(Source: Business Wire)
Flowserve Corp. (NYSE:FLS), a global leader in the fluid motion and
control industry, announced today third quarter of 2009 results in its
Form 10-Q report filed with the Securities and Exchange Commission. The
Company announced third quarter fully diluted EPS of $2.07, up $0.03 or
1%, including realignment charges of $0.05. Bookings for the third
quarter were $975 million, down 29%, or 26% excluding negative currency
effects of $37 million. Third quarter sales were $1.05 billion, down 9%,
or 5% excluding negative currency effects of $47 million. Operating
income declined $3 million to $161 million, including $4 million in
realignment charges, discrete legal costs of $7.5 million and also
included negative currency effects of $10 million. Flowserve also posted
a quarterly operating margin of 15.3%, including charges totaling 110
basis points. All comparisons above relate to the third quarter of 2008.
The Company also reported a continued solid backlog of $2.66 billion,
including positive currency effects of $90 million, when compared to
$2.83 billion in backlog at December 31, 2008.
"Many of the markets we serve continue to be challenged by the impact of
global economic conditions," said Mark Blinn, Flowserve President and
Chief Executive Officer. "That said, we received orders of approximately
$1 billion for the quarter, and we continue to see strong emerging
market and aftermarket opportunities, plus continued bidding activity
for attractive major project orders. One of the traditional strengths of
our business is that while our project business is cyclical, aftermarket
business is not and usually carries higher margins. Assuming the timing
of some major project releases, we expect that our fourth quarter
bookings will be improved sequentially over the third quarter.
Regardless of market conditions, however, we will continue our focus on
maintaining appropriate pricing discipline and investing in structural
cost reductions, as well as implementing long-term strategic growth
initiatives. These actions will help drive strong margins and cash flow
and better serve our customers," Blinn added.
Highlights
Third Quarter of 2009 (all comparisons versus the third quarter of 2008
unless otherwise noted):
Third quarter fully diluted EPS of $2.07, up 1%, including
approximately $0.05 of realignment charges
Bookings of $975 billion, down 29%, or 26% excluding negative currency
effects of $37 million
Sales of $1.05 billion, down 9%, or 5% excluding negative currency
effects of $47 million
Gross margin increased 150 basis points to 36.6%, including
realignment charges of 20 basis points
Selling, General & Administrative Expense (SG&A) as a percentage of
sales increased 50 basis points to 21.6%, including increased legal
costs of $7.5 million related to the pending resolution of the 2003
shareholder class action litigation (which remains contingent on
resolution of certain closure issues) and realignment charges,
together representing 90 basis points as a percentage of sales
Operating income of $161 million, down $3 million or 2%, including $4
million of realignment charges and negative currency effects of $10
million
Operating margin increased 100 basis points to 15.3%, including such
increased legal costs and realignment charges of 110 basis points
Backlog of $2.66 billion, including positive currency effects of $90
million, when compared to $2.83 billion of backlog at December 31, 2008
The Year-to-Date 2009 (all comparisons versus year-to-date 2008, unless
otherwise noted):
Year-to-date fully diluted EPS of $5.63, down 1% from $5.68, including
approximately $0.43 of realignment charges
Bookings of $2.95 billion, down 28%, or 22% excluding negative
currency effects of $264 million
Sales of $3.17 billion, down 4%, or up 4% excluding negative currency
effects of $277 million
Gross margin increased 60 basis points to 36.0%, including realignment
charges of 60 basis points
Continued SG&A improvement as a percentage of sales, down 40 basis
points to 21.6%, including realignment charges of 40 basis points
Operating income of $467 million, up $11 million or 2%, including $33
million of realignment charges and negative currency effects of $58
million
Strong operating margin performance, up 100 basis points to 14.8%,
including realignment charges of 100 basis points
Discussion and analysis of the third quarter of 2009 financial
results (all comparisons versus the third quarter of 2008 unless
otherwise noted)
Fully diluted third quarter 2009 EPS increased to $2.07 per share, up 1%
from the record level of third quarter 2008, and includes realignment
charges of $0.05. EPS was higher despite a 9% decrease in sales
primarily due to a 100 basis point improvement in operating margin
resulting from margins on orders booked in 2008, production cost savings
from operational excellence programs, and cost containment initiatives
including the realignment. Savings generated in the third quarter 2009
from realignment activities was approximately $10 million. The impact on
third quarter 2009 EPS growth from foreign currency hedging gains and
reduced net interest expense was offset by a higher tax rate resulting
from discrete tax benefits in the third quarter 2008 that did not recur.
