In This Article:
It has been about a month since the last earnings report for Flowserve (FLS). Shares have lost about 0.1% in that time frame, outperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Flowserve due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Flowserve Q1 Earnings Beat Estimates, Improve Y/Y
Flowserve reported better-than-expected results for the first quarter of 2019, with a positive earnings surprise of 20.6%. However, sales lagged estimates by 5.2%.
This machinery company's adjusted earnings in the reported quarter were 41 cents per share, surpassing the Zacks Consensus Estimate of 34 cents. Further, the bottom line increased 51.9% from the year-ago figure of 27 cents on the back of benefits from transformation initiatives.
Weak Pump Division Lowers Revenues
In the quarter under review, Flowserve's sales were $890.1 million, reflecting a year-over-year decline of 3.3%. Results were adversely impacted by 5% from unfavorable movements in foreign currencies and divested businesses.
Also, the top line lagged the Zacks Consensus Estimate of $939.1 million.
Aftermarket sales in the reported quarter increased 3.3% year over year (or grew 7.9% on a constant-currency basis) to $470 million. Furthermore, original equipment sales totaled $420 million, reflecting a year-over-year decline of 9.7% (or 6.9% on a constant-currency basis).
Bookings totaled $1.07 billion, reflecting growth of 14.9% or 19.3% on a constant-currency basis over the year-ago quarter. Of the end markets, booking strengthened in oil & gas end markets. Backlog at the end of the reported quarter was $2.1 billion.
The company reports net sales under two segments. A brief discussion on those is provided below:
Revenues from the Flowserve Pump Division were $609.4 million, decreasing 5.4% year over year or down 1.8% on a constant-currency basis. Bookings increased 24.2% year over year (or 29% on constant currency) to $750.2 million.
Revenues from the Flow Control Division were $282.1 million, increasing 1.8% year over year or 5.3% on a constant-currency basis. Bookings of $319.8 million declined 2.3% year over year or increased 1% on constant currency.
Margins Improve
In the quarter under review, Flowserve's adjusted cost of sales decreased 7.9% year over year to $590.5 million. It represented 66.3% of sales compared with 69.7% in the year-ago quarter. Adjusted gross profit increased 7.5% to $299.6 million while gross margin increased 340 basis points (bps) year over year to 33.7%. Selling, general and administrative expenses decreased 2.4% year over year to $214.2 million. It represented 24.1% of sales.
Adjusted operating income in the quarter under review increased 40.6% year over year to $87.7 million. Moreover, adjusted operating margin grew 310 bps to 9.9%. Net interest and other expenses in the quarter were flat year over year at $12.4 million.
Effective tax rate was 25.6% versus 27.5% in the year-ago quarter.
Balance Sheet and Cash Flow
Exiting the first quarter, Flowserve had cash and cash equivalents of $637.7 million, up 2.9% from $619.7 million at the end of the last reported quarter. Long-term debt balance decreased 1.6% sequentially to $1,392.2 million.
In the first quarter, the company generated net cash of $38.5 million from operating activities versus net cash used of $120.7 million in the year-ago quarter. Capital expenditure totaled $10.6 million, decreasing 21.1% from $13.5 million spent in the previous year. During the quarter, the company used $24.9 million for distributing dividends.
Outlook
Flowserve is progressing well with transformation initiatives. The multi-year Flowserve 2.0 strategy will help in simplifying the operating model and spur growth.
The company maintained its projections for 2019. Adjusted earnings per share are predicted to be $1.95-$2.15, suggesting an increase from $1.75 recorded in 2018. Revenues are anticipated to increase 4-6%. Adjusted tax rate for the year is predicted to be 26-28%. Net interest expenses are predicted to be $55-$57 million and capital expenditure is expected to be $90-$100 million.