Franklin Electric Co., Inc. Stock

Good day, and welcome to the Franklin Electric Reports Second Quarter 2026 Sales and Earnings Conference Call.

[Operator Instructions] Please be advised that today's conference is being recorded.

It is now my pleasure to introduce Dean Cantrell, Director of Investor Relations.

Thank you, Andrew, and welcome, everyone, to Franklin Electric's Second Quarter 2026 Earnings Conference Call. Joining me today is Jennifer Wolfenberger, our Chief Financial Officer; and Joe Rozanski, our Chief Executive Officer. On today's call, Joe will review our second quarter business highlights. Jennifer will provide additional details on our financial performance, and then Joe will make some additional comments highlighting our Water Systems segment. We will then take your questions. A replay link of the webcast will be archived for 7 days, and a transcript and audio version of this call will be available on our website tomorrow.

Before we begin, let me remind you that as we conduct this call, we will be making forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to various risks and uncertainties, many of which could cause actual results to differ materially from such forward-looking statements. A discussion of these factors may be found in the company's annual report on Form 10-K and today's earnings release. During this call, we will present both GAAP and certain non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in the appendix of our earnings presentation.

All forward-looking statements made during this call are based on information currently available, and except as required by law, the company assumes no obligation to update any forward-looking statements. Earlier today, we published a slide deck to accompany our prepared remarks. The slides can be found in the Investor Relations section of our corporate website at www.franklinelectric.com.

With that, I will now turn the call over to Joe.

Thank you, Dean. Good morning, everyone. Thank you for joining today's call. I'm pleased to share Franklin's results today and show you a company that is on a journey of growth and transformation.

Let's move to Slide 3. Our second quarter was solid for all segments. We continued our work to expand margins and increase our investment in our strategic plan. Our revenue from new products recently launched is at a record pace and we expect this to continue throughout the year. As we exited the quarter, we saw strong order growth and a healthy backlog, along with a balanced inventory position in our channel.

Our balance sheet remains strong. We closed 2 deals in our water business in the first half, strengthening our position in water treatment in North America and our Water Systems business in Europe. We also closed a deal in our distribution business, which extended our ability to bring our leading customer service and portfolio to some new end markets. All 3 deals are tracking ahead of plan. Finally, as we are a company on the move and have a great story and momentum to share, we'd like to announce our first Investor Day on March 23, 2027 in New York. So please stay tuned for more details.

If we could move to Slide 4. Looking at our for the second quarter, we like to talk first about our growth. It's critical for us. While we play in global markets that have dealt with some significant uncertainty, our story is 1 of the focus strategy, clear metrics and controlling our destiny. We finished the quarter with over 6% growth, 3.5% organic, and each segment grew nicely. We saw positive pricing, some good volume growth overall and strong contribution from new channels, new customers and M&A. Our adjusted operating income was up 12%. GAAP EPS was up 11%, with adjusted EPS up 18%.

Our adjusted EPS growth in Q2 more than tripled our sales growth year-over-year. This was helped by strong improvements in our income and SG&A productivity. We received a portion of our EPA tariff recovery as we knew we would receive some benefit in Q2, we modeled some balance in pricing and the offset to these same tariffs included in our inventory. The benefit to us was a few million dollars, mostly benefiting the energy P&L. We saw an acceleration of inflation throughout the quarter and some softer regions in Europe and South America and continue to watch for pricing and productivity measures to offset as we move to the back half. We are ramping up a new factory in Turkey and working through some facility consolidations in North America to build an efficient operating structure to better serve customers long term. Some of these costs are included in our overs, both in restructuring and operating expense, and we expect a nice productivity boost from these efforts as we move into 2027.

If we can move to Slide 5, I'd like to share our progress on some of our strategic priorities. Our value creation model starts with a clear growth focus on moving to faster-growing markets, adding new channels and customers and accretive revenue through new product launches. I'd like to give some proof points for Q2. By focusing on wider customer needs and the market trends, we have invested in our R&D. Our goal is to increase velocity and scale. In Q2, we've seen some growth from new products deliver over $10 million in new sales. We expect this number to grow over the next few years.

We are also focused on partnering with the best channel and looking to add customers. One great example is our water treatment business, adding new dealers that contributed over $2 million in new revenue in Q2. These 2 examples highlight a focused plan to expand our reach customers we can serve and to accelerate our growth. Our margin expansion efforts continue to accelerate. We have recently announced VT Regent as our new Chief Supply Chain and Transformation Officer. He brings a stellar resume of building teams, supply chain networks and transformation execution. He will also lead our VAO our value Acceleration Office, which is off to a great first year and a funnel and has a funnel that we expect to help accelerate our productivity efforts as we move into the second half of 2026.

I mentioned on our last call, we launched a new factory in Q1 and -- we've also made some smart consolidations of assets to more efficiently serve our customers and expand capacity in North America. Our capital budget is a record this year. More importantly, we are getting a great balance of growth, productivity and sustaining projects to ensure we achieve our long-term strategy. Our commitment to our shareholders remains a key tenet with continued growth in dividend in 2026. Finally and most importantly, we are focused not only on building the strongest team in our industry, but growing a company that attracts, develops and retains this great talent. Thank you to our Franklin team for your support of our journey and your important contribution to our results.

With that, I'd like to turn the call over to Jennifer to discuss the financial results in more detail.

Thank you, Joe. Please turn to Slide 6. Our fully diluted earnings per share was $1.46 for the second quarter 2026 and versus $1.31 for the second quarter 2025. Second quarter adjusted diluted EPS was $1.55, a new quarterly record compared to our 20,252nd quarter adjusted diluted EPS of $1.31. The 18% year-over-year expansion in adjusted diluted EPS and was primarily driven by the expansion in our adjusted operating income year-over-year as a result of volume growth above market, price discipline and cost management. This is a continued demonstration of our commitment to expand the earnings power of our business.

In the quarter, we booked a $4.5 million provision as we concluded a legal matter. This was recorded in the Energy Systems segment during the second quarter of 2026. There were $400,000 in restructuring costs in the second quarter of 2026 compared to $200,000 in in the prior year second quarter. Restructuring costs in the quarter are primarily related to structural improvement initiatives across our global water operations. These actions will deliver savings in 2026 and and will be accretive in 2027. The effective tax rate was 25.7% for the quarter compared to 24.9% in the prior year quarter. The increase in effective tax rate was primarily due to increased unfavorable discrete events in Q2 of 2026.

Moving to Slide 7. Second quarter 2026 consolidated sales were $622.9 million, a year-over-year increase of 6%. The sales increase in the second quarter was primarily driven by organic growth, including price, volume and foreign currency translation, followed by the incremental sales impact from recent acquisitions. Franklin Electric's consolidated gross profit was $230.6 million for the second quarter of 2026, up from the prior year's gross profit of $211.8 million. The gross profit as a percentage of net sales was 37% in the second quarter of 2026 compared to the second quarter of 2025 gross profit margin of 36.1%, an increase of 90 basis points compared to the prior year. The gross profit margin was favorably impacted in the second quarter of 2026 by price volume and tariff refunds, which were largely offset by material inflation and the timing of tariff expense rolling off the balance sheet. Selling, general and administrative expenses were $132.1 million in the second quarter of 2026 compared to $123.5 million in the second quarter of 2025. The increase in SG&A expense was primarily due to the incremental impact of our acquisitions in the past year. SG&A as a percentage of net sales was 21.2% in the second quarter of 2026, and and 21% in the second quarter of 2025.

Without the impact of acquisitions, our SG&A as a percentage of net sales was 20.8%, an improvement year-over-year of 20 basis points. Consolidated operating income was $93.6 million in the second quarter 2026, up $5.5 million or 6% from $88.1 million in the second quarter of 2025. The increase in operating income was primarily due to favorable price and higher sales volumes in the second quarter. As previously mentioned, there were $4.5 million in legal settlement and $400,000 in restructuring costs in the second quarter of 2026 versus $200,000 in the prior year second quarter.

Excluding those items, consolidated adjusted operating income was $98.5 million in the second quarter 2026, up $10.3 million or 12% from $88.2 million in the second quarter of 2025. The second quarter 2026 adjusted operating income margin was 15.8% and versus 15% in the second quarter of last year, an 80 basis point improvement year-over-year.

Moving to segment results, starting on Slide 8. Global Water Systems sales were up 5% compared to the second quarter 2025, driven by strong price, favorable currency exchange on sales and additional volume from our recent acquisitions. Water Systems sales in the U.S. and Canada were 8% compared to the second quarter of 2025. The sales increase was led by sales of groundwater pumping equipment into the agricultural market up 12% and sales of residential products, including water treatment products, up 11% and sales of product into mineral extraction applications up 6% and partially offset by sales of large dewatering equipment sold into industrial applications, which decreased 12% compared to 2025 in the U.S. and Canada.

Our system sales and markets outside the U.S. and Canada increased 1% overall. Foreign currency translation increased sales by 5%. Recent acquisitions added roughly 1% and and volume price were newly impacted by 5%. Excluding the impact of acquisitions and foreign currency translation, sales in the second quarter of 2026 increased in Asia Pacific as Latin America and EMEA sales were down year-over-year. EMEA sales volumes, specifically in North Africa, Middle East and Eastern Europe were negatively impacted by the ongoing conflict in the Middle East.

Global Water Systems operating income was $65.2 million, up $3.4 million versus the second quarter of 2025. The operating income margin was 18.2% and a year-over-year decrease of 10 basis points. There were $400,000 in restructuring costs in the second quarter of 2026 in the Water segment. Restructuring costs in the quarter are primarily related to the prior quarter structural improvement initiatives across our global water operations.

Adjusting for restructuring charges, the Water Systems adjusted operating income was $65.6 million, up $3.7 million or 6% from the prior year, with an adjusted operating income margin of 18.3%, an improvement of 10 basis points from the second quarter last year. Operating margin for our Global Water Systems business was positively impacted by favorable price realization and somewhat offset by higher material costs.

Moving to Slide 9. We Distribution second quarter sales were $221.1 million versus the second quarter 2025 sales of $200 million, an increase of 11% and the Distribution segment sales increase was primarily due to higher volumes, acquisition-related sales and price realization. The distribution segment's operating income was $19.7 million for the second quarter a year-over-year increase of $3.6 million. Operating income margin was 8.9% of sales in the second quarter, an improvement of 80 basis points versus the prior year. Operating income margin increased primarily due to higher sales volumes and strong price realization.

Moving to Slide 10. Energy Systems sales in the second quarter of 2026 and were $80.2 million, an increase of $2.7 million or 3% compared to the second quarter of 2025. Energy Systems sales in the U.S. and Canada increased 1% compared to the second quarter of 2025. Outside the U.S. and Canada, Energy System sales increased 12%, primarily in Europe and Africa. Energy Systems operating income was $27.9 million, down $1.2 million versus the second quarter of 2025. There was $4.5 million in legal settlement provisions booked in the second quarter of 2026 in the Energy segment.

Adjusting for the legal settlement provision, the Energy Systems adjusted operating income was $32.4 million, of $3.3 million or 11% from the prior year, with an adjusted operating income margin of 40.4%, up 290 basis points from the second quarter of last year. Adjusted operating income increased primarily due to favorable price, organic volume growth and refunds associated with IPA tariffs.

Moving to the balance sheet and cash flows on Slide 11. The company ended the second quarter of 2026, with a cash balance of $97.3 million and with $107 million outstanding under its revolving credit agreement. We generated $58.7 million in net cash flows from operating activities during the first half compared to $32 million in the first half of 2025. The main driver for the change was cash flows from operating activities, including improved inventory usage. Yesterday, the company announced a quarterly cash dividend of $0.28 and the dividend will be payable August 20 to shareholders of record on August 6.

Moving to Slide 12. Our second quarter financial results were in line with our expectations and underlying demand remains. Given our strong performance despite mixed markets year-to-date, we are raising our full year sales expectation to a range of $2.21 billion to $2.29 billion and a full year adjusted diluted EPS to a range of $4.50 to $4.70. And -- this range reflects some uncertainty in our global markets as we further assess macroeconomic and geopolitical outlook. We continue to maintain a strong balance sheet, and we'll continue to be disciplined as we deploy our capital resources to drive maximum return on investment.

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Before I turn the call back to Joe mark our calendars for Tuesday, March 23, 2027 when we will host our inaugural Investor Day at NASDAQ in Midtown Manhattan. We look forward to sharing our strategy refresh midterm guidance and vision for long-term value creation. We hope you'll join us.

Now I'll turn the call back to Joe for some additional comments.

Thanks, Jennifer. As we shared last quarter, this year, we're spotlighting each of our segments to give investors a clear view of our focus, differentiation and long-term opportunities. These spotlights will also serve as a foundation for the deeper strategic discussion we'll have at our Investor Day next March. This quarter, we're highlighting our Water segment, a $1.3 billion business that has been central to Franklin's identity for decades. After building our reputation as a leading electric motor manufacturer, Brent Electric transformed the industry by inventing the gold standard submersible motor, a foundation that still anchors our leadership today.

Today, we're a global leader in the global water market and products that supply, move, treat and dewater. With 15 factories worldwide and a leading channel, we designed from the application outward, building solutions around how customers want to be served. Our strategy aligns tightly with Franklin's broader focus on faster-growing markets, supported by powerful megatrends, a rising middle class, increased residential construction, accelerating urbanization and and the expanding need for critical minerals.

Industrial growth and urban density also increased demand for pressure boosting systems that enable reliable and efficient water access. We also see a growing opportunity in making computing energy efficient, particularly through advanced liquid cooling solutions that support the rapid expansion of AI and data center infrastructure. Innovation remains central to our strategy. Our world-class water labs, deep engineering expertise and agile development approach allow us to design for what's next.

By increasing velocity and scale, we're adding meaningful value to our base business and delivering solutions that anticipate customer needs. Our brands are trusted. Our customer service is tireless and our focus on execution continues to reinforce our leadership positions globally. While our end markets are diversified today, we expect a more balanced mix over time as we innovate and expand into growing markets and acquire businesses aligned with our strategy. In future calls, we'll provide a deeper look at our fast-growing water treatment business, which is becoming a model for how we execute our strategy.

I will now turn the call over to Andrew for questions before closing thoughts.

[Operator Instructions] Our first question comes from the line of Matt Summerville with D.A. Davidson.

Joe, I was hoping you could maybe delve a little deeper into how you define your exposure today to things like critical minerals as well as data centers or data center infrastructure? How big are those exposures? What sort of can we kind of think about you attaching? And on the latter data centers, are there any sort of CDU wins that you'd like to call out? And then I have a follow-up.

Yes. Thank you. Just maybe touching on those 2. I think as we go back to the theme of what are the markets growing faster and how do we point and position how we serve new products, et cetera. I mean, you call out 2 markets that I think we've highlighted a few times, and we're excited about. I think 1 theme in both of those places is we like being the industrial kind of point of service and development of product that sits a level or 2 behind some of these mega trends.

For critical minerals, obviously, energy infrastructure, the need for more electricity, data centers, et cetera, that critical mineral space for us, we think, is a multibillion dollar TAM that we're trying to make sure that we can both position ourselves to serve but also have the products to meet that need. I think 1 interesting thing about that space for us, we said that space for us was up high teens in the first quarter, up another 10% roughly in the second quarter is our service in that space really is focused on the operating of those mines.