In addition, EPS was favorably impacted by lower weighted average common
shares outstanding at September 30, 2009 resulting from our share
repurchasing program.
Bookings for the third quarter were $975 million, down 29%, or 26%
excluding negative currency effects of $37 million. The decrease is
primarily related to the chemical, oil and gas and general industries
markets. It reflects customers' responses to lingering disruptions in
the credit and capital markets, global economic conditions generally and
the re-evaluation of customer budget assumptions for particular
projects, thereby delaying certain expected orders.
Backlog decreased 6% to $2.66 billion from $2.83 billion at December 31,
2008. The decrease includes positive currency effects of approximately
$90 million and cancellations of $35 million of orders booked in the
prior year.
Sales decreased to $1.05 billion, down $103 million, a decrease of 9%,
or 5% excluding negative currency effects of approximately $47 million.
The result is largely attributable to lower sales by the Flow Control
Division (FCD) and the Flow Solutions Division (FSD).
Gross profit decreased to $385 million, down $20 million or 5%. Gross
margin increased by 150 basis points to 36.6%. Gross margin performance
was driven by project orders booked during 2008, sales mix shift towards
higher margin aftermarket sales and cost savings from operational
excellence programs and the realignment initiatives, partially offset by
$2 million of realignment charges.
SG&A decreased to $227 million, down $17 million or 7%. The SG&A
decrease is attributable to the impact of currency benefits of
approximately $7 million and cost containment initiatives including the
realignment, partially offset by $1 million of realignment charges and
$7.5 million of legal costs relating to the pending resolution of the
2003 shareholder class action litigation (which remains contingent on
resolution of certain closure issues). This $7.5 million charge, along
with a smaller earlier accrual, reflects the company's current
determination of its exposure relating to the tentative settlement. SG&A
as a percentage of sales increased 50 basis points to 21.6%. The
increase included approximately 90 basis points relating to realignment
and such increased legal costs. Corporate SG&A increased $1.3 million
reflecting the impact of the increase in such legal costs, partially
offset by the impact of decreased incentive compensation expense and
cost containment initiatives.
Operating income decreased to $161 million, down $3 million or 2%. The
operating income decrease includes negative currency effects of
approximately $10 million and approximately $4 million of realignment
charges and such legal costs. Operating margin increased 100 basis
points from 14.3% to 15.3%, including 110 basis points from realignment
charges and such legal costs.
"As we continue to use our balance sheet strength to improve our
operating platform, we are working diligently to drive out structural
costs and better prepare the company for new growth opportunities. This,
along with our aftermarket service commitment, global reach and
long-term customer alliances, positions us well for the future," added
Blinn.
Flowserve Pump Division
Highlights
Third Quarter of 2009 (all comparisons versus the third quarter of 2008
unless otherwise noted):
Bookings of $518 million, down 40%, or 37% excluding negative currency
effects of $21 million
Sales of $637 million, flat with prior year, or up 5% excluding
negative currency effects of $31 million
Gross margin increase of 190 basis points to 32.4%
SG&A as a percentage of sales, up 50 basis points to 15.5%
Operating income of $109 million, up $9 million or 9%
Substantial operating margin improvement of 150 basis points to 17.1%,
including realignment charges of 20 basis points
FPD Bookings of original equipment decreased approximately 60%, which
represents most of the total decrease. This original equipment decrease
was driven by a decline across all industries, but primarily the
chemical, oil and gas and general industries markets.
Sales were generally comparable to the same period in 2008 and reflect
negative currency effects of 5%. Excluding currency effects, sales of
original equipment increased approximately 1%, while aftermarket sales
increased 10%. Original equipment sales reflect successful execution
against the strong backlog in the oil and gas and power markets of FPD.
