Exhibit 99.1
Flowserve Corporation Reports Third Quarter 2018 Results
DALLAS--(BUSINESS WIRE)--November 7, 2018--Flowserve Corporation (NYSE: FLS), a leading provider of flow control products and services for the global infrastructure markets, today announced its financial results for the third quarter ended September 30, 2018.
Third Quarter 2018 Highlights (all comparisons to the 2017 third quarter, unless otherwise noted)
- Reported Earnings Per Share (EPS) of $0.21 and Adjusted EPS[1] of $0.49
- Reported EPS includes pre-tax adjusted items of approximately $47 million, primarily related to realignment and transformation expenses, a loss on previously announced divestitures and below-the-line foreign exchange impacts
- Adjusted EPS increased 32.4%, and 19.5% on a sequential basis
- Sales were $953 million, up 7.8%, or 8.8% on a constant currency basis and included approximately 1% negative impact related to divested businesses
- Aftermarket sales were $457 million, up 3.9%, or 5.0% on a constant currency basis
- Original equipment sales were $496 million, up 11.8%, or 12.5% constant currency
- Reported gross and operating margins of 32.4% and 6.5%
- Adjusted gross and operating margins[2] increased 130 and 160 basis points to 33.2% and 11.0%, respectively - the highest levels since the 2016 fourth quarter
- Total bookings exceeded $1.0 billion, up 13.2%, or 14.1% on a constant currency basis, and included approximately 1% negative impact related to divested businesses
- Aftermarket bookings were $507 million, or 50% of total bookings, up 11.6%, or 13.0% on a constant currency basis
- Original equipment bookings were $504 million, up 14.8%, or 15.3% on a constant currency basis
- Backlog at September 30, 2018 was $1.9 billion, up 1.4% versus June 30, 2018 backlog
“We delivered solid results in the third quarter, including our second consecutive quarter with bookings over $1 billion. With a book-to-bill of 1.06, we increased sequential backlog and grew year-over-year revenues by 7.8%, while also delivering annual and sequential improvement in our adjusted profit margins,” said Scott Rowe, Flowserve’s president and chief executive officer.
“Our Flowserve 2.0 transformation strategy is fundamentally changing the way we think, act and operate across our organization,” Rowe continued. “While we’re still early in the company’s transformational journey, we expect that our continued progress on these growth and operational initiatives will further position Flowserve to more fully capitalize on the expected improvement in our core energy markets.”
“Based on our solid performance in the first three quarters of 2018 and our confidence in delivering on our fourth quarter commitments, Flowserve today revised its full year guidance, including raising our Adjusted EPS[3] target range to $1.65 to $1.75 from $1.50 to $1.70,” added Lee Eckert, Flowserve’s senior vice president and chief financial officer.
Rowe concluded, “As we look ahead to 2019, we are building operating momentum to better capture the growth and value-creation potential inherent in our business. We expect to continue to simplify our business model, improve our productivity, lower our cost position and deliver enhanced long-term value for our customers, employees and shareholders.”
Revised 2018 Guidance
Flowserve today revised its guidance metrics as described hereafter. The company now expects full year 2018 revenues to increase year-over-year in a range between 5% to 7%, which includes an approximate 1% benefit from currency offset by an approximate 1% negative impact from divestitures. GAAP EPS is now forecast between $0.75 to $0.85, while the Adjusted EPS target range was increased to $1.65 to $1.75. The company expects a full year adjusted tax rate between 27%-28%.
Third Quarter 2018 Results Conference Call
Flowserve will host its conference call with the financial community on Thursday, November 8th at 11:00 AM Eastern. Scott Rowe, president and chief executive officer, as well as other members of the management team will be presenting. The call and related investor presentation materials can be accessed by shareholders and other interested parties at www.flowserve.com under the “Investor Relations” section.
Investor Day
As previously announced, Flowserve will host analysts and investors in New York City on December 13th for its 2018 Analyst Day. Scott Rowe, president and chief executive officer, as well as other members of the management team will be presenting. The event and related investor presentation materials will be accessible by shareholders and other interested parties at www.flowserve.com under the “Investor Relations” section. Additional detail regarding the event will be provided later in November.
