Franklin Electric (FELE) Earnings Call Transcript

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Date

Feb. 17, 2026, 9 a.m. ET

Call participants

• Chief Executive Officer — Joseph A. Ruzynski
• Chief Financial Officer — Jennifer Wolfenbarger
• Vice President, Investor Relations — Dean Cantrell
• Chief Operating Officer — Jeff Taylor

Takeaways

• Full-year sales -- $2.1 billion, representing a 5.4% increase driven by favorable price, organic volume, and acquisitions.
• Fourth quarter sales -- $550.7 million, a 4.4% year-over-year increase primarily from recent acquisitions and price realization.
• Adjusted diluted EPS -- $4.14 for 2025, up 6% year over year; reported diluted EPS was $3.22, reflecting a $41.5 million pension settlement charge and $0.01 in restructuring costs.
• Fourth quarter operating income -- $51.6 million, up $8.6 million or 20%, resulting in a 10.2% margin versus 8.9% in the prior year.
• Cash conversion -- 126% in 2025, marking the third consecutive year above 120%.
• Share repurchases -- 1.8 million shares repurchased in 2025; 350,000 shares bought for $34.3 million in Q4, with 800,000 shares remaining authorized at year-end.
• Dividend increase -- Quarterly dividend raised 5.7% to $0.28 per share, marking 34 years of consecutive increases.
• Full-year segment operating margins -- Water Systems 16.5% (down 20 basis points due to acquisition costs), Energy Systems 33.1% (down 110 basis points), Distribution 5.7% (up 210 basis points).
• Water treatment sales -- $200 million in 2025, with a 400 basis point improvement in operating margin.
• Distribution segment sales -- $700.7 million, up 2%; operating income grew 64% with a 210 basis point margin gain.
• Fourth quarter segment highlights -- Water Systems global sales up 4.3%; Energy Systems sales up 9%; Distribution sales up 3%.
• 2026 guidance -- Sales range of $2.17 billion-$2.24 billion and adjusted EPS of $4.40-$4.60, implying midpoint sales growth just over 3% and EPS growth near 9%.
• Operating margin improvement drivers -- Margin expansion attributed to price actions, productivity, acquisition benefits, and cost efficiencies, particularly in the Distribution segment.
• Value Acceleration Office launched -- Targeting operational efficiency via 80/20 initiatives, AI, and process reengineering for margin improvement.
• Acquisitions -- Completed two significant and several smaller acquisitions totaling approximately $120 million.

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Risks

• Chief Financial Officer Wolfenbarger stated, "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."
• Energy Systems fourth quarter operating margin declined 560 basis points year over year to 30.3%, attributed to unfavorable geographic mix and tariff impacts.
• Management cited "softer HVAC markets in Q4" in U.S. and Canada Water Systems, with a 4% sales decline for that geography in the period.
• Energy Systems full-year operating margin declined 110 basis points, due to unfavorable geographic sales mix, new product SG&A investments, and tariffs.

Summary

Management introduced 2026 adjusted EPS guidance, aligning future disclosures with operational results and forecasting sales growth and margin expansion in all segments. Discussion confirmed healthy order backlogs and specific geographic headwinds stabilizing, with targeted structural improvements in Water and Distribution business lines. The value acceleration office formalized in mid-2025 is expected to deliver incremental operating margin benefits through 2026 and beyond.

• Chief Executive Officer Ruzynski projected Water segment growth at "3%-5%" and Distribution growth at "3%-4%" in 2026, combining both price realization and volume gains.
• Fourth quarter SG&A as percent of sales improved 70 basis points year over year, excluding acquisition-related expenses, reducing by approximately $3 million, or 3%.
• Segment pricing actions effectively offset tariff and inflation headwinds, with all three business units implementing standard price increases at the start of 2026.
• Integration of recent Barnes and PumpEdge acquisitions is progressing, with growth synergies materializing in dewatering markets and stabilization reported in previously underperforming Mexican operations.
• Gross margin in both the fourth quarter and full year remained steady as higher input costs were mitigated by price and productivity; SG&A efficiencies contributed to overall profitability.
• Planned product portfolio consolidation, global supply chain streamlining, and data-driven operational changes are intended to drive further cost improvements and reduce SKU complexity, especially in Water Systems.
• Dividend policy reflects ongoing commitment to shareholder returns, supported by both consistent free cash flow and a strong balance sheet, as demonstrated by a 34-year track record of annual increases.

