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Edited Transcript of FELE earnings conference call or presentation 19-Feb-19 2:00pm GMT

Q4 2018 Franklin Electric Co Inc Earnings Call

BLUFFTON Feb 21, 2019 (Thomson StreetEvents) -- Edited Transcript of Franklin Electric Co Inc earnings conference call or presentation Tuesday, February 19, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Gregg C. Sengstack

Franklin Electric Co., Inc. - Chairman, President & CEO

* John J. Haines

Franklin Electric Co., Inc. - VP, CFO & Principal Accounting Officer

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Conference Call Participants

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* Edward James Marshall

Sidoti & Company, LLC - Senior Equity Research Analyst

* Matt J. Summerville

D.A. Davidson & Co., Research Division - MD & Senior Analyst

* Ryan Michael Connors

Boenning and Scattergood, Inc., Research Division - MD & Senior Analyst of Water and Environment

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the Franklin Electric [Reports] Fourth Quarter 2018 Sales and Earnings. (Operator Instructions) As a reminder, this call is being recorded. I would now like to introduce your host for today's conference, Mr. John Haines, Chief Financial Officer, you may begin.

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John J. Haines, Franklin Electric Co., Inc. - VP, CFO & Principal Accounting Officer [2]

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Thank you, Skylar, and welcome, everyone, to Franklin Electric's Fourth Quarter and Fiscal Year 2018 Earnings Conference Call. With me today is Gregg Sengstack, our Chairman and CEO. On today's call, Gregg will review our fourth quarter and full year business results, and I will review our fourth quarter and full year financial results. When I'm through, we will have some time for questions and answers.

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 the 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. 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.

With that, I'll turn the call over to our Chairman and CEO, Gregg Sengstack.

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Gregg C. Sengstack, Franklin Electric Co., Inc. - Chairman, President & CEO [3]

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Thank you, John. I am pleased to report that our strong organic growth drove record sales and earnings for the fourth quarter of 2018. Our Water Systems unit in the U.S. and Canada grew organically by 23%, Fueling Systems organic revenue growth was 10% and Distribution revenue, somewhat muted by unfavorable weather, was flat in the quarter. With consolidated organic growth of 9% and tight expense control, our fourth quarter operating income after restructuring increased 17% compared to the last year and was a record for any fourth quarter in our history.

In the U.S. and Canada Water Systems business, Pioneer-branded dewatering pump revenue doubled from last year. Given the growing diversification of the Pioneer Pump customer base and growing international reputation, we expect the Pioneer product line revenue will increase for the full year 2019 as well. Other surface pumping equipment revenue accelerated nicely, up 9% in the quarter. Groundwater pumping system sales to third-parties from both our Manufacturing and Distribution segments was essentially flat in the quarter.

Outside the U.S. and Canada, our Water Systems business saw mid- to upper single digits organic growth in Europe, Middle East, Africa and Asia Pacific. Unfortunately, this was mostly offset by a 10% organic sales decline in Latin America, primarily Brazil. Across the globe, our Water Systems team continues to focus on delivering systems solutions, pumping systems and packages that are integrated and energy efficient. As an example, with our expanding line of pumps with permanent magnet submersible motors, we're documenting up to 30% energy savings.

Our Fueling Systems team delivered another record quarter. Revenue in the U.S. and Canada market was up 14% as the team continued to extend its success with major marketers in North America. Internationally, the Fueling Systems team achieved about 60% revenue growth in China. As I previously mentioned, we expect the China underground piping upgrade to add significant revenue and income to our Fueling business over the next several years and some provinces are choosing to extend their upgrades beyond piping systems to pumping and leak-detection systems as well. Outside of China and India, International Fueling Systems revenue declined over 10%. While a significant decline, we see it more related to timing of large orders than market or market share issues.

Fueling Systems continued to lead the market with new products and services. During the year, the team launched FFS PRO Verify, an installation assurance program, new containment sump line to address U.S. and China regulations and a corrosion mitigation system to name a few.

Turning to our Distribution segment, Headwater. Fourth quarter revenue was flat organically. Integration and restructuring activities are proceeding well. All Headwater businesses except Milan Supply, which we purchased this year are on one ERP system and the planned branch consolidation in the west is on schedule. However, our operating results are behind the plan. Higher product and employee benefit cost contributed to the Distribution segment earnings decline in the fourth quarter. We expect a meaningful improvement in segment performance in 2019 as the team focuses on selling an extended range of clean water pumping systems, wastewater pumping system and turf irrigation products.

