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press release

May 2, 2022, 4:07 p.m. EDT

Flowserve Corporation Reports First Quarter 2022 Results; Updates 2022 Financial Guidance

Strong bookings of $1.09 billion increased 14.9% year-over-year and 17.6% constant currency, the highest quarterly bookings level delivered since Q2 2019Backlog of $2.23 billion at March 31 was up 11.3% versus 2021 year-end and 18.4% year-over-year. Backlog at highest level since Q3 2015 – positioning the Company for growthExiting operations in Russia and cancelled related contracts from backlogReported Loss Per Share of 12 cents primarily reflects Flowserve’s write down and other exit expenses from Russian operationsAdjusted Earnings Per Share of 7 cents was impacted by revenue-driven under-absorption, due to continued supply chain and logistics issues, and labor availability issues, including Omicron-related absenteeismRevised 2022 full year targets to reflect expected impacts of Russian exit, current supply chain and logistics constraints, and the strengthening dollar, partially offset by strong backlog, favorable market environment and improvement initiatives

DALLAS, (BUSINESS WIRE) -- Flowserve Corporation /zigman2/quotes/203982564/composite FLS +0.38% , a leading provider of flow control products and services for the global infrastructure markets, today announced its financial results for the first quarter ended March 31, 2022.

First Quarter 2022 Highlights (all comparisons to the 2021 first quarter, unless otherwise noted)

  • Reported Loss Per Share (LPS) of $0.12 and Adjusted Earnings Per Share (EPS) [1] of $0.07

  • Total bookings were $1.09 billion, up 14.9%, or 17.6% on a constant currency basis

  • Sales were $821.1 million, down 4.2%, or 2.0% on a constant currency basis

  • Reported gross and operating margins were 25.5% and 0.9%, respectively

“Demand across our end markets continued to improve in the first quarter of 2022, including the release of a number of project awards which had been deferred over the last two years,” said Scott Rowe, Flowserve’s president and chief executive officer. “High utilization rates in our customers’ facilities continued to support strong aftermarket and MRO spending, which drove our highest aftermarket bookings quarter in over seven years. While we are encouraged by our ability to capture solid bookings in this improved demand environment, rapid material and logistics inflation, extended supply chain lead times and labor availability issues, including the associated mitigation costs, resulted in backlog conversion and margin challenges which significantly impacted our first quarter financial results.”

Rowe concluded, “Improving our backlog conversion cadence for the balance of the year is our major priority. I am confident in our ability to deliver sequential revenue and earnings growth throughout 2022 based upon our ongoing operational efforts, our six-year high backlog, and the robust demand environment. We are also pleased with the progress of our 3D strategy to date. With this strategy providing incremental growth while we continue to capitalize on the current strength of our traditional end markets, we believe this combination will further establish Flowserve’s strong foundation to deliver value for all of our stakeholders.”

Flowserve to Exit All Russian Operations

In the first quarter 2022, in response to the invasion of Ukraine and the ongoing military actions taken by Russia, Flowserve made the decision to exit the Company’s operations in Russia. This includes commencing the necessary actions to cease the operations of its Russian subsidiary, suspending fulfillment of existing Russian-located orders, canceling existing contracts in backlog and terminating other related contractual commitments. This process is expected to continue throughout 2022.

Flowserve recorded a $20.2 million pre-tax, predominantly non-cash, charge in the first quarter of 2022 to reserve the asset portions of its Russian subsidiary, establish a reserve for the associated exit costs, reverse previously recorded revenue, and record the estimated financial exposure on contracts that have been, or are anticipated to be, cancelled.

In prior years, Russian-associated work typically represented between 1-2 percent of Flowserve’s consolidated revenues. In addition to the charge established related to existing assets and contracts, there will be an ongoing opportunity cost associated with no longer pursuing future Russian work, however the Company expects the overall impact to be immaterial.

Revised 2022 Guidance [3]

Flowserve updated its Reported and Adjusted EPS guidance for 2022, as well as certain other financial metrics, as shown in the table below:

    Revised 2022 Target Range   Prior 2022 Target Range
Revenue Growth   Up 5.0% to 7.0%   Up 7.0% to 9.0%
Reported Earnings Per Share   $1.25 - $1.45   $1.65 - $1.85
Adjusted Earnings Per Share   $1.50 - $1.70   $1.70 - $1.90
Net Interest Expense   $45 - $50 million   $45 - $50 million
Adjusted Tax Rate   20% - 22%   20% - 22%
Capital Expenditures   $60 - $70 million   $70 - $80 million

Flowserve’s 2022 Adjusted EPS target range excludes expected adjusted items including realignment charges of approximately $10 million, as well as the potential impact of below-the-line foreign currency effects and certain other discrete items which may arise during the course of the year, such as this quarter’s Russian exit charges.

