NEWS RELEASE
Flowserve Corporation Reports First Quarter 2019 Results
05/02/19
- Bookings of
$1.07 billion is the highest quarterly level in over three years - First quarter 2019 free cash flow improved significantly year-over-year
- Strong margin expansion driven by ongoing
Flowserve 2.0 transformation
First Quarter 2019 Highlights (all comparisons to the 2018 first quarter, unless otherwise noted)
-
Reported Earnings Per Share (EPS) were
$0.44 , and Adjusted[1] EPS of$0.41 -
Pre-tax adjusted items include an approximate
$3.5 million net gain on realignment and transformation activities and approximately$2.7 million of negative below-the-line FX impact - Adjusted EPS increased approximately 52% year-over-year
-
Pre-tax adjusted items include an approximate
-
Total bookings were
$1.07 billion , up 14.9%, or 19.3% on a constant currency basis, and included approximately 1.5% negative impact related to divested businesses-
Aftermarket bookings were
$511 million , or 48% of total bookings, up 5.8%, or 10.4% on a constant currency basis - Original equipment bookings were up 24.5%, or 28.5% on a constant currency basis
-
Aftermarket bookings were
-
Backlog as of
March 31, 2019 was$2.1 billion , up 9.2% versus 2018 year-end, on 1.2 book-to-bill -
Sales were
$890 million , down 3.3%, or up 0.4% on a constant currency basis and included approximately 1.0% negative impact related to divested businesses-
Aftermarket sales were
$470 million , up 3.4%, or 7.9% on a constant currency basis
-
Aftermarket sales were
-
Reported gross and operating margins were 33.0% and 10.2%, up 350
basis points and 530 basis points, respectively
- Adjusted gross and operating margins[2] were 33.7% and 9.9%, up 340 basis points and 310 basis points, respectively
“Flowserve’s 2019 first quarter results represent a good start to the
year. Execution on our ongoing
Rowe concluded, “We are building momentum with our
Full Year 2019 Guidance[3]
First Quarter 2019 Results Conference Call
[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 2019 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 2018 FX rates and approximately 132 million fully diluted shares.
– FX headwind is calculated by comparing the difference between the actual average FX rates of 2018 and the year-end 2018 spot rates both as applied to our 2019 expectations, divided by the number of shares expected for 2019.
About
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; if we are not
able to successfully execute and realize the expected financial benefits
from our strategic transformation and realignment initiatives, our
business could be adversely affected; 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, trade embargoes or changes to tariffs or
trade agreements that could affect customer markets, particularly North
African, Russian and 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
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.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME | ||||||||||
(Unaudited) | ||||||||||
Three Months Ended March 31, | ||||||||||
(Amounts in thousands, except per share data) | 2019 | 2018 | ||||||||
Sales | $ | 890,051 | $ | 919,954 | ||||||
Cost of sales | (595,975 | ) | (648,521 | ) | ||||||
Gross profit | 294,076 | 271,433 | ||||||||
Selling, general and administrative expense | (205,154 | ) | (229,176 | ) | ||||||
Net earnings from affiliates | 2,309 | 3,168 | ||||||||
Operating income | 91,231 | 45,425 | ||||||||
Interest expense | (14,031 | ) | (14,879 | ) | ||||||
Interest income | 2,023 | 1,639 | ||||||||
Other income (expense), net | (3,140 | ) | (7,155 | ) | ||||||
Earnings before income taxes | 76,083 | 25,030 | ||||||||
Provision for income taxes | (16,587 | ) | (8,571 | ) | ||||||
Net earnings, including noncontrolling interests | 59,496 | 16,459 | ||||||||
Less: Net earnings attributable to noncontrolling interests | (2,235 | ) | (1,316 | ) | ||||||
Net earnings attributable to Flowserve Corporation | $ | 57,261 | $ | 15,143 | ||||||
