FELE - NASDAQ

Hello, and welcome to the Franklin Electric Reports Third Quarter 2024 Sales and Earnings Conference Call. [Operator Instructions]. Please be advised that today's conference is being recorded. It is now my pleasure to introduce Chief Financial Officer, Jeff Taylor.

Thank you, Andrew, and welcome, everyone, to Franklin Electric's Third Quarter 2024 Earnings Conference Call. With me today is Joe Ruzynski, our Chief Executive Officer. On today's call, Joe will review our third quarter business highlights, then I will provide additional details on our financial performance, and Joe will make some final comments. 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-K and 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. Earlier today, we published a slide deck to accompany our prepared remarks for the first time, and these 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, Jeff, and thank you all for joining us today. I'm excited to be hosting my first call as Franklin CEO. While our third quarter results were short of our expectations, they underscore the strong execution we are seeing in our segments and highlight some positive trends as we look to the future. As we've seen throughout the year, macro trends such as low housing starts and existing home sales as well as unfavorable weather patterns, particularly in the US. and movements in commodities have pressured our sales. Our higher gross profit continues to showcase our strong operational execution, supported by our global business, diverse customer base and wide portfolio of products. Our investments in new products, commercial teams, integration of recent acquisitions and some onetime costs have led to higher SG&A expense impacting our bottom line. We expect to see the benefit of these investments and normalization of costs as we enter 2025. Moving to Page three of the slide deck, I'd like to give a few updates on our CEO transition process. One of my goals when I first took the role was to listen and to learn. I've had the opportunity over the last three months to spend time with our growing teams, our customers and our investors. I'd like to start the call by sharing some of these learnings that support my optimism for our future. First, we have a passionate and committed team. This is evident in the external recognition we've received, which I'll touch on shortly. I'm also, incredibly pleased to consistently see our team's commitment to our culture, and that has translated into a pride in service that is being noticed by our customers. Our customers and distributors have shared that they view our clear commitment to service as a differentiator and they place a high value on our customer intimacy. Our leading products and quality of service are reasons why we have continued to develop customer trust and in turn, expand our business over the long-term. Over the last few years, our commitment to meeting customer -- meeting demand for water where it is most critically needed has led to exceptional global growth in the face of disruptions, tariffs and other uncontrollable events. Our ability to maintain a strong track record and healthy balance sheet while executing in a challenging market is what sets us apart. Our focus moving forward is to increase enterprise efficiency as we accelerate innovation and growth. Our team has great ideas and great new products and is implementing our strategy. We are putting an emphasis on addressing critical water needs in growing markets, providing industry-leading service to our customers with a strong distribution channel, focusing on faster-growing verticals and delivering productivity with our Franklin operating system. I'm excited about where we will go from here. Moving to Slide 4. Going forward, we will share quarterly updates highlighting achievements that showcase our culture and our commitment to delivering long-term value for all stakeholders. As I mentioned a moment ago, one thing I've seen in my early days here as CEO is the pride of our workforce and commitment we have to our employees, our customers and community. The awards that Franklin has received from Newsweek USA today the Indiana Chamber of Commerce and others, again, show that others are recognizing this commitment. Franklin is a great place to work and a company that delivers on its promises, and we're excited to build on this reputation. Moving to Slide five to address our results. Consolidated third quarter sales of $531 million declined 1%, with growth both in water and distribution segments, offset by continued pressure in the Fueling business. While we've seen a pullback in our US. fleet business