As we close the books in 2018, I want to take a moment to thank all my colleagues for delivering record revenue, operating income, earnings and cash flow, a job well done.

Looking to this year, we believe the momentum we have at our North America and Europe Water Systems end markets in a Global Fueling System business to continue. We remain cautious about our Water Systems business in developing regions. Overall, we believe our organic growth will be in the mid-single digits, variable contribution margins will be steady and with continued tight expense control, operating income before restructuring will grow double digits. However, currency headwinds and a higher tax rate will reduce earnings per share growth to around 7%. Accordingly, we expect our 2019 earnings before restructuring to be between $2.37 to $2.47 per share.

I will now turn the call over to John to discuss the numbers in more detail. John?

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John J. Haines, Franklin Electric Co., Inc. - VP, CFO & Principal Accounting Officer [4]

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Thanks, Gregg. Our fully diluted earnings per share were $0.51 for the fourth quarter of 2018 versus $0.17 for the fourth quarter of 2017. Restructuring expenses were $0.7 million and were primarily related to branch consolidations and other asset rationalizations in the Headwater Distribution segment and had a $0.01 impact on the earnings per share in the fourth quarter of 2018.

Fourth quarter EPS before the impact of restructuring expenses was $0.52 compared to 2017 fourth quarter EPS before restructuring of $0.21. These earnings per share results were record high for any fourth quarter in the company's history. The company incurred a tax expense of $0.21 per share in the fourth quarter of 2017 related to the U.S. Tax Cuts and Jobs Act of 2017. Before restructuring and the tax expense, the company's fourth quarter 2017 earnings per share was $0.42. So after considering the restructuring expenses and the 2017 impact of the new tax law, our earnings per share of $0.52 in the fourth quarter of 2018 grew by 24%.

Fourth quarter 2018 sales were $316.7 million compared to 2017 fourth quarter sales of $288.2 million, an increase of 10%. The sales increase was from acquired entities as well as organic sales of about 9%. Sales revenue decreased by $10.8 million or about 4% in the fourth quarter of 2018 due to foreign currency translation.

Water System sales were $196 million in the fourth quarter of 2018, an increase of $14.5 million or about 8% versus the fourth quarter 2017 sales of $181.5 million.

In the fourth quarter of 2018, sales from businesses acquired since the fourth quarter of 2017 were $4.4 million. Water Systems sales were reduced by $9.5 million or about 5% in the quarter due to foreign currency translation. Water Systems organic sales were up about 11% compared to the fourth quarter 2017. Water Systems operating income was $27 million in the fourth quarter 2018 compared to $19.5 million in the fourth quarter of 2017. Strong operating income growth in the U.S. and Canada was partially offset by declines in international regions, in part due to weakening foreign currencies versus the U.S. dollar.

Operating income margin before restructuring expenses in Water Systems was 13.8% and was 250 basis points higher than the fourth quarter 2017. Fueling Systems sales were $75.9 million in the fourth quarter 2018, an increase of $8 million or about 12% versus the fourth quarter 2017 sales of $67.9 million.

In the fourth quarter of 2018, sales from businesses acquired since the fourth quarter of 2017 were $2.2 million. Fueling Systems sales decreased by $1.3 million or about 2% in the quarter due to foreign currency translation.

Fueling Systems organic sales increased about 10% compared to the fourth quarter of 2017. Fueling Systems operating income was $17 million in the fourth quarter of 2018 and 2017, respectively. Fueling Systems operating income was flat in the fourth quarter. Growth from higher sales was offset primarily by negative geographic and product sales mix and higher fixed cost.

Distribution sales were $56 million in the fourth quarter of 2018 versus fourth quarter 2017 sales of $49.5 million. In the fourth quarter of 2018, sales from businesses acquired since the fourth quarter of 2017 were $6.4 million. The Distribution segment organic sales were flat compared to the fourth quarter of 2017. The Distribution segment recorded an operating loss of $2.9 million in the fourth quarter of 2018 compared to a $2 million loss in the fourth quarter of 2017. Higher product cost not completely offset by price and higher employee benefit cost contributed to the Distribution segment earnings.

