Franklin Electric Co., Inc. (FELE) Q3 2026 Earnings Report, Transcript and Summary

Hello, and welcome to the Franklin Electric reports Third Quarter 2026 Sales and Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press 11 on your telephone. You will then hear an automated message advising that your hand has been raised. To withdraw your question, please press 11 again. Please be advised that today's conference is being recorded. It is now my pleasure to introduce director of investor relations, Dean Cantrell.

Thank you, Andrew. And welcome everyone to Franklin Electric's Third Quarter 26 Earnings Conference Call. Joining me today is Jennifer Wolfenbarger, our Chief Financial Officer and Joe Ruzynski, our Chief Executive Officer. On today's call, Joe will review our third quarter business highlights, Jennifer will provide additional details on our financial performance, and then Joe will make some additional comments highlighting our energy system segment and recent acquisitions. We will then take your questions. A replay link of the webcast will be archived for 7 days. And a transcript and audio version of this call will be available on our website tomorrow. 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 2 thousand 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 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. Earlier today, we published the slide deck to accompany our prepared remarks. The slides can be found in the Investor Relations section of our corporate website at www.franklinelectric.com. With that, I will now turn the call over to Joe.

Thank you, Dean, and good morning, everyone. Thank you for joining today's call. We had a very busy quarter. And I am pleased to share our progress with you today. Let's move to slide 3. We had a very solid third quarter. I am proud of our team's performance in light of a sometimes challenging global backdrop. Not just executing for our customers every day, and operating in a challenging environment but bringing new products to market growing our business, optimizing our footprint, and executing our strategy. Our strategy discipline remains strong. Our balance sheet healthy. We saw some market softness localized in Eastern Europe and The Middle East, and in South America as the Brazilian elections are providing some headwinds during the quarter. Excited to share today that we have found some great additions to our portfolio in Cat Pumps and now Challenge Pumps. We will talk about this later during the call. But both of these deals are aligned with our strategy, of a portfolio pointed towards faster growing markets where our legacy channel and expertise can help us integrate and grow these acquisitions. As we expect in the future, acquisitions will play an important and balanced role in our growth. The first month of Cat Pumps was a great start and our teams are excited about the future. Moving to slide 4. Our business was up 9% in revenue with nearly 5% of our growth coming from our legacy business. We did see some pressure on our gross margins as we work through some operational headwinds during our. During plant moves and dealt with a more inflationary environment throughout the quarter. We delivered adjusted OI growth of over 11%, and we delivered 15% growth in EPS during the quarter. We are very satisfied with our overall performance as a company. As we exited the quarter, our order rates remain healthy our inventory positions are balanced in the channel, and our team continues to find great opportunities to win. We continue to work on pricing and productivity to offset this pressure and have implemented some important restructuring efforts to ensure our business is positioned well from a cost perspective. Jennifer will give some detail to these efforts shortly. Importantly, these efforts and some other recent consolidation and value chain repositioning efforts will bring productivity in 2027. If we can move to slide 5, I would like to share our progress on some of our strategic priorities. Our strategy is clear. We are focused on markets that are growing faster supported by wider macro trends while diversifying our end markets. We are adding new channels and customers by bringing innovation and our leading services to broader end markets. In Q3, we saw strong growth again from new products delivering over $28 million in new sales year to date. Accelerating our growth and showing the desire for new Franklin innovations. We continue to expand our expand our reach and saw strong dealer ads in water treatment, and our and our recently deployed OSI containers helped us to achieve $32 million of sales in the quarter. And increases in our share with current customers. As we add muscle and focus to our productivity with our new chief supply chain officer, Value Acceleration Office, we are building and executing on a sizable funnel as we enter 2027. And as a company with a healthy balance sheet and strong cash generation, we are excited about our recent deals and their performance. We are announcing a new and exciting 1 with Challenge Pumps today. That puts us in the operating cycle of the fast growing mineral extraction market adding to 2 great deals we have done in the past few years in this space. As talent and culture are Franklin's bedrock, we are excited to announce Luciana Amaro as our new chief human resources officer. She brings a strong history of helping companies grow globally and will be a great addition to our team and help us with key integration of new additions to our Franklin team. Finally, and most importantly, we are focused not only on building the strongest team in our industry, but growing a company that attracts, develops, and retains this great talent. Thank you. To our Franklin team for your tireless support of our customers and execution of our strategy. I would like to turn it over now to Jennifer to review our financials in more detail