Industry glossary

• 80/20: Operational methodology focused on simplifying product and process complexity by concentrating on the most profitable 20% of products or customers that drive 80% of value, used for margin and efficiency improvement.
• OSI (On-Site Inventory): Proprietary, customer-embedded inventory management system that ensures product availability at regional points of use.
• SG&A: Selling, general, and administrative expenses, a measure of overhead costs impacting profitability.
• SpecPak / VR SpecPak: Branded product lines within the Water Systems segment focused on boosting and inline water pressure technology.
• Value Acceleration Office (VAO): Internal group established to drive operational efficiency, process innovation, and cost reduction using 80/20 principles, AI, and business process reengineering across business units.

Full Conference Call Transcript

Dean Cantrell: Fourth Quarter 2025 Earnings Conference Call. Joining me today is Jennifer Wolfenbarger, our Chief Financial Officer, and Joseph A. Ruzynski, 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-Ks 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 the 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 am excited to share the outcome of a year of great progress, transformation, and strong results today. Let's start on page two. 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 Electric Co., Inc. 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 managed a sometimes turbulent global market with focus. Our order book and backlog remain healthy as we move to 2026. Our cash conversion was 126%, representing our third year of cash conversion over 120%. Our balance sheet remained strong even as we completed about $120,000,000 of acquisitions and $160,000,000 in share buybacks. We have made some important changes in 2025 and are positioned well for 2026. If we move to slide three, I would like to talk about some of these efforts. In 2025, we made some great progress. I want to take a moment to thank our team for the focused execution and leading through change.

We would like to share a few highlights that will not 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 $160,000,000 in revenue by year three. We are positioning Franklin Electric Co., Inc. as an innovation and growth company, and our team is ready.

As we look at our margins, I would first like to highlight the great progress in our water treatment and distribution businesses. The water treatment business is a key part of our water segment. We entered this business in the past five years and exited 2025 at $200,000,000 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 twenty-teens.

We have grown this business to over $700,000,000 with impressive services like our on-site inventory program and leading portal technology to seamlessly order and communicate needs. We focused on an efficient service business in 2025 while bringing new solutions to market. We have 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 cost 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 1,800,000 shares as we feel our future is bright. We have also increased our capital spending to make sure our investments position us

Operator: for this growth.

Dean Cantrell: 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 will turn the call over to Jennifer to discuss the financial results in more detail. Thank you, Joe.

Jennifer Wolfenbarger: Moving to slide four. 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 $41,500,000 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 taxed at rates different than the U.S. statutory rate as well as less favorable discrete items. Moving to slide five.

Fourth quarter 2025 consolidated sales were $550,690,000, a year-over-year increase of 4.4%. The sales increase in the fourth quarter was due to the incremental sales impact from recent acquisitions and favorable price. Franklin Electric Co., Inc.'s consolidated gross profit was $171,500,000 for the fourth quarter 2025, up from the prior year's gross profit of $164,200,000. The gross profit as a percentage of net sales was 33.8%, unchanged in the fourth quarter 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 year over year as a result of cost improvement actions taken in the last year. SG&A expenses were $119,600,000 in 2025 compared to $117,800,000 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 $3,000,000, or 3%. Consolidated operating income was $51,600,000 in the quarter, up $8,600,000, or 20%, from $43,000,000 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 taxed at rates different than the U.S. statutory rate, as well as less favorable discrete items. Moving to slide six, we will review our 2025 full year results. Full year 2025 consolidated sales were $2,100,000,000, 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 Co., Inc.'s consolidated gross profit was $755,900,000 for the full year 2025, up from the prior year's gross profit of $717,300,000. 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 $269,000,000 in 2025, up $25,300,000, or 10%, from $243,600,000 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 seven. 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 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 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 income was $41,800,000, up $6,200,000, 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 2024. Energy Systems sales were $74,700,000, an increase of $5,900,000, or 9%, compared to the fourth quarter 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 $22,600,000 in the fourth quarter compared to $24,700,000 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 $161,600,000 versus fourth quarter 2024 sales of $157,200,000, 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 $5,300,000 for the fourth quarter, a year-over-year increase of $4,800,000.