The company's consolidated gross profit was $104.3 million for the fourth quarter of 2018, an increase from the fourth quarter of 2017 gross profit of $94.6 million. The gross profit increase was primarily due to higher sales. The gross profit as the percent of net sales was 33% in the fourth quarter of 2018 compared to 32.8% in the fourth quarter of 2017.

[About] the fourth quarter and full year 2018, the company believes it has offset the impact of raw material inflation with achieved price.

Selling, general and administrative expenses were $75 million in the fourth quarter of 2018 compared to $69.4 million in the fourth quarter of the prior year. The increase in SG&A expenses from acquired businesses was $3.3 million. Excluding the acquired entities, the company's SG&A expenses in the fourth quarter of 2018 were $71.7 million, an increase of about 3% from the fourth quarter 2017, and was due primarily to higher variable compensation expenses in the fourth quarter of 2018 versus the prior year.

The fourth quarter 2018 effective tax rate net of discrete events was 14% and consistent with our previous guidance. In the fourth quarter of 2017, the effective tax rate was about 63% and included a net tax expense of $10.2 million due to the U.S. Tax Cuts and Jobs Act of 2017. Had this net tax expense from the new law not been incurred, the fourth quarter 2017 effective tax rate net of discrete events would have been about 14% or the same as the tax rate in the fourth quarter 2018.

In 2019, we believe our effective tax rate net of discrete events will be between 18% and 20%, significantly higher than the 2018 effective tax rate of about 12%. This higher tax rate is primarily due to the inclusion in 2018 of discrete tax events that effectively lowered our tax expense for the full year. We do not believe these events will reoccur at nearly the same level in 2019.

Specifically related to the first quarter, in the first quarter of 2018, the company recognized $5 million of discrete tax benefits from certain deferred tax positions which lowered our effective tax rate in that quarter to about 9%. Discrete tax benefit and lower tax rate improved earnings per share in the first quarter of 2018 by about $0.11. And without it, our first quarter 2018 earnings per share would have been $0.34. This benefit will not reoccur in the first quarter of 2019.

As a reminder to our investors, the inclusion of the U.S. Distribution segment in our consolidated earnings has made our quarterly earnings more seasonal. As a result, we estimate 2/3 of our earnings will be in the second and third quarters of the year.

The company ended 2018 with a cash balance of $59.2 million, which was $8 million lower than at the end of 2017, significantly higher net cash flows from operating activities were offset by higher repayments of debt and repurchases of the company's common stock in 2018. The company had $76 million in borrowings on its revolving debt facilities at the end of the fourth quarter of 2018 and $67 million in borrowing at the end of 2017. The company purchased about 512,000 shares of its common stock for approximately $21.7 million in the open market during the fourth quarter of 2018. As of the end of the fourth quarter 2018, the total remaining authorized shares that may be repurchased is about 1.4 million.

On January 22, the company announced a quarterly cash dividend of $0.145 per share, an increase of 21% from the previous quarterly dividend amount. The dividend was paid February 15 to shareholders of record on February 1. This concludes our prepared remarks. And we would now like to turn the call over for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Edward Marshall with Sidoti.

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Edward James Marshall, Sidoti & Company, LLC - Senior Equity Research Analyst [2]

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I wanted to talk about the pricing actions that you put in place this year. I think as we were leaving the second quarter, you talked about 250 to 300 basis points of price, which was ahead of the normal price increases that you normally get. I'm curious how much of that did you achieve and will that continue into 2019?

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John J. Haines, Franklin Electric Co., Inc. - VP, CFO & Principal Accounting Officer [3]

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Yes. Ed, as we've discussed in the past, the pricing actions vary a bit by business, by region, sometimes even specifically by product line. In the fourth quarter, we calculated and achieved price realization of about $8.5 million in total. As we've said, we believe that, that offset what we can discretely identify as raw material inflation, including the impact of tariffs in the United States. So we feel pretty good about the momentum -- price momentum that we have going into 2019, as you know some of that price action that we took was more back-end loaded, so third, fourth quarter of 2018 and will be more fully effective in 2019. We'll continue to monitor this. This is something we look at, obviously, on a monthly basis. Some of our business units have incremental price increases coming yet in 2019 and that's all based -- there's balance here between what inflation might [seem] , what's the competitive market environment look like and that's how our price decisions will continue to be made.

