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Flowserve (FLS) Down 3.3% Since Earnings Report: Can It Rebound?
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It has been about a month since the last earnings report for Flowserve Corporation (FLS - Free Report) . Shares have lost about 3.3% in that time frame, underperforming the market.
Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Flowserve Q1 Earnings Top, Down Y/Y, Guidance Intact
Flowserve’s bottom line beat estimates for the second consecutive quarter, reversing last year's earnings miss trend. The company’s first-quarter 2017 adjusted earnings of $0.25 per share topped the Zacks Consensus Estimate of $0.20 by 25.0%.
However, on a reported basis, the company’s earnings per share plunged 62.1% to $0.11 on a year-over-year basis. Precipitous top-line decline, owing to macroeconomic volatility as well as foreign currency headwinds, proved to be major drags for the bottom line.
Quarter in Detail
Revenues fell 8.8% year over year to $863.6 million. However, revenues surpassed the Zacks Consensus Estimate of $798 million. Low original equipment sales and poor sales of every segment across end markets, excluding Europe, proved to be a drag on the revenues. Also, foreign currency headwinds eroded sales by $10 million.
The company’s bookings totaled $958.2 million in first-quarter 2017, up 5.3% year over year at constant currency (cc). After-market bookings totaled $457 million and were also up 3% at cc. Growth in bookings came on the back of modest recovery in oil & gas industry and higher original equipment bookings.
Operating income of the company came in at $47.0 million, compared with $74.4 million recorded in the year-ago period. Foreign currency headwinds and lower gross profits acted as major dampeners for operating income performance. Also, adjusted gross margin contracted 180 bps to 31.5%, mainly attributable to poor top-line performance and lower margin projects.
Segmental Results
Engineered Product Division revenues were down 10.9% year over year to $422.0 million in the quarter. Negative currency translation effects, along with lower original equipment sales in the Americas and Africa, crippled the sales of this segment. However, bookings were up 8.6% year over year to $460.9 million, primarily due to modest recovery in the oil and gas, and chemical industries. The increase in customer original equipment bookings acted as a major catalyst.
Sales at the Flow Control Division declined 6.2% year over year to $280.4 million, hit by currency headwinds and soft customer original equipment sales in key end markets.
Bookings of this segment totaled $309.8 million, flat year over year. While decreased customer bookings in the general industries proved to be a drag on bookings, this was largely offset by increase in bookings from the oil and gas, and power generation industries.
Moreover, Industrial Product Division sales were down 9.7% year over year to $178.4 million. Foreign currency headwinds, along with low original equipment sales, resulted in the decline across all main geographies. Furthermore, bookings totaled $206.7 million, flat year over year. Dismal bookings in power generation and chemical industries offset the improvements in the oil and gas industry.
Restructuring Initiatives
Currently, the company is following its $400 million multi-year investment, which is anticipated to result in savings of $195 million in 2017. In 2018, savings from the full annualized program are expected at $230 million. These investments are aimed at streamlining management structure, reducing manufacturing costs and implementing cost-saving measures for the overall optimization of the cost structure.
The company also expects to trim its workforce by 15–20% and manufacturing footprint by 30% compared with the 2015 level, as well as shift manufacturing to lower cost regions, under this $400 million worth of restructuring initiative.
In relation to the restructuring efforts, Flowserve spent about $11 million in first-quarter 2017, which, in turn, led to incremental savings of $28 million. It remains optimistic about completing the $400-million program in 2017. It will likely incur an expense of $155 million and make additional savings of $70 million
Also, under the restructuring program, Flowserve announced the divestiture of the Gestra AG business unit to Spirax-Sarco Engineering plc for €186 million ($198.4 million). The sale is part of Flowserve’s broader strategy to improve focus on core business, and optimize its product portfolio and manufacturing footprint.
Spirax-Sarco Engineering, a leading provider of steam system solutions, has signed a conditional sale and purchase agreement to acquire Gestra AG and associated businesses from Flowserve. The deal, subject to certain customary conditions, is expected to close during second-quarter 2017.
Balance Sheet & Cash Flow
Flowserve ended the quarter with cash and cash equivalents of $325.8 million compared with $367.2 million as of Dec 31, 2016. On Mar 31, 2017, the company’s long-term debt totaled $1477.5 million, down from $1,485.3 million as of Dec 31, 2016.
Flowserve’s net cash flow, provided by operating activities, came in at $3.9 million at the end Mar 31, 2017, in contrast to the cash used by operating activities of $5.7 million recorded in the prior-year period.
2017 Outlook
Flowserve has reiterated its 2017 guidance and continues to expect adjusted earnings per share guidance to lie in the band of $1.55–$1.85. It estimates revenues to decline in the range of 6–14%.
The company does not anticipate any major turnaround in the current geopolitical, end market and macro uncertainties for 2017. Factors including currency rates, commodity prices, expected bookings and market volatility are likely to put pressure on both the top- and bottom-line performances for this year.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed a downward trend in fresh estimates. There have been two revisions higher for the current quarter compared to four lower.
At this time, the stock has a subpar Growth Score of 'D', however its momentum is doing a lot better with a 'B'. However, the stock was allocated a grade of 'D' on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of 'D'. If you aren't focused on one strategy, this score is the one you should be interested in.
The company's stock is suitable solely for Momentum based on our styles scores.
Outlook
While estimates have been broadly trending downward for the stock, the magnitude of these revisions has been net zero. Notably, the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.
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Flowserve (FLS) Down 3.3% Since Earnings Report: Can It Rebound?
