U.S. Markets closed

Flowserve (FLS) Q1 Earnings Beat Estimates, Improve Y/Y

Zacks Equity Research

Flowserve Corporation FLS reported better-than-expected results for the first quarter of 2019, with a positive earnings surprise of 20.6%. However, sales lagged estimates by 5.2%.

This machinery company’s adjusted earnings in the reported quarter were 41 cents per share, surpassing the Zacks Consensus Estimate of 34 cents. Further, the bottom line increased 51.9% from the year-ago figure of 27 cents on the back of benefits from transformation initiatives.

Weak Pump Division Lowers Revenues

In the quarter under review, Flowserve’s sales were $890.1 million, reflecting a year-over-year decline of 3.3%. Results were adversely impacted by 5% from unfavorable movements in foreign currencies and divested businesses.

Also, the top line lagged the Zacks Consensus Estimate of $939.1 million.

Aftermarket sales in the reported quarter increased 3.3% year over year (or grew 7.9% on a constant-currency basis) to $470 million. Furthermore, original equipment sales totaled $420 million, reflecting a year-over-year decline of 9.7% (or 6.9% on a constant-currency basis).

Bookings totaled $1.07 billion, reflecting growth of 14.9% or 19.3% on a constant-currency basis over the year-ago quarter. Of the end markets, booking strengthened in oil & gas end markets. Backlog at the end of the reported quarter was $2.1 billion.

The company reports net sales under two segments. A brief discussion on those is provided below:

Revenues from the Flowserve Pump Division were $609.4 million, decreasing 5.4% year over year or down 1.8% on a constant-currency basis. Bookings increased 24.2% year over year (or 29% on constant currency) to $750.2 million.

Revenues from the Flow Control Division were $282.1 million, increasing 1.8% year over year or 5.3% on a constant-currency basis. Bookings of $319.8 million declined 2.3% year over year or increased 1% on constant currency.

Margins Improve

In the quarter under review, Flowserve’s adjusted cost of sales decreased 7.9% year over year to $590.5 million. It represented 66.3% of sales compared with 69.7% in the year-ago quarter. Adjusted gross profit increased 7.5% to $299.6 million while gross margin increased 340 basis points (bps) year over year to 33.7%. Selling, general and administrative expenses decreased 2.4% year over year to $214.2 million. It represented 24.1% of sales.

Adjusted operating income in the quarter under review increased 40.6% year over year to $87.7 million. Moreover, adjusted operating margin grew 310 bps to 9.9%. Net interest and other expenses in the quarter were flat year over year at $12.4 million.

Effective tax rate was 25.6% versus 27.5% in the year-ago quarter.

Balance Sheet and Cash Flow

Exiting the first quarter, Flowserve had cash and cash equivalents of $637.7 million, up 2.9% from $619.7 million at the end of the last reported quarter. Long-term debt balance decreased 1.6% sequentially to $1,392.2 million.

In the first quarter, the company generated net cash of $38.5 million from operating activities versus net cash used of $120.7 million in the year-ago quarter. Capital expenditure totaled $10.6 million, decreasing 21.1% from $13.5 million spent in the previous year.

During the quarter, the company used $24.9 million for distributing dividends.

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 maintained its projections for 2019. Adjusted earnings per share are predicted to be $1.95-$2.15, suggesting an increase from $1.75 recorded in 2018. Revenues are anticipated to increase 4-6%. Adjusted tax rate for the year is predicted to be 26-28%. Net interest expenses are predicted to be $55-$57 million and capital expenditure is expected to be $90-$100 million.

Flowserve Corporation Price, Consensus and EPS Surprise

 

Flowserve Corporation Price, Consensus and EPS Surprise | Flowserve Corporation Quote

Zacks Rank & Stocks to Consider

With a market capitalization of approximately $6.4 billion, Flowserve currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the industry are DXP Enterprises, Inc. DXPE, Roper Technologies, Inc. ROP and Dover Corporation DOV. While DXP Enterprises and Roper currently sport a Zacks Rank #1 (Strong Buy), Dover carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

In the past 60 days, earnings estimates for all the three stocks have improved for the current year. Further, average earnings surprise for the last four quarters was positive 46.55% for DXP Enterprises, 8.43% for Roper and 8.61% for Dover.

Today's Best Stocks from Zacks

Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2018, while the S&P 500 gained +15.8%, five of our screens returned +38.0%, +61.3%, +61.6%, +68.1%, and +98.3%.

This outperformance has not just been a recent phenomenon. From 2000 – 2018, while the S&P averaged +4.8% per year, our top strategies averaged up to +56.2% per year.

See their latest picks free >>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Roper Technologies, Inc. (ROP) : Free Stock Analysis Report
 
Flowserve Corporation (FLS) : Free Stock Analysis Report
 
Dover Corporation (DOV) : Free Stock Analysis Report
 
DXP Enterprises, Inc. (DXPE) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.