Flowserve Corporation Reports First Quarter 2016 Results
DALLAS--(BUSINESS WIRE)--April 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 first quarter ended March 31, 2016.
First Quarter 2016 Highlights
- Adjusted Earnings Per Share (EPS) was $0.39
- Includes approximately $13.1 million, or $0.07 per share of distinct SG&A expenses, primarily related to accelerated non-cash accruals related to modifications in new long-term incentive plan grants, and approximately $0.03 per share of negative currency translation
- Aftermarket bookings of $482 million, included $22 million from SIHI, and increased 2.0% sequentially and 2.1% compared to the prior year on a constant currency basis
- Excludes $0.10 per share of adjusted items, as detailed herein
- Sales were $947 million, down 6.6%, or 2.1% on a constant currency basis
- Original equipment sales were $525 million, down 3.2% on a constant currency basis
- Aftermarket sales were $424 million, down 0.7% on a constant currency basis
- Total Bookings were $922 million, down 7.8% on a constant currency basis
- Aftermarket bookings were $447 million, up 0.6% on a constant currency basis
- Realignment program on track; achieved $16 million of program savings in the quarter
- Backlog at March 31, 2016 was $2.19 billion, up 0.8% versus year-end 2015
“Our 2016 first quarter results were in line with our expectations,” said Mark Blinn, Flowserve’s president and chief executive officer. “We are encouraged to see aftermarket spending stabilizing at current levels, despite ongoing industry headwinds and macro uncertainty, particularly as it relates to capital investment. Project booking opportunities remain challenged and competitively priced, particularly in our IPD segment. However these issues were partially offset by improvements in IPD’s aftermarket and run-rate business, distribution strategy and in SIHI as IPD transitions from a project-dependent business to more of an industrial offering.
“During the quarter, we continued to deliver solid progress on our transformational realignment program. While the benefits derived lag the market and are second-half weighted in 2016, to date we have achieved cumulative program savings of approximately $41 million and remain focused on optimizing our manufacturing platform and cost structure with our customer needs.
“We also remain focused on driving profitable long-term growth including through our aftermarket and distribution initiatives, R&D investments and opportunistic bolt-on acquisitions. We are confident that our combined approach of realigning our cost structure and pursuing strategic growth opportunities positions us well to achieve our goals and continue delivering value for both our customers and shareholders,” Blinn concluded.
First Quarter 2016
For the first quarter of 2016, Flowserve announced Adjusted EPS of $0.39 on revenues of $947 million. Adjusted gross and operating margins were 33.3% and 9.4%, respectively. First quarter Adjusted EPS includes $0.03 of negative currency translation and $0.07 for distinct SG&A expenses, but excludes the impact of realignment expenses of $0.07, negative below-the-line currency impact of $0.02 and $0.01 of SIHI purchase price accounting and integration costs. On a reported basis, earnings for the first quarter were $0.29 per share, compared to $0.20 per share in the 2015 first quarter.
Commenting on first quarter 2016 performance, Karyn Ovelmen, Flowserve’s executive vice president and chief financial officer said, “Cash flows from operations improved over $85 million for our seasonally weakest quarter, and free cash flow increased almost $150 million versus the comparable prior year period. Incorporating SIHI’s operational performance, combined with the loss of fixed cost leverage from reduced project activity and the 140 basis points from distinct SG&A expenses, were among the factors impacting our margin performance in the quarter. While the recognition of our realignment savings gets temporarily affected by timing and some delays due to ongoing negotiations, we are confident in the significant actions we are taking to successfully drive costs out of our business and to better position our company for long-term margin improvement.”
In the 2016 first quarter, Flowserve achieved cost savings of approximately $16 million and continues to expect full year 2016 savings of $125 million. The Company expensed $13.5 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. Since the first quarter of 2015, we have taken action to repurpose or close 13 facilities and have meaningfully reduced headcount, while continuing to target a total reduction of approximately 15-20% by the end of next year.
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 first quarter include:
*Adjusted Operating Income and Adjusted Operating Margin exclude realignment charges, purchase price accounting charges and acquisition related costs
Full Year 2016 Guidance
Flowserve reaffirmed its 2016 Adjusted EPS target range of $2.40 to $2.75 with expected revenues declining 7 to 14 percent year-over-year, including a forecasted 2 percent currency headwind. The company expects its 2016 Adjusted EPS to be weighted toward the second half of 2016, reflecting normal seasonality.
First Quarter 2016 Results Conference Call
Flowserve will host its conference call with the financial community on Friday, April 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.
 See Reconciliation of Non-GAAP Measures table for detailed reconciliation of reported results to adjusted measures
 Adjusted 2016 EPS will include SIHI’s operational results and will exclude the Company’s realignment expenses, SIHI purchase price accounting/integration costs, the impact from other specific one-time events and below-the-line foreign currency effects
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.
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(1) Represents realignment expense incurred as a result of realignment programs
(2) Includes tax impact of items above
(3) Represents SIHI integration costs and purchase price adjustments ("PPA")
(4) Represents below-the-line foreign exchange impacts
(5) Includes tax impact of items above
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Technical Contact: Jay Roueche, vice president, Investor Relations & Treasurer, (972) 443-6560 Mike Mullin, director, Investor Relations, (972) 443-6636
Media Contact: Lars Rosene, vice president, Global Communications and Public Affairs, (972) 443-6644 Amy Allen, manager, Global Communications and Public Affairs, (972) 443-6501