Business Wire | May 3, 2021 04:06PM EDT

Flowserve Corporation Reports First Quarter 2021 Results

May 03, 2021

DALLAS--(BUSINESS WIRE)--May 03, 2021--Flowserve Corporation (NYSE: FLS), a leading provider of flow control products and services for the global infrastructure markets, today announced its financial results for the first quarter ended March 31, 2021.

First Quarter 2021 Highlights (all comparisons to the 2020 first quarter, unless otherwise noted)1

* Reported Earnings Per Share (EPS) of $0.11 and Adjusted EPS2 of $0.28 Reported EPS includes after-tax adjusted items of $22.6 million, including realignment costs, below-the-line foreign exchange impacts and debt retirement costs

* Total bookings were $945.0 million, down 3.3%, or 6.0% on a constant currency basis and up 14.5% on a sequential basis Original equipment bookings were $487.7 million, or 52% of total bookings, up 2.7%, or down 0.1% on a constant currency basis and up 20.5% on a sequential basis Aftermarket bookings were $457.3 million, or 48% of total bookings, down 8.9%, or 11.5% on a constant currency basis and up 8.8% on a sequential basis

* Sales were $857.3 million, down 4.1%, or 7.0% on a constant currency basis Original equipment sales were $406.9 million, down 9.9%, or 13.1% on a constant currency basis Aftermarket sales were $450.4 million, up 1.9%, or down 0.9% on a constant currency basis

* Reported gross and operating margins were 29.3% and 6.5%, respectively Adjusted gross and operating margins 3 were 30.4% and 8.1%, respectively

* Backlog at March 31, 2021 was $1.9 billion, up 1.6% versus December 31, 2020

"Flowserve delivered a strong start to 2021, including a 47% increase in adjusted EPS year-over-year while generating 15 percent sequential bookings growth," said Scott Rowe, Flowserve's president and chief executive officer. "Our decisive cost actions in 2020, combined with other Flowserve 2.0 transformation activities, were key to our first quarter performance, as adjusted operating income increased over $20 million from last year."

Rowe concluded, "Our first quarter results support our conviction that Flowserve is strongly positioned to benefit as the global economic recovery continues and as COVID subsides. The investment cycle in our core end markets is appearing to inflect as we see meaningful progress with vaccinations driving increased mobility around the world. We are increasingly confident that our focus on growth, product innovation and initiatives to support our customers' energy transition and emission reduction efforts will position Flowserve well to return to earnings growth early in 2022, driving value for our shareholders and our customers."

Revised 2021 Guidance4

Flowserve today revised certain of the full-year metrics of our 2021 target range. Previously announced metrics not shown below are reaffirmed as of today. The revised categories and the new range include:

Revised Target Range Prior Target Range

Revenues Down 3.0% to 5.0% Down 4% to 7.0%

Adjusted Earnings Per Share $1.40 - $1.60 $1.30 - $1.55

Consistent with the prior range, Flowserve's 2021 Adjusted EPS target range excludes expected realignment charges of approximately $25 million, as well as the potential impact of below-the-line foreign currency effects and certain other discrete items. In a change to our approach for 2021, Flowserve 2.0 transformation-related expenses of approximately 5 cents per share will now be included in both our reported and adjusted EPS.

First Quarter 2021 Results Conference Call

Flowserve will host its conference call with the financial community on Tuesday, May 4th at 11:00 AM Eastern. Scott Rowe, president and chief executive officer, as well as other members of the management team will be presenting. The call can be accessed by shareholders and other interested parties at www.flowserve.com under the "Investor Relations" section.

1 Prior period comparisons are impacted by certain accounting revisions. Reference Flowserve's Form 8-K filed on November 5, 2020 and Form 10-Q for the period ending March 31, 2021 for additional details. 2 See Reconciliation of Non-GAAP Measures table for detailed reconciliation of reported results to adjusted measures. 3 Adjusted gross and operating margins are calculated by dividing adjusted gross profit and adjusted operating income, respectively, by revenues. Adjusted gross profit and adjusted operating income are derived by excluding the adjusted items. See reconciliation of Non-GAAP Measures table for detailed reconciliation. 4 Adjusted 2021 EPS excludes realignment expenses, the impact from other specific discrete items and below-the-line foreign currency effects and utilizes year-end 2020 FX rates and approximately 131 million fully diluted shares. _ FX impact is calculated by comparing the difference between the actual average FX rates of 2020 and the year-end 2020 spot rates both as applied to our 2021 expectations, divided by the number of shares expected for 2021.

