NEWS RELEASE

CHARLOTTE, N.C., Aug. 3, 2016 /PRNewswire/ -- SPX FLOW, Inc. (NYSE: FLOW) today reported results for the quarter ended July 2, 2016.

Second Quarter 2016 Overview:

• Revenues declined 14.0% to $528.8 million, from $615.1 million in the year-ago quarter. The impact of the stronger U.S. dollar versus foreign currencies decreased revenues by 2.1%, or $12.8 million, and organic revenues* decreased 11.9%, primarily due to the impact of lower oil and dairy prices on customers' spending and investment decisions.
• Operating loss and margin were ($394.1) million and (74.5%), compared to operating income and margin of $62.8 million and 10.2% in the year-ago quarter.
  • During the second quarter of 2016, the company recorded $426.4 million of non-cash impairment charges to reduce the goodwill and certain intangible assets in its Power and Energy segment.
  • The company also recorded $10.8 million of special charges related to its previously announced realignment program.
• Excluding impairment and special charges, adjusted operating income* and margin were $43.1 million and 8.2%.
• Diluted net loss per share was ($8.52) and included non-cash impairment charges of ($8.77) per share and special charges of ($0.21) per share related to the realignment program.
• Excluding impairment and realignment charges, adjusted earnings per share* was $0.46.
• Net cash from operating activities was $39.7 million in the period and included $16.4 million of cash outflows in support of the company's realignment program.
• Free cash flow* was $26.1 million and included the net cash from operating activities described above and $13.6 million in capital expenditures, of which $6.6 million related to the new manufacturing facility in Bydgoszcz, Poland.

"Coming into this year we were faced with the challenges of an uncertain macro environment and cyclical downturns in two of our key end markets, oil and dairy.  Although we saw some pockets of stabilization in the first half of 2016, overall orders were lower than the second half of 2015, particularly in our oil and industrial related product lines," said Marc Michael, President and Chief Executive Officer.

"Despite the challenging demand environment, I'm pleased with the effort by our employees across the enterprise to aggressively execute our realignment program.  During the first half of the year, we made significant progress reducing our cost structure, realigning our footprint and streamlining our functional support globally," Michael continued.  "That said, given current order trends, and consistent with our original commitments, we are accelerating our realignment program.  We are also evaluating and intend to take additional actions.  As such, we have increased the annualized savings target from our realignment program to approximately $135 million, up from our previous target of $110 million.  And we now expect $60 million of savings to be achieved in 2016, up from our previous target of $40 million."

"Additionally, during the third quarter, we plan to refinance all of our $600 million senior notes due in 2017.  We believe this will give us greater financial flexibility going forward and lower annual interest costs," said Michael.

"We have updated our 2016 guidance to reflect our first half results and revised expectations for the second half of the year.  At the bottom line, we narrowed our full year 2016 EPS guidance range to $1.85 to $2.05 per share, as compared to our previous guidance range of $1.85 to $2.15 per share.  We are firmly committed to meeting our financial guidance for 2016 and believe the actions we are taking to realign the company and refinance our debt will significantly improve our ability to efficiently and competitively serve our customers," Michael concluded.

Second Quarter 2016 Results by Segment:

Food and Beverage
Revenues for Q2 2016 were $188.0 million, compared to $234.8 million in Q2 2015, a decrease of $46.8 million, or 19.9%.  Organic revenues* declined 18.5%, or $43.6 million, and currency fluctuations decreased revenues 1.4%, or $3.2 million. The decline in organic revenues was due primarily to lower revenue from large systems projects as low dairy prices have delayed customer spending and investment decisions, particularly for milk powder projects.

Segment income was $19.9 million, or 10.6% of revenues, in Q2 2016, compared to $28.6 million, or 12.2% of revenues, in Q2 2015. Segment income and margin decreased primarily due to the organic revenue declines described above, which were partially offset by savings from restructuring actions and cost reduction initiatives.

Power and Energy

Revenues for Q2 2016 were $155.8 million, compared to $184.1 million in Q2 2015, a decrease of $28.3 million, or 15.4%.  Organic revenues* declined 11.9%, or $21.9 million, and currency fluctuations decreased revenues 3.5%, or $6.4 million.  The decline in organic revenue was due largely to the impact of lower oil prices on customers' spending behavior, particularly for original equipment in the upstream and midstream.  Additionally, Q2 2015 revenue benefitted from a large nuclear project which did not repeat in Q2 2016.     

Segment income was $10.0 million, or 6.4% of revenues, in Q2 2016, compared to $23.0 million, or 12.5% of revenues, in Q2 2015.  The decrease in segment income and margin was due primarily to the organic revenue decline described above, as well as shipment of lower margin backlog and low utilization rates at certain manufacturing locations.  These declines were partially offset by savings from restructuring actions and cost reduction initiatives.

Industrial

Revenues for Q2 2016 were $185.0 million, compared to $196.2 million in Q2 2015, a decline of $11.2 million, or 5.7%.  Organic revenues* declined 4.2%, or $8.2 million, and currency fluctuations decreased revenues 1.5%, or $3.0 million.  The organic revenue decline was due primarily to lower sales of hydraulic tools, heat exchangers and dehydration equipment. 

