Yahoo Finance

Marc Michael -- President and Chief Executive Officer

Thanks, Ryan. Good morning, everyone, and thanks for joining us on this very exciting and significant day for our team at SPX FLOW. Over the past few years, we have made great progress on our journey to transform SPX FLOW into a high-performing operating enterprise, and I'm proud of our teams across the company for their efforts on this front. As we discussed on our Q4 earnings call, the journey to high performance continues in 2019 as our global team is aligned on the key initiatives we're emphasizing to drive a higher quality of revenue, continuous operating improvement and a world-class customer experience.

Our Q1 results reflect continued progress on these initiatives. We delivered solid growth over the prior year, with adjusted EBITDA up 22%, organic revenue growth of 5% and adjusted operating margin up 170 points. Our Q1 results exceeded our guidance expectations on the back of strong operational execution. With a strong start to the year, we have reaffirmed our full year guidance.

I'm proud of our teams across the world for their contributions to our first-quarter results. In addition to the solid operating performance in Q1, we've been actively working to accelerate our strategic initiatives. On that front, today, we announced the next step on our journey to high performance. After a thorough strategic review of our product lines, core competencies and customer segments, we determined that the value proposition to customers in process applications differs from those in flow control applications.

To best serve customers in both these areas, we have chosen to narrow our strategic focus on process solutions and to pursue a divestiture of power and energy. We're very excited about this strategy and believe these actions will unlock significant value for shareholders and position our teams in both businesses for future success. We'll discuss this strategy in detail later on the call. Before we dive into that discussion, Jaime and I will provide a high-level recap of our Q1 performance.

In the first quarter, we delivered 5% organic revenue growth, led by our food and beverage and industrial segments. On an adjusted basis, operating income was $42 million, exceeding our guidance range, with operating margins up 170 points year over year. Adjusted EBITDA grew 22% to $54 million. Adjusted EBITDA margins improved 190 points to 11%, marking our seventh consecutive quarter of year-over-year margin expansion.

And we generated $15 million of free cash flow, a good start to the year as compared to our historical seasonality. On the order front, we experienced a slow start to the year, with organic orders down 5% versus Q1 2018. The year-over-year decline was concentrated in long-cycle, customer capex-oriented orders in power and energy, and to a lesser extent, food and beverage. On a positive note, industrial orders grew low single digits over the prior year, led by our mixer and hydraulic tools product lines.

Notably, we saw a pick-up in orders across all three segments during March, giving us positive momentum into Q2. Looking more closely at organic orders through the lens of our product line investment roles. In our aggressive growth products, organic orders declined modestly versus the prior year due primarily to lower demand for industrial pumps used in fracking and general industrial applications. This decline was largely offset by solid order growth in mixers and hydraulic tools.

In the opportunistic and enhance categories, as compared to the prior year, we booked a lower level of midstream pumps and valve orders in power and energy, and a lower level of system orders and long-term service agreements in food and beverage. Quarterly comparisons in these product lines tend to be lumpy. We're not overly concerned with the Q1 order levels given the healthy frontlog activity our teams are seeing from customers. Specifically, strong quoting activity for pipeline valves in North America and for liquid process systems in Asia-Pacific.

We anticipate orders in these areas to pick up as the year progresses. It is important to view our product -- excuse me, it is important to view our order and backlog development in context of our strategy to drive a higher quality of revenue, expand gross margins and reduce the risk profile inherent in large projects. Overall, we continue to execute toward these goals through disciplined pricing initiatives and selectivity on large projects. Our pricing initiatives have been well executed year to date, and I'm pleased with the improvement in our processes across the board on this front.

Backlog margins continue to improve, a positive trend that we expect to contribute to the favorable mix shift anticipated in our revenue and margin guidance for the second half. Sequentially, organic orders in our Aggressive Growth category increased 3% with good momentum across the majority of the product lines. On a trailing 12-month basis, our aggressive growth product orders are up 4% year over year, a good indicator of the long-term organic growth profile in these products. To support future growth, Ty Jeffers is aligning talent, investments and operating initiatives at the key factories that deliver these products.

Over the last nine months, we've added talent to our global manufacturing team with an emphasis on strong site leadership and continuous improvement capability. We have a strong team in the field, and we are counting on to help us increase our velocity and throughput to win operationally going forward. At this time, I'll turn the call over to Jaime.

Jaime Easley -- Chief Financial Officer

Thanks, Marc, and good morning, everyone. I'll begin with earnings per share. On an adjusted basis, Q1 EPS was $0.44 per share, up 22% from the prior year and exceeded our guidance range. As compared to our guidance, segment income was $0.12 benefit, concentrated in our industrial and food and beverage segments.

Overall, our teams across all three segments delivered solid operating execution in the period. Taxes were a $0.04 headwind as the geographical mix of earnings drove an effective tax rate of $0.34 versus our guidance assumption of 29%. On a GAAP basis, we reported earnings per share of $0.46. This included the following items: in other income, we recorded a mark-to-market gain of $0.10 related to an equity investment in an asset divested prior to our spin.

The benefit was recorded in conjunction with the prior year adoption of a new accounting standard regarding the treatment of equity securities. Under this new standard, we are required to record a mark-to-market adjustment on this investment on a quarterly basis going forward. The benefit of this gain was offset partially by $0.07 of restructuring expense related to the strategic actions we announced on our Q4 call to reduce our exposure to large drying applications in food and beverage. Additionally, professional fees associated with the strategic actions we announced this morning totaled approximately $0.01 of EPS.

