Slide 1: 2014 Second Quarter Results
2014 Second Quarter Results July 30, 2014
Slide 2: Forward-looking statements disclaimer
Certain statements contained in this presentation that are not historical facts, including any statements as to future market conditions, results of operations and financial projections, are forward-looking statements and are thus prospective. These forward-looking statements are subject to risks, u
Slide 3: Q2 Overview
Q2 Overview Q2 Summary of Key Results Earnings per share from continuing operations of $1.25, up 54% year-over-year Segment margins improved 50 points year-over-year to 10.4%: Flow segment operating margin increased 310 points to 13.4% Fifth consecutive quarter of segment income margin improvement S
Slide 4: Restructuring Actions
Restructuring Actions Restructuring Expense 1H 2014 Analysis: 2H 2014 Estimate Actions focused on reducing Flow’s cost structure at various European and U.S. locations ($ millions) $32 Incremental cost reduction actions in $23 ~$25 Thermal and Industrial segments $21 ~$11 2H 2014E 2014 Full Year Tar
Slide 5: Flow End Market Trends
Flow End Market Trends Food & Beverage Power & Energy Industrial Flow Oil & Gas Components Q2 orders up over prior year Demand for oil pipeline valves Steady aftermarket and driven by short cycle demand in: remains at a high level component order trends chemical processing Steady aftermarket activit
Slide 6: End Market Trends for Power Transformers and Thermal Equipment
End Market Trends for Power Transformers and Thermal Equipment Power Transformers (U.S.) Replacement demand for power transformers remained strong Market pricing challenging, market lead times stable Increasing exposure to oil & gas and data center opportunities Thermal Equipment Strong Q2 order int
Slide 7: 2014 Financial Guidance
2014 Financial Guidance 2014 Guidance on a Continuing Operations Basis Revenue Operating Income Growth Margin Change Adjusted Earnings Per Share Flow +3% to +5% +130 points $5.00 to $5.50 Thermal +1% to +3% (30) points Adjusted Free Cash Flow Industrial +4 to +8% +30 points $225m to $275m Consolidat
Slide 8: Financial Analysis
Financial Analysis Jeremy Smeltser
Slide 9: Q2 Earnings Per Share
Q2 Earnings Per Share Q2 EPS Bridge to Guidance Mid-Point Q2 EPS Guidance Mid-Point $1.16 EPS guidance range was $1.11 to $1.21 per share Segment income (excluding S.A. charge) $0.06 Flow and Thermal (excluding S.A. charge) South Africa charge (net of taxes and minority interest) ($0.10) $8m charge
Slide 10: Consolidated Q2 Results
Consolidated Q2 Results Q2 Year-Over-Year Analysis ($ millions) Revenue: Revenue 1.5% increase year-over-year: Segment Income Margins 1.4% currency benefit $1,162 $1,180 0.1% organic growth: • 2.8% organic growth excluding impact from the ramp down of power projects in South Africa 10.4% 9.9% Segmen
Slide 11: Flow Technology Q2 Results
Flow Technology Q2 Results Q2 Year-Over-Year Analysis Revenue increased 1.2%: Revenue ($ millions) 2.5% currency benefit Operating Margins (1.3%) organic decline: Due primarily to reduced industrial mixer revenue $661 $653 Revenue increases: • oil pipeline and nuclear valves • food and beverage equi
Slide 12: Flow Technology Backlog
Flow Technology Backlog Sequential Backlog Analysis ($ millions) Quarter End Backlog Q2 backlog up 2.4% over prior year period $1,392 $1,387 $1,393 $1,352 $1,320 Sequential backlog decline concentrated in Flow Power & Energy business (OE pumps) Strong pipeline of front log activity for oil & gas and
Slide 13: Thermal Equipment & Services Q2 Results
Thermal Equipment & Services Q2 Results Q2 Year-Over-Year Analysis ($ millions) Revenue decreased $23m, or 6.6%: Revenue (0.5%) currency impact Operating Margins (6.1%) organic decline: Reduced revenue on power projects in South Africa $350 $327 Increased sales of cooling equipment in Asia Pacific a
Slide 14: Thermal Equipment & Services Backlog
Thermal Equipment & Services Backlog Sequential Backlog Analysis ($ millions) Core Backlog South Africa Backlog Estimated future contract price adjustments in South Africa $566 $526 $539 Core backlog up 11% year-over-year $508 $507 South Africa backlog ramping down: Estimated contract price adjustme
Slide 15: Industrial Products & Services Q2 Results
Industrial Products & Services Q2 Results Q2 Year-Over-Year Analysis ($ millions) Revenue Revenue increased 20.7%: Operating Margins 1.3% currency benefit $191 19.4% organic growth: $158 Each business grew organically Significant increase in power transformer shipments was the primary organic growth