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 eight. 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 Asian regions as a result of soft market conditions. Global Water Systems' full year operating income was $207,200,000, up $9,300,000, 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 acquisition-related costs. Moving to slide nine. Full year Energy Systems sales were $299,000,000, an increase of $25,000,000, 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 Systems sales increased 13% led by increased sales in India and European markets.

Energy Systems' full year operating income was $99,000,000 compared to $93,600,000, an increase of $5,400,000, 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 $700,700,000 versus 2024 sales of $685,500,000, 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 $39,800,000, a year-over-year increase of $15,500,000, or 64%.

Distribution operating margins expanded 210 basis points full year from 3.5% 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 $99,700,000 and with $303,000,000 outstanding under its revolving credit agreement. We generated $239,000,000 in net cash flows from operating activities during 2025 compared to $261,000,000 in 2024. The company repurchased approximately 350,000 shares of its common stock in the open market for roughly $34,300,000 during the fourth quarter 2025. At the end of the fourth quarter, the remaining share repurchase authorization is approximately 800,000 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 Co., Inc. has increased its dividend, demonstrating its commitment to returning cash to shareholders and confidence in the outlook of our business. Now we 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 $2,170,000,000 and $2,240,000,000 and adjusted EPS to be in the range of $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.

Dean Cantrell: Thanks, Jennifer. Please turn to slide 13. Before we turn it over for questions, I want to share our view of the Franklin Electric Co., Inc. portfolio and position and why we are 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 where we can win. We see attractive markets where we can focus and grow faster. Our Water business is a leader in groundwater 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 in how we execute every day. We use proprietary tools to manage inventory and information in our on-site inventory, or OSI, programs to ensure our service does not 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 Electric Co., Inc. 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, frankly, an operating system, we are working through some key transformations that continue this path of expanded and resilient margins.

Our strong balance sheet enhances our ability to provide strong returns to our shareholders, supporting our attractive list of M&A opportunities and investments. And finally, when you walk in the door at a Franklin Electric Co., Inc. 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 would like to turn it back to Andrew for questions now before some closing

Operator: comments. Thank you. And wait for your name to be announced. To withdraw your question, please press 11 again. One moment, please. And our first question comes from the line of Matt J. Summerville with D.A. Davidson.

Matt J. Summerville: Thank you. Morning, Matt. I was hoping

Operator: I was hoping maybe first you could talk about

Matt J. Summerville: when you look at kind of revenue guide for the year, what type of organic outlook across the three segments would be implied in that guide? And of that, how much is volume versus price? And then I have a follow-up.

Operator: Yeah. If you look at

Joseph A. Ruzynski: for the Water business, you know, we are looking at a number that is probably in the 3% to 5% range. From a price versus volume, so there is a bit of acquisition. We did not close those deals until Q1 last year. So there is a little bit of acquisition in there. And then there is a good blend between volume and price. We have passed on, so for all three 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.

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 have shifted to good price realization last year. Their growth was about fifty-fifty price in 2025. You are going to see about the same spread next year, and that growth rate is kind of the 3% to 4% range for that business.

Matt J. Summerville: Got it. Thank you for that color. And then maybe just looking at it, specific to Water, maybe dimensionalize it 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? Thank you.

Joseph A. Ruzynski: Yeah. Good question. So as we exited last year, there are really two soft spots in that Water business. Otherwise, we are on pace for good volume expansion. But that RSS business, which is about a $150,000,000 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 have started the year at a nice spot. We expect growth in the U.S. 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

Operator: in the middle of towards the back half of last year.

Joseph A. Ruzynski: 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, you know, we do not 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

Operator: past few years in the

Joseph A. Ruzynski: South Asia, the Pacific region. And then Asia is relatively small for us, but we expect it to be fairly stable. So there is 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 is really nothing that sticks out that tells us there is going to be weakness. We have not baked in any housing recovery in our numbers, so just to call that out as well.