Thank you, Joe. Please turn to slide 6. Our fully diluted earnings per share was $1.35 for the third quarter 2026, versus $1.37 for the third quarter 2025. Third quarter adjusted diluted EPS was $1.50 a new third quarter record. Compared to our 2025 third quarter adjusted diluted EPS of $1.31. The 15% year over year expansion in our adjusted diluted EPS was primarily driven by the expansion our adjusted operating income year over year as a result of volume growth above price, above market, price discipline, and cost management. This is a continued demonstration of our commitment to expand the earnings power of our business and our dedication to delivering durable earnings even in challenging market environments. In the quarter, we recorded $5 million in acquisition related costs, $300 thousand in Water Systems segment and $4.7 million in the Energy Systems segment. In addition, we amortized in the cost of sales, $3.6 million from the impact of marking up acquired inventory to fair value as part of acquisition accounting for our most recent acquisitions. $500 thousand in water systems and $3.1 million in energy systems compared to $1 million in the prior year third quarter. There were $300 thousand in restructuring costs related to continued site consolidation work in the third quarter of 26 compared to $100 thousand in the prior year third quarter. The effective tax rate was 24.4% for the quarter compared to 26.9% in the prior year quarter. The decrease in effective tax rate was primarily due to a mix of foreign earnings taxed at rates different than the U.S. statutory rate. Moving to slide 7. Third quarter 26 consolidated sales were $633.6 million an increase year-over-year of 9%. The sales increase in the third quarter was primarily driven by organic price and volume growth. The incremental sales impact from recent acquisitions followed by favorable foreign currency translation. Franklin Electric's consolidated gross profit was $224 million in the third quarter, of 2026, up from prior year's gross profit of $208.7 million The gross profit as a percentage of net sales was 35.4% in the third quarter of 26 compared to the third quarter of 25 gross profit margin of 35.9%. A decrease of 50 basis points compared to the prior year. The gross profit margin was unfavorably impacted in the third quarter of 26 by inefficiencies driven by recent manufacturing site moves inflationary material and freight costs, as well as the previously mentioned impact of purchase accounting associated with marking up an acquired inventory. The work that we are doing in terms of site consolidation and restructuring will result in productivity that will read out nicely in 2027. Selling, general, and administrative expenses were $1.372 billion in the third quarter of 26, compared to $123.5 million in the third quarter of 25. The increase in SG&A expenses was primarily due to the incremental impact of acquisitions in the past year. SG&A as a percentage of net sales was 21.7% in the third quarter of 26 and 21 point percent in the third quarter of 25. Without the incremental impact of acquisitions, and the additional acquisition related deal costs, our SG&A as a percentage of the net sales was 20.7% an improvement year over year of 50 basis points. Consolidated operating income was $86.5 million in the third quarter 26, up $1.4 million or 2% from $85.1 million in the third quarter of 25. The increase in operating income was primarily due to favorable price and higher sales volumes in the third quarter. As previously mentioned, there were $5 million in acquisition related costs and $3.6 million from the impact of marking up acquired inventory to fair value as part of acquisition accounting and $300 thousand in restructuring costs in the third quarter of 26. The prior year third quarter had $1 million from the impact of purchase accounting associated with marking up acquired inventory and $100 thousand in restructuring costs. Excluding those items, consolidated adjusted operating income was $95.4 million in the third quarter 2026, up $9.2 million or 11% from $86.2 million in the third quarter of 25. The third quarter 26 adjusted operating income margin was 15.1% versus 14.8% in the third quarter of last year. A 30 basis point improvement year over year. Moving to the segment results starting on slide 8. Global Water Systems sales were up 5% compared to the third quarter of 25 driven by additional volume from our recent acquisitions, strong price and favorable currency exchange on sales. Water system sales in the U.S. and Canada were up 7% compared to the third quarter of 25. The sales increase was led by sales of residential products, including water treatment up 13% and groundwater pumping equipment into the agricultural market up 9%. Sales of products into commercial and industrial applications were relatively flat. Water system sales in markets outside the U.S. and Canada increased 2% overall. Breaking down the international growth, foreign currency translation increased by 4%, recent acquisitions added roughly 1%, price at roughly 2% and organic volume was negatively impacted by nearly 5%. Excluding the impact