Net earnings per share attributable to Flowserve Corporation common shareholders: | ||||||||||
Basic | $ | 0.44 | $ | 0.12 | ||||||
Diluted | 0.44 | 0.12 | ||||||||
RECONCILIATION OF NON-GAAP MEASURES | ||||||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||
Three Months Ended March 31, 2019 | ||||||||||||||||||||||||
(Amounts in thousands, except per share data) | As Reported (a) | Realignment (1) | Other Items | As Adjusted | ||||||||||||||||||||
Sales | $ | 890,051 | $ | - | $ | - | $ | 890,051 | ||||||||||||||||
Gross profit | 294,076 | (5,500 | ) | - | 299,576 | |||||||||||||||||||
Gross margin | 33.0 | % | - | - | 33.7 | % | ||||||||||||||||||
Selling, general and administrative expense | (205,154 | ) | 17,430 | (8,413 | ) | (3) | (214,171 | ) | ||||||||||||||||
Loss on sale of business | - | - | - | - | ||||||||||||||||||||
Operating income | 91,231 | 11,930 | (8,413 | ) | 87,714 | |||||||||||||||||||
Operating income as a percentage of sales | 10.3 | % | - | - | 9.9 | % | ||||||||||||||||||
Interest and other expense, net | (15,148 | ) | - | (2,707 | ) | (4) | (12,441 | ) | ||||||||||||||||
Earnings before income taxes | 76,083 | 11,930 | (11,120 | ) | 75,273 | |||||||||||||||||||
Provision for income taxes | (16,587 | ) | (19 | ) | (2) | 2,711 | (5) | (19,279 | ) | |||||||||||||||
Tax Rate | 21.8 | % | 0.2 | % | 24.4 | % | 25.6 | % | ||||||||||||||||
Net earnings attributable to Flowserve Corporation | $ | 57,261 | $ | 11,911 | $ | (8,409 | ) | $ | 53,759 | |||||||||||||||
Net earnings per share attributable to Flowserve Corporation common shareholders: | ||||||||||||||||||||||||
Basic | $ | 0.44 | $ | 0.09 | $ | (0.06 | ) | $ | 0.41 | |||||||||||||||
Diluted | 0.44 | 0.09 | (0.06 | ) | 0.41 | |||||||||||||||||||
Basic number of shares used for calculation | 130,982 | 130,982 | 130,982 | 130,982 | ||||||||||||||||||||
Diluted number of shares used for calculation | 131,532 | 131,532 | 131,532 | 131,532 | ||||||||||||||||||||
(a) Reported in conformity with U.S. GAAP |
Notes: |
(1) Represents realignment (expense) income incurred as a result of realignment programs. Income in selling, general and administrative due to gains from the sales of non-strategic manufacturing facilities that are included in our Realignment Programs. |
(2) Includes tax impact of items above |
(3) Represents Flowserve 2.0 transformation efforts |
(4) Represents below-the-line foreign exchange impacts |
(5) Includes tax impact of items above |
RECONCILIATION OF NON-GAAP MEASURES | ||||||||||||||||
(Unaudited) | ||||||||||||||||
Three Months Ended March 31, 2018 | ||||||||||||||||
(Amounts in thousands, except per share data) | As Reported (a) | Realignment (1) | Other Items | As Adjusted | ||||||||||||
Sales | $ 919,954 | $ - | $ - | $ 919,954 | ||||||||||||
Gross profit | 271,433 | (7,156) | - | 278,589 | ||||||||||||
Gross margin | 29.5% | - | - | 30.3% | ||||||||||||
Selling, general and administrative expense | (229,176) | (4,318) | (5,467) | (3) | (219,391) | |||||||||||
Operating income | 45,425 | (11,474) | (5,467) | 62,366 | ||||||||||||
Operating income as a percentage of sales | 4.9% | - | - | 6.8% | ||||||||||||
Interest and other expense, net | (20,395) | - | (7,952) | (4) | (12,443) | |||||||||||
Earnings before income taxes | 25,030 | (11,474) | (13,419) | 49,923 | ||||||||||||
Provision for income taxes | (8,571) | 2,295 | (2) | 2,838 | (5) | (13,704) | ||||||||||
Tax Rate | 34.2% | 20.0% | 21.1% | 27.5% | ||||||||||||
Net earnings attributable to Flowserve Corporation | $ 15,143 | $ (9,179) | $ (10,581) | $ 34,903 | ||||||||||||
Net earnings per share attributable to Flowserve Corporation common shareholders: | ||||||||||||||||
Basic | $ 0.12 | $ (0.07) | $ (0.08) | $ 0.27 | ||||||||||||
Diluted | 0.12 | (0.07) | (0.08) | 0.27 | ||||||||||||
Basic number of shares used for calculation | 130,761 | 130,761 | 130,761 | 130,761 | ||||||||||||
Diluted number of shares used for calculation | 131,095 | 131,095 | 131,095 | 131,095 | ||||||||||||
(a) Reported in conformity with U.S. GAAP |
