Reports EPS of $2.01, an 18.9% increase from 2012 first quarter

Bookings of approximately $1.2 billion, a 9.9% sequential increase from 2012 fourth quarter

Reaffirms 2013 Full Year EPS Target Range of $9.60 to $10.60

DALLAS, April 24, 2013 - Flowserve Corp. (NYSE:FLS), a leading provider of flow control products and services for the global infrastructure markets, announced today its financial results for the 2013 first quarter.  In addition, Flowserve also today filed its Form 10-Q with the Securities and Exchange Commission for the period ending March 31, 2013.

Highlights of 2013 First Quarter (all comparisons versus first quarter 2012 unless otherwise noted):

  • Fully diluted EPS of $2.01, up 18.9%, including a $0.28 per share net gain on Indian joint venture transactions substantially offset by $0.24 per share of net negative currency impact (including effect of Venezuelan currency devaluation)
  • Bookings of $1.2 billion, down 4.4%, or 3.5% excluding negative currency effects of approximately $12 million. Sequentially, first quarter 2013 bookings increased 9.9%
    • Aftermarket bookings of $478 million, up 3.4%, or 4.0% on a constant currency basis
  • Sales of $1.1 billion, up 2.0%, or 2.9% excluding negative currency effects of approximately $10 million
    • Aftermarket sales of $457 million, up 3.7%, or 5.0% on a constant currency basis
  • Gross margin improved 60 basis points, to 34.0%, and improved 70 basis points sequentially
  • SG&A as a percentage of sales increased 80 basis points to 21.4%, as reported
    • Excluding the impact of certain items, SG&A expense was flat and declined 40 basis points as a percentage of sales. Items included a $10.4 million gain on sale of assets in 2012 and transaction fees of $1.7 million in 2013 related to the Indian joint venture transactions.
  • Operating income of $170.5 million, up 19.6%
    • Excluding transaction gains and costs, operating income increased 8.9%.  Transaction gains included a $26.6 million net gain on Indian joint venture transactions in 2013 and $10.4 million gain on sale of assets in 2012
  • Operating margin increased 220 basis points to 15.5%, or up 80 basis points excluding transaction gains and costs

"We are pleased with our 2013 first quarter performance, which represents a solid start to the year and provides confidence in our full year EPS target range," remarked Mark Blinn, Flowserve's president and chief executive officer.  "The continued hard work and dedication of Flowserve's associates is appreciated and has positioned us well for the remainder of the year.  In our view, the key takeaways from the 2013 first quarter include:

  • Continued discipline in bookings, particularly in EPD, remains a key strategy;
  • Aftermarket sales and bookings have remained solid;
  • 'One Flowserve' and other operational initiatives provided increased margins, driving EPS growth;
  • SG&A expense was flat on a recurring basis and lower as percentage of sales, leveraging fixed costs through ongoing cost control;
  • Our performance slightly exceeded our expectations relative to our 2013 target range;
  • Opportunities remain for additional internal efficiencies and operational improvements; and,
  • While macro uncertainties exist, we are confident that the long-term opportunities within our diverse geographies and end-markets continue to progress and provide the support for our expected long-term growth."

Financial Performance and Guidance

"During the 2013 first quarter, we produced solid overall margin improvement with strong revenue flow-through, contributing to earnings leverage.  Additionally, we further optimized our portfolio through transactions related to our former Audco India, Limited joint venture, which produced meaningful gains," said Mike Taff, Flowserve's senior vice president and chief financial officer.  "Our initial 2013 EPS guidance did not include the $0.28 per share net gain on the Indian joint venture transactions and our guidance also did not include the $0.24 per share negative impact from foreign currency, both above and below the line, including the Venezuelan currency devaluation impact.  Based upon the solid first quarter, and with the unforecasted items largely offsetting each other, we remain confident in reaffirming our 2013 EPS guidance of $9.60 to $10.60."

"Seasonally, in addition to typically being an earnings trough, our first quarters tend to experience a usage of cash.  The first quarter of 2013 was consistent with this trend and reflected only modest working capital improvements relative to the 2012 first quarter.  We continue to believe significant cash flow can be released and employed in our business or returned to shareholders, as we methodically pursue our working capital and cash flow goals."   

"Returning capital to our shareholders remains a priority, as evidenced by approximately $173 million in share repurchases and dividends in the 2013 first quarter.  We also expect to repurchase approximately $150 million of Flowserve's shares during the 2013 second quarter, effectively completing $1 billion in share repurchases, announced last May, as part of our capital structure strategy.  With our recently replenished share repurchase authorization, we remain committed to a disciplined approach to capital deployment, both through investing in our operational platform to grow the business and by returning capital to our shareholders." 

Operational Commentary and Segment Performance (all comparisons versus first quarter 2012 unless otherwise noted)

Tom Pajonas, senior vice president and chief operating officer, said, "I am pleased with our operational performance in the 2013 first quarter, particularly the improvement in gross margin, as we leveraged our "One Flowserve" initiative across the supply chain, contract management and research and development processes. The impact of our enhanced discipline and selectivity in pursuing new projects is demonstrating its return, as overall gross margin improved 60 basis points and 180 basis points at the Engineered Product Division and the Industrial Product Division, respectively. In the Flow Control Division, we continued to deliver strong operating performance, with solid top-line growth, strong bookings and improved margin."

