Flowserve Corporation Reports First Quarter Results - Reaffirms 2010 Full Year EPS Forecast
Flowserve announces financial results for the first quarter of 2010.
DALLAS, May 05, 2010 -- Flowserve Corp. (NYSE:FLS), a global leader in the fluid motion and control industry, announced today financial results for the first quarter of 2010 in its Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission. The table below outlines the first quarter 2010 highlights.
Highlights
First Quarter of 2010 (all comparisons versus the first quarter of 2009 unless otherwise noted):
- Fully diluted EPS of $1.42, down 13.4%, including net currency charges of $0.16 related to the Venezuelan Bolivar devaluation and realignment charges of $0.01, plus another $0.16 in other expense, net relating to other after-tax currency charges
- Bookings of $1.07 billion, up 10.7%, or 5.6% excluding currency benefits of $49 million
- Sales of $959 million, down 6.4%, or 11.0% excluding currency benefits of $47 million
- Gross margin increase of 40 basis points to 36.3%, including realignment charges of 10 basis points
- Operating margin increase of 40 basis points to 14.8%, including realignment charges of 10 basis points
- Selling, General & Administrative (SG&A) as a percentage of sales of 22.0%, flat compared to the same period in 2009
- Operating income of $142 million, down 3.3%, including realignment charges of $0.5 million
- Cash balance of $468 million at March 31, 2010 resulting in net debt of $70 million
- Increased backlog of $2.42 billion, including negative currency effects of $62 million, compared to $2.37 billion in backlog at December 31, 2009
"We are pleased with another quarter of bookings performance around $1 billion," said Mark Blinn, Flowserve President and Chief Executive Officer. "This drove a book-to-bill ratio of 1.12 for the period and resulted in our finishing the first quarter with an increased backlog compared to the end of 2009," Blinn added.
"Our bookings performance reflects continued investment activity in infrastructure and critical applications, assisted somewhat by the activation of large projects postponed from previous periods, leading to an increase in engineered bookings," continued Blinn. "Despite this investment activity, we continue to expect volatility in large project order timing, as customers generally remain cautious and the pace of global economic recovery remains uncertain," said Blinn.
"We are pleased that we maintained strong cash flow performance this first quarter, which is historically our most intensive for cash use due to several factors, including seasonal increases in working capital and broad-based annual global employee incentive compensation payments," said Dean Freeman, Flowserve Senior Vice President Finance and Treasurer.
"The initial impact of the Venezuelan currency devaluation on other expense, net for the quarter was somewhat better than expected, as we were able to repatriate some cash at the more favorable Venezuelan essential items exchange rate. We will continue to assess the effects of the devaluation on our operations as we go forward," said Dick Guiltinan, Flowserve Senior Vice President Finance and Chief Accounting Officer. "We will also continue to monitor the strengthening of the U.S. Dollar, as it impacts our earnings given our multinational presence and the significant majority of our revenues being driven by non-U.S. operations," added Guiltinan.
The company reaffirmed its 2010 full year EPS target range of between $6.35 and $7.15, which includes the full impact of up to $20 million, or $0.26 per share, in realignment costs and the after-tax charge of approximately$14 million, or $0.25 per share, related to the Venezuelan currency devaluation.
"We remain focused on margin performance in the face of pricing environment challenges and reduced sales volumes as we work through our backlog and begin to realize the full benefit of cost savings generated from our realignment initiatives," Blinn continued. "Thanks to the dedication and efforts of our highly capable global workforce, we continue to execute well against our core strategies and remain committed to providing world-class customer service. With the added support of having substantially completed the integration of the former Flowserve Pump Division and Flow Solutions Division into our new Flow Solutions Group with good results, we believe that we are positioned for success in 2010 and beyond," added Blinn.
Segment Overview (all comparisons versus the first quarter of 2009 unless otherwise noted)
As previously announced, the company reorganized its divisional operations by combining the former Flowserve Pump Division and Flow Solutions Division into its new Flow Solutions Group (FSG), effective January 1, 2010. FSG has been divided into two reportable segments based on type of product and how the company's leadership actually manages the business: FSG Engineered Product Division (EPD); and FSG Industrial Product Division (IPD). EPD's operations include the longer lead-time, highly engineered pump product operations of the former Flowserve Pump Division and substantially all of the mechanical seal operations of the former Flow Solutions Division. IPD's operations include the more standardized, general purpose pump product operations of the former Flowserve Pump Division. The company's third reporting segment, Flow Control Division (FCD), which contains industrial valve and related automation products and solutions, remains unchanged. The company's first quarter 2010 segment financial results discussed below now reflect these three reporting segments, and prior reporting periods have been re-cast to conform to the new segment presentation.
