U.S. Markets closed

Franklin Electric Co Inc (FELE) Q1 2019 Earnings Call Transcript

Motley Fool Transcribers, The Motley Fool
Logo of jester cap with thought bubble.

Image source: The Motley Fool.

Franklin Electric Co Inc  (NASDAQ: FELE)
Q1 2019 Earnings Call
April 23, 2019, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the Franklin Electric Reports First Quarter 2019 Sales and Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder, this call will be recorded.

I would now like to introduce your host for today's conference, John Haines, Chief Financial Officer. Please go ahead.

John J. Haines -- Vice President and Chief Financial Officer

Thank you, Chris, and welcome, everyone, to Franklin Electric's first quarter 2019 earnings conference call. With me today is Gregg Sengstack, our Chairman and CEO. On today's call, Gregg will review our first quarter business results, and I'll review our first quarter financial results. When I'm through, we'll 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 will now turn the call over to our Chairman and CEO, Gregg Sengstack.

Gregg C. Sengstack -- Chairman and Chief Executive Officer

Thank you, John. 2019 started slightly ahead of our expectations. However, midway through the quarter, business conditions deteriorated meaningfully, particularly in the North America groundwater market. The resulting poor sales both in our Manufacturing and Distribution segments negatively impacted mix, delevered our fixed cost base and reduced our year-over-year operating income by over 40%.

In US and Canada Water Systems business, large dewatering pump sales were up over last year but below expectations due to customers pushing out about $2 million of orders into the second quarter. Service pumping sales were up as well. While groundwater pumping sales declined 5% on the back of lower intersegment transfers to our Distribution segment, sales of third-party distributors were up over last year.

Outside of United States, we experienced somewhat of a reversal of last year's Q1, with better than expected growth in Brazil and the Asia Pacific region, partially offsetting weak conditions in Europe, the Middle East and Central America. Europe is slow and the Turkish market is working through the dramatic devaluation of lira that began last summer. In Central America, political instability and changes are negatively impacting local market demand, in particular in Mexico.

John will get into more details, but weakening currencies reduced our International Water reported revenue by 11% as compared to the first quarter last year. Our reported top line for water systems was down 2%. The mix shift resulted in operating income down over 20% in this segment.

Our Fueling Systems business delivered solid results. Sales were up double digits in the US and Canada, and would have been even higher, but for the inclement weather delaying planned station builds. We believe we continue to gain share.

Our business in China recovered more slowly than expected after the Chinese New Year. However, as station operators continued to invest in government mandated upgrade to double all underground piping systems, we remain confident that we will achieve our 2019 planned revenue in the country.

In China, we continued to benefit from station operators choosing to extend their upgrades beyond piping systems to pumping and leak detection systems as well. Sales in India and EMEA were below expectations, principally due to the delays in build programs and credit issues in Africa.

Sales in Asia outside of China rebounded nicely and business in Latin America grew as well. Fueling operating income was down year-over-year due to planned investments in sales and marketing support for the overall business.

Turning to Distribution. This end-customer facing business was the one most dramatically impacted by the extreme weather at high levels of precipitation experienced in many regions of the US. Weak demand, compressed margins, increasing the expected first quarter loss in this highly seasonal business by several million dollars. Our indications are there is plenty of work for contractors but that work is being delayed by overall wet conditions.

That brings me to our outlook for the balance of the year, starting with Distribution. We believe that more normal weather conditions will lead to a strong recovery in our Distribution business. While still early, business in April is ahead of plan. What is less clear is when our groundwater manufacturing business will strengthen. With a late first quarter slowdown, channel inventories maybe above normal. Further if it passes any indicator, promotional activity, meaning lower prices will increase in the short term.

We are seeing some evidence of this already. Again, overall, the business climate in US is robust and we are encouraged by the positive feedback we have gotten from the field. The outlook for our US surface pump business is good, as is the demand for our large dewatering pumps where we have focused considerable attention on expanding and diversifying our customer base, both by end market and geography.

While we expect the European water market to continue to be soft, at least through the first half, we are pleased with the traction we are getting with our expanding line of pressure boosting systems. We believe our European water business is doing better than most.

With respect to Turkey, given the high concentration of pumps used for ag, the second quarter will provide meaningful feedback as to whether the market has worked through the currency evaluation that started last summer. Argentina continues to deal with a similar situation. On the other hand, we are encouraged by the strong start to the year in Brazil and Asia Pacific.

In our Fueling business, the outlook remains encouraging. The team is positioned to carry forward the strong start in US. Our China revenues are recovering back to planned levels and outside of Europe, we generally see good demand. Therefore, at this point, we believe our consolidated organic growth will be 4% to 6% for 2019.