Looking at our consolidated revenue and segment income. Revenue was $491 million, flat to the prior year as 5% organic growth was offset by currency headwinds. Segment income was $55 million, up 10% year over year, and margins expanded 100 points to 11.3%. Moving on to the segment results, beginning with food and beverage.

Q1 revenue was $173 million, up 4% from the prior year. Currency was a 5% headwind. Organic growth was 9% driven by execution on large dry orders booked in 2017, and to a lesser extent, increased component sales. Segment income was $19 million and margins were 10.7%.

The low incremental margins on the organic revenue growth reflect the margin profile in drying applications. Organic orders were down 6%. This decline was concentrated in North America as we saw a lower level of component demand from channel partners and end users as compared to our Q1 2018 when demand was fairly strong. Overall, the market trends in food and beverage remain healthy.

We view this market as a steady growth market over time. Dwight Gibson and his team continue to focus on growing our components, service and spare parts revenue streams, while remaining selective and disciplined on systems opportunities. Taking a look at power and energy. Q1 revenue was $136 million, down 6% year over year.

Currency was a 4% headwind and organic revenue declined 2%. The organic decline reflects a lower level of OE shipments and replacement pumps. Segment income was $10 million and margins declined 120 points to 7.2%, reflecting an unfavorable revenue mix as compared to the prior year. Organic revenues declined 16%, primarily due to a lower level of midstream valve and pump orders, particularly in North America.

To a lesser extent, aftermarket orders also declined year over year. As Marc noted, we are seeing positive quote and bid activity in Q2 related largely to North American midstream opportunities. And we believe we are positioned to win in this market. Overall, we believe oil and gas markets are healthy and anticipate a higher level of quarterly orders as the year progresses, and we remain focused on committed to serving our customers at a high level through this strategic transformation.

Wrapping up the segment results with industrial. Q1 revenue was $182 million, up 2% year over year. Currency was a 4% headwind. Organic growth of 6% was led by our mixer, dehydration and hydraulic product lines.

Segment income was $27 million, up 32% year over year. And margins expanded 350 points to 14.9%. The improved profitability was largely driven by leverage on the organic growth. Also note that last year's results included a $3 million repair charge on a large mixer in China.

On that note, I want to highlight the work our mixer team did in responding to that customer issue, designing an alternative solution and staying close to the customer throughout the process to ensure a successful outcome. Organic orders grew 2%, driven by strong double-digit growth in mixers and heat exchangers, and mid-single-digit order growth for hydraulic tools. This growth more than offset the decline in pump orders. José has built a strong, talented commercial team in our industrial segment that has driven high-quality growth across the product lines.

As this team transitioned to Dwight's organization, we see ample opportunity for further growth and margin expansion. Taking a brief look at backlog. Q1 ending backlog was $917 million. The decline in backlog from prior period reflects the impact of our product line strategy, as well as the 5% organic growth we've delivered in consecutive quarters.

As we executed the large orders in backlog and remain selective on new opportunities, the quality of our backlog continues to improve and the mix is increasingly comprised of high-value component orders. Naturally, this approach is yielding a higher quality revenue profile, which we expect to materialize on our gross margin more prominently in the second half. It is also moving our business profile more heavily toward a short-cycle profile. Moving on to the guidance.

We are reaffirming our full year guidance this morning. Looking at our expectations for the second quarter. Broadly speaking, we expect Q2 to be very similar to Q1. We are targeting approximately $500 million of revenue and $55 million of segment income.

Note that approximately 80% of the revenue target was in our beginning Q2 backlog. Our EPS and EBITDA guidance is on an adjusted basis, and excludes restructuring expense and fees associated with the strategic actions. On this basis, we are targeting EPS between $0.41 and $0.53 per share, which assumes a 28% to 30% tax rate. And we expect EBITDA of about $55 million or approximately 11% of revenue.

As we move into the second half, we expect a higher quality revenue mix, benefits from pricing and restructuring savings to be the key drivers of approximately 250 points of margin expansion over the first half. On this next slide, you'll see an overview of our capital -- our current capital structure. At the end of Q1, we had $202 million of cash on hand and gross debt of $756 million, down modestly from year-end. Net leverage was 2.1x.

And debt-to-capital -- total capitalization was 44%. About 80% of our outstanding debt was at -- is at attractive fixed rates, with just over 20% floating debt, which has interest rates at approximately 4.25%. On the right side, you'll see our debt instruments and maturity dates. We have two $300 million tranches of senior notes that mature in 2024 and 2026.

Our term loan is now at $135 million and matures in Q3 2020. And we have $450 million of capacity in our revolver, which is essentially undrawn at this time. During 2019, we intend to monitor the refinancing markets and will opportunistically look to refinance our credit facility. As a reminder, our full year free cash flow guidance is $105 million to $125 million, and we intend to use a portion of that cash to reduce debt by $50 million to $75 million.

Between cash on hand and our revolver, we have over $600 million of liquidity today. And we will consider the potential proceeds from power and energy divestiture, and we will be in a very strong financial position. As we consider our options for deploying those proceeds based on current information, our intention would be to allocate it to a mix of organic growth investments, further deleveraging and return to shareholders. In doing so, we intend to reset our financial position with ratios and actions that strengthen our ratings profile.

Specifically, we are revising our target leverage -- net leverage guidance to 1.5 to -- or 1.5 times to 2.5 times, a half a turn lower than our previous target. Following the divestiture, we are likely to position net leverage at or near the bottom of that range. As a guiding principle, I believe it is prudent to lead a conservative financial strategy focused on stability and flexibility to ensure we maintain a strong balance sheet and invest for growth in our business through economic cycles. That said, one of my priorities is to improve our capital efficiency, drive our teams to ramp up high-return growth investments above our weighted average cost of capital that create long-term value.