of acquisitions and foreign currency translation, sales in the third quarter of 26 increased in Asia Pacific, as Latin America and EMEA sales were down year over year. EMEA sales volume specifically in Northern Africa, the Middle East, and Eastern Europe were negatively impacted by the ongoing conflict in The Middle East. From an end market perspective outside the U.S. and Canada, the sales increase was led by sales of products into mineral extraction applications, which increased 71%. Sales of products into commercial and industrial applications up 3%, offset by sales of residential water products, which were down 12%. Sales of groundwater applications into agricultural markets were relatively flat year over year. Global Water Systems operating income was $58.9 million down $1.3 million versus the third quarter of 25. The operating income margin was 16.7% a year over year decrease of 120 basis points. There was a $500 thousand impact from acquired inventory, 300 thousand in acquisition related expenses and $300 thousand in restructuring costs in the third quarter of 26 in the water segment. The third quarter of 25 was impacted by $1 million from the impact of acquired inventory and $100 thousand in restructuring costs. Water systems adjusted operating income was $60 million down $1.3 million or 2% from the prior year an adjusted operating income margin of 17% compared to 18.2% in the third quarter of last year. Adjusted operating margin for our Global Water Systems business was impacted by inefficiencies associated with recent manufacturing site moves and higher material and freight costs driven by inflation. Moving to Slide 9. Distribution's third quarter sales were $226.1 million a new record for any quarter. Versus third quarter 25 sales of $197.3 million an increase of 15%. The Distribution segment sales increase was primarily due to higher volumes from increased market share acquisition related sales and price realization. The Distribution segment's operating income was $20.6 million a new third quarter record. A year over year increase of $4.3 million Operating income margin was 9.1% of sales in the third quarter an improvement of 80 basis points. Versus the prior year. Operating income margin increased primarily due to higher sales volume price realization, strong price realization and continued cost optimization. Moving to slide 10. Energy Systems sales in the third quarter of 26 were $91.7 million an increase of $11.7 million or 15% compared to the third quarter of 25. The sales increase was primarily due to acquisition related sales from our recent acquisition of Cat Pumps, higher organic volumes and strong price realization. Energy system sales in the U.S. and Canada increased 15% compared to the third quarter 25. Outside the U.S. and Canada, energy system sales increased 12% primarily in Europe and Asia. Energy Systems operating income was $23.7 million down $1.7 million versus the third quarter of 25. There were $4.7 million in acquisition related costs and $3.1 million in acquired inventory step up in the third quarter of 26 in the Energy segment compared to none in the third quarter of 25. The Energy segment's adjusted operating income was $31.5 million up $6.1 million or 24% from the prior year. With an adjusted operating income margin of 34.4% up 260 basis points from the third quarter of last year. Adjusted operating income increased primarily due to favorable price in our legacy energy business, organic volume growth and the contribution from our acquisition of Cat Pumps. Moving to the balance sheet and cash flows on Slide 11. We continue to maintain a strong balance sheet and robust cash flow enabling us to invest in future growth and deliver consistent return to shareholders. The company ended the third quarter of 26 with a cash balance of $159.1 million and with $125 million outstanding under its revolving credit agreement. We generated $139.2 million in net cash flow from operating activities during the first 9 months of 26 compared to $134.7 million in the first 9 months 2025. On Monday, the company announced a quarterly cash dividend of $0.28 The dividend will be payable November 19, to shareholders of record on November 5. The company purchased 50 thousand shares of its common stock for approximately $4.8 million in the open market during the third quarter of 26. As of the end of the third quarter of 26, the remaining authorized shares that may be repurchased is about 600 thousand shares. Moving to slide 12, Our third quarter financial results were in line with our expectations and underlying demand remains solid. Given our strong performance despite mixed markets year to date, we are raising our full year sales of expectations to a range of $2.23 billion to $2.3 billion and a full year adjusted diluted EPS to a range of $4.62 to $4.82 The revised guidance does not include last night's announcement of our purchase of Challenge Pumps. We continue to maintain a strong balance sheet and will continue to be disciplined as we deploy our capital resources to drive maximum return on investment. Now I will turn the call back to Joe for some additional comments.