With our Q1 operating income below plan, we have elected to take cost actions to help offset the lower profit realization. In addition, we reevaluate our price realization, our input cost inflation expectations, our ongoing cost reduction and productivity initiatives, as well as our adjusted fixed costs for the balance of the year. Based on this evaluation, we are reaffirming our 2019 earnings guidance of $2.37 to $2.47 per share.

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

John J. Haines -- Vice President and Chief Financial Officer

Thanks, Gregg. Our fully diluted earnings per share were $0.19 for the first quarter of 2019 versus $0.45 for the first quarter of 2018. Restructuring expenses were $1.1 million and were related to branch consolidation and other asset rationalizations in the Headwater Distribution segment and continued miscellaneous manufacturing realignments in the Water Systems segment. And had a $0.02 impact on the earnings per share in the first quarter of 2019.

First quarter EPS before the impact of restructuring expenses, therefore was $0.21, compared to 2018 first quarter EPS before restructuring of $0.45. Specifically related to the first quarter of 2018, the company recognized about $5 million of discrete tax benefits related to certain deferred tax positions, which lowered our effective tax rate and created a tax benefit of about 9% in that quarter. The 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.

First quarter 2019 sales were $290.7 million, compared to 2018 first quarter sales of $295.6 million, a decrease of 2%. Sales revenue decreased by $12.9 million, or about 4% in the first quarter of 2019 due to foreign currency translation. And we estimate this revenue decline lowered our earnings per share in the first quarter by about $0.03 versus the first quarter 2018.

Water Systems sales were $188.4 million in the first quarter 2019 versus the first quarter 2018 sales of $192.6 million. In the first quarter of 2019, sales from businesses acquired since the first quarter of 2018 were $4.3 million.

Water Systems sales decreased about 6% in the quarter due to foreign currency translation.Water Systems organic sales increased about 2% compared to the first quarter of 2018. Water Systems operating income was $19.2 million in the first quarter 2019, compared to $25.1 million in the first quarter of 2018. Water systems operating income was lower in the first quarter primarily due to lower sales volume, the resultant lost leverage on fixed costs, adverse product sales mix and higher freight costs.

Fueling Systems sales were $60.2 million in the first quarter 2019 compared to first quarter 2018 sales of $58.6 million and were a record for any first quarter. In the first quarter of 2019, sales from businesses acquired since the first quarter of 2018 were $1.5 million. Fueling Systems sales decreased about 2% in the quarter due to foreign currency translation. Fueling Systems organic sales increased about 3% compared to the first quarter of 2018.

Fueling Systems operating income was $12.3 million in the first quarter of 2019 compared to $13.7 million in the first quarter of 2018. Fueling Systems operating income was lower in the first quarter as growth from higher sales was offset primarily by higher fixed costs.

Distribution sales were $53.3 million in the first quarter 2019, versus first quarter 2018 sales of $56.2 million. In the first quarter of 2019, sales from businesses acquired since the first quarter of 2018 were $2.8 million. The Distribution segment organic sales were down about 10% compared to the first quarter of 2018, primarily due to unfavorable weather conditions.

The Distribution segment recorded an operating loss of $4.3 million in the first quarter of 2019, compared to a $0.8 million loss in the first quarter of 2018. The loss before the impact of restructuring expenses was $3.7 million. The Distribution loss was primarily due to lower sales volume from unfavorable weather, higher product costs, not fully offset by sales price increases, adverse geographic and product sales mix and lost leverage on fixed costs from lower sales.

The company's consolidated gross profit was $89.5 million for the first quarter of 2019, a decrease from the first quarter 2018 gross profit of $99 million. The gross profit decrease was primarily due to lower sales and other impacts previously mentioned. The gross profit as a percent of net sales was 30.8% in the first quarter of 2019 compared to 33.5% in the first quarter of 2018.

Selling, general, and administrative expenses were $76.3 million in the first quarter of 2019 and 2018. SG&A expenses from acquired businesses was $3 million and excluding the acquired entities, the company's SG&A expenses in the first quarter of 2017 (sic) (2019) were $73.3 million, a decrease of about 4% from the first quarter 2018, due primarily to the effect of foreign currency translations in the first quarter of 2019 versus the prior year.

It's important to note that management's operating plan, earnings per share for the quarter was at least $0.10 lower than the Street's consensus. So although the first quarter results are still a significant miss to our expectations as we've acknowledged, they are not as large a miss as that to the Street's consensus. We note this to provide context for our continued belief that we can achieve our full-year 2019 guidance of $2.37 to $2.47. Also, as we've noted before, weather inexperience can drive significant variability in our results, especially in the first quarter, which will always be seasonally lower and more highly subjected to lost fixed cost leverage when revenues decline.