About Flowserve

Flowserve Corp. is one of the world's leading providers of fluid motion and control products and services. Operating in more than 50 countries, the company produces engineered and industrial pumps, seals and valves as well as a range of related flow management services. More information about Flowserve can be obtained by visiting the company's Web site at www.flowserve.com.

Safe Harbor Statement This news release includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, as amended. Words or phrases such as, "may," "should," "expects," "could," "intends," "plans," "anticipates," "estimates," "believes," "forecasts," "predicts" or other similar expressions are intended to identify forward-looking statements, which include, without limitation, earnings forecasts, statements relating to our business strategy and statements of expectations, beliefs, future plans and strategies and anticipated developments concerning our industry, business, operations and financial performance and condition.

The forward-looking statements included in this news release are based on our current expectations, projections, estimates and assumptions. These statements are only predictions, not guarantees. Such forward-looking statements are subject to numerous risks and uncertainties that are difficult to predict. These risks and uncertainties may cause actual results to differ materially from what is forecast in such forward-looking statements, and include, without limitation, the following: the impact of the global outbreak of COVID-19 on our business and operations; a portion of our bookings may not lead to completed sales, and our ability to convert bookings into revenues at acceptable profit margins; changes in global economic conditions and the potential for unexpected cancellations or delays of customer orders in our reported backlog; our dependence on our customers' ability to make required capital investment and maintenance expenditures; if we are not able to successfully execute and realize the expected financial benefits from our strategic transformation and realignment initiatives, our business could be adversely affected; risks associated with cost overruns on fixed-fee projects and in taking customer orders for large complex custom engineered products; the substantial dependence of our sales on the success of the oil and gas, chemical, power generation and water management industries; the adverse impact of volatile raw materials prices on our products and operating margins; economic, political and other risks associated with our international operations, including military actions, trade embargoes, epidemics or pandemics or changes to tariffs or trade agreements that could affect customer markets, particularly North African, Russian and Middle Eastern markets and global oil and gas producers, and non-compliance with U.S. export/re-export control, foreign corrupt practice laws, economic sanctions and import laws and regulations; increased aging and slower collection of receivables, particularly in Latin America and other emerging markets; our exposure to fluctuations in foreign currency exchange rates, including in hyperinflationary countries such as Venezuela and Argentina; our furnishing of products and services to nuclear power plant facilities and other critical processes; potential adverse consequences resulting from litigation to which we are a party, such as litigation involving asbestos-containing material claims; expectations regarding acquisitions and the integration of acquired businesses; our relative geographical profitability and its impact on our utilization of deferred tax assets, including foreign tax credits; the potential adverse impact of an impairment in the carrying value of goodwill or other intangible assets; our dependence upon first-party suppliers whose failure to perform timely could adversely affect our business operations; the highly competitive nature of the markets in which we operate; environmental compliance costs and liabilities; potential work stoppages and other labor matters; access to public and private sources of debt financing; our inability to protect our intellectual property in the U.S., as well as in foreign countries; obligations under our defined benefit pension plans; our internal control over financial reporting may not prevent or detect misstatements because of its inherent limitations, including the possibility of human error, the circumvention or overriding of controls, or fraud; the recording of increased deferred tax asset valuation allowances in the future or the impact of tax law changes on such deferred tax assets could affect our operating results; our information technology infrastructure could be subject to service interruptions, data corruption, cyber-based attacks or network security breaches, which could disrupt our business operations and result in the loss of critical and confidential information; ineffective internal controls could impact the accuracy and timely reporting of our business and financial results; and other factors described from time to time in our filings with the Securities and Exchange Commission.

All forward-looking statements included in this news release are based on information available to us on the date hereof, and we assume no obligation to update any forward-looking statement.