We will maintain discipline in our approach to growth investments and acquisition opportunities, comparing those opportunities against the value of returning capital to shareholders. On that front, we are open to share repurchases and dividends if we do not have a higher-value organic and -- acquisition investment opportunities. In summary, we'll prudently invest capital in areas of opportunity to provide strong ROIC and create long-term value for shareholders consistent with the strategy we announced this morning. At this time, I'll turn the call back over to Marc.

Marc Michael -- President and Chief Executive Officer

Thanks, Jaime. Overall, it was a solid quarter that in many ways, reflects the improvement in our operational performance across the business. Now we'll dive into the details of our strategic transformation. Starting with an overview of the actions we are taking.

First, we are executing a comprehensive plan to narrow our strategic focus on building a premier process solutions enterprise on the foundation of our current food and beverage, industrial and Bran+Luebbe product lines. In conjunction with this decision and with strong support from our board of directors, we are pursuing a sale of our power and energy business. That process is under way. We made this decision after conducting a thorough review of our product portfolio, and we believe it is a logical next step for us.

We're confident in this strategic transformation is the best way to serve customers and maximize future potential, and we are ready to take our business to the next level to deliver a world-class customer experience, elevate our operational excellence, strengthen our balance sheet and add significant capacity for future value creation. Digging a bit deeper on the strategic rationale. Today, we play in two main categories: Process equipment and flow controls. Both require a high degree of engineering and precision to meet customer specifications.

However, there are specific capabilities unique to each category that drive a winning outcome with customers. In process applications, we work closely with customers to engineer and design technologies that combine specific ingredients to create new elements with desired outcomes, such as texture, taste, viscosity and nutrient composition. These technologies perform specific tasks, such as mixing, blending or separating and are integral to our customers' processes. In many cases, our applications engineers are assisting customers to test new recipes for foods, beverages, medicines, skin creams, chemical compounds and many other elements essential to our daily lives.

In FLOW control applications, we work with customers to design or configure equipment to regulate the pressure and flow rate as liquid moves from one point to another, often for a large volume of fluid across long distances, and in some cases, for mission-critical safety measures. We've determined the best way to maximize our ability to serve our customers in both these categories is to separate these parts of our business. In turn, we are confident that this will unlock significant value for shareholders. Looking at power and energy.

This business has approximately $500 million in annual revenue and over 1,800 employees operating in more than 120 countries. It is a global leader in mission-critical, severe-duty pumps and valves, filtration products, and aftermarket parts and services for energy and power customers. And it has a leading position in the midstream, nuclear and power end markets. As for our portfolio is represented by brands that have over 100 years of experience and are recognized for quality, reliability, lead time and engineering expertise in flow-controlled applications.

Jose Larios has been chosen as President of power and energy, and will lead a strong management team with an average of more than 20 years of experience in the flow-controlled, and energy sector. This is a high-quality asset with blue-chip customers. That said, the business profile and end market exposure do not fit with our process solutions strategy. We're confident that pursuing a sale of power and energy is the best path to providing the business and its talented employees with a better opportunity to achieve greater success.

By divesting power and energy, we will reduce our exposure to cyclical energy markets and devote our full attention on building a premier process solutions enterprise. In parallel with the divestiture process, we are tailoring our organization to best serve our customers in process applications, with a goal of delivering a world-class customer experience. This includes 2% to 3% margin expansion we expect to deliver by addressing overhead costs and streamlining functional support. Dwight Gibson will take on a broader role in leading one combined commercial team, with increased focus on utilizing innovative customer and market analytics to drive growth and new product development.

He will work closely with Ty Jeffers, our VP of global manufacturing and supply chain, to optimize and leverage our pathway to excellence lean approach to increase speed and efficiency of customer fulfillment. Over the next 12 to 18 months, we expect the actions we are executing to create a higher quality revenue and gross margin profile. We are targeting a midteens EBITDA margin and a double-digit ROIC profile in the short-term, and we believe this set of products has an organic growth potential above GDP in the 4% to 6% range. Over the medium and long-term, we believe there is potential to achieve a higher margin and ROIC profile through organic growth and continuous operational improvements.

In terms of the proceeds, at this time, our intentions are target organic investments, further deleveraging and returns to shareholders. This will further strengthen our balance sheet and provide ample financial flexibility to invest for growth and create value through disciplined ROIC-centered capital allocation going forward. Process Solutions has an annual revenue of approximately $1.6 billion and is comprised of our food and beverage and industrial segments and our Bran+Luebbe metering pump product line. In these product lines, process expertise and technical engineering capability are at the core of our value propositions for customers in complex, highly regulated applications.

In these applications, our process technology and components are integral to the specific product being treated through our customers' processes. This provides us great customer intimacy and positions us to be a life-cycle service partner to customers, working with them to maximize operating efficiency and uptime, while also meeting regulatory, sustainability and cost of ownership objectives. To support customers, we have a global manufacturing organization with innovation labs and testing centers across all 3 major geographic regions. To further develop these differentiating skill sets, we will focus on talent development, deeper customer intimacy and speed of delivery.