Gross profit increased to $206 million, up $11 million or 6%, including
$1 million of realignment charges. Gross margin for the third quarter of
2009 increased 190 basis points to 32.4%, impacted by shipments of
orders booked in 2008, cost savings from continuous improvement process
(CIP) initiatives and an original equipment sales mix shift to 62% from
64% in the prior year.
Flow Control Division
Highlights
Third Quarter of 2009 (all comparisons versus the third quarter of 2008
unless otherwise noted):
Bookings of $333 million, down 9%, or 6% excluding negative currency
effects of $11 million
Sales of $294 million, down 20%, or 17% excluding negative currency
effects of $11 million
Gross margin increased 190 basis points to 38.2%
SG&A as a percentage of sales, up 10 basis points to 20.0%
Operating income of $54 million, down $7 million or 12%
Operating margin increase of 160 basis points to 18.4%, including
realignment charges of 20 basis points
The FCD bookings decrease was generally attributable to weakness in the
chemical and general industries markets in Europe, Middle East and
Africa and Asia Pacific, partially offset by nuclear orders in North
America. Large project awards were being delayed as customers reviewed
demand, pricing and other savings opportunities. The distribution market
channel decline has slowed. However, the channel has not restocked
sufficiently in the aggregate, to offset earlier destocking behavior.
FCD sales in Europe and North America fell due to softness in demand in
the chemical and general industries markets served through distributors.
Gross margin improvement was driven by product mix, low cost sourcing
initiatives and other CIP programs.
Flow Solutions Division
Highlights
Third Quarter of 2009 (all comparisons versus the third quarter of 2008
unless otherwise noted):
Bookings of $141 million, down 18%, or 15% excluding negative currency
effects of $6 million
Sales of $136 million, down 20%, or 17% excluding negative currency
effects of $5 million
Gross margin improvement of 360 basis points to 49.1%
SG&A as a percentage of sales, up 190 basis points to 28.8%
Operating income of $29 million, down $4 million or 12%
Operating margin increase of 190 basis points to 21.3%, including
realignment charges of 80 basis points
The FSD bookings decrease was primarily attributable to decreased
original equipment. The decrease in FSD sales was driven by sales
declines in all regions. Reductions in project sales shifted the sales
mix toward aftermarket business with a related beneficial impact on
gross margin.
Conclusion
"I am pleased by our notable progress in reducing our global cost
structure," said Blinn. "I am also excited about our prospects for
growth in emerging markets and aftermarket business, plus particularly
in the area of new technologies such as solar, wind, geothermal and
complex oil and gas recovery. These emerging industries, along with the
strength of the existing markets we serve globally and the efficiencies
we are driving through our global operating platform, provide
significant opportunities for Flowserve in 2010 and beyond," he added.
In a separate press release also issued today, the Company provided
updated guidance, subject to the Safe Harbor Statement noted below, on
its 2009 EPS forecast, as well as information regarding the expansion of
its realignment initiatives designed to further reduce its cost
structure for the future.
Conference Call
The conference call will take place on Thursday, October 29 at 11:00 am
Eastern time.
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 Flowserve's website at www.flowserve.com
under the Investor Relations section.
About Flowserve Corp.
