DALLAS, TX, Oct 30, 2012 - (ACN Newswire) - Flowserve Corp. (NYSE:FLS), a leading provider of flow control products and services for the global infrastructure markets, announced today financial results for the third quarter of 2012 in its Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission. Highlights from the third quarter and 2012 year-to-date were as follows:
Highlights
Third Quarter 2012 (all comparisons versus third quarter 2011 unless otherwise
noted):
* Fully diluted EPS of $2.07, up 7.8%, including $0.12 of below the line negative currency effects
-- Fully diluted EPS up 9.5% excluding below the line currency effects year over year
* Bookings of $1.19 billion, up 2.3%, or 9.0% excluding negative currency effects of $78 million
-- Aftermarket bookings of $475 million, up 2.3% excluding negative currency effects
* Sales of $1.17 billion, up 3.9%, or 10.6% excluding negative currency effects of $75 million
* Gross margin decrease of 20 basis points to 33.4%
* SG&A as a percentage of sales down 60 basis points to 19.5%
* Operating income of $165.7 million, up 6.9%, or 14.6% excluding negative currency effects
* Operating margin increase of 40 basis points to 14.2%
* Tax rate of 26.1% compared to 22.9% for third quarter 2011
* Repurchased $101 million in shares as part of $1 billion share repurchase program, $524 million of authorized repurchase capacity remaining
* Backlog of $2.9 billion at September 30, 2012, including negative currency effects of approximately $2 million, compared to $2.7 billion in backlog at December 31, 2011
* Highest aftermarket backlog of $713 million at September 30, 2012 compared to $633 million at December 31, 2011
* 2012 full year EPS target range narrowed to $8.20 to $8.70
Year-to-Date 2012 (all comparisons versus year-to-date 2011 unless otherwise
noted):
* Fully diluted EPS of $5.73, up 6.1%, or 13.8% excluding below the line currency effects year over year
* Bookings of $3.6 billion, up 3.1%, or 8.4% excluding negative currency effects of $189 million
-- Aftermarket bookings of $1.4 billion, up 10.1% excluding negative currency effects
* Sales of $3.4 billion, up 5.5%, or 11.2% excluding negative currency effects of $185 million
* Gross margin decrease of 60 basis points to 33.1%
* SG&A as a percentage of sales down 130 basis points to 19.7%
* Operating income of $473.0 million, up 11.2%, or 19.0% excluding negative currency effects
* Operating margin increase of 70 basis points to 13.8%
* $534 million in share repurchase activity year to date
Mark Blinn, Flowserve president and chief executive officer, said, "I am pleased with our performance in the third quarter, where solid top line growth, operational progress and improved SG&A leverage drove earnings growth. Our bookings growth was varied across our product lines, served industries and geographic regions, underscoring how our diverse global platform works to manage risk. Solid aftermarket bookings reflected normal seasonal activity and drove our highest level of quarter-end aftermarket backlog, which continues to support a near $2 billion annual run rate for this business.
"While remaining committed to serving our customers and increasing shareholder value, we have built positive operating momentum during the year through 'One Flowserve', which focuses on growing our business while driving operational excellence. Our operational improvement and cost management initiatives have gained traction, resulting in improved SG&A leverage and a second consecutive quarter of both year over year and sequential operating margin improvement. Our Industrial Product Division's performance highlighted this progress, delivering notable improvements in financial and operating metrics. I am encouraged by the progress we have made, and we remain focused on leveraging additional operating improvement opportunities."
Blinn added, "We are somewhat cautious in our outlook, as softer conditions in certain regions and general macroeconomic uncertainty may impact the shorter cycle business and push out the timing of expected later cycle project investments. That being said, demand drivers for infrastructure needs remain intact, and we are optimistic in medium- to long-term infrastructure investment opportunities, particularly in our energy end markets. I am confident that our heightened focus and discipline on the front-end bidding process, growing improvements in our operations, and our diverse end markets and geographic presence will provide support as the cycle progresses and the later cycle projects move forward. All of this combines to position us well to continue capturing profitable growth and creating long-term value for our shareholders."