Today, we serve the sanitary industrial markets with a concentration in food and beverage, chemical, pharmaceutical and general industrial markets. We intend to leverage our deep application knowledge, technical engineering and process expertise to expand our customer base and concentrate sales in high-quality process applications with reoccurring revenue streams. In closing, I would like to thank our team members across the enterprise for their contributions to the progress we made over the last three years to improve our operating performance and deliver to our customers on time, on quality and on cost. This strategic transformation is a logical next step for our teams, building on the foundation we've put in place over the last three years.

As we execute this strategy, we remain committed to fully supporting all customers and delivering on our operational improvement objectives. I'm confident these actions will unlock significant underlying value for our shareholders and position both businesses to fully realize their potential. That concludes our prepared remarks. Thank you for joining us on the call today.

And at this time, we'll open it up for questions.

Questions & Answers:

Operator

[Operator Instructions] Your first question comes from the line of Mike Halloran with Baird. Your line is open.

Mike Halloran -- Baird -- Analyst

Hey, morning everyone, and congratulations on the decision.

Marc Michael -- President and Chief Executive Officer

Yeah. Thanks, Mike. Good morning.

Mike Halloran -- Baird -- Analyst

So on the strategic decision, a couple of questions. First, why now? What about the timing made this an ideal move from your perspective?

Marc Michael -- President and Chief Executive Officer

Yeah. So, you know we -- Mike, we've been headed down a path to focus our strategy since the beginning of last year. And if you reflect back to March in 2018, when we had our Investor and Analyst Day, we set the strategy and pathway forward to focus on product lines, which really created a higher quality of revenue stream. And as we refined our view of that during the course of the past 12 months, we came to the conclusion that it was the right move at this time to really focus our efforts around this process solutions part of our business.

The customer intimacy we have and the capabilities that our organization has to support customers in this space, our manufacturing capabilities, it all fit nicely in where we want to head going forward. Now that said, too, the power and energy business, we've done a lot of work on the power and energy business over the last two years to get it healthy. Jose and his team have done a fantastic job, along with our operations, to get power and energy into a healthy position after quite a significant downturn in the markets. So everything really converged at this point on both fronts to make it the ideal time.

Mike Halloran -- Baird -- Analyst

No. That that makes sense. And when you think about the RemainCo company, one, what's -- what's the growth profile that you're envisioning for the company once all of the moving pieces are kind of aligned? And what's the cadence for how long it will take you to get toward that EBITDA margin mid-teen type goal?

Marc Michael -- President and Chief Executive Officer

Yep. So the growth profile that we would expect would be something better than GDP, in the 4% to 6% range. If we look back over the course of the last couple of years and we carve out this part of the business, ex-systems, again which we've been systematically reducing our exposure there to dry dairy, but if we carve out the rest of the business, it's been growing in that kind of range, in the 4% to 5% range. So we expect that to be something that's achievable, given markets staying in a relatively consistent manner.

So that's how we're thinking about the future. Again, that's why we like this part of the business, that it has a growth profile greater than GDP. And a lot of the product lines, again, are reflective of how we've -- restructuring today in that aggressively invest to grow, as well as in the opportunistically invest to grow. And the timeline for achieving the midteens EBITDA margin, we expect to be taking the steps that we need to over the next 12 months, so that we're in a position as we exit 2020 that we should be achieving that type of margin profile.

Mike Halloran -- Baird -- Analyst

That that makes sense. And then last one from my side. Could you just talk a little bit about seasonality as you work through the year here? 2Q is probably a little below what I would have expected from a seasonal perspective. Obviously, prepared remarks gave some nice color on why the margins ramp through the back half of the year, but maybe just some help with how you're thinking about that cadence through the year with a little more color and depth, a little emphasis on the revenue side, and then any more help on the cost side would be appreciated.

Jaime Easley -- Chief Financial Officer

Yeah, Mike. So you're spot on. Kind of Q2 is going to be relatively flat with Q1, up a bit in revenue and the margin profile is pretty similar. But what we're looking at in the second half is the benefits of improved order intake in Q2, we made reference to that in the prepared remarks, but expecting that some of the business that didn't book in Q1 is going to come back there.

We are seeing favorable pricing in the backlog and the actions that we've taken year to date so we expect that that's going to have benefits coming through in the margins in the second half. The team's also working on a number of actions in the factories. Some operational improvements, some naturally that you would expect to come through on higher volumes. But then others that we believe have a very good probability of taking hold here in the second half.

And then I'll make mention of the restructuring again. So we've made announcements here in Q1 to action the restructuring plans that we believe that, as those actions begin to take hold, we'll see the effects of those in H2. And then I think we've previously talked a bit about the carryover that will apply to the following year. But really, it's the product of price, factory performance, restructuring and then the last part would be mix.

So as the lower dry systems revenue works itself off in Q1 and the intake that we've seen here in Q1 and we expect to continue to see in Q2, we think the quality of revenue's going to be better in the second half.

Mike Halloran -- Baird -- Analyst

Appreciate the color. Thanks.

Jaime Easley -- Chief Financial Officer

Thanks, Mike.

Operator

Your next question comes from the line of Nathan Jones from Stifel. Your line is open.

Nathan Jones -- Stifel Financial Corp. -- Analyst

Good morning, everyone.

Jaime Easley -- Chief Financial Officer

Hi, Nathan.

Marc Michael -- President and Chief Executive Officer

Hi, Nathan.

Nathan Jones -- Stifel Financial Corp. -- Analyst

Congratulations on this decision. I think this is a great move to unlock value for shareholders here. A couple of questions along those lines. You've talked about multiple, kind of, avenues to redeploy that capital from potential repos, organic investments, etc.

