Flowserve Corporation FLS reported first-quarter 2015 adjusted earnings per share of 58 cents, missing the Zacks Consensus Estimate of 70 cents by 17.1%.
Dismal bottom-line performance was mainly led by a drastic decline in industrial spending, particularly in the final month of the quarter due to volatility in oil and gas markets. This apart, strengthening of the U.S. dollar proved to be a major headwind.
Quarter in Detail
Revenues dipped 5% year over year to $1,014.6 million and missed the Zacks Consensus Estimate of $1053 million. Delayed purchase decisions of major clients, sluggish shipments and unfavorable & deferred aftermarket activities were largely responsible for the disappointing top-line picture.
The company’s total bookings stood at $1,042.6 million for the first quarter of 2015, reflecting a 12.7% decline after considering currency impact, and 5.9% without the impact. Decline in both aftermarket and original equipments bookings resulted in poor bookings for the reported quarter.
Flowserve’s operating income in the quarter was $93.4 million, down from $164.3 million a year ago.
Segment Results
Engineered Product Division (“EPD”) revenues for the quarter decreased 7.6% year over year to $484.2 million. Bookings were down 21.1% to $495.4 million compared with the prior-year quarter.
Also, Flow Control Division (“FCD”) sales declined 14.5% year over year to $ 327.2 million. Bookings also fell 21.9% year over year to $323 million.
Industrial Product Division (“IPD”) segment witnessed improvement in both sales and bookings considering the impact of currency translation. While sales were up 20% year over year to $223.4 million, bookings rose 29.1% to $247.7 million. The improvement in both sales and bookings was largely attributable to benefits reaped from SIHI acquisition.
For all three segments, reduction in original equipment sales across key geographic regions like Asia pacific and Latin America led to poor revenue growth. Bookings were mainly affected by volatility in oil and gas markets.
Balance Sheet and Cash Flow
The company ended the quarter with cash and cash equivalents of $333.7 million compared with $450.4 million as of Dec 31, 2014. Long-term debt stood at $1,620.7 million as of Mar 31, 2015, compared with $1,101.7 million as of Dec 31, 2014.
Flowserve’s net cash flow utilized in operating activities was $93.2 million for the three months ended Mar 31, 2015, compared with $84.6 million of cash utilized in operating activities in the prior-year period.
Outlook
Due to strong currency headwinds, seasonality in demand and unfavorable business outlook, Flowserve has reduced 2015 adjusted EPS to the range of $3.25–$3.65 from the previously projected range of $3.60–$4.00. Further, a 10% impact from negative currency translation is anticipated to lower revenues by 8–12%.
Our Take
Despite a challenging quarter, Flowserve remains confident about its ability to adjust to difficult macroeconomic conditions on the back of its operational strength, going forward. Also, the company’s recent acquisition of SIHI has provided it with complementary assets and subsequent opportunity to venture into new markets. We believe that the company’s strong focus on cost-saving initiatives and restructuring efforts will act as key drivers of growth in the long run.
Flowserve currently has a Zacks Rank #3 (Hold). Better-ranked players in the same sector include RBC Bearings Inc. ROLL, AO Smith Corp. AOS and Icahn Enterprises, L.P. IEP. While RBC Bearings sports a Zacks Rank #1 (Strong buy), both AO Smith Corp. and Icahn Enterprises hold a Zacks Rank #2 (Buy).
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