Hello, and welcome to the Franklin Electric Co., Inc. Reports fourth quarter and full year 2024 results 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 star one one on your telephone. You will then hear an automated message advising that your hand has been raised. To withdraw your question, please press star one one again. 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 Co., Inc. fourth quarter and full year 2024 earnings conference call. With me today is Joe Ruzynski, our Chief Executive Officer. On today's call, Joe will review our fourth quarter business highlights, then I will provide additional details on our financial performance, and Joe will make some additional comments related to our key growth and value drivers along with our outlook. We will then take questions. Before we begin, let me remind you that as we conduct this call, we will be making forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to various risks and uncertainties, many of which could cause actual results to differ materially from such forward-looking statements. A discussion of these factors may be found in the company's annual report on Form 10-K and today's earnings release. All forward-looking statements made during this call are made on information currently available, and except as required by law, the company assumes no obligation to update any forward-looking statements. Earlier today, we published a slide deck to accompany our prepared remarks. The slides can be found in the Investor Relations section of our corporate website at www.franklin-electric.com. With that, I will now turn the call over to Joe Ruzynski.

Thanks, Jeff. Good morning, everyone, and thank you for joining today's call. I'm pleased to share that the Franklin Electric Co., Inc. team delivered a solid close to a challenging year. We worked through some restructuring, focused our efforts on some faster-growing markets, and saw the breadth of our global portfolio help us grow our international business. This, coupled with the team's strong execution, proved resilient in a year marked by macroeconomic uncertainty. Order volumes continued to improve throughout the back half of the year, and we're excited about the opportunity that lies ahead in 2025. Before we jump into the quarter, I would like to briefly point out that we've transitioned the name of our fueling systems segment to energy systems. The product portfolio within energy systems remains unchanged along with our reporting structure, so this transition is in name only. Over time, we've launched several energy-related products such as our critical asset monitoring and grid solutions offering, which all make up about 25% of the segment's revenues. We see the need growing for smart products in this segment, both in our base business, serving major marketers and wider power applications in utilities, data centers, and grid strengthening. While our historical fueling products remain core to our strategy and have a positive outlook, we believe this change more closely aligns with the nature of the business today and our long-term goals. Moving to page four on the slide deck, I want to highlight some of the recognition our team has achieved this past year. We believe a company starts with its people and its promise. We take great pride in our culture and our commitment to our customers and the problems we help solve. I want to thank our team for all of their hard work this past year. Now, turning to our results on Slide five. Consolidated fourth quarter sales totaled $486 million, up 3% over the prior year period. Growth in our distribution and energy system segments drove this performance, while the water systems business remained flat. Operating margins for the quarter were 9%, a decrease from the prior year. This reflects more challenging global foreign exchange headwinds, continued pricing pressure, unfavorable geographic and product mix in the water systems segment, and over $3 million of restructuring charges, which we mentioned last quarter. This was partially offset by a notable margin improvement in energy systems. Strong U.S. sales, disciplined cost management, and streamlined operations supported results. We expect our productivity actions implemented in 2024 to benefit us as we enter 2025. Looking at full year 2024, we faced a challenging macroeconomic environment. Housing starts have yet to rebound, and interest rates remain high. Having worked through elevated post-COVID backlogs, we experienced a normalization of demand paired with a net neutral impact from weather. I'm proud of our team's efforts in capturing growth throughout various parts of our business despite a softer demand environment. Our global footprint is a key differentiator of our business, and it can provide important insulation against the challenging environment. Growth in Europe, Latin America, and APAC regions remained strong throughout the year, reinforcing the value of our diversified international presence. Our foreign currency translations continue to present headwinds, but our book-to-bill ratio is favorable. With healthy order trends, we're looking forward to capitalizing on opportunities in 2025. Now let's take a closer look at our segment's performance for the quarter and the full year.

