Franklin Electric (NASDAQ:FELE) released first-quarter financial results and hosted an earnings call on Tuesday. Read the complete transcript below.
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Summary
Franklin Electric reported a strong first quarter with a 10% increase in sales and significant organic growth across all segments, driven by volume and pricing.
The company’s strategic focus includes the launch of the Value Acceleration Office, expected to deliver $15 million in productivity this year, and the introduction of new products like the VersaBoost.
Adjusted EPS increased by 24% year-over-year, with operating income growing by 17% despite $3.9 million in restructuring costs aimed at improving global water operations.
The company maintained a healthy balance sheet and continued its share buyback program, repurchasing 120,000 shares, while extending its dividend growth to 34 consecutive years.
Franklin Electric’s future outlook remains positive with a sales expectation of $2.17 billion to $2.24 billion for 2026, although geopolitical uncertainties and tariff impacts pose potential risks.
Full Transcript
OPERATOR
Good day and welcome to the Franklin Electric reports first quarter 2026 sales and earnings 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 11 on your telephone. You will then hear an automated message advising your hand has been raised to withdraw your question. Please press star 11 again. Please be advised that today’s conference is being recorded. It is now my pleasure to introduce Director of Investor Relations Dean Cantrell.
Dean Cantrell (Director of Investor Relations)
Thank you Andrew and welcome everyone to Franklin Electric’s first quarter 2026 earnings conference call. Joining me today is Jennifer Wolfenbarger, our Chief Financial Officer and Joe Rudzinski, our Chief Executive Officer. On today’s call, Joe will review our first quarter business highlights. Jennifer will provide additional details on our financial performance and then Joe will make some additional comments highlighting our distribution segment. We will then take your questions. A replay link of the webcast will be archived for seven days and a transcript and audio version of this call will be available on our website tomorrow. 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 10K and in today’s earnings release. During this call we will present both GAAP and certain non GAAP financial measures. A reconciliation of GAAP to non GAAP measures is included in the appendix of our earnings presentation. All forward looking statements made during this call are based on information currently available and as 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
Joe Rudzynski
call over to Joe. Thank you Dean and good morning everyone. Thank you for joining today’s call. I’m pleased to share our results for the first quarter with you all today. Let’s move to Slide 3. Our first quarter was a strong one for all segments. Organic growth was healthy across our end markets with volume growth and disciplined pricing across our segments. Our quarter finished with healthy backlogs and order trends. As we entered the second quarter, our balance sheet remains healthy as we look to continue to invest in our strategic initiatives and returns for our shareholders. Our launch of the Value Acceleration Office is off to a great start with a strong funnel and some good initial returns. If we could move to slide four, I’d like to look at our performance in terms of our strategic objectives and specifically growth. Our sales were up 10% and each segment saw volume growth along with positive performance, pricing and contribution from new products, channels and new customers. Our operating income was up 9% with adjusted income up 17%. GAAP EPS was up 15% with adjusted EPS up 24%. Our adjusted EPS growth in Q1 more than doubled our sales growth year over year. This was helped by strong improvements in our income and SG and a productivity. We have worked through some thoughtful restructuring as we align our capacity and production to our regions and markets that are growing and we work to streamline parts of our business that have grown through acquisition these past few years. We are positioned well for 2026 with a backlog up 10% and a positive book to bill as we enter the quarter. If we move to slide 5, I’d like to share our progress on some of our strategies priorities Our value creation model starts with clear growth focus and we continue to see opportunities to innovate and serve markets that are seeing good underlying strength. Our dewatering business was driven by 10% growth in the mineral opex market and we are thoughtfully bringing together recent acquisitions in this space, channel expansions and customer acquisition together to be to build a great part of our portfolio in Q1. We launched a great addition to our pressure boosting portfolio with our new VersaBoost product. We are thinking of scale and velocity for new products and our Versa Boost Pro delivers smarter, reliable water pressure with effortless installation and lasting performance in residential markets. These types of launches will help us set a new bar in 2026 and 2027 for new product vitality and revenue. Our margin expansion efforts are on track with our new Value Acceleration Office launched in 2025. Our funnel is growing and we expect to solve our biggest growth and productivity challenges with sound governance and speed. We see our Office delivering over $15 million in productivity this year with an opportunity to accelerate this as we move into 2027. Our expectation is to deliver over 100 basis points of productivity a year once we ramp up our efforts. We are pleased to see our focused margin improvement efforts in water treatment up 410 basis points and our distribution business up 210 basis points in the full year 2025. This demonstrates that growth and efficiency can work hand in hand we are expanding our capital deployment for new projects this year and have recently inaugurated our new water factory in Izmir, Turkey. Turkey with more focused expansions and regional efforts in India, South America and Mexico to name a few. We’ve continued to smartly buy back shares 120,000 in Q1 and have continued our dividend expansion in 2026. Now at 34 years of growth, most importantly on team and talent. A big thank you to Franklin’s employees as our growth happens every day with every customer served, every problem we solve, growth strategy we execute and employee we keep safe helps us to grow and to build on our strong culture. Our people and our talent are our bedrock. With that, I will turn the call over to Jennifer to discuss the financial results in more detail.
