Flowserve (FLS) Q4 2004 earnings summary

Executive summary

• FY2004 sales rose to $2,638.2 million; operating income was $155.8 million and net earnings were $24.2 million, down from $44.5 million in 2003.

• Demand improved in core markets, especially oil and gas; aftermarket activity, operational improvements and international growth supported performance.

• Results and prior periods were affected by a significant restatement; management also reported ineffective internal and disclosure controls at year-end.

Financial highlights

• Sales rose 6.4% YoY excluding ~$114 million of currency benefits; reported sales increased from $2,372.6 million to $2,638.2 million.

• Gross profit was $778.8 million, with a 29.5% margin; operating income was $155.8 million, or 5.9% of sales.

• Net earnings were $24.2 million and diluted EPS was $0.43, versus $44.5 million and $0.80 in 2003; continuing-operations diluted EPS was $0.36.

• Operating cash flow increased to $267.5 million from $181.3 million; capital expenditures were $45.2 million and debt ended the year at $701.8 million.

• Reported 2004 earnings included $2.7 million of debt-repayment charges and $14.4 million of other expense, including derivative-related losses; the effective tax rate was 66.2%.

Outlook and guidance

• 2005 bookings rose 13.9% to $3,026.1 million; management expected 2005 revenue to increase excluding currency fluctuations, while noting bookings may not convert to revenue.

• 2005 operating income and net earnings/EPS were expected to improve, with operational gains partly offset by audit, restatement, tax, transition, refinancing and compensation costs.

• 2005 interest expense was expected to decline after refinancing, while the refinancing loss was expected to more than offset that benefit; the effective tax rate was expected to be significantly lower than 2004.

• 2005 capital expenditures were projected at $45–$50 million; management also targeted lower DSO and improved inventory turns.