On slide six, the water system segment delivered flat sales for the fourth quarter compared to the prior year. Favorable volumes and contributions from acquisitions were offset by negative impacts from foreign exchange as underlying demand remains healthy. In the U.S. and Canada, groundwater sales were up year over year, and bright spots within our small surface pumps and large dewatering pumps were encouraging. Outside the U.S., performance was robust across most regions, with challenges in Argentina driven by the devaluation of the Argentine peso impacting results. For the full year, the water segment was solid, despite a pullback in our U.S. fleet business for large dewatering products, as we lapped a comparable year of strong sales from pent-up demand and higher backlog stemming from supply chain constraints. Momentum improved towards the end of the year, and we expect more normal growth as we progress through 2025. I'd also like to call out a strategic acquisition that we completed this month: a water systems business in Australia specializing in submersible pumps for the mining and industrial sector that complements our existing portfolio. It aligns well with our growth framework and underscores our commitment to identifying and executing on opportunities that strengthen our overall business. We've also recently signed a definitive agreement for a company in Latin America with a projected close in early March. Barnes De Colombia will bring a very complementary set of products and a vertically integrated operating footprint to help us grow our strong position in Latin America and beyond. In the energy systems segment, sales for the fourth quarter were up mid-single digits, driven by both favorable pricing and higher volumes. Performance was particularly strong in the U.S. where demand remained resilient. Looking at the full year, while the energy segment delivered a strong fourth quarter, sales were down 8% for the first three quarters as they were up against a challenging year-over-year comparison due to elevated backlogs and a slower start to the year with new investments. Nonetheless, this segment achieved a record operating margin for 2024, reflecting our disciplined approach to cost management and operational efficiency. The distribution segment grew mid-single digits in the fourth quarter with increases driven by favorable volumes and contributions from an acquisition earlier in 2024. Margin declined during the quarter as we worked through cost reduction actions, and the sequential lower volume in the fourth quarter from normal seasonality impacted the operating leverage. The distribution's full-year performance was driven by similar factors, in addition to commodity pricing pressure on results throughout the year. The trend in price decline lasted longer than the historical norm, but we expect to see stabilization in the coming year. While we have little control over the commodity pricing environment, we will focus on streamlining our operations, bringing new value-added products to our customers, and driving structural margin improvements to ensure we continue to deliver profitability irrespective of pricing trends. Now I'm going to hand the call back to Jeff to review our financials in more detail. Thanks, Joe. Our fully diluted earnings per share were $0.72 for the fourth quarter of 2024 versus $0.82 for the fourth quarter of 2023. While down from the prior year, we were pleased to deliver results at the high end of our guidance range. Moving to slide seven, fourth quarter 2024 consolidated sales were $485.7 million, a year-over-year increase of 3%. The sales increase in the fourth quarter was primarily due to higher volumes across all three segments and the incremental sales impact from acquisitions completed in early 2024, primarily offset by the negative impact from foreign currency translation. Franklin Electric Co., Inc.'s consolidated gross profit was $164.2 million for the fourth quarter of 2024, a 3% year-over-year increase. The gross profit as a percentage of net sales was 33.8% in the fourth quarter, flat compared to the prior year. Selling, general, and administrative expenses, or SG&A, were $117.8 million in the fourth quarter compared to $108.8 million in the fourth quarter of the prior year. The increase in SG&A expense was primarily due to higher employee compensation costs and the incremental expense impact from our 2024 acquisitions. Restructuring expenses were $3.4 million in the fourth quarter of 2024, up from $0.4 million in 2023. Restructuring actions in 2024 related primarily to headcount reductions and facility