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Edward James Marshall, Sidoti & Company, LLC - Senior Equity Research Analyst [4]

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Got it. And I guess, in the press release and in the comments today you talk about the Distribution business and the profitability and kind of trending below expectation -- your expectations. I'm curious, you talking -- you quantify -- or you mentioned meaningful profit growth in the business for -- or improvement in the Distribution business for 2019. I'm curious, can you quantify or maybe can you take us through some of the steps that you guys are thinking about to improve the performance out of Headwater?

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Gregg C. Sengstack, Franklin Electric Co., Inc. - Chairman, President & CEO [5]

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Sure, Ed. We've been -- if you think about 2017 was the year of getting the business stabilized, we had couple of major suppliers elect to no longer supply the West Coast, particularly, and it took some wind out of sails. 2018 was all about integration, getting our platform. You have -- I mean, yes, we can quantify some of those costs we reported with restructuring, but you just have some natural friction that occurs there. So 2019, we have a business that's on one platform with the exception of small acquisition made in the beginning of the year. And I think, long term, John has gone out with -- our view is 4% to 6% range. We think that for 2019, we should see at least a doubling of the bottom line of the business for that year and that gets us close to the 4% bottom range.

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Edward James Marshall, Sidoti & Company, LLC - Senior Equity Research Analyst [6]

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Got it. Got it. And so it's more about just the business is kind of 1 year post kind of some of the disruptions that might have happened in the business and more operating as it should. Did you see signs of that in the fourth quarter that recovery and kind of the -- maybe that goes to the past kind of behind you? Or talk about maybe what you saw in the fourth quarter?

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Gregg C. Sengstack, Franklin Electric Co., Inc. - Chairman, President & CEO [7]

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Yes. I'd say, in the fourth quarter, at the beginning of the quarter, when we put everybody on extended platform, the ERP platform we had, of course, that always causes some disruptions. We announced the changes and consolidation and [really] expanding certain sites in California. So I wouldn't say the fourth quarter was indicative and that's why we pointed out that we just saw some higher costs and higher operating expenses. We expect that now is behind us for end of the year. The business is in a good place and we expect to see much better performance in 2019.

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John J. Haines, Franklin Electric Co., Inc. - VP, CFO & Principal Accounting Officer [8]

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Yes. The fourth quarter's always going to be a tough seasonal quarter as well, a lot of the areas where -- the fourth and the first quarter, a lot of areas where Headwater has real market strength. Those are just markets that are effectively turned off in the first and fourth quarter. Due to weather and just the season.

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Edward James Marshall, Sidoti & Company, LLC - Senior Equity Research Analyst [9]

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Right. Right. Right. So -- and knowing that the first quarter feels some of those same effects, are we kind of thinking more June, September quarters to kind of really see the improvement within Headwaters that -- where it will start to show up in our models?

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Gregg C. Sengstack, Franklin Electric Co., Inc. - Chairman, President & CEO [10]

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Yes. And that's what John pointed out as a reminder that with having a northern hemisphere distribution business, U.S. centric, it's going to shape earnings more in Q2 and Q3 because of that seasonality.

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Edward James Marshall, Sidoti & Company, LLC - Senior Equity Research Analyst [11]

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Right. Right. Okay. And I noted in the press release that you talked about maybe not getting the price increases within the Distribution that you thought you might, but it sounds like you got them in the Water business. So I'm curious if some of the margin impression -- compression that you've seen there is relative to kind of what's happening with the price and maybe not being able to pass that through.

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John J. Haines, Franklin Electric Co., Inc. - VP, CFO & Principal Accounting Officer [12]

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Yes. I think, we -- for sure the Distribution segment had got price in the fourth quarter. So I don't want to leave the impression that we didn't get price. We had some higher cost in the fourth quarter and the point we made was that the price didn't totally offset some of that higher cost. Generally, as we've talked, there is a gross profit ratio in this business and then there is an operating expense ratio. And I would say, generally, we're pretty comfortable with the gross profit ratio, where we're at in terms of net sales less our cost of sales. I think more the opportunity that we'll have to capitalize on to expand our earnings as Gregg mentioned, it's probably going to be more on that OpEx ratio line and just drive a lower fixed cost base, SG&A base in the company. And we've got ideas and plans for how to execute some of that in 2019.

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Edward James Marshall, Sidoti & Company, LLC - Senior Equity Research Analyst [13]

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Just to be clear, that doesn't have anything to do with sales commissions or anything like that?

