Good day, ladies and gentlemen, and welcome to the Franklin Electric Fourth Quarter and Fiscal 2014 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 conference is being recorded. I would now like to introduce your host for today’s conference, Jeff Frappier, Treasurer. Sir, you may begin.

Okay. Thank you, Sam. We hope everybody enjoyed the music on that short break. And welcome, everyone, to Franklin Electric’s fourth quarter 2014 earnings conference call. With me today are Gregg Sengstack, our CEO; John Haines, our CFO; Robert Stone, Senior Vice President and President of International Water Systems. On today’s call, Gregg will review our fourth quarter and full year business results, and then John will review our fourth quarter and full year financial results. When John is through, we will have some time for questions and answers. Before we begin, let me remind you that as we conduct this call, we will be making forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to various risks and uncertainties, many of which could cause 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. During this call, we will also discuss certain non-GAAP financial measures, which the company believes, helps investors understand underlying trends in the company’s business more easily. A full reconciliation of non-GAAP to GAAP financial measures is included in today’s earnings release, which you can find on Franklin Electric’s website. With that, I will now turn the call over to our CEO, Gregg Sengstack.

Thank you, Jeff. During the fourth quarter, the company achieved record sales. Our adjusted earnings per share exceeded last year’s fourth quarter adjusted earnings per share which was the highest recorded earnings for any fourth quarter in the company’s history despite an estimated $0.02 EPS headwind due to foreign currency translation in the fourth quarter 2014. Continued strength in our Fueling business and a lower effective tax rate offset Water Systems result which were below our expectations. Water Systems margins were impacted principally by higher material cost both year-over-year and sequentially, and higher marketing and selling cost in our U.S. commercial business. During the fourth quarter, Water Systems sales in the U.S. and Canada, which were 36% of consolidated sales, increased by about 6% compared to the prior year. Sales of surface water pumping equipment grew by 15% in the fourth quarter. U.S. and Canada sales of Pioneer-branded mobile pumping equipment increased by over 10% in the fourth quarter of 2014 compared to the prior year. As I mentioned last quarter, the contribution margin of Pioneer sales deteriorated year-over-year as we outsourced production and took other actions to assure timely customer deliveries during this period of rapid sales growth. These sales increases were partially offset by a 2% decline in the sales of groundwater pumping equipment, an improvement from the 16% decline we experienced in the third quarter. This small decline was primarily due to two factors. The first was weak demand for agricultural irrigation pumps due to weather and to fresh crop prices and the second, due to uneven order patterns as a result of our previously announced groundwater distribution footprint change. You may recall that we had implemented this distribution change west of the Rockies and east of the Mississippi during the third quarter of 2014. We have…

Thank you, Gregg. Our fully diluted earnings per share, as reported, were $0.06 for the fourth quarter 2014 versus $0.27 for the fourth quarter of 2013. As we note in the tables in the earnings release, the company adjusts the as-reported GAAP operating income and earnings per share for items that we consider not operational in nature. We believe presenting these matters in this way gives our investors a more accurate picture of the actual operational performance of the company. Non-GAAP expenses for the fourth quarter of 2014 were $17.6 million and included $15.1 million in restructuring costs, primarily for the European manufacturing realignment that the company announced on July 1, 2014 and $2.5 million of other non-GAAP expenses primarily for acquisition-related cost. The fourth quarter of 2014, non-GAAP adjustments had an EPS impact of $0.25. The non-GAAP EPS adjustments in the fourth quarter of 2013 were a $0.03 reduction in the reported EPS. So after considering these non-GAAP items, fourth quarter 2014 adjusted EPS is $0.31, which is up 3% to the $0.30 adjusted EPS the company reported in the fourth quarter of 2013. It is worth noting that the company estimates fourth quarter 2014 adjusted earnings per share was negatively impacted by $0.02 due to the translation impacts of foreign exchange. As Gregg noted, we saw a significant strengthening of the U.S. dollar versus many P currencies which we do business in including the euro, Brazilian real, South African rand and Turkish lira during the quarter. The strengthening causes the earnings of this unit to be translated back to fewer U.S. dollars. Consolidated net sales in the fourth quarter of 2014 were $253.8 million, an increase of $24.1 million or about 10% compared to the fourth quarter of 2013 sales of $229.7 million. Incremental impact of sales from…

Thank you. [Operator Instructions] Our first question comes from Joe Radigan of KeyBanc. Your line is now opened.

