Wednesday, industrial pump and valve maker Flowserve Corp. (FLS), reported a decline in second-quarter earnings from last year, hurt by charges related to the its restructuring initiatives. Earnings for the quarter, however, came in above Street estimates. Sales for the quarter decreased 6% over the prior year, mainly due to lower sales in the company's Flow Control and Flow Solutions divisions. Adjusting its forecast for fiscal year 2009, the company raised its full year earnings guidance.
The Dallas, Texas-based company reported net income attributable to the company for the second quarter of $108.22 million, compared to $122.86 million in the year-ago quarter.
On per share basis, net income declined 9% to $1.92 from $2.12 in the same quarter last year, including about $0.25 of realignment charges. Excluding realignment charges, second quarter earnings increased 2% to $2.17 per share, primarily due to continued successful operational excellence initiatives.
On average, seven analysts polled by Thomson Reuters expected the company to earn $1.79 per share for the quarter. Analysts' estimates typically exclude special items.
Sales for the quarter declined 6% to $1.09 billion from $1.16 billion in the prior-year quarter. Excluding negative currency effects of $110 million, sales for the quarter rose 4% over the year-ago period. Six analysts had a revenue consensus of $1.17 billion for the second quarter.
The company attributed the decline in total sales to lower sales by the Flow Control Division and the Flow Solutions Division, somewhat offset by increased sales from Flowserve Pump Division.
Segment wise, Flowserve Pump Division's quarterly sales totaled $659.8 million, up from $633.2 million in the same quarter last year. Sales in the company's Flow Control Division decreased to $302.5 million from $370.2 million in the second quarter of 2008. Flow Solutions Division posted sales of $144.7 million, a decrease from $174.0 in the year-ago quarter.
Gross margin for the quarter decreased by 70 basis points to 35.4%, and operating margin dropped 30 basis points to 14.6%, driven by $12 million of realignment charges, partially offset by improved pricing on orders booked during 2008 and cost savings from operational excellence programs and the realignment initiative.
Bookings for the second quarter were down 21% at $1.04 billion. The company said the shortfall was mainly related to the chemical, oil and gas and general industries market and a decline in the overall distributor business in the Flow Control Division, due to inventory de-stocking. It also reflects customers' responses to concerns regarding some remaining disruptions in the credit and capital markets, global economic conditions and the re-evaluation of customer budget assumptions for certain projects, thereby delaying certain expected orders.
Backlog at the end of the quarter decreased 4% to $2.71 billion from $2.83 billion at the end December 31, 2008, including positive currency effects of about $35 million and cancellations of $19 million of orders booked in the prior year.
Selling, general and administrative expenses decreased 8% to $231 million from $250 million in the prior-year quarter. Expenses as a percentage of sales decreased 40 basis points to 21.2%, primarily attributable to cost containment initiatives.
Operating income decreased to $159 million while over the previous year. margin decreased 30 basis points to 14.6% from 14.9% including realignment charges, or increased to 16.4% excluding realignment charges.
Commenting on the results, Flowserve president and chief executive officer, Lewis Kling said, "We have achieved direct benefits of $7 million year-to-date and expect the realignment initiative to show increased benefits in the second half of 2009, delivering a full annual run rate savings of approximately $56 million on the planned $40 million of realignment expense. This, along with our continued focus on SG&A efficiencies, aftermarket strategies, as well as benefits from an expected mix shift to greater aftermarket business, should continue to drive earnings power into the future."
For the six-month period, the company's net income decreased to $200.53 million or $3.56 per share from $210.93 million or $3.65 per share in the same period last year.
Sales for the first half of fiscal 2009 dropped to $2.12 billion from $2.15 billion in the similar period of fiscal 2008.
Looking forward, the company raised its 2009 full year earnings target to a range of $7.15 to $7.75 per share from its previous estimates in the range of $6.75 to $7.50 per share.
Street analysts expect earnings of $7.25 per share.
Flowserve shares, which have traded in a range of $37.18 to $145.45 over the past year, closed Wednesday's regular trading session at $72.19, down $0.90 or 1.23%, but gained $3.21 or 4.45% in after hours trading.
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