Flowserve Corporation (FLS - Free Report) reported better-than-expected results in the second quarter of 2019, with earnings beating estimates by 82.8%. Also, sales in the quarter surpassed estimates by 3.8%.
The machinery company’s adjusted earnings in the reported quarter were 53 cents per share, surpassing the Zacks Consensus Estimate of 29 cents. Further, the bottom line decreased 1.9% from the year-ago figure of 54 cents due to weak sales generation, partially offset by improved operating margin.
In the quarter under review, Flowserve’s sales were $925 million, reflecting a year-over-year decline of 6.6%. Notably, unfavorable movements in foreign currencies adversely impacted sales by 2.4%.
However, the company’s revenues surpassed the Zacks Consensus Estimate of $890.9 million.
Aftermarket sales in the reported quarter were down 7.1% year over year (or 5% on a constant-currency basis) to $462.2 million. Furthermore, original equipment sales totaled $462.8 million, reflecting a year-over-year decrease of 6.1% (or 3.3% on a constant-currency basis).
Bookings totaled $808.3 billion in the quarter, reflecting a decline of 26.9% (or 25.1% decline on a constant-currency basis) from the year-ago quarter. Of the end markets, booking decreased in oil & gas. Backlog at the end of the reported quarter was $2.1 billion.
The company currently has two reportable segments — Flowserve Pump Division and Flow Control Division. A brief discussion on the segments is provided below:
Revenues from the Flowserve Pump Division were $674.1 million, decreasing 0.1% year over year or increasing 2.8% on a constant-currency basis. Bookings fell 29.6% year over year to $536.5 million.
Revenues from the Flow Control Division were $252.2 million, declining 20.4% year over year or down 19.1% on a constant-currency basis. Bookings of $274.6 million declined 20.7% year over year.
In the quarter under review, Flowserve’s adjusted cost of sales increased 6% year over year to $628 million. It represented 67.9% of sales compared with 67.5% in the year-ago quarter. Adjusted gross profit decreased 7.7% year over year to $297 million, while margin fell 40 basis points (bps) year over year to 31.2%. Selling, general and administrative expenses fell 9.6% year over year to $193.1 million. It represented 20.9% of sales.
Adjusted operating income in the quarter under review decreased 4.4% year over year to $107 million. However, adjusted operating margin improved 30 bps to 11.6%. Net interest and other expenses in the quarter grew 4.7% year over year to $12.6 million. Effective tax rate was 24.7% versus 26% in the year-ago quarter.
Balance Sheet and Cash Flow
Exiting the second quarter of 2020, Flowserve had cash and cash equivalents of $561.7 million, down 9.7% from $622.3 million at the end of the last reported quarter. Long-term debt grew 0.8% sequentially to $1,367.5 million.
In the first half of 2020, it generated net cash of $21.23 million from operating activities, down 57% from the year-ago comparable period. Capital expenditure in the period totaled $32 million, increasing 26.5% from $25.3 million spent in the first half of 2019.
During the period, the company used $52.1 million for distributing dividends and $32.1 million for repurchasing shares.
Flowserve is progressing well with transformation initiatives. The multi-year Flowserve 2.0 strategy will likely help in simplifying the operating model and spur growth. This along with solid backlog will help drive performance in 2020. However, the pandemic-related woes and energy market volatility are concerning.
The company kept its projections suspended for 2020. However, it expects earnings to exceed the first-half 2020 number of 73 cents per share. Revenues and bookings in the second half are expected to be flat compared with the first half.
Also, a cost-reduction of $100 million is anticipated to be realized in 2020.