Operator: Thank you. Our next question comes from the line of Ryan Michael Connors with Northcoast Research.

Ryan Michael Connors: Good morning. Thanks for taking my questions.

Matt J. Summerville: Morning, Ryan. Jennifer, you mentioned HVAC as a headwind in fourth quarter. And if I heard you right, drove a

Ryan Michael Connors: I think, 4% decline in U.S., Canada and Water in 4Q. Can you just unpack that for us a little bit, specifically what that is? And how long that is expected to last?

Jennifer Wolfenbarger: I think it 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 similar sort of trajectory in some of more of the HVAC industry. It was a little bit softer towards the tail end. We do expect that should normalize, and we are seeing a little bit in that normalization coming through here in January. But we really feel like that was kind of isolated to the end of the year.

Ryan Michael Connors: Got it. Okay. And then Joe, you mentioned just there the outlook for large dewatering still very solid heading into 2026 here. But 7% was the growth rate you cited in fourth quarter. That was coming off 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 and large dewatering?

Joseph A. Ruzynski: Yeah. I think, you know, part of it is just as it is a capital spend, you tend to see a little bit of a pause at the end of the year. Obviously, we

Jeff Taylor: saw that in 2024. 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 backlog is healthy. You know, we had a nice bounce-back year last year, and as we have talked about before, it tends to run in 18- or 24-month cycles. So a strong year last year. That growth will not quite be the same because we had a good year last year. But the outlook looks healthy in that dewatering fleet business.

Ryan Michael Connors: 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 has proven more difficult in that business than elsewhere? And the outlook there as well for 2026?

Jeff Taylor: 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 have been working on a growth plan 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 planned to stick with our price increase process. We had raised some price in Q1, 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 is what you saw in Q4.

Price realization for that business, you know, Energy is expected to realize another 1.5% to 2% price increases this year. Some of that carryover from last year. We see good realization. The market has generally accepted it, so you are going to see those margins bounce back. We expect the Energy margins to be up slightly this year versus last year. So we are back on that track of those mid-30 margins and the price increase. So we will get it set here as we get the year.

Operator: Got it.

Ryan Michael Connors: Thanks for your time.

Jeff Taylor: Thanks, Ryan. Thank you.

Operator: And our next question comes from the line of Bryan Francis Blair with Oppenheimer. Thank you. Good morning, everyone.

Jeff Taylor: Morning, Bryan. Morning.

Joseph A. Ruzynski: I was hoping you could offer a bit of color on Barnes and PumpEdge integration. You know, the

Jeff Taylor: deal plans are progressing there. How your team is thinking about incremental

Operator: P&L contribution in 2026.

Joseph A. Ruzynski: And then how your M&A pipeline overall looks entering the new year?

Jeff Taylor: Yeah. Maybe to start with Barnes and PumpEdge. The PumpEdge deal is on, I would say, ahead of track. You know, that mineral space, the dewatering space for us has been a good growth area. You know, 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 have brought a bigger portfolio to market in some of those regions and those markets for dewatering, we found further opportunities. So we are excited about the backlog as well. So the growth synergies there seem to be reading out, and 2026 looks like a good year. The Barnes deal, there were 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 are probably behind a little bit there, just because 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 stabilized here as we exited the year, kind of very end of the year, December into January.

So we do not have some of those same headwinds that we had in the back half of last year. I would say for the overall M&A pipeline, probably what you are hearing from a lot of our peers is the market looks to be busy this year. I think there is a little bit of stability. Hopefully, the tariffs and the disruption and some of the uncertainty is a little bit more, let us say, known. Obviously, we live in a pretty crazy world here. But the pipeline looks healthy. And our approach is basically, as I mentioned on the call, we are looking at our portfolio.

We are looking at our right to win and where we could round out from channel, or if there are specific products that help us go faster. We have some good ideas. Obviously, we are still in a healthy leverage spot from a balance sheet standpoint. And our biz dev team and the folks that are looking at that are definitely busy. So we expect some good progress. We had some good small deals at the end of last year, but we are looking for deals that can give us a little more impact here in 2026.