for large dewatering products, the broader demand environment remains healthy across our core businesses as we continue to lap comparable periods of strong sales from pent-up demand and higher backlogs due to supply chain constraints. Overall demand this year didn't offset the elevated backlog conversion we enjoyed in 2023; however, order patterns across most of our businesses are positive, giving us confidence as we head into 2025. We achieved strong operating margin performance in the quarter of 13.8%, led by our Fueling Systems segment and improvement in our Distribution segment, largely due to the disciplined approach in managing costs and streamlining operations. Margins in Water Systems were down slightly year-over-year, but it remained strong. We continue to identify opportunities to streamline costs across the organization and are currently in the process of executing additional cost actions to bring SG&A as a percentage of sales more in line with historical norms. Turning to our segments on Slide 6. Our Water Systems business remains solid with steady replacement demand and orders up mid-single digits year-over-year. We delivered low single-digit sales growth against a tough year-over-year comparison as large dewatering equipment volume has normalized following record sales activity to our US. fleet rental customers in the period -- in the prior year period. This headwind was more than offset by growth outside the US. groundwater and other surface pump sales. New products in wastewater and mining are also, showing growth. Water treatment also, performed well, largely driven by our recent acquisitions, though there's been some recent impact in softness from the US. housing market. Regionally, sales in EMEA and Asia Pacific were up, while increases in Latin America were offset by the negative impact of foreign currency translation. In our Fueling Systems segment, sales declined 10% compared to the prior year period, and we accelerated the conversion of an elevated customer order backlog. That backlog has returned to normalized levels by the end of the third quarter in 2023. So, we expect these recent periods of tough year-over-year comps in fueling are behind us. The environment was generally comparable with the second quarter when we saw consistent demand, but not the pickup we had anticipated. Overall, we saw lower installs largely due to labor constraints in interest rate pressure. While order activity has accelerated, we expect a moderate start to fourth quarter in line with seasonal trends. In the US., the business is strong, supporting margins from a mix perspective. Early commentary we hear from our major marketers supported an expected improvement in bills for 2025 compared to this year, though we expect interest rates will continue to play a role in capital investment decisions for our major marketers. Outside of that, for paper recovery products, we're seeing good opportunities in China and elsewhere. We see solid activity in Mexico. We see significant potential in India where we have a strong relationship with a customer, executing a multiyear build project. In Q3, orders for our Fueling Segment were also, up year-over-year in the high single digits. Sales in our Distribution segment were slightly -- were up slightly sequentially and year-over-year. While weather conditions have improved, the change was not material enough to generate pull-through demand we had anticipated. Given the wetter weather in the West earlier this year, customers have balanced drilling with accessing surface water. We're also, continuing to face commodity pressures in the segment that have persisted over the last five quarters, largely around plastic pipe, where prices have decreased primarily due to supply dynamics rather than raw material costs. Despite these headwinds, we improved our operating margin on slightly higher sales due to strong execution from our distribution team. Just to briefly touch on the recent hurricanes affecting the Southeastern US., we did not see a material impact in the quarter. Though there were some temporary store closures for our distribution business, and we expect some customer projects to be delayed. We're very proud of our overall team in helping customers address clean water needs and supporting wastewater challenges through our relief support and ongoing efforts to help our customers and our communities. As a result of lower-than-anticipated sales during the quarter and normalized demand expectations, we are lowering our full year guidance, which Jeff will provide more details on in his comments. And with that, I will now turn the call back over to Jeff.

