Until 2004, Franklin Electric was primarily a supplier to original equipment manufacturers but has since shifted the business focus to being a supplier of ground water pumping products. The company has made a series of acquisitions in the water pumping industry, including The Little Giant Pump Company, JBD (formerly the pump line of Jacuzzi), Monarch Pumps, Centrifugal pump lines from Pioneer Pump, CAL pumps, Western Pump, Schneider Motobombas, Denorco Pumps, and a controlling share of Vertical Pumps of Italy.
The company also manufactures pump products for agriculture irrigation and dewatering, coal bed methane, sump, sewage, and effluent, water gardening, OEM submersible electric motors, and the fluid fueling industry.
Franklin Electric Co., Inc. designs, manufactures, and distributes water and fuel pumping systems worldwide. It operates in two segments, Water Systems and Fueling Systems. The Water Systems segment offers motors, pumps, electronic controls, and related parts and equipment. Its motors and pumps are used principally for pumping clean water and wastewater in various residential, agricultural, and industrial applications; and electronic drives and controls are used in motors, which control functionality and provide protection from various hazards, such as electric surges, over-heating, or dry wells or tanks. The Fueling Systems segment provides pumps, pipes, sumps, fittings, vapor recovery components, electronic controls, monitoring devices, and related parts and equipment primarily for use in submersible fueling system applications. It integrates and sells motors and electronic controls produced by the Water Systems segment. The company sells its products to specialty distributors, original equipment manufacturers, industrial and petroleum equipment distributors, and oil and utility companies. Franklin Electric Co., Inc. was founded in 1944 and is headquartered in Fort Wayne, Indiana.
(Summary) (Company) (Chart)
26 June 2016
1yr Target $33.57
Payout Ratio 27.97%
1yr Cap Gain 6.77%
1yr Tot Return 8.04%
EPS (ttm) $1.43
EPS next yr $1.83
Forward P/E 17.14
EPS next 5yr 40.00%
1yr Price Support $73.20
Market Cap $1.45 Bil
Revenues $917.60 Mil
Earnings $66.00 Mil
Profit Margin 7.19%
Quick Ratio 1.60
Current Ratio 3.00
1yr RevGR -11.66%
3yr RevGR 1.22%
5yr RevGR 5.31%
1yr EarnGR 6.38%
3yr EarnGR -4.60%
5yr EarnGR 7.78%
1yr DivGR 8.33%
3yr DivGR 10.27%
5yr DivGR 8.44%
Franklin Electric Co., Inc. is an Indiana corporation founded in 1944 and incorporated in 1946. The Company designs, manufactures and distributes water and fuel pumping systems, composed primarily of submersible motors, pumps, electronic controls and related parts and equipment. The Company’s water pumping systems move fresh and waste water for the housing, agriculture, and other industrial end markets. Historically, water-pumping systems contributed about 80 percent of revenues.
The Company is also a top supplier of submersible fueling systems at gas stations, making pumps, pipes, electronic controls, and monitoring devices. Fuel pumping systems account for the balance of the Company’s revenues.
The Company's business consists of two reporting segments based on the principal end market served: the Water Systems segment and the Fueling Systems segment. The Company includes unallocated corporate expenses in an “Other” segment that, together with the Water Systems and Fueling Systems segments, represent the Company.
The Company's products are sold worldwide by its employee sales force and independent manufacturing representatives. The Company offers normal and customary trade terms to its customers, no significant part of which is of an extended nature. Special inventory requirements are not necessary, and customer merchandise return rights do not extend beyond normal warranty provisions.
The market for the Company's products is highly competitive and includes diversified accounts by size and type. The Company's Water Systems and Fueling Systems products and related equipment are sold to specialty distributors and some original equipment manufacturers (“OEMs”), as well as industrial and petroleum equipment distributors and major oil and utility companies.
Business Segments and Products
Water Systems Segment. Water Systems is a global leader in the production and marketing of water pumping systems and is a technical leader in submersible motors, pumps, drives, electronic controls, and monitoring devices. The Water Systems segment designs, manufactures and sells motors, pumps, electronic controls and related parts and equipment primarily for use in groundwater, wastewater, and fuel transfer applications.
Water Systems motors and pumps are used principally for pumping clean water and wastewater in a variety of residential, agricultural, and industrial applications. Water Systems also manufactures electronic drives and controls for the motors which control functionality and provide protection from various hazards, such as electric surges, over-heating, or dry wells or tanks.
The Water Systems business has grown from a domestic submersible motor manufacturer to a global manufacturer of systems and components for the movement of water and automotive fuels. Founded in the 1940s, the Company made submersible motors for pumps for much of its history. About 10 years ago, it entered the pump business, and has since grown through acquisitions. Highlights of the Water Systems business transformation, from its origins to the present, are as follows:
- 1950s - Domestic submersible motor manufacturer
- 1990s - Global manufacturer of submersible motors, electronic drives and controls selling to pump OEMs
- 2004 - Began to change the business model to include pumps and sell directly to wholesale distributors
- 2006 - Added adjacent pumping systems, acquired Little Giant Pump Company, United States
- 2007 - Expanded globally, acquired Pump Brands (Pty) Limited, South Africa
- 2008 - Continued global expansion, acquired Industrias Schneider SA, Brazil
- 2009 - International acquisition, Vertical, S.p.A., Italy
- 2011 - International acquisition, Impo Motor Pompa Sanayi ve Ticaret A.S., Turkey
- 2012 - Acquired majority interest, 70.5%, in mobile pumping systems company, Pioneer Pump Holdings, Inc. ("PPH"), a United States company with subsidiaries in the United Kingdom and South Africa
- 2014 - International acquisitions, Bombas Leao S.A., Brazil and majority interest, 70%, of Pluga Pumps and Motors Private Limited, India
- 2015 - Acquired remaining 29.5% noncontrolling interest of PPH
Water Systems products are sold in highly competitive markets. Water-pumping systems contribute about 80 percent of revenue. Significant portions of segment revenue come from selling groundwater and surface pumps to residential and commercial buildings, a relatively stable business, as well as agricultural sales which are more seasonal and subject to commodity price changes.