Slide 16: Industrial Products & Services Backlog
Industrial Products & Services Backlog Sequential Backlog Analysis ($ millions) Quarter End Backlog $328 $313 $335 $303 $285 Q2 2014 backlog up 11% versus the prior year period and up 7% sequentially Strong Q2 order volume for power transformer business Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Strong
Slide 17: Financial Targets and Financial Position Update
Financial Targets and Financial Position Update Jeremy Smeltser
Slide 18: Q3 Consolidated Financial Analysis
Q3 Consolidated Financial Analysis ($ millions, except per share data) Q3 2014 Q3 2013 Targets Comments Revenue $1,146 +6% to +9% Expect growth across all three segments Segment Income $130 $135 to $145 Targeting ~8% growth driven by Flow Expect increase in Flow margins to be offset Segment Income %
Slide 19: 2014 Financial Guidance
2014 Financial Guidance 2014 Guidance on a Continuing Operations Basis Revenue Operating Income Growth Margin Change Adjusted Earnings Per Share Flow +3% to +5% +130 points $5.00 to $5.50 Thermal +1% to +3% (30) points Adjusted Free Cash Flow Industrial +4 to +8% +30 points $225m to $275m Consolidat
Slide 20: Financial Position
Financial Position Leverage and Balance Sheet Review $62m of adjusted free cash flow in Q2 Gross Leverage Net Leverage Gross leverage at 2.2x, within target range 4.0x 3.1x 3.1x $466m of cash on hand at end of Q2 3.0x 2.8x 2.1x 2.1x Key cash inflows expected in 2H 2014: 2.2x 2.0x 1.6x ~$260m of adju
Slide 21: Executive Summary
Executive Summary Chris Kearney
Slide 22: Capital Allocation Discipline
Capital Allocation Discipline Methodology Expected Outcome 1) Utilize strategic planning process to evaluate Quantify projected future cash flows and future revenue and earnings growth estimate total company valuation 2) Maintain target capital structure and Gross Debt to EBITDA(1) target range: 1.5
Slide 23: Operational Leadership
Operational Leadership Chris Kearney Chairman, President & CEO Operational Leaders Tony Marc David Gene Dave Renzi Michael Wilson Lowe Kowalski Global Flow Power Flow Food Flow Thermal Industrial Manufacturing & Energy & Beverage Industrial Group Group Operations Investor and Analyst Event on Septem
Slide 24: Executive Summary
Executive Summary Key Investor Messages 1) Significant increase in Flow’s Q2 and first half profitability 2) Remain committed to leaner cost structure and continued operating improvement: Focused on achieving 2014 and long-term margin targets >100% conversion of net income to free cash flow 3) Focus
Slide 25: Questions?
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Slide 26: Appendix
SI-><. Appendix
Slide 27: Q2 2014 Organic Revenue Growth Reconciliation
Q2 2014 Organic Revenue Growth Reconciliation Q2 2014 Organic Growth Reconciliation Three Months Ended June 28, 2014 Net Revenue Acquisitions/ Change Divestitures Currency Organic Flow Technology 1.2% 0.0% 2.5% -1.3% Thermal Equipment & Services -6.6% 0.0% -0.5% -6.1% Industrial Products & Services
Slide 28: Organic Revenue Growth Reconciliation Excluding South Africa Power Projects
Q2 2014 Organic Revenue Growth Reconciliation Excluding Revenue Related to South Africa Power Projects Q2 2014 Organic Growth Reconciliation Excluding Revenue Related to South Africa Power Projects SPX Consolidated Thermal Segment Q2 2013 Q2 2014 Q2 2013 Q2 2014 Reported Revenues $1,162 $1,180 $350
Slide 29: Free Cash Flow
Free Cash Flow Reconciliation to GAAP Cash Flow Statement Q1 2014 Q2 2014 2H 2014 2014E ($ millions) Net cash from continuing operations ($59) ($40) $201 $76 to $126 Tax payments on asset sale gains $114 $120 $234 $234 Capital expenditures ($11) ($12) ($61) ($85) ($85) Adjusted free cash flow from c
Slide 30: Debt Reconciliation
Debt Reconciliation December 31, 2013 Debt Reconciliation ($ millions) 6/28/2014 Short-term debt $ 75 Current maturities of long-term debt 9 Long-term debt 1,181 Gross Debt $ 1,265 Less: Puchase card program and extended A/P programs (31) 3 Adjusted Gross Debt $ 1,234 Less: Cash in excess of $50 (41
Slide 31: Bank EBITDA Reconciliation
Bank EBITDA Reconciliation LTM as of ($ mil l i ons ) 6/28/2014 2014E Net Income $521 $534 Income tax provision (benefit) 212 239 Net interest expense 124 103 Income before interest and taxes $857 $876 Depreciation, intangible amortization expense and write off of goodwill and intangibles 122 117 EB