Financial Performance and Guidance
Mike Taff, senior vice president and chief financial officer, said, "Consistent with the first half of the year, our financial performance benefitted from improved execution on increased sales volumes, with our continued focus on disciplined cost management driving improvements in SG&A leverage and incremental margins. We are encouraged by the build of our aftermarket base, and we made solid progress in shipping low margin legacy backlog. While these legacy shipments continued to impact earnings and margins in the third quarter, the impact should diminish in the remainder of the year with the increased volume and fixed cost absorption planned in the fourth quarter.
"During the third quarter, we took significant steps to optimize our capital structure, all with the goal of increasing total shareholder return. Taking advantage of attractive debt markets and our investment grade credit ratings, we put in place a new $1.25 billion senior credit facility and publicly issued $500 million of 10-year senior notes at a 3.5% coupon. We also continued executing on our $1 billion share repurchase program during the quarter by repurchasing $101 million of common stock, and we expect to conclude the program in 2013. We are pleased with these actions taken in support of our capital structure strategy, which will enable us to more efficiently deploy capital and execute our growth initiatives to increase shareholder value."
Taff added, "The year-over-year strengthening of the U.S. dollar against our other functional currencies, including the Euro, continued to have a significant impact on our reported results. For the full year, we now estimate total negative currency effects of $1.00 to $1.10 per share at current exchange rates, compared to $1.00 per share in prior guidance. We continue to expect share repurchase activity for 2012 to add approximately $0.30 to our full year results, although somewhat offset by higher borrowing costs related to increased leverage. With the expectation of strong fourth quarter performance and despite the increased currency headwinds, we are narrowing our 2012 earnings guidance to $8.20 to $8.70 per share."
Operational Performance
Tom Pajonas, senior vice president and chief operating officer, said, "Our operating structure and 'One Flowserve' initiative continued to drive disciplined, profitable growth this quarter. Across all of our operations, the results this quarter demonstrate how our diversified product lines, end markets and geographic presence work to mitigate risk in our business. Also, our leadership team's focus and discipline on the front end of our bidding process continued the trend of increasing expected margin quality in backlog.
"The Engineered Product Division (EPD) took advantage of original equipment activity in the oil and gas industry and in the Middle East to increase bookings over 4% on a constant currency basis. Offsetting this activity were decreases in Europe and Asia Pacific. A sales mix shift to aftermarket sales and execution improvements drove gross margin improvement over last year, even with the impact of progress made in shipping low margin legacy backlog. Operating margin decreased slightly on increased SG&A driven by selling-related expenses."
Pajonas added, "The Industrial Product Division (IPD) delivered solid performance this quarter as its focus on operational excellence produced significant improvements in operating income and operating margin. IPD's bookings increase reflected strength of original equipment orders in the oil and gas industry and reflected orders in excess of $90 million to supply offshore oil and gas platform equipment over the next five years. Sales improved on increased original equipment shipments to Asia Pacific and North America, somewhat offset by a decrease in Europe. Gross margin and operating margin again improved both sequentially and year over year. This reflected continued traction on the IPD recovery plan as we focused on operational excellence, on-time delivery, supply chain and disciplined cost management.
"The Flow Control Division (FCD) continued to deliver steady performance in the third quarter. Bookings were down only slightly on a constant currency basis, even with a difficult comparison to the third quarter of 2011. Overall, bookings were impacted by reduced original equipment bookings in the Middle East/Africa and Latin America, largely offset by an increase in Europe, primarily Russia. Sales increased over 14% on a constant currency basis, with increased sales into Asia Pacific, North America, the Middle East and Latin America more than offsetting softness in Europe and Africa. Gross margin decreased due to a sales mix shift to original equipment and product line mix, though operating margin was steady with the support of improved SG&A leverage."
