Flowserve Corporation Reports Second Quarter 2012 Results
(Thomson Reuters ONE) -
Second Quarter EPS Rises 12.5% to $1.98 and Bookings Reach $1.21 Billion;
Company Reaffirms 2012 Full Year EPS Target Range of $8.00 to $8.80
DALLAS, July 30, 2012 - Flowserve Corp. (NYSE:FLS), a leading provider of flow
control products and services for the global infrastructure markets, announced
today financial results for the second quarter of 2012 in its Quarterly Report
on Form 10-Q filed with the Securities and Exchange Commission. Highlights from
the second quarter and first half of 2012 were as follows:
Second Quarter 2012 (all comparisons versus second quarter 2011 unless otherwise
noted):
* Fully diluted EPS of $1.98, up 12.5%, including $0.11 of below the line
negative currency effects and a $0.05 net benefit from discrete corporate
items
* Fully diluted EPS up 24% excluding below the line currency effects year
over year
* Bookings of $1.21 billion, up 0.2%, or 7.1% excluding negative currency
effects of $84 million
* Highest quarterly aftermarket bookings of $508 million, up 7.4%, or
13.2% excluding negative currency effects
* Sales of $1.18 billion, up 5.0%, or 12.6% excluding negative currency
effects of $86 million
* Gross margin decrease of 30 basis points to 32.5% reflecting shipments of
low margin legacy backlog
* SG&A as a percentage of sales down 180 basis points to 18.9%
* Operating income of $164.8 million, up 17.6%, or 28.3% excluding negative
currency effects
* Operating margin increase of 150 basis points to 13.9%
* Positive operating cash flow of $168 million, compared to a $10 million cash
use in prior year period
* Tax rate of 26.7% compared to 27.9% for second quarter 2011
* Repurchased over 3.3 million shares as part of $1 billion share repurchase
program
* Backlog of $2.9 billion at June 30, 2012, including negative currency
effects of approximately $30 million, compared to $2.7 billion in backlog at
December 31, 2011
First Half of 2012 (all comparisons versus first half of 2011 unless otherwise
noted):
* Fully diluted EPS of $3.67, up 5.5%, or up 16.4% excluding below the line
currency effects year over year
* Bookings of $2.45 billion, up 3.4%, or 8.1% excluding negative currency
effects of $111 million
* Highest year to date aftermarket bookings of $970 million, up 7.2%, or
11.1% excluding negative currency effects
* Sales of $2.26 billion, up 6.3%, or 11.5% excluding negative currency
effects of $109 million
* Gross margin decrease of 80 basis points to 33.0% reflecting shipments of
low margin legacy backlog
* SG&A as a percentage of sales down 170 basis points to 19.8%
* Operating income of $307.3 million, up 13.6%, or 21.0% excluding negative
currency effects
* Operating margin increase of 90 basis points to 13.6%
Mark Blinn, Flowserve president and chief executive officer, said, "I am pleased
with our performance in the second quarter and first half of the year.
Management focus and operational discipline drove solid execution as we
continued to capitalize on investments in our end user strategy and pursue
opportunities across our geographically diverse end markets. Our highest level
of quarterly and year to date aftermarket bookings highlighted our solid second
quarter bookings. Overall, our focus on discipline and selectivity in project
pursuit continued to support our bookings performance and improve the quality of
orders going into backlog.
"As our results reflect, internal operating improvements driven by our "One
Flowserve" initiative are gaining momentum. While keeping our longer-term
operating margin target in mind, our leadership has remained focused on our
customers and on increasing shareholder value by leveraging operational
excellence and cost management across our global platform. While we still have
work to do, I am encouraged by the positive impact these initiatives have had on
our results thus far, and on our prospects for continued improvements going
forward."
Blinn added, "Looking to the balance of 2012 and 2013, we remain optimistic
about our business opportunities and the progress of the current cycle. While
short cycle growth has moderated, our project bidding levels remain active,
providing us confidence in major project opportunities in 2013 and the overall
state of our diverse global end markets. Economic difficulties in Europe
continue to add a measure of caution to our view, as we continue to closely
monitor potential impacts of Europe's debt crisis and increasing currency
headwinds from a stronger U.S. dollar. Long-term opportunities provided by our
strategic initiatives remain in sharp focus as we work to achieve our revenue
growth and margin expansion goals."