Jennifer Wolfenbarger (Chief Financial Officer)
Thank you Joe Please turn to Slide 6. Our fully diluted earnings per share was $0.77 for the first quarter 2026 versus $0.67 for the first quarter 2025. First quarter adjusted diluted EPS was $0.83, a new first quarter record compared to our 2025 first quarter adjusted diluted EPS of $0.67. The 24% year over year expansion in adjusted diluted EPS was primarily driven by the expansion of our adjusted operating income year over year. This is a testament to our commitment to expand the earnings power of our business. There were $3.9 million in restructuring costs in the first quarter of 2026 compared to $0.2 million in the prior year. First quarter restructuring costs in the quarter are primarily related to structural improvement initiatives across our global water operations. These actions will deliver savings in 2026 and will be accretive in 2027. The effective tax rate was 24.2% for the quarter compared to 25% in the prior year quarter. The change in effective tax rate was driven by favorable discrete stock compensation in Q1 of 2026. Moving to Slide 7 first quarter 2026 consolidated sales were $500.4 million a year over year increase of 10%. The sales increase in the first quarter was primarily due to price and volume growth across all three segments as well as the positive impact of foreign currency translation and the incremental sales impact from recent acquisitions. Franklin Electric’s consolidated gross profit was $175 million for the first quarter quarter of 2026, up from the prior year’s gross profit of $163.9 million. The gross profit as a percentage of net sales was 35% in the first quarter of 2026 compared to the first quarter of 2025 gross profit of 36%, a decline of 100 basis points compared to the prior year. The gross profit margin was unfavorably impacted in the quarter of 2026 by higher material costs driven by the hangover of tariffs. Selling general and Administrative expenses were $123 million in the first quarter of 2026 compared to $119.6 million in the first quarter of 2025. The increase in SG&A expenses was primarily due to the incremental impact of our acquisitions in the past year. SG&A is a percent of net sales was 24.6% in the first quarter of 2026 and 26.3% in the first quarter of 2025 without the impact of acquisitions. Our SG&A as a percentage of net sales was 24%, an improvement year over year of 230 basis points. Consolidated operating income was $48.1 million in the first quarter of 2026 of $4 million, or 9% from $44.1 million in the first quarter Of 2025. The increase in operating income was primarily due to higher sales volumes in the first quarter. As previously mentioned, there were $3.9 million in restructuring costs in the first quarter of 2026 versus 0.2 million in the prior year. First quarter these were related to structural improvement initiatives across our global water operations. Consolidated operating income before restructuring was $52 million in the first quarter 2026, up $7.7 million or 17% from $44.3 million in the first quarter of 2025. The first quarter 2026 adjusted operating income margin was 10.4% versus 9.7% in the first quarter of last year, up 70 basis points year over year. Moving to the segment Results Starting on slide 8 global water system sales were up 11% compared to the first quarter 2025, driven by strong price, favorable currency exchange on sales, and additional volume from our recent acquisitions. Water system sales in the US and Canada were up 7% compared to the first quarter of 2025. The sales increase was led by sales of all other surface pumping equipment up 17% as sales of water treatment products increased 8% and sales of groundwater pumping equipment increased 3%. These sales increases were partially offset by lower sales of dewatering equipment, large dewatering equipment of 9% compared to 2025 in the US and Canada, sales increased 1% in the first quarter due to the positive impact of foreign exchange rates as compared to the prior year. Water system sales in markets outside the US and Canada