First Quarter 2022 Results Conference Call

Flowserve will host its conference call with the financial community on Tuesday, May 3 [rd] at 11:00 AM Eastern. Scott Rowe, president and chief executive officer, as well as other members of the management team will be presenting. The call can be accessed by shareholders and other interested parties at www.flowserve.com under the “Investor Relations” section.

[1 ] See Reconciliation of Non-GAAP Measures table for detailed reconciliation of reported results to adjusted measures.
[2 ] Adjusted gross and operating margins are calculated by dividing adjusted gross profit and adjusted operating income, respectively, by revenues. Adjusted gross profit and adjusted operating income are derived by excluding the adjusted items. See reconciliation of Non-GAAP Measures table for detailed reconciliation.
[3 ] Adjusted 2022 EPS excludes realignment expenses, the impact from other specific discrete items and below-the-line foreign currency effects and utilizes current FX rates and approximately 131 million fully diluted shares.
- FX impact is calculated by comparing the difference between the actual average FX rates of 2022 and the year-end 2021 spot rates both as applied to our 2022 expectations, divided by the number of shares expected for 2022.

About Flowserve

Flowserve Corp. is one of the world’s leading providers of fluid motion and control products and services. Operating in more than 50 countries, the company produces engineered and industrial pumps, seals and valves as well as a range of related flow management services. More information about Flowserve can be obtained by visiting the company’s Web site at www.flowserve.com .

Safe Harbor Statement : This news release includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, as amended. Words or phrases such as, "may," "should," "expects," "could," "intends," "plans," "anticipates," "estimates," "believes," "forecasts," "predicts" or other similar expressions are intended to identify forward-looking statements, which include, without limitation, earnings forecasts, statements relating to our business strategy and statements of expectations, beliefs, future plans and strategies and anticipated developments concerning our industry, business, operations and financial performance and condition.

The forward-looking statements included in this news release are based on our current expectations, projections, estimates and assumptions. These statements are only predictions, not guarantees. Such forward-looking statements are subject to numerous risks and uncertainties that are difficult to predict. These risks and uncertainties may cause actual results to differ materially from what is forecast in such forward-looking statements, and include, without limitation, the following: the impact of the global outbreak of COVID-19 on our business and operations; a portion of our bookings may not lead to completed sales, and our ability to convert bookings into revenues at acceptable profit margins; changes in global economic conditions and the potential for unexpected cancellations or delays of customer orders in our reported backlog; our dependence on our customers’ ability to make required capital investment and maintenance expenditures; if we are not able to successfully execute and realize the expected financial benefits from our strategic transformation and realignment initiatives, our business could be adversely affected; risks associated with cost overruns on fixed-fee projects and in taking customer orders for large complex custom engineered products; the substantial dependence of our sales on the success of the oil and gas, chemical, power generation and water management industries; the adverse impact of volatile raw materials prices on our products and operating margins; economic, political and other risks associated with our international operations, including military actions, trade embargoes, epidemics or pandemics or changes to tariffs or trade agreements that could affect customer markets, particularly North African, Russian and Middle Eastern markets and global oil and gas producers, and non-compliance with U.S. export/re-export control, foreign corrupt practice laws, economic sanctions and import laws and regulations; increased aging and slower collection of receivables, particularly in Latin America and other emerging markets; our exposure to fluctuations in foreign currency exchange rates, including in hyperinflationary countries such as Venezuela and Argentina; our furnishing of products and services to nuclear power plant facilities and other critical processes; potential adverse consequences resulting from litigation to which we are a party, such as litigation involving asbestos-containing material claims; expectations regarding acquisitions and the integration of acquired businesses; our relative geographical profitability and its impact on our utilization of deferred tax assets, including foreign tax credits; the potential adverse impact of an impairment in the carrying value of goodwill or other intangible assets; our dependence upon first-party suppliers whose failure to perform timely could adversely affect our business operations; the highly competitive nature of the markets in which we operate; environmental compliance costs and liabilities; potential work stoppages and other labor matters; access to public and private sources of debt financing; our inability to protect our intellectual property in the U.S., as well as in foreign countries; obligations under our defined benefit pension plans; our internal control over financial reporting may not prevent or detect misstatements because of its inherent limitations, including the possibility of human error, the circumvention or overriding of controls, or fraud; the recording of increased deferred tax asset valuation allowances in the future or the impact of tax law changes on such deferred tax assets could affect our operating results; our information technology infrastructure could be subject to service interruptions, data corruption, cyber-based attacks or network security breaches, which could disrupt our business operations and result in the loss of critical and confidential information; ineffective internal controls could impact the accuracy and timely reporting of our business and financial results; and other factors described from time to time in our filings with the Securities and Exchange Commission.