Thanks, Jennifer. As we have shared the last 2 quarters, this year we are spotlighting each of our segments to give investors a clear view of our focus differentiation and long term opportunities. These spotlights will also serve as a foundation for deeper strategic discussion we will have on our Investor Day next March. This quarter, we are highlighting our energy segment. This business will finish with over $350 million in sales this year and is a market leader in technology, customer intimacy, and returns. We have seen this business grow with smarter, more accretive new products, and recently added a new industrial element to support industrial uptime. Our end market segments are in key markets such as serving the major players in fueling and convenience industry. Energy data infrastructure, and diversified industrial markets where uptime defines their ability to win. We have a long history in these markets, starting with our expertise in building the leading variable speed submersible pumps over 25 years ago, We built this business with a promise to solve our customers' most important concern about uptime and reliability while helping them achieve the lowest cost of ownership. We performed a series of strategic acquisitions over the years to bring innovative solutions in controlling and monitoring that help us to manage a series of mission critical systems for our customers. For a quick view of selected solutions, our EVO-line fueling and site management system bring right size options for any operation. Advanced features, intuitive design, and superior scalability, the EVO series is engineered to evolve with our customer's business. It brings highly accurate inventory management and full featured compliance monitoring for any size fuel system. Our new EVO 1 solution, which we highlighted last year as we launched, is an economical turnkey fuel monitoring solution designed for complete system management. As uptime is critical for our customers, our OVERSITE solution empowers fuel marketers and convenience store operators with the ability to monitor critical site equipment for outages, to perform remote resets maximizing up times across the entire site and in the store by resolving common outage issues before they turn into extended downtime. This has been a critical time and money saver as our major customers have expanded their geographic reach. Uptime and remote monitoring are key reasons why our INCON optimizer circuit breaker monitor is a leader in online continuous performance-monitoring solutions for high voltage circuit breakers designed to facilitate condition based maintenance with real time performance and health data. Continuing with this theme, our new acquisition of Cat Pumps help us to serve the heart of any high pressure flow solution by providing the highest quality and most trusted high pressure pump brand. Our systems sit at the core of our customer's business and equipment. In addition to our high-quality, most dependable products, our sales service and support structure is critical for our success. We collaborate, we innovate, we solve problems, and we help our customers win. Our growth and return on that growth are a testament to our team, our strategy, and our performance every day. In summary, our energy business serves some very attractive growth markets. Our blend of innovation, customer service, and intimacy will keep us growing and solving problems for years to come. Turning to slide 14, I would like to briefly discuss our recent deals starting with Cat Pumps. That we announced early in September. A welcome addition to our great brands, Cat is known globally as a leader in high pressure piston and plunger pumps serving OEMs and contractors with the industry's highest quality pumps. Our customers expect their product to perform and we sit at the center of this with our wide and highly capable product line. This increases our exposure to attractive high growth end markets across mission critical applications. We expect this to be accretive to adjusted EPS in 2027, and bring an attractive financial profile with more than $100 million in revenue EBITDA margins above 35%. On to slide 15, to share a bit more about the Challenge Pumps acquisitions that we announced last night. We have entered into a definitive agreement to acquire Challenge Pumps, a leading provider of underground mine dewatering solutions headquartered in Perth, Australia. The transaction is expected to close following the completion of the target's audit process and the customary closing conditions. Which we currently expect to occur later this year. Challenge pumps is an excellent strategic fit with our water system segment, and further advances our strategy of expanding an attractive commercial and industrial water management application. The company was built the company has built a strong position in underground mine through differentiated technology, application expertise, strong customer relationships, and a significant recurring aftermarket business. More than 55% of revenue over the last 3 years has been generated from recurring parts and service activity. Combined with our existing dewatering and rugged submersible products, it gives us a complete solution for mine dewatering and services. Revenue for this business is about $52 million, and it is nicely accretive to our base water segment portfolio. We like this large and growing market, supported by the electrification trends and the need for critical minerals globally. We believe Challenge Pumps strengthens our mineral extraction platform by expanding our ability to provide mine water management solutions across the mining life cycle. In addition, we see attractive opportunities to accelerate growth by leveraging Franklin Electric's global commercial footprint customer relationships, and operational capabilities. I will now turn the call back over to Andrew for questions before closing thoughts.