Thanks, Joe. Overall, our third quarter was solid, but below our expectations. The Water Systems segment set new third quarter records meeting last year's record third quarter. Distribution delivered sales and operating income growth versus last year and sequentially, while Fueling segments results in higher SG&A cost across the company hurt our overall results. Our fully diluted earnings per share were $1.17 for the third quarter of 2024 versus $1.23 for the third quarter of 2023. Moving to Slide 7. Third quarter 2024 consolidated sales were $531.4 million, a year-over-year decrease of 1%. The sales decline in the third quarter was primarily due to lower volumes largely in our international Fueling business and large dewatering equipment to US. fleet rental customers and the negative impact of foreign currency translation, partially offset by pockets of growth, price realization and the incremental sales impact from recent acquisitions. Franklin Electric's consolidated gross profit was $189.7 million for the third quarter of 2024, a 2% year-over-year increase. The gross profit as a percentage of net sales was 35.7% in the third quarter of 2024, up 110 basis points versus 34.6% in the prior year. The gross profit margin was favorably impacted in 2024 by improved manufacturing productivity and utilization with fewer supply chain disruptions, lower freight costs, cost management across the company and a favorable product mix shift. Selling, general and administrative or SG&A expenses were $116.0 million in the third quarter 2024 compared to $107.7 million in the third quarter 2023. The increase in SG&A expense was primarily due to higher employee compensation costs, including incremental expenses associated with the company's CEO transition and the incremental expense impact from recent acquisitions. Consolidated operating income was $73.5 million in the third quarter 2024, down $4.6 million or 6% from $78.1 million in the third quarter of 2023. The decrease in operating income was primarily due to higher SG&A costs. The third quarter 2024 operating income margin was 13.8% versus 14.5% of net sales in the third quarter of 2023. Moving to segment results on Slide 8. Water Systems sales in the US. and Canada were up 1% compared to the third quarter of 2023. Sales of groundwater funding equipment increased 13%. Sales of water treatment products increased 9%, and the sales of all other surface pumping equipment increased 5%, all compared to 2023. Partially offsetting the increase sales of large dewatering equipment decreased 31% compared to third quarter 2023. Water Systems sales in markets outside US. and Canada increased by 4% overall. Foreign currency translation decreased sales by 4%. Outside US. and Canada, sales in the third quarter of 2024 increased in all major markets, EMEA, Asia Pacific and Latin America, excluding the impact of foreign currency translation. Water Systems operating income, a new third quarter record was $52.8 million, up $0.1 million versus the third quarter 2023. The increase was primarily due to price realization, cost management and a favorable product and geographic sales mix shift. Operating income margin was 17.5%, a year-over-year decrease of 30 basis points. Distribution third quarter sales were $190.8 million versus third quarter 2023 sales of $189.2 million, an increase of 1%. The Distribution segment sales increase was driven by incremental sales impact from a recent acquisition, which favorably impacted net sales by 2%, partially offset by the negative impact of commodity pricing declines and unfavorable weather. The distribution segment's operating income was $12.2 million for the third quarter a year-over-year increase of $1.5 million. Operating income margin was 6.4% of sales in the third quarter of 2024 versus 5.7% in the prior year. Fueling Systems sales in the third quarter were $69.7 million, a decrease of $8 million or 10% compared to the third quarter 2023. Fueling Systems sales in the US. and Canada decreased 4% compared to the third quarter of 2023. Outside the US. and Canada, Fueling Systems sales decreased 22%. These declines were due to lower volumes across most major product lines as we continue to have tougher sales comparisons in 2024 versus 2023 and sales in 2023 benefited from working off a very large sales backlog. Fueling Systems operating income was $24.1 million compared to $25.8 million in the third quarter of 2023. The third quarter 2024 operating income margin was 34.6% compared to 33.2% of net sales in the prior year. Operating income margins increased primarily due to improved manufacturing productivity, price realization and cost management. The effective tax rate for the company was 23.6% for the quarter compared to 20.2% in the prior year quarter. This affected -- this change in the effective tax rate had an impact on EPS of approximately $0.05. Moving to the balance sheet and cash flows on Slide 9. The company ended the third quarter of 2024 with a cash balance of $106.3 million and no borrowings outstanding under our revolving credit agreement. We generated $151.1 million in net cash flows from operating activities during the first nine months of 2024 versus $198.6 million in the first nine months of 2023. We are focused on improving cash flow and working capital requirements through managing inventory levels in addition to improvements in customer and vendor terms. Our priorities for capital allocation are covered on Slide 10. Aligning with that strategy, the company purchased about 92,000 shares of its common stock in the open market for approximately $8.7 million during the third quarter of 2024. At the end of the third quarter, the remaining share repurchase authorization is approximately 370,000 shares. Yesterday, the company announced a quarterly cash dividend of $0.25 that will be paid November 21 to shareholders of record as of November 7. Moving to Slide 7, taking into account our performance through the first nine months and specifically, our third quarter results as well as our typical seasonal sales pattern in the fourth quarter and higher expected SG&A expenses through the end of the year for the reasons described earlier. The company is lowering its full year sales guidance 2024 to be approximately $2 billion and reducing its EPS guidance for the full year 2024 to be in the range of $3.75 to $3.85. Additionally, as Joe mentioned, we are currently taking actions to reduce costs across the company, including efforts to accelerate productivity. These restructuring activities are not complete at this time, but we expect to have better visibility by the end of the year through which we expect onetime restructuring charges could range between $3 million and $5 million for the fourth quarter. This estimate for restructuring charge is not included in the full year guidance previously provided. Now I will turn the call back to Joe for some closing comments.

