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After Record 2002, Franklin Sets More Marks
In 2003 1st Quarter Despite Weather, War

By JIM BARBIERI
A much more comprehensive story on Franklin Electric and its progress is up front in this edition, but the first quarter performance of the company under new leadership also deserves individual attention.
War, weather and woes in the economy all were factors, but not enough to halt continuing new records, headed by a 9 percent rise in net earnings for Franklin Electric in the first quarter of 2003.
By the company’s report issued in April, Franklin Electric is off to a strong, sound business start under the leadership of new chairman and CEO R. Scott Trumbull.
In addition to record earnings and sales figures, the chairman’s summary had some positive indications on the continuing profitability improvement for products in the Bluffton plant’s lines even with flat sales.
He also cited impacts on company North American water system sales from the hard U.S. winter and on some overseas sales from the war in Iraq. However, a new motor plant in Mexico and other launchings in the Czech Republic and China were among international highlights of the first quarter.
Reported in April by Bluffton-based Franklin Electric Inc. (NASDAQ:FELE) was record first quarter net income of $4.0 million for a 9 percent increase from the $3.7 million in the first quarter of 2002.
First quarter 2003 diluted earnings per share were a record $0.36, a 12 percent increase from the $0.32 for the first quarter of 2002.
Sales for the first quarter of 2003 also set a record. They rose 3 percent to $69.8 million from $68.1 million in 2002.
Excluding the sales of Intelligent Controls Inc. (INCON), which was acquired by Franklin in July of 2002, sales for the first quarter were flat to last year.
Also cited in the report was that foreign currencies, particularly the euro, strengthened relative to the U.S. dollar since the first quarter of 2002.
The impact of this change in exchange rates, as pointed out Thursday, was a $3.7 million increase in Franklin Electric’s reported first quarter 2003 sales from its operations outside North America compared to the same period in 2002.
In local currency terms, Franklin sales outside North America were down 4 percent as compared to the same period last year.
Further detailed in the fiscal report was that gross profits in the first quarter were $19.8 million, compared to $17.9 million a year ago.
Selling and administrative expenses were $13.9 million, compared to $11.7 million last year.
Explained was that the increases in selling and administrative expenses were primarily due to the INCON acquisition since this unit carries disproportionately large selling and administrative costs, plus increases in Europe due to the rising value of the euro, and selling costs associated with new product launches.
Trumbull elaborated in his explanations on both domestic and international matters in Franklin Electric operations.
“I am pleased to report record profits for the first quarter, generated primarily by the continued success of our Value Improvement cost reduction process within our plants.
“Our earnings growth was limited this quarter by increased selling costs in connection with the launch of the Sub-Drive series of electronic water well controls, the V-series motor line and the expenses associated with integration of recently acquired fueling system businesses,’’ Trumbull noted.
Additionally, he reported that “during the quarter we also started commercial production of motors in our new factory at Linares, Mexico, and motor components in our new factory in Brno, Czech Republic.”
Trumbull cited further the news that Franklin broke ground on the company’s new components facility in Suzhou, China, with this facility slated to be completed later this year.
On the domestic side, the chairman-CEO reported that Franklin’s North America water systems products sales were down in the first quarter of 2003 as compared to 2002.
He said the decrease during the first quarter is attributed to the unusually hard winter in the United States, and to a lesser extent, strong fourth quarter 2002 sales ahead of industry-wide price increases.
“Finished goods inventories, while generally higher than our strategic targets, are appropriate for this time of year,’’ noted Trumbull.
Further on products, he said that sales of Sub-Drive 75 electronic drive systems for water wells continue to grow. This variable speed drive provides a constant pressure water system solution for residential application. Added was that during the first quarter, the company launched Sub-Drive 150 for higher output water well applications.
On fueling systems products, the first quarter report said that North American sales, excluding INCON, were down slightly. Trumbull said the company has taken additional steps to consolidate INCON into Franklin Electric toward reducing that unit’s selling and administrative expenses in future quarters.
On matters pertinent to products of the Bluffton plant, the chairman-CEO’s report said “sales of our North American-based industrial motor products were basically flat as compared to last year, but profitability continued to improve with increased productivity and reduced costs through our Value Improvement Process.”
Additionally related was that the company has introduced a “V-Series” line of electric motors which are produced off shore.
Outside of North America, Trumbull reported that water systems sales were down in Europe, the Middle East and North Africa due to the war in Iraq and customers having bought ahead of a year-end price increase. However, South Africa, Australia and the Far East all showed higher sales quarter over quarter.