Flowserve Beats Estimates

Flowserve Corporation (FLS - Analyst Report) reported results for the second-quarter of 2012. For the second quarter earnings per share were $1.93, which were 1.6% above the Zacks Consensus Estimate of $1.90. Earnings were also up 24% year over year. Profits were primarily driven by improvement in short cycle businesses driven by increased volumes.

Total Revenue

Total revenue in the quarter increased 5.0% to $1.18 billion and excluding the currency impact of $86 million revenue increased 12.6% year over year. Sales for the quarter were up $1.18 billion, up 5.0%.

Excluding negative currency effects of $86 million, revenue was up 12.6%. Growth in bookings was primarily driven by strong chemical, oil & gas, and general industries orders as well as continued strong aftermarket activity.

Segment Results

Engineered Product Division (EPD) revenue for the quarter was $586.7 million, an increase of 13.2% (increase of 5.3% on constant currency basis). Strong aftermarket performance offset the impact of lower original equipment volumes. Bookings for the division grew 2.5% on constant currency basis reflecting an increase to $602.8 million. Excluding the impact of currency, bookings grew 10.2%.

Industrial Product Division (IPD) sales for the second quarter grew to $231.7 million, an increase of 9.4% (3.2% on constant currency basis). The IPD recovery plan began to favorably impact the business. Bookings for the division were $242.9 million, reflecting an increase of 6.2% year over year, on constant currency basis.

Flow Control Division (FCD) revenue was $401.5 million, an increase of 11.0% (3.7% on constant currency basis). The top line was primarily driven by strong oil and gas, Chemical and General Industry bookings.

Margins

Gross margin for the quarter was 32.5%, down 28 basis points year over year. Margin was impacted by less favorable pricing in existing long cycle backlog and incremental charges from certain projects that are delayed.

Segment wise, EPD gross margin was 33.4% (down 110 basis points), IPD was 24.1% (up 440 basis points) and FCD was 34.1% (up 110 basis points).

Balance Sheet and Cash Flow

The company exited the quarter with cash and cash equivalents of $175.2 million compared to $337.4 million as of December 31, 2011. The company had a long term debt of $426 million and had a total equity of $2.3 billion.

The company exited the year with net cash flow from operating activities of $60.3 million compared with a negative of $237.8 million.

Outlook

Concurrent with the earnings release, Flowserve reaffirms its 2012 earnings per share in the range of $8.00 to $8.80.

Flowserve currently has a Zacks Rank of #3, implying a short term Hold recommendation on the stock.