closures to optimize our cost structure. Restructuring costs negatively impacted earnings per share by $0.06 during the fourth quarter. Consolidated operating income was $43 million in the fourth quarter of 2024, down $7.8 million or 15% from $50.8 million in the fourth quarter of 2023. The decrease in operating income was primarily due to higher SG&A and restructuring costs. The fourth quarter 2024 operating income margin was 8.9% versus 10.7% of net sales in the fourth quarter of 2023. Moving to segment results on slide eight, water system sales in the U.S. and Canada were down 2% compared to the fourth quarter of 2023. Sales of water treatment products increased 12%, sales of groundwater pumping equipment increased 6%, and the sales of all other surface pumping equipment increased 4% compared to 2023. Offsetting the increased sales of large dewatering equipment decreased 36% compared to 2023. Water system sales in markets outside the U.S. and Canada increased by 2% overall. Foreign currency translation decreased sales by 6%. Outside the U.S. and Canada, sales in the fourth 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 was $35.6 million, down $8.5 million versus the fourth quarter of 2023. The decrease was primarily due to lower gross margin as a result of unfavorable geographic mix in sales and negative foreign exchange impacts, higher SG&A costs, and restructuring expenses. Operating income margin was 12.7%, a year-over-year decrease of 310 basis points. Distribution's fourth quarter sales were $150 million versus fourth quarter 2023 sales of $148 million, an increase of 6%. The distribution segment sales increase was primarily due to higher volumes and the incremental sales impact from a recent acquisition in early 2024, partially offset by the negative impact of commodity pricing declines. The distribution segment's operating income was $0.5 million for the fourth quarter, a year-over-year decrease of $0.5 million. Operating income margin was 0.3% of sales in the fourth quarter of 2024 versus 0.7% in the prior year. Recognizing our evolving portfolio and strategy, we renamed our Fueling Systems segment to Energy Systems to better reflect the markets and customers served by this business. Energy system sales in the fourth quarter were $68.8 million, an increase of $3.1 million or 5% compared to the fourth quarter of 2023. Energy system sales in the U.S. and Canada increased 10% compared to the fourth quarter of 2023. Outside the U.S. and Canada, energy system sales decreased 5%. Energy Systems operating income was $24.7 million compared to $19.4 million in the fourth quarter of 2023. The fourth quarter 2024 operating income margin was 35.9% compared to 29.5% of net sales in the prior year. Operating income margin increased primarily due to improved VenueTech productivity and a favorable geographic mix of sales, price realization, and cost management. The effective tax rate was 15.8% for the quarter compared to 17.6% in the prior year quarter. The change in the effective tax rate was driven by favorable discrete items and had an impact on EPS of approximately two cents. Moving to the balance sheet and cash flows on slide nine, the company ended the fourth quarter of 2024 with a cash balance of $220.5 million and $41 million outstanding on a revolving credit agreement. We generated $261.4 million in net cash flows from operations activities during 2024. Free cash flow conversion was strong at 122% for the year due to continued progress on reducing working capital. The company did not repurchase any shares of common stock in the open market during the fourth quarter of 2024. At the end of the fourth quarter, the remaining share repurchase authorization was approximately 1.4 million shares. Last month, the company announced a 6% increase in the quarterly cash dividend to 26.5 cents. This dividend will mark the 33rd consecutive year that Franklin Electric Co., Inc. has increased its dividend, demonstrating its commitment to returning cash to shareholders and confidence in the outlook of the business. Moving to slide ten, the company expects its full-year 2025 sales, including the impact of our recently announced acquisitions, to be in the range of $2.09 billion to $2.15 billion, and GAAP EPS or earnings per share to be in the range of $4.05 to $4.25. Additionally, we are initiating a process to terminate our primary U.S. pension plan, which if successful would impact our 2025 results. We have not assumed any impact from a potential future termination in our 2025 guidance, and we will provide updates during the year as we move through this process.

