Flowserve Corporation Reports Fourth Quarter and Full Year 2018 Results; Issues 2019 Financial Guidance

  • Strong bookings growth for the fourth quarter and full year
  • Significant quarterly expansion in gross and operating margins
  • Continued progress on Flowserve 2.0 transformation

DALLAS--()--Flowserve Corporation (NYSE: FLS), a leading provider of flow control products and services for the global infrastructure markets, today announced its financial results for the fourth quarter and full year ended December 31, 2018.

Fourth Quarter 2018 Highlights (all comparisons to the 2017 fourth quarter, unless otherwise noted)

  • Reported Earnings Per Share (EPS) of $0.48 and Adjusted EPS[1] of $0.58
    • Reported EPS includes pre-tax adjusted items of approximately $27 million, including realignment and transformation expenses and below-the-line foreign exchange impacts
    • Adjusted EPS increased 16%, and 18% on a sequential basis
  • Total bookings were $1.05 billion, up 6.1%, or 8.8% on a constant currency basis, and included approximately 1% negative impact related to divested businesses. Book-to-bill was 1.06
    • Aftermarket bookings were $533 million, or 51% of total bookings, up 14.9%, or 18.2% on a constant currency basis
  • Sales were $987 million, down 4.6%, or 2.0% on a constant currency basis and included approximately 1% negative impact related to divested businesses
    • Aftermarket sales were $496 million, down 1.2%, or up 1.9% on a constant currency basis
  • Reported gross and operating margins were 32.6% and 9.4%, respectively
    • Adjusted gross and operating margins[2] increased 300 and 170 basis points to 33.7% and 11.9%, respectively

Full Year 2018 Highlights (all comparisons to full year 2017, unless otherwise noted)

  • Reported EPS of $0.91 and Adjusted EPS[1] of $1.75
    • Reported EPS includes pre-tax adjusted items of approximately $146 million, primarily related to realignment and transformation expenses, a loss on divested assets and below-the-line foreign exchange impacts
  • Total bookings were $4.02 billion, up 5.7%, or 4.9% on a constant currency basis, and included approximately 1% negative impact related to divested businesses. Book-to-bill was 1.05.
    • Aftermarket bookings were $2.03 billion, or 50% of total bookings, up 10.6%, or 11.0% on a constant currency basis
  • Backlog at December 31, 2018 was $1.90 billion, up 5.3% versus 2018 beginning backlog
  • Sales were $3.83 billion, up 4.7%, or 3.8% on a constant currency basis and included approximately 1% negative impact related to divested businesses.
    • Aftermarket sales were $1.90 billion, up 6.3%, or 5.2% on a constant currency basis
  • Reported gross and operating margins of 31.0% and 6.5%, respectively
    • Adjusted gross and operating margins[2] increased 90 and 100 basis points to 32.3% and 9.8%, respectively

“The Flowserve 2.0 transformation continues to drive significant improvement as seen by the 29% increase in our full year 2018 adjusted EPS. Improved operational performance drove adjusted gross and operating margin expansion for both the quarter and full year, including IPD’s highest adjusted operating margin since 2015,” said Scott Rowe, Flowserve’s president and chief executive officer. “Double-digit growth in aftermarket bookings in the quarter, combined with an increased backlog at year-end provides a solid foundation for growth in 2019.”

Lee Eckert, Flowserve’s senior vice president and chief financial officer, added, “Flowserve delivered solid operating cash flow of $164 million in the 2018 fourth quarter, continuing the momentum of the second and third quarters. Working capital efficiency remains a key priority and we delivered improvement in 2018, including both inventory and accounts receivables declines since the beginning of 2018, even with growth in bookings and sales.”

Rowe concluded, “As we look to this year, we remain focused on advancing our Flowserve 2.0 initiatives to capitalize on the momentum we achieved in 2018. Our priorities include further operating improvements and driving strategic and deliberate growth. Despite the current market uncertainties from ongoing geopolitical headwinds, including tariffs, sanctions and certain regional challenges, we believe in our ability to deliver continued operational improvements together with top- and bottom-line growth. We look forward to our continued progress in 2019 as we remain committed to driving long-term value creation for our customers, employees and shareholders.”