increased 17% overall. Foreign currency translation increased sales by 8% and recent acquisitions added roughly 7%. Excluding the impact of acquisitions and foreign currency translation, sales in the first quarter of 2026 increased in Asia Pacific and Latin America and as EMEA sales were down year over year. EMEA sales volumes, specifically in the Middle east and Eastern Europe were negatively impacted by the ongoing conflict in the Middle East. Global water systems operating income was $44.4 million, up $1 million versus the first quarter of 2025. The operating income margin was 14% a year over year decrease of 110 basis points. There were $3.9 million in restructuring costs in the first quarter of 2026 in the water segment. Restructuring costs in the quarter are primarily related to structural improvement initiatives across our global water operations. Adjusting for restructuring charges, the water system’s adjusted operating income was $48.3 million of $4.9 million, or 11% from the prior year with operating income margin of 15, up 10 basis points from the first quarter of last year. Moving to Slide 9 distributions, first quarter sales were $150.9 million versus first quarter 2025 sales of $141.9 million, an increase of 6%. The distribution segment sales increase was primarily due to higher volumes and price realization. The distribution segment’s operating income was $3 million for the first quarter, a year over year increase of $0.9 million. Operating income margin was 2% of sales in the first quarter, an improvement of 50 basis points versus the prior year. Operating income margin increased primarily due to higher sales volume, strong price realization and solid leverage on SG&A costs from higher sales. Moving to Slide 10 Energy Systems sales in the first quarter of 2026 were $71.8 million, an increase of $5 million or 7% compared to the first quarter 2025. Energy System sales in the US and Canada increased 3% compared to the first quarter of 2025. Outside the US and Canada, Energy System sales increased 29% primarily in Asia Pacific. Energy Systems operating income was $24.2 million compared to $21.9 million in the first quarter of 2025. The first quarter 2026 operating income margin was 33.7% compared to 32.8% in the prior year, an improvement of 90 basis points. Operating income margin increased primarily due to higher sales volume, solid price realization and strong leverage on SG&A costs from higher sales. Moving to the balance sheet and cash flow on Slide 11, the company ended the first quarter of 2026 with a cash balance of $80.4 million and with $88 million outstanding under its revolving credit agreement. We used $40.9 million in net cash flows from operating activities during the first quarter and compared to $19.5 million in the first quarter of 2025. The main driver for the change versus prior year is higher accounts receivable of $20 million driven by a year over year increase in net sales for the company. The company purchased 120,000 shares of its common stock for approximately $11.3 million in the open market during the first quarter of 2026. As of the end of the first quarter of 2026, the total remaining authorized shares that may be repurchased is about 0.7 million shares. Yesterday, the company announced a quarterly cash dividend of $0.28. The dividend will be payable on May 21st to shareholders of record on May 7th. Moving to Slide 12 the first quarter financial results were in line with our expectations and underlying demand remains. Although our confidence in the outlook is increasing, we are holding our full year sales expectations of 2.17 billion to 2.24 billion and full year adjusted diluted EPS to a range of $4.40 to $4.60. This range reflects some uncertainty in our global markets as we further assess the macroeconomic and geopolitical outlook. Our outlook does not include a clawback of tariff related expenditures. We have formally submitted our request and are awaiting a response and will know more in our Q2 earnings call. Now. I will turn the call back to Joe for some additional comments.