| |
| [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 2018 EPS will exclude the Company’s realignment expenses, the impact from other specific discrete events and below-the-line foreign currency effects and utilizes year-end 2017 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 2017 spot rates both as applied to our 2018 expectations, divided by the number of shares expected for 2018. |
| |
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 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; economic, political and other risks associated with our international operations, including military actions or trade embargoes 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 Latin America and other emerging markets; our exposure to fluctuations in foreign currency exchange rates, including in hyperinflationary countries such as Venezuela and Argentina; 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; access to public and private sources of debt financing; our inability to protect our intellectual property in the U.S., as well as in foreign countries; obligations under our defined benefit pension plans; our internal control over financial reporting may not prevent or detect misstatements because of its inherent limitations, including the possibility of human error, the circumvention or overriding of controls, or fraud; the recording of increased deferred tax asset valuation allowances in the future or the impact of tax law changes on such deferred tax assets could affect our operating results; if we are not able to successfully execute and realize the expected financial benefits from our strategic realignment and other cost-savings initiatives, our business could be adversely affected; ineffective internal controls could impact the accuracy and timely reporting of our business and financial results; 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.
| | | | |
CONDENSED CONSOLIDATED STATEMENTS OF INCOME |
| (Unaudited) |
| | Three Months Ended September 30, |
| (Amounts in thousands, except per share data) | | | 2018 | | | | 2017 | |
| | | | |
| Sales | | $ | 952,716 | | | $ | 883,380 | |
| Cost of sales | | | (644,215 | ) | | | (615,368 | ) |
| Gross profit | | | 308,501 | | | | 268,012 | |
| Selling, general and administrative expense | | | (241,878 | ) | | | (206,001 | ) |
| (Loss) gain on sale of businesses | | | (7,727 | ) | | | 9,864 | |
| Net earnings from affiliates | | | 3,295 | | | | 2,918 | |
| Operating income | | | 62,191 | | | | 74,793 | |
| Interest expense | | | (13,826 | ) | | | (15,043 | ) |
| Interest income | | | 1,269 | | | | 1,108 | |
| Other (expense) income, net | | | (5,283 | ) | | | 7,511 | |
| Earnings before income taxes | | | 44,351 | | | | 68,369 | |
| Provision for income taxes | | | (14,912 | ) | | | (19,628 | ) |
| Net earnings, including noncontrolling interests | | | 29,439 | | | | 48,741 | |
| Less: Net earnings attributable to noncontrolling interests | | | (1,234 | ) | | | (1,136 | ) |
| Net earnings attributable to Flowserve Corporation | | $ | 28,205 | | | $ | 47,605 | |
| | | | |
| Net earnings per share attributable to Flowserve Corporation common shareholders: | | | | |
| Basic | | $ | 0.22 | | | $ | 0.36 | |
| Diluted | | | 0.21 | | | | 0.36 | |
| | | | |
| Cash dividends declared per share | | $ | 0.19 | | | $ | 0.19 | |
| | | | | | | | | | | |
| RECONCILIATION OF NON-GAAP MEASURES |
| (Unaudited) |
| | | | | | | | | | | |
| | Three Months Ended September 30, 2018 |
| (Amounts in thousands, except per share data) | | As Reported (a) | | Realignment (1) | | Other Items | | As Adjusted |
| | | | | | | | | | | |
| Sales | | $ | 952,716 | | | | $ | - | | | | $ | - | | | | $ | 952,716 | |
| Gross profit | | | 308,501 | | | | | (8,208 | ) | | | | - | | | | | 316,709 | |
| Gross margin | | | 32.4 | % | | | | - | | | | | - | | | | | 33.2 | % |