So not as exposed to the capital cycles or the commodity swings, but really the maintenance and it's a dewatering focus largely but we made a few acquisitions in the last few years. We like the space a lot. We've been able to move those products around the world because we see those needs in South America and Africa and the U.S. And we're really positive about building that channel out and getting those products to our customer. I think that market, our view is that's a high single-digit CAGR. So if you look at our base business, which sits more in the low to mid-single digits, as we move from resi, we move from that groundwater space. It's a nice mix up for us, and it's a very nice margin business.

On the data center, we're not ready to call out big wins. But I think as we've talked about before, one thing we like about our portfolio is we serve different elements of that loop within a data center. So from the entry point, we've had some nice wins in terms of the municipal hookup we have some flushing applications that are critical for the service and the maintenance of that loop. And then also, as I mentioned in my prepared comments, serving CDU manufacturers of which, as you probably know, there's more and more of those getting into that space having an efficient and focused supply chain that can serve in Asia, North America, we're excited about in Europe. I think we're in a great position. Our emphasis to talk more about it with some increased specificity as we get into the back half of the year, but stay tuned there.

And then as a follow-up, can you maybe just kind of double back on what you acquired in the second quarter, how big the acquisitions are maybe a little bit of quantitative detail and then any color you can provide on orders, backlog, book-to-bill overall for Franklin Electric during the quarter.

Yes. The 3 deals we referenced in the first half, 2 of those actually closed just before we exited Q1. So there's a systems business really focused on the groundwater and the resi space in Europe, specifically in the U.K., a smaller business. But we like it a lot because we see government investment there. We see a space that we could not only bring in the product but also integrate solutions for for builders and drillers, which has been a great business. It's a business called Geo quit. So we like this a lot. We've known these guys for a while. We serve them upstream.

The other 2 businesses, 1 in the water treatment space, is a company that really helps us to extend Wood Brothers helps us to extend our reach in a part of the U.S. that we historically didn't have as strong of a presence. It kind of sits right in the center of the U.S. that kind of revenue is in the mid-20s, low 30s. What we really like about it is we called out this idea of serving as an OEM and being across, being able to serve across the market, not only is the front-end directly to customers. but also we've become really a platform that smaller dealers around the U.S. really look to for for their infrastructure, for their technical solutions and obviously, the scale that we can buy and serve them. So we think that, that extends our reach. And again, that 1 is nicely ahead of our plan.

The final 1 is -- it's a company called Benson. And Benson is a great distributor kind of in that same space, right, in the middle of the U.S., but they expose us to markets that historically they reached down to the Gulf Coast, they serve a nice ag space they touch utility or a municipal in the infrastructure space really well. And again, we've known them for a while. But bringing them into the family, it's a mid-20s type revenue business close that one as we enter Q2. And again, what it allows is to pull through other great Franklin products I think as we've talked about before, if you look at extending that reach further with OSI or the container solutions, but then also bring in some of these new products, 1 of the themes I think that's interesting for us is as we design to build new products having that channel that exposure to end customer really is a multiplier for us.

So all 3 of those kind of clearly fit that being able to bring that wider solution set and serving those end markets and I think that balance is something that, obviously, Franklin has had a part of our repertoire portfolio for a while. And that playbook is 1 we're well accustomed to.

So -- and your question about inventory, so just to go further, one thing that's nice for us is if you look at -- we have a very diversified channel. So other than our distribution segment, which obviously we've got a nice feed into upstream from Franklin product. We've got a nice balance and some leading distributors around the world. We feel good about the inventory position. Our best indication is, and you can see it in our numbers, it's fairly easy to see our sell-in and sellout are right aligned with each other. So if you look at that distribution business and you pull out the acquisition, you can kind of see that North American performance that Jennifer talked about, the 8%, 9% for our Water business. we're right on top of that for the distribution business in terms of what their organic growth looks like.

So yes, we feel good about the position. As you know, I think with watching weather, watching where that product is going. It's been some different ag markets, hot out West, wet in the Midwest. We've really become good at how to position that inventory to make sure we're not sitting too heavy or not serving those customers that need them on a real-time basis. So it's a nice position to be in. And I think we're getting smarter in terms of those end-to-end metrics with SIOP and with inventory planning to make sure that we keep that balance. So we feel we're in a good spot. And the other proof point is if you look at our working capital and cash flow. In spite of some growth, some nice growth in volume, we continue to improve our turns and to make sure that we're keeping our inventory moving and those right skews those items just right on top of.

Our next question comes from the line of Ryan Connors with Northcoast Research.

On the good quarter and the all-time high for the stock as we speak. So great stuff. I wanted to dive into some of the tactical stuff on some of the revenue drivers, demand drivers in the quarter. I was 1 of the things that jumped out to me is the growth in Water Systems in agriculture. If I got it right, you said 12% increase. That's a pretty good number given that we've still got some pretty significant headwinds, more broadly speaking, in ag. So curious what exactly is driving that and allowing you to buck the trend in the ag space.

Yes. A couple of things. I think 1 is ags been a bit underinvested over the last year or so, just as you've seen some of the volatility and the pressure from a commodity standpoint. So there's probably a little pent-up demand that we're able to serve there. Weather definitely hasn't hurt us this year. We're well positioned as you see El Nino and some of the drought conditions come. You turn that pump on and it's not working. And given our footprint and our reach with we talked about OSI and having that real-time inventory availability, we get a benefit of any short-term movement in terms of what those trends are, what the needs are, et cetera.

So I think planting season has been more normal. The last 2 years have been just not great. And you see the systems that are out there and farmers need it, we're ready and we're there for it. So ag and specifically in the U.S. and Western Europe has been a nice story for us. We see the season kind of holding in there here as we get through Q3. So we like that. I think part of our business, Ryan, we've talked about this before is we're a high replacement business. And in that ag space, it's the same thing about 75% plus replacement business. And when you blend that with good service, good inventory availability and the quick turn that we have for our customers, I think you see that reading out this year. So that's been a help to us.

Got it. Good to hear. And then on the mining side, good to see mitchamindewatering in Australia, nice and strong. I know that's a strong market for you. But any evidence that we're going to see that strength spread to some of the other key geographies for the mining industry beyond just Australia that that's going to become more of a global cycle for you?

Yes. And we're getting more intimate with that market. I think 1 of the reasons that Jennifer called out, just North America mining is we're watching those end markets. We're closely tied in with the mine operators, the distributors that serve and the OEMs that pull that product, and we see a nice funnel of opportunity in South America, in Africa, in Europe, specifically in the stands, just to call out some of the areas that we see them pulling this product in addition to Australia and the Pacific region. We'll continue to highlight that because we think that's an area where that investment is going to have a good return for us.

At the end of the day, critical minerals are the needs and you can kind of do your own market double check here, but 6 to 7x the critical minerals needed in the next 10 years. there's just really no other way to do that. The position that we're into, we like because a lot of the investment you see is on expanding existing mines where it becomes easier, the technology improves to go in to go deeper to spread that mine out and that really plays well with the portfolio we've decided to focus on, which is in that dewatering or the maintenance of that mine space.

In the U.S., it's really interesting. I mean, you go from copper, nickel mines in Minnesota to lithium mines out west in Nevada and Arizona. You're seeing uranium start to pick up and you can see the pull from some of the government comments on wanting to invest in that space. we serve it really through 2 important ways. One is an OEM business that our water systems team works with works with those operators to get spec-ed in on those products and then we create that pull-through channel.

But the other one is, we did a small deal last year in the distribution side that put us up in the Dakotas and one of the reasons is because we have the products, we can see what the pull is. And really, that was as much of a nod to this faster growth movement to the mining space as anything. Small business, but but we like that, and we're seeing that in all parts of our business. A big thing for us too, Ryan, is just raising awareness is tying these brands together we like to use that Pioneer brand a lot because it's known. It's well known in the dewatering space. So really bringing some of the different products and these acquisitions under an umbrella has really increased the awareness out there for here in the next 3 years.

Got it. And then one last housekeeping for me, if I can. I realize it's a onetime item, but can you give us any kind of flavor for what exactly the legal settlement was related to? I know you said it was in energy, but whatever you're able to kind of share there, just so we have some that was about?

Well, I can tell you, it's a bit long in the tooth of the deal or of a situation and preceded both me as CEO and probably the prior CEO. He's been sitting out there for quite a long time. It was it was a piece of litigation that was going through in Europe. It's taken a long time. We feel really good about our legal team and kind of bringing this to resolution. So we've known about it for a bit. We think we ended up in a good spot. And that one is behind us. And yes, I think that's project.

There'll be a little bit of information in our Q. But additionally, it just it's a long-standing legal item that's been there that we were able to to close out in the quarter. And it is core behind us.

Sorry, Jennifer, yes.

Our next question comes from the line of Bryan Blair with Oppenheimer.

On another really solid quarter for your team. And that in mind, I'm hoping you can step back as much as you've provided very useful color throughout the call. I just step back and walk through the key puts and takes as your team is looking at the back half and then specifically what's contemplated in the implied 2H guide because the earnings moderation second half versus first half is pretty notable. I realize that you see more challenging comps in the back half, but it just seems like you have a very broad-based momentum, you're very confident in the setup and that's perhaps not fully reflected in the guidance.

Well, I'll start and then let Jennifer add. But I think where you ended, which is our core market are strong. We feel good about our core markets. We feel good about the demand in those markets. I think if you look at the balance, so if those are the puts and that momentum that you see is we feel it as well, order trends, backlog, healthy here as we enter Q3. I think what we're still watching for is, obviously, last week another tariff announcement -- we're watching the Middle East. Middle East, if you go back a year ago, we talked about the Middle East with quite a bit of confidence in terms of what we were doing there to position ourselves and some things are well.

The replacement business, we're still able to sell at that conflict definitely has put a damper on kind of that Middle East region to Jennifer's point, North Africa, Southeast Europe and the Middle East. I think the other thing is it's a slower year than we expected in South America. There's some political change. There's a pause on some of the support that they're giving to farmers and others. We see that in our business as well. It's hard for us to know exactly how those read out in the back half. So that does give us some balance and pause. But it's the unknowns that are a little harder to predict. We feel we have a modeled in. So the puts and the takes are in there. But those are some of the things that we're paying close attention to core business, the markets that we feel are growing. We've got the good products. I think that momentum is real. But it's an interesting time in the world today as we all read the headlines and digest.

I want to understand -- the things on the horizon that we're watching, our tariff expense as Joe mentioned, our Brazil market, which is a very strong ad market for us, and we had a great 2025 in ag in Brazil. Q1 was actually very strong for ag in Brazil. whereas we saw our competition being impacted by the election year in Brazil. So keeping a watchful eye and then as Joe mentioned, the Middle East complex continues to have some impact in the broader European regions. So we continue to see good growth despite that in Western and Southern Europe. It just gives us a little bit of pause of the unknown out on the horizon in the second half.

Understood. That's a fair point. And apologies if I missed this detail. What was organic growth for water treatment in Q2? And I guess even more important, maybe remind us what's allowing our team to win in the space. I know it's difficult to isolate over short periods. Definitely seem to be taking share in a relatively sluggish market backdrop.

Yes. I'll just chime in there. So organic volume growth in water treatment was was north of 5% in the quarter. So really, really good growth despite a pretty muted residential market. We play mostly in the residential space and water treatment. What's driving that, and we've talked about this on previous calls. We have some very pointed CSIs in our water treatment space for that team to drive new dealer revenue and that team exceeded those metrics in the prior 2 quarters in the first half by about 4%. So continuing to take share through either new dealer storefront, but more and more so new dealer revenue in that space. So really proud of the team for the work that they've done in that space.

Maybe just one add, I think what we like about our water treatment space is a really focused go-to-market strategy. I think to Jennifer's point, of creating that platform of we're a great assembler, and OEM and producer product but I think our service and specifically our marketing online and support for those dealers is something that's unique. So we're not all things to all people. We have a very specific route. When you get into the front end of 1 of our water treatment sites where you see how we support our dealers there's really something special there that the team has developed, and we do feel that share gain, and we expect that to continue.

[Operator Instructions] Our next question comes from the line of Mike Halloran with Baird.

You hear me guys?

Yes. Yes, we can hear you, Mike. One moment. There's some technical difficulties. Just 1 moment.

Mike, you can hear me correct? I can hear you. We lost you for a moment there. So we're back on, sorry. Could you still hear us there, Andrew, is we're answering those questions? Yes, yes. But once I open mic, that's when you guys disappeared.

Great. I'm good to go. All right. Very good. Good to hear you guys. So just could you tie up a handful of things here for me -- if I think about the back half guide, is there a change in the trajectory that you're assuming in the back half of the year versus what you've seen in the front half of the year. Is there a change in how you guys are thinking about your share oriented performance I think somebody mentioned there's a little decel embedded there relative to normal seasonality. My guess is that's more conservatism. You don't know what you don't know at this point, but I just want to make sure there's not any core assumptions that have shifted relative to the momentum in the first half of the year?

I think -- thanks, Mike, and I think to -- where Jennifer ended that last question, and we talked about some of the puts and takes I think watching the South American market, we're definitely watching that, watching the Middle East conflict. We don't see any change in terms of the performance, the base performance of our business. There are some unknowns there that we've tried to model in. But if you look at the -- again, the core markets, you look at our order rates, we feel relatively confident I think there are some comps where we had some stronger performance in Q3 specifically and into Q4 in some of the water business. So there's some of that, but we generally see the business performing kind of as we set out at the beginning of the year, hence us raising that top line a bit. There's no real share change that we see. We expect to continue to do what we're doing and serve the markets. So there is a little bit of balance based on some of those unknowns that we talked about that you see modeled in there.

And then secondarily, just an open-ended question. Just where do you think you stand on some of the margin initiatives you're driving internally? And what are you prioritizing as we sit here today?

Yes, good question. So we called out some of the consolidations that and we've mentioned this as we exited last year into this year, being a highly acquisitive company here over the last 5 or 6 years, there is work for us to do to streamline operations, consolidate a few rooftops and make sure that from an operating and a campus environment, we had some smaller factories that we wanted to get the benefit and the leverage of some more strategic and efficient overhead. Those movements have been happening here the last couple of quarters.

We're finishing some of those up in the back half of the year. So those costs are baked in both our performance and then our guide. But we expect some of those operational consolidations, the new factories to get more efficient we expect from an operational standpoint, us to pick up some steam there. The other thing is and Mike, we're -- it probably got lost in a fairly long read there. But we're building a focused supply chain organization with our new Chief Supply Chain Officer with a focus on we've settled in on work the last couple of years to make sure that we're not we're not sitting in China for some of our suppliers. We're repositioning those supply chains. That benefit and that read of of material productivity. I would tell you, material productivity in some of the factory transitions, those are really 2 of the focus areas.

Maybe one other small tidbit as a part of our value acceleration office, we hired an AI director here this past year. And what's been interesting for us is really to take a look at the way that we're positioned, patent a little bit different than maybe some of our peers. We didn't migrate our customer service overseas. We didn't make some of these changes but we really see an opportunity to make that more efficient. We, like a lot of companies, have a lot of long tenured, very experienced, very talented people. So we have a lot of fun AI products that we think both give us productivity but also can help us to make sure that we continue that level of improvement as and I mentioned this as we're bringing in some great new talent here today. So our ability to ramp them up. We've really seen that accelerate. So those are a couple of areas we're excited about.