Before we open it up for Q&A, I wanted to share a few thoughts on our valuation framework and our road ahead starting on slide eleven. As I continue to spend time with our global teams, customers, and investors, my optimism for Franklin Electric Co., Inc. as a compelling investment opportunity has only grown. Our valuation framework centers around four key pillars: growth acceleration, resilient margins, strategic investments, and attracting and retaining leading talent. These elements will serve to guide our strategy and decision-making as we strive to deliver value for our stakeholders. We believe we can accelerate growth and drive share gain by leveraging our market leadership position and strong relationships, amplified by our focus on faster-growing verticals. With our global network, we have the capability to deliver both legacy products and new innovative solutions to the various geographies and end markets in which we operate and where the needs are greatest. Wherever we are, innovation is the heart of our business, and we strive to be our customer's partner of choice. Our resilient margins are made possible by the Franklin operating system, which we employ across the enterprise to increase productivity and efficiency. Whether it is our continued productivity objectives or portfolio simplification, data is always at the forefront. And I'm excited about our ability to optimize the business with data and digital tools. For our investments, we deploy capital across several priorities that drive growth, create value, and strengthen our market position. Our M&A pipeline and the supporting activity are active and aligned with our strategy. I'm going to touch more on these in just a moment. Finally, putting all these pieces together is our incredibly talented team. The numerous awards we've achieved as an organization are a testament to the commitment to attracting and developing top talent, ensuring that talent feels safe, heard, and respected in our workplace. Turning to slide twelve, you can take a deeper dive on our capital allocation performance and priorities. Starting with accretive M&A, a key lever for delivering value to our shareholders. While the pace of acquisitions has been slower over the past year or so, we're excited about our robust pipeline. Our focus remains on capacity expansion and acquiring profitable and growing product-based businesses that align with our strategic priorities and disciplined evaluation framework. While we have historically completed many bolt-on acquisitions, our teams are ready and able to execute on a strategic deal if the right opportunity presents itself. Expectations and valuations in the market are normalizing. The market is healthy, and it's active. We also see an advantageous position given the health of our balance sheet. We continue to assess opportunities on a deal-by-deal basis, but our general guideposts are clear. Acquisitions must be accretive within two years and able to achieve a target return on investment capital within three years. On the organic side, we set a compound annual growth rate, which is above market growth, achieved through investments in capacity, innovation, and digital capabilities. Our capital expenditures have been consistent over the years, supporting nearly thirty new product launches in 2024 alone. Reinvesting in our business is critical to our success, helping advance our leadership position in the market and deliver solutions for critical water and energy needs around the globe. Our next priority is managing leverage. We have a very strong track record of paying down debt, with a net leverage position currently well below our target range. Franklin Electric Co., Inc. has ample balance sheet flexibility to support our objectives. Finally, we have a commitment to return cash to shareholders through dividends and share repurchases. Franklin Electric Co., Inc. has increased its dividend in each of the last 33 years, a long history that showcases the company's consistent execution, strong financial performance, and balance sheet health. With any excess cash, we're always looking for opportunities. Moving to slide thirteen, we wanted to give an example of our focus on investments and growth. We recently closed a deal with a product-based company called Pump Edge, with a complementary submersible dewatering product line. This increases our exposure to a number of markets we see as growing faster, namely OpEx mining, construction, municipal, and sewage bypass along with select industrial markets. Access to critical minerals and investments in infrastructure have seen good growth for us this past year, and we see this continuing. We also see opportunities in some newer channels to markets and service business. With a strong balance sheet, we see product acquisitions as a great opportunity in 2025 and beyond. To conclude, we are incredibly excited about the long-term growth potential of Franklin Electric Co., Inc. The portfolio has good exposure and attractive end markets supported by secular growth. We're committed to adding products and capacity to high-growth areas, and by leveraging our global footprint, we have the ability to introduce products to additional geographic markets and capture further growth. Our strong balance sheet and thoughtful capital allocation strategy support these endeavors, giving us the flexibility to capitalize on value-add opportunities as they arise. And finally, we're not just looking for growth, but profitable growth. We are committed to driving operational efficiency with the Franklin operating system, as we've demonstrated this year. We're able to accelerate productivity when needed. We will continue to execute on our key initiatives in 2025, and I'm confident in our progress. Between our industry-leading service, innovative products, faster-growing verticals, and strong operational execution, there's a lot to be excited about at Franklin Electric Co., Inc. We are optimistic about our future. This concludes our prepared remarks, and we will turn the call over to Andrew for questions.

