Flowserve Corporation Reports Second Quarter 2016 Results

DALLAS--(BUSINESS WIRE)--Jul. 28, 2016-- Flowserve Corporation (NYSE: FLS), a leading provider of flow control products and services for the global infrastructure markets, today reported its financial results for the second quarter ended June 30, 2016.

Second Quarter 2016 Highlights ^[1]:

• Reported Earnings Per Share of $0.48 includes $0.09 per share of adjusted items, as detailed herein, and approximately $0.01 per share of negative currency translation
  • Adjusted Earnings Per Share (EPS)^[2] was $0.57, excluding the adjusted items but including the negative currency translation
• Sales were $1.03 billion, down 11.7% or 9.7% on a constant currency basis, and up 6.7% sequentially on a constant currency basis
  • Original equipment sales were $574 million, down 13.5% on a constant currency basis
  • Aftermarket sales were $456 million, down 4.8% on a constant currency basis
• Total Bookings were $975 million, down 10.1% on a constant currency basis, and up 4.0% sequentially on a constant currency basis
  • Aftermarket bookings were $480 million, up 2.3%, and 5.6% sequentially, on a constant currency basis
• Adjusted gross margin decreased 130 basis points to 32.7%
• Achieved approximately $27 million of realignment savings in the quarter, with progress to date on track to deliver expected incremental savings of approximately $100 million in 2016
• Backlog at June 30, 2016 was $2.10 billion, down 3.2% versus year-end 2015

“We delivered solid results in the 2016 second quarter which were generally in-line with our expectations for the period,” said Mark Blinn, Flowserve’s president and chief executive officer. “Our aftermarket business remained resilient during the quarter, evidenced by modest constant currency bookings growth. For the larger project original equipment opportunities, however, we expect that our customers will remain cautious, and that capital investment decisions will remain deliberate and the process iterative until our customers’ confidence improves. In spite of headwinds, we realized traction from our commercial strategies within in all areas, notably the IPD segment, driving constant currency bookings growth of 3.4%.

“We continue to make significant progress on our transformational realignment program. Since the commencement of our program, we have initiated actions on two-thirds of the manufacturing facilities expected to be closed, repurposed or sold and we remain on pace to deliver expected incremental savings of approximately $100 million for this year. We also continue to execute on our targeted growth strategies, which together with our efforts to optimize the manufacturing platform and reduce our cost structure, will better position Flowserve for profitable growth and increased shareholder value creation.”

“Although our served markets currently remain challenged and volatile, Flowserve is committed to remaining disciplined in its project pursuit and taking the actions necessary to better position the Company for the future,” Blinn concluded.

Second Quarter 2016

For the second quarter of 2016, Flowserve delivered Adjusted EPS of $0.57 on revenues of $1.03 billion. Adjusted operating margins were 11.7%, down 300 basis points year-over-year and up 230 basis points sequentially. Second quarter Adjusted EPS excludes the impact of realignment expenses of $0.11, $0.01 of SIHI purchase price accounting and integration costs and $0.03 of below-the-line foreign currency income, but includes $0.01 of negative currency translation. On a reported basis, earnings for the second quarter were $0.48 per share, compared to $0.56 per share in the 2015 second quarter.

Commenting on second quarter 2016 performance, Karyn Ovelmen, Flowserve’s executive vice president and chief financial officer, said, “Flowserve continues to actively focus on our disciplined cost management and realignment actions to reduce the impact of volume declines and price competitiveness in this end-market environment. Our adjusted gross margin performance of nearly 33% reflects continued bidding discipline, a mix shift towards aftermarket and early realignment savings which partially mitigate current market headwinds. Importantly, the long-term outlook for our served end-markets remains promising, as we continue delivering on our realignment initiatives and growth strategies to better serve our customers and deliver value for our shareholders.”

Realignment Program

In the 2016 second quarter, Flowserve realized cost savings of approximately $27 million through its realignment program, and continues to expect full year 2016 incremental savings of approximately $100 million. The Company expensed $20 million during the quarter related to realignment efforts, and for the full year 2016 continues to expect to incur realignment charges of approximately $160 million. This program is expected to repurpose, close or sell a number of manufacturing facilities and reduce total headcount approximately 15-20% by the end of next year.

Segment Performance

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 second quarter and year-to-date include:

Full Year 2016 Guidance

Flowserve tightened its 2016 Adjusted^[3] EPS target range of $2.40 to $2.60 per share, while reaffirming expected revenues declining 7 to 14 percent year-over-year, including a forecasted 2 percent currency headwind. The Company expects its full year 2016 Adjusted EPS to be weighted toward the second half of the year, reflecting greater than normal seasonality and the timing of realignment savings and backlog shipments.

Second Quarter 2016 Results Conference Call

Flowserve will host its conference call with the financial community on Friday, July 29th 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 global economic conditions 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 manufacturing optimization and 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; 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 ability to anticipate and manage cybersecurity risk, including the risk of potential business disruptions or financial losses; 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.

View source version on businesswire.com: http://www.businesswire.com/news/home/20160728006611/en/

Source: Flowserve Corporation

Flowserve Corporation
Investor Contacts:
Jay Roueche, 972-443-6560
Vice President, IR & Treasurer
or
Mike Mullin, 972-443-6636
Director, Investor Relations
or
Media Contact:
Lars Rosene, 972-443-6644
Vice President, Global Communications and Public Affairs