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FLOWSERVE CORPORATION REPORTS FIRST QUARTER 2017 RESULTS

DALLAS--(BUSINESS WIRE)--May 1, 2017-- 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, 2017.

First Quarter 2017 Highlights (all comparisons to 2016 first quarter, unless otherwise noted)

  • Reported Earnings Per Share (EPS) of $0.11 includes $0.14 per share of adjusted items
    • Adjusted EPS[1] was $0.25 excluding the adjusted items
    • Both Reported and Adjusted results include approximately $10 million of accelerated non-cash incentive recognition and executive transition expenses
  • Sales were $864 million, down 7.8% on a constant currency basis
    • Aftermarket sales were $408 million, down 3.0% on a constant currency basis
  • Total bookings were $958 million, up 5.3% on a constant currency basis
    • Aftermarket bookings were $457 million, or 48% of total bookings, up 3.0% on a constant currency basis
    • Original equipment booking were $501 million, up 7.4% on a constant currency basis
    • Book-to-bill of 1.11, highest since the second quarter of 2014
  • Reported gross and operating margins of 30.6% and 5.4%
    • Adjusted gross and operating margins[2] were 31.5% and 7.0%, down 180 basis points and 240 basis points, respectively
  • Achieved approximately $28 million of incremental cost savings from the realignment program during the 2017 first quarter
  • Backlog at March 31, 2017 was $2.0 billion, up 5.6% versus 2016 year-end

“Flowserve’s results were solid, despite the continued challenges in our end markets and the first quarter’s seasonal effect,” said Scott Rowe, Flowserve’s President and Chief Executive Officer. “Bookings in the period grew both sequentially and year-over-year, which supports our expectation that we are at, or near, the bottom of this cycle.”

Rowe added, “In my first 30 days at Flowserve, I am impressed with our people, broad product offering and extensive installed base of pumps, valves and seals. This foundation, combined with our realignment program to improve cost and efficiencies, provides me confidence that Flowserveis well-positioned to drive long-term value for our customers and shareholders.”

Realignment Programs

Flowserve recognized approximately $28 million of incremental savings and expensed approximately $11 million in the 2017 first quarter. The multi-year $400 million realignment program is expected to be largely completed this year, delivering approximately $70 million of additional savings and including approximately $155 million of expense. The Company remains on track to achieve total expected program savings of $230 million in 2018.

Full Year 2017 Guidance

Flowserve reaffirmed its 2017 guidance, including Reported and Adjusted[3] EPS target ranges of $0.72 to $1.02 and $1.55 to $1.85, respectively. Both EPS target ranges are based on an expected 6 to 11 percent decline in revenues year-over-year, including an above-the-line foreign currency headwind[4] of approximately 10 cents per share. Adjusted EPS guidance excludes expected realignment expense, as well as the potential impact of below-the-line foreign currency effects and certain other discrete items, such as the recently announced expected sale of our Gestra business. The transaction is expected to close in May 2017 and once complete, is anticipated to have a modest dilutive impact to full year 2017 Adjusted earnings while improving Reported 2017 earnings.

First Quarter 2017 Results Conference Call

Flowserve will host its conference call with the financial community on Tuesday, May 2nd at 11:00 AM Eastern. Scott Rowe, 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.

[1] See Reconciliation of Non-GAAP Measures table for detailed reconciliation of reported results to adjusted measures.
[2] Adjusted gross and operating margins are calculated by dividing adjusted gross profit and operating income, respectively, by revenues. Adjusted gross profit and adjusted operating income are derived by excluding the adjusted items. See reconciliation of Non-GAAP Measures table for detailed reconciliation.
[3] Adjusted 2017 EPS will exclude the Company’s realignment expenses, the impact from other specific one-time events and below-the-line foreign currency effects and utilizes year-end 2016 FX rates and approximately 131 million fully diluted shares.
[4] FX headwind is calculated by comparing the difference between the actual average FX rates of 2016 and the year-end 2016 spot rates both as applied to our 2017 expectations, divided by the number of shares expected for 2017.

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 UnitedNations 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.

The Company reports its financial results in accordance with U.S. generally accepted accounting principles (GAAP). However, management believes that non-GAAP financial measures which exclude certain non-recurring items present additional useful comparisons between current results and results in prior operating periods, providing investors with a clearer view of the underlying trends of the business. Management also uses these non-GAAP financial measures in making financial, operating, planning and compensation decisions and in evaluating the Company's performance. Throughout our materials we refer to non-GAAP measures as “Adjusted.” Non-GAAP financial measures, which may be inconsistent with similarly captioned measures presented by other companies, should be viewed in addition to, and not as a substitute for, the Company’s reported results prepared in accordance with GAAP.