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 Section27A of the Securities Act of
1933 and Section21E 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," "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; our dependence on our customers' ability to
make required capital investment and maintenance expenditures; the
highly competitive nature of the markets in which we operate; risks
associated with cost overruns on fixed-fee projects and in taking
customer orders for large complex custom engineered products requiring
sophisticated program management skills and technical expertise for
completion; the substantial dependence of our sales on the success of
the petroleum, chemical, power and water 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
petroleum producers, and non-compliance with U.S. export/re-export
control, foreign corrupt practice laws, economic sanctions and import
laws and regulations; 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 shareholder litigation and
litigation involving asbestos-containing material claims; a foreign
government investigation regarding our participation in the United
Nations Oil-for-Food Program; risks associated with certain of our
foreign subsidiaries conducting business operations and sales in certain
countries that have been identified by the U.S. State Department as
state sponsors of terrorism; our relative geographical profitability and
its impact on our utilization of deferred tax assets, including foreign
tax credits, and tax liabilities that could result from audits of our
tax returns by regulatory authorities in various tax jurisdictions; the
potential adverse impact of an impairment in the carrying value of
goodwill or other intangibles; our dependence upon third-party suppliers
whose failure to perform timely could adversely affect our business
operations; 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; 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 STATEMENTS OF INCOME
(Amounts in thousands, except per share data) Three Months Ended September 30,
2009 2008
Sales $ 1,051,064 $ 1,153,592
Cost of sales (665,859 ) (748,668 )
Gross profit 385,205 404,924
Selling, general and administrative expense (227,265 ) (243,799 )
Net earnings from affiliates 3,265 3,389
Operating income 161,205 164,514
Interest expense (10,119 ) (13,105 )
Interest income 562 2,152
Other income (expense), net 6,997 (8,690 )
Earnings before income taxes 158,645 144,871
Provision for income taxes (42,006 ) (26,948 )
Net earnings, including noncontrolling interests 116,639 117,923
Less: Net loss (earnings) attributable to noncontrolling interests 305 (874 )
Net earnings of Flowserve Corporation $ 116,944 $ 117,049
Net earnings per share of Flowserve Corporation common shareholders:
Basic $ 2.10 $ 2.05
Diluted 2.07 2.04
Cash dividends declared per share $ 0.27 $ 0.25
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CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except per share data) Nine Months Ended September 30,
2009 2008
Sales $ 3,166,189 $ 3,304,516
Cost of sales (2,026,890 ) (2,135,776 )
Gross profit 1,139,299 1,168,740
Selling, general and administrative expense (683,920 ) (726,453 )
Net earnings from affiliates 11,718 13,873
Operating income 467,097 456,160
Interest expense (30,159 ) (38,695 )
Interest income 2,094 6,612
Other (expense) income, net (2,369 ) 8,365
Earnings before income taxes 436,663 432,442
Provision for income taxes (118,593 ) (102,212 )
Net earnings, including noncontrolling interests 318,070 330,230
Less: Net earnings attributable to noncontrolling interests (601 ) (2,249 )
Net earnings of Flowserve Corporation $ 317,469 $ 327,981
Net earnings per share of Flowserve Corporation common shareholders:
Basic $ 5.68 $ 5.72
Diluted 5.63 5.68
Cash dividends declared per share $ 0.81 $ 0.75
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CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, December 31,
(Amounts in thousands, except per share data) 2009 2008
ASSETS
Current assets:
Cash and cash equivalents $ 291,225 $ 472,056
Accounts receivable, net of allowance for doubtful accounts of
$21,091 and $23,667, respectively 841,251 808,522
Inventories, net 884,422 834,612
Deferred taxes 136,553 126,890
Prepaid expenses and other 114,342 90,345
Total current assets 2,267,793 2,332,425
Property, plant and equipment, net of accumulated depreciation of
$663,900 and $594,991, respectively 561,679 547,235
Goodwill 865,437 828,395
Deferred taxes 32,105 32,561
Other intangible assets, net 127,834 121,919
Other assets, net 162,179 161,159
Total assets $ 4,017,027 $ 4,023,694