All forward-looking statements included in this news release are based on information available to us on the date hereof, and we assume no obligation to update any forward-looking statement.

The Company reports its financial results in accordance with U.S. generally accepted accounting principles (GAAP). However, management believes that non-GAAP financial measures which exclude certain non-recurring items present additional useful comparisons between current results and results in prior operating periods, providing investors with a clearer view of the underlying trends of the business. Management also uses these non-GAAP financial measures in making financial, operating, planning and compensation decisions and in evaluating the Company's performance. Throughout our materials we refer to non-GAAP measures as “Adjusted.” Non-GAAP financial measures, which may be inconsistent with similarly captioned measures presented by other companies, should be viewed in addition to, and not as a substitute for, the Company’s reported results prepared in accordance with GAAP.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended March 31,
(Amounts in thousands, except per share data) 2022   2021
 
Sales $ 821,058   $ 857,308  
Cost of sales   (611,411 )   (606,408 )
Gross profit   209,647     250,900  
Selling, general and administrative expense   (206,138 )   (198,315 )
Net earnings from affiliates   3,858     3,518  
Operating income   7,367     56,103  
Interest expense   (10,693 )   (16,778 )
Loss on extinguishment of debt   -     (7,610 )
Interest income   943     602  
Other income (expense), net   (8,114 )   (11,364 )
Earnings (loss) before income taxes   (10,497 )   20,953  
(Provision for) benefit from income taxes   (3,182 )   (3,792 )
Net earnings (loss), including noncontrolling interests   (13,679 )   17,161  
Less: Net earnings attributable to noncontrolling interests   (2,141 )   (3,081 )
Net earnings (loss) attributable to Flowserve Corporation $ (15,820 ) $ 14,080  
 
Net earnings (loss) per share attributable to Flowserve Corporation common shareholders:
Basic $ (0.12 ) $ 0.11  
Diluted   (0.12 )   0.11  
 
Weighted average shares - basic   130,410     130,427  
Weighted average shares - diluted   130,410     131,006  
RECONCILIATION OF NON-GAAP MEASURES
(Unaudited)
 
Three Months Ended March 31, 2022
(Amounts in thousands, except per share data) As Reported (a) Realignment (1) Other Items As Adjusted
 
Sales $ 821,058   $ -   $ -   $ 821,058  
Gross profit   209,647     198     (10,053 ) (3)   219,502  
Gross margin   25.5 %   -     -       26.7 %
 
Selling, general and administrative expense   (206,138 )   201     (10,193 ) (3)   (196,146 )
 
Operating income   7,367     399     (20,246 )     27,214  
Operating income as a percentage of sales   0.9 %   -     -       3.3 %
 
Interest and other expense, net   (17,864 )   -     (5,694 ) (4)   (12,170 )
 
Earnings (loss) before income taxes   (10,497 )   399     (25,940 )     15,044  
(Provision for) benefit from income taxes   (3,182 )   (74 ) (2)   234   (5)   (3,342 )
Tax Rate   -30.3 %   18.5 %   0.9 %   22.2 %
 
Net earnings (loss) attributable to Flowserve Corporation $ (15,820 ) $ 325   $ (25,706 ) $ 9,561  
 
Net earnings (loss) per share attributable to Flowserve Corporation common shareholders:
Basic $ (0.12 ) $ -   $ (0.19 ) $ 0.07  
Diluted   (0.12 )   -     (0.19 )   0.07  
 
Basic number of shares used for calculation   130,410     130,410     130,410     130,410  
Diluted number of shares used for calculation   130,410     131,051     131,051     131,051  
 
(a) Reported in conformity with U.S. GAAP
Notes:
(1) Represents realignment adjustments incurred as a result of realignment programs
(2) Includes tax impact of items above
(3) Represents the reserve of Russia related financial exposures. The impact of $5.4 million of previously recognized revenue and estimated cancellation fees on open contracts that were previously accounted for under POC and subsequently canceled have been reflected in the above adjustment to gross profit
(4) Represents below-the-line foreign exchange impacts
(5) Includes tax impact of items above
RECONCILIATION OF NON-GAAP MEASURES
(Unaudited)
Three Months Ended March 31, 2021
(Amounts in thousands, except per share data) As Reported (a) Realignment (1) Other Items As Adjusted
 
