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Flowserve (FLS) Q4 Earnings Miss Estimates, Revenues Fall Y/Y

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Flowserve Corporation (FLS - Free Report) reported fourth-quarter 2017 adjusted earnings of 50 cents per share, missing the Zacks Consensus Estimate of 52 cents by 3.8%. Also, adjusted earnings were down 30.6% on a year-over-year basis, as the effect of a decline in revenues trickled down to the bottom line

On a reported basis, the company’s loss per share came in at 81 cents, and included $158 million of discrete and non-cash tax expenses related to the effect of the U.S. Tax Cuts and Jobs Act of 2017.

For full-year 2017, the company’s adjusted earnings per share came in at $1.36, down 37.9% year over year.

Quarter in Detail

Revenues fell 3.4% year over year to $1,034.1 million. However, the reported figure surpassed the Zacks Consensus Estimate of $1,031 million. Apart from lower sales across two of three segments, negative impact related to divested businesses dragged down revenues.

Flowserve Corporation Price, Consensus and EPS Surprise

Flowserve Corporation Price, Consensus and EPS Surprise | Flowserve Corporation Quote

For full-year 2017, the company’s top line declined by 8.3% to $3,660.8 million compared with the year-ago tally.

In the fourth quarter, the company’s bookings totaled $985 million, up 8.5% year over year, partially offset by negative impact of divested businesses. After-market bookings totaled $464 million, up 3.9%. Overall improvement in bookings was backed by modest growth in bookings across all three segments.

Adjusted gross margin declined to 30.5%, compared with 33.2% in the year-ago quarter. Also, operating income of the company declined 17.2% from the year-ago period and came in at $85.5 million. Adjusted operating margin in the quarter was 9.8% compared with 13.2% in the prior-year period.

Segmental Details

Engineered Product Division revenues were down 9.6% year over year to $498.9 million in the reported quarter. However, bookings experienced an increase of 11.1% year over year to $485.5 million on account of stability in oil price levels.

Sales at the Industrial Product Division were down 1.8% year over year to $215.3 million. Meanwhile, bookings were up 9.1% to $205.8 million.

Flow Control Division sales recorded an increase of 8.3% year over year to $344.6 million driven by increase in bookings. At the segment bookings improved 3.3% year over year and came in at $314.1 million.

Balance Sheet & Cash Flow

Flowserve ended the quarter with cash and cash equivalents of $703.5 million compared with $367.2 million as of Dec 31, 2016. On Dec 31, 2017, the company’s long-term debt totaled $1,499.7 million, up from $1,485.3 million as of Dec 31, 2016.

The company’s net cash flow provided by operating activities came in at $311.1 million for the 12-month period (ended Dec 31, 2017), up from $240.5 million in the prior-year period.

2018 Outlook

Concurrent with the fourth-quarter 2017 results, Flowserve provided its 2018 outlook. The company expects adjusted earnings per share guidance to lie in the band of $1.50-$1.70. Revenues are anticipated to increase in the range of 3-6%.

Our Take

Pressing macroeconomic concerns pose challenges to Flowserve’s near-term prospects. Over the past few quarters, loss of sales leverage and related under-absorption has been hurting the company’s profitability. Also, upstream oil and gas market uncertainty, which has been bothering the company, has currently spread to midstream as well as downstream markets adding to its woes.

Additionally, this Zacks Rank #4 (Sell) company is facing dearth of middle and larger sized projects opportunities along with cost reduction and project delivery postponement pressures by customers. Hence, this remains a matter of concern for Flowserve going forward.

Stocks to Consider

A few better-ranked stocks in the same space include Harsco Corporation , Avery Dennison Corporation (AVY - Free Report) and Cintas Corporation (CTAS - Free Report) . While Harsco sports a Zacks Rank #1 (Strong Buy), Avery Dennison and Cintas carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Harsco has an excellent earnings surprise history, surpassing estimates in the trailing four quarters, with an average beat of 145.6%.

Avery Dennison boasts an impressive earnings surprise history, exceeding estimates in the trailing four quarters, with an average beat of 6.8%.

Cintas has a decent earnings surprise history, exceeding estimates in the trailing four quarters, with an average beat of 8.2%.

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