Financial Performance and Guidance
Mike Taff, senior vice president and chief financial officer, said, "We are
encouraged by our financial performance this second quarter. Our results
benefitted from improved execution on increased sales volumes, where our
continued focus on cost leverage, including tight corporate cost controls,
resulted in notable improvements in SG&A leverage and incremental margins.
However, as expected, our second quarter earnings and margins were somewhat
impacted by shipments of low margin legacy backlog taken in more challenging
markets to build our aftermarket base and by reduction of targeted past due
backlog, where we continue to make progress.
"Total shareholder return and optimal capital allocation remain top management
priorities. During the quarter, we repurchased over 3.3 million shares of
common stock in support of our recently announced capital structure strategy,
which targets a more efficient long-term gross leverage ratio of 1x to 2x
EBITDA. We expect to continue executing on our $1 billion share repurchase
program through the remainder of the year, with completion targeted in 2013.
Following our recent upgrades to investment grade credit ratings from the three
major ratings agencies, we expect to take advantage of the current attractive
debt markets to further support our capital structure strategy."
Taff added, "Working capital improvement also remains a top management priority,
and we were pleased with our year over year and sequential improvements in
operating cash flow. While we made progress in the quarter, resulting in
sequential improvements in performance metrics, attractive opportunities for
additional improvements remain. Our goal is to drive days' sales outstanding
into the mid 60s over the next 12 to 18 months, and drive inventory turns to
4.0x to 4.5x over the next 18 to 24 months. I am confident that our disciplined
cash collection efforts, improvements in our front-end bidding process and
implementation of other operational improvements provide the opportunity to
reach our goals.
"The continued strengthening of the U.S. dollar against the Euro and other
functional currencies has had a significant impact on our reported results. As
a result, we have increased our estimate of above and below the line negative
currency effects for the full year. We now estimate total negative currency
effects of $1.00 per share at current exchange rates compared to $0.50 per share
in prior guidance, with most of the expected increase impacting the second half
of 2012. Our planned share repurchase activity for 2012 is expected to add
approximately $0.30 to our full year results, which should help partially offset
this impact. We expect the third quarter of 2012 to be impacted by seasonality,
ongoing shipments of low margin legacy backlog and currency. But, our fourth
quarter is shaping up to clearly be our strongest of the year. After
considering the net impact of all these factors, we are reaffirming our 2012
earnings guidance of $8.00 to $8.80 per share."
Operational Performance
Tom Pajonas, senior vice president and chief operating officer, said, "Our
commitment to our "One Flowserve" operational improvement initiatives supported
our operating results this quarter. We advanced initiatives on low cost
sourcing, on-time delivery and cost of quality across our platforms, where
management focus and discipline remain key to execution. Expected margin
quality in backlog continued to improve with increased project visibility,
improved markets and continued bid discipline and selectivity across all our
platforms.
"The Engineered Product Division (EPD) capitalized on improving business
conditions, driving bookings growth over 10% on a constant currency basis, with
original equipment and aftermarket growth in the general, oil and gas and
chemical industries. Similar to the first quarter, gross margins were
challenged due to the shipment of low margin legacy backlog. However, we are
working through the remaining legacy backlog, and increased discipline and
selectivity in EPD's recent order intake has improved the expected margins in
its order book. Despite the gross margin headwinds, operating margin was up,
benefitting from our renewed operational focus and improved SG&A leverage."
Pajonas added, "The Industrial Product Division (IPD) delivered solid
performance this quarter, demonstrating that its recovery plan remains on track
and is gaining momentum. Bookings increased on the strength of original
equipment orders in the general and chemical industries. Sales increases were
driven by original equipment and aftermarket shipments to North America, the
Middle East and Africa, somewhat offset by a decrease in Latin America. Gross
margin and operating margin improved both sequentially and year over year,
supported by operational improvements.
