Franklin Electric Co., Inc. — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual report, not a standalone fourth-quarter filing; the supplied filing text does not provide a complete Q4-only results breakdown. Franklin Electric designs, manufactures, and distributes water and fuel pumping systems and related equipment through Water Systems, Fueling Systems, and Distribution segments.
Financial performance and liquidity
- Revenue: $1,661.9 million, up 33% from $1,247.3 million in 2020. Growth excluding acquisitions and foreign-currency effects was about 21%, reflecting higher volume and pricing. Acquisitions contributed $149.8 million; currency translation reduced sales by $2.3 million.
- Segment sales: Water Systems $963.6 million (+31%); Fueling Systems $289.1 million (+18%); Distribution $497.6 million (+52%).
- Profit and margins: Gross profit was $576.1 million, up 33%, with gross margin unchanged at 34.7%. Operating income rose 45% to $189.2 million. Net income was $155.0 million versus $101.2 million; net income attributable to Franklin Electric was $153.9 million, or $3.25 diluted EPS, compared with $100.5 million and $2.14 per diluted share.
- Segment operating income: Water Systems $139.1 million, Fueling Systems $79.5 million, and Distribution $35.9 million. Operating margins were 14.4%, 27.5%, and 7.2%, respectively. Water Systems’ margin declined from 15.6%; the other two segments’ margins increased.
- Cash flow: Operating cash flow was $129.8 million, down from $211.9 million, primarily due to working-capital needs as revenue grew. Investing cash outflow was $264.8 million, largely reflecting acquisitions; capital expenditures were $30.1 million. Financing provided $50.9 million. Cash declined by $90.3 million to $40.5 million.
- Debt and liquidity: Total debt carrying value was $188.5 million, versus $94.6 million a year earlier; $98.0 million was classified as current maturities and short-term borrowings. The company had $149.3 million available under its $250 million revolving facility and $125 million remaining capacity under the New York Life agreement. It reported compliance with financial covenants and said liquidity was adequate for projected needs.
- Balance sheet: Current assets were $724.6 million and current liabilities $396.0 million. Inventory increased to $450.0 million from $300.9 million; goodwill was $329.6 million.
- Shareholder returns: The annual dividend was $0.70 per share, up from $0.62. The company repurchased $15.3 million of shares during the year under its repurchase program.
Changes, outlook, and notable items
- Revenue and earnings rebounded strongly from 2020, with sales increases across all three segments. The Distribution segment benefited from organic growth and acquisitions; Water Systems growth was broad-based, and Fueling Systems growth was led by North America.
- Gross margin held steady despite cost inflation, supported by price realization, favorable mix, and cost management. Management cited higher inflation and selling costs as contributors to Water Systems’ lower operating margin.
- 2021 acquisitions included water-treatment, dewatering-pump, and groundwater-distribution businesses. Acquisitions contributed $149.8 million to reported sales. A $6.5 million bargain-purchase gain and a $2.5 million indirect-tax settlement gain contributed to other income.
- Backlog at February 10, 2022 was $286.4 million, versus $98.5 million a year earlier; management expected all listed orders to be filled in fiscal 2022. The filing cautions that backlog has not been a significant indicator of future sales.
- No specific consolidated revenue or earnings guidance is provided in the supplied filing text. Management expects liquidity to cover foreseeable operating, investment, dividend, repurchase, pension, and debt-service needs.
- Key risks include supply-chain disruption and raw-material inflation, housing and agricultural demand, seasonality and weather, competition, foreign-exchange exposure, acquisition integration, regulation, and cybersecurity. The company generally does not hedge raw-material and energy costs. It estimated that a 10% adverse move in raw-metal prices could reduce gross margin as a percentage of sales by about 1%.
- A French court-supervised proceeding concerning alleged damage at fuel stations remains unresolved. The company disputes that its products caused the damage; exposure was neither probable nor estimable at year-end, but a payment could be material depending on its amount.
- The company expects the tax-law requirement to amortize research and development costs over five years to reduce cash flow beginning in 2022, though management described the expected effect as not significant. The annual financial statements received an unqualified audit opinion; management and the auditor reported effective internal controls, with recent acquisitions excluded from the control assessment.
Important facts for investors to verify
- Whether pricing and volume growth can continue to offset inflation, and whether the decline in Water Systems’ operating margin persists.
- How working capital—particularly the sharp increase in inventory—affects operating cash flow and cash conversion.
- Acquisition integration, realized returns, and final purchase-price allocations, which were preliminary for several 2021 deals.
- Debt maturities, refinancing needs, and continued compliance with credit-agreement covenants.
- The outcome and potential financial exposure of the French fuel-station litigation, as well as any material changes in supply, commodity, currency, or regulatory risks.