During the first quarter of 2019, the company changed the management reporting for certain transfers of manufactured products between the Water and Fueling segments. This change was made to better align the production of certain products by reportable segment and sales to third-party customers. To consistently compare 2019 results to the prior year, certain 2018 net sales and operating income reclassifications were made.

These reclassifications resulted in lowering first quarter 2018 results of Fueling Systems and increasing first quarter 2018 results of Water Systems net sales by about $0.8 million and operating income by about $0.1 million versus what was reported in this period last year. There is no impact on the company's previously reported consolidated financial statements.

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 the same level in 2019.

The company ended the first quarter of 2019 with a cash balance of $54.4 million, which was $4.8 million lower than at the end of 2018. Through our companywide focus on working capital reduction, our operating cash flow improved by $24 million as compared to the first quarter of last year. The company's working capital ratio, which is inventory plus accounts receivable less accounts payable, divided by the trailing 12-month sales is 480 basis points lower than it was at the end of the first quarter 2018.

As of January 1, 2019, the company adopted the new lease standard and has recognized additional operating liabilities of about $25 million for its outstanding operating leases, with corresponding right-of-use assets of the same amount. The impact of this new accounting standard is non-cash in nature and does not affect the company's cash position. The company does not consider the impact of this standard to be material to the consolidated results of operation or to the cash flows.

The company has $96 million in borrowing on its revolving debt facilities at the end of the first quarter of 2019 and $119 million in borrowing at the end of the first quarter of 2018. The company purchased about 58,000 shares of its common stock for approximately $2.5 million in the open market during the first quarter of 2019.

As of the end of the first quarter of 2019, the total remaining authorized shares that may be repurchased is about $1.3 million. On April 22nd, the company announced a quarterly cash dividend of $0.145. The dividend will be paid May 16th to shareholders of record on May 2nd.

This concludes our prepared remarks. And we'd now like to turn the call over for questions.

Questions and Answers:

Operator

Thank you. And our first question comes from the line of Mike Halloran with Baird. Your line is now open.

Michael Halloran -- Robert W. Baird & Co. -- Analyst

Hey. Morning, guys.

Gregg C. Sengstack -- Chairman and Chief Executive Officer

Morning, Mike.

Michael Halloran -- Robert W. Baird & Co. -- Analyst

So, let's talk about that ramp from 1Q, 2Q. Prepared remarks made it very clear, you were expecting a -- what seems to be a bigger ramp from 1Q to 2Q than normal. Other than some normalization in weather, can you help line out some of those other factors that are driving that?

Gregg C. Sengstack -- Chairman and Chief Executive Officer

Sure, Mike. Yeah, I think the normalization of weather, given the seasonality of the Distribution business is more pronounced than in our -- before we had Distribution, also with the Fueling business ramp from 1Q to 2Q with China and also with the North America business, again there has been some delay in construction activity. So, it gets back to normalization.

Senses, again, as we commented in the prepared remarks, you look at Europe, I think there is going to be kind of sideways. So, we are not seeing -- we are not banking on much ramp there. We are -- I think we are going to see some continued strength in Asia Pacific and areas of South America that I didn't specifically call out. And we are seeing a slowdown in Mexico. We think that's going to recover. Argentina, little bit more cautious on. But Brazil seems to be doing during overall better.

And then also with the -- back to North America, the dewatering space, we had some push out, which we expect will be delivered in Q2. So, those are some of the smaller items that add up to why we see the ramp -- or why we are expecting a ramp in Q2.

Michael Halloran -- Robert W. Baird & Co. -- Analyst

So, is the 1Q shortfall being essentially consumed in 2Q, or is it going to take 2Q, 3Q to normalize out at this point?

Gregg C. Sengstack -- Chairman and Chief Executive Officer

Yeah. I'd be careful about saying that all of Q1 is going to magically come back in Q2. If we get to normalization then there hasn't been a lot of lost time in the field. As you know, there's going to be some days where people initially lost contracting days. But we expect that this is going to be picked up through Q2 and Q3.

Michael Halloran -- Robert W. Baird & Co. -- Analyst

And then a question on profitability, more of a longer-term thought process. Distribution side and Water side, the margins have been a little pressured lately. So, could you just lay out some thoughts for both segments? How you're looking at those long-term margins at this point for Distribution, for Fueling?

Gregg C. Sengstack -- Chairman and Chief Executive Officer

Yeah, Mike. It hasn't changed on the Distribution side. We've kind of said from the beginning that we expect a operating income margin of 4% to 6% in Distribution. We've not achieved that. Many of the efforts that the team has under way around branch rationalizations and other kind of fixed cost rationalizations that are occurring this year and will continue to occur are all directed at the idea of operating income margins being below our expectations.