I'm showing no further questions. So with that, I'll hand the call back over to CEO, Joe Rosinski, for his closing remarks.

Thanks, Andrew. Thanks, everyone, for joining us today. As we look ahead, we feel very good about our performance year-to-date and the momentum we're carrying into the second half. Raising our guidance reflects the confidence we have in our growth strategy, the strength of our execution and the resilience of our teams across the globe. Our focus on faster growing markets, innovation and channel expansion continues to fuel our growth engine, and our productivity initiatives are progressing well, along with the new and strong leadership now in place across our supply chain. While global challenges remain, we're navigating them with discipline and clarity.

We believe our strategy positioned to add customers expand in new markets. While global challenges remain, we're navigating them with discipline and clarity. We believe our strategy positioned to add customers, expand the new markets and drive meaningful productivity gains throughout the year, we'll continue to pay dividends. We really like the businesses that we're in. We like the direction that we're heading. We appreciate the continued support of our employees, partners and shareholders.

Thanks, everyone, for joining us today, and have a great week. Ladies and gentlemen, thank you for participating. This does conclude today's program, and you may now disconnect.

Good day, and welcome to the Franklin Electric Reports First Quarter 2026 Sales and Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. It is now my pleasure to introduce Director of Investor Relations, Dean Cantrell.

Thank you, Andrew, and welcome, everyone, to Franklin Electric's First Quarter 2026 Earnings Conference Call. Joining me today is Jennifer Wolfenbarger, our Chief Financial Officer; and Joe Ruzynski, our Chief Executive Officer.

On today's call, Joe will review our first quarter business highlights, Jennifer will provide additional details on our financial performance and then Joe will make some additional comments highlighting our Distribution segment. We will then take your questions.

A replay link of the webcast will be archived for 7 days, and a transcript and audio version of this call will be available on our website tomorrow.

Before we begin, let me remind you that as we conduct this call, we will be making forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to various risks and uncertainties, many of which could cause actual results to differ materially from such forward-looking statements. A discussion of these factors may be found in the company's annual report on Form 10-K and in today's earnings release.

During this call, we will present both GAAP and certain non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in the appendix of our earnings presentation. All forward-looking statements made during this call are based on information currently available and as except as required by law, the company assumes no obligation to update any forward-looking statements.

Earlier today, we published a slide deck to accompany our prepared remarks. The slides can be found in the Investor Relations section of our corporate website at www.franklin-electric.com. With that, I will now turn the call over to Joe.

Thank you, Dean, and good morning, everyone. Thank you for joining today's call. I'm pleased to share our results for the first quarter with you all today.

Let's move to Slide 3. Our first quarter was a strong one for all segments. Organic growth was healthy across our end markets with volume growth and disciplined pricing across our segments. Our quarter finished with healthy backlogs and order trends as we entered the second quarter. Our balance sheet remains healthy as we look to continue to invest in our strategic initiatives and returns for our shareholders. Our launch of the Value Acceleration Office is off to a great start with a strong funnel and some good initial returns.

If we could move to Slide 4, I'd like to look at our performance in terms of our strategic objectives and specifically, growth. Our sales were up 10% and each segment saw volume growth along with positive pricing and contribution from new products, channels and new customers. Our operating income was up 9% with adjusted income up 17%. GAAP EPS was up 15% with adjusted EPS up 24%. Our adjusted EPS growth in Q1 more than doubled our sales growth year-over-year. This was helped by strong improvement in our income and SG&A productivity. We've worked through some thoughtful restructuring as we align our capacity and production to our regions and markets that are growing, and we work to streamline parts of our business that have grown through acquisition these past few years. We are positioned well for 2026 with a backlog of 10% and a positive book-to-bill as we entered the quarter.

If we move to Slide 5, I'd like to share our progress on some of our strategic priorities. Our value creation model starts with clearer growth focus, and we continue to see opportunities to innovate and serve markets which are good underlying strength. Our dewatering business was driven by 10% growth in the mineral OpEx market, and we are thoughtfully bringing together recent acquisitions in this space, channel expansions and customer acquisition together to be -- to build a great part of our portfolio.

In Q1, we launched a great addition to our pressure boosting portfolio with our new VersaBoost product. We are thinking of scale and velocity for new products, and our VersaBoost Pro delivers smarter, reliable water pressure with effortless installation and lasting performance in residential markets. These types of launches will help us set a new bar in 2026 and 2027 for new product vitality and revenue. Our margin expansion efforts are on track with our new Value Acceleration Office launched in 2025. Our funnel is growing, and we expect to solve our biggest growth and productivity challenges with sound governance and speed.

We see our office delivering over $15 million in productivity this year with an opportunity to accelerate this as we move into 2027. Our expectation is to deliver over 100 basis points of productivity a year once we ramp up our efforts. We are pleased to see our focused margin improvement efforts in water treatment, up 410 basis points, and our Distribution business up 210 basis points in the full year 2025. This demonstrates that growth and efficiency can work hand in hand.

We are expanding our capital deployment for new projects this year and have recently inaugurated our new water factory in Izmir, Turkey, with more focused expansions and regional efforts in India, South America and Mexico, to name a few. We've continued to smartly buy back shares, 120,000 in Q1 and and have continued our dividend expansion in 2026, now at 34 years of growth.

Most importantly, on team and talent, a big thank you to Franklin's employees as our growth happens every day with every customer serves. Every problem we solve, growth strategy we execute and employee we keep safe helps us to grow and to build on our strong culture. Our people and our talent are our bedrock. With that, I will turn the call over to Jennifer to discuss the financial results in more detail.

Thank you, Joe. Please turn to Slide 6. Our fully diluted earnings per share was $0.77 for the first quarter of 2026 versus $0.67 for the first quarter of 2025. First quarter adjusted diluted EPS was $0.83, a new first quarter record compared to our 20,25 first quarter adjusted diluted EPS of $0.67. The 24% year-over-year expansion in adjusted diluted EPS was primarily driven by the expansion of our adjusted operating income year-over-year. This is a testament to our commitment to expand the earnings power of our business.

There were $3.9 million in restructuring costs in the first quarter of 2026 compared to $0.2 million in the prior year first quarter. Restructuring costs in the quarter are primarily related to structural improvement initiatives across our global water operations. These actions will deliver savings in 2026 and will be accretive in 2027. The effective tax rate was 24.2% for the quarter compared to 25% in the prior year quarter. The change in effective tax rate was driven by favorable discrete stock compensation in Q1 of 2026.

Moving to Slide 7. First quarter 2026 consolidated sales were $500.4 million, a year-over-year increase of 10%. The sales increase in the first quarter was primarily due to price and volume growth across all 3 segments as well as the positive impact of foreign currency translation and the incremental sales impact from recent acquisitions. Franklin Electric's consolidated gross profit was $175 million for the first quarter of 2026, up from the prior year's gross profit of $163.9 million. The gross profit as a percentage of net sales was 35% in the first quarter of 2026 compared to the first quarter of 2025 gross profit of 36%, a decline of 100 basis points compared to the prior year. The gross profit margin was unfavorably impacted in the quarter of 2026 by higher material costs driven by the hangover of tariffs.

Selling, general and administrative expenses were $123 million in the first quarter of 2026 compared to $119.6 million in the first quarter of 2025. The increase in SG&A expenses was primarily due to the incremental impact of our acquisitions in the past year. SG&A as a percentage of net sales was 24.6% in the first quarter of 2026 and 26.3% in the first quarter of 2025. Without the impact of acquisitions, our SG&A as a percentage of net sales was 24%, an improvement year-over-year of 230 basis points.

Consolidated operating income was $48.1 million in the first quarter of 2026, up $4 million or 9% from $44.1 million in the first quarter of 2025. The increase in operating income was primarily due to higher sales volumes in the first quarter. As previously mentioned, there were $3.9 million in restructuring costs in the first quarter of 2026 versus $0.2 million in the prior year first quarter. These were related to structural improvement initiatives across our global water operations. Consolidated operating income before restructuring was $52 million in the first quarter 2026, up $7.7 million or 17% from $44.3 million in the first quarter of 2025. The first quarter 2026 adjusted operating income margin was 10.4% versus 9.7% in the first quarter of last year, up 70 basis points year-over-year.

Moving to the segment results starting on Slide 8. Global Water Systems sales were up 11% compared to the first quarter 2025, driven by strong price, favorable currency exchange on sales and additional volumes from our recent acquisitions. Water Systems sales in the U.S. and Canada were up 7% compared to the first quarter of 2025. The sales increase was led by sales of all other surface pumping equipment up 17% as sales of water treatment products increased 8% and sales of groundwater pumping equipment increased 3%. These sales increases were partially offset by lower sales of dewatering equipment, largely dewatering equipment of 9% compared to 2025 in the U.S. and Canada. Sales increased 1% in the first quarter due to the positive impact of foreign exchange rates as compared to the prior year. Water Systems sales in markets outside the U.S. and Canada increased 17% overall. Foreign currency translation increased sales by 8% and recent acquisitions added roughly 7%. Excluding the impact of acquisitions and foreign currency translation, sales in the first quarter of 2026 increased in Asia Pacific and Latin America as EMEA sales were down year-over-year. EMEA sales volumes, specifically in the Middle East and Eastern Europe were negatively impacted by the ongoing conflict in the Middle East.

Global Water Systems operating income was $44.4 million, up $1 million versus the first quarter of 2025. The operating income margin was 14%, a year-over-year decrease of 110 basis points. There were $3.9 million in restructuring costs in the first quarter of 2026 in the Water segment. Restructuring costs in the quarter are primarily related to structural improvement initiatives across our Global Water operations. Adjusting for restructuring charges, the Water Systems adjusted operating income was $48.3 million, up $4.9 million or 11% from the prior year. With operating income margin of 15.2%, up 10 basis points from the first quarter of last year.

Moving to Slide 9. Distribution's first quarter sales were $150.9 million versus first quarter 2025 sales of $141.9 million, an increase of 6%. The Distribution segment sales increase was primarily due to higher volumes and price realization. The Distribution segment's operating income was $3 million for the first quarter, a year-over-year increase of $0.9 million. Operating income margin was 2% of sales in the first quarter, an improvement of 50 basis points versus the prior year. Operating income margin increased primarily due to higher sales volume, strong price realization and solid leverage on SG&A costs from higher sales.

Moving to Slide 10. Energy Systems sales in the first quarter of 2026 were $71.8 million, an increase of $5 million or 7% compared to the first quarter 2025. Energy Systems sales in the U.S. and Canada increased 3% compared to the first quarter of 2025. Outside the U.S. and Canada, Energy System sales increased 29%, primarily in Asia Pacific. Energy Systems operating income was $24.2 million compared to $21.9 million in the first quarter of 2025. The first quarter 2026 operating income margin was 33.7% compared to 32.8% in the prior year, an improvement of 90 basis points. Operating income margin increased primarily due to higher sales volume, solid price realization and strong leverage on SG&A costs from higher sales.

Moving to the balance sheet and cash flow on Slide 11. The company ended the first quarter of 2026 with a cash balance of $80.4 million and with $88 million outstanding under its revolving credit agreement. We used $40.9 million in net cash flows from operating activities during the first quarter compared to $19.5 million in the first quarter of 2025. The main driver for the change versus prior year is higher accounts receivable of $20 million, driven by a year-over-year increase in net sales for the company. The company purchased 120,000 shares of its common stock for approximately $11.3 million in the open market during the first quarter of 2026. As of the end of the first quarter of 2026, the total remaining authorized shares that may be repurchased is about 0.7 million shares. Yesterday, the company announced a quarterly cash dividend of $0.28. The dividend will be payable on May 21 to shareholders of record on May 7.

Moving to Slide 12. The first quarter financial results were in line with our expectations and underlying demand remains. Although our confidence in the outlook is increasing, we are holding our full year sales expectations of $2.17 billion to $2.24 billion and fully -- full year adjusted diluted EPS to a range of $4.40 to $4.60. This range reflects some uncertainty in our global markets as we further assess the macroeconomic and geopolitical outlook. Our outlook does not include a clawback of tariff-related expenditures. We have formally submitted our request and are awaiting a response and we'll know more in our Q2 earnings call.

Now I will turn the call back to Joe for some additional comments.

Thanks, Jennifer. If we move to Slide 13, we want to give a deeper look at our segments these next few quarters. We'll share what we like about the businesses we are in and why we are optimistic about our opportunity to profitably grow them. We'll start this quarter with a look at our Distribution business. As many of you know, we built this segment fairly recently in our history, growing through our strategy of building channel solutions, adding new offerings and smart acquisitions. It has become a recognized leader in the water distribution and services space, along with our strategic partnerships and other leading distributors in the U.S., it has helped us to develop the strongest channel in our industry. This is an important channel for Franklin Electric manufactured pumps, motors and drives, but also brings together leading products in a wide portfolio to serve the residential groundwater, wastewater, industrial, agricultural and water treatment markets. This business is now over $700 million with a solid return on invested capital and great opportunities to productively grow.

Although we are proud of our 84 branches and 650 OSI locations and wide product portfolio, the real value in this segment is how we help our customers win and how we win with our customers. Starting with how we help our customers win. Critical inventory at customer sites enables them to win jobs and deliver with speed, accelerate growth and invest in strategic initiatives rather than tying up cash in inventory. Our on-site inventory program, or OSIs, couple real-time inventory with efficient replenishment and a continuously learning supply chain. We offer the most unique solutions in the industry and have grown our OSIs, from 0 to 650 as customers learn how having a wide range of products on their site, we filled at the right time for them to pull as their job requires can lead to winning more business. For customers that order products from us for their daily business, we have built technology solutions to give them 24/7 visibility with our integrated customer portal, simplifying order placement, viewing invoices and payments through one single platform.

And our ability to help customers win means we work with them on the site, during the job planning process to go beyond transactional support and offer value-added services, including delivery, on-site support, training, design and assembly services. How we win with our customers is by assessing their wider needs to ensure we bring the right solutions at the right time. We have grown our business and value to the markets we serve through a program we call cross-pollination as we see customer needs in areas like wastewater or water treatment, we have pulled on our expertise and products within Franklin and partnered with the industry leaders to attend the markets that are growing faster. And we are doing it with the efficient service and leading technology platforms we are known for.

Being part of the wider Franklin team has allowed us to think about data more strategically from end to end through manufacturing and to our suppliers. Our technology and data to close the last mile realize operational efficiencies and to provide the best-in-class customer experience, both externally and internally is truly a differentiator.

Our Distribution segment has grown by adding products, services, technology solutions and customers. We believe our current progress to grow margins will have the same success, and we have grown -- as we have grown organically and inorganically, we are now realizing the benefits of streamlining our processes, leveraging our spend and creating an efficient footprint. Our margin expansion focus brings with its solutions to better serve through technology and data that benefit all of our partners.

Last year, we expanded our margins over 200 basis points, and we improved again in Q1. We feel that growing volume, creating more value to our customers and margin expansion can work seamlessly together. With that, we'll now turn the call back over to Andrew for questions before a few closing thoughts. Andrew?

[Operator Instructions] Our first question comes from the line of Mike Halloran with Baird.

So like when I look at the guide and I look at the trends for the remainder of the year, it seems like a pretty prudent approach to guidance. Sequential seem maybe a little below normal as we work through the rest of the year. Maybe just help me understand what's embedded in guidance from a revenue progression perspective? Is this a conservative thought process given what we don't know. And any nuances by end markets as we think through the rest of the year that we think -- that you think we should know?