"The Flow Control Division (FCD) continued to deliver solid performance in the
second quarter. Bookings were relatively flat on a constant currency basis,
even with a difficult comparison to the second quarter of 2011, which saw the
highest bookings in FCD's history. Overall, bookings were impacted by reduced
original equipment bookings in Europe and Latin America and increased
selectivity in oil and gas orders, somewhat offset by select opportunities in
the nuclear power business. Sales increased 11% on a constant currency basis,
with increased sales into Asia Pacific and the Americas offsetting softness in
Europe and the Middle East. Margins decreased due to a sales mix shift to
original equipment and a product mix shift, reflecting the shipment of certain
lower margin oil and gas projects strategically bid in early 2011 to build our
aftermarket base in this sector."
Segment Overview (all comparisons versus second quarter 2011 unless otherwise
noted)
Engineered Product Division (EPD)
EPD bookings for the second quarter of 2012 were $602.8 million, an increase of
$14.7 million, up 2.5%, or 10.2% excluding negative currency effects of
approximately $45 million. EPD sales for the second quarter of 2012 were $586.7
million, an increase of $29.4 million, up 5.3%, or 13.2% excluding negative
currency effects of approximately $44 million.
EPD gross profit for the second quarter of 2012 was $195.7 million, up $3.7
million or 1.9%. Gross margin for the second quarter of 2012 decreased 110
basis points to 33.4%, which was primarily attributable to certain large
projects that shipped from backlog at low margins, partially offset by a sales
mix shift to higher margin aftermarket and the effects of lower costs associated
with operational execution improvements.
EPD operating income for the second quarter of 2012 increased to $95.1 million,
up $8.4 million or 9.7%, including negative currency effects of approximately $8
million. The increase was primarily attributable to reduced SG&A and increased
gross profit. Operating margin increased 60 basis points to 16.2%.
Industrial Product Division (IPD)
IPD bookings for the second quarter of 2012 were $242.9 million, an increase of
$14.1 million, up 6.2%, or 11.8% excluding negative currency effects of
approximately $13 million. IPD sales for the second quarter of 2012 were $231.7
million, an increase of $7.2 million, up 3.2%, or 9.4% excluding negative
currency effects of approximately $14 million.
IPD gross profit for the second quarter of 2012 increased to $55.8 million, up
$11.6 million or 26.2%. Gross margin for the second quarter of 2012 increased
440 basis points to 24.1%, which was primarily attributable to IPD recovery plan
realignment costs incurred in the second quarter of 2011 that did not recur in
2012.
IPD operating income for the second quarter of 2012 increased to $23.8 million,
up $14.2 million or 147.9%, which includes negative currency effects of $2
million. The increase was primarily attributable to increased gross margin and
reduced SG&A. Operating margin increased 600 basis points to 10.3%.
Flow Control Division (FCD)
FCD bookings for the second quarter of 2012 were $411.6 million, a decrease of
$28.4 million, down 6.5%, or 0.5% excluding negative currency effects of
approximately $26 million. FCD sales for the second quarter of 2012 were $401.5
million, an increase of $14.4 million, up 3.7%, or 11.0% excluding negative
currency effects of approximately $28 million.
FCD gross profit for the second quarter of 2012 increased to $132.3 million, up
$0.4 million or 0.3%. Gross margin for the second quarter of 2012 decreased
110 basis points to 33.0%, which was primarily attributable to product line mix
and a sales mix shift to original equipment.
FCD operating income for the second quarter of 2012 increased to $60.4 million,
up $0.5 million or 0.8%, including negative currency effects of approximately $4
million. The increase was primarily attributable to slightly improved gross
profit and reduced SG&A. Operating margin decreased 50 basis points to 15.0%.
Conference Call
The conference call will take place on Tuesday, July 31, 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 at the Flowserve Web site at www.flowserve.com under
the "Investor Relations" section.