Now the business unit, as you know from kind of a get-go has had a difficult volume environment this quarter, didn't help that, of course. So, we're not leveraging the fixed cost base in that business unit the way that we want to either. So, it's a little bit about where are the SG&A opportunities and other fixed cost opportunities on the margin side, but a lot of it is -- we were expecting more volume here and that more volume would levered the fixed cost basis. There it would have provided a higher margin as well.

I don't think we'll get to the 4% this year. I think we have a decent chance of getting closer to 4%. But those goals that we had established when we did these acquisitions and created a segment are intact and continue to be the same.

On the water side, as we've mentioned, you've seen a prolong mix shift going on in water. We saw again in this quarter, away from groundwater pumping to greater surface pumping. Some of the international units are under-levered, meaning that there is a fixed cost base there that is not generating the kind of revenue and profits that we need.

I would not give up on that mid-teens operating income margin. I think the range is probably more like 15% to 17%. We had said for a long time 16% to 18%. But I think 15% operating income margins in water are doable for the longer term. And then in Fueling, we will have swings that will be product and geographic mix driven. But generally, we feel pretty good about that kind of low 20s to mid 20s type range on a full-year basis. And we don't really see anything right now that would meaningfully deteriorate that for the long term.

Michael Halloran -- Robert W. Baird & Co. -- Analyst

That's super helpful. And then last one on the cost action side that you guys referenced. Just some help on what exactly, what kind of actions you are actually taking as well as timing and potential benefits? Thanks, guys.

John J. Haines -- Vice President and Chief Financial Officer

Yeah. So the way we approached the first quarter in our business unit reviews, Mike, was to really look at it by business unit and then focus on recovery plan. So the idea was, if you miss your operating income target by dollars, then what are you going to do between April and December to try to recover that? So, those actions are very different by business units. Some business units, it's just smooth sailing. They are on their plan and they're moving forward. I hesitate to give you an exact number because there are a variety of different actions, people reduction, not filling open positions, cutbacks on kind of common SG&A categories. There's a whole litany of actions, Mike, that are on the sourcing side. It would be more impactful on gross profit and they will necessarily on SG&A, including tariff offset, ideas, all kinds of things like that.

So, part of our confidence in maintaining our full-year guidance is not only the volume recovery that Greg mentioned, that's a critical, critical part of it. But knowing that we've got some of these cost actions and other sourcing actions through the balance of the year that we think will contribute to both, a better variable contribution margin and a lower SG&A run rate.

Michael Halloran -- Robert W. Baird & Co. -- Analyst

Appreciate it. Thank you.

Gregg C. Sengstack -- Chairman and Chief Executive Officer

Thanks, Mike.

Operator

Thank you. And our next question comes from the line of Edward Marshall with Sidoti & Company. Your line is now open

Edward Marshall -- Sidoti & Company -- Analyst

Hey, Gregg, John. How are you? Good morning.

Gregg C. Sengstack -- Chairman and Chief Executive Officer

Good morning.

John J. Haines -- Vice President and Chief Financial Officer

Good morning.

Edward Marshall -- Sidoti & Company -- Analyst

So, I just want to follow up on that last question. You talked about some of the actions that you were doing and you are maintaining your sales guidance and you are seeing additional cuts to costs. I'm curious, are you -- was maintaining -- simply just maintaining the guidance for the year? And you've talked about maintaining -- picking up all the shortfall in Q1? I'm curious why you're maintaining just the guidance and why it's not actually going up from an EPS perspective?

Gregg C. Sengstack -- Chairman and Chief Executive Officer

Well, I guess, Ed, maybe the way I'll take a crack at answering that. As I pointed out in my prepared comments, our expectation for the first quarter was always below what the Street consensus was, just because we know in part that the first quarter can be highly volatile. So generally, from our perspective, we missed the first quarter by, call it $0.10 to $0.12 versus what our operating plan expectation was.

So to your question, we think that the $0.10 to $0.12 in combining the two actions, the primary actions, the recovery of volume, and some of the costs takeout, we think that we can claw back a decent portion of that in the last three quarters of the year. I don't think we're ready yet to say that, that we think we can go beyond that.

Now, I think the thing that might drive us beyond that, and would be better volume recovery than what we're kind of assuming, which is, of course possible when you look at our first quarter results. But we're not -- I'd probably say we're not really confident in committing to that right now. And our commitment is the $2.37 to $2.47 and even though we had a really bad first quarter, our general thinking is that we can get back to that.

Edward Marshall -- Sidoti & Company -- Analyst

Got it. And I guess, since you opened the door and you commented on the internal expectations versus consensus for Q1, can you talk about -- I mean, the consensus is sitting at about $0.74 for Q2. Can you kind of comment on Q2 and maybe your internal expectations, so we're not sitting at this situation again in q2?