Yes. Good question, Mike. I think the -- what we don't know is obviously what we don't know. We see the quarters on a stand-alone basis to be positive top and bottom line here through the next 3. So you're going to see from a sequential standpoint, that normal performance, which is obviously a bit more muted given the growing seasons and the weather in Q1 and 4, but we -- our outlook for 2 and 3 looks robust and looks on track. I think the parts that we don't know and Jennifer alluded to those in the call, we're obviously -- we've talked before about India and the Middle East and some of these green shoots that we see in some fast growth regions. We're trying to temper some of those expectations, but the underlying business looks solid. We feel the market demand is steady. We made a couple of comments there on book-to-bill and backlog here as we came into Q2 and it looks on track. So I think from what we can see, the underlying business looks healthy. Some of those unknowns in terms of ag prices, freight impact from Middle East conflict, some of the new customers that we've been fostering that are affected by those fuel prices or that disruption. Those are really some of the unknowns. But the rest of the business read out largely as we expected, and it trends that way here as we go into Q2.

And maybe something comparable on the margin side of things. Obviously, the fueling margins in particular, where Energy Systems margins, in particular, were robust in the quarter, and that seems to be even with some of the international mix in there. How should I think about the margin progression through the year? Or it feels like you're issuing a step down but I understand there's variances quarter-to-quarter there. Anything in the Water or Distribution side as well that you think should be relevant as we're thinking forward. .

Yes. I'll give just a couple of comments and let Jennifer add. But yes, the energy business had a great first quarter. We talked about the timing and expecting sequential improvement and year-over-year improvement here as we go into Q1. Q2 is a little bit of a blip for us where we got price out in front of tariffs. So that comp will look a little bit challenged, but it was a high amount Q2 last year. The underlying margins, we expect to be strong even with the nice growth that we're seeing around the world for that business, which just shows the underlying strength. If there's headwinds that come from the Middle East conflict and some of the questions about oil and gas, it's a slight tailwind for sure here in the U.S. in that space. And we expect to continue to see that. I think from a distribution standpoint, there definitely was was some, I would say, mix challenges. It performed as we expected, but some of their faster-growing business. We're still working on upstream leverage. We're still working on on a couple of different things there. But again, good expansion. We expect them to expand, and you're going to see that increase here as we get to the mid quarters of the year. So on track there from a volume expansion standpoint. And then from a water standpoint, we have a number of things we're working on. Jennifer reference, restructuring. Clearly, as we're building factories and there's some work that we're doing there, some adds and some consolidations. There's a little bit of inefficiency that we saw here in Q1. We expect that to normalize. Some of those efficiencies that we're bringing into that business is to continue to work on post-acquisition synergies and Barnes. So you see a portion of that sitting in Latin America, but also new factories started in it's obviously [indiscernible] from a year-over-year standpoint. [indiscernible].

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Our next question comes from the line of Bryan Blair with Oppenheimer.

I apologize if I missed this detail. I had some technical difficulty. But what was volume and price contribution in Q1? And if we assume your team is trending towards the high end of the revenue guide, that seems realistic for the time being. What should we think about in terms of full year volume and price contribution? And how different is that by segment?

Yes. Good question. The performance on volume and price was nicely balanced for us in Q1. If you look at the sales growth, volume was just under 30%. Price was just over 30%, with acquisition and FX kind of rounding out those other two, as you've seen. I think from a volume standpoint, we've done a lot of work in terms of leading indicators. You've heard us talk about this the last few quarters, innovation, new products. We like to highlight this, how we're finding those markets that are growing faster. Sometimes it's hard to predict where and when that volume will hit. That being said, Q1 read out largely as we expected. Price is going to be probably -- it would be a comparable spread at the higher level here in Q2 as we put some of those price increases in. But we expect volume and price to be fairly balanced throughout the year. So that's at a higher level, Jennifer, if you want to comment on the segment.

I'd say the caveat there is we continue to see inflation in various pockets and we'll continue to be very disciplined in our price strategy as we see those commodity inflation come through, whether it be on the plastic side or copper. We're going to take the opportunity to pass that through from a price perspective as we've done historically.

I think, Brian, just last comment. That volume line is one that we're watching closely. We're investing in R&D. We're investing in new products. We've been talking about this channel expansion, making sure that we're out serving in terms of the end market. So we like that as an indicator at a start to the year that volume number.

Understood. I appreciate the detail. And then Joe, you offered a pretty good segue there. In terms of innovation and new product development, I just wanted to level set a bit, what timeframe of new product intros do you roll into any vitality calculation and the $160 million in new revenue by year 3, is that a 2026 to 28 reference? Or in general, what you're targeting on a rolling basis? And then how should we, given current visibility, think about the contribution to Water and Energy segment growth?

So it is a '26 to '28 number. But I would tell you this, we're looking to add to that. We think that there's more that we can do, and we'll continue to refresh that number and that outlook. We generally are using a 3-year vitality. So products launched in the last 3 years, contribution to new product revenue. And really, what our team likes is this idea of new product revenue. So we normalize for cannibalization, of course, but this is a big focus for us. And we think we look at our end markets, that opportunity is going to increase. It's going to increase or really for two reasons. One is, as we've acquired some companies, our ability to add technology on to that and bring those to new markets helps us from a new product to a new region. The other is some of those faster-growing markets that we referenced, like the data center market, we look at energy infrastructure. Those opportunities for us to launch new products and bring those to market, we think will help us to accelerate that. So yes, I think the outlook for new products continues to be positive. We are excited about VersaBoost. We just discussed that today. And these are bigger numbers. Our effort has been shrink the funnel, but more volume and scale for fewer launches and then really to pay attention to doing those successfully. And as a last quick comment on those. Our expectation is new products are accretive. So it helps us in a number of ways.

Your next question comes from the line of Ryan Connors with North Coast Research.

And yes, like Brian, I also had some -- you're breaking up for a little while there. So hopefully, I'm not asking something that's already been covered. But I wanted to touch on dewatering for a bit. You mentioned Australia strong. But if I heard you right, Jennifer, you were mentioning actually softness in kind of dewatering and specifically mine dewatering, I was a little surprised by that. I mean, I know that we've got kind of a mining CapEx cycle kicking off to kind of see some strength in that large dewatering piece. So can you just unpack that dewatering piece, what's going on in Australia and then why we're not seeing more of that elsewhere?

I'll just make a quick comment. Global dewatering is a great story for us, Ryan. So I think Jennifer's comment was the timing of orders in North America pointed to a year-over-year that was flattish to slightly down. But globally, this is a real healthy space. Australia, it's a very healthy space. Rest of the world, dewatering for us is up 30-plus points. So a smaller base, but we quickly are seeing that global business for dewatering outpace and we think it will be as big or even bigger than what we have in the U.S. just to start.

The comment was really on U.S. and Canada, and we did see some timing impact, and that was more on the fleet piece of dewatering, not necessarily the mining side. And our outlook for overall for dewatering for the full year is still growth expected across the globe, including U.S. and Canada. So a little bit of timing on the fleet side in Q1 was really what my comment

Yes, that clears it up nicely. And then I wanted to follow up on the question earlier on energy and the margin specifically. It's pretty remarkable. I mean if you look at the quick calculation, energy contributing 13% of revenue and more than 1/3 of operating income. So two questions on that. Thinking big picture and longer term, I mean, are we going to kind of top out here just big picture on margins for energy, long term? Or is there any scenario where we could actually get north of this kind of pretty amazing 34%, low to mid-30s type of range? And then strategically, Joe, how do you think about the fact that segment that's relatively small in the mix on a revenue basis is becoming such a huge contributor to the bottom line. Just curious what your strategic thoughts are on that.

Yes. I would answer it two ways. I view it as we're okay with that right now. And there's a couple of things that have contributed to their income expansion. One is when we look at at transformation 80/20 and some of the good productivity work that we have in front of us still at Franklin. I would say that energy business because they really went into the post-COVID hangover with some thoughtfulness and the leaders there did a great job of really reinforcing that we can operate and operate healthy even when volumes are slightly off. It's a really -- it's a great template and the blueprint, and we expect you're going to see that readout in the other segments. We've seen it in pockets in distribution and water treatment as we've talked about. Water is that we have a great opportunity there. So we -- I'm okay with it as it sits today. You're going to see a better balance, though, out 2 or 3 years in terms of margin expansion in the other parts of the business. Your other question in terms of, is there a high end or a limit to what we see from an energy margin standpoint. I would tell you, we're confident in performance at that level. But a few things that have really contributed to their growth. And these are parts of their business that are growing faster is as they're investing in sensing technology, critical asset monitoring in the grid space, those are helpful from a mix standpoint. So as their higher-margin business becomes a bigger part of just that energy segment, even if we look at growth around the world, even if we look at some of the growth that's maybe lower margin, that is going to outpace it and at least keep us in a real healthy band there in the mid-30s, as Jennifer talked about. In terms of what is that opportunity? I would say this, I thought I might say this a few times today, but we're working on midterm guidance, and we'll share that during our Investor Day, haven't announced the time yet, but stay tuned for that. But we still see opportunity to expand further just based on smarter technology from a mix perspective. And then again, a business that's done a great job from a productivity execution here these last few years.

Got it. Okay. Very helpful. And then last one just for me on kind of a big picture question, but hearing more and more about AI being leveraged in the industrial landscape for pricing specifically, sort of algorithmic pricing strategies for industrial companies and particularly for industrial distribution. So curious, given your comments there on Distribution business, Joe, is that something that you're using anywhere in the company but specific to Distribution? And just curious whether that's something you're doing?

Yes. Our -- we have a fairly dynamic pricing approach in Distribution. I would say it is not embedded with AI where we sit today. We're fortunate to have really intimate business owners. So our regional presidents in that business are looking at competition. They're looking at the weather. They're looking at input costs on a real-time basis. And essentially they allow us to stay well in front of that. There's more we can do. We've got a great and a lot of great work done in terms of simplifying part numbers. We've got rationalization and consolidation, so we can see the same number from coast to coast now. This took us a couple of years. We've got a great ERP system. And I would tell you, we hear the same thing, and we see the same opportunity you mentioned, which is AI can help us to take that to the next level to be smart about pricing. But we've really done some good work this last couple of years. Pricing is one of those elements that's helped them to lift that margin, and we expect to see further margin expansion throughout the year based on smart or dynamic pricing.

And our next question comes from the line of Walter Liptak with Seaport Research.

Some of the comments were breaking up on my end as well, too. But I wanted to ask about the new products that you guys called out, the $160 million, I wonder if you could review for us the data center products like where your run rate is currently? And what's the expected growth that you think you'll be at 3 years out within that $160 million? .

Yes. So what we will do is to share what part of that commercial and industrial space is data centers here as we get into -- in our Q2 earnings. But I think we've mentioned this before. It's a sub-$50 million business for all products for us today. Where our focus is, right now, Walt, is -- it is just simply the fastest-growing space for pumps, motors and drives, not only in the U.S. but just around the world. And given our application expertise, given the fact that we've built supply chain expertise, that's really been a key focus for us right now is to serve. There's a great set of CDU manufacturers around the world and here in the U.S. that have done a great job kind of putting a space together there. We like our ability to respond with speed, with velocity. Our first production line. We've been doing this kind of embedded in parts of our business, but a stand-alone production line is going up right now in our big facility here in the U.S. And what we'll do is we'll share that outlook in terms of how we see order trends and our expectation in terms of volume growth here as we get into Q3. But it's an exciting space. It's a fast-moving space for anyone that follows that market. I think the trends here in the last couple of years point to a next good 3 to 5 years in that space for what we can see, and we'll be ready for it.

Okay. Great. And in the first quarter, the Water segment had better-than-expected organic growth. Is that -- was part of that from data center-related products?

A small part, not material. I would tell you a couple of things that really read out well. One is just is just our traditional business in resi and ag in the groundwater space, had a nice first quarter of both volume and price. I would say, we talked about this in our Q4 call, where we saw a little bit of a pullback in terms of channel inventory and that RSS or that surface pumping business. That's bounced back nicely. So we made a comment on where we touch HVAC or some of the specific resi market -- the specific resi markets, excuse me. Those had a nice recovery, not just the sequential recovery but year-over-year showed some strength. So surface pumping overall was strong in the RSS space. And then again, that global dewatering business was up for us about 10%, even with the blip in North America due to some of the fleet timing. So what was interesting about Q1 there is the kind of consistent strength across those product segments. We're obviously watching places like ag, but it's a more normal year. We don't talk a ton about weather here, but it's a more normal year. So it looks solid. And then the rest of the business, again, a blend of new products, new markets, new customers, they seem to be gaining some traction.

And I might just add a comment regionally, we also performed very nicely across regions. We touched on -- Australia was a really strong, posted really good strong growth in the quarter. We started to see some recovery in Mexico, a smaller piece of our business, but good to see that as that was kind of depressed in the last couple of quarters. I touched on [Technical Difficulty].

Okay. You broke up a little bit there at the end again. And then I think the last one for me, the Energy segment, the growth was good this quarter, but it seems like it was driven more on the international side. For 2026, I think some of your competitors are calling out a pretty strong retail fueling market. And I think that's both U.S. and international. What are you seeing in the marketplace.

Yes. We see -- the outlook for the U.S. starting there is good. It's healthy. Backlog looks healthy. The -- what we're seeing -- I think I've mentioned this before, all where we can see a little further in that business in other parts of our business. So if you look at the age backlog, it points to kind of through the summer, the build season looks robust. Globally, that business, the leader Jay and his team have done a really nice job building some further opportunities in places like India and the Middle East. Those we're watching a little more closely. We had a good quarter in Q1 in some of those areas where we see faster growth. It looks like Q2 is going to be a little bit slower just based on the global dynamic and how that touches. Fuel price fuels some of that investment. Other than we're still helping out with infrastructure. So as there's a need for that real time we do. But the U.S. looks great. It's still the biggest part of our market. And the international prospects are still healthy. We think if and when the Middle East settles down, our view is out 2 or 3 years. We had some really nice growth opportunities. The timing of those may be off slightly here this year.

And our next question comes from the line of Matt Summerville with D.A. Davidson.

This is P.J. Hub on for Matt Summerville. I was just wondering if you're seeing any impact from the updated Section 232 tariffs.

Yes. Good question. The updated tariffs really had a fairly neutral impact to us. Our business, our products. So we did a complete review of that when that was announced earlier in April. And in general, no major change there. The tariff news that's come out the last few months for us has been neutral to slightly positive just given the position of our products, where we manufacture it. And we're largely an in-region, for-region manufacturer. So that's helped us a little bit to kind of create some stability. We still are doing a little bit of work in terms of -- and this includes the 232s of resetting our supply chain. But we expect to see some good progress and to finish some of that work up here over the next few quarters. But the latest announcement had a largely neutral impact to us.

I will now hand the call back over to CEO, Joe Ruzynski, for any closing remarks.

Thanks, Andrew. Our first quarter was a great start to the year. Our execution for strategy transformation and serving our customers every day was strong. Our growth engine is fueled by serving faster-growing markets, innovation and channel expansion. Leading indicators show us we're working on the right areas. Our productivity path is on the right trajectory with pockets of strength and some great opportunities to accelerate. We're confident in 2026, despite global challenges and risks. Our strategy will give us the avenues to add customers, serve new markets and increase our productivity throughout the year. We're confident in our strategy. We like the businesses that we're in. Thanks, everyone, and have a great week.