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John J. Haines, Franklin Electric Co., Inc. - VP, CFO & Principal Accounting Officer [14]

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No. I think the sales commissions will be fairly consistent year-over-year. I mean, obviously, we'll put growth targets in those sales commissions. So we expect our salespeople to achieve a higher growth rate to get their commission. But generally, there is not any major change in those assumptions going into 2019.

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Edward James Marshall, Sidoti & Company, LLC - Senior Equity Research Analyst [15]

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And I'm sorry, if I could squeeze one more in. Did you see -- can you talk about maybe the turnover in that business. Has there been turnover within your Distribution business from operators or sales reps?

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Gregg C. Sengstack, Franklin Electric Co., Inc. - Chairman, President & CEO [16]

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No. We've seen quite the opposite, a nice level of stability. And yes, there's been some involuntary change, but the voluntary turnover is nominal.

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Operator [17]

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Our next question comes from Ryan Connors with Boenning and Scattergood.

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Ryan Michael Connors, Boenning and Scattergood, Inc., Research Division - MD & Senior Analyst of Water and Environment [18]

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Yes. I wanted to switch gears and talk about some of the top line drivers and some specifics behind that on a few fronts. One of them was, yes, you mentioned good -- continuing to see good strength in China in the Fueling business. Obviously, that's a hot topic these days. So can you talk about the order cadence there, the backlog, anything you can do to give us some visibility going forward in that China piece for Fueling?

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Gregg C. Sengstack, Franklin Electric Co., Inc. - Chairman, President & CEO [19]

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Sure, Ryan. I will have a foot on the dock and one foot on the boat. Visibility is always tough, but we've saw 2018 unfold pretty much as we expected to maybe slightly stronger than we expected in China. The upgrade is going on, it's extending westward. Our team's view right now is that '19 and '20 will have similar revenue profiles as '18. So we see this as being continuing on through '19 and 2020. Yes, and more specifically, even now we saw -- you have Chinese New Year and we saw the slowdown like we did last year. I mean, we're talking now into '19, but we saw the slowdown as we did in New Year. New Year is now over, we're seeing a pickup.[So there's no] indications at this point that our team's view of having similar results or revenue results in '19 and '20 to '18 is still solid.

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Ryan Michael Connors, Boenning and Scattergood, Inc., Research Division - MD & Senior Analyst of Water and Environment [20]

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Got it. Okay. And the other one was Pioneer. Where do we stand there from a comps perspective? Obviously, we'll start lapping some of these big growth numbers here in the next few quarters. So what should we expect there in terms of that kind of soft landing there in terms of the growth rates or any color there?

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Gregg C. Sengstack, Franklin Electric Co., Inc. - Chairman, President & CEO [21]

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Yes, that's why I called that out for '19 because this is the business where we have seen and you recall a big cycle back when the oil prices collapsed in '15. This year what we're seeing so far is an indication that Pioneer is going to maintain and actually improve on the revenue that we saw in 2018. We're still seeing some solid backlog, solid interest in North America and the rest of the world for the line. And so our management team there is confident that '19 revenue will exceed '18 revenue, certainly not by the 60-plus percent we saw in '18. I'd say, to be more modest, in the single digits, but that's similar to what we've called out for entire Water business for the year.

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Ryan Michael Connors, Boenning and Scattergood, Inc., Research Division - MD & Senior Analyst of Water and Environment [22]

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Got it. And then one last one I want to ask on was, interestingly, you called out wastewater as an area of strength. Any added flavor there, types of products, is that new project versus repair-replace, geographies. Anything you can give us there?

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Gregg C. Sengstack, Franklin Electric Co., Inc. - Chairman, President & CEO [23]

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Yes. It's -- the wastewater business that we're referring to is specific to the U.S. And we've just -- we put more focus on the business on that product line generally in the last year. And I think we're seeing the fruits of that. I don’t think the market's growing appreciably any faster. As they grow faster, the freshwater, I mean, the freshwater business in U.S. is mature. The wastewater does have growth and we just -- we've been focused -- more attention on those products in that channel -- those channels, I should say.

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Operator [24]

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

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Matt J. Summerville, D.A. Davidson & Co., Research Division - MD & Senior Analyst [25]

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A couple of questions. First, just with respect to the Water business, I think, Gregg in your prepared remarks, you talked about remaining fairly cautious on the emerging markets there. I was wondering if you could maybe just spend a moment speaking to each of your sort of major emerging markets, including Brazil, Thailand and others. And how -- what's the right way to sort of frame up 2019 would be for us?