It has been about a month since the last earnings report for Flowserve Corporation (FLS - Free Report) . Shares have lost about 3.3% in that time frame, underperforming the market.
Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Flowserve Q1 Earnings Top, Down Y/Y, Guidance Intact
Flowserve’s bottom line beat estimates for the second consecutive quarter, reversing last year's earnings miss trend. The company’s first-quarter 2017 adjusted earnings of $0.25 per share topped the Zacks Consensus Estimate of $0.20 by 25.0%.
However, on a reported basis, the company’s earnings per share plunged 62.1% to $0.11 on a year-over-year basis. Precipitous top-line decline, owing to macroeconomic volatility as well as foreign currency headwinds, proved to be major drags for the bottom line.
Quarter in Detail
Revenues fell 8.8% year over year to $863.6 million. However, revenues surpassed the Zacks Consensus Estimate of $798 million. Low original equipment sales and poor sales of every segment across end markets, excluding Europe, proved to be a drag on the revenues. Also, foreign currency headwinds eroded sales by $10 million.
The company’s bookings totaled $958.2 million in first-quarter 2017, up 5.3% year over year at constant currency (cc). After-market bookings totaled $457 million and were also up 3% at cc. Growth in bookings came on the back of modest recovery in oil & gas industry and higher original equipment bookings.
Operating income of the company came in at $47.0 million, compared with $74.4 million recorded in the year-ago period. Foreign currency headwinds and lower gross profits acted as major dampeners for operating income performance. Also, adjusted gross margin contracted 180 bps to 31.5%, mainly attributable to poor top-line performance and lower margin projects.
Segmental Results
Engineered Product Division revenues were down 10.9% year over year to $422.0 million in the quarter. Negative currency translation effects, along with lower original equipment sales in the Americas and Africa, crippled the sales of this segment. However, bookings were up 8.6% year over year to $460.9 million, primarily due to modest recovery in the oil and gas, and chemical industries. The increase in customer original equipment bookings acted as a major catalyst.
Sales at the Flow Control Division declined 6.2% year over year to $280.4 million, hit by currency headwinds and soft customer original equipment sales in key end markets.
Bookings of this segment totaled $309.8 million, flat year over year. While decreased customer bookings in the general industries proved to be a drag on bookings, this was largely offset by increase in bookings from the oil and gas, and power generation industries.
Moreover, Industrial Product Division sales were down 9.7% year over year to $178.4 million. Foreign currency headwinds, along with low original equipment sales, resulted in the decline across all main geographies. Furthermore, bookings totaled $206.7 million, flat year over year. Dismal bookings in power generation and chemical industries offset the improvements in the oil and gas industry.
Restructuring Initiatives
Currently, the company is following its $400 million multi-year investment, which is anticipated to result in savings of $195 million in 2017. In 2018, savings from the full annualized program are expected at $230 million. These investments are aimed at streamlining management structure, reducing manufacturing costs and implementing cost-saving measures for the overall optimization of the cost structure.
The company also expects to trim its workforce by 15–20% and manufacturing footprint by 30% compared with the 2015 level, as well as shift manufacturing to lower cost regions, under this $400 million worth of restructuring initiative.
In relation to the restructuring efforts, Flowserve spent about $11 million in first-quarter 2017, which, in turn, led to incremental savings of $28 million. It remains optimistic about completing the $400-million program in 2017. It will likely incur an expense of $155 million and make additional savings of $70 million
Also, under the restructuring program, Flowserve announced the divestiture of the Gestra AG business unit to Spirax-Sarco Engineering plc for €186 million ($198.4 million). The sale is part of Flowserve’s broader strategy to improve focus on core business, and optimize its product portfolio and manufacturing footprint.
Spirax-Sarco Engineering, a leading provider of steam system solutions, has signed a conditional sale and purchase agreement to acquire Gestra AG and associated businesses from Flowserve. The deal, subject to certain customary conditions, is expected to close during second-quarter 2017.
Balance Sheet & Cash Flow
Flowserve ended the quarter with cash and cash equivalents of $325.8 million compared with $367.2 million as of Dec 31, 2016. On Mar 31, 2017, the company’s long-term debt totaled $1477.5 million, down from $1,485.3 million as of Dec 31, 2016.
Flowserve’s net cash flow, provided by operating activities, came in at $3.9 million at the end Mar 31, 2017, in contrast to the cash used by operating activities of $5.7 million recorded in the prior-year period.
2017 Outlook
Flowserve has reiterated its 2017 guidance and continues to expect adjusted earnings per share guidance to lie in the band of $1.55–$1.85. It estimates revenues to decline in the range of 6–14%.
The company does not anticipate any major turnaround in the current geopolitical, end market and macro uncertainties for 2017. Factors including currency rates, commodity prices, expected bookings and market volatility are likely to put pressure on both the top- and bottom-line performances for this year.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed a downward trend in fresh estimates. There have been two revisions higher for the current quarter compared to four lower.
Flowserve Corporation Price and Consensus
Flowserve Corporation Price and Consensus | Flowserve Corporation Quote
VGM Scores
At this time, the stock has a subpar Growth Score of 'D', however its momentum is doing a lot better with a 'B'. However, the stock was allocated a grade of 'D' on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of 'D'. If you aren't focused on one strategy, this score is the one you should be interested in.
The company's stock is suitable solely for Momentum based on our styles scores.
Outlook
While estimates have been broadly trending downward for the stock, the magnitude of these revisions has been net zero. Notably, the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.