Flowserve (FLS) Q3 Earnings & Revenues Surpass Estimates

Flowserve Corporation (NYSE:FLS) reported better-than-expected bottom-line results for the third quarter of 2018, delivering a positive earnings surprise of 16.7%.

This machinery company’s adjusted earnings were 49 cents per share, surpassing the Zacks Consensus Estimate of 42 cents. Moreover, the bottom line increased 32.4% from the year-ago figure of 37 cents, primarily on the back of sales growth.

Segmental Performance Drives Revenues

In the quarter under review, Flowserve’s sales were $952.7 million, reflecting growth of 7.8% from the year-ago quarter. Notably, the sales growth was partially offset by 1% negative impact from divested businesses.

Moreover, the top line surpassed the Zacks Consensus Estimate of $921 million by 3.4%.

Aftermarket sales in the reported quarter grew 3.9% year over year (or 5% on a constant-currency basis) to $457 million. Furthermore, original equipment sales totaled $496 million, reflecting growth of 11.8% (or 12.5% on a constant-currency basis).

Bookings totaled more than $1 billion, reflecting growth of 13.2% from the year-ago quarter. Backlog at the end of the reported quarter was $1.9 billion, reflecting an increase of 1.4% sequentially.

The company reports its net sales in three segments, a brief discussion of those are provided below:

Revenues from the Engineered Product Division were $466.2 million, increasing 9.9% year over year or 10.3% on a constant-currency basis. Bookings increased 20.2% to $519.8 million.

Revenues from the Industrial Product Division totaled $199.1 million, increasing 5% year over year or 6.1% on a constant-currency basis. Bookings were solid in the quarter under review, increasing 1.5% to $199.8 million.

Revenues from the Flow Control Division were $306.2 million, increasing 6.4% year over year or 7.9% on a constant-currency basis. Bookings of $314.2 million jumped 9.9%.

Margin Profile

In the quarter under review, Flowserve’s adjusted cost of sales increased 4.7% year over year to $644.2 million. It represented 67.6% of sales compared with 69.7% in the year-ago quarter. Adjusted gross margin increased 130 basis points (bps) to 33.2%. Selling, general and administrative expenses increased 17.4% to $241.9 million. It represented 25.4% of sales.

Adjusted operating income in the quarter under review increased 26.5% year over year to $105 million. Moreover, adjusted operating margin grew 160 bps to 11%. Effective tax rate was 28.8% compared with 27% in the year-ago quarter.

Balance Sheet and Cash Flow

Exiting the third quarter, Flowserve had cash and cash equivalents of $529.9 million, up 2.4% from $517.4 million at the end of the last-reported quarter. Long-term debt balance decreased 1.3% sequentially to $1,436.7 million.

In the first nine months of 2018, the company generated net cash of $26.3 million its from operating activities compared with $72.4 million in the year-ago period. Capital expenditure amounted to almost $50 million compared with $40.6 million in the first nine months of 2017.

During the first three quarters of 2018, the company used $74.5 million for distributing dividends.

Outlook

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

The company currently expects adjusted earnings per share in the range of $1.65-$1.75 compared with the earlier guided range of $1.50-$1.70. Revenues are currently projected to increase 5-7% compared with previous forecast of 3-6% growth. Adjusted tax rate for the year is predicted to be 27-28%.

Zacks Rank & Other Key Picks

Flowserve currently carries a Zacks Rank #2 (Buy).

Some other top-ranked stocks in the same space are Atkore International Group Inc. (NYSE:ATKR) , Donaldson Company, Inc. (NYSE:DCI) and Cintas Corporation (NASDAQ:CTAS) . While Atkore International Group sports a Zacks Rank #1 (Strong Buy), Donaldson and Cintas carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Atkore International Group surpassed estimates thrice in the trailing four quarters, the average beat being 24.46%.

Donaldson exceeded estimates twice in the trailing four quarters, the average beat being 2.29%.

Cintas surpassed estimates in each of the trailing four quarters, the average beat being 7.22%.

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