Thank you. As a reminder, to ask a question, please press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. 1 moment, please. Our first question comes from the line of Ryan Connors with Northcoast Research.

Good morning. Thanks for taking my call.

Morning, Ryan.

Wonder if you could provide us more detail on the plant moves and the site consolidations, Joe, that you mentioned a few times. As a gross margin headwind in the quarter. Can you give us any color on what exactly those were And where we are in that journey, whether we are complete there, whether there is more of that on the way.

Yeah. there is a few of them. You know, some of these we started planning and executing earlier this year and coming into this year. And we are we are starting to get to the point where we see the end in sight and, you know, our the comment you heard, Jennifer, I think both of us made it about a tailwind in 2027. There, we have consolidated our pioneer production line into Oklahoma. there is a there is a site in Mexico that we moved to a bigger campus We have we have consolidated some smaller peripheral distribution sites into some bigger ones to give us leverage, economy of scale, better data visibility, And then in the water treatment side, which is a part of that water business, we have acquired companies over the last few years getting to a more regional assembly production testing type environment. We have we have completed those moves. Water treatment 1 is done. Those other ones that affect kind of water overall like I said, the moves are done, but, you know, we had to run-in parallel, and we have some wind down activity. So but should have those wrapped up, those ones that I mentioned there. Here this year. We also have some other activity around the world, but I think those are the bigger ones where the ramp down, ramp up is just something that you know, we had kind of all of these things at once in the back half. Not a huge cost, but just something we wanted to call out. So. And also the lift from. For next year. I will just add. Sure.

We will have a bit of more of that work in Q4. You will see a little bit more of that. But as Joe mentioned, going to have that wrapped up for the most part in 2026 and then read out a nice productivity going into 2027.

Got it. Okay. And then I wanna talk about price cost a little bit. You are getting price across all 3. Divisions, but yet inflation is still cited as a headwind to margins. I know we have some kind of acquisition related margin headwinds as well, but it did sound like inflation was still a net headwind. Does that mean we are just not. The pricing actions are not sticking or we are behind the curve on rolling those out? Or just curious how the price cost situation looks. I guess that is a, you know, kind of each division might be different, but any comments there?

We have been satisfied with price realization. Price has been sticky. We know that as we go into next year, there is going to be some more work to do. I think the inflationary environment not only has held strong, but obviously, accelerated through the quarter. Most notably, you know, we have a distribution and getting product to our end customer is important for us. I mean, I would call out fuel. it is it is a good it is a good 1 or is a clear example. And there definitely was some more pressure there than we saw coming into the quarter. Think we have got good plans for price. We are we are confident that price productivity are gonna more than offset inflation. But, you know, definitely with some pressure to call out there. You know, I think just overall, I have mentioned this before, Ryan, but, you know, we have we have got a good a good funnel, some good activity, We feel good about material productivity and plant productivity going into next year. So, you know, there is good offsets to that material inflation, but we have we definitely saw a bit of that here in Q3.

And I will just read. Reiterate, you know, price is reading out very, very solid across the businesses. On average for the enterprise, it is about 3% in the quarter. So we do feel very good about the price actions that we have taken. Inflation just continues. It continues to escalate, and we will we will maintain really good discipline going forward. And as Joe mentioned, productivity heading into next year is also going to provide some additional opportunity.

Got it. Okay. And then just 1 last 1 for me. Obviously, you are not giving 27 guidance today, but know, we are almost in November, and we are all in print for 2027. So any qualitative color you can give us about how you see 27 shaping up, on the top line, especially Just any qualitative comments about what. Where you might steer us would be helpful.

Yeah. You know, o. Overall, we feel good about our base business. You know, 1 thing, and you see this in our theme, Ryan, in terms of the acquisition and where we are focused. But we are really looking at those market. Markets where there is good macro trends, underlying support, You know, I think Jennifer made the comment about some of these areas, these faster growing markets, We are seeing a nice, nice return. We know that, you know, hey. We are a global company. We like that. The needs for water, it would be for infrastructure, for energy, or you know, kind of all over. But given that, there is instability. We need to find those offsets, and we feel good about it. The base business, we feel, is gonna be, is gonna be solid and strong as we go into next year. So right now, you know, we feel we feel fairly confident as we go into 2027 on the top line. And then, of course, you know, with some of the bottom line work we are doing, You know, right now, it is hard to-- Elections are going on. You know, we all read the newspaper. it is a it is a it is a crazy world out there, but I think the way that our teams operate our high replacement business, we have added now, you know, with challenges and example to that service and replacement business with those macro trends. You know, we feel pretty good about 2027 here as we as we get into Q4. Excellent. Thanks for your time. Thanks, Ryan.

Thank you. Your next question comes from the line of Matt Summerville with D. A. Davidson.