Is offsetting the earnings dilution from this deal through share repo something that you would look to do to, kind of, neutralize that? Or is that not part of the thinking here?

Jaime Easley -- Chief Financial Officer

Yeah, Nathan. So it's still early in the process for us, and we need to see a few things materialize between now and the time of close, everything from narrowing in on the likely proceeds to various valuations, etc. So what I'd reiterate is that we intend to delever down to the bottom end of the range we discussed this morning. So that would be 1.5 times to 2.5 times.

That'd be one piece of it. The other would be to begin to look more aggressively at our organic investment opportunities. So Dwight and team are really looking at NPD funnels, Ty and his team looking at opportunities to make investments in the plant to increase capacity, increase operational efficiencies. And then there will be, in our current plans, a shareholder return in that.

So again, a few different avenues that we haven't landed on yet, anything from share repurchases, special dividends, but those are on the table, and we'll continue to evaluate those as we get closer to the time.

Nathan Jones -- Stifel Financial Corp. -- Analyst

OK. And Marc, when I listen to you talk about what your vision of this company is in the future from this process solutions focus, there are still some businesses and product lines in the portfolio that I think probably don't fit into that focus. Is there potential here for some further pruning of the portfolio to maybe -- to even more narrowly focus you on that kind of process solutions area that you're looking at? I know we don't want to probably talk about the specific businesses that those are. But is that something that's on an ongoing discussion with you guys, with Ryan, that we could see some more of in the future?

Marc Michael -- President and Chief Executive Officer

Yeah. Good question, Nathan. And, I mean, this is our work over the last two years getting to this point is a culmination of all the things that we've discussed on the call and historically. And we're in a great position.

We're really resetting the company to move forward. And as a part of that reset, all the things we've mentioned and the margin profiles and our capacity to deploy capital, we're going to be in a really healthy position. And as part of that strategy in capital deployment, we'll look for high ROIC inorganic opportunities. So we want to be active in M&A but be very disciplined and good stewards of investor capital.

And as a part of that process, we'll look at all the options that are out there for us, including acquisitions, and possibly additional divestitures. But we like where we are, is what we've defined right now, and we want to continue to build out this process solutions platform. You know, I will mention, we've got some great brands and great products that maybe don't quite fit that definition. In many cases, they're No.2, No.3 in the global market space.

And so they're very valuable to us, and you know, they're a good part of what we're doing right now.

Nathan Jones -- Stifel Financial Corp. -- Analyst

And just maybe one more for Jamie, and I guess for Marc as well. SPX prior to this split did pay a dividend, and I think you guys have always said that in the long run, you did intend to pay a dividend. You're certainly getting the balance sheet into a much better position now with businesses that are going to be much more predictable. Should we be expecting, at some point maybe in the next 12 months or so, that a dividend does get initiated here?

Jaime Easley -- Chief Financial Officer

Yeah, Nathan, good question. I'll tell you that it's certainly on the table. We're talking about it. I think what I'd prefer to see unfold would be, let the process play out here, look at what opportunities we see by way of organic investments within the business, and where the inorganic markets are at that time.

There is a strong desire on our side to grow but grow in a very disciplined way in deploying capital that has the right returns. And so I think we need to really see the next nine to 12 months play out and make sure we fully understand the position, and what's available in the M&A markets and then, kind of, make that decision at that time. But we are actively thinking about it.

Marc Michael -- President and Chief Executive Officer

Yeah. And the one thing I would add to that, Nathan, is that we're going to be generating really great cash flows. So valuations in the market for acquisitions right now are still at pretty high multiples. And so again, we're going to be very disciplined in that assessment and what Ryan and his team are taking a look at with Vusa Mlingo, who joined us about a year ago.

And in the absence of opportunities in the markets, we do have organic investment programs that are accelerating. But even with that, we're going to have a lot of available cash left if we don't have an inorganic opportunity. So that leaves us with two options for returning to shareholders, which would be looking at repurchases and dividends. And so that's the great part about this next step of the journey and where we are, and why this all made sense to us now.

This is really kind of the exclamation point on the reset for us and all the work that we've been doing to put the company in a great position going forward to have tremendous flexibility.

Nathan Jones -- Stifel Financial Corp. -- Analyst

Great. Thanks for the color and congrats again. I think it's a great decision.

Marc Michael -- President and Chief Executive Officer

Appreciate it, Nathan. Thank you.

Operator

Your next question comes from the line of Robert Barry with Buckingham Research. Your line is open.

Robert Barry -- Buckingham Research -- Analyst

Hey, guys. Good morning.

Jaime Easley -- Chief Financial Officer

Good morning, Robert.

Marc Michael -- President and Chief Executive Officer

Good morning, Robert.

Robert Barry -- Buckingham Research -- Analyst

I will echo the congratulations.

Jaime Easley -- Chief Financial Officer

Thank you.

Marc Michael -- President and Chief Executive Officer

Thank you.

Robert Barry -- Buckingham Research -- Analyst

So is the second half sales outlook similar to what it was before, essentially? Or maybe even a little better?

Jaime Easley -- Chief Financial Officer

In general terms, I think it's really first half, the second would be unchanged to what we previously guided.

Robert Barry -- Buckingham Research -- Analyst

Got it. But since the orders decelerated, I guess, I'm curious what kind of acceleration you've either seen already or are planning to have occur in order to kind of keep the back half the same as it was before on the revenue line?