2019 Initial Guidance[3]

Flowserve is providing Reported and Adjusted EPS guidance for 2019, as well as certain other financial metrics, as shown in the table below.

    2019 Target Range
Revenues Up 4.0% to 6.0%
Reported Earnings Per Share $1.60 - $1.80
Adjusted Earnings Per Share $1.95 - $2.15
Net interest expense $55 - $57 million
Adjusted Tax rate 26% - 28%
 

Flowserve’s 2019 Adjusted EPS target range excludes expected realignment and transformation charges of approximately $65 million, as well as the potential impact of below-the-line foreign currency effects and certain other discrete items. Both the Reported and the Adjusted EPS target range includes the expected revenue increase of approximately 4.0 to 6.0 percent year-over-year, and is based on current foreign currency rates and commodity prices, 2018 year-end backlog, expected bookings levels and market conditions, the reset of annual incentive performance goals, a broad-based merit increase, modest above-the-line negative foreign currency impacts, net interest expense in the range of $55 to $57 million and an adjusted tax rate of 26 to 28 percent. The quarterly phasing of expected 2019 earnings is anticipated to reflect Flowserve’s traditional seasonality, although more pronounced in its second half weighting as additional transformation benefits are expected to be realized.

Fourth Quarter 2018 Results Conference Call

Flowserve will host its conference call with the financial community on Thursday, February 21st 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 2019 EPS will exclude the Company’s realignment expenses, the impact from other specific one-time events and below-the-line foreign currency effects and utilizes year-end 2018 FX rates and approximately 131 million fully diluted shares.
_ FX headwind is calculated by comparing the difference between the actual average FX rates of 2018 and the year-end 2018 spot rates both as applied to our 2019 expectations, divided by the number of shares expected for 2019.
 

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: 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 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 third-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.

 
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
  Three Months Ended December 31,
(Amounts in thousands, except per share data)   2018       2017  
 
Sales $ 986,867 $ 1,034,069
Cost of sales   (665,022 )   (727,575 )
Gross profit 321,845 306,494
Selling, general and administrative expense (231,869 ) (221,422 )
Gain on sale of businesses - 159
Net earnings from affiliates   3,235     3,564  
Operating income 93,211 88,795
Interest expense (14,516 ) (15,041 )
Interest income 2,228 1,056
Other expense, net   (2,362 )   (7,855 )
Earnings before income taxes 78,561 66,955
Provision for income taxes   (14,197 )   (172,843 )
Net earnings (loss), including noncontrolling interests 64,364 (105,888 )
Less: Net (earnings) loss attributable to noncontrolling interests   (1,261 )   6  
Net earnings (loss) attributable to Flowserve Corporation $ 63,103   $ (105,882 )
 
Net earnings per share attributable to Flowserve Corporation common shareholders:
Basic $ 0.48 $ (0.81 )
Diluted 0.48 (0.81 )

       
RECONCILIATION OF NON-GAAP MEASURES
(Unaudited)
 
Three Months Ended December 31, 2018
(Amounts in thousands, except per share data) As Reported (a) Realignment (1) Other Items As Adjusted
 
Sales $ 986,867 $ - $ - $ 986,867
Gross profit 321,845 (11,104 ) - 332,949

Gross margin

32.6 % - - 33.7 %
 
Selling, general and administrative expense (231,869 ) 513 (13,815 ) (3) (218,567 )
Loss on sale of business - - - -
 
Operating income 93,211 (10,591 ) (13,815 ) 117,617
Operating income as a percentage of sales 9.4 % - - 11.9 %
 
Interest and other expense, net (14,650 ) - (2,337 ) (4) (12,313 )
 
Earnings before income taxes 78,561 (10,591 ) (16,152 ) 105,304
Provision for income taxes (14,197 ) 3,211 (2) 10,062 (5) (27,470 )
Tax Rate 18.1 % 30.3 % 62.3 % 26.1 %
 
Net earnings attributable to Flowserve Corporation $ 63,103 $ (7,380 ) $ (6,090 ) $ 76,573
 
Net earnings per share attributable to Flowserve Corporation common shareholders:
Basic $ 0.48 $ (0.06 ) $ (0.05 ) $ 0.59
Diluted $ 0.48 $ (0.06 ) $ (0.05 ) $ 0.58
 
