Flowserve Corporation Reports First Quarter 2012 Results
(Thomson Reuters ONE) -
Reports First Quarter EPS of $1.69 and Bookings of $1.25 Billion; Reaffirms
2012 Full Year EPS Target Range of $8.00 to $8.80
DALLAS, April 30, 2012 - Flowserve Corp. (NYSE:FLS), a leading provider of flow
control products and services for the global infrastructure markets, announced
today financial results for the first quarter of 2012 in its Quarterly Report on
Form 10-Q filed with the Securities and Exchange Commission. Highlights are as
follows:
First Quarter 2012 (all comparisons versus first quarter 2011 unless otherwise
noted):
* Fully diluted EPS of $1.69, down 1.7%, including $0.05 of net benefit from
gain on sale of operating assets, partially offset by negative currency
effects and other discrete charges
* Fully diluted EPS up 8.7% excluding below the line currency effects year
over year
* Bookings of $1.25 billion, up 7.1%, or 9.4% excluding negative currency
effects of $27 million, reflecting solid long cycle original equipment
orders in the chemical and oil and gas industries
* Highest quarterly bookings since third quarter of 2008
* Aftermarket bookings up 7.1%, or 8.8% excluding negative currency
effects
* Sales of $1.07 billion, up 7.8%, or 10.1% excluding negative currency
effects of $23 million, reflecting increased original equipment sales and
solid aftermarket sales in all divisions
* Gross margin decrease of 150 basis points to 33.4% reflecting sales mix
shift to original equipment and shipments of low margin legacy backlog
* SG&A as a percentage of sales down 170 basis points to 20.6%, or down 80
basis points to 21.5% excluding net impact of gain on sale of operating
assets and discrete charges
* Operating income of $142.5 million, up 9.4%
* Operating margin increase of 20 basis points to 13.3%
* Tax rate of 27.5% compared to 25.7% for first quarter 2011
* Backlog of $2.9 billion at March 31, 2012, including currency benefits of
approximately $35 million, compared to $2.7 billion in backlog at December
31, 2011
Mark Blinn, Flowserve president and chief executive officer, said, "I am pleased
with our performance in in the first quarter, as we continued to drive top line
growth and improve our operating results. Our strongest bookings quarter since
the third quarter of 2008 was led by improvement in our longer and later cycle
project business in the chemical and oil and gas industries. We also saw
sustained strength in our short cycle business and aftermarket activity, where
executing on our strategies has enabled us to capture opportunities.
"We continued driving internal improvements under our "One Flowserve" initiative
to better support our customers and improve operations in support of reaching
our longer-term operating margin target. As an example, we centralized the
leadership of our operational support areas, such as research and development,
marketing and supply chain, under our COO organization to leverage operational
excellence across our global platform and increase shareholder value. I am
pleased with the progress I have seen from our new leadership structure in such
a short time and its positive impact on the quality of orders going into
backlog."
Blinn added, "Looking forward to the balance of 2012, I am encouraged by how the
cycle is progressing. Increased project bidding levels and progress on long
planned mega infrastructure projects have heightened our confidence in the
present state of our end markets. As such, we are more optimistic in our view
of business opportunities this year and next. With our new operational
leadership in place and our strategic investments in emerging markets and QRCs
continuing to support growth in project opportunities and aftermarket activity,
we are well positioned to achieve our 5% to 7% revenue growth target for 2012."
Financial Performance and Guidance
Mike Taff, senior vice president and chief financial officer, said, "We are
encouraged by our results this first quarter, which benefitted from improved
execution in more favorable business conditions. As expected, our first quarter
earnings and margins were impacted by several large, low margin project
shipments booked in prior periods flowing through revenue. We also continue to
expect margins in the second quarter of 2012 to be similarly challenged, with
margin improvement anticipated in the second half of the year. Increased sales
volumes, and continued improvements in SG&A leverage resulting from tight cost
controls, helped offset the first quarter impact. We also saw continued
improvement of expected margins in our backlog, driven by disciplined bid
selectivity across all our operations.