Ryan Michael Connors: Understood. Appreciate that color.

Jeff Taylor: And then it would also be great to hear

Joseph A. Ruzynski: a little more on the value acceleration office. I like the ring of that. But that being said, respecting these are CI-type initiatives, so some of the framework would already be in place. You know, when was the program or office

Operator: formalized?

Joseph A. Ruzynski: How much near-term impact should we expect from Q4 actions in terms of 80/20 implementation? And is the plan, at least over time,

Jeff Taylor: to offer

Joseph A. Ruzynski: discrete targets for transformation savings or margin level?

Jeff Taylor: Yeah. It is a good question. We actually built the office governance, kind of seeded it with the opportunities through our strat development process starting the middle of last year. And, you know, we looked at transformation a couple different ways. It is CI, but I would say it is more than that. A company like Franklin Electric Co., Inc. 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, we get them to our market.

So we talk a lot about scale and velocity. There is a growth element to the value acceleration office, which you will not 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, efficiency, and a benefit standpoint, our expectation is some of those projects we have 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 is opportunity to do more. So we are excited about it. We have got it staffed.

We have got a new AI director that started here in Q1 and a leader for that office. So it is a little bit homegrown, but it is something that, given my history and the history of some of the other officers, we like how we put it together, and we have got a lot of hands raising to participate, which is what you want in this. So more to come on that, but we expect some good readout this year and in the future.

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

Matt J. Summerville: Understood.

Jeff Taylor: Look forward to updates going forward.

Matt J. Summerville: Thanks again.

Jeff Taylor: Thanks, Bryan. Thank you.

Operator: And our next question comes from the line of Michael Patrick Halloran with Baird.

Jeff Taylor: Morning, Mike. Just a quick follow-up to that. Where do you see the most opportunities when you look across your product segments across the three segments, but more at the product line level as you are implementing the strategy?

Operator: The

Jeff Taylor: opportunity to make some improvements or the opportunity to grow?

Ryan Michael Connors: Yeah. It was related to Bryan's last question. Right? So it is just when you take this value-driven approach,

Jeff Taylor: where do you see the most opportunities at a product line

Michael Patrick Halloran: on a product line basis to really drive value, whether it is commercially at the margin line. Just where specifically do you see the most opportunity?

Operator: Yeah. I think, you know, maybe a couple areas. One is if you look at

Jeff Taylor: our kind of core submersible business, we are obviously producing motors, pumps, and assemblies in all regions. There is some overlap of that portfolio where we have product that can essentially do the exact same thing that we do not need to be producing the number of SKUs in the multiple locations that we are today. So one example, Brian, is if you look at where, and I think we called this out in 2025, making some investments in our sites in Turkey and India is to basically bring together some of the similar SKUs, come up with common platforms to be able to serve wider regions. And there is 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 or that we have done recently, we talked about PumpEdge, we did Mine Tough before that. There is some overlap in those products and making sure that it is clear to our customers in terms of what you are trying to do, the application that you are trying to support, and the product that we have to serve it. There is 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 is 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 true hub and spoke, getting logistics that are streamlined. We have 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. How many times we touch that product, how many miles we cover to get that product to our end customer. So we have gone through some streamline, some rooftop consolidation based on acquisitions the past few years. We refined 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, not just in the product. It is also in how we serve our customers, and I think there are opportunities in both spaces.

Michael Patrick Halloran: Thanks for that. And then two quick guidance-oriented questions. One, partially a follow-up to Matt's original question. How do the sequential patterns work out through the year relative to normal seasonality? Or is there any nuance to that? And then 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? Thank you.

Jennifer Wolfenbarger: Yes. So in terms of the seasonality, I will address that one first. We expect the typical seasonality that we see in our business throughout the year. As you look 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 are a little bit lighter in Q1 and Q4, and more of our peak periods in Q2 and Q3.

Jeff Taylor: But growth across all quarters. We are not, there is not a back-end or a front-end load here in terms of our performance. I think normal seasonality, but consistent growth across all quarters. So

Jennifer Wolfenbarger: And sorry. And then the

Michael Patrick Halloran: Yeah. The margin question. 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?