Gregg C. Sengstack -- Chairman and Chief Executive Officer

Yeah. I'll just say, Ed, it's hard for us to give quarterly guidance, and I think the first quarter was a poster child for why we don't want to give quarterly guidance. But relative to the Street expectations right now, we would say that that's a reasonable expectation. We expect to do slightly better than that for the second quarter.

Edward Marshall -- Sidoti & Company -- Analyst

Got it. Got it. Okay. So, weather -- when you talk about weather impact on the sales for water, I think you mentioned a $2 million push-out, but I can't imagine that was all of it. Can you kind of talk about or maybe quantify the weather impact that would have affected the groundwater pumping systems in Q1?

Gregg C. Sengstack -- Chairman and Chief Executive Officer

Sure, Ed. Okay. So, two different pieces of information. The $2 million push-out related to large dewatering pumps, which is really unrelated to weather, more related to the capital cycles of the rental companies that we sell to, we've seen those get a little less lumpy and a little bit more smooth through the year, which is helpful for them, helpful for us, certainly from a production point of view. So, that was the push out I was referring to there.

The early data that we have on the market is that unit sales in the groundwater channel were down somewhere between 12% and 15% in Q1 as the (ph) shipments for manufacturing. That's the best data we have. So, you can figure the dollar sales because there's been some price increase, would maybe be down 10 and probably double that in March. So I mean, that's why, what we saw was a really a great start in January. We felt things were going well and then it just deteriorated very quickly in the back half of the quarter.

And again, it gets back to the guidance thing because last year, you may recall, first quarter, we were up 23% in operating income and we raised our guidance and I think where the full year is going to be up, and we ended up taking it back, basically, to the midpoint of where we ended the start of the year. So, we are always -- lessons learned on Q1 is, it's just -- it's a tough. There's a lot of volatility in Q1 and middle of the year, we'll have more information and greater clarity. So, we just don't want to get too far ahead of ourselves or behind on Q1 results.

Edward Marshall -- Sidoti & Company -- Analyst

Got it. And you referenced some competitive pressures in water. And I kind of want to look at it in context of two things. One, maybe you talk about price. It looks like you're getting that 2% to 5% that you would normally get based on some of the comments you just made.

But secondly, I think, I wanted to talk about the third-party distributors up and I know, I'm kind of cross referencing between Distribution and water. But maybe if we could talk about that for a second. Are you -- because of your acquisition in Distribution, are you able to manage your own supply chain a little bit better, which I guess is the right -- the answer is yes. But third-party distributors up, does that give you some pause? Not because it doesn't seem like that's what you did with your internal distribution. So, just kind of clear that up for me if you could. Thanks.

Gregg C. Sengstack -- Chairman and Chief Executive Officer

Sure. Let me take you through kind of what I think are three parts of the question. So with -- the reason we want to give indication on third-party is exactly your point is that, one of the opportunities we have by having this Distribution segment is the supply chain aspect of it. That's really the very interesting part of the value-add in this equation. And one that now Headwater is on one ERP system nationally. We are on a different ERP system because Headwater is designed for Distribution and are designed for manufacturing.

But at least now, we have one system in both instances that we think can communicate with each other and we see real opportunity there in the supply chain. So you're correct. That's why there's -- there's really no incentive for Headwater to buy ahead and in fact, there's more incentive for them to reduce their capital structure to improve returns on capital. So, we use third-party just to sell. The third-party distributor is more of a barometer of how Franklin's business is in channel. And as we commented, our sales to third-party distributors in the channel were up in the Q1. And given with the backdrop that I gave you for that channel, we feel pretty good about that.

That said, is that these distributors buy and they're not maybe in regions that were impacted by weather as the Headwater, which is more of an upper Midwest and less, which is -- we really got clobbered by heavy rains and then snowpack and snow in California. California, I think a lot of water which is good news long term, but for the short term is tough.

So, we looked at our sales to third-party distributors, and they are up. So, we feel good. We feel like that means we're managing the channels well. We're managing the relationship -- our relationship with Headwater, our relationship with the rest of our Franklin distributors or people that distribute Franklin products in a good way. So, that's why we give that data point.

Now with reference to the competitive nature, certainly in Distribution, margins -- pricing was tough. And there wasn't a lot of pump sales in the first quarter, which impacted margins. But more broadly, what I expect is that because manufacturers had a slow start in Q1 and they've got inventory. In Q2, we're going to probably see some more promotional activities from manufacturers to distributors.