Basic number of shares used for calculation 130,845 130,845 130,845 130,845
Diluted number of shares used for calculation 131,413 131,413 131,413 131,413
 
(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 Flowserve 2.0 transformation efforts
(4) Represents below-the-line foreign exchange impacts
(5) Includes tax impact of items above and a $5.7 million tax benefit related to the U.S. Tax Cuts and Jobs Act of 2017

       
RECONCILIATION OF NON-GAAP MEASURES
(Unaudited)
 
Three Months Ended December 31, 2017
(Amounts in thousands, except per share data) As Reported (a) Realignment (1) Other Items As Adjusted
 
Sales $ 1,034,069 $ - $ - $ 1,034,069
Gross profit 306,494 (10,575 ) - 317,069
Gross margin 29.6 % - - 30.7 %
 
Selling, general and administrative expense (221,422 ) (1,672 ) (4,115 ) (3) (215,635 )
Gain on sale of businesses 159 - 159 (4) -
 
Operating income 88,796 (12,247 ) (3,956 ) 104,999
Operating income as a percentage of sales 8.6 % - - 10.2 %
 
Interest and other expense, net (21,841 ) - (4,294 ) (5) (17,547 )
 
Earnings before income taxes 66,955 (12,247 ) (8,250 ) 87,452
Provision for income taxes (172,843 ) 4,361 (2) (155,538 ) (6) (21,666 )
Tax Rate 258.1 % 35.6 % -1885.3 % 24.8 %
 
Net (loss) earnings attributable to Flowserve Corporation $ (105,882 ) $ (7,886 ) $ (163,788 ) $ 65,792
 
Net (loss) earnings per share attributable to Flowserve Corporation common shareholders:
Basic $ (0.81 ) $ (0.06 ) $ (1.25 ) $ 0.50
Diluted $ (0.81 ) $ (0.06 ) $ (1.25 ) $ 0.50
 
Basic number of shares used for calculation 130,681 130,758 130,758 130,758
Diluted number of shares used for calculation 130,681 131,417 131,417 131,417
 
(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 $1.2 million of SIHI integration costs and purchase price adjustments ("PPA") and $2.9 million of Mexico asset impairment charge
(4) Represents gain related to the sale of Vogt business
(5) Represents below-the-line foreign exchange impacts
(6) Includes tax impact of items above, a $115.3 million tax charge related to the U.S. Tax Cuts and Jobs Act of 2017 and certain tax valuation allowances totaling $43.1 million

   
SEGMENT INFORMATION
(Unaudited)
ENGINEERED PRODUCT DIVISION Three Months Ended December 31,
(Amounts in millions, except percentages)   2018     2017  
Bookings $ 545.0 $ 485.5
Sales 484.6 498.9
Gross profit 146.6 141.7
Gross profit margin 30.3 % 28.4 %
SG&A 90.6 93.9
Segment operating income 59.1 51.5
Segment operating income as a percentage of sales 12.2 % 10.3 %
 
INDUSTRIAL PRODUCT DIVISION Three Months Ended December 31,
(Amounts in millions, except percentages)   2018     2017  
Bookings $ 203.2 $ 205.8
Sales 196.4 215.3
Gross profit 59.2 45.9
Gross profit margin 30.1 % 21.3 %
SG&A 40.5 49.1
Segment operating income (loss) 18.9 (2.9 )
Segment operating income (loss) as a percentage of sales 9.6 % (1.4 %)
 
FLOW CONTROL DIVISION Three Months Ended December 31,
(Amounts in millions, except percentages)   2018     2017  
Bookings $ 318.0 $ 314.1
Sales 325.9 344.6
Gross profit 118.3 118.8
Gross profit margin 36.3 % 34.5 %
SG&A 53.8 49.7
Gain on sale of businesses - 0.2
Segment operating income 64.5 68.8
Segment operating income as a percentage of sales 19.8 % 20.0 %

 
CONSOLIDATED STATEMENTS OF INCOME
     
Year Ended December 31,
(Amounts in thousands, except per share data)   2018     2017     2016  
 