The Company reports its financial results in accordance with U.S. generally accepted accounting principles (GAAP). However, management believes that non-GAAP financial measures which exclude certain non-recurring items present additional useful comparisons between current results and results in prior operating periods, providing investors with a clearer view of the underlying trends of the business. Management also uses these non-GAAP financial measures in making financial, operating, planning and compensation decisions and in evaluating the Company's performance. Throughout our materials we refer to non-GAAP measures as "Adjusted." Non-GAAP financial measures, which may be inconsistent with similarly captioned measures presented by other companies, should be viewed in addition to, and not as a substitute for, the Company's reported results prepared in accordance with GAAP.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

Three Months Ended March 31,

(Amounts in thousands, except per share data) 2021 2020

Sales $ 857,308 $ 893,513

Cost of sales (606,408 ) (627,054 )

Gross profit 250,900 266,459

Selling, general and administrative expense (198,315 ) (245,451 )

Net earnings from affiliates 3,518 3,196

Operating income 56,103 24,204

Interest expense (16,778 ) (12,963 )

Loss on extinguishment of debt (7,610 ) -

Interest income 602 1,749

Other income (expense), net (11,364 ) 38,202

Earnings before income taxes 20,953 51,192

Provision for income taxes (3,792 ) (36,969 )

Net earnings, including noncontrolling interests 17,161 14,223

Less: Net earnings attributable to noncontrolling (3,081 ) (2,100 )interestsNet earnings attributable to Flowserve Corporation $ 14,080 $ 12,123

Net earnings per share attributable to FlowserveCorporation common shareholders:Basic $ 0.11 $ 0.09

Diluted 0.11 0.09

RECONCILIATION OFNON-GAAP MEASURES(Unaudited) Three Months Ended March 31, 2021

(Amounts in As Reported Realignment Other Items As Adjustedthousands, except (a) (1)per share data) Sales $ 857,308 $ - $ - $ 857,308

Gross profit 250,900 (9,406 ) - 260,306

Gross margin 29.3 % - - 30.4 %

Selling, general (198,315 ) (4,296 ) - (194,019 )and administrativeexpense Operating income 56,103 (13,702 ) - 69,805

Operating income 6.5 % - - 8.1 %as a percentage ofsales Interest and other (35,150 ) - (17,116 ) (3 ) (18,034 )expense, net Earnings before 20,953 (13,702 ) (17,116 ) 51,771 income taxesProvision for (3,792 ) 3,356 (2 ) 4,840 (4 ) (11,988 )income taxesTax Rate 18.1 % 24.5 % 28.3 % 23.2 %

Net earningsattributable to $ 14,080 $ (10,346 ) $ (12,276 ) $ 36,702 FlowserveCorporation Net earnings pershare attributableto FlowserveCorporation commonshareholders:Basic $ 0.11 $ (0.08 ) $ (0.09 ) $ 0.28

Diluted 0.11 (0.08 ) (0.09 ) 0.28

Basic number of 130,427 130,427 130,427 130,427 shares used forcalculationDiluted number of 131,006 131,006 131,006 131,006 shares used forcalculation (a) Reported inconformity withU.S. GAAPNotes:(1) Represents realignment expense incurred as a result of realignment programs(2) Includes tax impact of items above(3) Represents below-the-line foreign exchange impacts and $7.6 million of expense as a result of early extinquishment of debt(4) Includes tax impact of items above and $1.3 million benefit related to legal entity simplification and restructuringNotes: (1) Represents realignment expense incurred as a result of realignment programs (2) Includes tax impact of items above (3) Represents below-the-line foreign exchange impacts and $7.6 million of expense as a result of early extinquishment of debt (4) Includes tax impact of items above and $1.3 million benefit related to legal entity simplification and restructuring RECONCILIATION OFNON-GAAP MEASURES(Unaudited) Three Months Ended March 31, 2020

(Amounts in As Reported Realignment Other Items As Adjustedthousands, except (a) (1)per share data) Sales $ 893,513 $ - $ - $ 893,513

Gross profit 266,459 (8,026 ) - 274,485

Gross margin 29.8 % - - 30.7 %

Selling, general (245,451 ) (1,278 ) (16,083 ) (3 ) (228,090 )and administrativeexpense Operating income 24,204 (9,304 ) (16,083 ) 49,591