As I said, we've seen some evidence of that already, principally in small pump systems, not so much in large pumps yet but that remains to be seen. So, that's why I caution people that this is one of those situations where you get some price cutting and people try to go for share and then they find out they're not going to get share and things go back to normal. But everyone has numbers to hit and so that's why we're expecting maybe a little tougher for a manufacturing segment in Q2 in that channel.

Edward Marshall -- Sidoti & Company -- Analyst

Got it. Thanks for your comments. I appreciate it.

Gregg C. Sengstack -- Chairman and Chief Executive Officer

Welcome. Thank you for calling us.

Operator

Thank you. And our last question comes from the line of Matt Summerville with D.A. Davidson. Your line is now open.

Matt Summerville -- D.A. Davidson & Co. -- Analyst

Thank you. Several questions. First, can you just provide a little bit of a market color for your water-facing businesses in North America in the first quarter and what you're seeing in April thus far between kind of the residential versus ag irrigation? And to the extent it make sense, Gregg, of course, if you want to work in some regional comment specific to the US, that would be helpful as well?

Gregg C. Sengstack -- Chairman and Chief Executive Officer

Sure, Matt. As follow-on to the Ed's question there is that what we're seeing is residential was down, ag was down more in Q1. We are seeing out-the-door sales through our Distribution segment moving ahead of our plan in the first three weeks of April, which was first three weeks and we know doesn't make a quarter. But that's encouraging.

And I think your question about regional, I mentioned earlier, California, which is a -- it is a large pump market. It's also a pump market. It's a large line shaft -- these are -- the motors are on the surface, they're driving a long shaft down to a pump in the -- down in the aquifer. Franklin Electric does not manufacturer line shaft driven equipment, but our Headwater business sources line shaft driven equipment from other pump manufacturers.

So, we expect the other -- the California market, given reservoirs are above normal, 150% snowpack, basically no drought on the map, we will have a very slow start for the pumping business because there's so much surface water available. The surface pumps will be available, but for submersibles not so much.

Outside of California, if you look at the US drought map, if you look at the beginning of the year, there's still a significant drop in the southwest. That's basically all gone. So, as we're going into growing seasons or planting seasons, excuse me, you're -- it looks like the surface moisture is in pretty good shape. So, I would think they would speak to all the farmers, assuming things dry out enough that they can get into the field. Is that what you're looking for, Mike -- Matt, excuse me?

Matt Summerville -- D.A. Davidson & Co. -- Analyst

Yeah, yeah. And I guess, just more specifically on ag, I mean, it's been pretty well documented, the magnitude of flooding that we've had in the Midwest, upper Midwest, which I would say, statistically speaking are pretty important overall ag markets. And your comments on, I guess the pacing of April, are you actually seeing that piece of the business start to recover?

Or is it too early to tell just given the things have been, again, relatively wet, relatively cold? I guess, I'm trying to handicap, back to John's comment around, being in the neighborhood of $0.74 in the fourth quarter, I'm looking at it maybe in the other direction in terms of how much risk there is, potentially, to that outlook?

Gregg C. Sengstack -- Chairman and Chief Executive Officer

Sure, Matt. You've covered Franklin for a number of years and I think you've captured an uncertainty pretty well.

Keeping in mind the broader perspective of Franklin as a global business, half of our manufacturing revenues outside of United States were sales of our manufacturing product. But within this pro channel, which is important as where we're most vertically integrated and a profitable business.

Sure, there's a continued push out because people just can't get in and repair systems anytime soon. And there is some level of "missing the season" in the Upper Midwest, that would be a negative impact, no question about it. And even juxtapose that with -- it could be drier in the South and the Southwest and it's just too early to tell.

Matt Summerville -- D.A. Davidson & Co. -- Analyst

And then, I guess, Greg, if you already said this, I apologize. But what is your overall assessment of channel or inventories in the channel, both as it pertains to res and ag, if there's any sort of read on that? And I guess, maybe are you able to talk about the type of price competition you're already maybe beginning to see is, I would sort of think it's a little, maybe even early on in the quarter to already be starting to see some of that?

Gregg C. Sengstack -- Chairman and Chief Executive Officer

Yeah, I'd say that, Matt, earlier we mentioned that the -- we expect that in units volumes for the data we have which is somewhat limited as you know. We say that residential-type product units down, maybe 12% range, ag maybe down around the 15% range of units. So, a little less down in dollars because of the price increases year-over-year. So call it 10% to 12%. And that's what we saw in Q1, I'd say that, it was down much more in March.

As to your competition, we've just seen some flyers come on the street and some promotions for the smaller pumps. I don't know how far it's going to go, how broad it's going to be. Just there was a -- to your point a little early in the quarter, we saw some of that. And so we saw evidence of that. So, I just -- having been through this before, what happens you'll see is, if there's a slow start with the manufacturers, then you see some pretty heavy promotions and you can see some pretty heavy promotion in Q2, maybe not. But I'd just caution people that we've seen it in the past and so we may see it again this year.