The Water segment generates 40 percent of its revenue in developing markets, which often lack municipal water systems. As those countries bring systems up to date, the Company views those markets as an opportunity. The Company has had 15 to 20 percent compounded annual sales growth in those regions in recent years.
Water Systems competes in each of its targeted markets based on product design, quality of products and services, performance, availability, and price. The Company's principal competitors in the specialty water products industry are Grundfos Management A/S, Pentair, Inc., and Xylem, Inc.
2015 Water Systems research and development expenditures were primarily related to the following activities:
- Electronic drives and controls for submersible pumping and HVAC applications
- Submersible pumping technology, including the new FhotonTM Solar Drive system
- Submersible and surface pumps for agricultural and municipal applications
- Gray water pumping equipment, including the Pit+Plus® Basin System, IGPH series high head grinder pumps, and Battery Backup Sump Pump Kits
- Submersible motor technology and motor protection
- Artificial Lift systems for gas well dewatering and oil pumping, including a new drive system and deeper set pumps
Fueling Systems Segment. Fueling Systems is a global leader in the production and marketing of fuel pumping systems, fuel containment systems, and monitoring and control systems. The Fueling Systems segment designs, manufactures and sells pumps, pipe, sumps, fittings, vapor recovery components, electronic controls, monitoring devices and related parts and equipment primarily for use in submersible fueling system applications.
Fueling Systems has expanded its product offerings through internal development and acquisitions. Highlights of the Fueling Systems history are as follows:
- 1990s - Domestic manufacturer of submersible turbine pumping systems
- 2000 - Acquired Advanced Polymer Technology, Inc., a manufacturer of underground pipe for fueling applications, and EBW, Inc., a manufacturer and distributor of fueling hardware components
- 2006 - Acquired Healy Systems, Inc., a manufacturer of fueling nozzles and vapor recovery systems
- 2010 - Acquired PetroTechnik Limited, a United Kingdom distributor that designs and sources flexible and lightweight underground pipe
- 2012 - Acquired Flexing, Inc., a manufacturer of fueling equipment including stainless steel flexible hose connectors
- 2014 - Acquired majority interest, 65%, in Wadcorpp India Private Limited, India, a distributor of fueling equipment
Fueling Systems products are sold in highly competitive markets. In Fueling Systems, rising car use is leading to more investment in gas stations which, in turn, leads to increased demand for the Company’s Fueling Systems products. The Company believes there is growth opportunity in developing markets and acquired an investment in India in 2014.
Fueling Systems competes in each of its targeted markets based on product design, quality of products and services, performance, availability, and price. The Company's principal competitors in the petroleum equipment industry are Danaher Corporation and Dover Corporation.
2015 Fueling Systems research and development expenditures were primarily related to the following activities:
- Development of alternative fuel pumping systems
- Development of a system for monitoring substation circuit breakers
- Development of a system for routing electrical wiring to watertight fuel containment sumps
- Software enhancements to automatic tank gauges
This is an interesting company but it really is a play on infrastructure. As long as Franklin Electric continues to develop new products and water and fuel companies continue to expand their infrastructure to meet the demands of their consumers, this company will do very well. Management has done well holding down debt while increasing their asset base ensuring that the dividend is more than covered going forward. Even keeping the payout as a percentage of earnings gives management room to easily increase the dividend in the high single digits for a long time into the future.
What bothers me the most is the top line comparisons. They were doing an outstanding job of increasing sales until 2015. That may be a one time event, but it's something that will need to be watched going forward. What's most interesting is the analyst's estimated 5 year earnings growth rate going forward. That expectation of 40% growth going forward could support an expansion of the P/E ratio. Even if the ratio stays where it is today (22), expected earnings of $1.83 would result in a stock price of $40.26 which is a 28% gain from today's price. An expanded ratio of only 25 (for a company growing at an 5 year estimated rate of 40%) would result in a stock price next year of $45.75 which is 45% higher than the price of the stock today. Add in a dividend that's increasing at 8-10% per year and this could be a winner.
But all of this is based on the assumption that the analyst's projections are correct and that's often a "big if". That's why this company will be placed high on my watch list for now. If sales and earnings start to increase and the numbers make sense, I expect that I'll make an investment in this company. On the other hand, if the stock price falls below $30 per share, then an estimated one year target of $33.57 will product a one year estimated return of over 11%. Add in the small dividend and the combined return is higher than my minimal threshold of 12%. If that happens, I'll add this security to my others and grow that position as I normally do.