Jennifer Wolfenbarger: Yeah. Similar across all of our segments, we are projecting gross margin expansion across each of the segments, including Energy. You know, we had said we landed the year last year with Energy in the low thirties. We expect some growth in that space, our Energy business, in terms of margin expansion year over year, but still kind of maintaining that low to mid-thirties, as Joe mentioned earlier.

Jeff Taylor: And you are going to see, Mike, a continued focus on that Distribution business. Obviously, they took a nice step forward last year. There are a number of underlying initiatives to get those efficiencies, some of which we talked about as related to the VAO. Probably margins expand 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.

Michael Patrick Halloran: Great. Really appreciate it. Thank you.

Ryan Michael Connors: Thanks, Mike.

Operator: Thank you.

Matt J. Summerville: And our next question comes from the line of Walter Liptak with Seaport Research.

Ryan Michael Connors: Hi, thanks. Good morning, guys.

Jeff Taylor: Morning.

Ryan Michael Connors: An 80/20. I remember about five years ago,

Jeff Taylor: 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

Matt J. Summerville: maybe what inning

Jeff Taylor: you are in and where 80/20 is, which segments have done the most sort of 80/20 work, and what is the next focus?

Jeff Taylor: Yeah. I would say, well, most of the 80/20 opportunity for us exists in that Water Systems business. That is where the design, the manufacturing, the global footprint for operations is there. In the Energy space, it is a fairly focused business. They have gone through and have a very streamlined portfolio, I would say. So some of the adds there are really bringing new products to market. In the Water space, from an 80/20 standpoint, I would say we are in the first three innings or so, a baseball game term there. There is more for us to do.

And I think the work that has been done there thus far is looking at what are some of those fractional, what are some of those small sizes that do not sell a whole lot. We have 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, etc. So there has been some good work done there. There is more for us to do there. What has been fun for me to see here over the last couple years, we have talked a lot about new products.

If you look at our new inline SpecPak and our VR SpecPak, some of the new boosting technology and also some of the new work that we are doing in terms of bringing products to market post acquisition is using those opportunities to clean up that legacy portfolio. So it has taken us a little bit longer. We did not go just through an exercise of cut and align. We have kind of been doing let us launch a new product, and let us clean that portfolio up. So I would say there is a good set of opportunities in front of us to see more of that benefit here over the next couple years.

Michael Patrick Halloran: Okay. Contribution is also great work

Jennifer Wolfenbarger: there. I mean, really great progress across our team in Distribution across 2025, with still more opportunity to continue to expand margins into 2026 with the work that we have done on SKU rationalization, buy better, spend better, as well as cross-pollination pull-through within that business.

Jeff Taylor: Yeah. 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 have had a two-year effort of normalizing all of our part numbers to make sure that if it is a comparable part, a similar application, we are consolidating that, which helps us in a couple ways. One is for inventory movement of product, but the other one upstream negotiation with our suppliers to make sure that we are getting best price and bringing that through. So that has taken us a bit of time, especially as we continued to acquire over the last few years.

But we hit a good milestone in October of getting those part numbers aligned and furthering that work upstream. Okay. Great. Yeah. Thanks for that detailed answer.

Ryan Michael Connors: And then

Jeff Taylor: the fueling outlook 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.

Michael Patrick Halloran: And

Jeff Taylor: any, I guess, timing of projects or visibility of projects.

Jeff Taylor: Yeah. I think the build schedule looks good this year. I do not want to comment on our peers’ outlook, but there are two things that we are really looking at here. One is we can see the build schedule for most of our major partners, and it looks positive. So I think that growth rate there, we obviously over-drove what our projected growth rate was for 2025. I think those opportunities exist. Given a 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 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 have launched here in the last year or so, we have talked about Oversight and 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 channel that we are expanding there too. So

Ryan Michael Connors: Okay. Great. Thank you.

Operator: Thank you. I am showing no further questions. So with that, I will hand the call back over to CEO, Joe Ruzynski, for any closing remarks.

Jeff Taylor: 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 are confident in our strategy and we like the businesses we are in. Thanks, everyone, and have a great week.

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

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