Jaime Easley -- Chief Financial Officer

Yeah. It's a good question and it, kind of, goes back to the comments that we made around being confident that our frontlogs are healthy, the markets in which we participate are healthy, and we would expect those lumpy orders that were not booked in Q1 to be booked in Q2. So I would tell you the watch-and-see quarter for us is going to be here in Q2 and see how order intake materializes as it relates to the second half volume assumptions.

Marc Michael -- President and Chief Executive Officer

Yeah. And the one thing I would add to that, Robert, you know, if orders were not to progress over the next -- this quarter and early part of Q3 the way we expect, I mean, there is the potential we could be toward the lower end of the range we've defined. But we're again, counting on and expecting orders to start to pick up. And again, as we mentioned in the prepared remarks, a big part of the miss really came from more of the project-related businesses or the shortfall from what we expected, the lower level in the project-based businesses in food and beverage, as well as in our power and energy, and some of our pump and valve business.

But having said that, the frontlogs are healthy and indications are from the teams is that we expect that to start to recover. I'd also remind everyone that our aggressively invest to grow product lines, which carry the highest margins, were about 50% of our order intake in the first quarter. And sequentially, those orders were up, kind of in the low single-digit range. So there's still some momentum out there, especially in the industrial markets.

And if we can get some pick-up and some of these projects to break loose here in Q2 that we expect to, we'll be positioning ourselves to be successful in the second half of the year with the revenue ramp.

Robert Barry -- Buckingham Research -- Analyst

Got it. I mean is it just that there was some macro uncertainty and that's kind of alleviated now, and so the orders will start flowing again? I mean is that what the customers are saying?

Marc Michael -- President and Chief Executive Officer

Yeah. I think some of these projects can be a bit lumpy, and it's kind of a bit difficult to look at them quarter-to-quarter sometimes. We like to -- we say that there's -- we look at them kind of a 6-month block of time. And they're coming out of Q4 last year, things were a little slower in -- customers looking at when they were going to release capital.

And that did continue a bit here in Q1. But indications are that they will move forward. And again, that's been primarily in the P&E for some of the pumps and valves part of the business. But projects are there in some of the systems business that we were looking at and anticipating across Asia-Pacific.

But again as I mentioned, I'll just reiterate, what I'm really pleased about is industrial product lines are holding up well and all the product lines that are kind of really in that aggressively grow category for the most part are still on a -- we're on a growth profile sequentially.

Robert Barry -- Buckingham Research -- Analyst

Got it. On the EBIT margin target that you had, the 12% for 2020, so what does that look like pro forma for this planned sale? You talked about the EBITDA margin but kind of feels like that 12% is lower but just asked to let you answer, what is it pro forma?

Jaime Easley -- Chief Financial Officer

Yeah. So I think the way to think about it is that the new remaining business is going to be midteens EBITDA margins. And as we kind of said, the build to that is going to be a few things that will probably take the next 12 to 18 months to get to -- there's a few of the carryover restructuring items, which will flow through. And then we also have cost savings that we've talked about here that would be a product of streamlining some of our functions, reorienting the business to growth, and making sure that we're balanced for the size company that we are.

So -- the -- at this point, being that far off in the activities that we need to execute between now and then, we're kind of prepared to talk to the midteens EBITDA margins out at the end of 2020. And we'll kind of provide additional information as we move forward.

Robert Barry -- Buckingham Research -- Analyst

Got it. I mean I think you have about three -- sorry.

Jaime Easley -- Chief Financial Officer

Sorry?

Robert Barry -- Buckingham Research -- Analyst

I was going to say I think you have about three points of D&A, right? So if EBITDA margin's 15, it implies the EBIT is 12. But now it sounds like that's happening in 2021, even though you're removing a lower margin business, it just feels like the RemainCo is tracking weaker as well.

Jaime Easley -- Chief Financial Officer

Yeah. What I would suggest, Robert, is to let us to continue to work through the future-state models and to -- I think Stewart and Ryan can work and help tie off all the various looks at the P&L as it relates to the midteens EBITDA margins, the end of 2020.

Robert Barry -- Buckingham Research -- Analyst

Fair enough. Great. Thanks, guys.

Operator

Your next question comes from the line of Walter Liptak with Seaport Global. Your line is open.

Walter Liptak -- Seaport Global -- Analyst

Thanks, good morning, everyone. I'll say congratulations to you on the big transformation that's ahead of you.

Marc Michael -- President and Chief Executive Officer

Hi, Walter. We really appreciate that.

Walter Liptak -- Seaport Global -- Analyst

I wanted to ask about just -- you may have talked about this so I apologize, but the divestitures, are you thinking of this as a series of transactions or bundles of businesses or the whole segment going in one transaction?

Marc Michael -- President and Chief Executive Officer

Yeah, Walter, it's the whole segment except for our Bran+Luebbe metering pump brand, which currently sits in power and energy because we believe that the Bran+Luebbe product line fits well into the process solution space with the metering pumps that we do that go into different types of industrial and personal care applications.

Walter Liptak -- Seaport Global -- Analyst

OK. OK. And is there a calendar for this that you can share with us? Or what should we expect for a time frame?

Marc Michael -- President and Chief Executive Officer

Yeah. You know, it's -- we'll just say we've initiated the process. V&P is supporting the efforts. And the process is under way.

And as we know, these things are a little bit tough to pinpoint but we have started the process is what I would say at this point.

Walter Liptak -- Seaport Global -- Analyst

OK. And from an accounting perspective, when are you allowed to do a discontinued operation in the financial statements?

Jaime Easley -- Chief Financial Officer

Yeah. Walt, so there are requirements under U.S. GAAP as to when that will go into discontinued operations. A few of the most important features are that management has made a decision to pursue this sale, which was decided in the month of April.