Joe Rudzynski
Thanks Jennifer. If we move to slide 13, we want to give a deeper look at our segments. These next few quarters. We will share what we like about the businesses we are in and why we are optimistic about our opportunity to profitably grow them. We’ll start this quarter with a look at our distribution business. As many of you know, we built this segment fairly recently in our history, growing through our strategy of building channel solutions, adding new offerings and smart acquisitions. It has become a recognized leader in the water distribution and services space. Along with our strategic partnerships and other leading distributors in the U.S. it has helped us to develop the strongest channel in our industry. This is an important channel for Franklin Electric manufactured pumps, motors and drives, but also brings together leading products in a wide portfolio to serve the residential, groundwater, wastewater, industrial, agricultural and water treatment markets. This business is now over $700 million with a solid return on invested capital and great opportunities to productively grow. Although we are proud of our 84 branches and 650 OSI locations and wide product portfolio. The real value in this segment is how we help our customers win and how we win with our customers. Starting with how we help our customers win, critical inventory at customer sites enables them to win jobs and deliver with speed, accelerate growth and invest in strategic initiatives rather than tying up cash. Cash in Inventory Our on Site Inventory program or osis, couple real time inventory with efficient replenishment and a continuously learning supply chain. We offer the most unique solutions in the industry and have grown our OSIS from 0 to 650 as customers learn how having a wide range of products on their site refilled at the right time for them to pull as their job requires can lead to winning more business. For customers that order products from us for their daily business, we have built technology solutions to give them 24. 7 visibility with our integrated customer portal. Simplifying order placement, viewing invoices and payments through one single platform and our ability to help customers win means we work with them on the site during the job planning process to go beyond transactional support and offer value added services including delivery, on site support, training, design and assembly services. How we win with our customers is by assessing their wider needs to ensure we bring the right solutions at the right time. We have grown our business and value to the markets we serve through a program we call cross pollination as we see customer needs in areas like wastewater or water treatment. We have pulled on our expertise and products within Franklin and partnered with industry leaders to attend to markets that are growing faster and we are doing it with the efficient service and leading technology platforms we are known for. Being part of the wider Franklin team has allowed us to think about data more strategically from end to end through manufacturing and to our suppliers, our technology and data to close the last mile, realize operational efficiencies and to provide the best in class customer experience both externally and internally is truly a differentiator. Our distribution segment has grown by adding products, services, technology solutions and customers. We believe our current progress to grow margins will have the same success as we have grown organically and inorganically. We are now realizing the benefits of streamlining our processes, leveraging our spends and creating an efficient footprint. Our margin expansion focus brings with it solutions to better serve through technology and data that benefit all of our partners. Last year we expanded our margins over 200 basis points and we improved again in Q1. We feel that growing volume, creating more value to our customers and margin expansion can work seamlessly together. With that, we’ll now turn the call back over to Andrew for questions before a few closing thoughts.
OPERATOR
Andrew, thank You. As a reminder to ask a question, Please press Star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. One moment, please. Our first question comes from the line of Mike Halloran with Baird.
Mike Halloran (Equity Analyst)
Hey, everybody. Morning. Morning, Mike. Morning. Hey. So like when I look at the guide and I look at the trends for the meander of the year, it seems like a pretty prudent approach to the guidance. You know, sequential seem maybe a little below normal as we work through the rest of the year. Maybe just help me understand what’s embedded in guidance from a revenue progression perspective. Is this a conservative thought process given what we don’t know and any nuances by end markets as we think through the rest of the year that we think that you think we should know?
Joe Rudzynski
Yeah, good question, Mike. You know, I think what we don’t know is obviously what we don’t know. You know, we see the quarters on a standalone basis to be positive, top and bottom line here through the next three. So you’re going to see from a sequential standpoint that normal performance, which is obviously a bit more muted given the growing seasons and the weather in Q1 and 4, but our outlook for 2 and 3 looks robust and looks on track. I think the parts that we don’t know and Jennifer alluded to those in the call were obviously we’ve talked before about India and the Middle east and some of these green shoots that we see in some fast growth regions. We’re trying to temper some of those expectations, but the underlying business looks solid. We feel the market demand is steady. We made a couple comments there on book to bill and backlog here as we came into Q2, and it looks on track. So I think from what we can see, the underlying business looks healthy. Some of those unknowns in terms of AG prices, freight impact from Middle east conflict, some of the new customers that we’ve been fostering that are affected by those fuel prices or that disruption, those are really some of the unknowns. But the rest of the business read out largely as we expected and it trends that way here as we go into Q2
Mike Halloran (Equity Analyst)
and maybe something comparable on the margin side of things, obviously the fueling margins in particular, energy systems margins in particular were robust in the quarter and that seems to be even with some of the international mix in there. How should I think about the margin progression through the year? It feels like you’re assuming a step down, but I understand there’s variances quarter to quarter there. Anything in the water or distribution side as well, that you think should be relevant as we’re thinking forward.