FSG Engineered Product Division (EPD)
EPD bookings for the first quarter 2010 were $592.4 million, an increase of $112.5 million, up 23.4%, or 18.2% excluding currency benefits of approximately $25 million. EPD sales for the first quarter of 2010 were $531.8 million, a decrease of $7.4 million, down 1.4%, or 6.0% excluding currency benefits of approximately $25 million. EPD gross profit declined to $196.7 million, down $4.7 million or 2.3%. Gross margin for the first quarter of 2010 decreased 40 basis points to 37.0%, or decreased 120 basis points to 37.1% excluding realignment charges in the current and comparison periods. The gross margin decrease, adjusted to exclude realignment charges, was primarily attributable to pricing from beginning of year backlog and a sales mix shift toward original equipment, partially offset by operational efficiencies and cost savings from realignment and supply chain initiatives.
EPD operating income for the first quarter of 2010 increased to $102.4 million, an increase of $2.6 million or 2.6%, including currency benefits of approximately $6 million and realignment charges of $0.2 million. The increase was primarily attributable to a $5.7 million decrease in segment SG&A expenses, partially offset by the $4.7 million decrease in gross profit. Operating margin increased 70 basis points to 19.2%, or decreased 70 basis points to 19.3% excluding realignment charges in the current and comparison periods.
FSG Industrial Product Division (IPD)
IPD bookings for the first quarter 2010 were $194.4 million, a decrease of $20.9 million, down 9.7%, or 14.4% excluding currency benefits of approximately $10 million. IPD sales for the first quarter of 2010 were $196.1 million, a decrease of $18.2 million, down 8.5%, or 13.6% excluding currency benefits of approximately $11 million. IPD gross profit declined to $55.0 million, down $4.0 million or 6.8%. Gross margin for the first quarter of 2010 increased 50 basis points to 28.0%, or increased 20 basis points to 28.2% excluding realignment charges in the current and comparison periods. The gross margin increase, adjusted to exclude realignment charges, was primarily attributable to a sales mix shift toward aftermarket and cost savings realized from realignment initiatives, partially offset by the impact of decreased sales volumes.
IPD operating income for the first quarter of 2010 decreased to $21.0 million, down $2.0 million or 8.7%, including currency benefits of approximately $1 million and realignment charges of $0.3 million. The decrease was primarily attributable to the $4.0 million decrease in gross profit, partially offset by a $1.8 million decrease in segment SG&A expenses. Operating margin of 10.7% was flat compared to the same period in 2009, or decreased 40 basis points to 10.9% excluding realignment charges in the current and comparison periods.
Flow Control Division (FCD)
FCD Bookings for the first quarter of 2010 were $318.9 million, an increase of $16.1 million, up 5.3%, or 0.7% excluding currency benefits of approximately $14 million. FCD sales for the first quarter of 2010 were $256.1 million, a decrease of $41.1 million, down 13.8%, or 17.5% excluding currency benefits of approximately $11 million. FCD gross profit decreased to $95.7 million, down $11.5 million or 10.7%. Gross margin for the first quarter of 2010 increased 130 basis points to 37.4% and was not impacted by realignment charges. Gross margin improvement reflected favorable product mix, cost savings realized from realignment initiatives, manufacturing efficiencies and improved utilization of low cost regions.
FCD operating income for the first quarter of 2010 decreased to $40.1 million, down $7.5 million or 15.8%, including currency benefits of approximately $2 million. The decrease was primarily attributable to the $11.5 million decrease in gross profit, partially offset by a $5.2 million decrease in segment SG&A expenses. Operating margin decreased 30 basis points to 15.7%, or decreased 50 basis points to 15.7% excluding realignment charges in the current and comparison periods.
Conference Call
The conference call will take place on Thursday, May 6 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 Website at www.flowserve.com under the "About Flowserve - Investor Relations" section.