Couple of questions. Good morning. On a pro forma basis, for the Challenge acquisition, which I realized is gonna close here shortly, How much revenue will Franklin be generating from critical minerals and mining? And is there any update, Joe, you would be willing to provide on where you are at with your data center initiative as it pertains to the water business? And then I have 1 follow-up or 2. Thanks.

Yeah. You know, the. This. With this deal from a pro forma basis, it pushes us nicely over $100 million. And we will come out and fine tune that here as we get as we exit the year. We will give those numbers. You know? And, Matt, we actually had a we had a data center update we were gonna share with the team, but we did not wanna crowd out here the announcement of challenge today. So we will we will come back to that. From a data center standpoint, we still continue to make good progress. We have got some nice wins in flushing and condensation management and power quality. it is still a sub-$50 million business for us. I think what we are excited about from a data center standpoint is that work being done with end customers and on specs. I have mentioned this before. You know, right now, it is it is it is the testing and the operational stand up. So but I think what, you know, we can do, and we can do this as follow-up, is to share more in terms of what the outlook for 2027 looks like. Know, I am sure you have heard our peers, you know, anyone that has pumps, motors, and drives is playing in this market. And then the timing and the predictability is 1 that we tried to get a little better dialed in But, yeah, still making good progress there, and that is still something that from a midterm standpoint, we expect to see nice growth. We will also share we will do this in March, but we will probably give a preview of this here as we execute for those faster growing markets, kind of our midterm expectation in terms of how big we expect these markets to be as percentage of revenue. We will give updates on that as well. But yeah, this mineral extraction business, is a nice growth lever. You know, you heard Jennifer make the comment of up 71% within the quarter. We definitely see a need. These markets are receiving investments. Just long term trends of electrification and the need for metals and critical minerals is something we feel good about. I know I would absolutely concur on that.

So how should we be thinking about the go forward outlook into Q4 maybe a little bit into next year, specifically for the water business. And if you can add some geographic and end market color to that because you are seeing some demand I will call it variability from region to region and across end markets. Maybe a little bit more go forward looking color would be awesome.

Okay. I will start out, then I will let Jennifer, you know, fill in some of the some of the space here. But you are gonna see a Q4 for water that looks somewhat like Q3. We see mid to high single digit on the top line. We see some of that additional pressure as we talked about the operational moves in still some inflation. But really set up well, from a performance standpoint as we get into 2027. The soft spots that we saw in Q3 you know, we expect those to still be kind of soft, but that is that is in the numbers that I mentioned. You know, the Middle East you know, Southeastern Europe, it is definitely a bit slower with inflationary pressure there with conflict. And then in, you know, Latin America, specifically Brazil, is important to us. We saw that stabilize as we exited the quarter, but, you know, anytime kind of pre election, some uncertainty there, you know, we see that stabilized, albeit at a softer rate We, when we talk about APAC, maybe just to comment there, you know, our center of gravity is more in the pack, not, not in North Asia. And, you know, really, that dewatering business, we are looking for those identities within where we can be known for something, be a top tier player, and that is definitely starting to read out. We think Asia is gonna have a nice finish to the year and a nice start to next year. And then North America, I. You know, it. We are sharing a lot of numbers here today, of course. But when you look at still good growth in North America, we see that channel expansion, the innovation, I call that out here, new products that we are launching. Even in markets that are not, you know, they are not high single digit markets, we still see those mid to high single digit growth, you know, largely work with the team. Adding channel, adding customers, adding new products, and we feel good about the North American as we go into 2027 as well.

Yes. I would just add, year to date in the water business, we are at a top line growth of just north of 7% in that business. And you know, that we expect that to continue as we head into Q4. Really good continue to see good top line growth. And as Joe commented on, the region's a little softer in Latin America, in Brazil, I think the election has sort of settled We are anticipating that settles things in Latin America a bit. We are seeing good growth in parts of Latin America. Asia Pac, particularly the Pac side, and specifically in mineral extraction. EMEA continues to be a little bit of a of a hard spot, we are making up for it elsewhere within the regions with good strong performance in US Canada, and as I mentioned, Australia.

And parts of South America. Brent. Thank you, guys.

Thank you.

Thank you.

And our next question comes from the line of Walter Liptak with Seaport Global.

