Flowserve Corp. (FLS) reported fourth-quarter earnings per share from continuing operations of $2.41, exceeding the Zacks Consensus Estimate of $1.87.
Earnings per share, excluding realignment charges, was higher primarily due to an improvement in gross margin of 70 basis points and a reduction of 210 basis points for SG&A expenses as a percentage of sales.
Order bookings decreased to $939 million, down $85 million, a decrease of 8%, or 13% excluding currency benefits. The decrease was primarily attributable to the chemical, oil and gas and general industries markets. It reflected customers’ responses to some lingering disruptions in the credit and capital markets, challenging global economic conditions generally and the re-evaluation of customer budget assumptions for particular projects, thereby delaying certain expected orders.
Sales improved to $1.20 billion, up $30 million, an increase of 3%, or a decrease of 3% excluding currency benefits of approximately $70 million. Increased sales growth reflected strong conversion of earlier bookings into shipments in the quarter and continued aftermarket demand in the oil and
gas, chemical and power markets.
Gross profit decreased to $409 million, down $3 million, or 1%, including realignment charges of $21 million. Gross margin decreased by 110 basis points to 34.1%, or increased by 70 basis points to 35.9%, excluding realignment charges. This increase reflected higher sales volumes, which positively impacted fixed cost absorption, and the positive impact of the company’s ongoing operational excellence initiatives.
SG&A expenses as a percentage of sales improved 90 basis points to 20.9%, or 210 basis points, to 19.7%, excluding realignment charges of $14 million. SG&A expenses decreased to $251 million, down $5 million or 2%, and decreased to $237 million, down $18 million or 7%, excluding realignment
charges. The decrease in SG&A expenses as a percentage of sales was primarily attributed to higher sales volumes and savings realized from the company’s cost containment and realignment initiatives.
Operating income, including realignment charges of $35 million, increased to $162 million, up $3 million, an increase of 2%, or down 5%, excluding currency benefits. This increase was driven by higher sales, improved gross profit and reduced SG&A expenses as a percentage of sales. Operating margin decreased 10 basis points to 13.5%, including 300 basis points from realignment charges.
Segment Details
Flowserve Pump Division (FPD)
Bookings for the fourth quarter of 2009 declined to $520 million, down $67 million, a decrease of 12%, or 16% excluding currency benefits of approximately $26 million. The decrease was primarily attributed to the delays in the release of large customer orders, as well as a result of the decrease in the rate of general global economic growth.
Flow Control Division (FCD)
Bookings for the fourth quarter decreased to $291 million, down $8 million or 3%, or 8% excluding currency benefits of approximately $15 million.
Flow Solutions Division (FSD)
Bookings for the fourth quarter of 2009 decreased to $148 million, down $8 million or 5%, or 9% excluding currency benefits of approximately $7 million.
Guidance
The company reaffirmed its 2010 full year EPS target range of between $6.35 and $7.15, which includes the previously announced full impact of up to $20 million, or approximately 26 cents per share, in realignment costs and an estimated after-tax charge of around $14 million, or approximately 25 cents per share, related to the Venezuelan currency devaluation.
We currently have a Neutral recommendation on FLS.
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