Flowserve (FLS) Q4 2006 earnings summary

Executive summary

• 2006 delivered record sales and bookings, higher gross margin and operating income, and a record year-end backlog, supported by strong end-market investment and operational improvements.

• Strategic priorities centered on organic growth, process excellence, globalization, technology and innovation, portfolio management, and organizational capability.

Financial highlights

• Net sales rose 13.6% to $3.1B in 2006 from $2.7B in 2005; gross profit increased 15.7% to $1.0B from $870.6M.

• Operating income increased to $239.6M from $198.8M; higher SG&A partly offset gross profit growth and fixed-cost leverage.

• Diluted EPS from continuing operations rose to $2.00 from $0.91; bookings from continuing operations increased 23.4% to a record $3.6B.

• Ending backlog reached a record $1.6B, up from $994.1M at year-end 2005.

• Gross margin improved to 32.9% from 32.3%, reflecting continuous improvement initiatives.

Outlook and guidance

• Strategy emphasized capturing growth in oil and gas, emerging regions, aftermarket services, and customer programs aimed at lowering total cost of ownership.

• Planned capacity and service investments included a new pump plant in Coimbatore, India, an expanded valve facility in Bangalore, and a Saudi Arabia service, repair, and training center.

• Technology priorities included smart equipment, energy efficiency, wear monitoring, RFID, subsea and geothermal partnerships, and new product development.