"Supported by our solid first quarter results, we remain confident in the
earnings generation capability of our operating platform and are reaffirming our
2012 earnings guidance of $8.00 to $8.80 per share. This guidance still
anticipates approximately $0.50 of above and below the line negative currency
effects compared to 2011. We continue to expect our earnings performance for
the balance of 2012 to be weighted towards the second half of the year."
Taff added, "We returned over $39 million in cash to our shareholders in the
first quarter through the repurchase of our common stock and the payment of
dividends. This demonstrates our commitment to returning cash to shareholders
under our announced capital allocation policy and reflects our confidence in the
cash flow generation capability of our business.
"We remain focused on disciplined cash management and creating shareholder value
going forward, where reducing our levels of working capital appropriately is a
high priority for improvement in 2012. Inventory levels rose this quarter in
line with our revenue forecast and increased backlog as we focused on improving
on-time delivery and customer care. However, we still have work to do to
increase inventory efficiencies, and we are continuing to work diligently to
reduce targeted past due backlog that we discussed at year end."
Operational Performance
Tom Pajonas, senior vice president and chief operating officer, said, "I was
encouraged by the increased levels of activity in our long cycle business this
quarter. This business remains competitive, but our increased long cycle
project visibility and the continued stabilization of end markets provides
optimism for continued improving business conditions in the near term. Also
encouraging was the continued positive momentum in short cycle and aftermarket
business that we have seen in recent quarters, where business conditions remain
favorable.
"The Engineered Product Division (EPD) capitalized on improving business
conditions, driving bookings growth of almost 14% on a constant currency basis,
with strong original equipment growth in the chemical, oil and gas and general
industries and continued solid aftermarket activity. Despite stronger sales in
Europe, the Middle East and Africa (EMA) and North America, margins were
challenged by the shipment of certain large, low margin projects booked
during more challenging markets as well as currency. As we continue to work
through the remaining low margin legacy backlog, we believe our renewed
operational focus on this business and improving business conditions provide the
opportunity for margin improvement going forward. Additionally, our recent
Lawrence Pumps acquisition is off to an excellent start, with its strong first
quarter performance demonstrating the benefits of applying our aftermarket
strategy to its highly engineered pump products."
Pajonas added, "The Industrial Product Division (IPD) delivered a solid increase
in bookings on the strength of the oil and gas and chemical industries. Sales
increased significantly, up over 20%, driven primarily by original equipment
shipments in the Americas, EMA and Australia. While the sales mix shift to
original equipment pressured gross margin, operating margin increased 80 basis
points, increasing our confidence that IPD's recovery plan remains on track, as
business conditions appear to be strengthening and its realigned operations gain
momentum.
"The Flow Control Division (FCD) continued to deliver solid performance in the
first quarter, with bookings increasing primarily on the strength of the
chemical industry, and sales increasing primarily on the strength of the oil and
gas industry, across all regions with the exception of EMA. Pricing actions
taken in 2011 continued to produce tangible benefits, with continued traction on
low cost sourcing and cost control initiatives supporting improvements in gross
margin and operating margin."
Segment Overview (all comparisons versus first quarter 2011 unless otherwise
noted)
Engineered Product Division (EPD)
EPD bookings for the first quarter of 2012 were $670.7 million, an increase of
$68.0 million, up 11.3%, or 13.9% excluding negative currency effects of
approximately $16 million. EPD sales for the first quarter of 2012 were $534.8
million, an increase of $11.0 million, up 2.1%, or 4.6% excluding negative
currency effects of approximately $13 million.
EPD gross profit for the first quarter of 2012 was $183.4 million, down $4.8
million. Gross margin for the first quarter of 2012 decreased 160 basis points
to 34.3%, which was primarily attributable to the effect on revenue of certain
large projects that shipped from backlog at low margins and a sales mix shift to
original equipment.
EPD operating income for the first quarter of 2012 increased to $92.2 million,
up $0.4 million or 0.4%, including negative currency effects of approximately $3
million. The slight increase was primarily attributable to decreased SG&A, which
included a $10.4 million gain on the sale of operating assets, substantially
offset by decreased gross profit. Operating margin decreased 30 basis points to
17.2%.
