Franklin Electric Talks Growth, Margin Gains and Data Center Liquid Cooling at Oppenheimer Conference

Key Points

• Franklin Electric is refocusing on faster-growing water and energy applications, shortening its strategic cycle to three years and projecting about $160 million of new revenue by year three from recently launched products.
• The newly launched Value Acceleration Office pairs efficiency with growth—targeting working capital improvements and innovation—and is expected to deliver roughly 100 basis points of annual profit improvement while supporting ongoing margin expansion.
• Management flagged data center liquid cooling as a high-growth opportunity, standing up U.S. production with “good orders in hand,” and is funding expansion through record CapEx alongside targeted, larger M&A and shareholder returns.

Franklin Electric NASDAQ: FELE executives used an appearance at the 21st Annual Oppenheimer Industrial Growth Conference to outline the company’s growth priorities, margin initiatives, and capital allocation plans, while also discussing market watch items following what management described as a strong first quarter.

Strategy centers on faster-growing water and energy applications

CEO Joe Ruzynski said the company’s long history in motors and drives underpins its focus on “protecting the world’s most critical resources” as a flow control company serving water and energy markets. Ruzynski said Franklin Electric is pursuing growth through volume, new customers, and innovation, rather than simply expanding the top line.

He pointed to a Q1 data point cited previously by the company indicating “$160 million of new revenue by year three” based on products launched over the past couple of years. Ruzynski also said Franklin Electric has shortened its strategic cycle from five years to three years, with 18-month proof points, to focus resources on markets where the company’s application expertise can address faster growth opportunities.

As part of that strategy, Ruzynski said the company is looking to “normalize” its end-market mix over the next couple of years by growing commercial and industrial exposure and expanding areas within its energy segment, while balancing exposure to more mature markets.

Value Acceleration Office targets efficiency alongside growth

Ruzynski said Franklin Electric has launched a transformation effort called the Value Acceleration Office, structured around cross-segment and cross-functional initiatives. He described its focus as split into three areas:

• Supporting innovation and growth
• Improving working capital
• Delivering profit improvements

Ruzynski said the profit component is expected to contribute about 100 basis points annually going forward. He also emphasized that, in the company’s view, “efficiency and growth can go hand in hand,” citing Q1 growth of 16% and 18% in distribution and water treatment, respectively, as examples of areas where productivity efforts have been underway.

Business highlights: distribution services, energy technology mix, and data center liquid cooling

Ruzynski provided an overview of Franklin Electric’s three businesses and where management sees opportunity.

Distribution (Headwater Companies): Ruzynski said Franklin Electric built its North American distribution business—about $700 million in size—over the last several years to improve customer service and bring technology closer to end users. He highlighted the company’s on-site inventory program, which places Franklin-managed inventory at customer sites, as particularly important given that “75%+” of the segment is replacement-driven. He said the business is intended to provide customers 24/7 visibility and a “one-stop shop” for needed products.

Addressing investor debate about the segment’s strategic fit, Ruzynski said Franklin entered distribution partly as a “defensive measure” but now views it as an “offensive play” because it increases intimacy with end customers, improves visibility into local pricing and demand, and helps inform innovation and acquisition strategy. He also cited working capital opportunities from “put[ting] the right inventory at the right place at the right time.”

Energy segment: Ruzynski said the energy business has evolved from pumps, motors, drives, and infrastructure to “smarter solutions” spanning hardware, software, and technology, which has supported profitability. He said energy operating income margins are in the “mid-30s,” and management expects year-over-year margin improvement in all three segments. He also noted a Q2 comparison in energy where “price got ahead of the tariff, the tariff expense,” but said the company feels good about full-year performance driven by new products and technology.

Water treatment platform: Ruzynski said Franklin’s water treatment business is “just over $200 million” and currently has margins “slightly under” the company’s overall average, with improvement underway. He described Franklin’s position as neither a pure manufacturer nor just a dealer, but rather a middle layer that assembles solutions and supports service through technology. He said the business has grown 8% in a market he characterized as “probably pretty flat” in residential water treatment, attributing performance to dealer sign-ups onto the company’s platform and noting that Franklin has added about 150 new dealers over the past couple of years.

On profitability, Ruzynski said management expects the water treatment business to be “net neutral to accretive” to the broader portfolio in the next year or so, and he characterized the opportunity as potentially a “mid to high teens business” over the next year or two, while stopping short of providing a longer-term target.

Data centers: Ruzynski said all three businesses have some exposure to data centers. He described three primary areas of focus: a portion of the energy segment that supports data centers through grid battery backup and power quality; water-related applications such as condensation and cooling tower management; and what he called the most exciting opportunity—getting positioned with CDU (coolant distribution unit) manufacturers for liquid cooling inside data centers.

Ruzynski said Franklin is standing up dedicated U.S. production to meet specifications and support a global supply chain serving hyperscalers, adding that the company has “good orders in hand” and “good spec positions.” He said the company plans to size the opportunity “more formally” after Q2, and added that growth rates in the liquid cooling portion are “at the high end of anything you see published for data centers.”

Financial profile, guidance posture, and market watch items

CFO Jennifer Wolfenbarger highlighted multi-year financial performance metrics, citing revenue CAGR of 11%, EPS CAGR of 14%, and return on invested capital of 15.3%, which she described as best in class. She also emphasized a strong balance sheet and “plenty of dry powder.”

On Q1, management said performance was strong across all three businesses, with sales growth and margin expansion in each segment. However, when asked why guidance was reiterated despite the Q1 start, Ruzynski and Wolfenbarger said they did not want to raise guidance with only one quarter completed and amid uncertainties. Wolfenbarger said the leadership’s aim is “predictability,” adding that while management feels optimistic, it was “a little too soon to raise our guidance.”

Ruzynski said the company’s outlook calls for low- to mid-single-digit growth across all businesses, with the energy segment potentially at the high end, and year-over-year margin improvement expected in all three segments. He also noted watch items including agricultural demand in the U.S. and Europe—citing fertilizer prices and input costs—and potential broader impacts from the Middle East situation, including possible fuel price effects on distribution and spending decisions.

Capital deployment: higher CapEx, targeted M&A, and shareholder returns

Wolfenbarger said the company’s capital allocation priorities remain unchanged: investing for internal growth, pursuing M&A, and returning cash to shareholders through dividends and buybacks. She said capital spending in 2026 was increased to “record levels,” up 20% year over year, and added that the mix of spending is shifting toward growth and productivity, with a smaller portion allocated to maintenance.

Ruzynski detailed current organic investments including a new factory in Turkey for the water side, another facility on the Turkey campus for the energy business expected later this year, an expansion in India, and consolidation projects. He also said the company is investing in standing up production for data center liquid cooling at its Oklahoma facility.

On acquisitions, Ruzynski said the company has pursued smaller bolt-on deals in recent years but expects “bigger deals in the water product space,” focusing on “fewer and larger revenue,” and describing larger deals for Franklin Electric as in the “+$100 million range.”

About Franklin Electric NASDAQ: FELE

Franklin Electric Co, Inc is a world‐leading manufacturer and distributor of systems and components for moving and managing water and fuel. Headquartered in Fort Wayne, Indiana, the company specializes in designing engineered pumping systems and related controls for residential, commercial and industrial applications.

Founded in 1944, Franklin Electric has built its reputation on submersible and surface pumping solutions for water wells, municipal water and wastewater treatment, irrigation and industrial fluid handling.

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