Joe Rudzynski
Yeah, I’ll give just a couple comments on that Jennifer add. But yeah, the energy business had a great first quarter. You know, we talked about the timing and expecting sequential improvement and year over year improvement here as we got into Q1. Q2 is a little bit of a blip for us where we got price out in front of tariffs so that comp will look a little bit challenged. But it was a high amount Q2 last year. The underlying margins we expect to be strong even with the nice growth that we’re seeing around the world for that business, which just shows the underlying strength. If there’s headwinds that come from the Middle east conflict and some of the questions about oil and gas, it’s a slight tailwind for sure here in the US in that space and we expect to continue to see that. I think from a distribution standpoint, you know, there definitely was some, I would say mixed challenges. You know, it performed as we expected. But some of their faster growing business, you know, we’re still working on upstream leverage, we’re still working on a couple of different things there, but again, good expansion. We expect them to expand and you’re going to see that increase here as we get to the mid quarters of the year. So on track there from a volume expansion standpoint and then from a water standpoint, you know, we have a number of things we’re working on. Jennifer referenced restructuring. You know, clearly as we’re building factories and there’s some work that we’re doing there, some adds and some consolidations, there’s a little bit of inefficiency that we saw here in Q1. We expect that to normalize some of those efficiencies that we’re bringing into that business is to continue to work on, you know, post acquisition synergies and barns. So you see a portion of that sit in Latin America, but also new factories starting up. There’s always a little bit of improvement. While the transition from the legacy factory was well executed. So expect the speculative margins to be improving as we get to 2, 3, 4 from a year over year standpoint. Sorry Tom, we couldn’t cover too much.
Jennifer Wolfenbarger (Chief Financial Officer)
No. I’ll just add on the restarting comment I mentioned to my prior remarks. Across our business and then from an interview perspective, as Joe mentioned, do you expect to see good, solid despite potential timing? As you mentioned, we will feel the impacts of it. Please sort of look around 125. So you don’t see that in the comp but.
OPERATOR
Thank you. Our next question comes from the line of Brian Blair with Oppenheimer.
Brian Blair (Equity Analyst)
Thank you. Morning everyone. Morning Brian. I apologize if I missed this detail. I’ve had some technical difficulty, but what was volume and price contribution in Q1? And if we assume your team is trending toward the high end of the revenue guide, that seems realistic for the time being. What should we think about in terms of full year volume and price contribution and how different is that by segment? Yeah, good question. The performance on volume and price was nicely balanced for us in Q1. If you look at the sales growth, volume was just under 30%, price was just over 30% with acquisition and FX kind of rounding out those other two as you’ve seen. I think from a volume standpoint we’ve done a lot of work in terms of leading indicators. You’ve heard us talk about this the last few quarters. Innovation, new products. We like to highlight this. You know how we’re finding those markets that are growing faster. Sometimes it’s hard to predict where and when that volume will hit. That being said, Q1 read out largely as we expected price, price is going to be a, probably it’ll be a comparable spread, you know, at the higher level here in Q2 as we, as we put some of those price increases in. But we expect volume and price to be fairly balanced throughout the year. So you know, that’s at a higher level. Jennifer, if you want to comment at the segment level.
Joe Rudzynski
Yeah, I’d say the caveat there is, you know, we continue to see inflation in various pockets and we’ll continue to be very disciplined in our price strategy as we see those commodity, commodity inflation come through, whether it be on the plastic side or copper. We’re going to take the opportunity to pass that through from a price perspective as we’ve done historically.
Jennifer Wolfenbarger (Chief Financial Officer)
I think. Brian, just last comment. That volume line is one that we’re watching closely. We’re investing in R and D, we’re investing in new products. We’ve been talking about this channel expansion, making sure that we’re out serving in terms of the end market. So we like that as an indicator and a start to the year that volume number. Understood.