Ladies and gentlemen, thank you for participating. This does conclude today's program, and you may now disconnect.

Hello, and welcome to the Franklin Electric Reports Fourth Quarter 2025 and Full Year 2025 Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

It is now my pleasure to introduce Director of Investor Relations, Dean [indiscernible].

Thank you, Andrew, and welcome, everyone, to Franklin Electric's Fourth Quarter 2025 Earnings Conference Call. Joining me today is Jennifer Wolfenbarger, our Chief Financial Officer; and Joe Ruzynsk, our Chief Executive Officer. On today's call, Joe will review our fourth quarter and full year business highlights. Then Jennifer will provide additional details on our financial performance, and Joe will make some additional comments related to our key growth and value drivers along with our outlook. We will then take questions.

Before we begin, let me remind you that as we conduct this call, we will be making forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to various risks and uncertainties, many of which could cause actual results to differ materially from such forward-looking statements. A discussion of these factors may be found in the company's annual report on Form 10-K and today's earnings release.

During this call, we will present both GAAP and certain non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in the appendix of our earnings presentation. All forward-looking statements made during this call are based on information currently available and except as required by law, the company assumes no obligation to update any forward-looking statements. Earlier today, we published a slide deck to accompany our prepared remarks. The slides can be found in the Investor Relations section of our corporate website at www.franklin-electric.com.

With that, I will now turn the call over to Joe.

Thanks, Dean, and good morning, everyone. Thank you for joining today's call. I'm excited to share the outcome of a year of great progress, transformation and strong results today. Let's start on Page 2.

We had a strong Q4 and full year results in all segments. Sales were up 5.4% and segment operating income was up 9.6% for the full year, each representing high points for Franklin in both revenue and segment operating income. Our solid Q4 had our sales up 4.4% and operating income up 9.2%. We grew volume for the year, had strong price realization, and manage a sometimes turbulent global market with focus. Our order book and backlog remain healthy as we move through -- move to 2026.

Our cash conversion was 126%, representing our third year of cash conversion over 120%. Our balance sheet remains strong even as we completed about $120 million of acquisitions and $160 million in share buybacks. We've made some important changes in 2025 and are positioned well for 2026.

If we move to Slide 3, I'd like to talk about some of these efforts. In 2025, we made some great progress, and I want to take a moment to thank our team for the focus, execution and leading through change. We'd like to share a few highlights that won't show up in our overall financial results.

Starting with our priority to accelerate growth. While we serve our customers globally and in some dynamic markets, we saw strong results in each segment. We focused on our biggest opportunities and took share in many of our markets. We believe innovation and new products are a leading indicator for growth and added over 35 products that will deliver over $160 million in revenue by year 3.

We are positioning Franklin as an innovation and growth company, and our team is ready. As we look at our margins, I'd first like to highlight the great progress in our water treatment and distribution businesses. Our water treatment business is a key part of our Water segment. We entered this business in the past 5 years and exited 2025 at $200 million in sales. More impressive is our effort to make life easy for our customers and streamline this business as we serve them, which was highlighted by impressive sales growth and improvement of over 400 basis points operating margin in 2025.

Also we began our distribution business in the late [ '20 teens ]. We have grown this business to over $700 million with impressive services like our on-site inventory program and leading portal technology to seamlessly order and communicate needs. We focused on efficient service business in 2025 while bringing new solutions to market. We've grown and improved our operating margin in this business by 210 basis points in 2025.

Furthering our margin focus. In 2025, we added a key transformation element with the launch of our Value Acceleration Office. Here, we are using 80/20, smart AI and process engineering to streamline our portfolio, create powerful and simple internal systems, and manage costs more effectively. We expect strong contribution to our margins in the coming years based on this promising start in 2025.

For investments in capital, we are known for great cash conversion and a strong balance sheet, but there is more we want to do. We have completed two important acquisitions in 2025 and added some smaller important deals at the end of the year. As we look to round out our right to win in important markets and regions filling out our portfolio and reach will be our focus. We bought back about 1.8 million shares as we feel our future is bright. We have also increased our capital spending to make sure our investments position us for this growth.

Finally, on talent. Our strong culture has been focused on treating our employees and customers the best in our industry. Our focus on attracting great talent and building our engine for the future will bring elements of collaboration, innovation and velocity to our everyday practices, to prepare us for a fast-changing world. Our team is strong, ready for growth, and we are making it more resilient every day.

With that, I'll turn the call back over to -- I'll turn the call over to Jennifer to discuss the financial results in more detail.

Thank you, Joe. Moving to Slide 4. Our full year 2025 fully diluted earnings per share was $3.22, versus $3.86 for 2024. Diluted earnings per share for 2025 was negatively impacted by the pension settlement charge of $41.5 million, net of tax benefit or $0.91 of EPS, as well as [ $0.01 ] of restructuring charges in the year. Adjusted diluted earnings per share was $4.14 in 2025 versus adjusted 2024 of $3.92, an increase of 6%. The full year effective tax rate was 23.6%, compared to 21.7% in the prior year. The change in effective tax rate was due to a mix of foreign earnings tax at rates different than the U.S. statutory rate as well as less favorable discrete items.

Moving to Slide 5. Fourth quarter 2025 consolidated sales were $506.9 million, a year-over-year increase of 4.4%. The sales increase in the fourth quarter was due to the incremental sales impact for recent acquisitions and favorable price. Franklin Electric's consolidated gross profit was $171.5 million for the fourth quarter 2025, up from the prior year's gross profit of $164.2 million. The gross profit as a percentage of net sales was 33.8%, unchanged in the fourth quarter of 2025 compared to the prior year as we offset the impact of higher costs from tariffs with additional price in the market, as well as volume growth in our Energy and Distribution segments.

Moving on to SG&A expenses. We have seen a 70 basis point improvement in our SG&A as a percent of sales metric from year-over-year as a result of cost improvement actions taken in the last year. SG&A expenses were $119.6 million in the fourth quarter of 2025 compared to $117.8 million in the prior year. The increase in SG&A expense was primarily due to the additional expense impact of our 2025 acquisitions. Absent acquisition-related SG&A expense, the company experienced a decrease in SG&A expense year-over-year of approximately $3 million or 3%.

Consolidated operating income was $51.6 million in the quarter, up $8.6 million or 20% from $43 million in the prior year. The increase in operating income was primarily due to price, productivity and SG&A cost management. Operating income margin was 10.2%, up from 8.9% from the prior year. The effective tax rate was 18.7% for the quarter, compared to 15.8% in the prior year quarter. The change in effective tax rate was due to a mix of foreign earnings, [ tax at rates ] different than the U.S. statutory rate, as well as less favorable discrete items.

Moving to Slide 6, where we will review our 2025 full year results. Full year 2025 consolidated sales were $2.1 billion, a year-over-year increase of 5.4%. This was driven by favorable price, organic volume growth in energy and distribution, and the incremental sales impact of recent acquisitions. Franklin Electric's consolidated gross profit was $755.9 million for the full year 2025, up from the prior year's gross profit of $717.3 million. The gross profit as a percent of net sales was 35.5%, unchanged in 2025 compared to the prior year as we offset the impact of higher costs from tariffs with additional price in the market as well as productivity savings.

Full year SG&A expenses improved 50 basis points on a year-over-year basis, including the impact of acquisitions. Absent the impact of acquisitions, SG&A improved 130 basis points year-over-year, driven by structural cost actions taken in our distribution and energy businesses in the past year. Consolidated operating income was $269 million in 2025, up $25.3 million or 10% from $243.6 million in the prior year. The increase in operating income was primarily due to price, productivity and cost management. Operating income margin was 12.6%, up 50 basis points from the prior year.

Moving to Q4 segment results on Slide 7. Global Water Systems sales were up 4.3% compared to the fourth quarter 2024, driven by strong price and additional volume from our recent acquisitions. Water Systems in the U.S. and Canada were down 4% compared to the fourth quarter of 2024, driven by softer HVAC markets in Q4. Water Systems sales in markets outside the U.S. and Canada increased 15% overall. Excluding the impact of acquisitions and foreign currency translation, sales in the fourth quarter of 2025 decreased 1%, led by higher sales in the European region, more than offset by sales declines in Latin America and Asian regions.

Global Water Systems operating margin was $41.8 million, up $6.2 million, or 17% versus the prior year. The increase in operating income was primarily due to higher sales and price offsetting inflation. The fourth quarter operating income margin was 14.3%, an increase of 160 basis points from 12.7% in the fourth quarter of 2024.

Energy Systems sales were $74.7 million, an increase of $5.9 million, or 9% compared to the fourth quarter of 2024. Energy Systems sales in the U.S. and Canada increased 6% year-over-year. Outside the U.S. and Canada, Energy sales increased 19%. Energy Systems operating income was $22.6 million in the fourth quarter, compared to $24.7 million in Q4 2024. Operating income margin was 30.3%, compared to 35.9% in the prior year, a decline of 560 basis points. Operating income margin decreased primarily due to the unfavorable geographic mix of sales and the impacts of tariffs.

Distribution fourth quarter sales were $161.6 million versus fourth quarter 2024 sales of $157.2 million, an increase of 3%. The Distribution segment sales increase was primarily due to higher volumes and price realization. The Distribution segment's operating income was $5.3 million for the fourth quarter, a year-over-year increase of $4.8 million. Operating income margin was 3.3% of sales in the fourth quarter, an improvement of 300 basis points versus the prior year driven by higher volumes, positive price realization and improved margins as a result of margin and structural cost improvement actions taken in the last year.

Moving to full year segment results, beginning on Slide 8. Global Water Systems full year sales were up 6% compared to 2024, driven by strong price and the addition of our two acquisitions in early 2025. Water Systems sales in the U.S. and Canada were up 3% compared to 2024. At a product level, sales of large dewatering equipment increased 7%. Sales of groundwater pumping equipment increased 1%. Sales of water treatment products increased 6%, and sales of all other surface pumping equipment decreased 1% compared to 2024. Water Systems sales in markets outside the U.S. and Canada increased 10% overall for the full year.

Foreign currency translation was relatively flat on sales and recent acquisitions added roughly 10% to sales. Excluding the impact of acquisitions and foreign currency translation, sales for 2025 increased slightly, led by strong sales in the European region, somewhat offset by sales declines in Latin America and Asia regions as a result of soft market conditions. Global Water Systems full year operating income was $207.2 million, up $9.3 million, or 5.2% versus the prior year. The increase in operating income was driven by higher price and productivity offsetting inflation. Full year operating margin was 16.5%, a decrease of 20 basis points from 16.7% in 2024. The decrease in operating margin was driven by higher -- by acquisition-related costs.

Moving to Slide 9. Full year Energy System sales were $299 million, an increase of $25 million, or 9% compared to 2024. Energy Systems sales in the U.S. and Canada increased 8% year-over-year. The increase was broad-based and across most product lines, driven by strong investment in retail fueling stations. Outside the U.S. and Canada, Energy System sales increased 13%, led by increased sales in India and European markets.

Energy Systems full year operating income was $99 million compared to $93.6 million, an increase of $5.4 million, or 6% versus 2024. Operating income margin was 33.1% compared to 34.2% in the prior year, a decline of 110 basis points. Operating income margin decreased primarily due to an unfavorable geographic mix of sales, investments for growth in SG&A for new products and markets and the impact of tariffs in the year.

Moving to Slide 10. Distribution's full year sales were $700.7 million versus 2024 sales of $685.5 million, an increase of 2%. The Distribution segment sales increase was primarily due to higher volumes and price realization. The Distribution segment's full year operating income was $39.8 million, a year-over-year increase of $15.5 million, or 64%. Distribution operating margins expanded 210 basis points full year from 35.5% in 2024 to 5.7% in 2025 driven by margin enhancement initiatives, as well as structural improvements made within the last year.

Moving to the balance sheet and cash flows on Slide 11. The company ended 2025 with a cash balance of $99.7 million and with $30 million outstanding under its revolving credit agreement. We generated $239 million in net cash flows from operating activities during 2025, compared to $261 million in 2024. The company repurchased approximately 350,000 shares of its common stock in the open market for roughly $34.3 million during the fourth quarter 2025. At the end of the fourth quarter, the remaining share repurchase authorization is approximately 0.8 million shares.

On January 26, the company announced a quarterly cash dividend of $0.28. The dividend will be payable February 19 to shareholders of record on February 5. This represents a 5.7% increase from the prior quarterly dividend. This dividend will mark the 34th consecutive year that Franklin Electric has increased its dividend, demonstrating its commitment to returning cash to shareholders and confidence in the outlook of our business.

Now I will turn to Slide 12, where I will share insight on our full year 2026 guidance. Beginning with 2026, we will provide guidance on an adjusted EPS rather than GAAP reported EPS. We believe these forward-looking non-GAAP measures more closely align with how management evaluates the business, reflect ongoing operational performance and provide investors with additional useful information regarding our expected financial results. These non-GAAP measures will be presented in addition to, and not as a substitute for, the most directly comparable GAAP measures. Reconciliations to the corresponding GAAP measures will accompany our guidance disclosures.

Turning to our full year guidance. The company expects its full year 2026 sales to be in the range of $2.17 billion and $2.24 billion, and an adjusted EPS to be in the range of and $4.40 to $4.60. This puts our midpoint sales growth at just over 3%, and our midpoint EPS at approximately 9%. Reflecting commercial and operational momentum and our commitment to continue to grow the business and expand earnings per share.

Now I will turn the call back to Joe.

Thanks, Jennifer. Please turn to Slide 13. Before we turn it over for questions, I want to share our view of the Franklin portfolio and position, and why we're positive about our future. We are in great businesses. As a flow control company focused on water and energy, our strategy starts with a clear view of the markets and where we can win.

We see attractive markets where we can focus and grow faster. Our Water business is a leader in ground water and water treatment, and we are positioned to capitalize on urbanization, the desire for high-quality water, increasing mineral demand and the exponential growth of computing power. Our Distribution business has built a reputation for delivering the highest quality products and a wide offering in groundwater, water treatment and wastewater. Our differentiation is the technology, service and support, and how we execute every day. We use proprietary tools to manage inventory and information and our on-site inventory, or OSI programs to ensure our service doesn't diminish to the farthest reaches of our regions.

Our Energy business started with a focus on managing fluids but has grown by harnessing data, information and energy in the most creative and simple-to-use ways in our industry. Our leading solutions like EVO and Oversight, give our customers the confidence to run their business more efficiently and to get the best value out of their operations. Franklin has a long history of innovation, and we are investing and accelerating this. Our new product pipeline will more than triple these next few years, and we see this as a catalyst for growth.

As efficiency and data requirements increase, we will be on the forefront with our solutions. Our opportunity to increase our return is significant, using our value acceleration model and our value acceleration office, and Franklin operating system, we are working through some key transformations that will continue this path of expanded and resilient margins. Our strong balance sheet enhances our ability to produce -- to provide strong returns to our shareholders while supporting our attractive list of M&A opportunities and investments.

And finally, when you walk in the door at a Franklin site or spend time with our team in the field, you will see a team that cares and a culture that values our employees as we work to grow, innovate and serve. We are an attractive business with some great room to grow and improve.

I'd like to turn it back to Andrew for questions now, before some closing comments.