First Quater 2017 - Segment Results
(dollars in millions, comparison vs. 2016 first quarter, unaudited)
    EPD IPD FCD
Bookings   $460.9 $206.7 $309.8
- vs. prior year   8.6% -0.5% -0.1%
- on constant currency   9.8% 0.9% 1.3%
         
Sales   $422.0 $178.4 $280.4
- vs. prior year   -10.9% -9.7% -6.2%
- on constant currency   -9.9% -8.3% -5.4%
         
Gross Profit   $133.8 $34.5 $96.6
- vs. prior year   -15.3% -31.3% -2.4%
         
Gross Margin (% of sales)   31.7% 19.3% 34.5%
-vs. prior year (in basis points)   -160 -610 140
         
Operating Income / (Loss)   $44.6 $(14.2) $40.1
- vs. prior year   -23.6% NM 3.1%
- on constant currency   -19.0% NM 3.9%
         
Operating Margin (% of sales)   10.6% -8.0% 14.3%
-vs. prior year (in basis points)   -170 -1000 130
         
Adjusted Operating Income / (Loss)*   $45.7 $(3.7) $41.2
- vs. prior year   -26.5% NM -7.4%
- on constant currency   -22.2% NM -6.7%
         
Adj. Oper. Margin (% of sales)*   10.8% -2.1% 14.7%
- vs. prior year (in basis points)   -230 -680 -20
         
Backlog   $1,014.1 $402.4 $615.3

*Adjusted Operating Income and Adjusted Operating Margin exclude realignment charges, below-the-line FX impacts and other specific discrete items
 

CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
     
(Amounts in thousands, except par value)   March 31,
2017
December 31, 2016
ASSETS      
Current assets:      
   Cash and cash equivalents   $325,783 $367,162
   Accounts receivable, net of allowance for doubtful    
   accounts of $52,072 and $51,920, respectively
  844,597 894,749
   Inventories, net   957,120 919,251
   Prepaid expenses and other   154,633 150,199
      Total current assets   2,282,133 2,331,361
Property, plant and equipment, net of accumulated depreciation of $911,160 and $882,151, respectively   715,563 723,628
Goodwill   1,211,153 1,205,054
Deferred taxes   84,590 87,178
Other intangible assets, net   216,724 214,527
Other assets, net   186,668 181,014
Total assets   $4,696,831 $4,742,762
       
LIABILITIES AND EQUITY      
Current liabilities:      
   Accounts payable   $354,566 $412,087
   Accrued liabilities   654,025 680,689
   Debt due within one year   90,632 85,365
      Total current liabilities   1,099,223 1,178,141
Long-term debt due after one year   1,477,549 1,485,258
Retirement obligations and other liabilities   418,196 410,168
Shareholders' equity:      
   Common shares, $1.25 par value   220,991 220,991
      Shares authorized - 305,000      
      Shares issues - 176,793      
   Capital in excess of par value   481,443 491,848
   Retained earnings   3,624,907 3,632,163
Treasury shares, at cost - 46,5575 and 46,980 shares, respectively   (2,063,085) (2,078,527)
Deferred compensation obligation   6,641 8,507
Accumulated other comprehensive loss   (590,523) (626,748)
   Total Flowserve Corporation shareholders' equity   1,680,374 1,648,234
Noncontrolling interests   21,489 20,961
Total equity   1,701,863 1,669,195
Total liabilities and equity   4,696,831 4,742,762
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
     
    Three Months Ended March 31,
(Amounts in thousands, except per share data)   2017 2016
       
Sales   $863,626 $947,248
Cost of sales   (599,746) (639,247)
Gross profit   263,880 308,001
   Selling, general and administrative expense   (222,029) (236,910)
   Net earning from affiliates   5,165 3,319
Operating income   47,016 74,410
   Interest expense   (14,696) (15,568)
   Interest income   624 676
   Other expense, net   (11,127) (4,543)
Earnings before income taxes   21,817 55,975
Provision for income taxes   (6,755) (17,691)
Net earnings, including noncontrolling interests   15,062 38,284
   Less: Net earnings attributable to noncontrolling interests   (239) (425)
Net earnings attributable to Flowserve Corporation   $14,823 $37,859
       
Net earnings per share attributable to Flowserve Corporation common shareholders:      
   Basic   $0.11 $0.29
   Diluted   0.11 0.29
       
Cash dividends declared per share   $0.19 $0.19

 

RECONCILIATION OF NON-GAAP MEASURES
(Unaudited)
         
    Three Months Ended March 31, 2017
(Amounts in thousands, except per share data)   As Reported (a) Realignment (1) Other Items As Adjusted
           
Sales   $863,626 $ -   $ -   $863,626
Gross profit   263,880 (5,037)   (2,728)  (3) 271,645
   Gross margin   30.6% -   -   31.5%
           
   Selling, general and administrative
   expense
  (222,029) (5,474)   (626) (4) (215,929)
           
Operating income   47,016 (10,511)   (3,354)   60,881
   Operating income as a percentage of
   sales
  5.4% -   -   7.0%
           