Industrial Product Division (IPD)
IPD bookings for the first quarter of 2012 were $232.0 million, an increase of
$7.0 million, up 3.1%, which includes negative currency effects of approximately
$4 million. IPD sales for the first quarter of 2012 were $213.2 million, an
increase of $36.9 million, up 20.9%, or 22.6% excluding negative currency
effects of approximately $3 million.
IPD gross profit for the first quarter of 2012 increased to $49.6 million, up
$4.4 million or 9.7%. Gross margin for the first quarter of 2012 decreased 230
basis points to 23.3%, which was primarily attributable to a sales mix shift to
lower margin original equipment, partially offset by improved absorption of
fixed manufacturing costs.
IPD operating income for the first quarter of 2012 increased to $17.4 million,
up $4.3 million or 32.8%, which includes negative currency effects of less than
$1 million. The increase was primarily attributable to the increase in gross
profit, partially offset by a small increase in SG&A. Operating margin
increased 80 basis points to 8.2%.
Flow Control Division (FCD)
FCD bookings for the first quarter of 2012 were $380.1 million, an increase of
$2.8 million, up 0.7%, or 2.6% excluding negative currency effects of
approximately $7 million. FCD sales for the first quarter of 2012 were $363.9
million, an increase of $26.3 million, up 7.8%, or 10.2% excluding negative
currency effects of approximately $8 million.
FCD gross profit for the first quarter of 2012 increased to $127.2 million, up
$11.6 million or 10.0%. Gross margin for the first quarter of 2012 increased
80 basis points to 35.0%, which was primarily attributable to favorable product
line and maintenance, repair and overhaul mix, improved absorption of fixed
manufacturing costs, continued progress on low cost sourcing initiatives and
benefits from pricing actions taken in 2011.
FCD operating income for the first quarter of 2012 increased to $55.7 million,
up $8.2 million or 17.3%, including negative currency effects of approximately
$1 million. The increase was primarily attributable to the increase in gross
profit, partially offset by an increase in SG&A due to increased selling
expenses in support of increased sales and increased research and development
costs. Operating margin increased 120 basis points to 15.3%.
Conference Call
The conference call will take place on Tuesday, May 1 at 11:00 AM Eastern.
Mark Blinn, president and chief executive officer, as well as other members of
the management team will be presenting.
The call can be accessed at the Flowserve Web site at www.flowserve.com under
the "Investor Relations" section.
About Flowserve
Investor Contact: Mike Mullin, director, investor relations, (972) 443-6636
Media Contact: Steve Boone, director, global communications (972) 443-6644
About Flowserve
Flowserve Corp. is one of the world's leading providers of fluid motion and
control products and services. Operating in more than 55 countries, the company
produces engineered and industrial pumps, seals and valves as well as a range of
related flow management services. More information about Flowserve can be
obtained by visiting the company's Web site at www.flowserve.com.
SAFE HARBOR STATEMENT: This news release includes forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934, which are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995, as
amended. Words or phrases such as, "may," "should," "expects," "could,"
"intends," "plans," "anticipates," "estimates," "believes," "forecasts,"
"predicts" or other similar expressions are intended to identify forward-looking
statements, which include, without limitation, earnings forecasts, statements
relating to our business strategy and statements of expectations, beliefs,
future plans and strategies and anticipated developments concerning our
industry, business, operations and financial performance and condition.
The forward-looking statements included in this news release are based on our
current expectations, projections, estimates and assumptions. These statements
are only predictions, not guarantees. Such forward-looking statements are
subject to numerous risks and uncertainties that are difficult to predict.
