Flowserve Corporation Reports Fourth Quarter and Full Year 2014 Results

Reports Fourth Quarter & Full Year 2014 EPS of $1.16 and $3.76 respectively

Increased bookings, backlog, gross profit, operating income and EPS year-over-year

Increased gross and operating margins demonstrate strong operating platform and bidding discipline

Announced 12.5% increase in the quarterly dividend, to 18 cents per share

Reaffirms 2015 Full Year Adjusted EPS Target Range of $3.60 to $4.00

DALLAS--(BUSINESS WIRE)--Feb. 17, 2015-- Flowserve Corporation (NYSE:FLS), a leading provider of flow control products and services for the global infrastructure markets, announced today its financial results for the fourth quarter and full year 2014, and filed its 2014 Annual Report on Form 10-K with the Securities and Exchange Commission.

Highlights of 2014 Fourth Quarter (all comparisons versus prior year quarter, unless otherwise noted):

• Fully diluted EPS of $1.16, up 14.9% compared to $1.01 per share
• Bookings of $1.32 billion, up 5.6%, or 11.2% on a constant currency basis
  • Original equipment bookings of $768 million increased 6.4%, or 12.5% on a constant currency basis
  • Aftermarket bookings of $554 million increased 4.4%, or 9.5% on a constant currency basis
• Sales of $1.4 billion, decreased 0.6%, or increased 5.6% on a constant currency basis
  • Aftermarket sales of $577 million increased 0.9%, or 6.8% on a constant currency basis
• Gross profit increased $15.2 million to $485.7 million, or 3.2%
  • Gross margin increased 130 basis points to 35.2%
• SG&A expense decreased $9.0 million to $251.6 million
  • SG&A as a percent of sales decreased 60 basis points to 18.2%
• Operating income increased $25.8 million to $238.7 million, up 12.1%, or up 20.2% on a constant currency basis
• Operating margin increased 200 basis points to 17.3%
• Backlog increased $147.3 million year-to-date to $2.7 billion, up 5.8%, or 11.8% on a constant currency basis

Highlights of 2014 Full Year (all comparisons versus prior year, unless otherwise noted):

• Fully diluted EPS of $3.76, up 10.3% compared to $3.41 per share
• Bookings of $5.16 billion, up 5.7%, or 8.0% on a constant currency basis
  • Original equipment bookings of $3.04 billion, up 5.2%, or 7.5% on a constant currency basis
  • Aftermarket bookings of $2.12 billion, up 6.4%, or 8.9% on a constant currency basis
• Sales of $4.88 billion, down 1.5%, or up 0.7% on a constant currency basis
  • Full year 2013 revenues included approximately $37 million of revenues from Naval OY business that was divested in the first quarter of 2014
  • Aftermarket sales of $2.04 billion, up 2.9%, or 5.5% on a constant currency basis
• Gross profit increased $26.5 million to $1.71 billion, up 1.6%
• Gross margin improved 110 basis points to 35.2%
• SG&A spend as a percentage of sales decreased 30 basis points to 19.2%
• Operating income increased $29.5 million to $789.8 million, up 3.9%, or 7.0% on a constant currency basis
• Operating margin increased 90 basis points to 16.2%
• Full year operating cash flow increased over $80 million, up 17 percent, to $571 million

“I am pleased with our solid fourth quarter and full year results, as we drove continued gross and operating margin improvement through our strong operating performance and sound bidding discipline. We executed at a high level throughout 2014 and we believe our operating platform is performing as well as ever. Although we are not immune to the recent decline in crude oil price or the strengthening U.S. dollar, I believe Flowserve is well positioned, and will pursue numerous growth opportunities, in this environment,” commented Mark Blinn, Flowserve’s president and chief executive officer. "With a strong financial foundation, combined with our improved backlog, resilient aftermarket franchise, diverse market and geographic exposures, and a proven ability to manage our cost structure, we are prepared to deliver on our recent 2015 financial targets and are confident reaffirming today." Key takeaways from the 2014 fourth quarter and full year results include:

• Full year book-to-bill of 1.06 increased year-to-date backlog by $147 million, up 5.8% or 11.8% on a constant currency basis, and provides a solid foundation as we enter 2015;
• Strong fourth quarter and full year bookings, up 11.2% and 8.0% on a constant currency basis;
• Focused end-user aftermarket strategies drove record full year bookings and sales of $2.12 billion and $2.04 billion, respectively;
• Fourth consecutive quarter of gross margins exceeding 35% with a full year operating margin of 16.2%, reaching the top end of our three year target range;
• Strong operational performance provides increased bandwidth to accelerate our organic and acquisitive growth strategies, as well as further pursue asset optimization opportunities;
• Disciplined cost management demonstrated by SG&A reductions for both the quarter and full year;
• Delivered a 17% increase in year-over-year operating cash flow, to $571 million
• Returned $332 million in capital to shareholders, representing over 60% of net income;
• While an uncertain macro environment has diminished market visibility, we remain confident that our diverse business model, growth strategies and investments support long-term earnings growth; and
• In short, we believe 2015 will provide the opportunity for Flowserve to differentiate itself, leverage the operational improvements made and build upon its leadership position in the flow control industry.

