FELE's Q3 Net Income Plunges 68.6% on Pension Hit, Sales Up 9.5%

TL;DR

**FELE's Q3 looks rough on paper, but the pension hit is a one-off; underlying sales growth and strategic acquisitions make it a buy on the dip.**

AI Summary

FRANKLIN ELECTRIC CO., INC. (FELE) reported a significant decline in net income for the third quarter of 2025, falling to $17.204 million from $54.894 million in Q3 2024, a 68.6% decrease. Diluted EPS also dropped sharply to $0.37 from $1.17 year-over-year. This decline was primarily driven by a substantial pension settlement loss of $55.251 million. Despite this, net sales increased by 9.5% to $581.714 million in Q3 2025 from $531.438 million in Q3 2024. For the nine months ended September 30, 2025, net income decreased to $109.141 million from $147.317 million in the prior year, while net sales grew to $1.624 billion from $1.535 billion. The company completed two acquisitions in 2025: Barnes de Colombia S.A. for $96.8 million and PumpEng Pty Ltd for approximately $15.0 million, expanding its Water Systems segment. Total assets increased to $1.997 billion from $1.821 billion at December 31, 2024, largely due to these acquisitions and an increase in inventories and receivables. Long-term debt saw a substantial increase to $135.230 million from $11.622 million at year-end 2024, reflecting new senior notes issued under the Prudential and New York Life Agreements.

Why It Matters

FELE's sharp drop in Q3 net income, primarily due to a $55.251 million pension settlement loss, masks otherwise solid revenue growth and strategic acquisitions. Investors should scrutinize whether this is a one-time event or indicative of underlying pension liabilities. The company's aggressive M&A strategy, exemplified by the Barnes and PumpEng acquisitions, signals a commitment to expanding its Water Systems segment, potentially boosting long-term market share against competitors. However, the significant increase in long-term debt to $135.230 million from $11.622 million warrants attention, as it could impact future financial flexibility and leverage ratios, especially in a rising interest rate environment.

Risk Assessment

Risk Level: medium — The risk level is medium due to the significant $55.251 million pension settlement loss which severely impacted Q3 2025 net income, indicating potential volatility from employee benefit plans. Additionally, the substantial increase in long-term debt to $135.230 million from $11.622 million at December 31, 2024, raises concerns about increased leverage and interest expense, which more than doubled to $3.496 million in Q3 2025 from $1.556 million in Q3 2024.

Analyst Insight

Investors should look past the one-time pension settlement loss and focus on FELE's consistent revenue growth and strategic expansion in the Water Systems segment. Consider this a potential buying opportunity, but monitor future debt levels and integration of recent acquisitions closely for sustained performance.

Financial Highlights

debt To Equity

N/A

revenue

$1.624B

operating Margin

13.4%

total Assets

$1.997B

total Debt

$135.230M

net Income

$109.141M

eps

$2.35

gross Margin

36.0%

cash Position

$102.927M

revenue Growth

+5.8%

Revenue Breakdown

Key Numbers

• $17.204M — Net income for Q3 2025 (Decreased 68.6% from $54.894 million in Q3 2024)
• $581.714M — Net sales for Q3 2025 (Increased 9.5% from $531.438 million in Q3 2024)
• $55.251M — Pension settlement loss (Significant one-time expense in Q3 2025)
• $109.141M — Net income for nine months ended Sep 30, 2025 (Decreased from $147.317 million in the prior year period)
• $1.624B — Net sales for nine months ended Sep 30, 2025 (Increased from $1.535 billion in the prior year period)
• $96.8M — Cash consideration for Barnes acquisition (Acquisition in March 2025)
• $15.0M — Purchase price for PumpEng acquisition (Acquisition in February 2025)
• $135.230M — Long-term debt as of Sep 30, 2025 (Increased significantly from $11.622 million at Dec 31, 2024)
• $0.37 — Diluted EPS for Q3 2025 (Decreased from $1.17 in Q3 2024)
• $8.100M — Interest expense for nine months ended Sep 30, 2025 (Increased from $4.980 million in the prior year period)

Key Players & Entities

• FRANKLIN ELECTRIC CO., INC. (company) — registrant
• Barnes de Colombia S.A. (company) — acquired entity
• PumpEng Pty Ltd (company) — acquired entity
• PGIM, Inc. (company) — lender under Prudential Agreement
• NYL Investors LLC (company) — lender under New York Life Agreement
• FASB (regulator) — issuer of accounting standards
• SEC (regulator) — securities regulator
• Water Systems (company) — reportable segment