Thanks, Jeff. In summary, while the results were lower than expectations, we're pleased with our team's performance and the resilience of the business. We're confident in our ability to overcome macroeconomic headwinds like those we encountered this year and deliver solid results. We're optimistic about our future. And as we execute our strategy, maintain our industry-leading service and bring the highest quality frighten products to faster-growing verticals, our future looks bright. Thank you all for joining us today. And I'd now like to turn the call back over to Andrew for questions.

[Operator Instructions]. And our first question comes from the line of Bryan Blair with Oppenheimer.

Thank you. Morning everyone. So, help us level set, I was hoping you could offer a little more detail on Q4 expectations by segment and recognizing you haven't provided 2025 guidance, but you have offered, I guess, some of the bread crumbs to help us bridge the outlook, perhaps offer a little more color, high-level perspective on growth prospects and related puts and takes across Water systems distribution and fueling looking into next year?

Okay. There's a lot to unpack there, Bryan. Let me start with our outlook for the fourth quarter, which is contained in our outlook for the full year. And obviously, we've adjusted our guidance now for the full year. The factors that are coming into play there. Obviously, the third quarter results, which we've discussed some at this point. But as we moved into the second half of the year, we had a very wet first half of the year. We talked about -- it was an exceptionally wet year across the US. Because of that, we expected some pent-up demand that would potentially push into the second half of the year, and we'll pull through with improved weather as we move into the second half of the year. We did see a slight improvement in weather as we moved into the third quarter, but certainly not materially different from what we've seen earlier in the year. The third quarter statistics, when we look at beta for precipitation across the US., it was the 102nd wettest third quarter of -- the last 129 years. So, we continue to see wet weather there in that pent-up demand, we just didn't see it pull through. And so, that's what drove third quarter results. As we look ahead at the fourth quarter results, I think fourth quarter, we expect will be similar to what the third quarter was. And on a year-over-year basis, the third quarter was comparable to the prior year, our view as the fourth quarter is going to have a similar dynamic for it, and that's what's built into our outlook for the business. I mean when you look at the individual segments, I think the view there is really consistent with the view for the overall company. We've got strength in their US. businesses. We're seeing a little bit of more pressure outside the US. as those economies aren't holding up as good as the US. economy is. We certainly are continuing to see foreign currency translation come outside of the US. That's continuing to build. Within Water Systems, our large dewatering business has been a very big headwind for us this year. As we look at large dewatering equipment sales this year versus prior year, that's on a full year basis is going to be down somewhere in the range of $60 million to $70 million on a year-over-year basis. So, that's a very significant headwind for the business to overcome. They've been doing a fantastic job in all of the other parts of the business to offset that and overcome that. And as you saw in the third quarter, our sales were up slightly, about 1%, but that's overcoming that, a very material headwind there in large dewatering equipment primarily to the US. fleet customers in that business. The other parts of the business have been performing very nice. They're stable. They're solid. They're up on a year-over-year basis, not up as much as we had expected and hoped, but they're still in a healthy territory. I think for Fueling, their year-over-year comp from the fourth quarter of last year was a much better comparison to what it was the first three quarters of this year. So, the fueling business in our view, has normalized in terms of where those sales are. They've worked through those year-over-year comps where we were pulling down significant backlog in 2023. And so, we think that business is positioned to hold steady, and we'll see where it goes in 2025. Joe can talk about some of the outlook for 2020. And I think our customers with major marketers there has been generally positive. High level, I think we talked about some of the higher SG&A costs in the company. We've certainly got higher costs from CEO transition this year. That impact will only be a 2024 impact. We also, have two acquisitions that have added some SG&A into the business for the year. That will lap itself after the fourth quarter as well. And then last thing, I'll just make a comment on for the total company as we are seeing a higher tax rate this year than in 2023. This year, it's going to be approximately 23% for the tax rate for the year. That's related to a higher global minimum tax as well as fewer discretes that would benefit us, which we saw in the prior year. So, tax rate, 23% this year versus about 20% in the prior year.

Yes. Maybe, Bryan, just a couple of thoughts on 2025. Obviously, we're not sharing guidance at this point. But as I mentioned upfront, some of the headwinds in terms of housing sales, housing starts, the challenge with weather and working through a year that didn't make it easy for us. The business still performed relatively well. The teams have been working hard on some new products, getting our acquisitions integrated and bringing those products to our customers around the world. And I would say our expectation, the outlook for next year, definitely, there are some trends that we see. We obviously commented on some order rates here in the back half that are pointing to continued strong activity. I think if some of those macroeconomic headwinds and a few other areas, provide us some relief. I mean, we're cautiously optimistic about 2025. So, maybe I just stop there.

Understood. I appreciate all the color. And obviously, your balance sheet is in very solid shape in excess of 20% of your market cap and deal capacity. How is the -- how is your M&A pipeline? And how are you thinking about the businesses that you're managing in terms of readiness to deploy capital, where is there some self-help needed versus readiness as of now to move forward with inorganic?

