Leading manufacturer and aftermarket service provider of comprehensive flow control systems, Flowserve Corporation (FLS) reported second-quarter 2014 earnings per share of 90 cents, missing the Zacks Consensus Estimate by a couple of cents. However, earnings increased 7.1% from 84 cents per share in the prior-year quarter.
Bottom-line growth was driven by the company’s endeavors to strengthen its core business by key initiatives such as ‘One Flowserve’. The continued growth in bookings and improvement in margin figures are also positives. This apart, the company has also been containing costs.
Revenues
Total revenue in the quarter was $1.22 billion, a decrease of about 1.6% compared with the past-year figure of $1.24 billion. Excluding the currency impact, revenues have declined 1.5% year over year. Revenues also fell short of the Zacks Consensus Estimate of $1.30 billion. The decline was due to adverse shipment timings. Also, the company reported a year-over-year decline in all three of its segments.
Segment Results
Engineered Product Division (EPD) revenues for the quarter decreased to $609.2 million, from $625.0 million in the prior-year quarter. However, bookings for the segment increased 22.7% to $744.3 million.
Industrial Product Division(IPD) sales for the second quarter decreased marginally to $238.1 million from $238.9 million. Bookings for the segment increased 18.6% year over year to $248.0 million.
Flow Control Division (FCD) revenues were $406.4 million, a decline from $411.2 reported in the year-ago quarter. Bookings for the segment also slipped 5.5% to $422.2 million.
Margins
Gross margin for the quarter increased 110 basis points (bps) to 35.1% in the quarter. The EPD segment’s gross margin was 34.5% (up 90 bps), the IPD segment’s gross margin was 28.0% (up 200 bps) and the FCD segment’s gross margin stood at 37.6% (up 180 bps). The rise in segmental gross margin was primarily due to significant growth in aftermarket and OE (Original Equipments) bookings, improvement in execution of operational plans and cost control initiatives. Operating margin also increased 110 bps year over year to 15.9%.
Balance Sheet and Cash Flow
The company ended the quarter with cash and cash equivalents of $143.6 million compared with $363.8 million as of Dec 31, 2013. The company had a long-term debt of $1.12 billion compared with $1.13 billion as of Dec 31, 2013.
The company’s net cash flow from operating activities was a negative $11.3 million at the end of the six-month period, narrowed from negative $32.8 million in the prior-year period.
Share Repurchase
In the six-month period, the company returned about $195 million to its investors’ via share repurchases and dividends.
Outlook
The company remains optimistic about its growth prospects driven by the strength in its aftermarket business, improvement in key end-markets, the scope for strategic mergers and acquisitions as well as its diligent operational execution.
Flowserve reaffirmed its full-year 2014 earnings per share to lie between $3.65 and $4.00. The Zacks Consensus Estimate for earnings per share in 2014 is currently pegged at $3.88. However, the company now expects revenue growth to be in the lower end of the previously provided range of 3%–6%. The revenues are likely to be negatively impacted by the unfavorable currency translations and the last quarter’s divestment of the Naval OY business unit.
Flowserve currently has a Zacks Rank #4 (Sell). Better-ranked players in the same industry include Blount International Inc. (BLT), The Babcock & Wilcox Company (BWC) and EnPro Industries, Inc. (NPO). All three stocks sport a Zacks Rank #1 (Strong Buy).
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