News Details

DALLAS--(BUSINESS WIRE)--Feb. 16, 2017-- Flowserve Corporation (NYSE: FLS), a leading provider of flow control products and services for the global infrastructure markets, today reported its financial results for the fourth quarter and full year ended December 31, 2016.

Fourth Quarter 2016 Highlights

• Reported Earnings Per Share (EPS) of $0.50 includes $0.22 per share of adjusted items, as detailed below, and approximately $0.03 per share of negative currency translation
  • Adjusted EPS^[1] was $0.72 excluding the adjusted items but including the negative currency translation
  • Adjusted items include $0.20 per share of realignment expenses and $0.02 of purchase price accounting expenses and Brazil inventory write-down
• Sales were $1.07 billion, down 14.7% on a constant currency basis
  • Aftermarket sales were $502 million in the fourth quarter, down 8.7% on a constant currency basis
• Total bookings were $908 million, down 4.2% on a constant currency basis
  • Aftermarket bookings were $446 million, or 49% of total bookings, flat with prior year on a constant currency basis
• Reported gross and operating margins of 31.0% and 10.0% increased 10 basis points and decreased 60 basis points, respectively
  • Adjusted gross and operating margins^[2] were 33.2% and 13.2% declined 20 basis points and 130 basis points, respectively

Full Year 2016 and Other Highlights

• Reported EPS of $1.11 includes $1.08 per share of adjusted items, as detailed below, and approximately $0.09 per share of negative currency translation
  • Adjusted EPS^[1] was $2.19 excluding the adjusted items but including the negative currency translation
  • Adjusted items include $0.58 per share of realignment expenses, $0.47 per share to reserve for certain Latin American non-cash exposures, $0.05 of integration and purchase price accounting expenses and $0.02 of below-the-line foreign exchange benefit
• Full year sales were $3.99 billion, down 10.0% on a constant currency basis
  • Aftermarket sales were $1.80 billion, down 5.9% on a constant currency basis
• Full year bookings were $3.76 billion, representing a full year book-to-bill ratio of 94%
  • Full year aftermarket bookings were $1.82 billion, or 49% of total bookings, flat with prior year on a constant currency basis
• Achieved approximately $93 million of full year incremental cost savings from the realignment program, including $12 million during the 2016 fourth quarter
• Backlog at December 31, 2016 was $1.90 billion, down 12.7% versus prior year

“Flowserve delivered fourth quarter and full year 2016 results in-line with our expectations, supported by continued progress on our realignment program,” said Mark Blinn, Flowserve’s President and Chief Executive Officer. “Our focus on disciplined cost management and efficiency enhancing initiatives helped mitigate what continues to be a challenging industry environment. We were pleased to have experienced another quarter of generally stable crude prices and are encouraged by the general increased sense of optimism about the macroeconomic environment. These factors, however, have yet to translate into increased bookings levels, as customers remained cautious in new project awards and maintenance activities during the fourth quarter, and in their acceptance of completed project work. Importantly, for both the fourth quarter and for the full year, our aftermarket bookings stabilized relative to prior year levels, which is a positive development for Flowserve. We continue to achieve meaningful cost savings from our transformational realignment program and look forward to completing the vast majority of the $400 million program in 2017.

“While we are cautiously optimistic that certain energy and industrial customers’ budgets may improve off current low levels, we are not anticipating a recovery in our 2017 planning due to continued geopolitical, end market and macro uncertainties. Accordingly, our near term focus remains on controlling what we can by improving our speed to market, enhancing our project execution, and completing our strategic realignment program. We believe that these initiatives will position the company successfully through cycles regardless of market conditions. We will remain disciplined in our approach to the work we pursue, and are confident that our actions will drive a leaner and more efficient operating platform. Flowserve remains well positioned to drive value for our shareholders over the long term.”

2017 Initial Guidance ^[3]

Flowserve is providing Reported and Adjusted EPS guidance for 2017, as well as certain other financial metrics, as shown in the table below.

Flowserve’s 2017 Adjusted EPS target range excludes expected realignment charges of approximately $155 million, as well as the potential impact of below-the-line foreign currency effects and certain other discrete items. Both the Reported and the Adjusted EPS target range includes the expected revenue decline of approximately 6 to 11 percent year-over-year, and is based on year-end 2016 foreign currency rates, current commodity prices, expected bookings levels and market conditions, the reset of annual incentive performance goals and an expected merit compensation increase, an above-the-line foreign currency headwind ^[4] of approximately 10 cents per share, net interest expense in the range of $60 to $63 million and a tax rate of 30 to 31 percent under current U.S. tax and regulatory policies.

“Flowserve’s 2017 guidance reflects our beginning backlog entering the year, an expected increase in manufacturing facility under-absorption, customer’s continued emphasis on price, and annual compensation headwinds,” said Karyn Ovelmen, Flowserve’s Executive Vice President and Chief Financial Officer. “Partially offsetting these items, we expect incremental cost savings from our realignment initiatives and relatively stable to increasing year-over-year aftermarket and book-and-ship work. We expect the quarterly phasing of our 2017 Reported and Adjusted EPS target ranges to reflect seasonality, although the traditional second half weighting is anticipated to be more pronounced this year, as the first quarter is expected to represent a substantially lower percentage of full year earnings than in past years due to expected lower revenues and elevated SG&A as compared to remaining 2017 quarters. Despite the current market challenges, we will continue to invest in our business, including executing on our realignment initiatives, to better position the company to drive long-term shareholder value.”

Realignment Programs

In full year 2016 Flowserve expensed approximately $104 million, including approximately $34 million in the fourth quarter and recognized approximately $12 million of incremental savings, bringing the full year incremental savings to $93 million. We expect to largely complete the $400 million program in 2017, including approximately $155 million of expense and approximately $70 million of additional savings, with total program savings of $230 million expected to be achieved in 2018.

Segment Performance

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 fourth quarter and full year 2016 include:

Quarterly Dividend Announced

Flowserve announced today that its Board of Directors has authorized the payment of a quarterly cash dividend of $0.19 per share on the company's outstanding shares of common stock. The dividend is payable on April 7, 2017, to shareholders of record as of the close of business on March 24, 2017.

While Flowserve currently intends to pay regular quarterly cash dividends for the foreseeable future, any future dividends, whether at this $0.19 per share quarterly rate or otherwise, will be reviewed individually and declared by the Board at its discretion, dependent upon the Board's assessment of the company's financial condition and business outlook at the applicable time.

Fourth Quarter 2016 Results Conference Call

Flowserve will host its conference call with the financial community on Friday, February 17th 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 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 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; 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 manufacturing optimization and 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; 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 ability to anticipate and manage cybersecurity risk, including the risk of potential business disruptions or financial losses; 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.

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.

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Source: Flowserve Corporation

Flowserve Corporation
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