Sales $ 3,832,666 $ 3,660,831 $ 3,990,487
Cost of sales   (2,644,830 )   (2,571,878 )   (2,753,689 )
Gross profit 1,187,836 1,088,953 1,236,798
Selling, general and administrative expense (943,714 ) (901,727 ) (965,376 )
(Loss) gain on sale of businesses (7,727 ) 141,317 (7,664 )
Net earnings from affiliates   11,143     12,592     12,926  
Operating income 247,538 341,135 276,684
Interest expense (58,160 ) (59,730 ) (60,137 )
Interest income 6,465 3,429 2,804
Other expense, net   (19,569 )   (21,827 )   (6,439 )
Earnings before income taxes 176,274 263,007 212,912
Provision for income taxes   (51,224 )   (258,679 )   (77,380 )
Net earnings, including noncontrolling interests 125,050 4,328 135,532
Less: Net earnings attributable to noncontrolling interests   (5,379 )   (1,676 )   (3,077 )
Net earnings attributable to Flowserve Corporation $ 119,671   $ 2,652   $ 132,455  
 
Net earnings per share attributable to Flowserve Corporation common shareholders:
Basic $ 0.91 $ 0.02 $ 1.02
Diluted 0.91 0.02 1.01

       
RECONCILIATION OF NON-GAAP MEASURES
(Unaudited)
 
12 Months Ended December 31, 2018
(Amounts in thousands, except per share data) As Reported (a) Realignment (1) Other Items As Adjusted
 
Sales $ 3,832,666 $ - $ - $ 3,832,666
Gross profit 1,187,836 (42,697 ) (7,713 ) (3) 1,238,246
Gross margin 31.0 % - - 32.3 %
 
Selling, general and administrative expense (943,714 ) (11,235 ) (58,180 ) (4) (874,299 )
Gain on sale of business (7,727 ) - (7,727 ) (5) -
 
Operating income 247,538 (53,932 ) (73,620 ) 375,090
Operating income as a percentage of sales 6.5 % - - 9.8 %
 
Interest and other expense, net (71,264 ) - (18,686 ) (6) (52,578 )
 
Earnings before income taxes 176,274 (53,932 ) (92,306 ) 322,512
Provision for income taxes (51,225 ) 12,863 (2) 23,273 (7) (87,361 )
Tax Rate 29.1 % 23.9 % 25.2 % 27.1 %
 
Net earnings attributable to Flowserve Corporation $ 119,671 $ (41,069 ) $ (69,033 ) $ 229,773
 
Net earnings per share attributable to Flowserve Corporation common shareholders:
Basic $ 0.91 $ (0.31 ) $ (0.53 ) $ 1.76
Diluted $ 0.91 $ (0.31 ) $ (0.53 ) $ 1.75
 
Basic number of shares used for calculation 130,823 130,823 130,823 130,823
Diluted number of shares used for calculation 131,271 131,271 131,271 131,271
 
(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 $7.7 million related to IPD divestiture write-down of assets
(4) Represents $9.7 million related to IPD divestiture write-down of assets, $7.3 million related to implementation costs for the adoption of ASC 606 and $41.2 million related to Flowserve 2.0 transformation efforts
(5) Represents IPD loss on sale of business
(6) Represents below-the-line foreign exchange impacts
(7) Includes tax impact of items above and a $5.7 million tax benefit related to the U.S. Tax Cuts and Jobs Act of 2017

       
RECONCILIATION OF NON-GAAP MEASURES
(Unaudited)
 
Twelve Months Ended December 31, 2017
(Amounts in thousands, except per share data) As Reported (a) Realignment (1) Other Items As Adjusted
 
Sales $ 3,660,831 $ - $ - $ 3,660,831
Gross profit 1,088,953 (43,946 ) (16,928 ) (3) 1,149,827
Gross margin 29.7 % - - 31.4 %
 
Selling, general and administrative expense (901,727 ) (27,308 ) (33,798 ) (4) (840,621 )
Gain on sale of businesses 141,317 - 141,317 (5) -
 
Operating income 341,135 (71,254 ) 90,591 321,798
Operating income as a percentage of sales 9.3 % - - 8.8 %
 
Interest and other expense, net (78,128 ) - (13,965 ) (6) (64,163 )
 