Thank you. As a reminder, to ask a question, please press star one one on your telephone. Wait for your name to be announced. To withdraw your question, please press star one one again. And our first question comes from the line of Matt Summerville with B. A. Davidson.

Thanks. Excuse me. A couple questions. First, can you maybe give a little more color on the groundwater business in terms of what you're seeing in both residential and ag markets? Not only for the fourth quarter, but what your overall sort of expectation might be embedded in your guidance for that piece of the business in 2025.

Yeah. Thanks, Matt. Good morning. You know, our expectation for next year is probably a year that the market is gonna be fairly similar to 2024. You know, I think you know, we commented on this, but our ability to grow, we think, is driven by products and, you know, some share gain and really working to make sure that we get our products and serve our customers as well or better than anyone. I think from an ag standpoint, you know, that outlook clearly with prices and some of the other challenges there. It's a little bit less clear to us and a little bit smaller part of our business. You know, that residential side is bigger. But, you know, just we always have to say, finish that up, the replacement market is really the biggest part of our groundwater business, and we see that as a good market this year. So, you know, flattish to not getting a ton of help from the market, you know, but a year that we continue to build on as we did in 2024.

Yeah. And just a little more background. So Matt, for the fourth quarter and the full year, our groundwater business was up low single digits between 1% to 2% overall. Stronger in residential and a little slower in ag. Ag was also low single-digit growth year over year, whereas residential was closer to mid-single digits overall for our water business. And so in the groundwater space. And so as Joe pointed out, replacement demand is very stable, and we see that stability in the results today. But, you know, we do see some challenges there on the ag side, and, you know, we'll see. We've got that business forecast slightly up for the full year.

Got it. And I didn't hear anything in the prepared remarks, but just what's your thoughts on how Franklin Electric Co., Inc. would be positioned from an overall tariff standpoint? And then, Jeff, if you could just provide a breakout in terms of where that restructuring charge maybe fell at the segment level, that would be helpful. Thank you.

Yeah. I think good question, Matt. I think we, like most industrial companies, have a pretty dedicated team to understanding the changes in tariffs and then what our reaction needs to be. So that team is well structured. I think our understanding of tariffs, you know, if and when some of them hit, it's really a combination of a few things. One is, I think, with a strong brand and the ability to control some pricing, you know, if tariffs continue to escalate, we would have to accommodate that through some pricing. But also, you know, with the global footprint, supply chain actions, manufacturing efficiency, and potential redundancies in terms of where we pull that product are all opportunities that Franklin Electric Co., Inc. has. Our exposure to China is not that significant. There was some exposure, you know, that we had to take into account, which is included in the AOP related to what else could happen in the U.S., Mexico, Canada. We're ready for it and prepared to take action, but, you know, I guess we'll wait and see what the next weeks and months bring.

Right. And then part two of your question, Matt, in regards to restructuring, that does get pushed down to our segments. And so in the water business, there was about $2.3 million of restructuring, and Distribution had about $600,000 or $0.6 million, and energy had about $400,000 or $0.4 million in the quarter. We did have cost improvement activities in our corporate area as well, but they technically didn't.

Understood. I'll get back in queue. Thank you, guys.

Thank you, Matt.

Thanks, Matt.

Thank you. Good morning, guys.

Morning, Bryan.

I'd like to ask a, I guess, a level-setting question on the renamed energy systems. You mentioned about 25% of the mix being critical asset monitoring and grid solutions. Can you offer recent rates of growth or decline for the newer energy systems revenue relative to legacy fueling applications and also remind us of the respective margin profiles of the business?

Yeah. You know, on the critical asset monitoring and some of the grid-related products, the first three quarters of last year were slower than some of the growth that we saw in 2023 and 2022. That picks up momentum as we exited 2024, and we expect a good year in 2025. I think you see it if you look at some of the utility other companies that, you know, there was definitely a softer spot thereafter, a really hard pull in 2022 and 2023. But we see that business, you know, continuing to be robust and to grow. So in addition to that, you know, some of the smarter solutions that we offer, and I think I mentioned this, we bring to the legacy customers, the major marketers. So if you think of a service station and some of the smart products that we offer there, you know, we have that opportunity to leverage some of the monitoring, sensing, and other technology across that entire energy system segment. And the margins for that business in the grid or the power monitoring maintenance asset monitoring, the margins are very good. Jeff, I don't know if you wanted to follow up on anything.