Brian Blair (Equity Analyst)
I appreciate the detail and Joe, you offered a pretty good segue there in terms of innovation and new product development. I just wanted to level set a bit. What time frame of new product intros do you roll into any vitality calculation? And the 160 million in new revenue by year three, is that a 2026-28 reference or in general what you’re targeting on a rolling basis and then how should we given current disability think about the contribution to water and energy segment growth.
Joe Rudzynski
So it is a 26 to 28 number. But I would tell you this, we’re looking to add to that. We think that there’s more that we can do and we’ll continue to refresh that number and that outlook. We generally are using a three year vitality so products launched in the last three years contribution to new product revenue. And really what our team likes is this idea of new product revenue. So we normalize for cannibalization of course but this is a big focus for us and we think we look at our end markets that opportunity is going to increase. It’s going to increase for really for two reasons. One is as we’ve acquired some companies our ability to add technology onto that and bring those to new markets helps us from a new product to new region. The other is some of those faster growing markets that we reference like the data center market. We look at energy infrastructure, those opportunities for us to launch new products and bring those to market we think will help us to accelerate that. So yeah, I think the outlook for new products continues to be positive. We are excited about Versa Boost. We just discussed that today and these are bigger numbers. Our effort has been shrink the funnel but more volume and scale for fewer launches and then really to pay attention to doing those successfully. As a last quick comment on those. Our expectation is new products are accretive so it helps us in a number of ways.
Brian Blair (Equity Analyst)
All makes sense. Appreciate it. Thank you.
OPERATOR
The next question comes from Brian
Brian Connors
Connors with North Coast Research. Great, thanks for taking my question. And yeah like Brian, I also had some. You were breaking up for a little while there so hopefully I’m not asking something that’s already been covered but I want to touch on dewatering for a bit. You mentioned Australia strong but if I heard you right Jennifer, you were mentioning actually softness in kind of dewatering and specifically mine dewatering. I was a little surprised by that. I mean I know that we’ve got kind of a mining capex cycle kicking off. Expect to kind of see some strength in that large dewatering piece. So can you just unpack that dewatering piece what’s going on in Australia and then why we’re not seeing more of that elsewhere.
Joe Rudzynski
I’ll just make a quick comment. Global dewatering is a great story for us, Ryan. So I think Jennifer’s comment was the timing of borders in North America. You know pointed to a year over year that was flattish to slightly down. But globally, this is a real healthy space. Australia, it’s a very healthy space. Rest of the world dewatering for us is up, you know, 30 plus points. So a smaller base, but we quickly are seeing that global business for dewatering outpace and we think it’ll be as big or even bigger than what we have in the U.S. just to start,
Jennifer Wolfenbarger (Chief Financial Officer)
the comment was really on U.S. and Canada and we did see some timing impact and that was more on the fleet piece of dewatering, not necessarily the mining side. And our outlook for overall for dewatering for the full year is still growth expected across the globe, including U.S. and Canada. So a little bit of timing on the fleet side in Q1 was really what my commitment was meant. Yep.
Brian Connors
Okay. Yeah, that clears it up nicely. Thank you. And then wanted to follow up on the question earlier on energy and the margin specifically. It’s pretty remarkable. I mean if you look at the quick calculation, you know, energy contributing 13% of revenue and more than a third of operating income. So two questions on that. Thinking big picture and longer term. I mean, are we going to kind of top out here, just big picture on margins for energy long term, or is there any scenario where we could actually get north of this kind of pretty amazing 34 low to mid-30s type of range? And then strategically, Joe, how do you think about the fact that a segment that’s relatively small in the mix on a revenue basis is becoming such a big, huge contributor to the bottom line? Just curious what your strategic thoughts are on that.