Sales $ 857,308   $ -   $ -   $ 857,308  
Gross profit   250,900     (9,406 )   -     260,306  
Gross margin   29.3 %   -     -     30.4 %
 
Selling, general and administrative expense   (198,315 )   (4,296 )   -     (194,019 )
 
Operating income   56,103     (13,702 )   -     69,805  
Operating income as a percentage of sales   6.5 %   -     -     8.1 %
 
Interest and other expense, net   (35,150 )   -     (17,116 ) (3)   (18,034 )
 
Earnings before income taxes   20,953     (13,702 )   (17,116 )   51,771  
Provision for income taxes   (3,792 )   3,356   (2)   4,840   (4)   (11,988 )
Tax Rate   18.1 %   24.5 %   28.3 %   23.2 %
 
Net earnings attributable to Flowserve Corporation $ 14,080   $ (10,346 ) $ (12,276 ) $ 36,702  
 
Net earnings per share attributable to Flowserve Corporation common shareholders:
Basic $ 0.11   $ (0.08 ) $ (0.09 ) $ 0.28  
Diluted   0.11     (0.08 )   (0.09 )   0.28  
 
Basic number of shares used for calculation   130,427     130,427     130,427     130,427  
Diluted number of shares used for calculation   131,006     131,006     131,006     131,006  
 
(a) Reported in conformity with U.S. GAAP
Notes:
(1) Represents realignment expense incurred as a result of realignment programs
(2) Includes tax impact of items above
(3) Represents below-the-line foreign exchange impacts and $7.6 million of expense as a result of early extinguishment of debt
(4) Includes tax impact of items above and $1.3 million benefit related to legal entity simplification and restructuring
First Quarter 2022 - Segment Results
(dollars in millions, comparison vs. 2021 first quarter, unaudited)
 
FPD FCD
Bookings $ 795.6 $ 294.3
- vs. prior year   21.7%   0.1%
- on constant currency   24.6%   2.3%
 
Sales $ 575.6 $ 247.9
- vs. prior year   -4.5%   -3.1%
- on constant currency   -2.1%   -1.2%
 
Gross Profit $ 156.9 $ 59.5
- vs. prior year   -14.2%   -20.2%
 
Gross Margin (% of sales)   27.3%   24.0%
- vs. prior year (in basis points) (310) bps (520) bps
 
Operating Income $ 21.0 $ 15.2
- vs. prior year   -61.0%   -38.5%
- on constant currency   -62.5%   -37.2%
 
Operating Margin (% of sales)   3.6%   6.1%
- vs. prior year (in basis points) (530) bps (360) bps
 
Adjusted Operating Income * $ 39.0 $ 17.4
- vs. prior year   -37.0%   -34.3%
- on constant currency   -38.3%   -33.2%
 
Adj. Oper. Margin (% of sales)*   6.8%   7.0%
- vs. prior year (in basis points) (350) bps (340) bps
 
Backlog $ 1,563.5 $ 672.3
* Adjusted Operating Income and Adjusted Operating Margin exclude realignment charges and other specific discrete items
SEGMENT INFORMATION
(Unaudited)
 
FLOWSERVE PUMP DIVISION Three Months Ended March 31,
(Amounts in millions, except percentages) 2022   2021
Bookings $ 795.6 $ 653.8
Sales   575.6   602.6
Gross profit   156.9   182.9
Gross profit margin   27.3%   30.4%
SG&A   139.8   132.6
Segment operating income   21.0   53.8
Segment operating income as a percentage of sales   3.6%   8.9%
 
FLOW CONTROL DIVISION Three Months Ended March 31,
(Amounts in millions, except percentages) 2022   2021
Bookings $ 294.3 $ 294.0
Sales   247.9   255.8
Gross profit   59.5   74.6
Gross profit margin   24.0%   29.2%
SG&A   44.3   49.9
Segment operating income   15.2   24.7
Segment operating income as a percentage of sales   6.1%   9.7%
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31,   December 31,
(Amounts in thousands, except par value) 2022   2021
 