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.
| CONDENSED CONSOLIDATED STATEMENTS OF INCOME | ||||||||
| (Amounts in thousands, except per share data) | Three Months Ended March 31, | |||||||
| 2010 | 2009 | |||||||
| Sales | $ | 958,906 | $ | 1,024,726 | ||||
| Cost of sales | (610,596 | ) | (656,953 | ) | ||||
| Gross profit | 348,310 | 367,773 | ||||||
| Selling, general and administrative expense | (211,240 | ) | (225,311 | ) | ||||
| Net earnings from affiliates | 5,104 | 4,675 | ||||||
| Operating income | 142,174 | 147,137 | ||||||
| Interest expense | (8,995 | ) | (10,109 | ) | ||||
| Interest income | 334 | 1,075 | ||||||
| Other expense, net | (21,533 | ) | (9,295 | ) | ||||
| Earnings before income taxes | 111,980 | 128,808 | ||||||
| Provision for income taxes | (31,775 | ) | (35,983 | ) | ||||
| Net earnings, including noncontrolling interests | 80,205 | 92,825 | ||||||
| Less: Net loss (earnings) attributable to noncontrolling interests | 15 | (520 | ) | |||||
| Net earnings of Flowserve Corporation | $ | 80,220 | $ | 92,305 | ||||
| Net earnings per share of Flowserve Corporation common shareholders: | ||||||||
| Basic | $ | 1.44 | $ | 1.65 | ||||
| Diluted | 1.42 | 1.64 | ||||||
| Cash dividends declared per share | $ | 0.29 | $ | 0.27 | ||||
| CONDENSED CONSOLIDATED BALANCE SHEETS | ||||||||
| March 31, | December 31, | |||||||
| (Amounts in thousands, except per share data) | 2010 | 2009 | ||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 468,356 | $ | 654,320 | ||||
|
Accounts receivable, net of allowance for doubtful accounts of $16,706 and $18,769, respectively |
815,871 | 791,722 | ||||||
| Inventories, net | 797,069 | 795,233 | ||||||
| Deferred taxes | 141,120 | 145,864 | ||||||
| Prepaid expenses and other | 135,974 | 112,183 | ||||||
| Total current assets | 2,358,390 | 2,499,322 | ||||||
|
Property, plant and equipment, net of accumulated depreciation of $631,135 and $635,527, respectively |
534,133 | 560,472 | ||||||
| Goodwill | 857,463 | 864,927 | ||||||
| Deferred taxes | 31,329 | 31,324 | ||||||
| Other intangible assets, net | 120,798 | 124,678 | ||||||
| Other assets, net | 166,928 | 168,171 | ||||||
| Total assets | $ | 4,069,041 | $ | 4,248,894 | ||||
| LIABILITIES AND EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 397,458 | $ | 493,306 | ||||
| Accrued liabilities | 816,832 | 916,945 | ||||||
| Debt due within one year | 28,211 | 27,355 | ||||||
| Deferred taxes | 20,484 | 20,477 | ||||||
| Total current liabilities | 1,262,985 | 1,458,083 | ||||||
| Long-term debt due after one year | 537,847 | 539,373 | ||||||
| Retirement obligations and other liabilities | 442,014 | 449,691 | ||||||
| Shareholders' equity: | ||||||||
| Common shares, $1.25 par value | 73,664 | 73,594 | ||||||
| Shares authorized - 120,000 | ||||||||
| Shares issued - 58,931 and 58,875, respectively | ||||||||
| Capital in excess of par value | 592,559 | 611,745 | ||||||
| Retained earnings | 1,590,281 | 1,526,774 | ||||||
| 2,256,504 | 2,212,113 | |||||||
| Treasury shares, at cost - 3,584 and 3,919 shares, respectively | (261,348 | ) | (275,656 | ) | ||||
| Deferred compensation obligation | 8,505 | 8,684 | ||||||
| Accumulated other comprehensive loss | (183,140 | ) | (149,028 | ) | ||||
| Noncontrolling interest | 5,674 | 5,634 | ||||||
| Total equity | 1,826,195 | 1,801,747 | ||||||
| Total liabilities and equity | $ | 4,069,041 | $ | 4,248,894 | ||||
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
| (Amounts in thousands) | Three Months Ended March 31, | |||||||
| 2010 | 2009 | |||||||
| Cash flows - Operating activities: | ||||||||
| Net earnings, including noncontrolling interests | $ | 80,205 | $ | 92,825 | ||||
|
