third quarter and first nine months of 2026 was $58.9 million and $168.6 million, respectively, a decrease of $1.3 million and an increase $3.1 million, respectively, as compared to the prior-year periods. The third quarter operating income margin was 16.7 percent, a decrease of 120 basis points from 17.9 percent in the third quarter of 2025. The first nine months of 2026 operating income margin was 16.4 percent, a decrease of 80 basis points from 17.2 percent in the first nine months of 2025. The decrease in operating income in the third quarter was primarily due to an unfavorable product and geographic sales mix shift as well as acquisition-related transaction expenses. The increase in operating income for the first nine months was primarily due to higher sales and tariff refunds partially offset by higher material costs.
Operating Income-Energy Systems
Energy Systems operating income in the third quarter and first nine months of 2026 was $23.7 million and $75.7 million, respectively, a decrease of $1.7 million and $0.7 million, respectively, as compared to the prior-year periods. The third quarter operating income margin was 25.8 percent, a decrease of 600 basis points from 31.8 percent in the third quarter of 2025. The first nine months of 2026 operating income margin was 31.1 percent, a decrease of 300 basis points from 34.1 percent in the first nine months of 2025. The decrease in margin was primarily due to acquisition-related transaction expenses and amortization of purchase accounting adjustments from the fair value of inventory acquired.
Operating Income-Distribution
Distribution operating income in the third quarter and first nine months of 2026 was $20.6 million and $43.2 million, respectively, increases of $4.3 million and $8.6 million, respectively, as compared to the prior-year periods. The third quarter operating income margin was 9.1 percent, an increase of 80 basis points from 8.3 percent in the third quarter of 2025. The first nine months of 2026 operating income margin was 7.2 percent, an increase of 80 basis points from 6.4 percent in the first nine months of 2025. Operating income and operating income margins increased primarily due to higher sales and cost structure actions implemented in 2025.
Operating Income-Eliminations/Other
Operating income-Eliminations/Other in the third quarter and first nine months of 2026 was $(16.7) million and $(59.3) million, respectively, an increase of $0.1 million and a decrease of $0.2 million, respectively, as compared to the prior-year periods. Operating income-Eliminations/Other is composed primarily of intersegment sales and profit eliminations and unallocated general and administrative expenses. The intersegment profit elimination in the third quarter of 2026 compared to the prior-year period of 2025 had no impact. For the first nine months of 2026 compared to the prior-year period of 2025 the intersegment profit elimination impact was an unfavorable $1.2 million. The intersegment elimination of operating income effectively defers the operating income on sales from Water Systems to Distribution in the consolidated financial results until such time as the transferred product is sold from the Distribution segment to its end third party customer. General and administrative expenses decreased by $0.1 million and $1.0 million, respectively, compared to the previous year's periods.
Interest Expense
Interest expense was $(4.7) million and $(10.5) million in the third quarter and first nine months of 2026, respectively, and $(3.5) million and $(8.1) million in the third quarter and first nine months of 2025, respectively. The increases in the third quarter and first nine months of 2026 were primarily driven by a higher average amount of outstanding debt.
Other income/(expense), net
Other income / (expense), net was a net gain of $1.2 million and a net gain of $2.2 million in the third quarter and first nine months of 2026, respectively, and a net loss of $(0.2) million and a net gain of $0.5 million in the third quarter and first nine months of 2025, respectively.
Foreign Exchange income/(expense), net
Foreign currency-based transactions produced an expense of $(2.3) million and $(4.4) million in the third quarter and first nine months of 2026, respectively, and an expense of $(2.7) million and $(8.5) million in the third quarter and first nine months of 2025, respectively. The results in the third quarters and first nine months of 2026 and 2025 are primarily due to transaction losses associated with the Argentine Peso and Turkish Lira relative to the U.S. dollar. The Company reports the results of its subsidiaries in Argentina and Turkey using highly inflationary accounting, which requires the functional currency of the entity be changed to the reporting currency of its parent.
Income Taxes
The provision for income taxes in the third quarter and first nine months of 2026 was $19.7 million and $ 53.6 million, respectively, and $6.3 million and $36.9 million in the third quarter and first nine months of 2025, respectively. The effective tax rate for the third quarter and first nine months of 2026 was 24.4 percent and 24.9 percent respectively, and 26.9 percent and 25.3 percent for the third quarter and the first nine months of 2025, respectively. The decrease in the effective tax rate was
primarily due to a mix of foreign earnings taxed at rates different than the U.S. statutory rate.
