Flowserve Corporation (FLS) reported strong fourth quarter and fiscal 2013 results on Feb 18, 2014, following which its shares moved up 5.7% on Feb 19, to close at $80.60.
Quarterly earnings per share (EPS) came in at $1.10, which surpassed the Zacks Consensus Estimate of $1.00 by 10.0%. Quarterly earnings also grew 17% year over year excluding the impact of currency fluctuation.
Earnings were primarily driven by continued growth in bookings, improvement in both sales and margin figures. In addition, the company’s key initiatives such as ’One Flowserve’ has also helped in margin expansion, and in turn EPS growth.
Revenues
Total revenue in the quarter increased 5.2% year over year to $1.39 billion. Excluding the currency impact, revenues climbed 4.6% year over year. The improvement in sales came from a stable aftermarket performance, focus on supply chain and operational excellence along with the company’s ongoing cost management efforts. Moreover, revenues beat the Zacks Consensus Estimate of $1.38 billion.
During the quarter, the company recorded bookings worth $1.25 billion, reflecting an increase of 15.7% (excluding the impact of currency) year over year. The original equipment bookings for the quarter grew 21.6% (excluding the impact of currency) to $722.0 million and aftermarket bookings grew 8.5% (excluding the impact of currency) to $530.6 million.
Segment Results
Engineered Product Division (EPD) revenues for the quarter were $2,537.1 million, up 5.6% year over year, aided by an increase in original equipment sales. Bookings for the segment increased 4.3% to $2,474.1 million.
Industrial Product Division(IPD) sales for the fourth quarter came in at $950.2 million, down 0.4% year over year. Bookings for the segment fell 7.8% year over year.
Flow Control Division (FCD) revenues were $1,615.7 million, up 3.8% year over year. Bookings for the segment also increased 8.8% to $1661.9 million.
Margins
Gross margin for the quarter grew 17 basis points (bps) to 33.8%. The EPD segment’s gross margin was 33.8% (down 17 bps) and the IPD segment’s gross margin was 26.4% (up 16 bps). The FCD segment’s gross margin increased to 35.8% from 34.8% in the prior-year quarter. The rise in segmental gross margin was primarily due to significant growth in OE (Original Equipment) bookings, improvement in execution of operational plans and cost control initiatives. Operating margin also increased by 6 bps to 15.3%.
Balance Sheet and Cash Flow
The company ended the year with cash and cash equivalents of $363.8 million compared with $304.3 million as of Dec 31, 2012. The company had long-term debt of $1.13 million compared with $869.1 million as of Dec 31, 2012.
The company’s net cash flow from operating activities was $487.8 million as of Dec 31, 2013.
Dividend Increase
Following the earnings release, the board of directors announced a 14.3% increase in quarterly cash dividend to 16 cents per share on the company's outstanding shares of common stock. The prior dividend of 14 cents was paid in Jan 2014. The new dividend will be payable on Apr 11, 2014, to shareholders of record as of the close of business on Mar 28, 2014.
Outlook
Based on its strong performance in the fourth quarter of 2013, the company provided an outlook for fiscal 2014. The company expects a robust earnings increase year over year, driven by 3% to 6% revenue growth, an improved backlog, continued operating improvements, cost leverage and its capital allocation policy.
Flowserve reiterated its 2014 EPS expectation in the range of $3.65 to $4.00.
Flowserve currently has a Zacks Rank #3 (Hold). Better-ranked players in the same industry include Altra Holdings Inc. (AIMC), Barnes Group (B) and Graco Inc. (GGG). All three carry a Zacks Rank # 2 (Buy).
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