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Flowserve Corporation (FLS - Analyst Report) reported second quarter 2013 earnings per share of 84 cents, which beat the Zacks Consensus Estimate of 79 cents by 6.3%. Quarterly earnings also grew 27.3% year over year. Earnings were primarily driven by continued growth in bookings and an improvement in both sales and margins figures. In addition, the company’s key initiatives such as ’One Flowserve’ has also helped in margin expansion, thereby driving EPS growth.

Revenue

Total revenue in the quarter increased 4.8% to $1.24 billion. Excluding the currency impact of $57.3 million, revenue climbed 5.1% year over year. The improvements in sales were due to strong aftermarket performance, focus on supply chain, operational excellence and disciplined cost management efforts. Moreover, revenues beat the Zacks Consensus Estimate of $1.21 billion.

Segment Results

Engineered Product Division (EPD) revenues for the quarter were $625 million, up 6.5% year over year (up 7.2 % excluding the impact on constant currency basis), aided by increased original equipment sales from the Asia Pacific, North America and Europe, partially offset by lower sales from the Middle East. Bookings for the segment nudged up 0.6% to $606.5 million. Excluding the currency impact of $3.7 million, bookings increased 1.9%.

Industrial Product Division (IPD) sales for the second quarter came in at $238.9 million, rising 3.1% year over year. An increase in the sale of original equipments in the North and Latin America was partially offset by declining sales in Europe.

Bookings for the segment were down 13.9% due to a fall in bookings in all major markets, except for the oil and gas industry.

Flow Control Division(FCD) revenues were $384.0 million, rising 2.4% year over year. An increase in sales in North America and the Middle East boosted the quarterly results. However, declining sales in the Asia Pacific was a dampener. Top-line growth was aided by strong sales from the oil and gas industry.

Bookings for the segment rose 8.6% to $447 million primarily due to oil and gas,as well as general and chemical industries, partially offset by a decrease in bookings from the power industry.

Margins

Gross margin for the quarter grew 150 basis points (bps) year over year to 34.0%. The EPD segment’s gross margin was 33.6% (up 20 bps) and the IPD segment’s gross margin of 26% (up 190 bps). The FCD segment’s gross margin moved north 280 bps to 35.8%. The rise in segmental gross margin was primarily due to a shift in product-line mix, improvement in execution of operational plans, cost control initiatives and a lesser number of low margin projects being shipped.

Balance Sheet and Cash Flow

The company ended the quarter with cash and cash equivalents of $104.7 million compared with $304.3 million as of Dec 31, 2012. The company had a long-term debt of $848.2 million compared with $869.1 million as of Dec 31, 2012.

The company ended the quarter with a negative net cash flow from operating activities of $32.8 million.

Outlook

Flowserve reaffirmed its 2013 EPS guidance in the range of $3.20 to $3.53.

We commend the company’s key strategies such as focus on driving organic growth, operational efficiencies, capital deployment and improving working capital metrics. Moreover, Flowserve aims to strategically deploy cash on long-term projects that will likely increase shareholders’ wealth.

Flowserve currently has a Zacks Rank #3 (Hold) Other players in the same industry that are worth a look include Synaptics Inc. (SYNA - Snapshot Report), Electronic for Imaging Inc. (EFII - Snapshot Report) and Dover Corporation (DOV - Analyst Report). While Electronic for Imaging carry a Zacks Rank #1 (Strong Buy), Dover and Synaptics has a Zacks Rank # 2 (Buy)

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