Operating income 2.7 % - - 5.6 %as a percentage ofsales Interest and other 26,988 - 40,393 (4 ) (13,405 )expense, net Earnings before 51,192 (9,304 ) 24,310 36,186 income taxesProvision for (36,969 ) 962 (2 ) (29,035 ) (5 ) (8,896 )income taxesTax Rate 72.2 % 10.3 % 119.4 % 24.6 %

Net earnings(loss) $ 12,123 $ (8,342 ) $ (4,725 ) $ 25,190 attributable toFlowserveCorporation Net earnings(loss) per shareattributable toFlowserveCorporation commonshareholders:Basic $ 0.09 $ (0.06 ) $ (0.04 ) $ 0.19

Diluted 0.09 (0.06 ) (0.04 ) 0.19

Basic number of 130,754 130,754 130,754 130,754 shares used forcalculationDiluted number of 131,573 131,573 131,573 131,573 shares used forcalculation (a) Reported inconformity withU.S. GAAPNotes:(1) Represents realignment expense incurred as a result of realignment programs(2) Includes tax impact of items above(3) Includes $5.6 million related to Flowserve 2.0 transformation efforts and $10.4 million related to discrete asset write-downs(4) Represents below-the-line foreign exchange impacts(5) Includes tax impact of items above, $25.4 million related to Italian tax valuation allowance and $2.0 million benefit related to legal entity simplification and restructuring Notes: (1) Represents realignment expense incurred as a result of realignment programs (2) Includes tax impact of items above (3) Includes $5.6 million related to Flowserve 2.0 transformation efforts and $10.4 million related to discrete asset write-downs (4) Represents below-the-line foreign exchange impacts (5) Includes tax impact of items above, $25.4 million related to Italian tax valuation allowance and $2.0 million benefit related to legal entity simplification and restructuring First Quarter 2021 - Segment Results

(dollars in millions, comparison vs. 2020 first quarter, unaudited)

FPD FCD

Bookings $ 653.8 $ 294.0

- vs. prior year -4.6 % -0.8 %

- on constant currency -7.2 % -3.6 %

Sales $ 602.6 $ 255.8

- vs. prior year -5.2 % -1.4 %

- on constant currency -8.1 % -4.6 %

Gross Profit $ 182.9 $ 74.6

- vs. prior year -6.6 % -0.3 %

Gross Margin (% of sales) 30.4 % 29.2 %

- vs. prior year (in basis points) (40) bps 40 bps Operating Income $ 53.8 $ 24.7

- vs. prior year 35.5 % 43.6 %

- on constant currency 32.4 % 40.7 %

Operating Margin (% of sales) 8.9 % 9.7 %

- vs. prior year (in basis points) 270 bps 310 bps Adjusted Operating Income * $ 61.9 $ 26.5

- vs. prior year 22.3 % 3.9 %

- on constant currency 20.0 % 1.8 %

Adj. Oper. Margin (% of sales)* 10.3 % 10.4 %

- vs. prior year (in basis points) 230 bps 60 bps Backlog $ 1,238.6 $ 649.3

*Adjusted Operating Income and Adjusted Operating Margin exclude realignment charges and other specific discrete items*Adjusted Operating Income and Adjusted Operating Margin exclude realignmentcharges and other specific discrete items SEGMENT INFORMATION

(Unaudited)

FLOWSERVE PUMP DIVISION Three Months Ended March 31,

(Amounts in millions, except percentages) 2021 2020

Bookings $ 653.8 $ 685.1

Sales 602.6 635.7

Gross profit 182.9 195.8

Gross profit margin 30.4 % 30.8 %

SG&A 132.6 159.2

Segment operating income 53.8 39.7

Segment operating income as a percentage of 8.9 % 6.2 %sales FLOW CONTROL DIVISION Three Months Ended March 31,

(Amounts in millions, except percentages) 2021 2020

Bookings $ 294.0 $ 296.3

Sales 255.8 259.4

Gross profit 74.6 74.8

Gross profit margin 29.2 % 28.8 %

SG&A 49.9 57.7

Segment operating income 24.7 17.2

Segment operating income as a percentage of 9.7 % 6.6 %sales CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

March 31, December 31,

(Amounts in thousands, except par value) 2021 2020

ASSETSCurrent assets:Cash and cash equivalents $ 659,305 $ 1,095,274

Accounts receivable, net of allowance for 730,481 753,462 expected credit losses of $73,829 and $75,176,respectivelyContract assets, net of allowance for expected 274,187 277,734 credit losses of $3,139 and $3,205Inventories, net 672,123 667,228