Matt Summerville -- D.A. Davidson & Co. -- Analyst

And then maybe just one other quick one on Brazil and then one on Fueling. With respect to Brazil, this is the first time that I can remember in a number of quarters, you guys are actually speaking positively about that business and albeit perhaps coming off of a lower depressed base. Are you convinced at this juncture, Gregg, that that business has turned the quarter?

And then with respect to Fueling, can you maybe review your revenue performance in China, I think these are related to the environmental standard? And whether or not that standard is expected to drive incremental growth in China? Or is China sort of flattening out for Franklin for the time being?

Gregg C. Sengstack -- Chairman and Chief Executive Officer

Sure, I'll take your first question first, Matt. Brazil, we were powering along for years, as you know, in Brazil with the double-digit local currency organic growth. And then I guess it was about two and a half years ago, John, we started -- I mean, Brazil really kind of just deteriorated. And yes, we had a good start to the year. Am I confident? I'm certainly more confident than I was three months ago, but we'll see how the year unfolds. We're seeing -- we're just seeing a good base in Brazil and it's off of -- as you pointed, of off a lower base. So, we're encouraged by that.

With respect to China, this is a -- John will share the numbers to the degree that we share them on what we think is going to be base versus incremental on the mandate. John?

John J. Haines -- Vice President and Chief Financial Officer

Yes. I mean, Matt, in China, we had kind of said $50 million to $60 million opportunity for Franklin in 2019. We had thought that, that opportunity would be in the same range in 2020 as well. The team is relooking at some of the longer term forecast for China. But the 2019 estimate is slightly incremental to 2018. It's not gigantically larger than 2018, but we think we can be more in the mid to upper 50s there and perhaps beyond that.

Unfortunately, as Gregg pointed out, it didn't start real well in China. There was a bigger pause on the New Year than what we have seen in the past, or kind of recovery from the New Year, if you will. But we still think that $50 million to $60 million is the right number. And we think it will be slightly incremental to what 2018 levels were.

Matt Summerville -- D.A. Davidson & Co. -- Analyst

Got it. Thank you, guys.

Gregg C. Sengstack -- Chairman and Chief Executive Officer

Thank you, Matt.

Operator

Thank you. And we do have an additional question from the line of Walter Liptak with Seaport Global. Your line is now open.

Walter Liptak -- Seaport Global Securities -- Analyst

Hi. Thanks. Good morning, guys.

Gregg C. Sengstack -- Chairman and Chief Executive Officer

Good morning, Walt.

Walter Liptak -- Seaport Global Securities -- Analyst

Just a follow-on to Matt's question, talking about China. If you could just talk about the quarter and how things progressed during the quarter, and then the timing of the recovery in China fueling systems.

Gregg C. Sengstack -- Chairman and Chief Executive Officer

Yeah. So the quarter started fairly well in China for us, Walt. As you know, in China when the New Year begins, the whole country pretty much goes offline. And the question would then, how quickly will it come back, if you will? And what surprised us a little bit in the quarter was that kind of comeback post, we're all back from holiday now, time to go back to this business, and that didn't materialize between the end of the holiday and the end of the quarter the way we thought it would.

So, we're prepared. We don't believe we're losing any market share. We have very strong customer relationships there. So we believe -- and the work is still there. So, there's nothing that is saying that we're missing the count of station conversions or anything like that. So, we believe it's all still there and all available for us to win in the last three quarters of the year. So, that's our view right now. The only thing that's really changed in our view other than the kind of the less than expected first quarter is we have been kind of talking this $50 million to $60 million range for this year, next year and then maybe even beyond. And I think we're a bit more cautious about the beyond at this point in time.

Just -- we need to see how many stations actually get converted, what the competitive environment looks like, what the commitment's going to be from some of the major oils? The convergence will start moving west in the country, which means they're going to start moving more rural. That's going to create a whole bunch of different issues for us and other manufacturers, not least of which is the whole compliance.

And our other -- as you move more rural and west, are you committed to the -- to the same spec, quality spec for this equipment, as you would be in the major cities. And we have experienced in China with our conversions, where we have seen, well, the further from Beijing and Shanghai, you move, the less adhere to our all the technical specs and requirements. So, those are all factors that are in our thinking for fueling in China.

Walter Liptak -- Seaport Global Securities -- Analyst

Okay And just to be clear, the China part of the business, we're starting to see that recovery in the second quarter or are we still waiting?