Yes. I mean good question, and we're happy to have a healthy balance sheet. I think it puts us in a strong position as we look to 2025. That's our pipeline, we feel good about from an inorganic standpoint. Our focus right now and our thoughts are bringing more great products to our customers. The fact that we've got strong channel and good customer intimacy, I think, puts us in a good position to do that. And that focus on bringing those value-added products to our customers there. I look at some of the new products that we're developing and some of the ideas we have from an inorganic standpoint, and I've referred to a few times moving us to some faster-growing verticals, which we can see today in the residential, commercial and industrial space. I would say we've got some great ideas. We're well in process of assessing and working on those, and we're excited about the position and the strength of our balance sheet to afford us that opportunity.

Our next question comes from the line of Ryan Connors with Northcoast Research.

Good morning, gentlemen. So, I wanted to actually come at this a little bit from maybe the order board perspective because it seems to me that the -- so, in the press release, there was some more cautious commentary about order boards, tempered order activity. I know that there was seasonality was the caveat there. But it seems like, Joe, your commentary on the order patterns seem much more favorable on the call here. So, just wonder if you could unpack that for us a little bit. And obviously, there's seasonality in 4Q, but presumably, that would have been known in July when the last guidance was set. So, some things must be incrementally worse than expected. So, just trying to get some more color on the order patterns that you're seeing across the businesses and how it boils down to the guidance, but yet gives you still some good optimism into next year?

Yes. No, good question, Ryan. I think one thing is, and Jeff covered this well, Q4 last year, order rates definitely slowed down as we got into the fourth quarter and the end of the third quarter. So, I think that, that benefit there as we look at year-over-year order rates, clearly, that comp is a good thing or is helping us this year. But given the lower order rates last year, we did have the benefit of a backlog that was still built up, and we are working through it as we work through 2023. So, some of those order rates that they accelerate aren't showing up necessarily for each business into increased revenue. So, that's the balance that we're working through between now and the end of the year. I think just in terms of order rates overall, as most companies in the industrial space work through some of the overhangs of channel normalization, backlog normalization, et cetera. We like looking at those just to make sure that we're getting a sense for trends of the business as an indicator, which is why we mention them today. Obviously, they're not -- it's not enough to provide a big offset given the comps, like I said, from the backlog brought down last year. But as we look at trends and parts of our business that we want to be prepared for some nice growth going into next year, those are really good indicators for us.

Yes. That's very helpful. Now the other thing was, at least within our model here, the SG&A was a big delta. So, I want to kind of dig in on that a little bit, too. I know that the two factors you had the acquisition and the leadership transition again, presumably, the leadership transition stuff would be, I would assume, pretty well known, -- nothing in the three months would really change there. So, just curious if you can quantify those -- the relative impact of those two things. And then as we look into next year, it seems like what your -- the key message I'm getting is that you really are going to normalize back down. This is a short-term blip in SG&A -- but when we say SG&A is going to normalize, does that mean we kind of stabilized? Or do we really lurch back down just like we're lurching up here in 3Q in the second half?

Yes. Thanks, Ryan. A couple of comments here on SG&A overall for the company. For the full year, the two pieces you mentioned there, the CEO transition and the incremental acquisitions. For CEO transition, the full year impact on 2024 is going to be in that $3 million to $3.5 million range total cost overall. And we didn't incur much of that very little in Q2. That will be a Q3 and a Q4 impact for us for 2024 and then that will normalize in 2025. For the acquisitions, we're seeing about $1.5 million, $1.6 million in the third quarter was additional SG&A that came from those acquisitions. And so, if you just annualize that, you're going to be somewhere around $6 million of additional SG&A pickup, just north of $6 million for that. The other increases we've seen in SG&A, part of that is just coming from normal inflation, and we've got to continue to be competitive in compensation expenses for employees across the globe. Some economies outside the globe are seeing much higher rates of inflation than what we're seeing here in the US. Certainly, those numbers are coming through as well. Hopefully, somewhat offset by currency translation, but not fully covered by that impact there. And then we are continuing to make some strategic investments in areas where we want to grow and build and we expect that those investments will start to come through in 2025.

And maybe, Ryan, just to build on that. I think those investments, largely we've executed. So, we're working on digital tools to make it easier to do business with. We're working on some website enhancements, working on a number of things that largely will be behind us as we go into 2025. So, I think we're -- we didn't get the growth, which makes SG&A stand out a little bit more. To your point, most of these were known, I think some of the other ones in terms of managing our shorter-term cost actions and just making sure we get that in line. So, we can reinvest in 2025. Those efforts are well underway. And to Jeff's point, we have some work to do in Q4 to fully realize those.

