8-K: Flowserve Reports Strong Third Quarter Results, Reaffirms Adjusted EPS Guidance

Flowserve Corporation announced a 12.7% increase in bookings and a 24% increase in adjusted earnings per share for the third quarter of 2024, while reaffirming its full-year adjusted EPS guidance.

Summary

• Flowserve Corporation reported its financial results for the third quarter ended September 30, 2024.
• Total bookings reached $1.20 billion, a 12.7% increase compared to the prior year, with aftermarket bookings at $615 million.
• Power bookings saw a significant increase of nearly 30% year-over-year, including over $100 million in nuclear awards.
• Adjusted gross and operating margins improved to 32.4% and 11.1%, respectively, representing increases of 270 and 240 basis points.
• Reported earnings per share (EPS) was 44 cents, and adjusted EPS was 62 cents, a 26% and 24% increase, respectively, both impacted by a 7 cent unfavorable charge.
• The company generated $178 million in operating cash flow, a 121% increase year-over-year.
• The backlog reached $2.8 billion, a 3.7% sequential increase, with a book-to-bill ratio of 1.06x.
• Flowserve reaffirmed its full-year 2024 adjusted EPS target range but lowered its full-year reported EPS target range.
• The company's 2024 adjusted EPS target range excludes realignment charges of approximately $45 million and other potential impacts.
• The 2024 guidance excludes the recently completed MOGAS Industries acquisition.

Sentiment

Score: 8

Explanation: The document conveys a positive sentiment due to strong financial results, increased bookings, improved margins, and a positive outlook. The reaffirmation of adjusted EPS guidance and the successful acquisition further contribute to the positive tone. However, the negative impact of certain charges and the lowering of the reported EPS target range temper the overall sentiment slightly.

Positives

• Flowserve experienced strong growth in bookings, particularly in the power sector and aftermarket.
• The company demonstrated significant improvements in both gross and operating margins.
• Earnings per share showed substantial growth compared to the previous year.
• Operating cash flow increased significantly, indicating improved financial health.
• The company's backlog is at near-record levels, suggesting future revenue potential.
• The successful closing of the MOGAS Industries acquisition is expected to contribute to future growth.
• The Flowserve Business System is beginning to deliver results.
• The company is well-positioned to continue progress in 2025 towards its 2027 financial targets.

Negatives

• Both reported and adjusted EPS were negatively impacted by a $9.2 million (7 cents per share) expense charge related to long-term liabilities.
• Reported and adjusted operating margins were impacted by a $12 million expense charge from an actuarial assessment of certain long-term liabilities.
• The company lowered its full-year 2024 reported EPS target range.
• The 2024 guidance excludes the recently completed MOGAS Industries acquisition.

Risks

• The company faces economic, political, and other risks associated with international operations.
• Global supply chain disruptions and inflation could adversely affect manufacturing efficiency and costs.
• A portion of bookings may not convert to sales, and the company's ability to convert bookings into revenue at acceptable margins is not guaranteed.
• Changes in global economic conditions and potential order cancellations or delays could impact the backlog.
• The company is dependent on customer capital investment and maintenance expenditures.
• The company's sales are substantially dependent on the success of the oil and gas, chemical, power generation, and water management industries.
• Volatile raw material prices could adversely impact products and operating margins.
• The company is exposed to fluctuations in foreign currency exchange rates.
• The company faces potential adverse consequences from litigation, including asbestos-related claims.
• The company's information technology infrastructure could be subject to service interruptions, data corruption, cyber-based attacks, or network security breaches.

Future Outlook

Flowserve reaffirmed its full-year 2024 adjusted EPS target range and expects to exit 2024 with positive momentum, well-positioned for continued progress in 2025 towards its 2027 financial targets.

Management Comments

• Scott Rowe, Flowserve's President and Chief Executive Officer, stated that the third quarter results reflect strong operational performance, including meaningful year-over-year improvements in margins, EPS, and cash flow.
• Rowe believes the 3D strategy, combined with the Flowserve Business System, are key drivers to accelerating growth and expanding margins.
• Rowe expressed confidence that sustained progress will enable the company to create long-term value for customers, associates, and shareholders.

Industry Context

Flowserve's results reflect a positive trend in the flow control industry, with increased demand in the power sector and aftermarket services. The company's focus on operational excellence and strategic initiatives aligns with industry trends towards efficiency and growth.

Comparison to Industry Standards

• Flowserve's 12.7% increase in bookings is a strong result compared to competitors in the industrial flow control sector, such as Xylem and Pentair, which have seen more modest growth in recent quarters.
• The 270 basis point increase in adjusted gross margin and 240 basis point increase in adjusted operating margin are significant improvements, placing Flowserve ahead of many peers in terms of profitability gains.
• The 121% increase in operating cash flow is a standout performance, indicating strong operational efficiency and financial management, which is better than many of its competitors.
• The backlog of $2.8 billion is a positive indicator of future revenue, and the 1.06x book-to-bill ratio suggests a healthy demand environment, which is comparable to other large industrial companies with strong order books.
• The company's focus on its 3D strategy and the Flowserve Business System is a strategic move to improve operational performance, which is similar to initiatives undertaken by other industrial companies to enhance efficiency and profitability.

Stakeholder Impact

• Shareholders will benefit from the increased earnings per share and positive future outlook.
• Employees may see improved job security and potential for career growth due to the company's positive performance.
• Customers will benefit from the company's continued investment in product and service improvements.
• Suppliers may see increased business opportunities due to the company's growth.
• Creditors will have increased confidence in the company's ability to meet its financial obligations.

Next Steps

• Flowserve will host a conference call on October 29, 2024, to discuss the third quarter results.
• The company will continue to focus on its 3D strategy and the Flowserve Business System to drive growth and expand margins.
• Flowserve will work towards achieving its 2027 financial targets.

Key Dates

Keywords

Flowserve, bookings, EPS, margins, cash flow, backlog, MOGAS Industries, power, aftermarket, flow control, pumps