Segment income was $26.9 million, or 14.5% of revenues, in Q2 2016, compared to $27.9 million, or 14.2% of revenues, in Q2 2015.  The decline in segment income was due primarily to the revenue declines described above.  These declines were partially offset by savings from restructuring actions and cost reduction initiatives.

2016 Full Year Financial Guidance:

The company updated its consolidated full year 2016 GAAP and adjusted financial guidance to reflect its first half 2016 results and revised outlook for the second half of 2016.  In addition to the Q2 results, key changes to the company's full year 2016 GAAP financial guidance include:

• Reduced revenue and segment income in the second half of 2016 due to lower than anticipated orders in the first half;
• Increased cost savings target by $20.0 million to approximately $60.0 million;
• Increased special charges by $20.0 million to approximately $80.0 million;
• An early extinguishment of debt charge of approximately $38 million and cash outflows of approximately $50 million related to the company's plans to refinance its $600 million of outstanding 6.875% senior notes during the third quarter;
• A tax benefit of approximately $22.0 million related to the manufacturing expansion in Poland. This benefit is expected to be recorded in the fourth quarter of 2016, with the cash benefit expected to be realized over time as income is earned in Poland.

OTHER ITEMS

Global Realignment Program:   As previously disclosed, the company announced its intent to further optimize its global footprint, streamline business processes and reduce selling, general and administrative expense through a global realignment program. The realignment program is intended to reduce costs across operating sites and corporate and global functions, in part by making structural changes and process enhancements which are designed to help the company operate more efficiently.  The realignment program was initiated in 2015 and is expected to be largely compete by the end of 2017.  The total cost of the program is now expected to be approximately $160 million with annualized savings of approximately $130 million fully realized by 2018.  These estimates have been increased from prior estimates of approximately $140 million in total cost and approximately $110 million of annualized savings. 

Debt Refinancing:   On August 3, 2016 the company announced that it intends to offer $600.0 million in aggregate principal amount of senior unsecured notes split between eight and ten year tranches, subject to market conditions, to qualified institutional buyers pursuant to rule 144A under the Securities Act of 1933, as amended, and outside the United States in compliance with Regulation S under the Securities Act.  The notes will be guaranteed by the company's existing and future domestic subsidiaries that guarantee its senior credit facilities, subject to certain exceptions.  The company expects to use the net proceeds of this offering, together with borrowings under the company's revolving credit facility, to repurchase and/or redeem and retire the $600.0 million outstanding aggregate principal amount of its 6.875% senior notes due 2017 pursuant to its previously announced tender offer, including prepayment premiums with respect to such purchase. 

Impairment of Goodwill and Intangible Assets:   In connection with the preparation of its second quarter financial statements, the company performed an interim goodwill impairment test and determined that the fair value of its Power and Energy reporting unit was less than the carrying value of its net assets. As a result of this determination, the company recorded an impairment charge of $252.8 million to reduce the goodwill of the reporting unit to its implied fair value.  It also recorded an additional impairment charge of $173.6 million related to certain intangible assets within its Power and Energy reportable segment.  Further discussion on this matter is provided in the Form 10-Q filed August 3, 2016 with the Securities and Exchange Commission.

2015 Results: The company's condensed combined statements of operations, comprehensive income (loss), equity and cash flows for the three and six months ended June 27, 2015, were prepared on a "carve out" basis and were derived from the condensed consolidated financial statements and accounting records of SPX Corporation for the historical periods presented. These condensed combined statements do not necessarily reflect what the results of operations, financial position, and cash flows would have been had SPX FLOW operated as an independent company for the historical periods reported.

Form 10-Q: The company filed its quarterly report on Form 10-Q for the quarter ended July 2, 2016 with the Securities and Exchange Commission on August 3, 2016. This press release should be read in conjunction with that filing, which will be available on the company's website at www.spxflow.com, in the Investor Relations section.

About SPX FLOW, Inc.:   Based in Charlotte, North Carolina, SPX FLOW, Inc. (NYSE: FLOW) is a global supplier of highly engineered flow components, process equipment and turn-key systems, along with the related aftermarket parts and services, into the food and beverage, power and energy and industrial end markets. SPX FLOW has more than $2 billion in annual revenues, operations in over 35 countries and sales in over 150 countries. To learn more about SPX FLOW, please visit our website at www.spxflow.com.

*Non-GAAP number. See attached schedules for reconciliation to most comparable GAAP number.

Certain statements in this press release are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the safe harbor created thereby. Please read these results in conjunction with the company's documents filed with the Securities and Exchange Commission. These filings identify important risk factors and other uncertainties that could cause actual results to differ from those contained in the forward-looking statements. Actual results may differ materially from these statements. The words "expect", "anticipate", "plan", "target", "project", "believe" and similar expressions identify forward-looking statements. Although the company believes that the expectations reflected in its forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. In addition, estimates of future operating results are based on the company's current complement of businesses, which is subject to change.  Statements in this press release speak only as of the date of this press release, and SPX FLOW disclaims any responsibility to update or revise such statements.

Investor and Media Contact:
Ryan Taylor, Vice President, Communications and Finance
Phone:  704-752-4486
E-mail:  investor@spxflow.com

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SOURCE SPX FLOW, Inc.