So I wanted to ask a little bit about the acquisitions that both of them carry really nice EBITDA margins. And so I wondered about adding value Can you improve EBITDA margins from here? And then asking about the sales synergies, I wonder if you can tell us a little bit about the go to market strategy as a bigger platform. How does that help you in these markets?

Yeah. So, maybe just to go through those too quickly. If you look at CAT pumps, as they go to market, they sell other pumps that they bring into the fold along with kind of their core product in the piston plunger pumps. You know, from a sales synergy standpoint, from a channel standpoint, what is been fun for us to do and part of that kind of thesis of this combination is you know, we see and touch some of the same end markets that they do today. So as a start, you know, we definitely know of and have found some of these opportunities to both bring their product through but also to bring our products more closely associated with what they are selling. I mean, you look at that little chart there and some of the some of the different flow opportunities. We are touching some of those flow opportunities today. Our commercial and industrial business is a focus for us to grow I think another just point I can add is, you know, the global opportunity we have and, you know, as we talk about Latin America as an example, specifically in Mexico, We see those opportunities today. They are not penetrated in some of the geogs we are. So there. You know, that channel natural sales synergy is there.

Question in terms of, can we can we improve the EBITDA margins?

You know, most of these 2 deals, I mean, gross synergies well, let me just say it this way. If you look at the theme of these deals, it is diversification of vendor. End markets, faster growing markets than our core business. And accretive deals. This is important for Franklin, so we wanna start in a strong position from a. From an EBITDA accretion standpoint. But we feel we could do more there as well. You know, as we are as we are working on global supply chain sourcing material contract, we see those opportunities with these acquisitions as well. Know, maybe just to comment on challenge, we have a good a good core mining business in pockets in Franklin today and have Jennifer called out a growth metric from of the work we have done here the last few years we are seeing these opportunities in our distribution business across the U.S. We are seeing them in Latin America. We have we have had a long historical presence in Africa, specifically Southern Part Of Africa there. So, again, it is bringing these products together. I thought that this chart here, you know, is a is a good kind of explanation of that of bringing this challenge pump technology which is really a piece that we were missing combined with the rugged submersible, the surface pumps we have today. And, you know, it is it is everything from gold to copper to gravel to uranium to you name it. These opportunities are there. Bringing these all under 1 umbrella is a nice lift from a gross synergy standpoint. And we do see opportunity to continue to hold and increase these margins.

Would just add, you know, particularly on the challenge the challenge business, actually, the cap comps business as well. These are critical applications, high uptime, they are running you know, 27 and require you know, high level of service and after part aftermarket coverage, which is right in our sweet spot. that is where we operate in our current existing businesses. So we see a great opportunity to continue to take that forward. With our operating model.

Okay. Sounds great. And you called out that, that big growth in mineral extraction for your core business. Are these acquisitions growing at a similar rate?

Yeah. They are actually growing at a rate faster than we expected. That 70% number when you look at, you know, just raising awareness throughout our channel and bringing these additional products, Some of these companies we have acquired going back 3, 4 years Minetuff and PumpEng, But the opportunities to basically serve a wider need for the specific op. Of operators in mind. It makes it easier for them We can now bring a wider portfolio in, and we are seeing that growth accelerate. We you know, we expect challenge to continue to grow at nice rates as well. So not only growing the portfolio, but also accelerating that growth rate overall. Okay. Brent. Thank you. Thanks, Paul.

You. And our next question comes from the line of Mike Halloran with Baird.

Guys. Good morning. This is Brent on for Mike.

Hey, Brent.

Hey. So first question here, really, good performance in the distribution business, particularly as it relates to the growth side here. Be helpful to kinda unpack what you saw on the third quarter from the drivers of that. Between market expansion, you saw. You called out water treatment and waste wastewater on the slide, you know, market channel share, etcetera. And then the durability of those kind of growth drivers as we exit 2026 and move into 2027.

Yeah. You know, there is really 2 themes for that distribution business. That team is focused on here the last few years. 1 is bringing products that we sell in 1 region to all regions. So kind of building a national capability in set of products. We call it cross pollination. it is an internal term. But it is essentially if we see needs or we have we have access to sell and serve customers in 1 region, making sure we do that in all Sounds trivial, but it is actually been a nice growth driver because very productive you know, we can move those capabilities from regional to national. The second thing is, and I know we have talked about this before when we highlighted distribution, but OSI or on-site inventory is essentially a containerized you know, great technology support, highly capital efficient way for us to expand our reach and to better serve So it helps us to serve customers that are a little harder to get to. It gives them the ability to see and track and have all of the on-site products that they need on a day to day basis. So we are winning more. They are winning more, and, you know, the margins are turns are healthier for us, which is why you see the. See it read out not only in growth, but also that a margin lift for us too. So I. You know, these are. This is not. You know, the market is not up You know, their organic number was up 10 or 11%. You know, they had a small acquisition or they had an acquisition in Q2. Which is that organic number. that is a lot of really great work by the team. And making sure that they stay on top of price cost, which they have done a really nice job of that is a part of it, too. But yeah, really a we are very pleased with Distribution's Q3.