| | | | | | | | | | | |
| Selling, general and administrative expense | | | (241,878 | ) | | | | (2,919 | ) | | | | (23,986 | ) | (3) | | | (214,973 | ) |
| Loss on sale of business | | | (7,727 | ) | | | | - | | | | | (7,727 | ) | (4) | | | - | |
| | | | | | | | | | | |
| Operating income | | | 62,191 | | | | | (11,127 | ) | | | | (31,713 | ) | | | | 105,031 | |
| Operating income as a percentage of sales | | | 6.5 | % | | | | - | | | | | - | | | | | 11.0 | % |
| | | | | | | | | | | |
| Interest and other expense, net | | | (17,840 | ) | | | | - | | | | | (4,335 | ) | (5) | | | (13,505 | ) |
| | | | | | | | | | | |
| Earnings before income taxes | | | 44,351 | | | | | (11,127 | ) | | | | (36,048 | ) | | | | 91,526 | |
| Provision for income taxes | | | (14,912 | ) | | | | 2,636 | | (2) | | | 8,857 | | (6) | | | (26,405 | ) |
| Tax Rate | | | 33.6 | % | | | | 23.7 | % | | | | 24.6 | % | | | | 28.8 | % |
| | | | | | | | | | | |
| Net earnings attributable to Flowserve Corporation | | $ | 28,205 | | | | $ | (8,491 | ) | | | $ | (27,191 | ) | | | $ | 63,887 | |
| | | | | | | | | | | |
| Net earnings per share attributable to Flowserve Corporation common shareholders: | | | | | | | |
| Basic | | $ | 0.22 | | | | $ | (0.06 | ) | | | $ | (0.21 | ) | | | $ | 0.49 | |
| Diluted | | $ | 0.21 | | | | $ | (0.06 | ) | | | $ | (0.21 | ) | | | $ | 0.49 | |
| | | | | | | | | | | |
| Basic number of shares used for calculation | | | 130,843 | | | | | 130,843 | | | | | 130,843 | | | | | 130,843 | |
| Diluted number of shares used for calculation | | | 131,350 | | | | | 131,350 | | | | | 131,350 | | | | | 131,350 | |
| |
| (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 Flowserve 2.0 transformation efforts |
| (4) Represents IPD loss on sale of business |
(5) Represents below-the-line foreign exchange impacts |
| (6) Includes tax impact of items above |
| |
| | | | | | | | | | | |
| RECONCILIATION OF NON-GAAP MEASURES |
| (Unaudited) |
| | | | | | | | | | | |
| | Three Months Ended September 30, 2017 |
| (Amounts in thousands, except per share data) | | As Reported (a) | | Realignment (1) | | Other Items | | As Adjusted |
| | | | | | | | | | | |
| Sales | | $ | 883,380 | | | | $ | - | | | | $ | - | | | | $ | 883,380 | |
| Gross profit | | | 268,012 | | | | | (14,220 | ) | | | | - | | | | | 282,232 | |
| Gross margin | | | 30.3 | % | | | | - | | | | | - | | | | | 31.9 | % |
| | | | | | | | | | | |
| Selling, general and administrative expense | | | (206,001 | ) | | | | (2,571 | ) | | | | (1,189 | ) | (3) | | | (202,241 | ) |
| Gain on sale of businesses | | | 9,864 | | | | | - | | | | | 9,864 | | (4) | | | - | |
| | | | | | | | | | | |
| Operating income | | | 74,793 | | | | | (16,791 | ) | | | | 8,675 | | | | | 82,909 | |
| Operating income as a percentage of sales | | | 8.5 | % | | | | - | | | | | - | | | | | 9.4 | % |
| | | | | | | | | | | |
| Interest and other expense, net | | | (6,424 | ) | | | | - | | | | | 8,447 | | (5) | | | (14,871 | ) |
| | | | | | | | | | | |
| Earnings before income taxes | | | 68,369 | | | | | (16,791 | ) | | | | 17,122 | | | | | 68,038 | |
| Provision for income taxes | | | (19,628 | ) | | | | 1,953 | | (2) | | | (3,228 | ) | (6) | | | (18,353 | ) |
| Tax Rate | | | 28.7 | % | | | | 11.6 | % | | | | 18.9 | % | | | | 27.0 | % |
| | | | | | | | | | | |
| Net earnings attributable to Flowserve Corporation | | $ | 47,605 | | | | $ | (14,838 | ) | | | $ | 13,894 | | | | $ | 48,549 | |
| | | | | | | | | | | |
| Net earnings per share attributable to Flowserve Corporation common shareholders: | | | | | | | |
| Basic | | $ | 0.36 | | | | $ | (0.11 | ) | | | $ | 0.11 | | | | $ | 0.37 | |
| Diluted | | $ | 0.36 | | | | $ | (0.11 | ) | | | $ | 0.11 | | | | $ | 0.37 | |
| | | | | | | | | | | |
| Basic number of shares used for calculation | | | 130,760 | | | | | 130,760 | | | | | 130,760 | | | | | 130,760 | |
