Flowserve Corp. (FLS) reported third quarter 2010 earnings per share of $1.84 from continuing operations, exceeding the Zacks Consensus Estimate of $1.81. Excluding realignment charges of 3 cents, earnings per share were down primarily due to an erosion of gross margin by 230 basis points. There was a reduction of $20 million in SG&A expenses compared with the prior-year quarter.
Sales for the quarter were $972 million, down 7.6%, or 4.5% excluding negative currency effects of $32 million. Sales were impacted by customers delaying the receipt of finished products, long lead times as well as isolated production constraints in the company’s industrial business.
Order bookings increased to $1.00 billion, up 2.6%, or 4.8% excluding currency benefits.
Gross profit decreased to $333 million, down $52 million from the prior-year level. Operating income was $129 million, down 19.9%, including realignment charges of $2.1 million and Valbart acquisition-related charges of $4.3 million.
Operating margin decline of 200 basis points brought down the margin to 13.3%, or 14.1% excluding realignment charges and the effect of Valbart acquisition.
SG&A expenses, as a percentage of sales, declined 30 basis points to 34.2% and fell $20 million year over year. The decrease in SG&A expenses, as a percentage of sales, was primarily due to savings realized from the company’s cost containment and realignment initiatives.
The weakening of the U.S. dollar provided mark-to-market gains on the company’s cash flow hedges, resulting in a positive effect on earnings. Although there was favorable currency movement in the latter part of the quarter, year-to-date earnings reflect a net adverse currency impact compared to guidance.
Segment Details
FSG Engineered Product Division (EPD): Order bookings for the reported quarter were $497.9 million, an increase of $29.4 million, up 6.3% including currency effects. EPD sales for the quarter were $511.3 million, a decrease of $29.4 million, down 5.4% including currency effects of $12 million.
FSG Industrial Product Division (IPD): IPD bookings for the quarter were $202.9 million, an increase of $6.5 million, up 3.3%, including negative currency effects of approximately $7 million. Sales for the third quarter were $ $176.5 million, a decrease of $67.7 million, down 27.7% including negative currency effects of $8 million.
Flow Control Division (FCD): Order bookings for the quarter were $335.0 million, an increase of $1.9 million, up 0.6% including negative currency effects of approximately $12 million. Sales for the quarter were $312.6 million, an increase of $19.1 million, up 6.5%, including negative currency effects of approximately $12 million. The Valbart acquisition contributed $12.3 million to revenues.
Guidance
Flowserve guided its full year 2010 EPS between $6.70 and $7.15. This updated guidance includes the full impact of $20 million, or 26 cents per share, in realignment costs and an after-tax charge of approximately $8.4 million, or 15 cents per share, related to the Venezuelan currency devaluation.
We currently have a Neutral recommendation on Flowserve Corp.
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