Q1 2011 Earnings Call
April 28, 2011 11:00 am ET
Tom. Pajonas - Senior Vice President and President of Flow Control Division
Mike Mullin -
Richard Guiltinan - Principal Financial Officer, Chief Accounting Officer, Senior Vice President of Finance and Controller
Mark Blinn - Chief Executive Officer, President and Director
Thomas Ferguson - Senior Vice President and President of Flowserve Pump Division
Hamzah Mazari - Crédit Suisse AG
Kevin Maczka - BB&T Capital Markets
Jeffrey Beach - Stifel, Nicolaus & Co., Inc.
Robert Barry - UBS Investment Bank
Charles Brady - BMO Capital Markets U.S.
William Bremer - Maxim Group LLC
R. Scott Graham - Jefferies & Company, Inc.
Jamie Sullivan - RBC Capital Markets, LLC
Previous Statements by FLS
» Flowserve's CEO Discusses Q4 2010 Results - Earnings Call Transcript
» Flowserve CEO Discusses Q3 2010 Results – Earnings Call Transcript
» Flowserve Q2 2010 Earnings Call Transcript
Good morning. My name is Michael, and I will be your conference operator today. At this time, I would like to welcome everyone to the Flowserve Q1 2011 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Mr. Mike Mullin. Sir, you may begin your conference.
Thank you, operator. Good morning, and welcome to Flowserve's First Quarter 2011 Earnings Conference Call. Today's call is being webcast with our earnings presentation via our website at flowserve.com. Simply click on the Investor Relations tab to access the webcast and the accompanying presentation. For those of you that are listening to today's call through our dial-in phone number and also wish to follow along with the earnings presentation slides via our website, please click on the Click Here to Listen Via Phone icon at the bottom of the Event Details page. The webcast will be posted at flowserve.com for replay approximately 2 hours following the end of this call. The replay will stay on this site for on-demand review over the next few months.
Joining us today are Mark Blinn, President and CEO of Flowserve; Tom Ferguson, President of the Flow Solutions Group; and Tom Pajonas, President of the Flow Control Division; as well as Dick Guiltinan, Senior Vice President of Finance and Chief Accounting Officer; and Dean Freeman, Senior Vice President, Finance and Treasurer. Following our commentary, we will begin the Q&A session.
Regarding any forward-looking statements, I will refer you to yesterday's earnings release and the 10-Q filing and today's earnings presentation slide deck for Flowserve's Safe Harbor Statement on this topic. All of this information can be found on Flowserve's website under the Investor Relations section. I encourage you to read these statements carefully with respect to our conference call this morning. The information in this conference call, including all statements by management plus our answers to questions related in any way to projections or other forward-looking statements, are subject to Flowserve's Safe Harbor.
Now I would like to turn it over to Mark to begin the formal presentation. Mark?
Thank you, Mike, and good morning, everyone. Let me start by saying I'm pleased with our first quarter results. When you consider that we have generally faced challenging markets for more than 2 years now, it is significant to note that our employees have been able to maintain this level of quarterly performance at this stage of the economic cycle. Their strong dedicated work gives me increased confidence that Flowserve is very well positioned to benefit when the expected stronger portion of our business cycle fully arrives.
Our short cycle end markets, which typically recover faster during the economic cycle and our long cycle markets saw double-digit growth in the quarter, notably in North America. The improvement in bookings in our FCD and IPD operations, which tend to be weighted toward short cycle markets, reflected in this positive development. As we anticipated, we continue to see competitive challenges in our Long Cycle business, which typically lags in the economic cycle as capacity is still chasing price.
While we've seen some EPD project activity impacted in the short term by the events in Japan and the Middle East, nothing has shaken our belief that there will be attractive growth in infrastructure spending in our markets over the next few years as emerging markets develop and mature markets recover. In the meantime, we are working to remain selective and internally disciplined in our project bid selection process as pricing continues to be competitive on large project bids.
We were particularly pleased to see continued traction in our Aftermarket strategies, with 9% growth in quarterly bookings over 2010 and improved core end markets across all regions. Our growth in Aftermarket bookings is more evident of both of our ability to succeed during that tougher portions of the economic cycle and the continued effectiveness of our Aftermarket strategy.
Broadly, across our core end markets we saw bookings growth in oil and gas, chemical and our general industry markets where we saw increased orders in our distribution channels. We also saw sequential improvement in the power market. Bookings were $1.16 billion, with a book to bill of $1.17 million, representing an increase both year-over-year and sequentially. This increased our backlog $2.8 billion, which is up 8.4% versus the end of the year.
Looking at our financial results for the first quarter, earnings per share were $1.72, which included some below the line currency-related benefits, partially offset by other items. We maintained solid margin performance with reported margins of 13.1%, negatively impacted by the lower margins in our long cycle project backlog as we entered 2011, as well as the impact of lower fixed cost absorption and increased commodity cost.
Largely offsetting these headwinds were strong Aftermarket execution, realignment savings, supply chain initiatives and cost management. Our adjusted margins were 13.7%, excluding the effects of realignment in Valbart. We expect Valbart to become a solid contributor over the balance of the year. While our Long Cycle business will remain choppy and competitive in the near term, we expect continued growth in our Short Cycle business volumes, which we believe is indicative of the improving general economic outlook. We expect that as volumes continue to pick up, pricing will follow. This becomes all the more important when you consider the influence of recent inflation in commodity cost.
As I mentioned, we've seen continued traction in our Aftermarket strategies and our outlook remains positive. We continue to invest in market expansion and product service offerings. An example of this is our recently announced acquisition of a small Wireless Data business, which increases our technical capabilities and integrated solution offerings. The technology helps our customers manage their assets and maintain equipment reliability.
Looking at recent global events, we continue to closely monitor developments in the Middle East and North Africa. The vast majority of our employees and assets are located in Saudi Arabia and the United Arab Emirates. Where we had people in areas of more intense unrest, we took action to move them to safety in early March. We experienced some limited shipment delays, which were reflected in our first quarter earnings. We continue to assess the conditions in the region as protracted unrest has the potential to delay or cancel additional shipments as well as customer investments.
The tragic events in Japan did not result in injury to our employees or physical damage to our facilities. Our Niigata manufacturing facility is on the West Coast of Japan and our QRC assets are located southwest of Tokyo and are actively engaged in supporting the reconstruction efforts.
Looking at all this from a strategic perspective, it is vital to the success of our business that we continue to understand our customers and create solutions that best fit their needs. We do this through leveraging our global project pursuit in Aftermarket network and delivering integrated technical solutions to the most complex process applications around the world. Our consistent Aftermarket performance and solid performance during the last 2 years demonstrates the value our customers place on our commitment to delivering promised solutions.