Price Thank you.

And then. Yeah. Go ahead.

I used to say price went up very strong. As Joe mentioned, the organic volume growth You know, we measure the business on really 3 big growth initiatives, on-site inventory, cross pollination and pull through and all of those came in, you know, better. You know, better year over year in all 3 metrics with OSI and on-site inventory growing about 30% in the quarter. So really nice continued growth there.

that is helpful. And then similar conversation on the energy side, just kinda moving the performance between the traditional kinda fueling assets, the critical asset monitoring business, what you see in each of those and, you know, kinda trajectory as we move forward here in each of those businesses.

Well, the midterm outlook for that market, we feel we feel good about. We actually. You know, even though we had nice international growth, 1 piece that. And we talked about last quarter, we actually expected it to be more because we can see the projects and the work being done places like India and Saudi Arabia and, Eastern Europe. Those have slowed down a little bit. We are still growing, not quite at the clip we thought. But I think the bigger story there was, you know, and as we profile that segment, is to talk about the innovation and the technology the problems that we are solving for our customers, and what we are doing for them. So if you think of major marketers or service stations, convenience stores, gas stations, all of these bigger players are expanding their GI and their reach. Our tools basically help them to manage that across wide, you know, wide GI to have all the data to do it online from remote resets to monitoring, know, their solutions from inside to outside the service station. And we just think that, you know, that focus on innovation and solving problems has helped us, obviously, from an accretion standpoint because these are more hardware, software, highly technical products. But, also, they are just. They are new to the market, and we are seeing great response. So it is a great end market. The next the next year or so looks strong. But I think what we are doing in that market continues to increase in value and size. So, yeah, we are we are very, very pleased with that progress as well.

that is great. And then last 1 for me. Just kind of on the balance sheet priorities in the near term here. We are still very flexible as it relates to a leverage profile. Some acquisitions coming in. So if there is any constraints in continuing that in the near term, just preferences between buyback, continued acquisitions, any comments on the pipeline would be helpful. Thank you.

Yeah. I would say, you know, we. We have given the. That we have done 2 pretty sizable acquisitions, we are gonna work to digest those over the next 6 months. that is been a priority. Growth is always going to be our top priority from an investment perspective, whether that be internal growth, or acquisition growth, and you could see that through the actions that we have taken We will continue our trajectory of, you know, consistent dividend and return to shareholders through dividend. We will also continue buyback of shares, you know, and looking at that every single quarter. So nothing really changed from a capital allocation perspective. From that perspective with, again, just emphasizing our initial first priority is gonna be investing for growth and good returns. In that growth.

You know, Brent, just 1 final comment. I think you see with these acquisitions, question on, are we still committed to dividends and buybacks? Yes. We still committed to investing in the business? I think you see that and you hear that as we talk about some of these plant moves. Then serving our customers. We wanna see all of these readout But, you know, as we have had a healthy balance sheet and good cash generation, you know, we see the size of some of these deals you know, increasing. We are excited about that. It brings us, the ability to do all of them and make sure that, you know, we are kinda firing on all cylinders. So Great. Thank you, guys. Thank you.

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

Thanks, Andrew. Appreciate it, and thank you all for joining us today. We feel very good about our performance and, more importantly, our future. We are very positive about the recent acquisitions, recently announced deal with Challenge Pumps, is exciting for us last night. And Franklin is still and always is committed to growing through innovative products, consistent returns, and a strong balance sheet. We see our strategy reading out and are on track for a solid 26 and have good confidence in our momentum as we look to 2027. Our performance this year represents our progress, and our strategy gives us confidence to continue this trend. We are a company on the move. We wanna give a special thanks to our Franklin team for the leadership and contribution to our performance and results this quarter. Thanks, everyone, for joining us today, and have a great rest of your week.

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