Joe Rudzynski
Yeah, you know, I would answer it two ways. I view it as we’re okay with that right now. And here’s a. Here’s a couple things that have contributed to their income expansion. One is when we look at transformation 80, 20 and some of the good productivity work that we have in front of us still at Franklin, I would say that energy business, you know, because they really went into the post Covid hangover with some thoughtfulness and the leaders there did a great job of really reinforcing that. You know, we can operate and operate healthy even when volumes are slightly off. It’s a really, it’s a great template and a blueprint and we expect you’re going to see that readout in the other segments. We’ve seen it in pockets and distribution and water treatment as we’ve talked about water. We have a great opportunity there. So I’m okay with it as it sits today. You’re going to see A better balance though out two or three years in terms of margin expansion in the other parts of the business. The other question in terms of is there a high end or a limit to what we see from an energy margin standpoint? I would tell you we’re confident in performance at that level, but a few things that have really contributed to their growth and these are parts of their business that are growing faster is as they’re investing in sensing technology, critical asset monitoring in the grid space. Those are helpful from a mix standpoint. So as their higher margin business becomes a bigger part of just that energy segment, even if we look at growth around the world, even if we look at some of the growth that’s maybe lower margin, that is going to outpace it and at least keep us in a real healthy band there in the mid-30s as Jennifer talked about. In terms of what is that opportunity? I would say this, I thought I might say this a few times today, but we’re working on midterm guidance and we’ll share that during our investor day. Haven’t announced the time yet, but stay tuned for that. But we still see opportunity to expand further just based on smarter technology from a mixed perspective. And then again, a business that’s done a great job from a productivity execution here these last few years.
Brian Connors
Got it. Okay, very helpful, thank you for that. And then last one just for me on kind of a big picture question, but hearing more and more about AI being leveraged in the industrial landscape for pricing specifically sort of algorithmic pricing strategies for industrial companies and particularly for industrial distribution. So curious given your comments there on distribution business, Joe, Is that something that you’re using anywhere in the company but specific to distribution and just curious whether that’s something you’re doing.
Joe Rudzynski
Yeah, we have a fairly dynamic pricing approach in distribution. I would say it is not embedded with AI where we sit today. We’re fortunate to have really intimate business owners or regional presidents in that business. Are looking at competition, they’re looking at the weather, they’re looking at input costs on a real time basis and essentially allow us to. They allow us to stay well in front of that. There’s more we can do. We’ve got a great and a lot of great work done in terms of simplifying part numbers. We’ve got rationalization and consolidation so we can see the same number from coast to coast. Now this took us a couple years. We’ve got a great ERP system and I would tell you we hear the same thing and we see the same opportunity. You mentioned which is AI can help us to take that to the next level to be smart about pricing. But we’ve really done some good work this last couple years. Pricing is one of those elements that’s helped them to lift that margin. And we expect to see further margin expansion throughout the year based on, you know, smart or dynamic pricing.
Brian Connors
Got it. Super. Thanks for your time.
Walter Liptec (Equity Analyst)
Our next question comes from the line of Walter Liptec with Seaport Research. Hi. Thanks guys. Some of the comments were breaking up on my end as well too. But I wanted to ask about, you know, the new products that you guys called out, the 160 million. I wonder if you could review for us the data center products, like where your run rate is currently and what’s the expected growth that you think you’ll be at three years out within that $160 million.
Joe Rudzynski
Yeah. So what we will do is to share what part of that commercial and industrial space is data centers here as we get into in our Q2 earnings. But I think we’ve mentioned this before, It’s a sub 50 million dollar business for all products. For us today. Where our focus is right now, Walt, is it is just simply the fastest growing space for pumps, motors and drives, not only in the US but just around the world. And given our application expertise, given the fact that we’ve built supply chain expertise, that’s really been a key focus for us right now is to serve. There’s a great set of CDU manufacturers around the world and here in the US that have done a great job kind of putting a space together there. We like our ability to respond with speed, with velocity. Our first production line, we’ve been doing this kind of embedded in parts of our business. But a standalone production line is going up right now in our big facility here in the US and what we’ll do is we’ll share that outlook in terms of how we see order trends and our expectation in terms of volume growth here as we get into Q3. But it’s an exciting space. It’s a fast moving space for anyone that follows that market. I think the trends here the last couple years point to a next good three to five years in that space from what we can see. And we’ll be ready for it.
Walter Liptec (Equity Analyst)
Okay, great. In the first quarter, the water segment had better than expected. Organic growth was part of that from data center related products.