Operational Commentary and Segment Performance

Tom Pajonas, executive vice president and chief operating officer, said, “Flowserve's impressive operating performance includes gross and operating margin improvement across all segments for the full year 2014, culminating in a consolidated operating margin of 16.2 percent, at the top end of our target range established three years ago. While I'm pleased with the consistent progress over the last three years, opportunity remains and we will continue to focus on the customer, invest in our people, increase productivity and optimize our operating platform to deliver long-term profitable growth.

"The recent decline in crude oil price has challenged certain oil and gas projects, but Flowserve's approximate 40 percent oil and gas exposure predominantly services existing infrastructure in the mid- and downstream. With roughly 80 percent of our total revenues focused on existing facilities and their respective maintenance budgets, we believe Flowserve will be less impacted than others might perceive due to the recently announced upstream-focused capital spending reductions and project delays. As we demonstrated in prior commodity downturns, we expect our aftermarket franchise and our original equipment run-rate business to remain resilient throughout the cycle.

"With our strong operational performance as a foundation, we believe the current environment provides Flowserve significant opportunities to enhance its long-term strategic position. Even in our areas of strength, we see solid prospects to accelerate our aftermarket and chemical positions, and believe market share growth is achievable in emerging market power, upstream oil & gas and mining, to name a few. We will pursue these and other growth strategies on both an organic and acquisitive approach, and we will continue to invest in R&D and technologies. Additionally, with the completion of our 2015 SIHI acquisition, we expect to further improve that business and drive growth through scale and operational efficiencies."

Financial Performance and Guidance

“Flowserve's strong operational execution, cost focus and share count reduction combined to deliver solid full year 2014 EPS growth of over 10 percent," commented Mike Taff, Flowserve’s senior vice president and chief financial officer. "We delivered solid cash flow from operations of $571 million for the full year of 2014 and ended the year with $450 million of cash and cash equivalents. Our gross leverage ratio was 1.3 times EBITDA at year end, well within our stated 1-2 times range, and our net leverage ratio was 0.8 times. Flowserve remains well-positioned from a capital structure standpoint, possessing the financial flexibility to pursue growth and efficiency initiatives to drive long-term value for our shareholders.

“While we expect 2015 to continue to demonstrate our normal seasonality, we also expect the first half of 2015 to experience the largest year-over-year comparable challenges, due to the FX differentials, gains from the 2014 Naval sale and the market view on commodity prices that exist between the two years. For 2015, we are reaffirming our Adjusted EPS target range of $3.60 to $4.00 on a revenue range between down 1 to up 3 percent, as detailed in our January 29, 2015 press release.

"We also returned over 60 percent of our 2014 net income to our shareholders in the form of share repurchases and dividends, as our strong cash flow provided additional capital to be allocated for repurchases at attractive valuations, continuing our disciplined approach. Our Board of Directors further emphasized their commitment to this policy through the recent approval of a 12.5 percent increase to our quarterly dividend, the fifth consecutive annual double digit increase,” Taff concluded.

Flowserve reports its operations through three segments: Engineered Product Division (EPD), Industrial Product Division (IPD) and Flow Control Division (FCD). Key financial highlights of segment performance for the fourth quarter and full year 2014 include:

Increase in Quarterly Dividend

Flowserve announced today that its Board of Directors has authorized the payment of a quarterly cash dividend of $0.18 per share on the company's outstanding shares of common stock. This dividend represents a 12.5% increase compared to the $0.16 per share amount paid in January 2015.

The dividend is payable on April 10, 2015, to shareholders of record as of the close of business on March 27, 2015.

While Flowserve currently intends to pay regular quarterly cash dividends for the foreseeable future, any future dividends, whether at this $0.18 per share quarterly rate or otherwise, will be reviewed individually and declared by the Board at its discretion, dependent upon the Board's assessment of the company's financial condition and business outlook at the applicable time.

Fourth Quarter 2014 Results Conference Call

Flowserve will host its conference call with the financial community on Wednesday, February 18^th 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 by shareholders and other interested parties at www.flowserve.com under the “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.

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; 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; increased aging and slower collection of receivables, particularly in Latin America and other emerging markets; 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 and other critical processes; 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.

Source: Flowserve Corporation

Flowserve Corporation
Investor Contacts:
Jay Roueche, 972-443-6560
Vice President, IR & Treasurer
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Mike Mullin, 972-443-6636
Director, Investor Relations
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Vice President, Global Communications and Public Affairs