Flowserve Corporation (FLS) reported first quarter 2012 earnings per share from continuing operations of $1.69, reflecting a 1.7% decrease from the year-ago quarter. Result included a 5-cent gain from sale of operating assets. Earnings per share increased by 8.7%, excluding the currency translation impact.
Excluding the net gain from asset sale, earnings per share came in at $1.64, 2 cents above the Zacks Consensus Estimate of $1.62.
Order bookings in the quarter amplified by 7.1% or 9.4% (excluding negative currency effects) to $1.25 billion. The rise was primarily attributable to the increase in orders in chemical, oil and gas industries. The quarter recorded maximum quarterly bookings since the third quarter 2008.
Revenues
Sales enhanced to $1.07 billion, increased by 7.8% year over year. Excluding the adverse impact of currency translation, sales raised 10.1% year over year. The improvement was due to strong conversion of previous bookings into shipments and continued demand in the oil and gas, chemical and power sectors.
Income and Expenses
Gross profit was $359.2 million, increased 3.3% from the year-ago quarter. Gross margin decreased by 150 basis points to 33.4% due to increased sales of lower margin backlog and original equipments. Operating margin increased 20 basis points to 13.3%.
SG&A expenses represented 20.6% of total revenue, down roughly 170 basis points year over year. Excluding the impacts of gain on sale of operating assets and discrete charges, SG&A expenses were down 80 basis points and stood at 21.5% of total revenue.
Operating income was $142.5 million, up 9.4% year over year, driven by higher sales, improved gross profit and reduced SG&A expenses as a percentage of sales.
Segment Details
Engineered Product Division (EPD)
Bookings for the first quarter 2012 were $670.7 million, up roughly 11.3% year over year. Sales improved 2.1% to $534.8 million, or 4.6% excluding negative currency effects.
Gross margin reduced 160 basis points to 34.3% due to low margins, large projects and a sales mix shift to original equipment. Operating income was $92.2 million, up 0.4% year over year. The rise was primarily due to the decrease in SG&A.
Industrial Product Division (IPD)
Bookings in the quarter increased 3.1% to $232.0 million while sales stood at $213.2 million, up 20.9% year over year, or 22.6% excluding negative currency impacts.
Gross margin decreased by 230 basis points to 23.3%, while operating income at $17.4 million increased 32.8% year over year.
Flow Control Division (FCD)
Bookings were $380.1 million in the quarter, up 0.7% year over year. Sales escalated by 10.2% to $363.9, excluding negative currency effects.
Gross margin augmented 80 basis points to 35.0%, due to a positive product line and maintenance, repair and overhaul mix. Operating income stood at $55.7 million, up 17.3% year over year.
Balance Sheet & Cash Flow
Exiting the first quarter, the company’s cash and cash equivalents stood at $172.7 million compared to $337.4 million in the previous quarter. Long-term debt decreased sequentially to $438.6 million from $451.6 million in the previous quarter.
Net cash used by operating activities stood at $108 million in the first quarter compared to $228.2 million in the year-ago quarter. Capital expenditures incurred in the quarter were $28.7 million compared with $23.5 million in the year-ago quarter.
Guidance
The company reaffirmed its 2012 full year EPS target range of $8.00 and $8.80, which includes approximately 50 cents per share of negative currency translation effects. The revenue growth is anticipated to be within the range of 5% – 7%.
We currently have a Neutral recommendation on FLS.
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