Gregg C. Sengstack -- Chairman and Chief Executive Officer

Yeah, no, we are starting to see that recover? Yeah, seasonally a better time, yes.

Walter Liptak -- Seaport Global Securities -- Analyst

Okay. All right. Great. And just in the Turkey and Argentina markets, I know those are meaningful. I wonder if you could size those for us, when -- maybe percentage or millions of dollars, just how much credit goes through that?

Gregg C. Sengstack -- Chairman and Chief Executive Officer

Yeah. I mean at today's exchange rate, the business in Turkey is about a $30 million top line business and the business in Argentina will be in $18 million to $20 million, kind of top range -- top line business. The Argentinian economy is kind of struggling through their currency devaluation there. There's an election coming up. So, there's political uncertainty now that's crept into Argentina. So, all those things generally are a bit of a pause for the business and economic climate.

Walter Liptak -- Seaport Global Securities -- Analyst

Okay. Got it. All right. Thank you, guys.

Gregg C. Sengstack -- Chairman and Chief Executive Officer

Thank you.

Thank you.

Operator

Thank you. And we do have a follow-up with the line of Edward Marshall with Sidoti & Company. Your line is now open.

Edward Marshall -- Sidoti & Company -- Analyst

I wanted to ask this earlier, but on Fueling and you mentioned, you had some comments about the conversions moving west and so forth. As I look at your 3% sales growth, I look at another US major competitor or peer up 20%. I'm try to get a sense as to -- on their Fueling business, I'm trying to get a sense of what -- what's the differences there? I know they make additional equipment that you don't make. Has that conversion started to move west and that's kind of displacing you? Or are you seeing additional issues with tariffs that you're working around? I'm just trying to get a sense of the disparity between the two results?

Gregg C. Sengstack -- Chairman and Chief Executive Officer

I can't really comment. I haven't seen releases from-or if they're out yet for Dover report or I guess, one of them is out. Their businesses are substantially larger than ours. They're above-ground with the dispensing piece of their businesses. They may be seeing some benefit from the EMV deadline. I really can't comment too much there. But in our business, we feel very comfortable with our plan and we feel very comfortable with the success of our team in gaining wins in the marketplace.

Edward Marshall -- Sidoti & Company -- Analyst

So, this is less about competition and more about just timing, like you said? Okay.

Gregg C. Sengstack -- Chairman and Chief Executive Officer

Again, it's difficult for me to respond. I haven't seen the context of their comments. I would just say that if it was specific to China, again, I don't know if they are comparing apples and oranges here because they're looking at above ground equipment as well as well below ground. We are strictly in the below ground equipment in that upgrade. But for the fuel management system, so it's difficult for me to draw comparisons.

Edward Marshall -- Sidoti & Company -- Analyst

And just -- yeah.

John J. Haines -- Vice President and Chief Financial Officer

We don't want to imply that it's not competitive. It's clearly very competitive. But to date, we don't have any information that would say why we're losing share to this competitor or that competitor, or as we go into some of the western provinces, we're losing share there. We feel good about our customer relationships both at the big oil and distributor level.

And really there's -- there's not a lot that's changed in that. So, we would expect to compete fiercely and win our fair share. And one other thought is that we had a really strong start last year, and others may not have had as strong a start as ours, so they may have a better comp. That could be another estimation. But again --

Edward Marshall -- Sidoti & Company -- Analyst

That makes sense.

Gregg C. Sengstack -- Chairman and Chief Executive Officer

(Multiple Speakers)

Edward Marshall -- Sidoti & Company -- Analyst

Yeah, that makes sense. And by the way, that number was a global number. So, it didn't really give the context maybe in China that maybe we were alluding to here on this call. Just to be fair, I wanted to clear that up.

All right. I appreciate it, guys. Thanks very much. Thank you.

Gregg C. Sengstack -- Chairman and Chief Executive Officer

Thank you, Ed.

Operator

Thank you. And that does conclude today's question-and-answer session. I would now like to turn the call back to Gregg Sengstack for any further remarks.

Gregg C. Sengstack -- Chairman and Chief Executive Officer

Thank you for listening to our first quarter earnings call. We look forward to speaking to you in July after our second quarter results are announced.

Operator

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

Duration: 51 minutes

Call participants:

John J. Haines -- Vice President and Chief Financial Officer

Gregg C. Sengstack -- Chairman and Chief Executive Officer

Michael Halloran -- Robert W. Baird & Co. -- Analyst

Edward Marshall -- Sidoti & Company -- Analyst

Matt Summerville -- D.A. Davidson & Co. -- Analyst

Walter Liptak -- Seaport Global Securities -- Analyst

More FELE analysis

Transcript powered by AlphaStreet

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

More From The Motley Fool

Motley Fool Transcribers has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.