Joe Rudzynski
A small part, not material. I would tell you a couple things that really read out. Well, one is just our traditional business in resi and AG in the groundwater space had A nice first quarter of both volume and price, I would say. We talked about this in our Q4 call where we saw a little bit of a pullback in terms of channel inventory in that RSS or that surface pumping business. That’s bounced back nicely. So we made a comment on, you know, where we touch H Vac or some of the specifical resi market. The specific resi markets, excuse me, those had a nice recovery. Not just a sequential recovery, but year over year showed some strength. So surface pumping overall was strong in that RSS space. And then again, you know, that global dewatering business was up for us about 10% even with the blip in North America due to some of the fleet timing. So what’s interesting about Q1 there is the kind of consistent strength across those product segments. We’re obviously watching places like ag, but it’s a more normal year. We don’t talk a ton about weather here, but it’s a more normal year. So it looks solid. And then the rest of the business, again, a blend of new products, new markets, new customers, they seem to be gaining some traction.
Jennifer Wolfenbarger (Chief Financial Officer)
I might just add a comment. Regionally, we also performed very nicely across regions we touched on. You know, Australia was a really strong. Posted really good, strong growth in the quarter. We started to see some recovery in Mexico. Smaller piece of our business, but good to see that. That was kind of depressed in the last couple of quarters. I touched on Europe.
Walter Liptec (Equity Analyst)
Okay, thanks. You broke up a little bit there at the end again. And then, you know, I think the last one for me that the energy segment, the growth was good this quarter, but it seems like it was driven more on the international side. You know, for 2026, I think some of your competitors are calling out a pretty strong retail fueling market and I think that’s both US and international. What are you seeing in the marketplace?
Joe Rudzynski
Yeah, we see the outlook for the US starting there is good. It’s healthy. Backlog looks healthy. What we’re seeing, I think I’ve mentioned this before, Walt, where we can see a little further in that business and other parts of our business. So if you look at the age backlog, it points to kind of through the summer, the build season looks robust globally. That business. The leader Jay and his team have done a really nice job building some further opportunities in places like India and the Middle East. Those we’re watching a little more closely. We had a good quarter in Q1 in some of those areas where we see faster growth. It looks like Q2 is going to be a Little bit slower, just based on the global dynamic and how that touches fuel price, fuels, some of that investment. Other than we’re still helping out with infrastructure. So as there’s a need for that real time, we do. But the US Looks great. It’s still the biggest part of our market, and the international prospects are still healthy. We think if and when the Middle east settles down, our view is out two or three years. We had some really nice growth opportunities. The timing of those may be off slightly here this year.
Walter Liptec (Equity Analyst)
Okay, thanks for pointing that out.
OPERATOR
Yep. Thank you. And our next question comes from the line of Matt Somerville with DA Davidson.
PJ Hallibron
Hi, this is PJ Hallibron. I’m for Matt Somerville. I was just wondering if you’re seeing. Thank you. Yeah, I was just wondering if you’re seeing any impact from the updated section 232 tariffs.
Joe Rudzynski
Thank you. Yeah, good question. The updated tariffs really had a fairly neutral impact to us, our business, our products. So we did a complete review of that when that was announced earlier in April. And in general, no major change there. The tariff news that’s come out the last few months for us has been neutral to slightly positive, just given the position of our products, where we manufacture it, you know, and we’re largely an in region 4 region manufacturer, so that’s helped us a little bit to kind of create some stability. We still are doing a little bit of work in terms of. And this is. This includes the 232s of resetting our supply chain, but we expect to see some good progress and to finish some of that work up here over the next few quarters. But the latest announcement had a largely neutral impact to us.
OPERATOR
I will now hand the call back over to CEO Joe Rudzynski for any closing remarks.
Joe Rudzynski
Thanks, Andrew. Our first quarter is a great start to the year. Our execution for strategy transformation and serving our customers every day was strong. Our growth engine is fueled by serving faster, growing markets. Innovation and channel expansion. Leading indicators show us we’re working on the right areas. Our productivity path is on the right trajectory, with pockets of strength and some great opportunities to accelerate. We’re confident in 2026, despite global challenges and risks. Our strategy will give us the avenues to add customers, serve new markets, and increase our productivity throughout the year. We’re confident in our strategy. We like the businesses that we’re in. Thanks, everyone, and have a great week.
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