[Operator Instructions] And our first question comes from the line of Matt Summerville.

I was hoping -- I was hoping maybe, first, you could talk about when you look at kind of revenue guide for the year, what type of organic outlook across the 3 segments would be implied in that guide? And of that, how much is volume versus price? And then I have a follow-up.

Yes. If you look at -- for the Water business, we're looking at a number that's probably in the 3% to 5% range. From price versus volume, so there's a bit of acquisition carryover. We didn't close those deals until end of Q1 last year. So there's a little bit of acquisition in there. And then there's a good blend between volume and price. We've passed on -- so this for all 3 -- all of our segments, we basically passed on kind of standard price increases in the beginning of the year and we see some good realization of those numbers.

For the Energy business, growth looks over 3-ish percent. And as last year, a good mixture of probably a little more volume than price in that business, but we did pass on some price to recoup the tariff exposure that we saw at the end of last year. And then Distribution, if you look back the last few years, the price degradation based on some of the commodities has been part of our story. We've shifted to good price realization last year. Their growth was about 50-50 price in 2025. You're going to see about the same spread next year, and that growth rate is kind of the 3% to 4% range for that business.

Got it. And then maybe just looking at it specific to water, maybe [ dimensionalizing ] a little bit differently and do a bit of a walk around the key end markets and product lines within water, and add a little bit of geographic overlay as far as demand expectations this year.

Yes. Yes, good question. So as we exited last year, there was really two soft spots in that Water business. Otherwise, we are on pace for good volume expansion, but the RSS business, which is about a $150 million business, we saw HVAC weakness in the U.S. in Q4. That looks to have stabilized. Some of that was destocking of the channel. We've started the year at a nice spot. We expect growth in the U.S. kind of comparable to that rate that I talked about overall.

The other softer spot was the Mexican market, and that looks like it has stabilized. There was obviously some pressure in that market in the middle of towards the back half of last year. Those rates look to have come back. We expect more normal volume in that Northern Latin America region.

If you look at the story kind of around the world for the year, we had good underlying growth in the U.S., Europe. Southern Latin America was a great story for us. So we see -- we don't see any spots that are going to have pronounced weakness. We saw strong growth, and some of this is due to some recent acquisitions over the past few years in the South Asia, the Pacific region. And then Asia is relatively small for us, but we expect it to be fairly stable.

So there's really nothing that we see continuing. I would say -- I would call out in the U.S. that groundwater business, residential business and then the fleet, or the dewatering business, all seem to be on track here as we start the year and based on our forward look, there's really nothing that sticks out that tells us there's going to be weakness. We have not baked in any housing recovery in our numbers. So just to call that out as well.

And our next question comes from the line of Ryan Connors with Northcoast Research.

Jennifer, you mentioned HVAC as a headwind in fourth quarter. And if I heard you right, drove, I think, a 4% decline in U.S., Canada in water in 4Q. Can you just unpack that for us a little bit, specifically what that is? And how long that's expected to last?

I think this is really kind of a little bit isolated to what we saw was really isolated to the back end of Q4. And I think you would have seen that a similar sort of trajectory in some of more of the HVAC industry was a little bit softer towards the tail end. We have -- we do expect that, that should normalize and we're seeing a little bit in that normalization coming through in -- in -- here in January. We really feel like that was kind of isolated to the end of the year.

Got it. Okay. And then, Joe, you mentioned just the outlook for large dewatering still very solid heading into 2026 here. But 7% was the growth rate you cited in the fourth quarter. That was coming off of a pretty easy comp from a year ago. I think it was down 30-some percent in the prior year. So any color around why the little bit of a deceleration there in 4Q in large dewatering?

Yes. I think part of it is just -- as it's a capital spend, you tend to see a little bit of a pause at the end of the year. Obviously, we saw that in '24. We saw a little slowdown in 2025. We can see the orders. I mean that business looks healthy for us here in 2026. We can see the orders a little further in that business than some of our other areas. So the backlog is healthy. We look -- we had a nice bounce back year last year. And as we've talked about before, that tends to run in 18- or 24-month cycles. So a strong year last year. That growth won't quite be the same as we had a good year last year, but the outlook looks healthy in that dewatering fleet business.

Got it. Okay. And then just one last one for me. On energy, you talked about the tariff pass-through being a bit of a headwind, or a big contributor I guess, to the headwind in margins for Energy Systems. Any color around why that's proven more difficult in that business than elsewhere and the outlook there as well for 26?

Well, there were two parts of the margin in Q4 for that energy business. One is, I think Jennifer commented almost 20% international growth. We've been working on a growth plan in the U.S. -- or I'm sorry, in Europe and in India, largely, some other regions as well. So I think part of it was mix.

From a tariff standpoint, we had basically plan to stick with our price increase process. We had raised some price in Q -- end of Q1, beginning of Q2 for some of the shorter-term tariffs. And then we did another increase in December. We knew there was going to be a little bit of a timing issue there, and I think that's what you saw in Q4. Price realization for that business, Energy is expected to realize another 1.5% to 2% price increases this year with some of that carryover from last year.

We see good realization. The market has generally accepted it. So you're going to see those margins bounce back. We expect the energy margins to be up slightly this year versus last year. So we're back on that track of those mid-30 margins and the price increase. So we'll get us set here as we get into the year.

And our next question comes from the line of Bryan Blair with Oppenheimer.

I was hoping you could offer a bit of color on Barnes and [indiscernible] integration. The deal plans are progressing there, [indiscernible] thinking about incremental P&L contribution in 2026. And then how your M&A pipeline overall will center in the new year?

Yes. Maybe to start with Barnes and [ Pump Edge ]. The [indiscernible] deal is on, I would say, ahead of track. That kind of the mineral space, the dewatering space for us has been a good growth area, small as a part of our overall portfolio. But what we found is the integration has been relatively smooth. Those products are needed.

As we brought a bigger portfolio in a market in some of those regions and those markets for dewatering, we found further opportunities. So we're excited about the backlog as well. So the growth synergies there seem to be reading out and '26 looks like a good year. The Barnes steel, there's two things I would say. One is from an integration standpoint, we feel good about that progress there. The company is well integrated. We like the products. We like the regions. Their second biggest market was the Mexican market. So in terms of the growth and the readout of some of that model, we're probably behind a little bit there just because the kind of the recessionary market shrinking environment in Mexico in the back half of last year, definitely put a little bit of a longer process there in terms of us seeing that readout.

Conversely though, it looks like it's stabilized here as we exited the year, kind of the very end of the year, December into January. So we don't have some of the same headwinds that we had in the back half of last year. I would say for the overall M&A pipeline, probably what you're hearing from a lot of our peers is the market looks to be busy this year. I think -- I think there's a little bit of stability. Hopefully, the tariffs and the disruption and some of the uncertainty is a little bit more, let's say, known. Obviously, we live in a pretty a pretty crazy world here.

But the pipeline looks healthy. And our approach is basically -- I think as I mentioned on the call, is we're looking at our portfolio, we're looking at our right to win and where we can round out from channel [indiscernible] or if there's specific products that help us go faster. We got some -- we have some good ideas. Obviously, we're still in a healthy leverage spot from a balance sheet standpoint and our [ bizdev ] team and the folks that are looking at that are definitely busy. So we expect some good progress. Had some good small deals at the end of last year, but we're looking for deals that can give us a little more impact here in 2026.

Understood. I appreciate that color. And it would also be great to hear a little more on the Value Acceleration Office. One, I like the ring of that. But that being said, respecting the -- these are CI type initiatives, some of the framework would already be in place. When was the program or office formalized? How much near-term impact should we expect from [ Quad 4 ] actions in terms of 80/20 implementation? And is the plan at least over time, to offer discrete targets for transformation savings or margin level?

Yes, it's a good question. We actually -- we built the office governance kind of seated with the opportunities through our strat development process kind of starting in the middle of last year. And we looked at transformation in a couple of different ways. It is CI, but I'd say it's more than that.

A company like Franklin that has grown acquisitively over the last decade plus, we saw a lot of opportunities for just good old-fashioned process reengineering, back-office alignment, making sure that as we look at global launches of products that we have all cylinders firing, and we get those on time, on budget and we get them to our market. So we talk a lot about scale and velocity. There's a growth element to the Value Acceleration Office, which you won't find, I would say, in some of the other 80-20 kind of traditional CI type transformation offices. And we like that.

I would say from a productivity and efficiency and a benefit standpoint, our expectation is some of those projects, we've actually got up running. Some of them are completed. We expect readout this year of that. We have some of that baked in our plan for expanded EPS here, but we think that there's opportunity to do more. So yes, we're excited about it. We've got it staffed. We've got a new AI director that started here in Q1 and a leader for that office. Yes. So it's a little bit homegrown, but it's something that, given my history and the history of some of the other officers, we like how we put it together, and it's been -- we've got a lot of hands raising to participate, which is what you want in this. So yes, more to come on that, but we expect some good readout this year and in the future.

Bryan, I just want to emphasize the point Joe made. The value acceleration, the nomenclature there is critical because it is more -- it's definitely more than just cost improvement, the typical 80/20. It's about leveraging technology. It's about finding opportunities to leverage technology to drive leverage, but also growth is really key to that. So definitely a differentiator, say than what you would see in the typical 80-20 space.

And our next question comes from the line of Mike Halloran with Baird.

Just a quick follow-up to that. Where do you see the most opportunities when you look across your product segments, across the 3 segments, but more at the product line level as you're implementing the strategy?

The opportunity to make some improvements or the opportunity to grow?

Yes, it was related to Bryan's last question, right? So it's just when you take this value-driven approach, where do you see the most opportunities at a product line -- on a product line basis to really drive value? Whether it's commercially at the margin line? Just where specifically do you see the most opportunity?

Yes. I think maybe a couple of areas. One is if you look at our -- kind of our core submersible business, we're obviously producing motors, pumps and assemblies in all regions. There is some overlap of that portfolio where we've got product that can essentially do the exact same thing that we don't need to be producing the number of SKUs and in the multitude of locations that we are today.

So one example, Bryan, is if you look at where -- and I think we've called this out in 2025. We're making some investments in our sites in Turkey and India, is to basically bring together some of the similar SKUs to come up with common platforms to be able to serve wider regions. And there's more for us to do there.

I would say as well, from an acquisition standpoint, if you look at -- some of the ones that we did -- we've done recently, we talked about [ Pump Eng ]. We did Minetuff before that. There's some overlap in those products and making sure that it's clear to our customers in terms of what you're trying to do, the application that you're trying to support in the product that we have to serve it. There's some alignment opportunity there, which will bring efficiency, it will bring margin, but also it will bring the productivity in terms of our operations to be able to serve.

Here's another maybe non-product answer to that. If you look at our water treatment and our distribution business, just the effectiveness of how we serve our customers, getting [indiscernible], getting logistics that are streamlined. We've done a lot of work with our partners to make sure that we can not only serve our end customers, but we do it as efficiently as possible. It's how many times we touch that product, how many miles we cover to get that product to our end customer.

So we've gone through some streamlined, some rooftop consolidation based on acquisitions in the past few years. And we find our service metrics. We actually had an internal service metric that set a record for us this year in terms of fulfillment rates and on time. We see further opportunity to do that. So it's not just in the product, it's also in how we serve our customers, and I think there's opportunities in both spaces.

And then two quick guidance related other questions. One, partially a follow-up to Matt's original question. How does sequentially -- how do the sequential patterns work out through the year relatively normal seasonality? Or is there any nuance for that?

And then the follow-up to that would be somewhat related, I suppose. You talked about margins up a little bit on the [ fueling ] side. Any sense for how the other couple of segments track on the margins inside your guidance?

Yes. So we -- in terms of just the seasonality, I'll address that one first. We expect the typical seasonality that we see in our business throughout the year. But as you do -- as you look at it across our guide, we are expecting growth in terms of good price realization, volume growth across all quarters. But following that typical seasonal pattern where we're a little bit lighter in Q1 and Q4, and more of our peak periods in Q2 and Q3.

But growth across all quarters. We're not -- there's not a back-end or front-end load here in terms of our performance. I think normal seasonality but consistent growth across all quarters, so.

The merger questions. You gave some guidance on fueling up year-over-year. How should I think about the other two segments on the margin line this year?

Yes. Similar -- across all of our segments, we're projecting growth, margin expansion across each of the segments, including Energy. We had said, kind of, we landed the year last year with Energy in the low 30s. We expect some growth in that space in our energy business in terms of margin expansion year-over-year. There still kind of maintaining that low to mid-30s, as Joe mentioned earlier.

And you're going to see, Mike, a continued focus on that distribution business. Obviously, they took a nice step forward last year. There's a number of underlying initiatives to get those efficiencies, some of which we talked about is related to the BAO but probably margins expanded a little bit more there. Energy and Water, maybe slightly less than that. But those distribution margins, I would expect another 70-plus basis points expansion there. Water and Energy may be slightly under that in that space.

And our next question comes from the line of Walter Liptak with Seaport Research.

Yes, I'll try on [indiscernible]. I remember about 5 years ago, there was a presentation about 80/20 that was done by one of your leaders. And so it seems like you guys have been doing that for a while. I wonder if you could talk about maybe what inning you're in and where 80/20 is -- which segments have done the most sort of 80/20 work, and what's the next focus?

Yes, I'd say, well, most of the 80/20 opportunity for us exists in that Water Systems business. That's where the design, the manufacturing, the global footprint for operations is there. In the -- just in the energy space, it's a fairly focused business. They've gone through and have a very streamlined portfolio, I would say. So some of the ads there are really bringing new products to market.

In the Water space, from an 80/20 standpoint, I would say we're in the first 3 innings or so, a baseball game term there. There's more for us to do. And I think what -- the work that's been done there thus far is looking at what are some of those fractional? What are some of those small sizes that don't sell a whole lot? We've done the same work that other companies have done to make sure that our portfolio is clean? We can basically solve your problems with smart drives with VFDs versus having the proliferation of motor sizes and pumps, et cetera. So there's been some good work done there.

There is more for us to do there. What's been fun for me to see here over the last couple of years, we've talked a lot about new products. If you look at our new in-line spec pack and our [indiscernible] spec pack, some of the new boosting technology and also some of the new work that we're doing in terms of bringing products to market post acquisition is using those opportunities to clean up that legacy portfolio. So it's taken us a little bit longer.

We didn't go just through an exercise of cut in a line. We've kind of been doing, let's launch a new product and let's clean that portfolio up. So I would say there's a good set of opportunities in front of us to see more of that benefit here over the next couple of years.

Distribution also great work there. I mean really great progress across our teams and Distribution across 2025, with still more opportunity to continue to expand margins into 2026 with the work that we've done on derationalization, buy better spend better, as well as [indiscernible] within that business.

Yes. Maybe just to add to that. I think 80-20 from a distribution standpoint, probably not a lot of companies talk about it, but Jennifer, we've gone -- we've had a 2-year effort of normalizing all of our part numbers to make sure that if it's a comparable part, a similar application that we're consolidating that, which helps us in a couple of ways.

One is -- One is for inventory movement of product, but the other one is upstream negotiation with our suppliers to make sure that we're getting the best price and bringing that through. So -- that's been -- that's taken us a bit of time, especially as we've continued to acquire over the last few years. But we hit a good milestone in October this year of getting those part numbers aligned and furthering that work upstream.

