Flowserve (FLS) Q4 2011 earnings summary

Executive summary

• FY11 sales rose 11.9% to $4.51B, while net earnings increased to $428.6M and diluted EPS to $7.64; bookings grew 10.2% to $4.66B and year-end backlog reached $2.69B.

• Demand improved across several markets, but gross margin declined as large low-margin projects, currency effects, late-project charges and higher material costs offset higher aftermarket mix and cost savings.

Financial highlights

• Q4 sales were $1.265B vs. $1.140B YoY; net earnings were $125.1M vs. $112.6M and diluted EPS was $2.25 vs. $2.00.

• FY11 sales increased 11.9% to $4.510B; gross profit rose 7.4% to $1.514B, while operating income increased 6.4% to $618.7M.

• Net earnings attributable to shareholders rose to $428.6M from $388.3M; diluted EPS was $7.64 vs. $6.88.

• Operating cash flow fell to $218.2M from $355.8M, with working capital absorbing cash as receivables rose $243.1M and inventory increased $139.8M.

Outlook and guidance

• FY12 revenue was expected to increase YoY excluding currency effects, supported by higher shipments from backlog; management expected results weighted toward H2 amid past-due backlog reduction and late low-margin project shipments.

• FY12 capital expenditures expected at $120M–$130M before acquisitions; interest expense expected comparable to FY11, with $25M scheduled debt repayments.

• Expected FY12 pension contributions: $20M–$25M to the U.S. plan and ~$10M to non-U.S. plans; operating cash flow was expected to fund working capital, capex, dividends, repurchases, debt and pension needs.

• Management remained cautious amid global economic uncertainty despite eight consecutive quarters of bookings above $1B and year-end backlog growth.