And then the assets need to be actively marketed, and we expect them to close within a year. So I think what we really need to see develop over the course of Q2 would be the expected timing of the transaction, and make sure that we're comfortable with a probable valuation from the business as it relates to the progress of the process. And at that time, we'll put it into discontinued operations.

Walter Liptak -- Seaport Global -- Analyst

OK. Got it. Thank you. And maybe a last one, will there be any changes to corporate expense post the divestiture?

Jaime Easley -- Chief Financial Officer

You know, what we would expect that a part of the cost savings that we've identified would relate to the corporate line.

Marc Michael -- President and Chief Executive Officer

And I would just add to that, on the cost front during the course of the last four months, our teams have done a lot of work, including we've used some external advisors to assess our cost structure across what our new process solutions business will look like. And we've gotten a lot of good support and good plans going forward. So this isn't something we're starting from scratch. As I mentioned, we've laid the foundation for this for quite some time.

And we'll be ready to start executing on some of those initiatives as we move into the second half of the year. So the plans are identified and again, we'll be ready to launch the process toward the 2% to 3% margin expansion so that we get there by the time we exit 2020.

Walter Liptak -- Seaport Global -- Analyst

OK. Sounds good. And then just a last one for me. The project lumpiness that you talked about, I wonder if you've been able to analyze it on like a geographic basis.

U.S. versus Asia or Europe, has it has been more lumpy in some geographic region?

Marc Michael -- President and Chief Executive Officer

Yeah. it's a good question. Good question, Walt. So our valve business is primarily a North American business.

So when we see lumpiness in our midstream valve business, that's a North American business. So we did see that a bit slower. But again, frontlog's healthy, and we're expecting recovery here in Q2. And if we look over the past couple of years now, our M&J midstream valve business has been very consistent, and we don't anticipate that changing with the number of projects that are out there to expand pipeline valve capacity to get oil out of the Permian.

So a lot of good activity in the valve business, again can be a bit lumpy. So that's a North American view. Our pump business, in large pumps, ClydeUnion Pumps, also a bit slower across North America and Europe. But again, it's project based, and we had some large orders in Europe Q4 in ClydeUnion.

So those didn't repeat in Q1. But again, frontlogs are healthy and a big part of our pump business for ClydeUnion is associated with the U.S. and European market. And then on food and beverage projects, our emphasis there has been in Asia-Pacific.

So some slower intake there sequentially as we saw pretty good order intake in Q4 for the systems business, in specifically China. So I would kind of sum that up as that in power and energy, it's been kind of North America and a bit in Europe and then, for food and beverage systems, it's been more Asia-Pacific related.

Walter Liptak -- Seaport Global -- Analyst

OK. Great.

Marc Michael -- President and Chief Executive Officer

OK. Thank you.

Jaime Easley -- Chief Financial Officer

Thank you.

Operator

Your next question comes from the line of Nigel Coe with Wolfe Research. Your line is open.

Bhupender Singh Bohra -- Wolfe Research, LLC -- Analyst

Hey, good morning guys. This is Bhupender here for Nigel.

Jaime Easley -- Chief Financial Officer

Hey, good morning.

Marc Michael -- President and Chief Executive Officer

Good morning.

Bhupender Singh Bohra -- Wolfe Research, LLC -- Analyst

So the first question, just wanted to focus on the 250 bps of margin improvement in the second half versus first half. Could you just talk about like some of the big buckets which -- I know volume, would be -- you're expecting improvement on the top line. Any other big buckets which we should be thinking about which is leading to that kind of expectation here? Thanks.

Jaime Easley -- Chief Financial Officer

Yeah. See looking at the move from H1 to H2, you're spot-on that we do expect revenue to be up mid-single digits, and that's really the story of the progression of orders here through Q2. The other largest buckets are coming from price. We mentioned that we've had some success in the pricing actions that we've put in place.

We continue to see the margin and backlog expand as a product of price and where we are on inflation. We also have some assumptions around factory performance in the second half, a bit that is leverage on the volume, a little bit of that also would be various initiatives that Ty and his team have in place to improve the factory performance. And then I kind of wrap with saying that the mix in backlog is much improved from H1 to H2 and some of that is the dry systems orders that are working their way off in Q1 -- or I'm sorry, in H1. As a reminder, those were some large systems that we booked back in 2017.

And as we get into the second half of this year, those will be de minimis. And then we also have the higher-margin aggressively grow product lines that we've seen up low single digits here in the first half of this year. We're going to see those coming through in revenue, which will have improved margins. And then lastly, it would be the restructuring savings from some of the actions that we announced this quarter, and the accounting of that was partially split between Q4 of last year and Q1 of 2019.

Bhupender Singh Bohra -- Wolfe Research, LLC -- Analyst

OK. Got it. Thank you. The other question was on the corporate line.

Is 1Q a good run rate actually for the rest of the year?

Marc Michael -- President and Chief Executive Officer

I'm sorry, could you repeat the question please?

Bhupender Singh Bohra -- Wolfe Research, LLC -- Analyst

On the corporate, like $13 million corporate. Is that a good run rate for the rest of the year?

Jaime Easley -- Chief Financial Officer

In our adjusted guidance, Bhupender, we're carving out any deal-related fees. So in that corporate expense for Q1 of $13 million, I think it was reported in our adjusted models, it's $12 million. And I'd say kind of between $11 million and $12 million is a good place to model corporate expense on the adjusted basis for the balance of the year.