Thank you. Good morning, guys.

Good morning.

First on pricing. On average, what was the magnitude of the list price increases that you’ve passed and then what’s the timing of when those go into effect?

There’s a big span around that average, Joe, depending on the market, the international market, the product, the currency environment, the raw material inflation environment. Generally, we would say that our price increases are between 250 and 300 basis points.

Okay. And has that already gone into effect, John, or is that at the end of the - what’s the timing around that?

Some have gone into effect and some have not. What we generally do is try to raise prices, Joe, only once a year. So there’s quite a bit of thinking about, okay, what is the right timing for that. Some of our units raise prices in December, some of our units won’t raise prices until this month or later in the quarter in advance of the strong Northern Hemisphere sovereignties.

Okay. And then in terms of the Water margin, you mentioned that was impacted by increased customer incentives. Is that related to the annual purchase targets of your customers or is that something else that you’re talking about?

So, Joe, as we are continuing to reset our distribution in the North American market, we are into heavy round [ph] promotions on the products. And so it is more related to that than to year end buys or targets to year end buys which would be imperative at the net sales. That would be netted out in the sales, not on an SG&A.

Okay. And sticking with margin, on a sequential basis, it sounds like revenue is going to be down modestly sequentially fourth quarter - the first quarter, but operating income and operating margin is going to be up on a sequential basis. I know there’s a lot of moving parts here between mix, raw materials, acquisition revenue, the higher customer incentives. In terms of those buckets, I mean, what’s going to change to where you’re going to see an increase in margin on a sequential basis in Water?

Joe, what we said for the Water side was that we believe that the growth will be in the low to mid-single-digits after considering everything, FX and the acquisitions and everything else. We do think that sequentially, our margins - our operating income in Water will improve. But we think it will be down versus the first quarter of 2014 mainly because of many of these same factors. Now, the mix shift which was a smaller factor in the fourth quarter is difficult to predict but we know the distribution reset in the U.S. will continue. We know that we’re going to have to get past these raw material increases and these price increases that we have just discussed starting to take effect. But generally, we see sequentially that our Water operating income will improve but it will still be below the first quarter of last year.

Okay. And then you mentioned share. What did the industry in North America grow? I think you’ve given that number in the past from industry data. I’m just trying to - it sounds like you’re pretty comfortable that you’re maintaining share even in the midst of this whole reset. So can you give some data or color around that?

Yes, essentially, it grew a couple percent. Again, we had a weakness that’s been well reported around the ag states. But the residential where we have quite better numbers, let’s say, are a couple percent. Like I said, the ag business, overall, was off [ph] through the year. Again, in Canberra [ph] we had a couple years of really strong drought and in large parts of the country. And while the drought continued in California through the center of the country, the growing areas of the country, the heavy ag areas, there just wasn’t a call for a lot of replacement products. So our industry numbers are more focused on the residential side and there was a couple of percent growth.

Okay. And then last question for me. In terms of Pioneer, that grew over 10% in North America versus some pretty tough comp, I think. And it sounds like you’re making some headway there in Europe as well. How should we think about the growth trajectory of that dewatering business in 2015?

Yes, as we look at it, Pioneer is going to be the product line that is most impacted by the decline in oil prices. A large portion of the Pioneer product line goes into rental fleets and is used out in the oil fields of the transfer of water. And so that is going to be the headwind that we’ve called out related to the oil and gas pricing. So while we’re making progress around the world and generally outside of the rental fleet space, the headwind of the oil and gas reduction far outweighs that. Robert, would you like to add to that?

No, I think you’ve covered it, Gregg. The big issue still is that our customers that have rental fleets, I’ve seen a lot of equipment come back from the oil and gas areas, the upstream development because of gas prices now - oil prices, I’m sorry. And until that turns around, we’re going to have a rather soft time, especially in North America for Pioneer. Having said that, we think with the outsourcing we did last year that impacted margins, we ought to be able to improve margins slightly in Pioneer even on lower volume as we go forward.

Okay, that’s helpful. Thank you very much.

Thank you. Our next question comes from Ryan O’Donnell of Robert W. Baird. Your line is now opened. Ryan O’Donnell: Good morning, guys. This is Ryan on for Mike.

Hey, good morning, Ryan.

Good morning. Ryan O’Donnell: Could you just provide a little more color kind of what you’re seeing competitively here in the U.S. and how the new distribution changes in the central U.S. kind of play into this?