These risks and uncertainties may cause actual results to differ materially from
what is forecast in such forward-looking statements, and include, without
limitation, the following: a portion of our bookings may not lead to completed
sales, and our ability to convert bookings into revenues at acceptable profit
margins; changes in the global financial markets and the availability of capital
and the potential for unexpected cancellations or delays of customer orders in
our reported backlog; our dependence on our customers' ability to make required
capital investment and maintenance expenditures; risks associated with cost
overruns on fixed-fee projects and in taking customer orders for large complex
custom engineered products; the substantial dependence of our sales on the
success of the oil and gas, chemical, power generation and water management
industries; the adverse impact of volatile raw materials prices on our products
and operating margins; our ability to execute and realize the expected financial
benefits from our strategic realignment initiatives; economic, political and
other risks associated with our international operations, including military
actions or trade embargoes that could affect customer markets, particularly
Middle Eastern markets and global oil and gas producers, and non-compliance with
U.S. export/re-export control, foreign corrupt practice laws, economic sanctions
and import laws and regulations; our exposure to fluctuations in foreign
currency exchange rates, including in hyperinflationary countries such as
Venezuela; our furnishing of products and services to nuclear power plant
facilities; potential adverse consequences resulting from litigation to which we
are a party, such as litigation involving asbestos-containing material claims; a
foreign government investigation regarding our participation in the United
Nations Oil-for-Food Program; expectations regarding acquisitions and the
integration of acquired businesses; our relative geographical profitability and
its impact on our utilization of deferred tax assets, including foreign tax
credits; the potential adverse impact of an impairment in the carrying value of
goodwill or other intangible assets; our dependence upon third-party suppliers
whose failure to perform timely could adversely affect our business operations;
the highly competitive nature of the markets in which we operate; environmental
compliance costs and liabilities; potential work stoppages and other labor
matters; our inability to protect our intellectual property in the U.S., as well
as in foreign countries; obligations under our defined benefit pension plans;
and other factors described from time to time in our filings with the Securities
and Exchange Commission.
All forward-looking statements included in this news release are based on
information available to us on the date hereof, and we assume no obligation to
update any forward-looking statement.
CONDENSED CONSOLIDATED STATEMENTS
OF INCOME
(Amounts in thousands, except per Three Months Ended March 31,
share data)
2012 2011
Sales $ 1,074,980 $ 997,207
Cost of sales (715,797) (649,512)
Gross profit 359,183 347,695
Selling, general and administrative (221,889) (222,639)
expense
Net earnings from affiliates 5,229 5,197
Operating income 142,523 130,253
Interest expense (8,809) (8,605)
Interest income 282 489
Other (expense) income, net (4,939) 8,488
Earnings before income taxes 129,057 130,625
Provision for income taxes (35,515) (33,629)
Net earnings, including 93,542 96,996
noncontrolling interests
Less: Net (earnings) attributable (417) (14)
to noncontrolling interests
Net earnings attributable to $ 93,125 $ 96,982
Flowserve Corporation
Net earnings per share attributable
to Flowserve Corporation common
shareholders:
Basic $ 1.71 $ 1.74
Diluted 1.69 1.72
Cash dividends declared per share $ 0.36 $ 0.32
CONDENSED CONSOLIDATED BALANCE
SHEETS
March 31, December 31,
(Amounts in thousands, except per 2012 2011
share data)
ASSETS
Current assets:
Cash and cash equivalents $ 172,694 $ 337,356
Accounts receivable, net of
allowance for doubtful accounts of 1,049,125 1,060,249
$20,134
and $20,351, respectively
Inventories, net 1,141,341 1,008,379
Deferred taxes 125,394 121,905
Prepaid expenses and other 117,669 100,465
Total current assets 2,606,223 2,628,354
Property, plant and equipment, net
of accumulated depreciation of 602,854 598,746
$750,344
and $719,992, respectively
Goodwill 1,057,372 1,045,077