Notes: |
(1) Represents realignment expense incurred as a result of realignment programs |
(2) Includes tax impact of items above |
(3) Represents $5.0 million related to implementation costs for the adoption of ASC 606 and $0.5 million related to Flowserve 2.0 transformation efforts |
(4) Represents below-the-line foreign exchange impacts |
(5) Includes tax impact of items above |
SEGMENT INFORMATION | |||||||||||
(Unaudited) | |||||||||||
FLOWSERVE PUMP DIVISION | Three Months Ended March 31, | ||||||||||
(Amounts in millions, except percentages) | 2019 | 2018 | |||||||||
Bookings | $ | 750.2 | $ | 604.2 | |||||||
Sales | 609.4 | 644.4 | |||||||||
Gross profit | 200.6 | 183.3 | |||||||||
Gross profit margin | 32.9 | % | 28.4 | % | |||||||
SG&A | 122.4 | 151.8 | |||||||||
Segment operating income | 80.5 | 34.7 | |||||||||
Segment operating income as a percentage of sales | 13.2 | % | 5.4 | % | |||||||
FLOW CONTROL DIVISION | Three Months Ended March 31, | ||||||||||
(Amounts in millions, except percentages) | 2019 | 2018 | |||||||||
Bookings | $ | 319.8 | $ | 327.3 | |||||||
Sales | 282.1 | 277.2 | |||||||||
Gross profit | 97.7 | 88.2 | |||||||||
Gross profit margin | 34.6 | % | 31.8 | % | |||||||
SG&A | 53.3 | 54.3 | |||||||||
Segment operating income | 44.4 | 33.9 | |||||||||
Segment operating income as a percentage of sales | 15.7 | % | 12.2 | % | |||||||
First Quarter 2019 - Segment Results | ||||||||||
(dollars in millions, comparison vs. 2018 first quarter, unaudited) | ||||||||||
FPD | FCD | |||||||||
1st Qtr | 1st Qtr | |||||||||
Bookings | $ | 750.2 | $ | 319.8 | ||||||
- vs. prior year | 24.2 | % | -2.3 | % | ||||||
- on constant currency | 29.0 | % | 1.0 | % | ||||||
Sales | $ | 609.4 | $ | 282.1 | ||||||
- vs. prior year | -5.4 | % | 1.8 | % | ||||||
- on constant currency | -1.8 | % | 5.3 | % | ||||||
Gross Profit | $ | 200.6 | $ | 97.7 | ||||||
- vs. prior year | 9.4 | % | 10.8 | % | ||||||
Gross Margin (% of sales) | 32.9 | % | 34.6 | % | ||||||
- vs. prior year (in basis points) | 450 bps | 280 bps | ||||||||
Operating Income | $ | 80.5 | $ | 44.4 | ||||||
- vs. prior year | 131.9 | % | 31.1 | % | ||||||
- on constant currency | 145.9 | % | 35.0 | % | ||||||
Operating Margin (% of sales) | 13.2 | % | 15.7 | % | ||||||
- vs. prior year (in basis points) | 780 bps | 350 bps | ||||||||
Adjusted Operating Income * | $ | 67.2 | $ | 45.2 | ||||||
- vs. prior year | 57.0 | % | 24.9 | % | ||||||
- on constant currency | 68.5 | % | 28.5 | % | ||||||
Adj. Oper. Margin (% of sales)* | 11.0 | % | 16.0 | % | ||||||
- vs. prior year (in basis points) | 440 bps | 290 bps | ||||||||
Backlog | $ | 1,423.5 | $ | 645.8 | ||||||
* Adjusted Operating Income and Adjusted Operating Margin exclude realignment charges | ||||||||||
CONDENSED CONSOLIDATED BALANCE SHEETS | ||||||||||
(Unaudited) | ||||||||||
March 31, | December 31, | |||||||||
(Amounts in thousands, except par value) | 2019 | 2018 | ||||||||
ASSETS | ||||||||||
Current assets: | ||||||||||
Cash and cash equivalents | $ | 637,710 | $ | 619,683 | ||||||
Accounts receivable, net of allowance for doubtful accounts of $51,525 and $51,501, respectively | 781,382 | 792,434 | ||||||||
Contract assets, net | 224,850 | 228,579 | ||||||||
Inventories, net | 680,191 | 633,871 | ||||||||
Prepaid expenses and other | 112,490 | 108,578 | ||||||||
Total current assets | 2,436,623 | 2,383,145 | ||||||||
Property, plant and equipment, net of accumulated depreciation of $968,279 and $956,634, respectively | 587,915 | 610,096 | ||||||||
Operating lease right-of-use assets, net | 198,656 | - | ||||||||
Goodwill | 1,191,706 | 1,197,640 | ||||||||
Deferred taxes | 47,745 | 44,682 | ||||||||
Other intangible assets, net | 186,290 | 190,550 | ||||||||
Other assets, net | 197,562 | 190,164 | ||||||||
Total assets | $ | 4,846,497 | $ | 4,616,277 | ||||||
LIABILITIES AND EQUITY | ||||||||||
Current liabilities: | ||||||||||
Accounts payable | $ | 398,052 | $ | 418,893 | ||||||
Accrued liabilities | 405,633 | 391,406 | ||||||||