No. I just think if you look at the last couple of years, you know, that business had its record year in 2022, really driven off of, you know, pent-up backlogs from COVID coming into 2022 and then supply chain challenges and constraints in 2023. And so, you know, 2024 was a year where we had really tough comps every quarter in the year. We're effectively past those tough comps in this business. And, you know, the backlogs have now normalized, and we see that demand is stabilized and now moving forward, you know, gonna start to pick up hopefully.

Bryan, one other comment there, just critical asset monitoring. What we like about that from a forward standpoint is it replaces some of the manual monitoring that has to happen across the grid and across the power infrastructure. So, you know, as labor gets tighter, as the need for more automated solutions becomes more important, I think it's gonna be a great area for us going forward.

It all makes sense. I appreciate the color there. It would be also great to hear more about Barnes and the strategic fit of the asset. I suppose beginning with the degree of portfolio overlap, we were looking through the website. It's a pretty diversified product line that Barnes has. So I'm just curious where you have overlapping technologies versus what is truly incremental to Franklin Electric Co., Inc. offerings, and then if you're willing, perhaps give us the key financial metrics on the deal, price, valuation, anticipated P&L contribution.

Yeah. I'll comment on just strategic alignment, and then, Jeff, maybe overall for the two deals that we talked about today, can you just give a sense for that impact? You know, for Barnes, where we have similar products in terms of application or, you know, what those products do, you know, these products are there's really that complete commercial line of surface pumps. They've got a number of wastewater products and other things, but they've been built for they are well attuned to and ready to serve the Latin America market. I think, you know, we mentioned this comment about global presence a few times today. You know, our ability to serve within region versus move product around the world. We do that, of course, at times. I mean, we are a global company. But that ability to be efficient and to scale within the region is important. Barnes gives us a great opportunity to do that. I think also, you know, as companies are trying to find to get their casting to lower cost sources, you know, the fact that Barnes is vertically integrated with the foundry that we can build upon that and be self-reliant, I think, is a great position for us here as we go forward.

Yeah. And, you know, really excited to have, you know, these two acquisitions, one completed and closed. And just to remind everyone that the Barnes De Colombia acquisition is we signed a definitive agreement, but we haven't closed yet. So we expect that around March first or early March, as Joe indicated in his prepared remarks. So you know, we do have the impact of these acquisitions built into our full-year guidance on a because they'll be prorated for ten months, approximately ten months of the year, the revenue impact of the two deals combined is going to be approximately $50 million of top-line revenue for us, and that's built in once again into our guidance range. We haven't disclosed the purchase price of either of the deals individually. What I would say is and, you know, this will be reported in their certainly, in our first quarter filing. We expect that the combined purchase price of the two businesses will be at a $125 million range. For us, we would expect to finance that effectively through cash on the balance sheet. So not adding any new debt. On an EPS accretion basis, it'll be approximately $0.03 for the full year for the two businesses. There will be acquisition accounting, amortization that will get added to the balance sheet or to the income statement. And that'll certainly impact us. But from a valuation perspective or a margin, we expect the EBITDA margin of each of these businesses to be in the high teens to 20 plus percent range for EBITDA or larger. So that's a little background on the acquisitions.

Understood. Appreciate the color.

You're welcome. Thank you.

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

Hey, good morning, gentlemen.

Morning, Mike.

A follow-up to that. Could you just round out then the composition of how you're thinking about the growth for the year? What FX is? What the organic is? And then how are you thinking about sequentials embedded in guidance and if there's any improvement fundamentally in numbers or underlying demand trends or relatively stable expectations from where we sit here today adjusting for seasonality as you work through the year.

