Flowserve Reports Second Quarter 2015 Results
Delivers Adjusted1 EPS of $0.80 for 2015 Second Quarter
Manufacturing optimization and cost efficiency realignment programs progressing as planned
SIHI integration and synergies remain on track
Returned more than $185 million to shareholders through repurchases and dividends year-to-date
Revised 2015 full year Adjusted EPS guidance range to $3.10 to $3.40
DALLAS--(BUSINESS WIRE)--Jul. 30, 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 $0.80 for the 2015 second quarter, which includes $0.06 per share of negative currency translation as compared to last year, and excludes $0.24 per share of adjusted items. 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.
Second Quarter 2015 Summary (all comparisons versus prior year quarter, unless otherwise noted):
Bookings were $1.12 billion, including $61.5 million from SIHI
Bookings increased 7.0% sequentially and included approximately $636 million of original equipment and $479 million of aftermarket bookings
Excluding SIHI’s contribution, bookings increased 11.3% sequentially and decreased 15.3% as compared to prior year on a constant currency basis
Sales were $1.16 billion, including $77.2 million from SIHI
Aftermarket sales were $492 million, or approximately 42% of total sales
Excluding SIHI’s contribution, aftermarket sales increased 1.5% constant currency
Gross profit was $369.1 million, including $8.9 million from SIHI
Excluding adjusted items, gross profit decreased 4.4% constant currency
Gross margin excluding adjusted items was 34.5%, down 60 basis points
SG&A expense was $243.6 million, including $25.3 million from SIHI
Excluding adjusted items, SG&A decreased $30.3 million or 12.7%
Operating income was $127.6 million, including negative impacts from realignment and SIHI of $24.7 millionand $16.4 million, respectively
Adjusted operating margin, excluding realignment and SIHI effects, was 15.5%, down 40 basis points
Backlog at June 30, 2015 was $2.68 billion, including SIHI backlog of $132 million
Excluding SIHI, backlog increased 0.7% 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 second quarter against a backdrop of reduced global capital spending in our served end markets, increased headwinds in some emerging markets, low oil prices and a strong U.S. dollar,” said Mark Blinn, Flowserve’s president and chief executive officer. “We delivered double-digit sequential bookings and sales growth, which trends with seasonal patterns, and indicated some signs of market stability at current low levels. However, with the expected persistence of the current environment, including increased challenges in some emerging markets, coupled with ongoing delays and deferrals, we reset our outlook for the year while undertaking proactive cost control measures to better align with the market.
“Our accelerated manufacturing and SG&A initiatives will better position Flowserve to serve customers and reward shareholders now and in the future. Our management has effectively navigated through similar market cycles before, characterized by fewer project and upgrade opportunities with increased price sensitivity. We believe that our manufacturing optimization will permanently improve our cost structure and will positionFlowserve to better serve its customers while generating profitable long-term growth.
“The resiliency and underlying strength of our business model has enabled Flowserve to return over $185 million of capital to our shareholders, through dividends and share repurchases in the first half of 2015. At current levels, we believe Flowserve shares remain a compelling investment and we will continue to opportunistically repurchase shares.
“At the same time, we are committed to investments in growth. We are pleased with the recent SIHI acquisition and the ongoing integration progress remains on track. We believe our strategies to expand our offerings, and leverage Flowserve’s global platform to drive increased aftermarket activity, will better serve our customers and create additional long-term shareholder value,” Blinn concluded.
Operational Commentary and Segment Performance
Tom Pajonas, executive vice president and chief operating officer, said, “Throughout the second quarter, our customers remained deliberate in their decision making and project evaluation. As refining and chemical customers enjoyed strong margins in their markets, they sought to capture improved economics in the period by further delaying planned maintenance and enhancement projects. In our other served markets, expected investments were generally re-evaluated to reflect the current lower oil price environment, strong U.S. dollar and global macro conditions, which created additional delays in activity. Across the customer base, we have seen a heightened focus on reducing overall costs, and believe Flowserve’s realignment efforts, tight cost controls, supply chain management and comprehensive portfolio enable us to simultaneously respond to our customers’ needs and produce value for shareholders.
“Flowserve made solid progress during the quarter on both its manufacturing optimization and SG&A efficiency initiatives. We recognized $24.7 million of the previously announced, total planned $100 millioninvestment for these initiatives, which is expected to deliver approximately $70 million of annual run-rate savings when fully implemented. The structural and permanent changes we are making to our operating platform should position Flowserve well in the current market environment and beyond.
“As evidenced by our solid backlog and sequential bookings and revenue growth, we believe our served markets began to demonstrate signs of moderating decline, albeit while at current low levels. With our strong product and service offerings, global footprint and focus on operational excellence, we believe Flowserveremains well positioned to capture new business opportunities when global spending activity resumes.”
Financial Performance and Guidance
Based upon current market conditions and traditional seasonality, but supported by a solid backlog and strong operating profile, Flowserve today revised its 2015 Adjusted EPS guidance to $3.10 to $3.40 and now expects full-year revenues, excluding SIHI, to be down 10% to 15% versus prior year, which includes an expected 10% currency headwind.
Karyn Ovelmen, executive vice president and chief financial officer, commented, “Flowserve continues to operate from a position of financial strength within the current market environment. Two months into my role with the company, I have witnessed firsthand the talent and resources of the organization and our culture of continuous improvement, as well as opportunities for growth. I believe our diversified exposures and comprehensive portfolio, combined with our growth initiatives and cost reductions, positions the company well to continue driving meaningful long-term shareholder value.
“Looking at our second quarter beyond the Adjusted EPS, the acquisition of SIHI had a $0.10 per share dilutive impact on reported results, bringing its year-to-date impact to $0.28 per share. We continue to expect that SIHI’s net dilutive impact to full year 2015 reported results will be approximately $0.25 per share, primarily due to one-time purchase price accounting, integration and cost reduction expenses. Flowserve continues to expect SIHI to be modestly accretive on a reported basis in 2016, with full annualized run-rate synergies in place by year end 2017.”
Ovelmen added, “In addition, our Adjusted EPS calculation excludes realignment costs of $0.13 per share and below-the-line currency impacts of $0.01 per share. Including of the full impact of realignment, SIHI dilution and below-the-line currency effects, Flowserve reported earnings per share of $0.56 in the 2015 second quarter.”
Please see Reconciliation of Non-GAAP Measures table for detailed reconciliation of reported results to Adjusted measures.
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 2015 include:
*Adjusted Operating Income and Adjusted Operating Margin exclude realignment charges, purchase price accounting charges and acquisition related costs
Second Quarter 2015 Results Conference Call
Flowserve will host its conference call with the financial community on Friday, July 31st 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.comunder 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)
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