Your next question comes from the line of Mike Halloran with Baird.

Good morning, everyone. So, a couple here. First, just can you talk to two things here, inventory levels through the water channel and similarly, how you're thinking about pricing through the water channels? Both on the headwater side and on the more traditional product side?

Yes. We can, Mike. I would tell you that I think inventories -- it's in a good spot. It's normalized. We have opportunities to continue to bring inventory down, and we'll do that through the fourth quarter as we typically do, consistent with the seasonality that we see in the company, and that will generate some good cash flow, free cash flow through the end of the year. Our free cash flow through three quarters was 83%.Free cash flow conversion, we expect that that's going to be north -- definitely north of 100% at the end of the year. So, inventory levels are, I think, generally normalized in the channel, in the Water Systems business and the Distribution business. I also, think that they've taken their inventory levels down to be consistent with where we are. Obviously, the improvements in supply chain and fewer supply disruptions and availability of products have helped provide the ability to rationalize and normalize that inventory. On pricing in Water Systems, obviously, it's a global business, and so, there's a little bit of -- you kind of have to take each part of the business individually. But overall, we're getting positive pricing in our Water business, getting positive pricing in our Distribution business for our engineered products or high value-added products, pubs motors, drives and controls. In distribution, we do have unfavorable negative pricing on commodity products, plastic pipe being the big driver there, that -- those price decreases are kind of low mid-single digits quarterly and have been for several quarters. And so, what we're doing there to try to manage through that is bring our inventory down, turn that inventory faster. So, we don't have it in our warehouse as much as long as we did previously. So, that should help lessen the impact, but we're still seeing unfavorable pricing there in that business.

And maybe just a comment on how we're thinking about that environment here as we go into next year. Our general view is price and productivity offset inflation, will probably lean heavier on productivity next year. I think pricing is a more normalized type environment as inflation settles a little bit, but we still expect labor, inflation and other challenges. Obviously, we're in interesting global time. So, we're looking at those levers. But probably a more normalized environment with some more measured price increases as we go into 2025.

Makes sense. Appreciate that. And then, Joe, I heard you really comment on kind of first impressions. But question is, you inherited a company that was in a good spot organizationally. And so, where is the focus for you from an iterative change perspective? Or where do you think different emphasis might come as you think about your early days with the company and what might shift a bit?

Yes. No, it's a really good question. And you're right. I mean I'm very thankful to have come into a very strong and well-performing company. And it's been fun to go through the summer and spend time with Greg and travel around the world and visit the team. I can tell you what I -- when I think of and we just came through a great review with our Board, reviewing our strategy I think the seeds of those opportunities are there right now. And I look at some of our new products and the innovation that we're bringing to market. One thing that's exciting to me is given the close touch we have with customer and the new products, if you look at the electrification and the focus on efficiency, some of our new variable frequency drives for industrial and residential are tremendous. Some of these down the market today, like our Q Drive or coming to market like HerQDrive, other things in terms of different IoT solutions or some of the markets that I talked about before, where Franklin's demonstrated we're -- compared to some of our peers, a younger pump company and the presence and the recognition in the groundwater space is through just a ton of hard work, ton of great products and a ton of customer intimacy. I think some of those other verticals really afford us the opportunity to build that same reputation in commercial and industrial and other spaces in residential. So, for me a little bit, there's two words I'd probably use more than my team is -- or their tired of hearing, which is about focus and velocity, which is let's focus on some of the needle movers and let's really get them moving and moving quickly. So, some great feeds and great innovation and ideas are there. And I think that's going to be my start. I would mention that -- and I think for those that know my background, growing up running operations and supply chain, I think the ability with data and digital tools to further integrate the business, improved planning, improve forecasting, improved visibility. Those are some areas that we're going to focus on as well just to make sure that as the markets do turn and some of them we expect will come faster than most predict end-to-end Franklin's ability to manufacture to produce and to distribute is very unique. So, I think it gives us a nice opportunity.

Our next question comes from the line of Walter Liptak with Seaport Research.

Hi. Thanks. Good morning, Joe and Jeff. I wanted to ask about the fueling business. And you talked a little bit, Joe, about the major retailers, the projects are looking decent for next year. I wonder if you could provide maybe a little bit more detail how are they looking US. versus international? And the -- any risks. Some of your competitors are talking about labor risks and some other things that could impact fueling?