Okay. Great. Yes. Thanks for that detailed answer. And then the fueling outlook is -- looks pretty good for this year. One of your competitors, though, talked about the growth rate being higher than what you presented.

I wonder if you could talk about above ground versus below ground. And any, I guess, timing of projects or visibility of projects?

Yes. I think the build schedule looks good this year. I don't want to comment on our peers' outlook, but there's two things that we're really looking at here. One is see the build schedule for most of our major partners, and it looks positive. So I think that growth rate there, we obviously overdrove what our projected growth rate was for 2025. I think those opportunities exist.

Given the capital market and sometimes unpredictable schedule in terms of capital deployment, we want to be careful there. We do see the international market strong, and we see the U.S. market strong as well. So I think that those mid-single-digit growth rates that we see for Energy, it should be another nice year and a strong year for that business.

And then below the ground versus above the ground, maybe just a comment. If you look at new products that we've launched here in the last year or so, we've talked about oversight in EVO ONE and some of those other new products. I would say above ground is probably going to be a little bit stronger. We also see that grid business, small but having another good year with some of the new products and new channels that we're expanding there, too.

I'm showing no further questions. So with that, I'll hand the call back over to CEO, Joe Ruzynsk for any closing remarks.

Thanks, Andrew. And if you could please turn to Slide 14. 2025 was a strong year, and our outlook for 2026 is positive. We look to build on our momentum of transformation, innovation and growth to address our best opportunities in 2026. We're confident in our strategy, and we like the businesses we're in. Thanks, everyone, and have a great week.

Ladies and gentlemen, thank you for participating. This does conclude today's program, and you may now disconnect.

Good day, and welcome to the Franklin Electric Reports Third Quarter 2025 Sales and Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. It is now my pleasure to introduce CFO, Jennifer Wolfenbarger.

Thank you, Andrew, and welcome, everyone, to Franklin Electric's Third Quarter 2025 Earnings Conference Call. Joining me today is Joe Ruzynski, our Chief Executive Officer.

On today's call, Joe will review our third quarter business highlights, then I will provide additional details on our financial performance, and Joe will make some additional comments related to our key growth and value drivers, along with our outlook.

We will then take questions. Before we begin, let me remind you that as we conduct this call, we will be making forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to various risks and uncertainties, many of which could cause actual results to differ materially from such forward-looking statements.

A discussion of these factors may be found in the company's annual report on Form 10-K and today's earnings release.

All forward-looking statements made during this call are based on information currently available, and except as required by law, the company assumes no obligation to update any forward-looking statements.

Earlier today, we published a slide deck to accompany our prepared remarks. The slides can be found in the Investor Relations section of our corporate website at www.franklin-electric.com. With that, I will now turn the call over to Joe. Joe?

Thank you, Jennifer, and good morning, everyone. Thank you for joining today's call. Before we get into the details, I want to start with a few key takeaways from the quarter. Franklin Electric delivered another quarter of strong performance, in line with our expectations.

The quarter was marked by growth across our end markets, disciplined execution, solid integration of our acquisitions and continued investment in our long-term growth priorities.

Despite a dynamic operating environment, our teams delivered solid organic sales with both volume and price, margin expansion and solid cash generation.

These results demonstrate the strength of our strong channel partners, commitment to delivering the best service in the industry and the diversified global portfolio that our customers trust.

Q3 has shown our ability to manage through varying macro conditions and drive profitable growth. Our teams were able to overcome some challenging weather conditions, regional headwinds, slow existing home sales and relatively few housing starts to ultimately deliver solid results.

Our resilience is in part attributable to ongoing price and cost actions, which continue to prove effective. We also maintained strong cost discipline through the quarter, with SG&A improving as a percentage of sales despite several onetime acquisition-related costs.

As we navigate the near term, we remain focused on our strategic priorities, advancing several key initiatives this quarter, pushing on the pace of innovation and completing several capacity expansion projects that position us well for the future.

With a global footprint, strong balance sheet and operational excellence, we are building enduring advantages that distinguish our business and support long-term value creation.

Moving to Slide 4, I want to take a moment to thank our Global Franklin team for their commitment to our customers and to each other. My first year has brought change and an agenda of growth and innovation and market conditions that make great results challenging.

We have 2 new officers that started in the third quarter, and our team has done a great job of getting them up to speed and welcoming them to our Franklin family.

Our culture is strong, and our team is getting stronger. My very humble and sincere thank you to our Global Franklin Electric team. Turning to our results on Slide 5, consolidated sales for the quarter were $582 million, up over 9% year-over-year with strong organic contribution.

Importantly, pricing was positive as we continue to offset tariff impacts and manage impacts of inflation through disciplined pricing actions. Gross margins were up 20 basis points and operating margins grew by 80 basis points, reflecting strong execution, cost control and volume leverage.

Looking at our business segments, Water Systems sales increased 11% year-over-year, driven by price, volume and acquisitions. Our ability to deliver both price and volume growth this quarter reinforces the strength of our competitive position and demonstrates that our pricing initiatives are holding up well in the market.

Performance was solid across various regions with strength in Europe, the U.S. and Canada. U.S. and Canadian markets continue to perform well despite softer housing starts, underscoring our resiliency and ability to capture share even in the challenging environment.

We're also encouraged by the results of our -- of several key product lines with groundwater exhibiting momentum and water treatment continuing to gain share and grow organically throughout the year.

In Energy Systems, sales were up nearly 15% year-over-year, reflecting strong growth in the U.S., Europe and India.

As we discussed last quarter, Q2 represents a seasonal peak for this business, and we expected a moderation in Q3 due to timing, product mix and tariff impacts.

Continued price realization efforts will take effect over the coming months, which should help offset the tariff pressure we saw in Q3 and preserve margins as we move into 2026.

Order intake remains healthy. The backlog is up, and we continue to see steady demand across the end markets.

Our critical asset monitoring business continued to gain traction in the quarter due to deeper customer adoption and ongoing channel expansion.

In distribution, sales were up 3.4%, driven by both price and volume. This marks the strongest pricing performance we've seen in this business in more than 2 years and reflects the effectiveness of our self-help initiatives.

Our channel inventory is down slightly year-over-year and healthy. This is mostly due to stronger performance in our supply chain and shortening of lead times through our value chain. From a macro standpoint, conditions remain variable and residential construction activity remains subdued, leading us to maintain our focus on disciplined execution in this environment. We continue to perform well relative to the market, supported by strength in key product categories and solid channel relationships.

Our wide portfolio and strong customer intimacy provide important earnings durability across evolving market conditions. With that, I'll turn the call back over to Jennifer to discuss the financial results in more detail.

Thank you, Joe. Moving to Slide 6, our fully diluted earnings per share was $0.37 for the third quarter 2025 versus $1.17 for the third quarter 2024.

The company terminated its U.S. pension plan for approximately $55.3 million pretax and an estimated EPS impact of approximately $0.93 per share.

Our adjusted fully diluted earnings per share was $1.30 for the third quarter 2025 versus $1.17 for the third quarter of 2024, up 11% versus prior year. Moving to Slide 7, third quarter 2025 consolidated sales were $581.7 million, an increase year-over-year of 9%.

The sales increase in the third quarter was due to the incremental sales impact from recent acquisitions and higher volume and price in all 3 segments.

Franklin Electric's consolidated gross profit was $208.7 million for the third quarter 2025 up from the prior year's gross profit of $189.7 million. The gross profit as a percentage of net sales was 35.9% in the third quarter of 2025, an increase of 20 basis points compared to the prior year.

Moving on to SG&A expenses, we have seen a 60 basis point improvement in our SG&A as a percentage of sales metric as a result of cost improvement actions taken in the last year.

SG&A expenses were $123.5 million in third quarter of 2025 compared to $116 million in the prior year. The increase in SG&A expenses was primarily due to additional expense impact of our 2025 acquisitions, including various onetime deal-related costs.

Absent acquisition-related SG&A expenses, the company experienced an increase in SG&A expense year-over-year of approximately $2 million or 2%, primarily driven by compensation.

Consolidated operating income was $85.1 million in the quarter, up $11.6 million or 16% from $73.5 million in the prior year.

The increase in operating income was primarily due to volume pull-through, price and cost management. Operating income margin was 14.6%, up from 13.8% in the prior year.

Moving to segment results on Slide 8, Water Systems sales in the U.S. and Canada were up 9% compared to the third quarter 2024. At a product level, sales of large dewatering equipment increased 38%. Sales of water treatment products increased 9%.

Sales of all other surface pumping equipment increased 4% and sales of groundwater pumping equipment were flat compared to Q3 2024.

Water Systems sales in markets outside the U.S. and Canada increased 15% overall. Foreign currency translation increased sales by 1% and recent acquisitions added roughly 13% to sales.

Excluding the impact of acquisitions and foreign currency translation, sales in the third quarter of 2025 increased 1%, led by higher sales in Europe, partially offset by sales declines in Latin America.

Water Systems operating income was $60.2 million, up $7.4 million or 14% versus the prior year. The increase in operating income was primarily due to higher sales and price offsetting inflation.

The third quarter operating margin was 17.9%, an increase of 40 basis points from 17.5% in the third quarter of the prior year. Distribution third quarter sales were $197.3 million versus third quarter sales in 2024 of $190.8 million, an increase of 3%.

The Distribution segment sales increase was primarily due to higher volumes and price realization. The Distribution segment's operating income was $16.3 million for the third quarter, a year-over-year increase of $4.1 million or 34%.

Operating income margin was 8.3% in the third quarter, an improvement of 190 basis points versus the prior year, driven by higher volume, positive price realization and improved margins as a result of margin and structural cost improvement actions taken in the last year.

Energy Systems sales were $80 million, an increase of $10.3 million or 15% compared to third quarter 2024. Energy Systems sales in the U.S. and Canada increased 11% year-over-year.

The increase was broad-based and across all product lines, led by fuel pumping systems. Outside the U.S. and Canada, Energy Systems sales increased 26%, led by increased sales in India and our European markets.

Energy Systems operating income was $25.4 million compared to $24.1 million in 2024. Operating income margin was 31.8% compared to 34.6% in the prior year, a decline of 280 basis points. Operating income margins decreased primarily due to unfavorable geographic mix and sales, increased tariff impact and a challenging comparable in 2024.

The effective tax rate was 27% for the quarter compared to 24% in the prior year quarter. The change in the effective tax rate was driven by an increase in foreign earnings taxed at rates higher than the U.S. rate as well as less favorable discrete items.

Moving to the balance sheet and cash flows on Slide 9, the company ended the third quarter of 2025 with a cash balance of $102.9 million and with $66 million outstanding under its revolving credit agreement.

We generated $135 million in net cash flows from operating activities during the third quarter compared to $151 million in 2024. The company did not engage in stock repurchases in Q3 of this year. Year-to-date, we have repurchased approximately 1.4 million shares from shareholders. As of the end of third quarter of 2025, the total remaining authorized shares that may be repurchased is approximately 1.1 million shares.

Yesterday, the company announced a quarterly cash dividend of $0.265. The dividend will be payable November 20 to shareholders of record on November 6. Moving to Slide 10, we are holding our full year expectations of $2.09 billion to $2.15 billion and tightening the range of our EPS guidance.

We are maintaining the midpoint of our GAAP EPS guidance, targeting a range of $4 per share to $4.20 per share, adjusted to remove the impact of the termination of our U.S. pension program. Now I will turn the call back to Joe for some additional comments. Joe?

Thanks, Jennifer. Turning to Slide 11 and our value creation framework centered on 4 key pillars that guide everything we do at Franklin Electric, growth acceleration, resilient margins, strategic investments and top-tier talent.

This quarter, we made great progress toward our growth and investment objectives. This past year, we've added great talent. We've improved our integrated operating model, made 2 important acquisitions and saw our focused margin efforts in water treatment and distribution gain momentum.

Moving to Slide 12, innovation is core to our growth strategy. As several of our legacy markets are more mature, we are sharpening our focus on customer feedback, aligning our priorities with their evolving needs and leveraging the strength of our channel partners.

By delivering targeted solutions, we continue to drive meaningful growth across our business. I'd like to highlight our new pressure boosting platform, which enhances efficiency and reliability for homeowners, businesses and contractors.

Three new products we are launching this year, the VR SpecPAK, which was built to bring a wide range of features in an industry-leading footprint, the in-line SpecPAK designed for an efficient footprint with minimal noise and our VersaBoost Pro, which is easy to use and solves your residential pressure challenges in an elegant and compact design.

These products are seeing strong interest and early adoption and all the quality and service expected from a Franklin product line.

The pressure boosting market is a growing one and shows our commitment to migrate to faster-growing applications in our markets.

And now on to Slide 13, we also made meaningful progress in our global capacity expansion with a new factory on our campus in Izmir, Turkey, the latest addition.

We are a global company and growing our capabilities close to our growing customer needs in Eastern Europe and the Middle East are critical for our growth.

We had the chance to review this progress during a recent visit and are pleased to start production in Q1. We will now turn the call over to Andrew for questions. After Q&A, we'll return for closing remarks. Andrew?

[Operator Instructions] Our first question comes from the line of Mike Halloran with Baird.

So can you just give some thoughts on how you see the end markets playing out as we move into next year?

Probably a bigger focus on the water markets as you sit here today. Maybe just puts and takes in how you see the sequential trends playing out. Sequential trends imply growth next year on a volume basis.

Is volume growth something you're planning for in some of those core water markets next year? Or is it mostly going to be led by price? Just kind of understand how those puts and takes are playing out as we sit here today.

Yes. Thanks, Mike. I think as we look at next year, we see market conditions relatively similar, starting with the U.S. and Canada to this year, which is subdued market, flattish market, but we do expect volume growth.

I think a key part to our story, if you look over the last few quarters, is delivering volume expansion in markets that aren't really doing anything that are helping us a ton.

If you look at housing starts, if you look at interest rates, all of the other trends that we see in here in the market, but our expectation is volume growth.

One of the reasons we like ending this conversation on innovation is we want to create some of that own space -- some of that space for ourselves. So I think our good channel partner relationships, some new products we're bringing to market. I think the story of bringing new products to our end customers, this is both distribution. This is in the Water Systems business overall, and then adding dealer and expanding our network in water treatment, we feel that, that flywheel has helped us to kind of create some of our own space even in the more mature markets.

I would say when you look outside the U.S., we're more optimistic about just the market in general for water. We've built a strong position in Latin America. With our acquisition, we're starting to see some of that pull-through on the growth synergy side there.

With our acquisitions in large dewatering, we read about the trends in mining. We read about the trends where we have to move big volumes of water, getting those products to the markets that need them in Brazil and South Africa and other places, some of the initial trends they're on a smaller scale, but they're positive.

And I think talking about capacity expansion, where we see growth is really where we're trying to make sure that we're positioned to serve it. We talked a little bit about India, the Middle East, Turkey, just Eastern Europe in general, that position we have in Southeast Europe has been one that's paid some good dividends.

So we feel better about market growth outside the U.S. U.S., flattish, but yes, volume expectation. And we would expect the opportunity to price -- for price realization to be more subdued, but we do expect price next year as well.

And part of that price is just the carryover work that you've gotten this year into next year, right? So that price comment is less -- is more incremental price from what you've already announced is more subdued?

Exactly. I think you're going to see price carryover in that 1% to 2% range based on what we've done thus far. But our expectation is there'll be some more price. I think Jennifer alluded to this, but we set price in some of our segments here going into next year. The Energy segment is an example. So we do expect incremental price next year as well.

