Flowserve Corporation ( FLS Quick Quote FLS - Free Report) reported better-than-expected third-quarter 2020 results, with earnings beating estimates by 13.6%. Also, sales in the quarter surpassed estimates by 3.6%. The machinery company’s adjusted earnings in the reported quarter were 50 cents per share, surpassing the Zacks Consensus Estimate of 44 cents. However, the bottom line decreased 15.3% from the year-ago figure of 59 cents due to lower sales generation. Revenue Details
In the quarter under review, Flowserve’s sales were $924.3 million, reflecting a year-over-year decline of 7.2%. Notably, foreign exchange positively impacted sales by 0.5%.
The company’s top line surpassed the Zacks Consensus Estimate of $892 million. Aftermarket sales in the reported quarter were down 8.8% year over year (both on reported and on a constant-currency basis) to $444.9 million. Furthermore, original equipment sales totaled $479.4 million, reflecting a decrease of 5.6% (or 6.3% on a constant-currency basis). Bookings totaled $806.1 million in the quarter, reflecting a decline of 21.2% (or 21.6% decline on a constant-currency basis) from the year-ago quarter. Backlog at the end of the quarter was $2 billion, down 4.2% on a sequential basis. 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 Flowserve Pump Division were $670.2 million, decreasing 1.8% year over year or decreasing 2.1% on a constant-currency basis. Bookings fell 22.6% to $574.1 million. Revenues from the Flow Control Division were $255.2 million, declining 18.7% year over year or down 19.8% on a constant-currency basis. Bookings of $237.6 million declined 16%. Margin Profile
In the third quarter, Flowserve’s adjusted cost of sales decreased 3.6% year over year to $639.1 million. It represented 69.1% of sales compared with 66.5% in the year-ago quarter. Adjusted gross profit decreased 13.5% to $290.9 million, while margin fell 230 basis points (bps) to 31.5%. Selling, general and administrative expenses fell 12.9% year over year to $200.7 million. It represented 21.7% of sales.
Adjusted operating income in the quarter under review decreased 12.1% year over year to $100.6 million. Also, adjusted operating margin contracted 60 bps to 10.9%. Interest expenses in the quarter grew 5% to $14.7 million. Effective tax rate was 22.7% compared with 26% in the year-ago quarter. Balance Sheet
As of Sep 30, 2020, Flowserve had cash and cash equivalents of $921.2 million, up 64% from $561.7 million at the end of the last reported quarter. Long-term debt grew 24.4% sequentially to $1,701.1 million.
Exiting the third quarter, the company had a solid liquidity position of $1.7 billion, including strong cash and cash equivalents balance and available revolving credit facility of $750 million. Outlook
Flowserve expects the multi-year Flowserve 2.0 strategy to help in simplifying the operating model and spur growth. Also, it expects to return to growth in 2021 on the back of signs of recovery in the global end markets. However, the pandemic-related woes weigh on the company in the near term.
The company kept its projections suspended for 2020. However, it expects higher earnings, revenues and cash flow in the fourth quarter than the previous quarters. In addition, a cost reduction of $100 million is anticipated to be realized in 2020. Zacks Rank & Other Stocks to Consider
The company currently carries a Zacks Rank #2 (Buy).
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