| Diluted number of shares used for calculation | | | 131,396 | | | | | 131,396 | | | | | 131,396 | | | | | 131,396 | |
| |
| (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, partially offset by $1.0 million of realignment expense recorded in provision for income taxes. Realignment expense in certain jurisdictions is not tax deductible. |
| (3) Represents SIHI integration costs and purchase price adjustments ("PPA") |
| (4) Represents gain related to the sale of Vogt business |
| (5) Represents below-the-line foreign exchange impacts |
| (6) Includes tax impact of items above |
| |
| SEGMENT INFORMATION | | | | |
| (Unaudited) | | | | |
| ENGINEERED PRODUCT DIVISION | | Three Months Ended September 30, |
| (Amounts in millions, except percentages) | | | 2018 | | | | 2017 | |
| Bookings | | $ | 519.8 | | | $ | 432.5 | |
| Sales | | | 466.2 | | | | 424.2 | |
| Gross profit | | | 151.3 | | | | 136.7 | |
| Gross profit margin | | | 32.5 | % | | | 32.2 | % |
| SG&A | | | 97.0 | | | | 87.3 | |
| Segment operating income | | | 57.4 | | | | 52.1 | |
| Segment operating income as a percentage of sales | | | 12.3 | % | | | 12.3 | % |
| | | | |
| INDUSTRIAL PRODUCT DIVISION | | Three Months Ended September 30, |
| (Amounts in millions, except percentages) | | | 2018 | | | | 2017 | |
| Bookings | | $ | 199.8 | | | $ | 196.9 | |
| Sales | | | 199.1 | | | | 189.7 | |
| Gross profit | | | 47.0 | | | | 39.3 | |
| Gross profit margin | | | 23.6 | % | | | 20.7 | % |
| SG&A | | | 42.1 | | | | 43.2 | |
| Loss on sale of business | | | (7.7 | ) | | | - | |
| Segment operating loss | | | (2.5 | ) | | | (3.5 | ) |
| Segment operating loss as a percentage of sales | | | (1.3 | %) | | | (1.8 | %) |
| | | | |
| FLOW CONTROL DIVISION | | Three Months Ended September 30, |
| (Amounts in millions, except percentages) | | | 2018 | | | | 2017 | |
| Bookings | | $ | 314.2 | | | $ | 285.9 | |
| Sales | | | 306.2 | | | | 287.7 | |
| Gross profit | | | 109.4 | | | | 91.9 | |
| Gross profit margin | | | 35.7 | % | | | 31.9 | % |
| SG&A | | | 52.9 | | | | 52.9 | |
| Gain on sale of business | | | - | | | | 9.9 | |
| Segment operating income | | | 56.4 | | | | 48.8 | |
| Segment operating income as a percentage of sales | | | 18.4 | % | | | 17.0 | % |
| | | | |
| CONDENSED CONSOLIDATED STATEMENTS OF INCOME |
| (Unaudited) |
| | Nine Months Ended September 30, |
| (Amounts in thousands, except per share data) | | | 2018 | | | | 2017 | |
| | | | |
| Sales | | $ | 2,845,798 | | | $ | 2,626,762 | |
| Cost of sales | | | (1,979,807 | ) | | | (1,844,303 | ) |
| Gross profit | | | 865,991 | | | | 782,459 | |
| Selling, general and administrative expense | | | (711,845 | ) | | | (680,305 | ) |
| (Loss) gain on sale of businesses | | | (7,727 | ) | | | 141,158 | |
| Net earnings from affiliates | | | 7,908 | | | | 9,027 | |
| Operating income | | | 154,327 | | | | 252,339 | |
| Interest expense | | | (43,645 | ) | | | (44,689 | ) |
| Interest income | | | 4,237 | | | | 2,373 | |
| Other expense, net | | | (17,206 | ) | | | (13,971 | ) |
| Earnings before income taxes | | | 97,713 | | | | 196,052 | |
| Provision for income taxes | | | (37,028 | ) | | | (85,836 | ) |
| Net earnings, including noncontrolling interests | | | 60,685 | | | | 110,216 | |
| Less: Net earnings attributable to noncontrolling interests | | | (4,117 | ) | | | (1,682 | ) |
| Net earnings attributable to Flowserve Corporation | | $ | 56,568 | | | $ | 108,534 | |
| | | | |
| Net earnings per share attributable to Flowserve Corporation common shareholders: | | | | |
| Basic | | $ | 0.43 | | | $ | 0.83 | |
| Diluted | | | 0.43 | | | | 0.83 | |
| | | | |
| Cash dividends declared per share | | $ | 0.57 | | | $ | 0.57 | |
| | | | | | | | | | | |
| RECONCILIATION OF NON-GAAP MEASURES |
| (Unaudited) |
| | | | | | | | | | | |
| | Nine Months Ended September 30, 2018 |