Yeah. Last time I'm back there, Mike. So we'll try to get as much of that as we can. Let me start with maybe walking through some of the guidance assumptions that we have. And obviously, you know, we're gonna start 2025 effectively the way we finish 2024, and I think it's human nature to effectively think things at some level will continue the way they've been going. So we see, you know, moving into Q1 similar to what we saw in Q4. Although, you understand the seasonality of our business and you know that the first quarter is typically the lowest quarter of the four quarters in a calendar year. And so we expect to see that normal seasonality in all year profile of the business. Without giving quarterly guidance, what I would say is this, you know, the first half is typically a little wider than the second half. Think if you like, historically, it's around 48% in the first half and 52% in the back half of the year. Is how that seasonality shapes that first half to second half. But, you know, as we sit here today, we see, you know, economic conditions are reasonably stable yet with certain, you know, with some level of uncertainty out certain areas. And, obviously, you know, interest rates, tariffs, inflation are three big factors. But, you know, interest rates as we sit here today appear to be flattish, probably more likely that interest rates would go up in the future than go down, at least, you know, based on our read of what we're hearing from the Fed and other economists. You know, our view is effectively flat at least, you know, going into the year. Housing market has been challenged. We expect that the housing market's gonna stay somewhat depressed. I mean, you know, as we move into 2025, potential for the housing market to improve in the back half of the year, but certainly, you know, as we're moving into the first part of the year, that housing market has some, you know, has some pressure on it. Inflation has moderated at some level. It's excluding the impact of tariffs. And the impact of tariffs is Joe's already commented on it. It's kind of yet to be determined what's gonna hold and how long-term or short-term tariffs are gonna be. We feel like our team is well prepared to manage through whatever situation comes through, both in the short term and in the long term.

Jeff, can I ask? Yes, please. Yeah. Mike, maybe just a couple thoughts. I think, you know, we're obviously, you see some of our excitement and optimism for 2025. I think the first half of the year starts, you know, a little flatter to slightly up. Picking up some momentum through the year. I think what's changed for us and what gives us, you know, some confidence, I mentioned order trends are positive, you know, book-to-bill is positive. I think in just the focus of the organization, you know, we spent a lot of time the last four, five months of last year really focusing on where should we make these investments and where should we get that key focus. That'll give us that return. So, you know, we're not sitting back and letting the market dictate, you know, our progress here. And I think, you know, we're starting to see that readout. So, you know, just a little added commentary to Jeff's comments there.

Yeah. A couple of really quick comments here, Mike, just to close out. FX will be a headwind. We expect in 2025, currently, our view is that's gonna be $15 to $20 million. That's about 1% of sales. On an organic growth basis, top line is in the range of 1% to 4% to low to mid-single digits. Two and a half point midpoint. EPS, 3% to 7% organic, and then the impact of the acquisitions. We do expect to capture some operating leverage, you know, as we get the improvements in productivity in managing costs throughout the year overall. And we didn't comment really on our fleet business. The fleet business in 2024 was down materially on a year-over-year basis. We see right now that business is effectively flat on a year-over-year basis in 2025.

Great. Really appreciate it. There was a lot of color there. So on the M&A side, and congrats on the two you just announced. If you think at a forward basis and I heard the prepared remarks, product centricity and fit and everything. How wide of an aperture are you guys thinking? You know, near adjacencies, are you willing to go a little farther afield? And maybe when you think about the focus internally, are there areas that are more interesting than others? All SQL?

Yeah. It's a good question. You know, I think when we look at adjacencies, one of the benefits that we have here at Franklin Electric Co., Inc. is we have exposure to those adjacencies in some capacity, in some region. So I think where we see opportunities, you know, for instance, in wastewater or municipal or other industrial, you know, we can add that focus. We can really move our attention to those markets. So I think from an aperture standpoint, you know, we're not going into something that we have no exposure, no experience, and no market awareness. But, you know, for instance, we talked about the new acquisition in Australia. We saw that business in OpEx mining and some of the industrial markets have tremendous growth last year. Which is one of the reasons we had confidence to add to that portfolio because we see not only, you know, serving markets within regions, you know, in places like Australia and South Africa and others where mining is growing, but also bringing some of that product and introducing it to our strong channel here in North America where we have ready access and have visibility. So I would say, you know, we've got a lot of good work to do in near adjacencies that we have some exposure to today. In wastewater, you know, industrial, other commercial applications. So I think, you know, longer term, there could be some things that push us a little further from that, but the near term is fairly well known to us. I think it's an effort of focusing capital allocation.