Yes, any time you go through a change in your customer base, you’re just going to have lumpy, uneven order patterns as your - you got to remember that the distributors we’re bringing on are maybe selling off other inventories that they were carrying. Distributors that we were supplying are also then rebalancing their inventories. So it’s been a little bumpy. In the center of the country, we just saw that we weren’t getting the support that we were looking for and hoping for from our large formerly national distributor or former distributors national or international footprint, so we decided to make some changes there. So it’s going to continue to be bumpy we expect in the next couple of quarters until the season kicks in and the market is - it has reset. Ryan O’Donnell: Okay, great. And then I know you guys mentioned kind of elevated inventory levels, particularly in ag last quarter and kind of expected that to last a few quarters. Can you just provide an update there and how we’re looking at end of 2015?

Yes, again, this is anecdotal information feedback from the field. We’d say that when you get into the center of the country, particularly you get into West Texas which is a heavy user of groundwater submersible pumping systems, that there’s pretty big inventory in the field there because of market conditions, because of the competitive nature of a lot of products on the shelf. If you go out to the west where it’s been dry, there’s been pretty good throughput. If you go out to the east, as I say, you have - generally speaking, the east is probably pretty balanced. Again, the northeast is under a lot of snow. Last year, other parts of the country were under a lot of snow. But we’d say that outside of maybe the West Texas and in central regions, inventory levels would be fairly normal. Ryan O’Donnell: Okay. And then lastly for me, on the coalbed methane opportunity, obviously a small piece, but just curious how that’s playing given kind of the oil and gas price declines that we’re seeing. Any updates there?

Yes, in viewpoint, it was lower gas prices - the focus on investing in new wells in Canada, new wells has obviously declined. And therefore, what we’re doing is while we continue to look to develop and to sell our products to the North American market, we have traction here in North America. We have turned our focus to China, India, Indonesia and Turkey. Gas prices are higher. The needs are increased. The interest - well, again, we’re selling units in the orders of ones and twos and fives tens. But as well, we’re not going to realize [ph] dollar margin out of this. But we think that those are markets that are going to be much more active going forward just because gases is something that can easily transfer in the world like oil. So that’s the focus. Ryan O’Donnell: All right. Thanks, guys.

Thank you. Our next question comes from David Rose of Wedbush Securities. Your line is now open.

Good morning. This is actually James Kim calling in for David.

Good morning, James. How are you?

Good, good. So clarification on the higher selling and marketing cost. I mean obviously you stated it was mainly due to the distributor reset. And I just want to clarify that you expect a similar level of spending increase in the first half as the result of you continuing the efforts, resetting your distribution in the central region?

Well, again, I think the reset in the central region will be smaller in the overall dollar volume than the action that we took was for the Rockies into the Mississippi. We expect also to certainly [ph] have your promotional activities will begin to abate. We’re prepared to do it. We’re going to do what it takes to maintain a hard position in the marketplace. But I would expect that overtime that it’s going to become sequentially less of impact.

Okay. And so the higher expense was mainly impacted by the distributor, you said, right? There wasn’t anything else.

Yes, it was focused particularly in the U.S., what we call pro channel market.

Okay. On the Water Systems margins, obviously you’ve got your headwinds to your cost, lower margin acquisitions and also the distributor reset. But you’ve also got the benefit coming from bringing production of your Pioneer pumps in-house. And as you talked about your script [ph] benefits from your European restructuring. So based on those, what should we expect going forward sort of a normalized level of margins for Water Systems? I know we’ve been talking about kind of 2013 levels being so denormalized levels, excluding all these headwinds. But is that still the case or would you expect that given acquisitions and all these other factors that our expectation might be a little bit lower now?

James, what I would say is what we’ve discussed [indiscernible] that all the water segments in total, is basically at 16 to 18 OI margins segment. In 2013, it was 17.1. It dropped in 2014 to about 15%. When we have favorable mix, higher concentration of groundwater pumping equipment, you’ll see that margin go beyond that. And when we have unfavorable mix, so we see it start to drop below that kind of 15% entry. So what we would say is our expectation for 2015 is to get back in that range. We, as Gregg said during the unsettledness, the shockingness that’s going on in the U.S. market, with the distributor reset, off to play its way out over the first couple of quarters, we cannot predict whether of course we feel very good about most of our international units in terms of what they’re doing, we have the pricing, for instance. So we’re seeing margin rebound 2015 for sure. And we would expect to see ourselves back in that historical reign for water at that level [ph].