Adjustments to reconcile net earnings to net cash used by operating activities: |
||||||||
| Depreciation | 21,286 | 18,145 | ||||||
| Amortization of intangible and other assets | 2,425 | 2,430 | ||||||
| Amortization of deferred loan costs | 915 | 397 | ||||||
| Net (gain) loss on disposition of assets | (121 | ) | 270 | |||||
| Excess tax benefits from stock-based compensation arrangements | (9,860 | ) | (290 | ) | ||||
| Stock-based compensation | 8,298 | 10,070 | ||||||
| Net earnings from affiliates, net of dividends received | (5,104 | ) | (2,914 | ) | ||||
| Change in assets and liabilities: | ||||||||
| Accounts receivable, net | (46,542 | ) | (43,979 | ) | ||||
| Inventories, net | (23,254 | ) | (75,700 | ) | ||||
| Prepaid expenses and other | (25,646 | ) | (10,571 | ) | ||||
| Other assets, net | 1,817 | 6,509 | ||||||
| Accounts payable | (84,305 | ) | (107,925 | ) | ||||
| Accrued liabilities and income taxes payable | (88,466 | ) | (94,135 | ) | ||||
| Retirement obligations and other liabilities | 11,282 | 9,405 | ||||||
| Net deferred taxes | 8,111 | 15,434 | ||||||
| Net cash flows used by operating activities | (148,959 | ) | (180,029 | ) | ||||
| Cash flows - Investing activities: | ||||||||
| Capital expenditures | (14,933 | ) | (44,251 | ) | ||||
| Proceeds from disposal of assets | 2,890 | - | ||||||
| Affiliate investing activity, net | 5,073 | - | ||||||
| Net cash flows used by investing activities | (6,970 | ) | (44,251 | ) | ||||
| Cash flows - Financing activities: | ||||||||
| Excess tax benefits from stock-based compensation arrangements | 9,860 | 290 | ||||||
| Payments on long-term debt | (1,420 | ) | (1,420 | ) | ||||
| Borrowings (payments) under other financing arrangements | 775 | (2,264 | ) | |||||
| Repurchase of common shares | (11,989 | ) | (7,071 | ) | ||||
| Payments of dividends | (15,017 | ) | (13,970 | ) | ||||
| Proceeds from stock option activity | 4,612 | 202 | ||||||
| Dividends paid to noncontrolling interests | - | (78 | ) | |||||
| Net cash flows used by financing activities | (13,179 | ) | (24,311 | ) | ||||
| Effect of exchange rate changes on cash | (16,856 | ) | (21,926 | ) | ||||
| Net change in cash and cash equivalents | (185,964 | ) | (270,517 | ) | ||||
| Cash and cash equivalents at beginning of year | 654,320 | 472,056 | ||||||
| Cash and cash equivalents at end of period | $ | 468,356 | $ | 201,539 | ||||
| SEGMENT INFORMATION | ||||||||
| FSG ENGINEERED PRODUCT DIVISION | Three Months Ended March 31, | |||||||
| (Amounts in millions) | 2010 | 2009 | ||||||
| Bookings | $ | 592.4 | $ | 479.9 | ||||
| Sales | 531.8 | 539.2 | ||||||
| Gross profit | 196.7 | 201.4 | ||||||
| Gross profit margin | 37.0 | % | 37.4 | % | ||||
| Operating income | 102.4 | 99.8 | ||||||
| Operating margin | 19.2 | % | 18.5 | % | ||||
| FSG INDUSTRIAL PRODUCT DIVISION | Three Months Ended March 31, | |||||||
| (Amounts in millions) | 2010 | 2009 | ||||||
| Bookings | $ | 194.4 | $ | 215.3 | ||||
| Sales | 196.1 | 214.3 | ||||||
| Gross profit | 55.0 | 59.0 | ||||||
| Gross profit margin | 28.0 | % | 27.5 | % | ||||
| Operating income | 21.0 | 23.0 | ||||||
| Operating margin | 10.7 | % | 10.7 | % | ||||
| FLOW CONTROL DIVISION | Three Months Ended March 31, | |||||||
| (Amounts in millions) | 2010 | 2009 | ||||||
| Bookings | $ | 318.9 | $ | 302.8 | ||||
| Sales | 256.1 | 297.2 | ||||||
| Gross profit | 95.7 | 107.2 | ||||||
| Gross profit margin | 37.4 | % | 36.1 | % | ||||
| Operating income | 40.1 | 47.6 | ||||||
| Operating margin | 15.7 | % | 16.0 | % | ||||
Technical Contact: Paul Fehlman, 972-443-6517, Vice President Financial Planning & Analysis and Investor Relations
Media Contact: Steve Boone, 972-443-6644, Director Global Communications and Public Affairs