Segment Overview (all comparisons versus third quarter 2011 unless otherwise noted)
Engineered Product Division (EPD)
EPD bookings for the third quarter of 2012 were $553.7 million, a decrease of $13.9 million, down 2.4%, or up 4.1% excluding negative currency effects of approximately $37 million. EPD sales for the third quarter of 2012 were $567.5 million, a decrease of $6.8 million, down 1.2%, or up 5.3% excluding negative currency effects of approximately $37 million.
EPD gross profit for the third quarter of 2012 was $192.3 million, down $0.8 million or 0.4%. Gross margin increased 30 basis points to 33.9%. The gross margin increase was primarily due to a sales mix shift to higher margin aftermarket sales and the effects of lower costs associated with operational execution improvements, partially offset by shipments of lower margin legacy backlog.
EPD operating income for the third quarter of 2012 was $87.0 million, a decrease of $4.9 million or 5.3%, including negative currency effects of approximately $6 million. The decrease was primarily due to increased SG&A, driven by increased selling-related expenses, and decreased gross profit. Operating margin decreased 70 basis points to 15.3%.
Industrial Product Division (IPD)
IPD bookings for the third quarter of 2012 were $283.5 million, an increase of $60.3 million, up 27.0%, or up 34.6% excluding negative currency effects of approximately $17 million. IPD sales for the third quarter of 2012 were $243.6 million, an increase of $28.0 million, up 13.0%, or 18.6% excluding negative currency effects of approximately $12 million.
IPD gross profit for the third quarter of 2012 was $59.1 million, up $8.2 million or 16.1%. Gross margin increased 70 basis points to 24.3%. The gross margin increase was primarily due to lower costs resulting from operational improvements and continued realization of realignment savings, partially offset by a mix shift to lower margin original equipment sales.
IPD operating income for the third quarter of 2012 was $26.6 million, up $10.1 million or 61.2%, including negative currency effects of approximately $2 million. The increase was primarily attributable to the increase in gross profit and a decrease in SG&A. Operating margin increased 320 basis points to 10.9%.
Flow Control Division (FCD)
FCD bookings for the third quarter of 2012 were $381.4 million, a decrease of $28.5 million, down 7.0%, or 1.1% excluding negative currency effects of approximately $24 million. FCD sales for the third quarter of 2012 were $394.7 million, an increase of $26.4 million, up 7.2%, or 14.2% excluding negative currency effects of approximately $26 million.
FCD gross profit for the third quarter of 2012 was $139.6 million, up $8.3 million or 6.3%. Gross margin decreased 30 basis points to 35.4%. The gross margin decrease was primarily due to a shift in product line mix and a less favorable sales mix between original equipment and aftermarket.
FCD operating income for the third quarter of 2012 was $68.3 million, up $4.5 million or 7.1%, including negative currency effects of approximately $5 million. The increase was primarily attributable to higher gross profit, partially offset by an increase in SG&A. Operating margin remained constant at 17.3%.
Conference Call
The conference call will take place on Tuesday, October 30 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.