------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF
INCOME
(Unaudited)
(Amounts in thousands, except per Three Months Ended June 30,
share data)
2012 2011
Sales $1,182,225 $ 1,125,752
Cost of sales (797,623) (756,414)
Gross profit 384,602 369,338
Selling, general and administrative (223,892) (232,983)
expense
Net earnings from affiliates 4,086 3,751
Operating income 164,796 140,106
Interest expense (8,922) (9,534)
Interest income 237 394
Other (expense) income, net (8,046) 5,985
Earnings before income taxes 148,065 136,951
Provision for income taxes (39,580) (38,227)
Net earnings, including 108,485 98,724
noncontrolling interests
Less: Net (earnings) loss
attributable to noncontrolling (1,169) 8
interests
Net earnings attributable to $ 107,316 $ 98,732
Flowserve Corporation
Net earnings per share attributable
to Flowserve Corporation common
shareholders:
Basic $ 1.99 $ 1.77
Diluted 1.98 1.76
Cash dividends declared per share $ 0.36 $ 0.32
CONDENSED CONSOLIDATED STATEMENTS OF
INCOME
(Unaudited)
(Amounts in thousands, except per Six Months Ended June 30,
share data)
2012 2011
Sales $2,257,205 $ 2,122,959
Cost of sales (1,513,420) (1,405,926)
Gross profit 743,785 717,033
Selling, general and administrative (445,781) (455,622)
expense
Net earnings from affiliates 9,315 8,948
Operating income 307,319 270,359
Interest expense (17,731) (18,139)
Interest income 519 883
Other (expense) income, net (12,985) 14,474
Earnings before income taxes 277,122 267,577
Provision for income taxes (75,095) (71,857)
Net earnings, including 202,027 195,720
noncontrolling interests
Less: Net earnings attributable to (1,586) (5)
noncontrolling interests
Net earnings attributable to $ 200,441 $ 195,715
Flowserve Corporation
Net earnings per share attributable
to Flowserve Corporation common
shareholders:
Basic $ 3.70 $ 3.51
Diluted 3.67 3.48
Cash dividends declared per share $ 0.72 $ 0.64
CONDENSED CONSOLIDATED BALANCE
SHEETS
(Unaudited)
(Amounts in thousands, except per June 30, December 31,
share data)
2012 2011
ASSETS
Current assets:
Cash and cash equivalents $ 175,213 $ 337,356
Accounts receivable, net of
allowance for doubtful accounts of 1,057,642 1,060,249
$19,174 and $20,351, respectively
Inventories, net 1,149,178 1,008,379
Deferred taxes 126,605 121,905
Prepaid expenses and other 109,009 100,465
Total current assets 2,617,647 2,628,354
Property, plant and equipment, net
of accumulated depreciation of 591,805 598,746
$749,973 and $719,992, respectively
Goodwill 1,042,410 1,045,077
Deferred taxes 19,291 17,843
Other intangible assets, net 154,839 163,482
Other assets, net 179,891 169,112
Total assets $4,605,883 $ 4,622,614
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable $ 541,925 $ 597,342
Accrued liabilities 831,182 808,601
Debt due within one year 370,635 53,623
Deferred taxes 8,848 10,755
Total current liabilities 1,752,590 1,470,321
Long-term debt due after one year 426,140 451,593
Retirement obligations and other 429,549 422,470
liabilities
Shareholders' equity:
Common shares, $1.25 par value 73,664 73,664
Shares authorized - 120,000
Shares issued - 58,931 and 58,931,
respectively
Capital in excess of par value 538,944 621,083
Retained earnings 2,367,469 2,205,524
2,980,077 2,900,271
Treasury shares, at cost - 8,080 and (765,729) (424,052)
5,025 shares, respectively
Deferred compensation obligation 10,554 9,691
Accumulated other comprehensive loss (237,302) (216,097)
Total Flowserve Corporation 1,987,600 2,269,813
shareholders' equity
Noncontrolling interest 10,004 8,417
Total equity 1,997,604 2,278,230
Total liabilities and equity $4,605,883 $ 4,622,614
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
(Unaudited)
(Amounts in thousands) Six Months Ended June 30,
2012 2011
Cash flows - Operating activities:
Net earnings, including $ 202,027 $ 195,720
noncontrolling interests
Adjustments to reconcile net
earnings to net cash provided (used)
by operating
activities:
Depreciation 44,340 44,373
Amortization of intangible and other 10,172 8,299
assets
Net gain on disposition of assets (10,549) (595)
Excess tax benefits from stock-based (10,946) (5,021)
compensation arrangements
Stock-based compensation 15,425 16,271
Net earnings from affiliates, net of (4,723) 1,623
dividends received
Change in assets and liabilities:
Accounts receivable, net (13,317) (121,537)
Inventories, net (155,739) (161,296)
Prepaid expenses and other (16,617) (32,670)
Other assets, net (7,219) (6,091)
Accounts payable (46,763) (114,811)
Accrued liabilities and income taxes 49,908 (75,279)
payable
Retirement obligations and other 5,140 11,000
liabilities
Net deferred taxes (764) 2,219
Net cash flows provided (used) by 60,375 (237,795)
operating activities
Cash flows - Investing activities:
Capital expenditures (56,885) (48,498)
Proceeds from disposal of assets 7,902 3,735
Payments for acquisition, net of (3,996) (890)
cash acquired
Affiliate investing activity (1,620) -
Net cash flows used by investing (54,599) (45,653)
activities
Cash flows - Financing activities:
Excess tax benefits from stock-based 10,946 5,021
compensation arrangements
Payments on long-term debt (12,500) (12,500)
Proceeds from short-term financing, 300,000 -
net
Borrowings under other financing 4,826 4,348
arrangements, net
Repurchase of common shares (432,898) (26,025)
Payments of dividends (37,082) (33,977)
Other (460) 224
Net cash flows used by financing (167,168) (62,909)
activities
Effect of exchange rate changes on (751) 10,090
cash
Net change in cash and cash (162,143) (336,267)
equivalents
Cash and cash equivalents at 337,356 557,579
beginning of year
Cash and cash equivalents at end of $ 175,213 $ 221,312
period
SEGMENT INFORMATION
ENGINEERED PRODUCT DIVISION Three Months Ended June 30,
(Amounts in millions, except 2012 2011
percentages)
Bookings $ 602.8 $ 588.1
Sales 586.7 557.3
Gross profit 195.7 192.0
Gross profit margin 33.4% 34.5%
Operating income 95.1 86.7
Operating margin 16.2% 15.6%
INDUSTRIAL PRODUCT DIVISION Three Months Ended June 30,
(Amounts in millions, except 2012 2011
percentages)
Bookings $ 242.9 $ 228.8
Sales 231.7 224.5
Gross profit 55.8 44.2
Gross profit margin 24.1% 19.7%
Operating income 23.8 9.6
Operating margin 10.3% 4.3%
FLOW CONTROL DIVISION Three Months Ended June 30,
(Amounts in millions, except 2012 2011
percentages)
Bookings $ 411.6 $ 440.0
Sales 401.5 387.1
Gross profit 132.3 131.9
Gross profit margin 33.0% 34.1%
Operating income 60.4 59.9
Operating margin 15.0% 15.5%
SEGMENT INFORMATION
ENGINEERED PRODUCT DIVISION Six Months Ended June 30,
(Amounts in millions, except 2012 2011
percentages)
Bookings $ 1,265.7 $ 1,187.6
Sales 1,121.5 1,081.1
Gross profit 379.1 380.2
Gross profit margin 33.8% 35.2%
Operating income 187.2 178.4
Operating margin 16.7% 16.5%
INDUSTRIAL PRODUCT DIVISION Six Months Ended June 30,
(Amounts in millions, except 2012 2011
percentages)
Bookings $ 474.8 $ 453.7
Sales 444.9 400.8
Gross profit 105.4 89.5
Gross profit margin 23.7% 22.3%
Operating income 41.2 22.7
Operating margin 9.3% 5.7%
FLOW CONTROL DIVISION Six Months Ended June 30,
(Amounts in millions, except 2012 2011
percentages)
Bookings $ 791.6 $ 817.3
Sales 765.4 724.7
Gross profit 259.5 247.5
Gross profit margin 33.9% 34.2%
Operating income 116.0 107.5
Operating margin 15.2% 14.8%
-----------------------------
Investor Contact: Mike Mullin, Director, Investor Relations (972) 443-6636
Media Contact: Steve Boone, Director, Global Communications and Public Affairs,
(972) 443-6644
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 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; our ability to execute and realize the expected financial
benefits from our strategic 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; 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; 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; access to public and private sources of debt financing; 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.
# # #
This announcement is distributed by Thomson Reuters on behalf of
Thomson Reuters clients. The owner of this announcement warrants that:
(i) the releases contained herein are protected by copyright and
other applicable laws; and
(ii) they are solely responsible for the content, accuracy and
originality of the information contained therein.
Source: Flowserve Corporation via Thomson Reuters ONE
[HUG#1630518]
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Datum: 30.07.2012 - 22:22 Uhr
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News-ID 169976
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