FAQ

Risk Factors

• Pension Settlement Loss Impact [high — financial]: The company incurred a significant pension settlement loss of $55.251 million in Q3 2025, which substantially reduced net income. This one-time event highlights the volatility associated with defined benefit pension plans and their potential to impact reported earnings.
• Increased Debt Load [medium — financial]: Long-term debt increased from $11.622 million at year-end 2024 to $135.230 million as of September 30, 2025, due to new senior notes. This substantial increase in leverage could heighten financial risk, especially if interest rates rise or earnings decline.
• Inventory and Receivables Growth [medium — operational]: Total assets increased to $1.997 billion, with significant growth in inventories and receivables. While this can indicate increased sales activity, it also ties up more working capital and could signal potential issues with inventory management or collection if not carefully monitored.
• Rising Interest Expense [medium — financial]: Interest expense for the nine months ended September 30, 2025, rose to $8.100 million from $4.980 million in the prior year. This increase is directly linked to the higher debt levels and could further pressure profitability.

Industry Context

Franklin Electric operates in the water systems and power transmission/distribution sectors. The water systems segment, bolstered by recent acquisitions, is likely benefiting from increased infrastructure spending and demand for water management solutions. However, the broader industrial sector faces ongoing supply chain challenges and fluctuating raw material costs.

Regulatory Implications

The company must comply with financial reporting standards, including proper disclosure of significant one-time events like pension settlements. Changes in tax regulations or international trade policies could also impact operations and profitability.

What Investors Should Do

1. Monitor the integration and performance of the acquired companies (Barnes de Colombia and PumpEng) to assess their contribution to revenue and profitability.
2. Analyze the impact of increased debt on future earnings and cash flow, particularly in light of rising interest expenses.
3. Assess the sustainability of revenue growth in the context of the significant drop in net income, distinguishing between operational performance and one-time charges.

Key Dates

• 2025-02-XX: Acquisition of PumpEng Pty Ltd — Expanded the Water Systems segment with an approximate $15.0 million investment.
• 2025-03-XX: Acquisition of Barnes de Colombia S.A. — Further strengthened the Water Systems segment with a cash consideration of $96.8 million.
• 2025-09-30: End of Q3 2025 — Reported a significant drop in net income due to a pension settlement loss, despite revenue growth.
• 2025-09-30: Balance Sheet Date — Total assets reached $1.997 billion, with a notable increase in long-term debt to $135.230 million.

Glossary

Pension settlement loss

A one-time charge recognized when a company terminates or settles its defined benefit pension plan obligations, often due to a lump-sum payout to participants or the purchase of annuities. (This was the primary driver of the significant net income decrease in Q3 2025, impacting profitability.)

Diluted EPS

Earnings per share calculated by dividing net income by the total number of diluted shares outstanding, including the effect of all dilutive potential common shares (like stock options and convertible securities). (Reflects the profitability on a per-share basis, showing a sharp decline from $1.17 in Q3 2024 to $0.37 in Q3 2025.)

Noncontrolling interests

The portion of equity interest in a subsidiary that is not attributable to the parent company. It represents the ownership stake of outside shareholders in the consolidated entity. (Adjustments for noncontrolling interests are made to net income and comprehensive income to arrive at the amounts attributable to Franklin Electric shareholders.)

Other comprehensive income/(loss)

Includes gains and losses that are not recognized in net income but are reported in a separate section of the income statement, such as foreign currency translation adjustments and unrealized gains/losses on certain investments. (Shows significant positive impact in Q3 2025 due to foreign currency translation and employee benefit plan adjustments, partially offsetting the net income decline.)

Year-Over-Year Comparison

Compared to the prior year period, Franklin Electric Co., Inc. (FELE) has demonstrated revenue growth, with net sales increasing by 9.5% in Q3 2025 and 5.8% for the nine-month period. However, net income has seen a dramatic decline of 68.6% in Q3 2025, primarily due to a $55.251 million pension settlement loss. This contrasts with the prior year's strong profitability. The company has also significantly increased its long-term debt from $11.622 million to $135.230 million, reflecting strategic acquisitions and new financing.