Earnings before income taxes 263,007 (71,254 ) 76,626 257,635
Provision for income taxes (258,679 ) 17,003 (2) (198,264 ) (7) (77,418 )
Tax Rate 98.4 % 23.9 % 258.7 % 30.0 %
 
Net earnings attributable to Flowserve Corporation $ 2,652 $ (54,251 ) $ (121,638 ) $ 178,541
 
Net earnings per share attributable to Flowserve Corporation common shareholders:
Basic $ 0.02 $ (0.42 ) $ (0.93 ) $ 1.37
Diluted $ 0.02 $ (0.41 ) $ (0.93 ) $ 1.36
 
Basic number of shares used for calculation 130,703 130,703 130,703 130,703
Diluted number of shares used for calculation 131,358 131,358 131,358 131,358
 
(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 reserve for costs incurred related to a contract to supply oil and gas platform equipment to an end user in Latin America
(4) Represents $4.4 million of SIHI integration costs and purchase price adjustments ("PPA"), $29.0 million of asset impairment charges and $0.4 million reserve for costs incurred related to a contract to supply oil and gas platform equipment to an end user in Latin America
(5) Represents gain related to the sale of Gestra and Vogt businesses
(6) Represents below-the-line foreign exchange impacts
(7) Includes tax impact of items above, a $115.3 million tax charge related to the U.S. Tax Cuts and Jobs Act of 2017 and certain tax valuation allowances totaling $43.1 million

     
SEGMENT INFORMATION
 
ENGINEERED PRODUCT DIVISION Year Ended December 31,
(Amounts in millions, except percentages)   2018     2017     2016  
Bookings $ 1,995.1 $ 1,842.1 $ 1,823.8
Sales 1,899.2 1,775.4 1,996.0
Gross profit 586.0 545.9 624.0
Gross profit margin 30.9 % 30.7 % 31.3 %
SG&A 390.5 399.3 457.6
Loss on sale of business - - (7.7 )
Segment operating income 206.9 159.1 171.1
Segment operating income as a percentage of sales 10.9 % 9.0 % 8.6 %
 
INDUSTRIAL PRODUCT DIVISION Year Ended December 31,
(Amounts in millions, except percentages)   2018     2017     2016  
Bookings $ 838.5 $ 821.7 $ 797.7
Sales 799.4 775.2 835.1
Gross profit 189.4 144.1 183.2
Gross profit margin 23.7 % 18.6 % 21.9 %
SG&A 188.4 193.7 189.3
Loss on sale of business (7.7 ) - -
Segment operating loss (6.2 ) (48.8 ) (5.2 )
Segment operating loss as a percentage of sales -0.8 % -6.3 % -0.6 %
 
FLOW CONTROL DIVISION Year Ended December 31,
(Amounts in millions, except percentages)   2018     2017     2016  
Bookings $ 1,274.3 $ 1,225.7 $ 1,216.8
Sales 1,215.8 1,188.1 1,233.7
Gross profit 416.9 396.7 429.9
Gross profit margin 34.3 % 33.4 % 34.8 %
SG&A 215.0 213.6 226.9
Gain on sale of businesses - 141.3 -
Segment operating income 201.2 323.7 202.6
Segment operating income as a percentage of sales 16.5 % 27.2 % 16.4 %

           
Fourth Quarter and Year-to-Date 2018 - Segment Results
(dollars in millions, comparison vs. 2017 fourth quarter and year-to-date, unaudited)
 
EPD IPD FCD
4th Qtr YTD 4th Qtr YTD 4th Qtr YTD
Bookings $ 545.0 $ 1,995.1 $ 203.2 $ 838.5 $ 318.0 $ 1,274.3
- vs. prior year 12.3 % 8.3 % -1.3 % 2.0 % 1.2 % 4.0 %
- on constant currency 15.3 % 7.9 % 1.0 % 0.5 % 3.5 % 3.0 %
 
Sales $ 484.6 $ 1,899.2 $ 196.4 $ 799.4 $ 325.9 $ 1,215.8
- vs. prior year -2.9 % 7.0 % -8.8 % 3.1 % -5.4 % 2.3 %
- on constant currency - 6.3 % -6.8 % 1.7 % -3.2 % 1.7 %
 