Okay. And another question on your expectations for Pioneer and the liquefaction and obviously with the oil prices and the market dynamics now, are you expecting those businesses to be impacted, but is the lower oil prices - John, you and I talked about this following the last quarter or two, but does that affect your fueling business at all? And I’ll be seeing any of that end of the quarter?

I would make the following observations. Lower oil prices will increase the demand for oil for use in passenger vehicles and other vehicles that use fuel here, gasoline or diesel. So that would generally play well in expansion or more rapid expansion of infrastructure which would be good to the business. Keeping in mind that fueling business is not one that turns on and turns off yet in [ph] gas stations and constructions. But I’d say, lower oil prices would generally be a positive for fueling at the market.

Okay. And is that something that you’ve seeing yet or is that too early to say at this point?

We don’t have industry data or data that we could turn to say that that is a measurable impact. Again, you think about prices dropped rather dramatically in the last couple of months. And so if you’re going to see increased demand for use of vehicles, particularly outside the United States in developing world, people move in the middle class, higher standard of living, opportunity to own a vehicle and they use fuel, it will be I think a natural outcome. But I wouldn’t expect it to be measured much more measured in quarters.

Okay. And my last question. On tax rates, I know you guys talked about a lot of tax planning, you guys have been doing to benefit from that. Is the expected tax rate for 2015 still in the 25.7 range?

Yes, it’s about 24 now, James, is what we’ve guided to.

Okay.

So we did a lot of these realignment and subsidiary realignments in the fourth quarter. We got a previous setup [ph] of that from that in the fourth quarter. Some of that will continue into 2015. But not nearly as much as what we saw in the fourth quarter. So we think right now a 24% effective rate for ’15 to say, yes it will [ph]. We’ll update quarterly if that changes.

Okay. Thank you for your time.

Thank you.

Thank you. And our final question comes from Edward Marshall, Sidoti & Company. Your line is now open.

Good morning, Gregg. Good morning, John. Sorry to make you talk back there. It sounds like the software [ph] is pretty bad.

I’m sorry to put through that thing. And everybody else, it’s your fault [ph].

I wanted to look at the order book for a second if I could, when we look at the spring in the summer kind of agriculture seasons, as we move into that season. I just want to get an understanding or sense from you how that might be shaping up especially if we had wider North American winter. And I think that with acreage planted declining in 2015, I just wanted to get your sense as to what you expect that order book and maybe how it’s developing so far this year.

Ed, in our business it’s all about availability. The reason is all about availability that our visibility and our order book is days and weeks out. It’s not really months out outside of the Pioneer business because it typically operates from a backlog. So it’s more - again, we talked to you of our contractors, we talked to our distributors. We get their feedback and based on that, how we then can give you some guidance as how we see the business unfolding. And that’s why we have limited our guidance to a quarterly basis. With all that said, with 8 meters snow up in Boston, when that snow melts, there’s going to be a lot of need for dewatering, some pump activity, generally good for our Little Giant branded product lines and for SSC [ph] lines or some sewage upfront [ph] lines. And I think potentially similar to last year where we had a lot of snow but more in the middle of the country. With respect to crop raises and ag in general, obviously during the irrigation, companies are confronted with a much larger decline because people are not necessarily putting in new systems. I can understand that when the crop prices are down, farmers are looking to hold off and putting in new systems. But they’ve got to continue to service their existing systems. We are pleased to see that after a very soft third quarter in the ag business, down 60%, that we saw our fourth quarter, while down, rebounded really fairly strongly from the third quarter to only down 2% in the United States. So I think that again supports the idea that we have 80% plus or minus of our products are replacement products, are used in replacement situations, emergency replacements. And so we think that generally speaking, we should have another decent year. But to John’s point earlier and I pointed out with our Brazilian business, we have a dry market, like we were seeing in Brazil, up 23% year-over-year. When it’s dry, people need pumps and they need water. And so if we had a dry year, we can push that number way up. If we have another damp year like we had in 2014, then it would be muted.

Okay. And I wanted to talk about maybe the distribution conversion a little bit further if I could. And I’m just curious, what’s creating the dislocation? I mean, it was a small part of your business I think that you’re converting and I originally thought that you had mentioned that you would destock with one and distribute on particular and then restock with another. Are you having to displace another manufacturer or are there other sales force - of the sales force of that distributor, are they accepting your product instead of the other manufacturers? And is it a matter of educating - I mean, these questions specifically come to mind as you talk about maybe higher selling expenses. I’m just kind of curious as to how the acceptance of the product line is going so far with the net distributor.