Net Income
Net income in the third quarter and first nine months of 2026 was $61.0 million and $161.8 million, respectively, and $17.2 million and $109.1 million in the third quarter and first nine months of 2025, respectively. Net income attributable to Franklin Electric Co., Inc. in the third quarter and first nine months of 2026 was $60.6 million and $160.7 million, respectively, or $1.35 and $3.58 per diluted share. Net income attributable to Franklin Electric Co., Inc. in the third quarter and first nine months of 2025 was $16.7 million and $107.8 million, respectively, or $0.37 and $2.35 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 September 30, 2026 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 September 30, 2026, the Company had a $350.0 million revolving credit facility. The facility is scheduled to mature on May 14, 2030. As of September 30, 2026, the Company had $217.3 million borrowing capacity under its credit agreement as $7.7 million of commercial and standby letters of credit were outstanding and undrawn and $125.0 million revolver borrowings were drawn or outstanding.
The Company maintains the Fourth Amended and Restated Note Purchase and Private Shelf Agreement (the "Prudential Agreement") with PGIM, Inc. and its affiliates, with a remaining borrowing capacity of $50.0 million as of September 30, 2026. The maturity date of the agreement is May 15, 2027.
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 on the New York Life Agreement of $25.0 million as of September 30, 2026. The maturity date of the agreement is May 15, 2027.
The Company also has other long-term debt borrowings outstanding as of September 30, 2026. See Note 6 - Debt included in the Company's Annual Report on Form 10-K for the year ended December 31, 2025, for additional information regarding these obligations and future maturities as well as Note 6 - Debt of this current quarterly report for changes to these agreements since December 31, 2025.
The Company has a firm, non-cancellable purchase commitment with a vendor for copper with an aggregate remaining obligation of approximately $1.9 million, expected to be fulfilled within the next year.
At September 30, 2026, the Company had $102.0 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 the majority of 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 nine months of 2026 and 2025.
| (In millions) | 2026 | 2025 | ||||||||||||
| Net cash flows from operating activities | $ | 139.2 | $ | 134.7 | ||||||||||
| Net cash flows from investing activities | (417.9) | (137.1) | ||||||||||||
| Net cash flows from financing activities | 336.2 | (112.2) | ||||||||||||
| Impact of exchange rates on cash and cash equivalents | 2.0 | (3.0) | ||||||||||||
| Change in cash and cash equivalents | $ | 59.5 | $ | (117.6) | ||||||||||
Cash Flows from Operating Activities
2026 vs. 2025
Net cash provided by operating activities was $139.2 million for the nine months ended September 30, 2026 compared to $134.7 million provided by operating activities for the nine months ended September 30, 2025. The change in operating cash flow was primarily attributable to operational results offset by a payment related to a supplier agreement.
Cash Flows from Investing Activities
2026 vs. 2025
Net cash used in investing activities was $417.9 million for the nine months ended September 30, 2026 compared to $137.1 million used in investing activities for the nine months ended September 30, 2025. The change in investing cash flow was primarily attributable to increased acquisition activity in the first nine months of 2026 compared to the prior year.
Cash Flows from Financing Activities
2026 vs. 2025
Net cash provided by financing activities was $336.2 million for the nine months ended September 30, 2026 compared to $112.2 million used in financing activities for the nine months ended September 30, 2025. The change in financing cash flow was primarily due to higher net borrowings and decreased repurchases of common stock in the first nine months of 2026 compared to the prior year.
FACTORS THAT MAY AFFECT FUTURE RESULTS
This quarterly report on Form 10-Q contains certain forward-looking information, such as statements about the Company's financial goals, acquisition strategies, financial expectations including anticipated revenue or expense levels, business prospects, market positioning, product development, manufacturing realignment, capital expenditures, tax benefits and expenses, and the effect of contingencies or changes in accounting policies. Forward-looking statements are typically identified by words or phrases such as "believe," "expect," "anticipate," "intend," "estimate," "may increase," "may fluctuate," "plan," "goal," "target," "strategy," and similar expressions or future or conditional verbs such as "may," "will," "should," "would," and "could." While the Company believes that the assumptions underlying such forward-looking statements are reasonable based on present conditions, forward-looking statements made by the Company involve risks and uncertainties and are not guarantees of future performance. Actual results may differ materially from those forward-looking statements as a result of various factors, including regional or general economic and currency conditions, various conditions specific to the Company's business and industry, new housing starts, weather conditions, epidemics and pandemics, market demand, competitive factors, changes in distribution channels, supply constraints, effect of price increases, raw material costs and availability, technology factors, integration of acquisitions, litigation, government and regulatory actions, changes in tariffs or the impact of any such changes on the Company's financial results, the Company's accounting policies, and other risks, all as described in the Company's Securities and Exchange Commission filings, included in Part I, Item 1A of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2025, and in Exhibit 99.1 thereto. Any forward-looking statements included in this Form 10-Q are based upon information presently available. The Company does not assume any obligation to update any forward-looking information, except as required by law.
Franklin Electric Co. Inc. published this content on October 28, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on October 28, 2026 at 17:11 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]