Gross Profit $ 146.6 $ 586.0 $ 59.2 $ 189.4 $ 118.3 $ 416.9
- vs. prior year 3.4 % 7.3 % 29.0 % 31.4 % -0.4 % 5.1 %
 
Gross Margin (% of sales) 30.3 % 30.9 % 30.1 % 23.7 % 36.3 % 34.3 %
- vs. prior year (in basis points) 190 bps 20 bps 880 bps 510 bps 180 bps 90 bps
 
Operating Income / (Loss) $ 59.1 $ 206.9 $ 18.9 $ (6.2 ) $ 64.5 $ 201.2
- vs. prior year 14.8 % 30.0 % 751.7 % 87.3 % -6.3 % -37.8 %
- on constant currency 19.6 % 29.3 % 765.6 % 91.0 % -3.9 % -37.4 %
 
Operating Margin (% of sales) 12.2 % 10.9 % 9.6 % -0.8 % 19.8 % 16.5 %
- vs. prior year (in basis points) 190 bps 190 bps 1090 bps 550 bps 20 bps (1070) bps
 
Adjusted Operating Income / (Loss) * $ 70.3 $ 245.1 $ 20.1 $ 26.0 $ 62.8 $ 204.1
- vs. prior year 17.6 % 14.7 % NM NM -10.8 % 3.7 %
- on constant currency 21.7 % 14.2 % NM NM -8.5 % 4.4 %
 
Adj. Oper. Margin (% of sales)* 14.5 % 12.9 % 10.2 % 3.3 % 19.3 % 16.8 %
- vs. prior year (in basis points) 250 bps 90 bps 950 bps 350 bps (110) bps 20 bps
 
Backlog $ 922.6 $ 394.0 $ 608.4
 

* Adjusted Operating Income and Adjusted Operating Margin exclude realignment and transformation charges, below-the-line FX impacts and other specific discrete items

   
CONSOLIDATED BALANCE SHEETS
 
December 31,
(Amounts in thousands, except per share data)   2018     2017  
 
ASSETS
Current assets:
Cash and cash equivalents $ 619,683 $ 703,445
Accounts receivable, net 792,434 856,711
Contract assets, net 228,579 -
Inventories, net 633,871 884,273
Prepaid expenses and other   108,578     114,316  
Total current assets 2,383,145 2,558,745
Property, plant and equipment, net 610,096 671,796
Goodwill 1,197,640 1,218,188
Deferred taxes 44,682 51,974
Other intangible assets, net 190,550 210,049
Other assets, net   190,164     199,722  
Total assets $ 4,616,277   $ 4,910,474  
 
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable 418,893 443,113
Accrued liabilities 391,406 724,196
Contract liabilities 202,458 -
Debt due within one year   68,218     75,599  

Total current liabilities

1,080,975 1,242,908
Long-term debt due after one year 1,414,829 1,499,658
Retirement obligations and other liabilities 459,693 496,954
Shareholders’ equity:
Common shares, $1.25 par value 220,991 220,991
Shares authorized – 305,000
Shares issued — 176,793 and 176,793, respectively
Capital in excess of par value 494,551 488,326
Retained earnings 3,543,007 3,503,947
Treasury shares, at cost — 46,237 and 46,471 shares, respectively (2,049,404 ) (2,059,558 )
Deferred compensation obligation 7,117 6,354
Accumulated other comprehensive loss   (573,947 )   (505,473 )
Total Flowserve Corporation shareholders' equity 1,642,315 1,654,587
Noncontrolling interests   18,465     16,367  
Total equity   1,660,780     1,670,954  
Total liabilities and equity $ 4,616,277   $ 4,910,474  

     
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
Year Ended December 31,
(Amounts in thousands)   2018     2017     2016  
 