Bhupender Singh Bohra -- Wolfe Research, LLC -- Analyst

OK. Got it. And lastly, you know, this is a pretty good transaction here which you have in place to be completed over time. Any -- you talked in some conversation around inorganic growth here.

How should we think about your portfolio? I mean what kind of asset you would be looking at with a new -- the RemainCo company? Any thinking on like product portfolio, holes you have right now in the portfolio, which you would like to kind of add on or to cover in terms of markets?

Marc Michael -- President and Chief Executive Officer

Yeah. Sure. So you know, first and foremost, we would look at things that are close to the core in the process solutions spaces that we serve and we're focused on. So in the sanitary and the industrial spaces.

In industrial, we do a nice business in chemical processing so we think that's a nice space to look into. And then sanitary, both in food and beverage and Pharmaceutical. But we're going to, and have been assessing, let's say, micro verticals within those segments. And Ryan and his team have been working with our product managers to start to identify opportunities that would be nice close fits to our core capabilities as a starting point where we can leverage our current core competencies, and our operations, and our engineering, and our product management.

So those would be the first steps that we'll be taking and looking at and assessing. I think -- we might want to reemphasize is that we tend to be prudent in that process, be good stewards of shareholder capital, look for high-return opportunities. And we're pretty excited about that because again, the strength of the company, the balance sheet capacity and the cash flows that we have are going to put us in a great position.

Bhupender Singh Bohra -- Wolfe Research, LLC -- Analyst

OK. Got it. Thanks a lot.

Marc Michael -- President and Chief Executive Officer

You bet.

Operator

Your next question comes from the line of Julian Mitchell with Barclays. Your line is open.

Jason Makishi -- Barclays -- Analyst

Hi, guys. This is Jason Makishi on for Julian.

Jaime Easley -- Chief Financial Officer

Hi, morning.

Jason Makishi -- Barclays -- Analyst

Just -- since it seems like everything in Q1 kind of trended more or less how you thought it would from a top line perspective, specifically looking at Q2 since it came in a little bit light of expectations, was there anything in terms of margin expectations that you saw either in the quarter or late in the Q that caused you to revise down profit since it seems as if earnings -- segment earnings, however you want to put it, just came in a little bit light?

Jaime Easley -- Chief Financial Officer

No, I wouldn't say that there was anything that developed at the end of the quarter which would suggest that there's a difference in the margin profile in Q2. What -- I will go back to the order development over the course of Q1, and I think we're guided appropriately to give credit to where we ended up the quarter by way of orders. So I think what, at least on the operating profit line, you'll see a fairly consistent quarter from Q1 to Q2. So in the near term, in the next 90 days, we'd expect performance to be pretty flat to Q1.

Jason Makishi -- Barclays -- Analyst

Great. And just as a quick follow-up, because I know I'm running out of time here. Is the guidance of earnings and margin profile being somewhat similar in Q2 to Q1, sort of, broad-based across all three segments or are there sort of areas of strength and weaknesses to call out there?

Jaime Easley -- Chief Financial Officer

Yeah. I think it's pretty consistent Q1 to Q2. You know there are some strength and pockets that have developed. Marc made a reference to the really strong performance that we had in our industrial segment, both order intake and then performance wise.

So I think there's some puts and takes. But on the whole, I think it's fair to assume it's about flat.

Jason Makishi -- Barclays -- Analyst

Great. Thank you very much.

Jaime Easley -- Chief Financial Officer

Thank you.

Operator

Your next question comes from the line of Deane Dray with RBC Capital Markets. Your line is open.

Andrew Krill -- RBC Capital Markets -- Analyst

Thanks. Good morning. This is Andrew Krill on for Deane. So with the planned P&E divestiture, hydraulic technologies is going to become a bigger part of your -- the RemainCo business.

And one of your competitors is also undergoing a similar simplification drive. So can you comment on any changes in the competitive playing field there? And should we expect this to be a focus area as it's historically been a pretty good margin and good growth business? Thanks.

Marc Michael -- President and Chief Executive Officer

Yeah. So it's still a good business for us. Again as I mentioned, several of our product lines are kind of the No.2 spot in the market, and I would look at our hydraulics business, is kind of positioned there. We've always competed head to head with the other players in the industry, and I don't really anticipate that that would create any significant change, what we're doing now -- in the competitive environment.

Andrew Krill -- RBC Capital Markets -- Analyst

Got it. And then just a quick follow-up on, I know with your sales increase solid in the quarter it doesn't seem like it, but was there was any pull-forward you guys saw related to tariffs or any dynamic of that?

Jaime Easley -- Chief Financial Officer

No. We're not aware of any meaningful pull-forwards for reasons such as tariffs.

Andrew Krill -- RBC Capital Markets -- Analyst

OK. Great. Thank you.

Jaime Easley -- Chief Financial Officer

Thank you.

Duration: 63 minutes

Call participants:

Ryan Taylor -- VP, Communications, Market Insights, and Financial Planning

Marc Michael -- President and Chief Executive Officer

Jaime Easley -- Chief Financial Officer

Mike Halloran -- Baird -- Analyst

Nathan Jones -- Stifel Financial Corp. -- Analyst

Robert Barry -- Buckingham Research -- Analyst

Walter Liptak -- Seaport Global -- Analyst

Bhupender Singh Bohra -- Wolfe Research, LLC -- Analyst

Jason Makishi -- Barclays -- Analyst

Andrew Krill -- RBC Capital Markets -- Analyst

More FLOW analysis

All earnings call transcripts

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

Motley Fool Transcribing has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.