Key Financial Figures

• $0.10 — ection 12(b) of the Act: Common Stock, $0.10 par value FELE NASDAQ Global Select Mar

Filing Documents

• fele-20250930.htm (10-Q) — 1323KB
• a2025q3form10qex311.htm (EX-31.1) — 11KB
• a2025q3form10qex312.htm (EX-31.2) — 11KB
• a2025q3form10qex321.htm (EX-32.1) — 5KB
• a2025q3form10qex322.htm (EX-32.2) — 5KB
• fele-20250930_g1.jpg (GRAPHIC) — 15KB
• 0000038725-25-000178.txt ( ) — 8301KB
• fele-20250930.xsd (EX-101.SCH) — 29KB
• fele-20250930_cal.xml (EX-101.CAL) — 78KB
• fele-20250930_def.xml (EX-101.DEF) — 176KB
• fele-20250930_lab.xml (EX-101.LAB) — 596KB
• fele-20250930_pre.xml (EX-101.PRE) — 389KB
• fele-20250930_htm.xml (XML) — 1688KB

FINANCIAL INFORMATION Number

PART I. FINANCIAL INFORMATION Number

Condensed Consolidated Financial Statements (Unaudited)

Item 1. Condensed Consolidated Financial Statements (Unaudited) 4 Condensed Consolidated Statements of Income for the Third Quarters and Nine Month Ended September 30, 2025 and 2024 (Unaudited) 4 Condensed Consolidated Statements of Comprehensive Income/(Loss) for the Third Quarters and Nine Months Ended September 30, 2025 and 2024 (Unaudited) 5 Condensed Consolidated Balance Sheets as of September 30, 2025 and December 31, 2024 (Unaudited) 6 Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2025 and 2024 (Unaudited) 8 Notes to Condensed Consolidated Financial Statements (Unaudited) 10

Management's Discussion and Analysis of Financial Condition and Results of Operations

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 29

Quantitative and Qualitative Disclosures About Market Risk

Item 3. Quantitative and Qualitative Disclosures About Market Risk 35

Controls and Procedures

Item 4. Controls and Procedures 35

OTHER INFORMATION

PART II. OTHER INFORMATION

Legal Proceedings

Item 1. Legal Proceedings 36

Risk Factors

Item 1A. Risk Factors 36

Unregistered Sales of Equity Securities and Use of Proceeds

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 36

Other Information

Item 5. Other Information 36

Exhibits

Item 6. Exhibits 37

- FINANCIAL INFORMATION

PART I - FINANCIAL INFORMATION

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FRANKLIN ELECTRIC CO., INC. AND CONSOLIDATED SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Third Quarter Ended Nine Months Ended (In thousands, except per share amounts) September 30, 2025 September 30, 2024 September 30, 2025 September 30, 2024 Net sales $ 581,714 $ 531,438 $ 1,624,395 $ 1,535,596 Cost of sales 373,010 341,775 1,039,962 982,556 Gross profit 208,704 189,663 584,433 553,040 Selling, general, and administrative expenses 123,474 115,998 366,638 352,290 Restructuring expense 112 139 435 139 Operating income 85,118 73,526 217,360 200,611 Interest expense ( 3,496 ) ( 1,556 ) ( 8,100 ) ( 4,980 ) Other income (expense), net ( 165 ) ( 181 ) 514 709 Foreign exchange income (expense), net ( 2,673 ) 88 ( 8,514 ) ( 5,228 ) Pension settlement loss ( 55,251 ) — ( 55,251 ) — Income before income taxes 23,533 71,877 146,009 191,112 Income tax expense 6,329 16,983 36,868 43,795 Net income $ 17,204 $ 54,894 $ 109,141 $ 147,317 Less: Net income attributable to noncontrolling interests ( 466 ) ( 298 ) ( 1,301 ) ( 663 ) Net income attributable to Franklin Electric Co., Inc. $ 16,738 $ 54,596 $ 107,840 $ 146,654 Earnings per share: Basic $ 0.37 $ 1.19 $ 2.38 $ 3.18 Diluted $ 0.37 $ 1.17 $ 2.35 $ 3.14 See Notes to Condensed Consolidated Financial Statements. 4 FRANKLIN ELECTRIC CO., INC. AND CONSOLIDATED SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS) (Unaudited) Third Quarter Ended Nine Months Ended (In thousands) September 30, 2025 September 30, 2024 September 30, 2025 September 30, 2024 Net income $ 17,204 $ 54,894 $ 109,141 $ 147,317 Other comprehensive income/(loss), before tax: Foreign currency translation adjustments 4,555 8,706 43,657 ( 8,808 ) Employee benefit plan activity 2,079 553 2,902 1,706 Pension settlement 55,251 0 — 55,251 — Other comprehensive income/(loss) 61,885 9,259 101,810 ( 7,102 ) Income tax expense r

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