Flowserve Reports Third Quarter 2015 Results
Delivers Adjusted1 EPS of $0.81 for 2015 Third Quarter
SIHI integration and realignment programs progressing better than expected
Returned $320 million to shareholders year-to-date through repurchases and dividends
Full year results in current market environment expected at or around the lower end of guidance range
DALLAS--(BUSINESS WIRE)--Oct. 29, 2015-- Flowserve Corporation (NYSE: FLS), a leading provider of flow control products and services for the global infrastructure markets, today reported Adjusted1 Earnings Per Share (EPS) of $0.81 for the 2015 third quarter, which includes $0.06 per share of negative currency translation as compared to last year and $0.03 per share of bad debt expense. As previously disclosed, Flowserve’s 2015 Adjusted EPS calculation excludes the impact of the SIHI Group (“SIHI”) acquisition, which was completed on January 7, 2015, as well as below-the-line foreign currency effects and specific one-time events, such as the 2015 realignment initiatives. In the 2015 third quarter, Flowserve’s Adjusted EPS excluded $0.11 per share of these items.
Third Quarter 2015 Summary (all comparisons versus prior year quarter, unless otherwise noted):
Bookings were $1.06 billion, including $69.7 million from SIHI
Excluding SIHI’s contribution, bookings decreased 6.3% sequentially and 14.6% as compared to prior year on a constant currency basis
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
Excluding SIHI’s contribution, aftermarket bookings increased 2.3% sequentially and decreased 2.2% compared to the prior year on a constant currency basis
Sales were $1.10 billion, including $73.7 million from SIHI
Excluding SIHI’s contribution, sales decreased 4.5% sequentially and 5.6% as compared to prior year on a constant currency basis
Aftermarket sales were $462 million, or approximately 42% of total sales, and decreased 4.6% sequentially and increased 1.8% compared to prior year on a constant currency basis
Excluding SIHI’s contribution, aftermarket sales decreased 2.3% on a constant currency basis
Gross profit was $388.8 million, including $20.9 million from SIHI
Gross profit increased 1.4% on a constant currency basis
Gross margin excluding adjusted items was 36.1%, up 110 basis points
SG&A expense was $223.5 million, including $20.5 million from SIHI
Excluding SIHI and adjusted items, SG&A decreased $27.9 million or 12.1%
Operating income was $167.8 million, including realignment expense of $1.7 million
Adjusted operating margin, excluding realignment expenses and SIHI operating income of $0.4 million, was 16.5%, up 50 basis points
Backlog at September 30, 2015 was $2.56 billion, including SIHI backlog of $118 million
Excluding SIHI, backlog decreased 5.2% constant currency as compared to prior year
1 See Reconciliation of Non-GAAP Measures table for detailed reconciliation of reported results to adjusted measures.
“Flowserve produced solid operating results for the 2015 third quarter against a persistently challenging market environment, which included constrained global capital spending, a further reduction in oil prices, weakness in our short cycle and emerging markets and the strong U.S. dollar,” said Mark Blinn, Flowserve’s president and chief executive officer. “Operationally, we continued to execute at a high level as evidenced by our strong margin performance.”
“We are moving quickly on our previously announced $100 million of realignment investment including immediate headcount reductions as well as the announcements of several permanent facility closures. We are also identifying at least $25 million of additional investment to further reduce our cost structure through a variety of levers, including streamlining our management structure, improving our manufacturing costs and implementing additional product rationalization, with dollar for dollar cost savings opportunity.”
“With the success of our previously announced actions underway and new opportunities identified, we now believe Flowserve will deliver approximately $125 million of structural run-rate savings annually, compared to an earlier estimate of $70 million, on a total investment of approximately $125 million. Additionally, the integration and realignment activities associated with our SIHI acquisition remain on-track to support SIHI product growth. We will continue to focus on disciplined investment opportunities, such as these, to drive long-term value for our shareholders, to effectively capitalize on opportunities as and when markets improve,” Blinn added.
“We have successfully weathered difficult market cycles before, and are taking swift action to best position Flowserve through the current cycle and to offset near-term market weakness. Overall, we remain confident in the underlying strength of our platform, the long-term secular trends in our served markets, our ability for further long-term continuous improvement and our knowledge that we are well positioned strategically to drive long-term growth,” Blinn concluded.
Financial Performance and Guidance
Karyn Ovelmen, executive vice president and chief financial officer, commented, “Our third quarter adjusted results were highlighted by our gross and operating margin performance. Adjusted EPS1 of $0.81 was solid in the current environment, considering the negative currency translation and $0.03 per share of bad debt expense. Flowserve’s reported earnings for the 2015 third quarter were $0.70 per share, reflecting the impact of adjusted items which include negative below-the-line currency impact of $0.02, realignment expenses of $0.01, and a non-cash valuation allowance on deferred tax assets of $0.08.”
Flowserve maintained its EPS and revenue guidance, but now expects it to track at or around the lower end of its Adjusted EPS and revenue guidance of $3.10 to $3.40 and down 10% to 15%, respectively, both excluding SIHI. This expectation is based upon third quarter year-to-date results and reflects increased uncertainty and reduced visibility in our markets, particularly as it relates to customer spending and order acceptance.
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 third quarter 2015 include:
*Adjusted Operating Income and Adjusted Operating Margin exclude realignment charges, purchase price accounting charges and acquisition related costs
Third Quarter 2015 Results Conference Call
Flowserve will host its conference call with the financial community on Friday, October 30th 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 atwww.flowserve.com under the “Investor Relations” section.
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.
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
RECONCILIATION OF NON-GAAP MEASURES(Unaudited)
(a) Reported in conformity with U.S. GAAP
(1) Represents the results of SIHI, including related realignment charges, acquisition-related costs and purchase price adjustment ("PPA") expenses
(2) SIHI sales less SIHI cost of sales which includes $6.591 million of PPA expenses and $5.311 million of realignment charges
(3) SIHI SG&A, which includes $1.154 million of PPA expenses, $2.690 million of realignment charges and $2.277 million of acquisition-related costs
(4) Tax benefit offset by $0.520 million of realignment charges recorded in provision for income taxes
(5) Represents $14.314 million of realignment charges
(6) Represents $10.353 million of realignment charges
(7) Represents $2.756 million of foreign exchange impacts
(8) Includes tax impact of items above
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
View source version on businesswire.com: http://www.businesswire.com/news/home/20150730006658/en/