Sure. We’ll go back. Early last year, about this time last year, we made a decision to change our distribution footprint west of the Rockies and east of Mississippi. And that change actually didn’t occur. We announced it early in the year, it didn’t occur until the third quarter. And so at that time, we were bringing on new distribution and our prior relationship with our prior distributor no longer buying after July 15th in those regions. Now, our products are well known in the marketplace and the distributors that we brought back on were distributors that handled our products in the past. So there’s not a lack of familiarity with the products. But when you’re in a market that’s soft, particularly in the ag business as we’ve discussed, you’re going to have incentives, you’re going to need incentives to encourage people. So when people have a loyalty to the product, they also have relationships with distributors. And so you’re going to work hard to get those new relationships started so when the contractor’s driving their truck down the road that they turn into the distributor that carries your products as compared to the distributor that used to carry your products. So you have those frictions and switching cost that you’re going to incur. It is true that the additional step we’re taking here in the first quarter of this year is of a smaller - is in fact a smaller dollar volume than the one we took last year. And so it’s, at least in that respect, smaller. But still you have - so you’re encouraging people to change who they pick up your products from and that takes additional effort and focus.

And then I guess finally, if I could, we talked a bit about the acquisition pipeline. But I guess you have kind of another 30% of Pioneer to acquire in 1Q ’15. And as I look at the business and you’ve said yourself that it’s showing some signs of weakness, how does that develop from here? And you bring additional 30% of the business onto the balance sheet, what are your plans for further acquisitions this year? Is it - just kind of if you can help out there.

Yes, sure. I mean the Pioneer, 30% as you pointed out, that’s the committed that’s been made. It was formulaic. And the closing occurred here on SPs [ph] in the next couple of weeks or months. With respect to our pipeline, again, this is a situation in our business where many of the businesses we acquire, we’ve known the owner of those businesses for many years. And we want to let them know that as their business changes, their plan, their family business specifically changes their - when they look at their own easement [ph]. And for financial plans, we want you to give us a call. When you give us a call, it’s not always on our schedule. It’s on their schedule. So there are deals that come across the transom [ph] companies we may not be as familiar with and there are the deals that are in our - down the fairway for us to the terminology we use. And those we stayed in contact with owners and the owners view changes and potentially an acquisition will be made. But the timing is difficult. So we continue to see a lot of activity. We’re interested in doing more deals we have the loan leverage, we have the capability of doing them. But the timing is always unpredictable.

Okay. And maybe if I could squeeze one more and I know I’ve asked a few. But when I look at - in your prepared remarks, you talked about raw material cost being higher and you mentioned steel. And I’m just kind of curious because you look at the steel and this I mean - the steel prices have come down really significantly this year. And I’m just kind of - what specifically are you buying and especially as we’re seeing a lot of imports of steel into the U.S., I mean that’s pressuring the prices. So is it a special alloy that you’re buying that goes into the pumps or what’s causing the higher raw material pressure?

Yes. The primary steel business that we’re buying at is called rolled steel, stainless steel, magnetic steel that’s used for the laminations in our product. And when we look at our major components of purchases from the May timeframe, up from really October, we saw a very consistent trend of higher prices to the previous years out. The good news is that we started this season at turnover in the last couple of months and go low. Now one commodity we have seen lower and has been consistently lower is copper, which is a good thing for us. When you think about how that flows to our cost to goods sold and where our inventory has turned, that increase that we saw over the summer month, a good portion of that came home in the cost of goods sold in the fourth quarter. And that really is what drove some of the negative price ranges and the lower gross profit and lower operating income margins in water. Another area is on purchase components, right? So we’ve seen inflation and some inflation in Chinese purchase components. We’ve seen some inflation in major suppliers in Brazil that we buy finished from finished motors or other finished components from. So all of that is contributing to this. And again, a little bit in front of our price increases and I think well, one positive is that when we look at all this on input basis, we’re starting to see it turn the other direction.

Okay. Great, guys, thanks very much.

Thank you.

Thank you. And at this time, I’m not showing any further questions. I’d like to turn the call back to management for any closing comment.

Again, thank you for listening to our fourth quarter earnings call. We look forward to speaking to you after the first quarter. Have a good day.