CONDENSED CONSOLIDATED
STATEMENTS OF INCOME
(Unaudited)
(Amounts in thousands, except Three Months Ended September 30,
per share data)
2012 2011
Sales $ 1,165,923 $ 1,121,813
Cost of sales (776,319) (745,227)
Gross profit 389,604 376,586
Selling, general and (227,797) (225,996)
administrative expense
Net earnings from affiliates 3,899 4,367
Operating income 165,706 154,957
Interest expense (12,144) (8,544)
Interest income 208 216
Other expense, net (9,167) (6,621)
Earnings before income taxes 144,603 140,008
Provision for income taxes (37,769) (32,052)
Net earnings, including 106,834 107,956
noncontrolling interests
Less: Net earnings
attributable to noncontrolling (538) (185)
interests
Net earnings attributable to $ 106,296 $ 107,771
Flowserve Corporation
Net earnings per share
attributable to Flowserve
Corporation common
shareholders:
Basic $ 2.09 $ 1.94
Diluted 2.07 1.92
Cash dividends declared per $ 0.36 $ 0.32
share
CONDENSED CONSOLIDATED
STATEMENTS OF INCOME
(Unaudited)
(Amounts in thousands, except Nine Months Ended September 30,
per share data)
2012 2011
Sales $ 3,423,128 $ 3,244,772
Cost of sales (2,289,739) (2,151,153)
Gross profit 1,133,389 1,093,619
Selling, general and (673,578) (681,618)
administrative expense
Net earnings from affiliates 13,214 13,314
Operating income 473,025 425,315
Interest expense (29,876) (26,684)
Interest income 727 1,100
Other (expense) income, net (22,151) 7,852
Earnings before income taxes 421,725 407,583
Provision for income taxes (112,864) (103,908)
Net earnings, including 308,861 303,675
noncontrolling interests
Less: Net earnings
attributable to noncontrolling (2,124) (191)
interests
Net earnings attributable to $ 306,737 $ 303,484
Flowserve Corporation
Net earnings per share
attributable to Flowserve
Corporation common
shareholders:
Basic $ 5.77 $ 5.45
Diluted 5.73 5.40
Cash dividends declared per $ 1.08 $ 0.96
share
CONDENSED CONSOLIDATED BALANCE
SHEETS
(Unaudited)
(Amounts in thousands, except September 30, December 31,
per share data) 2012 2011
ASSETS
Current assets:
Cash and cash equivalents $ 217,420 $ 337,356
Accounts receivable, net of
allowance for doubtful 1,105,641 1,060,249
accounts of $21,546
and $20,351, respectively
Inventories, net 1,155,725 1,008,379
Deferred taxes 128,611 121,905
Prepaid expenses and other 113,673 100,465
Total current assets 2,721,070 2,628,354
Property, plant and equipment,
net of accumulated 605,360 598,746
depreciation of $767,392
and $719,992, respectively
Goodwill 1,047,729 1,045,077
Deferred taxes 19,659 17,843
Other intangible assets, net 151,891 163,482
Other assets, net 198,039 169,112
Total assets $ 4,743,748 $ 4,622,614
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable $ 516,500 $ 597,342
Accrued liabilities 836,330 808,601
Debt due within one year 48,861 53,623
Deferred taxes 8,748 10,755
Total current liabilities 1,410,439 1,470,321
Long-term debt due after one 879,135 451,593
year
Retirement obligations and 426,949 422,470
other 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 548,748 621,083
Retained earnings 2,455,401 2,205,524
3,077,813 2,900,271
Treasury shares, at cost -
8,901 and 5,025 shares, (866,289) (424,052)
respectively
Deferred compensation 10,711 9,691
obligation
Accumulated other (205,427) (216,097)
comprehensive loss
Total Flowserve Corporation 2,016,808 2,269,813
shareholders' equity
Noncontrolling interest 10,417 8,417
Total equity 2,027,225 2,278,230
Total liabilities and equity $ 4,743,748 $ 4,622,614
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in thousands) Nine Months Ended September 30,
2012 2011
Cash flows - Operating
activities:
Net earnings, including $ 308,861 $ 303,675
noncontrolling interests
Adjustments to reconcile net
earnings to net cash provided
(used) by operating
activities:
Depreciation 66,027 67,166
Amortization of intangible and 14,751 12,385
other assets
Loss on early extinguishment 1,293 -
of debt
Net gain on disposition of (10,461) (484)
assets
Excess tax benefits from
