News Details

Third Quarter EPS of $0.93

(includes 1 cent net benefit from below-the-line FX partially offset by discrete non-cash charge)

Strong bookings of almost $1.3 billion – up 3.7% over 2013 3rd quarter - drove YTD book-to-bill of 1.1

Increased gross and operating margins despite lower year-over-year revenues

Tightened 2014 Full Year EPS Target Range to $3.65 to $3.85

DALLAS--(BUSINESS WIRE)--Oct. 23, 2014-- Flowserve Corporation (NYSE:FLS), a leading provider of flow control products and services for the global infrastructure markets, announced today its financial results for the 2014 third quarter. In addition, Flowserve also today filed its Form 10-Q with the Securities and Exchange Commission for the period ended September 30, 2014.

Summary of 2014 Third Quarter (all comparisons versus prior year quarter, unless otherwise noted):

• Fully diluted EPS of $0.93, up 3.3%, which included $0.01 per share net benefit from foreign currency, partially offset by a discrete, non-cash charge in IPD
• Bookings of almost $1.3 billion, up 3.7%, or 5.0% on a constant currency basis
  • Original equipment bookings of $756.3 million increased 0.8%, or 2.1% on a constant currency basis
  • Aftermarket bookings of $518.5 million increased 8.1%, or 9.4% on a constant currency basis
• Sales of $1.2 billion, decreased 2.0%, or 0.7% on a constant currency basis, and was essentially flat as adjusted for divestitures and currency
  • Aftermarket sales of $499.6 million increased 7.5%, or 8.8% on a constant currency basis
• Gross profit decreased $1.2 million to $421.5 million, or 0.3%
  • Gross margin of 35.0% increased 60 basis points, or was 35.3%, an increase of 90 basis points excluding a discrete non-cash charge in IPD
• SG&A expense decreased $0.7 million to $230.9 million
• Operating income decreased $1.0 million to $192.4 million, down 0.5%, or up 1.0% on a constant currency basis
• Operating margin of 16.0% increased 30 basis points, or was 16.3%, an increase of 60 basis points, excluding discrete non-cash charge in IPD
• Backlog increased $265.4 million year-to-date to $2.8 billion, up 10.4%, or 14.1% on a constant currency basis

"Flowserve’s third quarter results demonstrated strong operational execution and the value inherent in our end-user strategies, aftermarket franchise, geographic and market diversity, broad product portfolio and disciplined approach," commented Mark Blinn, Flowserve’s president and chief executive officer. "Although reported revenues were lower than expected due to a number of factors, we remain optimistic in our ability to grow the business based upon our solid bookings this year and expected execution of our growth strategies. We will continue to improve the efficiency of our global operating platform which will support, and better leverage, the expected long-term increase in activity for our key energy markets. Profitable growth remains a primary focus, including M&A opportunities and organic initiatives, as we position the company to deliver and drive increased shareholder value. Key takeaways from the 2014 third quarter include:

• Solid book-to-bill of 1.06 increased our year-to-date backlog by $265.4 million, up 10.4 percent or 14.1% constant currency, which provides confidence for solid performance in the 2014 fourth quarter and 2015;
• Focused end-user aftermarket strategies resulted in bookings over $518 million, up 8.1%;
• Ongoing success of operational excellence initiatives, including ‘One Flowserve’, supported the third consecutive quarter of gross margins in excess of 35 percent with improved year-over-year operating margins;
• Strong operational performance has increased bandwidth to enhance and accelerate our organic growth and acquisitive growth strategies, and further pursue asset optimization strategies;
• Disciplined cost focus demonstrated by SG&A reductions for both the quarter and year-to-date;
• Continued solid improvement at IPD demonstrated by 13.8% operating margin, up 250 basis points, excluding $3.5 million discrete, non-cash charge; and
• While the global demand environment is difficult to time, we remain confident that our diverse business model, growth strategies and investments supports long-term earnings growth."

Flowserve’s financial results for the first nine months of 2014 (as compared to the 2013 period) are highlighted by fully diluted EPS of $2.60 per share, up 7.9%, on relatively flat constant currency sales of $3.5 billion, adjusted for divestitures. Gross profit of $1.2 billion and operating income of $551.1 million represent margins of 35.1% and 15.8%, up 90 and 40 basis points, respectively. Bookings for the nine months ended September 30, 2014 totaled $3.9 billion, up 5.9% or 7.1% on a constant currency basis, representing a year-to-date book-to-bill of 1.1 times.

Operational Commentary and Segment Performance

Tom Pajonas, executive vice president and chief operating officer, said, "Flowserve's operations continued to perform well in the third quarter, demonstrating the significant improvements in recent years in both on-time delivery and past due backlog. The strong operating profile, coupled with our available capacity, positions us for the anticipated growth in our diverse end markets and geographies. During the third quarter, we continued to experience an increased level of finished product not yet required by our customers due to project delays, deferred product inspections and issued change orders, which impacted our ability to recognize additional revenues this quarter. Despite recent global market indicators of slowing activity and lower demand levels, we have seen a solid level of bids and proposal requests, even while additional uncertainty may enter our customers' decision processes. Nevertheless, we remain confident in the long-term strength of our energy markets.

"Our strong margin performance over the last few years is evidence of the consistent progress we have made from an operational excellence standpoint. While we are never finished on that front, the improvements in our platform provide opportunities to focus on footprint optimization, drive higher absorption rates, pursue inorganic opportunities and increase returns on our assets as we capitalize on the expected growth in our key energy markets."

Financial Performance and Guidance

"Flowserve's strong operational execution and cost focus delivered its highest quarterly level of net income outside a fourth quarter," indicated Mike Taff, Flowserve’s senior vice president and chief financial officer. "Revenues, however, continued to be impacted by elevated customer directed delays, foreign currency headwinds, extended final-investment decision evaluations, challenges faced by certain emerging region customers and the impact of the 2014 first quarter sale of our Russian-focused Naval business. While Flowserve has finished product prepared to ship and manufacturing capacity for significant growth, predicting the timing of delivery dates and the recently volatile foreign currency movements has proven difficult and may persist. However, as is typical with our seasonality, we continue to expect the fourth quarter to generate the strongest earnings of the year, which provides confidence in our tightened 2014 EPS target range of $3.65 to $3.85, representing a 7 to 13 percent year-over-year increase, even as we now expect full-year revenues to be essentially flat on a constant currency basis.

"Additionally, we will continue to efficiently allocate capital in our business and opportunistic growth investments, as well as returning capital to shareholders. Year-to-date through the 2014 third quarter, Flowserve returned over $250 million to shareholders in share repurchases and dividends, and our repurchase plan has been incrementally more active through the recent market fluctuations."

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 of 2014 include:

Third Quarter 2014 Results Conference Call

Flowserve will host its conference call with the financial community on Friday, October 24^th 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.com under the “Investor Relations” section.

About Flowserve

Flowserve Corp. is one of the world’s leading providers of fluid motion and control products and services. Operating in more than 50 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.

Source: Flowserve Corporation

Flowserve
Investor Contacts:
Jay Roueche, 972-443-6560
Vice President, IR & Treasurer
or
Mike Mullin, 972-443-6636
Director, Investor Relations
or
Media Contact:
Lars Rosene, 972-443-6644
Vice President, Global Communications and Public Affairs