Deferred taxes 14,550 17,843
Other intangible assets, net 161,343 163,482
Other assets, net 176,068 169,112
Total assets $ 4,618,410 $ 4,622,614
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable $ 501,496 $ 597,342
Accrued liabilities 807,828 808,601
Debt due within one year 60,773 53,623
Deferred taxes 9,723 10,755
Total current liabilities 1,379,820 1,470,321
Long-term debt due after one year 438,648 451,593
Retirement obligations and other 433,290 422,470
liabilities
Shareholders' equity:
Common shares, $1.25 par value 73,664 73,664
Shares authorized - 120,000
Shares issued - 58,931 and 58,931,
respectively
Capital in excess of par value 591,958 621,083
Retained earnings 2,278,806 2,205,524
2,944,428 2,900,271
Treasury shares, at cost - 4,774 (414,722) (424,052)
and 5,025 shares, respectively
Deferred compensation obligation 9,303 9,691
Accumulated other comprehensive (181,339) (216,097)
loss
Total Flowserve Corporation 2,357,670 2,269,813
shareholders' equity
Noncontrolling interest 8,982 8,417
Total equity 2,366,652 2,278,230
Total liabilities and equity $ 4,618,410 $ 4,622,614
CONDENSED CONSOLIDATED STATEMENTS
OF CASH FLOWS
(Amounts in thousands) Three Months Ended March 31,
2012 2011
Cash flows - Operating activities:
Net earnings, including $ 93,542 $ 96,996
noncontrolling interests
Adjustments to reconcile net
earnings to net cash used by
operating
activities:
Depreciation 22,570 21,807
Amortization of intangible and 4,460 3,320
other assets
Amortization of deferred loan costs 698 723
Net gain on disposition of assets (10,410) (493)
Gain on bargain purchase
Excess tax benefits from stock- (10,889) (4,987)
based compensation arrangements
Stock-based compensation 7,796 8,610
Net earnings from affiliates, net (3,049) (839)
of dividends received
Stock-based compensation
Change in assets and liabilities:
Accounts receivable, net 37,692 (43,753)
Inventories, net (112,513) (106,686)
Prepaid expenses and other (15,412) (38,087)
Other assets, net (1,698) (2,822)
Accounts payable (108,602) (125,280)
Accrued liabilities and income (15,594) (48,490)
taxes payable
Retirement obligations and other 4,299 8,394
liabilities
Net deferred taxes (781) 3,400
Net cash flows used by operating (107,891) (228,187)
activities
Cash flows - Investing activities:
Capital expenditures (28,686) (23,501)
Proceeds from disposal of assets 7,788 2,773
Payments for acquisition, net of (3,996) -
cash acquired
Affiliate investing activity (1,620) -
Net cash flows used by investing (26,514) (20,728)
activities
Cash flows - Financing activities:
Excess tax benefits from stock- 10,889 4,987
based compensation arrangements
Payments on long-term debt (6,250) (6,250)
Borrowings under other financing 440 3,460
arrangements
Repurchase of common shares (22,050) (13,819)
Payments of dividends (17,410) (16,132)
Proceeds from stock option activity 27 223
Purchase of shares from (212) -
noncontrolling interests
Net cash flows used by financing (34,566) (27,531)
activities
Effect of exchange rate changes on 4,309 7,725
cash
Net change in cash and cash (164,662) (268,721)
equivalents
Cash and cash equivalents at 337,356 557,579
beginning of year
Cash and cash equivalents at end of $ 172,694 $ 288,858
period
SEGMENT INFORMATION
ENGINEERED PRODUCT DIVISION Three Months Ended March 31,
(Amounts in millions, except 2012 2011
percentages)
Bookings $ 670.7 $ 602.7
Sales 534.8 523.8
Gross profit 183.4 188.2
Gross profit margin 34.3% 35.9%
Operating income 92.2 91.8
Operating margin 17.2% 17.5%
INDUSTRIAL PRODUCT DIVISION Three Months Ended March 31,
(Amounts in millions, except 2012 2011
percentages)
Bookings $ 232.0 $ 225.0
Sales 213.2 176.3
Gross profit 49.6 45.2
Gross profit margin 23.3% 25.6%
Operating income 17.4 13.1
Operating margin 8.2% 7.4%
FLOW CONTROL DIVISION Three Months Ended March 31,
(Amounts in millions, except 2012 2011
percentages)
Bookings $ 380.1 $ 377.3
Sales 363.9 337.6
Gross profit 127.2 115.6
Gross profit margin 35.0% 34.2%
Operating income 55.7 47.5
Operating margin 15.3% 14.1%
This announcement is distributed by Thomson Reuters on behalf of
Thomson Reuters clients. The owner of this announcement warrants that:
(i) the releases contained herein are protected by copyright and
other applicable laws; and
(ii) they are solely responsible for the content, accuracy and
originality of the information contained therein.
Source: Flowserve Corporation via Thomson Reuters ONE
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