stock-based compensation (11,056) (5,201)
arrangements
Stock-based compensation 25,942 23,655
Net earnings from affiliates, (5,798) 472
net of dividends received
Change in assets and
liabilities:
Accounts receivable, net (45,566) (201,636)
Inventories, net (149,254) (206,079)
Prepaid expenses and other (8,968) (21,606)
Other assets, net (11,609) (2,019)
Accounts payable (75,169) (101,671)
Accrued liabilities and income 26,057 (43,648)
taxes payable
Retirement obligations and (6,737) 13,635
other liabilities
Net deferred taxes 4,251 11,271
Net cash flows provided (used) 122,564 (150,085)
by operating activities
Cash flows - Investing
activities:
Capital expenditures (84,180) (71,164)
Proceeds from disposal of 11,473 3,530
assets
Payments for acquisition, net (3,996) (890)
of cash acquired
Affiliate investing activity (3,825) -
Net cash flows used by (80,528) (68,524)
investing activities
Cash flows - Financing
activities:
Excess tax benefits from
stock-based compensation 11,056 5,201
arrangements
Payments on long-term debt (475,000) (18,750)
Proceeds from issuance of 498,075 -
senior notes
Proceeds from issuance of 400,000 -
long-term debt
Proceeds from short-term 475,000 -
financing
Payments on short-term (475,000) -
financing
Borrowings (payments) under
other financing arrangements, 294 (1,747)
net
Repurchases of common shares (533,864) (41,088)
Payments of dividends (55,569) (51,794)
Payments of deferred loan (9,657) -
costs
Other (248) (1,858)
Net cash flows used by (164,913) (110,036)
financing activities
Effect of exchange rate 2,941 (1,049)
changes on cash
Net change in cash and cash (119,936) (329,694)
equivalents
Cash and cash equivalents at 337,356 557,579
beginning of year
Cash and cash equivalents at $ 217,420 $ 227,885
end of period
SEGMENT INFORMATION
ENGINEERED PRODUCT DIVISION Three Months Ended September 30,
(Amounts in millions, except 2012 2011
percentages)
Bookings $ 553.7 $ 567.6
Sales 567.5 574.3
Gross profit 192.3 193.1
Gross profit margin 33.9% 33.6%
Operating income 87.0 91.9
Operating margin 15.3% 16.0%
INDUSTRIAL PRODUCT DIVISION Three Months Ended September 30,
(Amounts in millions, except 2012 2011
percentages)
Bookings $ 283.5 $ 223.2
Sales 243.6 215.6
Gross profit 59.1 50.9
Gross profit margin 24.3% 23.6%
Operating income 26.6 16.5
Operating margin 10.9% 7.7%
FLOW CONTROL DIVISION Three Months Ended September 30,
(Amounts in millions, except 2012 2011
percentages)
Bookings $ 381.4 $ 409.9
Sales 394.7 368.3
Gross profit 139.6 131.3
Gross profit margin 35.4% 35.7%
Operating income 68.3 63.8
Operating margin 17.3% 17.3%
SEGMENT INFORMATION
ENGINEERED PRODUCT DIVISION Nine Months Ended September 30,
(Amounts in millions, except 2012 2011
percentages)
Bookings $ 1,818.2 $ 1,753.7
Sales 1,689.0 1,655.3
Gross profit 571.4 573.3
Gross profit margin 33.8% 34.6%
Operating income 274.2 270.4
Operating margin 16.2% 16.3%
INDUSTRIAL PRODUCT DIVISION Nine Months Ended September 30,
(Amounts in millions, except 2012 2011
percentages)
Bookings $ 758.1 $ 674.5
Sales 688.4 616.5
Gross profit 164.6 140.4
Gross profit margin 23.9% 22.8%
Operating income 67.8 39.2
Operating margin 9.8% 6.4%
FLOW CONTROL DIVISION Nine Months Ended September 30,
(Amounts in millions, except 2012 2011
percentages)
Bookings $ 1,173.0 $ 1,227.1
Sales 1,160.1 1,093.0
Gross profit 399.1 378.8
Gross profit margin 34.4% 34.7%
Operating income 184.4 171.2
Operating margin 15.9% 15.7%
Investor Contacts:
Jay Roueche, vice president, treasurer & investor relations +1-972-443-6500
Mike Mullin, director, investor relations +1-972-443-6636
Media Contact:
Steve Boone, director, global communications and public affairs, +1-972-443-6644
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; access to public and private sources of debt financing; 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.
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
Topic: Earnings
Source: Flowserve Corporation
http://www.acnnewswire.com
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