Interest and other expense, net   (25,199) -   (10,982) (5) (14,217)
           
Earnings before income taxes   21,817 (10,511)   (14,336)   46,664
Provision for income taxes   (6,755) 3,048 (2) 3,366.32 (6) (13,170)
   Tax Rate   31.0% 29.0%   23.5%   28.2%
               
Net earnings attributable to Flowserve Corporation   $14,823 $(7,463)   $(10,970)   $33,255
               
Net earnings per share attributable to Flowserve Corporation common shareholders:              
   Basic:   $0.11 $(0.06)   $(0.08)   $0.25
   Diluted   $0.11 $(0.06)   $(0.08)   $0.25
               
Basic number of shares used for calculation   130,562 130,562   130,562   130,562
Diluted number of shares used for calculation   131,275 131,275   131,275   131,275

Notes:

(1) Represents realignment expense incurred as a result of realignment programs
(2) Includes tax impact of items above
(3) Represents Brazil inventory write-down
(4) Represents SIHI integration costs/purchase price adjustments ("PPA")
(5) Represents below-the-line foreign exchange impacts
(6) Includes tax impact of items above. There is no tax impact associated with the Brazil inventory write-down.

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
     
    Three Months Ended March 31,
(Amounts in thousands)   2017 2016
       
Cash flows - Operating activities:      
   Net earnings, including noncontrolling interests   $15,062 $38,284
   Adjustments to reconcile net earnings to net cash provided
   (used) by operation activities:
     
      Depreciation   24,586 24,505
     Amortization of intangible and other assets   4,039 4,123
      Stock-based compensation   11,307 15,957
      Foreign currency and other non-cash adjustments   594 11,496
      Change in assets and liabilities, net of acquisitions:      
         Accounts receivable, net   66,343 89,649
         Inventories, net   (22,669) (69,863)
         Prepaid expenses and other   (2,436) 2,904
         Other assets, net   (5,074) (9,095)
         Accounts payable   (61,918) (89,487)
         Accrued liabilities and income taxes payable   (35,375) (15,041)
         Retirement obligations and other liabilities   2,253 844
         Net deferred taxes   7,215 (9,984)
Net cash flows provided (used) by operating activities   3,927 (5,708)
Cash flows - Investing activities:      
   Capital expenditures   (15,862) (20,212)
   Proceeds from disposal of assets   367 101
Net cash flows used by investing activities   (15,495) (20,111)
Cash flows - Financing activities:      
   Payments on long-term debt   (15,000) (15,000)
   Proceeds under other financing arrangements   5,715 14,009
   Payments under other financing arrangements   (1,314) (11,017)
   Payments related to tax withholding for stock-based
   compensation
  (3,198) (2,333)
   Payments of dividends   (24,785) (23,415)
   Other   (244) (142)
Net cash flows used by financing activities   (38,826) (37,898)
Effect of exchange rate changes on cash   9,015 7,591
Net change in cash and cash equivalents   (41,379) (56,126)
Cash and cash equivalents at beginning of year   367,162 366,444
Cash and cash equivalents at end of year   $325,783 $310,318
       
       
SEGMENT INFORMATION
(Unaudited)
     
ENGINEERED PRODUCT DIVISION   Three Months Ended March 31,
(Amounts in millions, except percentages)   2017 2016
Bookings   $460.9 $424.5
Sales   422.0 473.8
Gross profit   133.8 158.0
Gross profit margin   31.7% 33.3%
Segment operating income   44.6 58.4
Segment operating income as a percentage of sales   10.6% 12.3%
       
INDUSTRIAL PRODUCT DIVISION   Three Months Ended March 31,
(Amounts in millions, except percentages)   2017 2016
Bookings   $206.7 $207.7
Sales   178.4 197.5
Gross profit   34.5 50.2
Gross profit margin   19.3% 25.4%
Segment operating (loss) income   (14.2) 4.0
Segment operating (loss) income as a percentage of sales   (8.0%) 2.0%
       
FLOW CONTROL DIVISION   Three Months Ended March 31,
(Amounts in millions, except percentages)   2017 2016
Bookings   $309.8 $310.1
Sales   280.4 299.0
Gross profit   96.6 99.0
Gross profit margin   34.5% 33.1%
Segment operating income   40.1 38.9
Segment operating income as a percentage of sales   14.3% 13.0%

View source version on businesswire.com: http://www.businesswire.com/news/home/20170501006282/en/

Source: Flowserve Corporation

Flowserve Corporation
Investor Contacts:
Jay Roueche, 972-443-6560
   Vice President, Investor Relations & Treasurer
Mike Mullin, 972-443-6636
   Director, Investor Relations

Media Contacts:
Lars Rosene, 972-443-6644
   V
ice President, Global Communications and Public Affairs
Amy Allen, 972-443-6501
   Manager, Global Communications and Public Affairs

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