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 398,507 $ 598,498
Accrued liabilities 869,659 967,099
Debt due within one year 27,786 27,731
Deferred taxes 20,390 14,668
Total current liabilities 1,316,342 1,607,996
Long-term debt due after one year 541,151 545,617
Retirement obligations and other liabilities 438,959 495,883
Shareholders' equity:
Common shares, $1.25 par value 73,547 73,477
Shares authorized -- 120,000
Shares issued -- 58,838 and 58,781, respectively
Capital in excess of par value 602,669 586,371
Retained earnings 1,431,507 1,159,634
2,107,723 1,819,482
Treasury shares, at cost -- 3,787 and 3,566 shares, respectively (261,739 ) (248,073 )
Deferred compensation obligation 8,564 7,678
Accumulated other comprehensive loss (141,392 ) (211,320 )
Noncontrolling interest 7,419 6,431
Total shareholders' equity 1,720,575 1,374,198
Total liabilities and shareholders' equity $ 4,017,027 $ 4,023,694
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands) Nine Months Ended September 30,
2009 2008
Cash flows -- Operating activities:
Net earnings, including noncontrolling interests $ 318,070 $ 330,230
Adjustments to reconcile net earnings to net cash used by operating activities:
Depreciation 63,527 54,414
Amortization of intangible and other assets 7,288 7,519
Amortization of deferred loan costs 1,312 1,265
Net loss (gain) on disposition of assets 666 (6,200 )
Gain on bargain purchase - (3,400 )
Excess tax benefits from stock-based compensation arrangements (1,040 ) (16,414 )
Stock-based compensation 31,393 23,981
Net earnings from affiliates, net of dividends received (3,805 ) (5,911 )
Change in assets and liabilities:
Accounts receivable, net 8,141 (280,343 )
Inventories, net (8,084 ) (190,292 )
Prepaid expenses and other (20,881 ) (26,763 )
Other assets, net 4,130 7,571
Accounts payable (209,247 ) (32,599 )
Accrued liabilities and income taxes payable (117,151 ) 212,336
Retirement obligations and other liabilities (75,712 ) (48,283 )
Net deferred taxes 5,934 (31,914 )
Net cash flows provided (used) by operating activities 4,541 (4,803 )
Cash flows -- Investing activities:
Capital expenditures (87,067 ) (72,506 )
Proceeds from disposal of assets - 7,556
Payments for acquisitions, net of cash acquired (30,750 ) -
Net cash flows used by investing activities (117,817 ) (64,950 )
Cash flows -- Financing activities:
Excess tax benefits from stock-based compensation arrangements 1,040 16,414
Payments on long-term debt (4,261 ) (4,261 )
Borrowings under other financing arrangements 88 9,644
Repurchase of common shares (27,527 ) (134,997 )
Payments of dividends (44,151 ) (37,348 )
Proceeds from stock option activity 2,496 11,214
Net cash flows used by financing activities (72,315 ) (139,334 )
Effect of exchange rate changes on cash 4,760 (10,201 )
Net change in cash and cash equivalents (180,831 ) (219,288 )
Cash and cash equivalents at beginning of year 472,056 373,238
Cash and cash equivalents at end of period $ 291,225 $ 153,950
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SEGMENT INFORMATION
FLOWSERVE PUMP DIVISION Three Months Ended September 30,
(Amounts in millions) 2009 2008
Bookings $ 517.8 $ 858.3
Sales 637.1 639.2
Gross profit 206.2 194.8
Gross profit margin 32.4 % 30.5 %
Operating income 108.6 99.4
Operating margin 17.1 % 15.6 %
FLOW CONTROL DIVISION Three Months Ended September 30,
(Amounts in millions) 2009 2008
Bookings $ 333.1 $ 367.6
Sales 293.5 365.2
Gross profit 112.0 132.5
Gross profit margin 38.2 % 36.3 %
Operating income 54.0 61.4
Operating margin 18.4 % 16.8 %
FLOW SOLUTIONS DIVISION Three Months Ended September 30,
(Amounts in millions) 2009 2008
Bookings $ 141.4 $ 173.0
Sales 136.3 170.9
Gross profit 66.9 77.7
Gross profit margin 49.1 % 45.5 %
Operating income 29.1 33.1
Operating margin 21.3 % 19.4 %
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SEGMENT INFORMATION
FLOWSERVE PUMP DIVISION Nine Months Ended September 30,
(Amounts in millions) 2009 2008
Bookings $ 1,687.1 $ 2,484.9
Sales 1,896.6 1,833.5
Gross profit 616.6 575.5
Gross profit margin 32.5 % 31.4 %
Operating income 326.0 281.6
Operating margin 17.2 % 15.4 %
FLOW CONTROL DIVISION Nine Months Ended September 30,
(Amounts in millions) 2009 2008
Bookings $ 907.2 $ 1,187.0
Sales 893.2 1,035.7
Gross profit 328.3 371.6
Gross profit margin 36.8 % 35.9 %
Operating income 148.4 167.4
Operating margin 16.6 % 16.2 %
FLOW SOLUTIONS DIVISION Nine Months Ended September 30,
(Amounts in millions) 2009 2008
Bookings $ 406.2 $ 513.7
Sales 424.7 495.5
Gross profit 196.3 223.3
Gross profit margin 46.2 % 45.1 %
Operating income 78.3 97.9
Operating margin 18.4 % 19.8 %
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