| (Amounts in thousands, except per share data) | | As Reported (a) | | Realignment (1) | | Other Items | | As Adjusted |
| | | | | | | | | | | |
| Sales | | $ | 2,845,798 | | | | $ | - | | | | $ | - | | | | $ | 2,845,798 | |
| Gross profit | | | 865,991 | | | | | (31,593 | ) | | | | (7,713 | ) | (3) | | | 905,297 | |
| Gross margin | | | 30.4 | % | | | | - | | | | | - | | | | | 31.8 | % |
| | | | | | | | | | | |
| Selling, general and administrative expense | | | (711,845 | ) | | | | (11,747 | ) | | | | (44,365 | ) | (4) | | | (655,733 | ) |
| Gain on sale of business | | | (7,727 | ) | | | | - | | | | | (7,727 | ) | (5) | | | - | |
| | | | | | | | | | | |
| Operating income | | | 154,327 | | | | | (43,340 | ) | | | | (59,805 | ) | | | | 257,472 | |
| Operating income as a percentage of sales | | | 5.4 | % | | | | - | | | | | - | | | | | 9.0 | % |
| | | | | | | | | | | |
| Interest and other expense, net | | | (56,614 | ) | | | | - | | | | | (16,349 | ) | (6) | | | (40,265 | ) |
| | | | | | | | | | | |
| Earnings before income taxes | | | 97,713 | | | | | (43,340 | ) | | | | (76,154 | ) | | | | 217,207 | |
| Provision for income taxes | | | (37,028 | ) | | | | 9,652 | | (2) | | | 13,211 | | (7) | | | (59,891 | ) |
| Tax Rate | | | 37.9 | % | | | | 22.3 | % | | | | 17.3 | % | | | | 27.6 | % |
| | | | | | | | | | | |
| Net earnings attributable to Flowserve Corporation | | $ | 56,568 | | | | $ | (33,688 | ) | | | $ | (62,943 | ) | | | $ | 153,199 | |
| | | | | | | | | | | |
| Net earnings per share attributable to Flowserve Corporation common shareholders: | | | | | | | |
| Basic | | $ | 0.43 | | | | $ | (0.26 | ) | | | $ | (0.48 | ) | | | $ | 1.17 | |
| Diluted | | $ | 0.43 | | | | $ | (0.26 | ) | | | $ | (0.48 | ) | | | $ | 1.17 | |
| | | | | | | | | | | |
| Basic number of shares used for calculation | | | 130,816 | | | | | 130,816 | | | | | 130,816 | | | | | 130,816 | |
| Diluted number of shares used for calculation | | | 131,224 | | | | | 131,224 | | | | | 131,224 | | | | | 131,224 | |
| |
| (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 $7.7 million related to IPD divestiture write-down of assets |
| (4) Represents $9.7 million related to IPD divestiture write-down of assets, $7.3 million related to implementation costs for the adoption of ASC 606 and $27.4 million related to Flowserve 2.0 transformation efforts |
| (5) Represents IPD loss on sale of business |
| (6) Represents below-the-line foreign exchange impacts |
| (7) Includes tax impact of items above |
| |
| | | | | | | | | | | |
| RECONCILIATION OF NON-GAAP MEASURES |
| (Unaudited) |
| | | | | | | | | | | |
| | Nine Months Ended September 30, 2017 |
| (Amounts in thousands, except per share data) | | As Reported (a) | | Realignment (1) | | Other Items | | As Adjusted |
| | | | | | | | | | | |
| Sales | | $ | 2,626,762 | | | | $ | - | | | | $ | - | | | | $ | 2,626,762 | |
| Gross profit | | | 782,459 | | | | | (33,371 | ) | | | | (16,928 | ) | (3) | | | 832,758 | |
| Gross margin | | | 29.8 | % | | | | - | | | | | - | | | | | 31.7 | % |
| | | | | | | | | | | |
| Selling, general and administrative expense | | | (680,305 | ) | | | | (25,636 | ) | | | | (29,683 | ) | (4) | | | (624,986 | ) |
| Gain on sale of business | | | 141,158 | | | | | - | | | | | 141,158 | | (5) | | | - | |
| | | | | | | | | | | |
| Operating income | | | 252,339 | | | | | (59,007 | ) | | | | 94,547 | | | | | 216,799 | |
Operating income as a percentage of sales | | | 9.6 | % | | | | - | | | | | - | | | | | 8.3 | % |
| | | | | | | | | | | |
| Interest and other expense, net | | | (56,287 | ) | | | | - | | | | | (9,671 | ) | (6) | | | (46,616 | ) |
| | | | | | | | | | | |
| Earnings before income taxes | | | 196,052 | | | | | (59,007 | ) | | | | 84,876 | | | | | 170,183 | |
| Provision for income taxes | | | (85,836 | ) | | | | 12,642 | | (2) | | | (42,726 | ) | (7) | | | (55,752 | ) |