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Gregg C. Sengstack, Franklin Electric Co., Inc. - Chairman, President & CEO [26]

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Sure, Matt. I guess after a couple of years of saying we'd be cautiously optimistic, having again seeing weakness for -- we're now more cautious in our comments. But Latin America, particularly Brazil, we do see that the business is improving, but I'd say it's improving really, really slowly. So I wouldn't get too far ahead. So we see the improvement, and it's their season right now. Some of it will be going in the winter months. But we do see some stability, I'd say, now in Brazil. We acquired business in Argentina. We knew we're acquiring business going into a tough market, but we just saw a really great opportunity to forward integrate in Argentina by acquiring a customer we've known for decades. So that's going to be tough, but there isn't going to be a comp until we lap in the summer. By that time I suspect that Argentina will be in a good place for us. We are seeing some strength in Southern Africa. We have some level of optimism. You read the press and you read about the challenges around like availability of electricity and continued problems with Eskom, but I'd just say that, generally, we feel little bit more positive about Southern Africa. We have a nice business in Turkey. It's had a really tough time in the last 6 months because of the currency devaluation. So we're going to have to wait to see the season, which is probably going to be kind of the April time frame, May time frame. But farmers are still there, they need products, they need pumps. We're well positioned there. But I think that's kind of a second quarter pickup. We're going to see some cost pressure in Q1 in Turkey because the product that was purchased in the latter part of last year now has to go through the income statement. In Asia, specifically in Thailand, again, I think the team has seen that the curve's begin to bend back up. It's still yet to be seen whether we'll see that in Q1. I think it again is kind of more back-half loaded, but we're encouraged in Southeast Asia as well. So a little bit more positive, probably my unprepared comments than my prepared comments. But yes, we've been burned a little bit on this in the last couple of years. So that's why I had caution in my prepared remarks.

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Matt J. Summerville, D.A. Davidson & Co., Research Division - MD & Senior Analyst [27]

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Speaking with the sort of emerging market discussion, as you look at kind of your fixed cost infrastructure throughout these countries, throughout these regions, does the current performance you see in the business, the overall outlook, give you reason to contemplate taking additional cost actions in the near term?

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Gregg C. Sengstack, Franklin Electric Co., Inc. - Chairman, President & CEO [28]

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Yes. Matt, we've been pretty steady and judicious about taking fixed cost actions just generally. I mean, we do work to size the cost structure to the business. That said, we are -- I think you're going through -- we've been delevered in these markets. But they're just such important end markets for us that we want to have the infrastructure in place to continue to support the long-term demand in these markets. It's where all the people live. I mean, the vast majority of the population of the world lives in developing regions. And we just see it's really important to be there. So certainly, we have -- our leadership is conscious about fixed cost and managing those fixed cost. But we're in a good place right now from a standpoint of capturing upside when it comes.

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Matt J. Summerville, D.A. Davidson & Co., Research Division - MD & Senior Analyst [29]

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And then just lastly, with respect to ag, maybe talk globally, but certainly, please comment on what your thought is for the U.S. While I recognize we're out of season, just with all the noise around farm incomes and trade and tariffs, what's your overall outlook for ag for Franklin in 2019?

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Gregg C. Sengstack, Franklin Electric Co., Inc. - Chairman, President & CEO [30]

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Here, again there hasn't been a real catalyst to drive tremendous ag growth. That said, given the multi-year decline of farm income, generally as we've talked before, the view is we're mostly now on replacement cycle with the product. So any type of movement around farm income upward, any type of movement related to drier weather conditions, it would be good for us. But I'd say that we're kind of in a -- we've been in a multi-year decline in farm incomes. And at this point, we have a stable business in ag in the U.S. Certainly, probably similar story in Brazil, which would be another ag -- big ag market for us. I spoke to you about Turkey. I think that in Turkey it's really just a question of timing for farmers to start buying again after having this currency shock. Those would be the principal ag markets to come to mind that I can comment to.

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Operator [31]

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At this time, I'm showing no further questions. I'd like to call -- turn the call back over to Mr. Gregg Sengstack for closing remarks.

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Gregg C. Sengstack, Franklin Electric Co., Inc. - Chairman, President & CEO [32]

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We thank you for joining us on this conference call. Look forward to speaking to you after the first quarter-end. Thank you.

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Operator [33]

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Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.