Contract liabilities | 207,742 | 202,458 | ||||||||
Debt due within one year | 72,197 | 68,218 | ||||||||
Operating lease liabilities | 37,807 | - | ||||||||
Total current liabilities | 1,121,431 | 1,080,975 | ||||||||
Long-term debt due after one year | 1,392,238 | 1,414,829 | ||||||||
Operating lease liabilities | 160,315 | - | ||||||||
Retirement obligations and other liabilities | 464,527 | 459,693 | ||||||||
Shareholders’ equity: | ||||||||||
Common shares, $1.25 par value | 220,991 | 220,991 | ||||||||
Shares authorized – 305,000 | ||||||||||
Shares issued – 176,793 | ||||||||||
Capital in excess of par value | 487,673 | 494,551 | ||||||||
Retained earnings | 3,575,014 | 3,543,007 | ||||||||
Treasury shares, at cost – 45,969 and 46,237 shares, respectively | (2,037,586 | ) | (2,049,404 | ) | ||||||
Deferred compensation obligation | 7,107 | 7,117 | ||||||||
Accumulated other comprehensive loss | (566,400 | ) | (573,947 | ) | ||||||
Total Flowserve Corporation shareholders' equity | 1,686,799 | 1,642,315 | ||||||||
Noncontrolling interests | 21,187 | 18,465 | ||||||||
Total equity | 1,707,986 | 1,660,780 | ||||||||
Total liabilities and equity | $ | 4,846,497 | $ | 4,616,277 | ||||||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||||
(Unaudited) | ||||||||||
Three Months Ended March 31 | ||||||||||
(Amounts in thousands) | 2019 | 2018 | ||||||||
Cash flows – Operating activities: | ||||||||||
Net earnings, including noncontrolling interests | $ | 59,496 | $ | 16,459 | ||||||
Adjustments to reconcile net earnings to net cash provided (used) by operating activities: | ||||||||||
Depreciation | 23,361 | 24,693 | ||||||||
Amortization of intangible and other assets | 4,105 | 4,220 | ||||||||
Stock-based compensation | 7,609 | 3,962 | ||||||||
Foreign currency and other non-cash adjustments | (15,454 | ) | (7,227 | ) | ||||||
Change in assets and liabilities: | ||||||||||
Accounts receivable, net | 8,174 | 41,850 | ||||||||
Inventories, net | (49,478 | ) | (48,599 | ) | ||||||
Contract assets, net | 1,631 | (64,402 | ) | |||||||
Prepaid expenses and other assets, net | (5,128 | ) | 203 | |||||||
Accounts payable | (15,399 | ) | (59,645 | ) | ||||||
Contract liabilities | 5,567 | (3,870 | ) | |||||||
Accrued liabilities and income taxes payable | 11,462 | (32,583 | ) | |||||||
Retirement obligations and other | (652 | ) | (2,024 | ) | ||||||
Net deferred taxes | 3,225 | 6,236 | ||||||||
Net cash flows provided (used) by operating activities | 38,519 | (120,727 | ) | |||||||
Cash flows – Investing activities: | ||||||||||
Capital expenditures | (10,638 | ) | (13,490 | ) | ||||||
Proceeds from disposal of assets and other | 39,211 | 600 | ||||||||
Net cash flows provided (used) by investing activities | 28,573 | (12,890 | ) | |||||||
Cash flows – Financing activities: | ||||||||||
Payments on long-term debt | (15,000 | ) | (15,000 | ) | ||||||
Proceeds under other financing arrangements | 1,660 | 76 | ||||||||
Payments under other financing arrangements | (2,484 | ) | (4,198 | ) | ||||||
Payments related to tax withholding for stock-based compensation | (2,861 | ) | (2,288 | ) | ||||||
Payments of dividends | (24,909 | ) | (24,826 | ) | ||||||
Other | (192 | ) | (619 | ) | ||||||
Net cash flows provided (used) by financing activities | (43,786 | ) | (46,855 | ) | ||||||
Effect of exchange rate changes on cash | (5,279 | ) | 12,684 | |||||||
Net change in cash and cash equivalents | 18,027 | (167,788 | ) | |||||||
Cash and cash equivalents at beginning of period | 619,683 | 703,445 | ||||||||
Cash and cash equivalents at end of period | $ | 637,710 | $ | 535,657 | ||||||
View source version on businesswire.com: https://www.businesswire.com/news/home/20190502005815/en/
Source:
Flowserve Contacts
Investor Contacts:
Jay Roueche, Vice
President, Investor Relations & Treasurer (972) 443-6560
Mike
Mullin, Director, Investor Relations (972) 443-6636
Media Contact:
Lars Rosene, Vice President, Corporate & Marketing
Communications (972) 443-6644