| Tax Rate | | | 43.8 | % | | | | 21.4 | % | | | | 50.3 | % | | | | 32.8 | % |
| | | | | | | | | | | |
| Net earnings attributable to Flowserve Corporation | | $ | 108,534 | | | | $ | (46,365 | ) | | | $ | 42,150 | | | | $ | 112,749 | |
| | | | | | | | | | | |
| Net earnings per share attributable to Flowserve Corporation common shareholders: | | | | | | | |
| Basic | | $ | 0.83 | | | | $ | (0.35 | ) | | | $ | 0.32 | | | | $ | 0.86 | |
| Diluted | | $ | 0.83 | | | | $ | (0.35 | ) | | | $ | 0.32 | | | | $ | 0.86 | |
| | | | | | | | | | | |
| Basic number of shares used for calculation | | | 130,685 | | | | | 130,685 | | | | | 130,685 | | | | | 130,685 | |
| Diluted number of shares used for calculation | | | 131,338 | | | | | 131,338 | | | | | 131,338 | | | | | 131,338 | |
| |
| (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 reserve for costs incurred related to a contract to supply oil and gas platform equipment to an end user in Latin America |
| (4) Represents $3.2 million of SIHI integration costs and purchase price adjustments ("PPA"), $26.0 million of Brazil property, plant and equipment impairment charge and $0.4 million reserve for costs incurred related to a contract to supply oil and gas platform equipment to an end user in Latin America |
| (5) Represents gain related to the sale of Gestra and Vogt businesses |
| (6) Represents below-the-line foreign exchange impacts |
| (7) Includes tax impact of items above. There is no tax impact associated with the Brazil property, plant and equipment impairment charge |
| |
| | | | |
| SEGMENT INFORMATION | | | | |
| (Unaudited) | | | | |
| ENGINEERED PRODUCT DIVISION | | Nine Months Ended September 30, |
| (Amounts in millions, except percentages) | | | 2018 | | | | 2017 | |
| Bookings | | $ | 1,450.3 | | | $ | 1,357.2 | |
| Sales | | | 1,414.6 | | | | 1,276.6 | |
| Gross profit | | | 439.4 | | | | 404.4 | |
| Gross profit margin | | | 31.1 | % | | | 31.7 | % |
| SG&A | | | 299.9 | | | | 305.3 | |
| Segment operating income | | | 147.8 | | | | 107.8 | |
| Segment operating income as a percentage of sales | | | 10.4 | % | | | 8.4 | % |
| | | | |
| INDUSTRIAL PRODUCT DIVISION | | Nine Months Ended September 30, |
| (Amounts in millions, except percentages) | | | 2018 | | | | 2017 | |
| Bookings | | $ | 633.2 | | | $ | 616.6 | |
| Sales | | | 603.0 | | | | 559.9 | |
| Gross profit | | | 130.1 | | | | 98.3 | |
| Gross profit margin | | | 21.6 | % | | | 17.6 | % |
| SG&A | | | 148.0 | | | | 144.5 | |
| Loss on sale of business | | | (7.7 | ) | | | - | |
| Segment operating loss | | | (25.2 | ) | | | (45.7 | ) |
| Segment operating loss as a percentage of sales | | | (4.2 | %) | | | (8.2 | %) |
| | | | |
| FLOW CONTROL DIVISION | | Nine Months Ended September 30, |
| (Amounts in millions, except percentages) | | | 2018 | | | | 2017 | |
| Bookings | | $ | 957.9 | | | $ | 911.2 | |
| Sales | | | 889.9 | | | | 843.5 | |
| Gross profit | | | 298.6 | | | | 278.0 | |
| Gross profit margin | | | 33.6 | % | | | 33.0 | % |
| SG&A | | | 161.1 | | | | 163.8 | |
| Gain on sale of businesses | | | - | | | | 141.2 | |
| Segment operating income | | | 136.7 | | | | 255.1 | |
| Segment operating income as a percentage of sales | | | 15.4 | % | | | 30.2 | % |
| | | | | | | | | | | | | | |
| Third Quarter and Year-to-Date 2018 - Segment Results |
| (dollars in millions, comparison vs. 2017 third quarter and year-to-date, unaudited) |
| | | | | | | | | | | | | | |
| | | | EPD | | IPD | | FCD |
| | | | 3rd Qtr | | YTD | | 3rd Qtr | | YTD | | 3rd Qtr | | YTD |
| Bookings | | | | $ | 519.8 | | | $ | 1,450.3 | | | $ | 199.8 | | | $ | 633.2 | | | $ | 314.2 | | | $ | 957.9 | |
| - vs. prior year | | | | 20.2 | % | | | 6.9 | % | | | 1.5 | % | | | 2.7 | % | | | 9.9 | % | | | 5.1 | % |
| - on constant currency | | | 20.9 | % | | | 5.3 | % | | | 2.4 | % | | | -0.1 | % | | | 11.3 | % | | | 3.1 | % |