Cash flows – Operating activities:
Net earnings, including noncontrolling interests $ 125,050 $ 4,328 $ 135,532
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation 95,820 101,438 99,897
Amortization of intangible and other assets 16,653 17,016 16,855
Loss (gain) on disposition of businesses 7,727 (141,317 ) 7,664
Stock-based compensation 19,912 22,820 30,213
Provision for U.S. Tax Cuts and Jobs Act of 2017 and Latin America accounts receivable reserve (5,654 ) 115,320 73,452
Foreign currency, asset impairments and other non-cash adjustments 36,052 33,087 (8,127 )
Change in assets and liabilities:
Accounts receivable, net (25,448 ) 60,216 36,927
Inventories, net (29,314 ) 48,642 52,892
Contract assets, net (23,693 ) - -
Prepaid expenses and other assets, net (7,869 ) 32,935 (45,475 )
Contract liabilities 33,710 - -
Accounts payable (4,823 ) 12,403 (71,008 )
Accrued liabilities and income taxes payable (18,248 ) (3,383 ) (88,770 )
Retirement obligations and other (44,314 ) (43,431 ) 16,372
Net deferred taxes   15,270     50,992     (15,948 )
Net cash flows provided by operating activities   190,831     311,066     240,476  
Cash flows – Investing activities:
Capital expenditures (83,993 ) (61,602 ) (89,699 )
Proceeds from disposal of assets 6,190 5,435 3,294
(Payments for) proceeds from disposition of businesses   (3,663 )   232,767     (5,064 )
Net cash flows (used) provided by investing activities   (81,466 )   176,600     (91,469 )
Cash flows – Financing activities:
Payments on long-term debt (60,000 ) (60,000 ) (60,000 )
Payments of deferred loan costs - (1,503 ) -
Proceeds under other financing arrangements 3,377 7,359 35,680
Payments under other financing arrangements (9,853 ) (19,030 ) (12,636 )
Payments related to tax withholding for stock-based compensation (3,061 ) (6,238 ) (10,405 )
Payments of dividends (99,416 ) (99,233 ) (97,746 )
Other   (4,331 )   (6,708 )   1,386  
Net cash flows used by financing activities (173,284 ) (185,353 ) (143,721 )
Effect of exchange rate changes on cash   (19,843 )   33,970     (4,568 )
Net change in cash and cash equivalents (83,762 ) 336,283 718
Cash and cash equivalents at beginning of period   703,445     367,162     366,444  
Cash and cash equivalents at end of period $ 619,683   $ 703,445   $ 367,162  
Income taxes paid (net of refunds) $ 87,009 $ 59,409 $ 151,191
Interest paid 54,576 56,808 57,393

       
CONSOLIDATED QUARTERLY FINANCIAL DATA
(Unaudited)
(Amounts in millions, except per share data)
2018
Quarter 4th 3rd 2nd 1st
Sales $ 986.9 $ 952.7 $ 973.1 $ 920.0
Gross profit 321.8 308.5 286.1 271.4
Earnings before income taxes 78.6 44.4 28.3 25.0
Net earnings attributable to Flowserve Corporation 63.1 28.2 13.2 15.1
Earnings per share (1):
Basic $ 0.48 $ 0.22 $ 0.10 $ 0.12
Diluted $ 0.48 $ 0.21 $ 0.10 $ 0.12
 
 
2017
Quarter 4th 3rd 2nd 1st
Sales $ 1,034.1 $ 883.4 $ 877.1 $ 866.3
Gross profit 304.4 267.5 245.0 268.4
Earnings before income taxes 67.0 68.4 103.0 24.6
Net (loss) earnings attributable to Flowserve Corporation (105.9 ) 47.6 41.9 19.1
(Loss) earnings per share (1):
Basic ($0.81 ) $ 0.36 $ 0.32 $ 0.15
Diluted ($0.81 ) $ 0.36 $ 0.32 $ 0.15
 
(1) Earnings per share is computed independently for each of the quarters presented. The sum of the quarters may not equal the total year amount due to the impact of changes in weighted average quarterly shares outstanding.

Contacts

Flowserve
Investor Contacts:
Jay Roueche, Vice President, Investor Relations & Treasurer, (972) 443-6560
Mike Mullin, Director, Investor Relations, (972) 443-6644

Media Contact:
Lars Rosene, Vice President, Corporate & Marketing Communications, (972) 443-6636

Contacts

Flowserve
Investor Contacts:
Jay Roueche, Vice President, Investor Relations & Treasurer, (972) 443-6560
Mike Mullin, Director, Investor Relations, (972) 443-6644

Media Contact:
Lars Rosene, Vice President, Corporate & Marketing Communications, (972) 443-6636