ASSETS
Current assets:
Cash and cash equivalents $ 575,795   $ 658,452  
Accounts receivable, net of allowance for expected credit losses of $79,326 and $74,336, respectively   730,201     739,210  
Contract assets, net of allowance for expected credit losses of $3,338 and $2,393, respectively   200,054     195,598  
Inventories, net   722,380     678,287  
Prepaid expenses and other   148,426     117,130  
Total current assets   2,376,856     2,388,677  
Property, plant and equipment, net of accumulated depreciation of $1,161,374 and $1,191,823, respectively   506,655     515,927  
Operating lease right-of-use assets, net   187,272     193,863  
Goodwill   1,186,221     1,196,479  
Deferred taxes   31,692     44,049  
Other intangible assets, net   148,461     152,463  
Other assets, net of allowance for expected credit losses of $68,184 and $67,696, respectively   265,854     258,310  
Total assets $ 4,703,011   $ 4,749,768  
 
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable $ 418,719   $ 410,062  
Accrued liabilities   447,175     445,092  
Contract liabilities   204,158     202,965  
Debt due within one year   44,616     41,058  
Operating lease liabilities   32,938     32,628  
Total current liabilities   1,147,606     1,131,805  
Long-term debt due after one year   1,251,595     1,261,770  
Operating lease liabilities   160,057     166,786  
Retirement obligations and other liabilities   352,698     352,062  
Shareholders’ equity:
Common shares, $1.25 par value   220,991     220,991  
Shares authorized – 305,000
Shares issued – 176,793
Capital in excess of par value   496,151     506,386  
Retained earnings   3,648,678     3,691,023  
Treasury shares, at cost – 46,424 and 46,794 shares, respectively   (2,039,900 )   (2,057,706 )
Deferred compensation obligation   7,122     7,214  
Accumulated other comprehensive loss   (578,053 )   (563,589 )
Total Flowserve Corporation shareholders' equity   1,754,989     1,804,319  
Noncontrolling interests   36,066     33,026  
Total equity   1,791,055     1,837,345  
Total liabilities and equity $ 4,703,011   $ 4,749,768  
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended March 31,
(Amounts in thousands) 2022   2021
 
Cash flows – Operating activities:
Net earnings (loss), including noncontrolling interests $ (13,679 ) $ 17,161  
Adjustments to reconcile net earnings (loss) to net cash provided (used) by operating activities:
Depreciation   20,148     21,522  
Amortization of intangible and other assets   3,396     3,862  
Loss on extinguishment of debt   -     7,610  
Stock-based compensation   11,011     9,760  
Foreign currency, asset write downs and other non-cash adjustments   6,893     24,260  
Change in assets and liabilities:
Accounts receivable, net   5,039     9,005  
Inventories, net   (48,715 )   (16,988 )
Contract assets, net   (5,655 )   (2,245 )
Prepaid expenses and other assets, net   (33,197 )   307  
Accounts payable   8,204     (47,093 )
Contract liabilities   2,600     9,001  
Accrued liabilities and income taxes payable   7,302     187  
Retirement obligations and other   10,912     5,248  
Net deferred taxes   (1,032 )   (5,219 )
Net cash flows provided (used) by operating activities   (26,773 )   36,378  
Cash flows – Investing activities:
Capital expenditures   (14,052 )   (11,422 )
Proceeds from disposal of assets and other   1,834     1,934  
Net cash flows provided (used) by investing activities   (12,218 )   (9,488 )
Cash flows – Financing activities:
Payments on senior notes   -     (407,473 )
Payments on term loan   (7,593 )   -  
Proceeds under other financing arrangements   555     425  
Payments under other financing arrangements   (484 )   (1,976 )
Repurchases of common shares   -     (5,081 )
Payments related to tax withholding for stock-based compensation   (4,304 )   (5,547 )
Payments of dividends   (26,128 )   (26,465 )
Other   (437 )   (3,806 )
Net cash flows provided (used) by financing activities   (38,391 )   (449,923 )
Effect of exchange rate changes on cash   (5,275 )   (12,936 )
Net change in cash and cash equivalents   (82,657 )   (435,969 )
Cash and cash equivalents at beginning of period   658,452     1,095,274  
Cash and cash equivalents at end of period $ 575,795   $ 659,305  

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20220502005549/en/

SOURCE: Flowserve Corporation

Investor Contacts:
Jay Roueche, Vice President, Investor Relations & Treasurer
(972) 443-6560 Mike Mullin, Director, Investor Relations
(972) 443-6636 Media Contact:
Lars Rosene, Vice President, Corporate Communications & Public Affairs
(972) 443-6644

COMTEX_406596019/2456/2022-05-02T16:07:21

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/zigman2/quotes/203982564/composite
US : U.S.: NYSE
$ 28.74
+0.11 +0.38%
Volume: 1.08M
July 1, 2022 4:03p
P/E Ratio
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Dividend Yield
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Market Cap
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Rev. per Employee
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