Prepaid expenses and other 112,867 110,635

Total current assets 2,448,963 2,904,333

Property, plant and equipment, net of 534,899 556,873 accumulated depreciation of $1,087,994 and$1,093,348, respectivelyOperating lease right-of-use assets, net 200,306 208,125

Goodwill 1,209,119 1,224,886

Deferred taxes 33,684 30,538

Other intangible assets, net 163,236 168,496

Other assets, net of allowance for expected 219,431 221,426 credit losses of $66,783 and $67,842,respectivelyTotal assets $ 4,809,638 $ 5,314,677

LIABILITIES AND EQUITYCurrent liabilities:Accounts payable $ 386,210 $ 440,199

Accrued liabilities 453,595 463,222

Contract liabilities 199,538 194,227

Debt due within one year 8,342 8,995

Operating lease liabilities 36,046 34,990

Total current liabilities 1,083,731 1,141,633

Long-term debt due after one year 1,307,579 1,717,911

Operating lease liabilities 168,572 176,246

Retirement obligations and other liabilities 507,970 517,566

Shareholders' equity:Common shares, $1.25 par value 220,991 220,991

Shares authorized - 305,000Shares issued - 176,793Capital in excess of par value 488,906 502,227

Retained earnings 3,658,158 3,670,543

Treasury shares, at cost - 46,496 and 46,768 (2,045,937 ) (2,059,309 )shares, respectivelyDeferred compensation obligation 6,114 6,164

Accumulated other comprehensive loss (616,200 ) (609,625 )

Total Flowserve Corporation shareholders' equity 1,712,032 1,730,991

Noncontrolling interests 29,754 30,330

Total equity 1,741,786 1,761,321

Total liabilities and equity $ 4,809,638 $ 5,314,677

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

Three Months Ended March 31,

(Amounts in thousands) 2021 2020

Cash flows - Operating activities:Net earnings, including noncontrolling interests $ 17,161 $ 14,223

Adjustments to reconcile net earnings to net cashprovided by operating activities:Depreciation 21,522 20,716

Amortization of intangible and other assets 3,862 3,121

Loss on extinguishment of debt 7,610 -

Stock-based compensation 9,760 14,311

Foreign currency, asset write downs and other 24,260 8,304 non-cash adjustmentsChange in assets and liabilities:Accounts receivable, net 9,005 19,137

Inventories, net (16,988 ) (43,226 )

Contract assets, net (2,245 ) (14,462 )

Prepaid expenses and other assets, net 307 118

Accounts payable (47,093 ) (8,799 )

Contract liabilities 9,001 16,649

Accrued liabilities and income taxes payable 187 10,698

Retirement obligations and other 5,248 12,949

Net deferred taxes (5,219 ) (6,236 )

Net cash flows provided (used) by operating 36,378 47,503 activitiesCash flows - Investing activities:Capital expenditures (11,422 ) (15,955 )

Proceeds from disposal of assets and other 1,934 10,737

Net cash flows provided (used) by investing (9,488 ) (5,218 )activitiesCash flows - Financing activities:Payments on long-term debt (407,473 ) -

Proceeds under other financing arrangements 425 1,694

Payments under other financing arrangements (1,976 ) (3,356 )

Repurchases of common shares (5,081 ) (32,112 )

Payments related to tax withholding for stock-based (5,547 ) (3,137 )compensationPayments of dividends (26,465 ) (26,023 )

Other (3,806 ) (2,547 )

Net cash flows provided (used) by financing (449,923 ) (65,481 )activitiesEffect of exchange rate changes on cash (12,936 ) (25,485 )

Net change in cash and cash equivalents (435,969 ) (48,681 )

Cash and cash equivalents at beginning of period 1,095,274 670,980

Cash and cash equivalents at end of period $ 659,305 $ 622,299

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CONTACT: Investor Contacts: Jay Roueche, Vice President, Investor Relations & Treasurer (972) 443-6560 Mike Mullin, Director, Investor Relations (972) 443-6636 Media Contact: Lars Rosene, Vice President, Corporate Communications & Public Affairs (972) 443-6644