Yes. No, I think it's a good question. The US. has been -- I think we mentioned this a few times, times has been relatively stable. Some of the pullback has been a little bit more in our international business. But maybe just starting in the US. one thing as a manufacturer and a big user of labor ourselves around the world, labor constraints have been a challenge in terms of some of the build-outs from our major marketers. It's always hard to predict whether that tempers -- but I think what you're finding is the labor market that's a little bit less volatile right now going into 2025, as we've seen post COVID. So, that gives us some confidence, and I think gives our marketers some confidence as well. As we've talked about before, interest rates in a rising environment definitely make it more challenging for bigger capital deploys. We don't know what the Fed is going to do, no one does, but I think the expectation that, that tempers a little bit as well. I think both of those indicators are generally positive. And some of this is just feedback in terms of we've got great partners, the major marketers we work with, we work closely with, as they see those opportunities, we're ready to serve them. So, in general, I would say North America, we feel pretty good about. I think international is a little bit harder just given some of the other disruptions that we see around the world. But I wouldn't call out and just make this case, Franklin's commitment to manufacturing and to serving customers around the world. I think you see the benefits of that result. And I think that's a little unique to our business. Our growth in Latin America, our growth in Europe, our growth in APAC, we feel good about those and finding the right opportunities to be able to grow the business. Fueling has those opportunities as well, which is why we've highlighted those specifically in the call today.

Okay. Great. And I wanted to switch over to just the $3 million to $5 million of restructurings that you guys are doing. I don't really recall you guys doing restructurings in the past. So, I wonder if you could just provide some detail? Is this somehow across the board? Or is it strategic to different parts of the business? And just any color you can provide there?

Thanks, Will. Let me give a little additional color there. And as I indicated in the prepared remarks, I can't get too deep into the details here as it's still a work in progress, and we're still working through some of the things we're looking at and opportunities. But some of the key areas we're focusing on are certainly in the near term, we're focusing on lowering and decreasing our discretionary costs in the company. So, we got to tighten the belt a little bit given where we are from a top line perspective. Managed costs, these are primarily, I would say, across the company. It's not -- there's not a heavy focus or a more and you focus on one area or another. Certainly, holding back on we were adding additional cost or new cost into the company in areas except where they're absolutely critical generally, that's including headcount along with it, but the big focus on managing costs there. We are evaluating some footprint optimization projects. I would say those are across the manufacturing and distribution parts of our business. And I can't say much more about that because we're really working through what those options and details would look like at this point in time. And then just another part of the business looking for structural improvements where we can take cost out that would impact our bottom line as we move into 2025. So, at a high level, I would say those are the primary areas of focus.

Okay. Great. Okay. And then just the last one for me on a different topic altogether. Joe, you brought up the hurricanes and that you've not -- you didn't see an impact. Did you mean that you didn't see an impact in the third quarter or you didn't see an impact in the fourth quarter, too?

Yes. Sorry, if that wasn't clear. I think in Q3, we didn't see much material just given the timing Generally, for something like that, I would just -- I would say we deal with hurricanes every year. I think what was unique about this one was how one, obviously, Helane, pushed inland -- so, one comment I made is our team did a great job with some good volunteer service and good support of local customers and the communities to make sure that we're bringing our products there for use, but from an impact standpoint, generally, a hurricane will slow revenue down immediately and then provide us some opportunities as recovery efforts happen. So, I think right now, what we would say is as we came into Q4, some of that slowing down, definitely was there, but we think that's a push to the right and largely for this year for us, it won't have a significant impact.

Next question is a follow-up from Ryan Connors with Northcoast Research.

Yeah, thanks for fitting the follow up. Just a clarification on housekeeping. So, the $3 million to $5 million in restructuring, I think you mentioned, Jeff, that, that is not contemplated in the guidance. So, the guidance is effectively a non-GAAP figure and then we would be $3 million to $5 million lower than that on the GAAP net income. Is that -- or operating income? Is that the right way to think about that?

That's correct, Ryan. Based on based on what actions we end up taking, yes.

Thank you. I'll now hand the call back over to Chief Executive Officer, Joe Ruzynski, for any closing remarks.

Thanks, Andrew. I want to thank everyone for joining us today. We hope you all have a great week. We look forward to some good progress and to see you all again after the fourth quarter. Thanks, everyone.