Flowserve (FLS) Q4 2005 earnings summary

Executive summary

• FY2005 sales rose 6.5% excluding currency to $2.70B; record bookings reached $3.02B and year-end backlog $994.1M.

• Operating income increased to $190.1M and continuing-operations diluted EPS to $0.82; net earnings were $11.8M after one-time refinancing and discontinued-operation charges.

• Strong oil and gas, power and chemical markets, operational improvements and aftermarket demand supported growth; 2006 outlook remained positive.

Financial highlights

• Sales were $2,695.3M vs. $2,522.5M; gross profit was $861.8M vs. $758.6M, and gross margin improved to 32.0% from 30.1%.

• Operating income rose to $190.1M from $161.5M; operating margin was 7.1% vs. 6.4%.

• Continuing-operations income was $46.2M, or $0.82 diluted EPS, vs. $25.9M, or $0.46; net earnings were $11.8M vs. $24.2M.

• Operating cash flow was $127.4M vs. $267.5M; bookings totaled $3,022.3M vs. $2,657.4M and ending backlog $994.1M vs. $836.4M.

• Reported net earnings included a $27.7M debt-extinguishment loss and $30.1M GSG impairment; both reduced after-tax earnings by $40.2M in aggregate.

Outlook and guidance

• 2006 revenue was expected to increase from 2005 excluding currency; operating income, net earnings and diluted EPS were also expected to improve.

• Bookings for the three months ended March 31, 2006 rose 23.3% YoY; management cautioned orders may be modified or canceled and may not convert to revenue.

• 2006 capex guidance was $70M-$75M, focused on capacity expansion, ERP upgrades, IT infrastructure and cost reduction.

• 2006 pension contributions were expected at $35M-$40M for U.S. plans and $8M for non-U.S. plans; interest expense was expected below 2005 levels.

• Near-term priorities included becoming current on SEC filings and managing potential plant capacity constraints that could delay shipments or trigger liquidated damages.