And last question. Just maybe help with the Energy Systems margin profile. Obviously, variability as you work through this year, mix, I'm assuming is a big component of that.

What's the baseline that we should be thinking about for this year as we move into next year? In other words, how do you expect that to play out? And what's kind of the base we should be building off of?

Yes. I'll make a comment and Jennifer can add some color to it. I think we've kind of set the table that as we grow internationally, you're going to see a slight moderation based on mix. And that growth is starting to read out. Middle East, India, we called those out specifically.

From a tariff standpoint, we knew that Q3 would be the most pressure. And part of that is due to that onetime April big lift on some of those input costs coming from China.

So one is we're working to normalize that supply chain and make sure that we're prepared for next year. But two is that's my comment on incremental price. Maybe Jennifer wants to talk about our thoughts on margin as we go into next year for that Energy segment.

Yes, I think we're well positioned. As Joe mentioned, we did announce a price increase for the Energy Systems business in September that will kick in, in December.

That will help as well as we continue to moderate additional tariffs or the tariffs that we're experiencing. In Q2, we did call out, we shared that, that was a little bit of an anomaly. And Joe mentioned that we were in the high 30s in our operating margin.

That was a little bit of an anomaly given the outsized mix that we saw in the quarter. Where we ended this quarter, we're very pleased in the low 30s. We'll continue to see that play out through the balance of the year.

Yes. That low to mid-30s kind of expecting further income growth next year is the expectation we would set. But we feel good about the strength of that portfolio. It's going to grow well outside the U.S., but the U.S. growth for next year in that segment looks strong as well.

And our next question comes from the line of Bryan Blair with Oppenheimer.

The value prop of the water pressure boosting line, that's pretty clear. We saw some of the technology at WEFTEC, it's impressive. I was wondering if you're willing to speak to your team's opportunity there a bit more. What's the current TAM of the pressure boosting vertical? And what kind of share capture do you think is realistic over, say, the medium term?

Yes. We feel -- I mean, the TAM is in the high hundreds of millions of dollars that we have access to today. But I would say what we like about that -- about the application in that space is it's a growing market.

We see that market continuing to grow. As you see further expansion in suburbs and cities and residential buildings, the need for pressure boosting just becomes more and more as hotels get built, as businesses get built, and the opportunity for us is both on commercial, industrial and residential, which is why we wanted to show a blend of some of those different products there.

I think you saw a few of those in terms of the SpecPAK products. But customers are very specific about we want to be able to put these in, in existing buildings as they have those needs, and we have to address those needs.

And they're asking for a couple of things. They're asking for a variety of solutions. All of the elements of those products are designed internal to Franklin, so from software, hardware, the actual panels, the pumps, et cetera.

And they want to be able to park those into compact spots within legacy footprint. So we found good response to those products.

We think that that's going to continue to grow as you see the urbanization, not just in the U.S. from a commercial and industrial standpoint, but really in Latin America and the Middle East and other places.

And from a residential standpoint, we're excited. We've been working on an elegant residential solution there for a while. So to launch these 3 products in the back half of this year, the response thus far has been very positive.

That's very encouraging. I appreciate the color. If I ask a finer point on energy margin, just to level set there, are you willing to parse out the impact of geographic mix versus tariffs in Q3?

Yes. I would say, and we're looking year-over-year, the majority of that impact is going to be tariffs. I would say probably more than 2/3 of the impact you're seeing on the variance year-over-year. The balance is going to be really mix, yes, primarily mix.

Okay. Understood. And one last one, if I may. Obviously, you have a lot of balance sheet capacity and your team seems quite keen on deploying your balance sheet going forward. How are you feeling about the deal environment now? You've obviously transacted a couple of high-stakes deals. And I'll reiterate, there's a ton of capacity there. So curious what you're seeing, the opportunity set, actionability, et cetera.

Yes. We think that space is getting a little bit more active. I'll just put it that way. We saw a little bit of a pause in the first half of the year as people were trying to sort out what tariff impacts would be and what the supply chains of these companies look like.

But definitely, there's more activity there. We're seeing and hearing more things. I'd say more than that, though, Bryan, is we've built a biz dev team to really focus on putting our eyes on markets that we like more and making sure that we're being proactive as well in terms of how we look at those markets and what further products could bring to us.

I think a nice advantage of Franklin is just our commitment to global growth doesn't limit us to just the companies in the U.S. The markets inside and the outside U.S. in terms of what's available and the prices you pay for them are very different.

So similar to your reference to our deals in Q1, we cast a global net. And if you look at our funnel, it's a good mixture of companies inside and outside the U.S.

So we're feeling good about it. I think we want to put that balance sheet to good use next year. And we feel better about it coming into '26 than we did as we came into 2025.

And our next question comes from the line of Matt Summerville with D.A. Davidson.

I want to talk a little bit more about energy. You mentioned seeing some nice backlog sort of growth there. If you can maybe touch on that a little bit. And then where are we from a cycle standpoint with respect to ongoing investments in fuel and infrastructure and what kind of informs you of that view?

Yes. Maybe a couple of thoughts there. One is just starting with kind of that core and our biggest market in the U.S. The outlook for '26 looks favorable right now.

We can see a little further out in that business from a backlog standpoint relative to some of our other businesses. And the backlog is up nicely year-over-year.

You can see kind of the revenue trend that really started as we came into this year, and we expect that to continue for some time. But '26 growth prospects for the major marketers, the C-store investment, our view there is that continues to be a positive trend and a good story next year.

I think where we're also excited about, and this has been a few areas -- these are a few areas we've been working on the last few years is some of the growth that we see outside the U.S., we really see some positive trends there as well.

Some of these are regulation-driven that we're well positioned to support as people look to strengthen their infrastructure in places like the Middle East. In other instances, it's building our ability to serve those customers in emerging markets that are serving more cars, more people, the more need for regulation in countries like India and Latin America. So we see that trend continuing. Next year is shaping up to be a nice year from an outlook standpoint in energy.

And then I apologize if I missed it, could you give a little bit more granularity as to groundwater performance, in particular, what you saw in North America across resi and ag and maybe what your high-level thinking is for next year in those key markets?

Yes. The groundwater market in the U.S. was -- the market itself was relatively flat this year. I think our volume growth, we feel, is a bit of an outlier in our space. I think next year, that outlook looks similar, where the market we tend to see is flattish.

We'd remind everyone that one benefit of Franklin is our replacement rate in the groundwater, both ag and resi is very high in the high 70s. So from that standpoint, for us, it's relatively stable, and then we look to create our own space.

But I think in the U.S., that market is going to see low single-digit growth. And part of that is supplemented by some share take and some additional work that we know we need to do.

So not a great ag market for next year, I think similar to this year. But I think we're well positioned to be able to serve that market and continue to see some volume growth.

And our next question comes from the line of Ryan Connors with Northcoast Research.

I wanted to take -- go back to one of the first questions regarding kind of the planning assumptions for 2026 and look at that more from a scenario perspective.

I mean you laid out your base case pretty well, but there's a lot of talk about renewed weakness in residential, especially on new lot development.

But at the same time, we have the Fed lowering rates, which should be good. I mean what -- is there an upside scenario for 2026, where talk about if things go well, what could things look like around that base case?

Ryan, I feel I was asked this question last year and tried to predict it and maybe didn't do a great job. I would say interest rates would have to move quite a bit more before we see yields drop and we see that impact in terms of just people being able to get houses started and to make those investments.

Our expectation and kind of how we're modeling it is, again, is a subdued residential market. But I think I'd just call out a couple of things, and I know we talked about these in our script here.

But one is, if you look at the water treatment business, we think that's a great example of our ability to succeed in markets that are relatively flat. That business has continued to grow. We've expanded our margin there in a really nice way.

And part of it is just due to adding customers, adding dealer, adding to our channel. I think on the other side, if you look at that distribution business, the growth in both volume and price in that business is about bringing products that we can see in certain regions to other products.

We now have a fairly nice reach with both our independent distributors and our distribution arm as well and finding other opportunities to bring products there, whether it's in wastewater or in groundwater.

So I think that template has proven effective, and we expect that to continue next year even if we don't see that upside. I would say just a final comment, your question is, is there an upside scenario? Well, one is given our customer intimacy, the fact that we can see end customers, I'd tell you, we're ready for it.

We've got a value chain from suppliers to factories to a really strong channel throughout where if we see those trends, our ability to get product there and to serve those markets, I think, is -- would be an exciting opportunity. Not a whole lot of it baked in our plan here right now as we look at 2026.

I'll just add on to that last comment there on being well positioned and Joe touched on this from a water treatment perspective.

We've added significant share in storefront there and in distribution with our on-site inventory applications and the adds that we've done in 2025 sets us up for real great success. If those macros take off, we'll capitalize on that even more. If they don't, I mean, we're going to continue to grow that. And I think the service, the quality, the lead time that we've been able to demonstrate has really helped us with gaining that share and gaining that customer loyalty. So that will continue.

Got it. And the one number that really jumped out, large dewatering, up 38%, if I heard that right. And I know that business does tend to jump around a bit, but that's a big number.

And I'm just curious, any added color there? Was that -- is that -- is the rental fleets involved with that? Or anything short-term oriented that, that should normalize? Or does that set up a difficult comp for next year? And any color on that big number in dewatering would be helpful.

Yes. That -- so starting with the fleet business, some of that is surely the fleet business. And if you remember, last year was kind of the low end of that cycle that tends to run in 18 months -- kind of an 18-month span.

We saw that pickup coming into -- as we exited Q1 coming into Q2. And we think that, that story continues in 2026, which means that market will be relatively stable and strong. But there's other elements of that large dewatering business that we're excited about.

We made a few acquisitions here over the last few years recently in Q1 with PumpEng down in Australia. As we bring those markets to our customer and we start to build that portfolio and take a complete line in addition to our legacy Pioneer brand, we're seeing some good opportunities there, not only in the industrial and the municipal side, in the fleet business, but also in the mining space. So I think dewatering, that trend going into next year, we feel it's going to be a relatively good space for us.

Got it. Okay. And then just a couple of quick -- more very quick ones, this pressure boosting product line sounds very exciting. Is that -- is there a big retrofit opportunity there? Or is that mostly related to new buildings going up?

It's really both. From a retrofit standpoint, some of the challenges that customers have, as you add water treatment, as you add other applications for water within legacy multifamily apartments, hotels, we're finding it's a mixture of customers calling us to say, look, we have problems that we've got a legacy building here that we need to solve for.

Same for residential. I think a great time for us as we're servicing that groundwater business or from our water treatment business to go in and solve those problems. So that one is -- it's a mixture.

I would say more of that probably is in legacy builds than it is new builds, which, again, we're not waiting for interest rates to drop for some of those builds to pick up. We think that there's a good market there for us to go serve from a retrofit standpoint. That's probably -- it's probably a little bit stronger on the retro than it is on new.

Got it. And then just a housekeeping for you, Jennifer. It looks like ForEx was almost $3 million bad guy year-over-year in the quarter. I mean does that stabilize through the end of the year? Or should we expect that to be -- to shrink a little bit in 4Q? Any color there would be helpful.

We're not really anticipating that's really driven -- step back a little bit that the FX challenges and what we saw in the third quarter, and we saw a bit of it in Q2 as well as hyperinflation really in areas such as Turkey, Brazil and Argentina.

We're not really banking on that improving into Q4, although I do anticipate we should see some improvement, particularly in Argentina. We're not baking on it at this point in time.

And our next question comes from the line of Walter Liptak with Seaport Research .

I wanted to ask about the distribution business. The 8.3% margin looked pretty good. And I wonder if you could help us understand the different puts and takes there, the cost structure improvements versus mix versus anything else that went on?

Yes. Maybe just a few thoughts, and then I'll let Jennifer add to it. But we've really put a clear focus on this business the last year in a couple of ways. One is making sure that our input costs are well managed.

So strategic contracts upstream, working on consignment models to help us align commodity prices with that sell point. And then also just looking at the overall infrastructure of that business.

I think I've mentioned this before, but as we've grown acquisitively over the last 4 or 5 years, our opportunity to streamline the back office to make sure that rooftops align with how we serve market, and Jennifer talked about this a moment ago, but how we get better at hub-and-spoke OSI, which is on-site inventory. And we've just -- we've built out a data and a technology infrastructure that allow us to get a lot more efficient in how we serve those end markets.

We expect that to continue. I think I've said this before, but we think that there's margin room. We called that out this year that, that would be a key focus for us. It is going into next year as well.

So we've taken some of those cost actions in the last few quarters in terms of aligning cost with market, but also the self-help piece is better input cost, strategic pricing management and then just getting more efficient in terms of that overall value chain of how we touch product and serve end customers. So yes, we're excited about that story, and we're excited to continue to talk about it.

Just to pile on there, I want to take a moment just to give a shout out to our teams in the distribution space that have really worked to improve the margin and the structural cost of our business.

That's really driven what you're seeing in the readout. We saw it in Q2. We saw it in Q3. Joe touched on the margin enhancement, just to maybe provide a little bit of a deeper insight.

It's buying better, spending better, but also working with our customers, we had to make some tough decisions in certain SKUs and so forth to rationalize and make sure that we're not sacrificing service to our customers, providing the right products at the right price, but also ensuring we reap the respectable margin for that business.

And then the structural work, really, we did much of that work back in late 2024. You're seeing that readout. We continue to make adjustments throughout our structure to make sure that we have the right structure in place, leveraging technology. We'll continue to do that as we head into 2026.

Okay. Great. And so for the 2025 cost structure actions and profit benefits, what kind of magnitude can you -- if the market were flat next year, could you see profit growth?

Yes, we expect profit growth in that business for next year. So even with less help from the market. Maybe one other comment, too, just on the market, I think a big benefit that we've got from that distribution business as well is bringing new products to the end market.

So again, with macro headwinds, wherever they may be, we still expect to grow volume and our margin for that business in 2026.

Okay. Great. And on the factory expansion in Izmir, Turkey, is that going to become accretive in 2026? Is there a cost that we should be modeling in?

Our expect is to start production in Q1. Clearly, any time you start a new factory, there's some costs associated with ramping that up and commissioning the equipment. So there could be some impact in the first half of next year. But I would say our expectation is to run at normalized margins as we get into the back half.

And then finding ways to make that more efficient. We've got a great ops team. They know how to start this up. One beautiful thing about that factory is it's on the same campus where we have another factory. So it's not a greenfield in a new country, in a new place.

So our expectation is we get to normalized margins in fairly quick order. So nothing to model at this point. I think this is work that our team needs to do. But we're excited about the start, and we're actually ahead of schedule there, too. So.

I'll now hand the call back over to CEO, Joe Ruzynski, for any closing remarks.

Appreciate it, Andrew. So in summary, a great quarter. We're excited about another solid quarter of both volume and profitability. We continue to execute well, invest strategically and build momentum for the future.

Our team is going to innovate. We're going to focus on growth, and we're going to lead with our great products, our great people and how we serve our customers.

We have more great opportunities in front of us and are pleased with the team that we're building, the strategy we've developed and the progress thus far in 2025. Our consistent performance through varied market conditions demonstrates the strength of this model and the dedication of our global team. Thank you, everyone, and have a great day.

Ladies and gentlemen, thank you for participating. This does conclude today's program, and you may now disconnect.