| | | | | | | | | | | | | | |
| Sales | | | | $ | 466.2 | | | $ | 1,414.6 | | | $ | 199.1 | | | $ | 603.0 | | | $ | 306.2 | | | $ | 889.9 | |
| - vs. prior year | | | | 9.9 | % | | | 10.8 | % | | | 5.0 | % | | | 7.7 | % | | | 6.4 | % | | | 5.5 | % |
| - on constant currency | | | 10.3 | % | | | 8.7 | % | | | 6.1 | % | | | 4.9 | % | | | 7.9 | % | | | 3.7 | % |
| | | | | | | | | | | | | | |
| Gross Profit | | | $ | 151.3 | | | $ | 439.4 | | | $ | 47.0 | | | $ | 130.1 | | | $ | 109.4 | | | $ | 298.6 | |
| - vs. prior year | | | | 10.7 | % | | | 8.7 | % | | | 19.6 | % | | | 32.6 | % | | | 19.0 | % | | | 7.4 | % |
| | | | | | | | | | | | | | |
| Gross Margin (% of sales) | | | 32.5 | % | | | 31.1 | % | | | 23.6 | % | | | 21.6 | % | | | 35.7 | % | | | 33.6 | % |
| - vs. prior year (in basis points) | | | 30 | | | | -60 | | | | 290 | | | | 410 | | | | 380 | | | | 60 | |
| | | | | | | | | | | | | | |
| Operating Income / (Loss) | | $ | 57.4 | | | $ | 147.8 | | | $ | (2.5 | ) | | $ | (25.2 | ) | | $ | 56.4 | | | $ | 136.7 | |
| - vs. prior year | | | | 10.2 | % | | | 37.1 | % | | | 28.6 | % | | | 44.9 | % | | | 15.6 | % | | | -46.4 | % |
| - on constant currency | | | 15.5 | % | | | 33.8 | % | | | 25.1 | % | | | 48.3 | % | | | 18.0 | % | | | -46.3 | % |
| | | | | | | | | | | | | | |
| Operating Margin (% of sales) | | | 12.3 | % | | | 10.4 | % | | | -1.3 | % | | | -4.2 | % | | | 18.4 | % | | | 15.4 | % |
| - vs. prior year (in basis points) | | | - | | | | 200 | | | | 50 | | | | 400 | | | | 140 | | | | -1480 | |
| | | | | | | | | | | | | | |
| Adjusted Operating Income / (Loss) * | | $ | 63.9 | | | $ | 174.8 | | | $ | 5.6 | | | $ | 5.9 | | | $ | 56.9 | | | $ | 141.3 | |
| - vs. prior year | | | | 6.9 | % | | | 13.4 | % | | | NM | | | | NM | | | | 26.2 | % | | | 11.5 | % |
| - on constant currency | | | 11.5 | % | | | 11.1 | % | | | NM | | | | NM | | | | 28.8 | % | | | 11.4 | % |
| | | | | | | | | | | | | | |
| Adj. Oper. Margin (% of sales)* | | | 13.7 | % | | | 12.4 | % | | | 2.8 | % | | | 1.0 | % | | | 18.6 | % | | | 15.9 | % |
| - vs. prior year (in basis points) | | | -40 | | | | 30 | | | | 320 | | | | 150 | | | | 290 | | | | 90 | |
| | | | | | | | | | | | | | |
| Backlog | | | | $ | 870.7 | | | | | $ | 390.2 | | | | | $ | 626.5 | | | |
| |
| * Adjusted Operating Income and Adjusted Operating Margin exclude realignment charges, |
| below-the-line FX impacts and other specific discrete items |
| | | | |
| CONDENSED CONSOLIDATED BALANCE SHEETS |
| (Unaudited) |
| | September 30, | December 31, |
| (Amounts in thousands, except par value) | | | 2018 | | | | 2017 | |
| | | | |
| ASSETS | | | | |
| Current assets: | | | | |
| Cash and cash equivalents | | $ | 529,942 | | | $ | 703,445 | |
| Accounts receivable, net of allowance for doubtful accounts of $54,481 and $59,113, respectively | | | 780,408 | | | | 856,711 | |
| Contract assets, net | | | 261,417 | | | | - | |
| Inventories, net | | | 655,652 | | | | 884,273 | |
| Prepaid expenses and other | | | 97,248 | | | | 114,316 | |
| Total current assets | | | 2,324,667 | | | | 2,558,745 | |
| Property, plant and equipment, net of accumulated depreciation of $952,293 and $968,033, respectively | | | 608,739 | | | | 671,796 | |
| Goodwill | | | 1,203,768 | | | | 1,218,188 | |
| Deferred taxes | | | 61,153 | | | | 51,974 | |
| Other intangible assets, net | | | 195,864 | | | | 210,049 | |
| Other assets, net | | | 210,873 | | | | 199,722 | |
| Total assets | | $ | 4,605,064 | | | $ | 4,910,474 | |
| | | | |
| LIABILITIES AND EQUITY | | | | |
| Current liabilities: | | | | |
| Accounts payable | | $ | 400,281 | | | $ | 443,113 | |
| Accrued liabilities | | | 398,285 | | | | 724,196 | |
| Contract liabilities | | | 174,245 | | | | - | |
| Debt due within one year | | | 67,269 | | | | 75,599 | |