"Looking to the remainder of 2013, we remain encouraged by the progress the larger OE projects are making through pre-FEED and FEED stages, and we continue to expect these opportunities to commence in the latter half of 2013."

Engineered Product Division (EPD)

EPD bookings for the first quarter of 2013 were $585.1 million, down 12.8%, or 11.4% excluding negative currency effects of approximately $9 million. EPD sales for the first quarter of 2013 increased to $539.7 million, up $4.9 million or 0.9%, or up 2.2% excluding negative currency effects of approximately $7 million. 

EPD gross profit for the first quarter of 2013 increased to $188.2 million, up $4.8 million or 2.6%.  Gross margin for the first quarter of 2013 increased 60 basis points to 34.9%, which is the highest level of gross margin since the first quarter of 2011. The year-over-year improvement is primarily attributable to reduced costs reflecting operational improvements and shipments of fewer lower margin projects.

EPD operating income for the first quarter of 2013 was $84.6 million, down 8.2%, or up 4.0% excluding a $10.4 million gain on sale of operating assets in 2012 and negative currency effects of less than $1 million. First quarter operating margin decreased 150 basis points to 15.7%, or up 50 basis points to 15.8% excluding the gain on sale of operating assets in 2012.

Industrial Product Division (IPD)

IPD bookings for the first quarter of 2013 were $207.5 million, down 10.6%, or 10.1% excluding negative currency effects of approximately $1 million. IPD sales for the first quarter of 2013 were $211.3 million, down 0.9%, or 0.4% excluding negative currency effects of approximately $1 million. 

IPD gross profit for the first quarter of 2013 increased to $53.0 million, up $3.4 million or 6.9%.  Gross margin for the first quarter of 2013 increased 180 basis points to 25.1%, which was primarily attributable to lower manufacturing costs resulting from execution of operational improvements.

IPD operating income for the first quarter of 2013 increased to $21.4 million, up $4.0 million or 23.0%, or up 25.3% excluding negative currency effects of less than $1 million. First quarter 2013 operating margin increased 190 basis points to 10.1%, as a result of improved gross margin and cost controls. 


Flow Control Division (FCD)

FCD bookings for the first quarter of 2013 increased to $430.6 million, up $50.5 million or 13.3%, or up 13.8% excluding negative currency effects of approximately $2 million. FCD sales for the first quarter of 2013 increased to $384.0 million, up $20.1 million or 5.5%, or up 6.1% excluding negative currency effects of approximately $2 million. 

FCD gross profit for the first quarter of 2013 increased to $133.9 million, up $6.7 million or 5.3%.  Gross margin for the first quarter of 2013 was essentially flat at 34.9%.   

FCD operating income for the first quarter of 2013 increased to $87.2 million, up $31.5 million or 56.6%, or up 8.8% excluding the $26.6 million net gain on the Indian joint venture transactions. First quarter 2013 operating margin increased 740 basis points to 22.7%, or up 50 basis points to 15.8%, excluding the impact of the Indian joint venture transactions which included SG&A of $1.7 million. 

First Quarter 2013 Results Conference Call

Flowserve will host its conference call with the financial community on Thursday, April 25th 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 the Flowserve Web site at www.flowserve.com:
http://www.flowserve.com/ under the "Investor Relations" section. 

Investor Contacts:
Jay Roueche, vice president, treasurer & investor relations, (972) 443-6560
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:
http://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 foreign subsidiaries autonomously conducting limited business operations and sales in certain countries 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; 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.

# # #

 

 

 

CONDENSED CONSOLIDATED STATEMENTS OF INCOME   
    
(Amounts in thousands, except per share data)Three Months Ended March 31,
 2013 2012
    
Sales $1,096,596  $1,074,980
Cost of sales     (723,288)      (715,797)
Gross profit      373,308       359,183
Selling, general and administrative expense     (234,509)      (221,889)
Net earnings from affiliates       31,680          5,229
Operating income      170,479       142,523
Interest expense      (12,092)         (8,809)
Interest income            274             282
Other expense, net      (11,028)         (4,939)
Earnings before income taxes      147,633       129,057
Provision for income taxes      (48,733)       (35,515)
Net earnings, including noncontrolling interests       98,900        93,542
Less: Net earnings attributable to noncontrolling interests        (1,111)            (417)
Net earnings attributable to Flowserve Corporation $     97,789  $     93,125
    
Net earnings per share attributable to Flowserve Corporation common shareholders:   
Basic $        2.03  $        1.71
Diluted           2.01            1.69
    
