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Flowserve (FLS) Beats Q3 Earnings Estimates, Revises View

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Flowserve Corporation (FLS - Free Report) reported better-than-expected results in the third quarter of 2019, with earnings beating estimates by 5.36%. This was the third consecutive quarter of impressive results.
 
The machinery company’s adjusted earnings in the reported quarter were 59 cents per share, surpassing the Zacks Consensus Estimate of 56 cents. Further, the bottom line grew 20.4% from the year-ago figure of 49 cents on sales growth, improved margins, and decline in net interest and other expenses.

Segmental Performance Drives Revenues

In the quarter under review, Flowserve’s sales were $996.5 million, reflecting year-over-year growth of 4.6%. Organic revenues in the quarter grew 7.4% while foreign currency movements and divested businesses adversely impacted sales by 2.3% and 0.5%, respectively.

The company’s revenues lagged the Zacks Consensus Estimate of $1,007 million by 1.08%.

Aftermarket sales in the reported quarter rose 6.7% year over year (or grew 9.4% on a constant-currency basis) to $487.6 million. Furthermore, original equipment sales totaled $509 million, reflecting year-over-year growth of 2.6% (or 4.6% on a constant currency basis).

Bookings totaled $1.02 billion, reflecting growth of 1.3% (or 3.5% on a constant currency basis) over the year-ago quarter. Of the end markets, booking strengthened in chemical and Power end markets. Backlog at the end of the reported quarter was $2.1 billion.

The company currently has two reportable segments — Flowserve Pumps Division and Flow Control Division. A brief discussion on the segments is provided below:

Revenues from the Flowserve Pumps Division were $682.7 million, improving 5.4% year over year or 7.7% on a constant-currency basis. Bookings grew 6.3% year over year to $742.1 million.

Revenues from the Flow Control Division were $314.8 million, rising 2.8% year over year or 4.9% on a constant-currency basis. Bookings of $282.7 million declined 10% year over year.

Margins Improve Y/Y

In the quarter under review, Flowserve’s adjusted cost of sales rose 3.7% year over year to $659.4 million. It represented 66.2% of sales compared with 66.8% in the year-ago quarter. Adjusted gross margin grew 60 basis points (bps) year over year to 33.8%. Selling, general and administrative expenses rose 2.2% year over year to $219.8 million. It represented 22.1% of sales.

Adjusted operating income in the quarter under review improved 13.7% year over year to $119.4 million. Moreover, adjusted operating margin grew 100 bps to 12%. Net interest and other expenses in the quarter declined 8.1% year over year to $12.4 million.

Effective tax rate was 25.9% versus 28.8% in the year-ago quarter. Provision for income taxes in the quarter under review grew to $27.7 million from $26.4 million in the year-ago quarter.

Balance Sheet and Cash Flow

Exiting the third quarter of 2019, Flowserve had cash and cash equivalents of $547.3 million, down 8.3% from $596.5 million at the end of the last reported quarter. Long-term debt declined 2.6% sequentially to $1,350.3 million.

In the first three quarters of 2019, the company generated net cash of $144 million from operating activities compared with cash inflow of $26.3 million in the year-ago period. Capital expenditure totaled $44.6 million, declining 10.7% from $50 million spent in the previous year’s comparable period.

During the first three quarters of 2019, the company used $74.7 million for distributing dividends and $5.4 million for repurchasing shares.

Outlook

Flowserve is progressing well with transformation initiatives. The multi-year Flowserve 2.0 strategy will help in simplifying the operating model and spur growth.

The company anticipates adjusted earnings per share of $2.15-$2.20 versus the previously stated $2.05-$2.20. Revenues are anticipated to increase 2.5-3.5%, down from 4-5% stated earlier. Divestitures and forex woes are predicted to adversely impact sales by 3%.

Adjusted tax rate for the year is expected to be 25-27% versus 26-28% mentioned earlier. Capital expenditure is predicted to be $75-$85 million, down from $90-$100 million stated earlier.

Flowserve Corporation Price, Consensus and EPS Surprise

 

Flowserve Corporation Price, Consensus and EPS Surprise

Flowserve Corporation price-consensus-eps-surprise-chart | Flowserve Corporation Quote

Zacks Rank & Stocks to Consider

With a market capitalization of approximately $6.6 billion, Flowserve currently carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the industry are Brady Corporation (BRC - Free Report) , Dover Corporation (DOV - Free Report) and Graham Corporation (GHM - Free Report) . All these stocks currently carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

In the past 60 days, earnings estimates for Brady and Dover improved for the current year, while have been unchanged for Graham. Further, positive earnings surprise for the last reported quarter was 11.48% for Brady, 4.58% for Dover and 100% for Graham.

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