Total current liabilities | | | 1,040,080 | | | | 1,242,908 | |
| Long-term debt due after one year | | | 1,436,746 | | | | 1,499,658 | |
| Retirement obligations and other liabilities | | | 497,511 | | | | 496,954 | |
| 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 | | | 489,066 | | | | 488,326 | |
| Retained earnings | | | 3,505,051 | | | | 3,503,947 | |
| Treasury shares, at cost – 46,240 and 46,471 shares, respectively | | | (2,049,535 | ) | | | (2,059,558 | ) |
| Deferred compensation obligation | | | 7,025 | | | | 6,354 | |
| Accumulated other comprehensive loss | | | (559,559 | ) | | | (505,473 | ) |
| Total Flowserve Corporation shareholders' equity | | | 1,613,039 | | | | 1,654,587 | |
| Noncontrolling interests | | | 17,688 | | | | 16,367 | |
| Total equity | | | 1,630,727 | | | | 1,670,954 | |
| Total liabilities and equity | | $ | 4,605,064 | | | $ | 4,910,474 | |
| | | | |
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
| (Unaudited) |
| | Nine Months Ended September 30, |
| (Amounts in thousands) | | | 2018 | | | | 2017 | |
| | | | |
| Cash flows – Operating activities: | | | | |
| Net earnings, including noncontrolling interests | | $ | 60,685 | | | $ | 110,216 | |
| Adjustments to reconcile net earnings to net cash provided (used) by operating activities: | | | | |
| Depreciation | | | 72,668 | | | | 75,177 | |
| Amortization of intangible and other assets | | | 12,548 | | | | 12,767 | |
| Loss (gain) on disposition of businesses | | | 7,727 | | | | (141,158 | ) |
| Stock-based compensation | | | 14,130 | | | | 20,291 | |
| Foreign currency, asset impairments and other non-cash adjustments | | | 31,678 | | | | 24,696 | |
| Change in assets and liabilities: | | | | |
| Accounts receivable, net | | | (9,481 | ) | | | 63,835 | |
| Inventories, net | | | (46,699 | ) | | | (20,355 | ) |
| Contract assets, net | | | (54,822 | ) | | | - | |
| Prepaid expenses and other assets, net | | | (16,340 | ) | | | 22,456 | |
| Accounts payable | | | (29,963 | ) | | | (68,012 | ) |
| Contract liabilities | | | 3,410 | | | | - | |
| Accrued liabilities and income taxes payable | | | (13,690 | ) | | | (6,702 | ) |
| Retirement obligations and other | | | (1,480 | ) | | | (18,720 | ) |
| Net deferred taxes | | | (4,033 | ) | | | (2,131 | ) |
| Net cash flows provided by operating activities | | | 26,338 | | | | 72,360 | |
| Cash flows – Investing activities: | | | | |
| Capital expenditures | | | (49,976 | ) | | | (40,620 | ) |
| Proceeds from disposal of assets and other | | | 4,062 | | | | 2,977 | |
| (Payments) proceeds from disposition of businesses | | | (3,663 | ) | | | 208,775 | |
| Net cash flows (used) provided by investing activities | | | (49,577 | ) | | | 171,132 | |
| Cash flows – Financing activities: | | | | |
| Payments on long-term debt | | | (45,000 | ) | | | (45,000 | ) |
| Proceeds under other financing arrangements | | | 2,720 | | | | 6,234 | |
| Payments under other financing arrangements | | | (9,093 | ) | | | (12,560 | ) |
| Payments related to tax withholding for stock-based compensation | | | (2,972 | ) | | | (6,287 | ) |
| Payments of dividends | | | (74,548 | ) | | | (74,412 | ) |
| Other | | | (4,333 | ) | | | (4,189 | ) |
| Net cash flows used by financing activities | | | (133,226 | ) | | | (136,214 | ) |
| Effect of exchange rate changes on cash | | | (17,038 | ) | | | 27,703 | |
| Net change in cash and cash equivalents | | | (173,503 | ) | | | 134,981 | |
| Cash and cash equivalents at beginning of period | | | 703,445 | | | | 367,162 | |
| Cash and cash equivalents at end of period | | $ | 529,942 | | | $ | 502,143 | |
CONTACT:
Flowserve
Investor Contacts:
Jay Roueche, 972-443-6560
Vice President, Investor Relations & Treasurer
--
Mike Mullin, 972-443-6636
Director, Investor Relations
--
Media Contact:
Lars Rosene, 972-443-6644
Vice President, Global Communications and Public Affairs