Cash dividends declared per share $        0.42  $        0.36
    
    
CONDENSED CONSOLIDATED BALANCE SHEETS   
    
 March 31, December 31, 
(Amounts in thousands, except per share data)20132012
    
ASSETS   
Current assets:   
Cash and cash equivalents $   169,437  $   304,252
Accounts receivable, net   1,056,321    1,103,724
Inventories, net   1,155,773    1,086,663
Deferred taxes      152,402       151,093
Prepaid expenses and other       99,905        94,484
Total current assets   2,633,838    2,740,216
Property, plant and equipment, net      666,422       654,179
Goodwill   1,042,741    1,053,852
Deferred taxes       26,824        26,706
Other intangible assets, net      146,675       150,075
Other assets, net      151,794       185,930
Total assets $4,668,294  $4,810,958
    
LIABILITIES AND EQUITY   
Current liabilities:   
Accounts payable $   514,067  $   616,900
Accrued liabilities      831,886       906,593
Debt due within one year      210,365        59,478
Deferred taxes         6,808          7,654
Total current liabilities   1,563,126    1,590,625
Long-term debt due after one year      859,289       869,116
Retirement obligations and other liabilities      458,119       456,742
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      594,860       615,183
Retained earnings   2,656,814    2,579,308
Treasury shares, at cost - 11,537 and 10,796 shares, respectively  (1,298,393)   (1,164,496)
Deferred compensation obligation       10,613        10,870
Accumulated other comprehensive loss     (255,231)      (224,310)
Total Flowserve Corporation shareholders' equity   1,782,327    1,890,219
Noncontrolling interests         5,433          4,256
Total equity   1,787,760    1,894,475
Total liabilities and equity $4,668,294  $4,810,958
    
    
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  
    
(Amounts in thousands)Three Months Ended March 31,
 2013 2012
    
Cash flows - Operating activities:   
Net earnings, including noncontrolling interests $     98,900  $     93,542
Adjustments to reconcile net earnings to net cash used by operating
  activities:
   
Depreciation       21,403        22,570
Amortization of intangible and other assets         3,807          5,158
Net loss (gain) on disposition of assets            236       (10,410)
Gain on sale of equity investment in affiliate      (12,995)               -  
Gain on remeasurement of acquired assets      (15,315)               -  
Excess tax benefits from stock-based compensation arrangements        (6,818)       (10,889)
Stock-based compensation         8,035          7,796
Net earnings from affiliates, net of dividends received        (3,066)         (3,049)
Change in assets and liabilities:   
Accounts receivable, net       40,223        37,692
Inventories, net      (83,502)      (112,513)
Prepaid expenses and other        (9,831)       (15,412)
Other assets, net              70         (1,698)
Accounts payable     (103,881)      (108,602)
Accrued liabilities and income taxes payable      (55,413)       (15,594)
Retirement obligations and other liabilities       10,102          4,299
Net deferred taxes             (25)            (781)
Net cash flows used by operating activities     (108,070)      (107,891)
    
Cash flows - Investing activities:   
Capital expenditures      (34,258)       (28,686)
Proceeds from disposal of assets            212          7,788
Payments for acquisition, net of cash acquired      (10,143)         (3,996)
Proceeds from (contributions to) equity investments in affiliates       46,240         (1,620)
Net cash flows (provided) used by investing activities         2,051       (26,514)
    
Cash flows - Financing activities:   
Excess tax benefits from stock-based compensation arrangements         6,818        10,889
Payments on long-term debt        (5,000)         (6,250)
Proceeds from revolving credit facility      150,000               -  
(Payments) borrowings under other financing arrangements, net        (4,013)             440
Repurchases of common shares     (155,552)       (22,050)
Payments of dividends      (17,514)       (17,410)
Other           (121)            (185)
Net cash flows used by financing activities      (25,382)       (34,566)
Effect of exchange rate changes on cash        (3,414)          4,309
Net change in cash and cash equivalents     (134,815)      (164,662)
Cash and cash equivalents at beginning of year      304,252       337,356
Cash and cash equivalents at end of period $   169,437  $   172,694
    
    
SEGMENT INFORMATION   
    
ENGINEERED PRODUCT DIVISIONThree Months Ended March 31,
(Amounts in millions, except percentages)2013 2012
Bookings $      585.1  $      670.7
Sales         539.7          534.8
Gross profit         188.2          183.4
Gross profit margin34.9% 34.3%
Operating income           84.6            92.2
Operating margin15.7% 17.2%
    
INDUSTRIAL PRODUCT DIVISIONThree Months Ended March 31,
(Amounts in millions, except percentages)2013 2012
Bookings $      207.5  $      232.0
Sales         211.3          213.2
Gross profit           53.0            49.6
Gross profit margin25.1% 23.3%
Operating income             21.4            17.4
Operating margin10.1% 8.2%
    
FLOW CONTROL DIVISIONThree Months Ended March 31,
(Amounts in millions, except percentages)2013 2012
Bookings $      430.6  $      380.1
Sales         384.0          363.9
Gross profit         133.9          127.2
Gross profit margin34.9% 35.0%
Operating income           87.2            55.7
Operating margin22.7% 15.3%
    
    




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