Great. Thanks, guys. Appreciate it.

Thanks, Mike.

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

Hey, thanks. Good morning, guys. Just as a follow-on to the M&A discussion, I just want to make sure that I'm understanding that it looks like you're looking at adjacencies and continuing with the smaller bolt-on deals. Were you alluding during your opening remarks to anything transformational size of the M&A deal? Can you talk about that?

Yeah. I think, you know, what we were alluding to is that we're making sure that we're ready for something that's more strategic or transformational. And I think those opportunities the last two or three years, there just wasn't a tremendous amount of opportunity in the market was a bit frothy and valuations were high. We see that changing, Walter, and we want to make sure that for something that's larger than the traditional bolt-on strategy we've had, that we're ready for. And we've got a lot of work to prepare for that, to understand the market, and then to make sure that the right deal for us, you know, we're ready to go. So we're open to it. And, yeah, you've heard that correctly in our comments.

Okay. Great. And what so what is sort of a max size or a debt ratio that you would think about calling up to?

I think it's hard to say what a max size would be, but what I would tell you is this. I mean, if you look at, you know, the fact that we have an incredibly strong balance sheet as we exit last year, so really, you know, we have.

Yeah. I mean, we have yeah. With our current balance sheet, we have about a billion dollars of available capacity for transactions. And depending on the deal, you know, you could go beyond that. But, obviously, it depends on the specifics of any given deal. We've, you know, we've said in the past, I mean, we've had very low leverage on our balance sheet. And, you know, it gives us a lot of flexibility and optionality just like the, you know, the ability to evaluate more strategic acquisitions if the right opportunity presents itself. But from a leverage perspective, I mean, our debt covenant can, you know, limits us at three and a half times. We will not be uncomfortable at two and a half times. And certainly, you know, three times we think is something that's very manageable for the business. At three times, you know, we would want to, I think, have a pretty, you know, aggressive plan to pay down debt quickly and get the balance sheet back to below two and a half times. But we're comfortable if, you know, the right opportunity presents itself to add some debt and leverage to the balance sheet. And we'll see what happens.

Okay. Great. I appreciate the color. And, Marty, and then maybe as a follow-on, just thinking about the productivity and the restructurings that you've done in Q4. Do you have an idea of what the volume leverages at this point, your operating leverage, and from the restructuring and other things that you did, how much benefit do you get from productivity in 2025?

Yeah. I think it's you know, obviously, we've got a diverse business. It's global. There's a lot of factors that come into impacting our operating margin, but certainly from, you know, I think cost control, restructuring activities. We're gonna see somewhere between 20 and 40 to 50 basis points of improvement.

Well, one thing, though, I just had to just comment. You know, we've got a slightly larger capital plan next year than historically we have, and, you know, our incentive is some of those productivity efforts is to invest. Invest that in capacity and invest for growth. So it's not gonna be an exact clean readout, but we do expect the efforts of last year to pay dividends. We also have, you know, some good ideas in terms of where to deploy that money and our focus.

Okay. Great. Did you say what the capex is? What the how much you expect to spend in 2025?

Historically, it's been about 2% of sales, Walter. So, you know, in a $2 billion company, it's been at $40 million or $41 million this past year. I think it'll be higher than that this year, and it'll be closer to 2.5% of sales.

Okay. Great. Okay. Thank you.

Thank you.

Thank you. I would now like to hand the call back over to CEO, Joe Ruzynski, for any closing remarks.

Thank you, and thanks everyone for joining our call today. We appreciate the questions and the conversation. We appreciate the interest in Franklin Electric Co., Inc. We're excited about 2025, and we look forward to talking to you all here the next quarter. Have a great day.

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