Release Date: July 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Flowserve Corp (FLS, Financial) reported a 7% year-over-year revenue growth, with adjusted gross and operating margins increasing to 32.3% and 12.5%, respectively.
- The company achieved strong bookings of $1.25 billion in the quarter, marking a 12% increase from the previous year and sequential growth of 20%.
- Flowserve Corp (FLS) increased its full-year adjusted EPS guidance range for the second time this year to $2.60 to $2.75, representing a nearly 27% increase year-over-year.
- The company's aftermarket bookings reached a record $614 million, demonstrating resilience and strong customer relationships.
- Flowserve Corp (FLS) is making significant progress with its operational excellence program, leading to improved manufacturing efficiency and margin expansion.
Negative Points
- Despite strong performance, Flowserve Corp (FLS) experienced a cash use of $13 million in operating activities during the second quarter, driven by working capital requirements.
- The company's bookings in Europe and Asia-Pacific declined slightly year-over-year, indicating potential regional challenges.
- Flowserve Corp (FLS) divested its NAF AB control valve business, which was breakeven at best, indicating challenges in optimizing its portfolio.
- The company faces risks and uncertainties related to its forward-looking statements and non-GAAP measures, which could impact future performance.
- Flowserve Corp (FLS) anticipates a stronger second half of the year but acknowledges potential impacts from the annual true-up of certain liabilities.
Q & A Highlights
Q: Can you provide more context on the revenue and margin expectations for the second half of the year and into 2025?
A: Amy Schwetz, CFO, explained that 2024 is focused on margin expansion rather than outsized revenue growth. The first half of the year benefited from easier comps, but growth rates are expected to moderate in the second half. Large projects booked in Q2 will contribute more to 2025 revenue. The company is pushing for growth in higher-margin areas, particularly aftermarket, and expects continued margin expansion through operational excellence.
Q: Could you elaborate on the product line review and its impact on future margins?
A: Scott Rowe, CEO, stated that the product excellence program aims for 100 to 200 basis points of margin improvement. The program involves product management and portfolio optimization, with actions like investing in high-margin products and raising prices. The first business unit has shown clear margin improvement, and the program will expand to other units, with results expected in late 2024 and into 2025.
Q: What is the outlook for the bookings pipeline and book-to-bill ratio?
A: Scott Rowe highlighted that the project funnel is up 8% year-over-year, with strong visibility into projects, particularly in the Middle East and power sectors. The company expects the full-year book-to-bill ratio to exceed 1.0, indicating continued growth in bookings.
Q: Can you discuss the expected return on investment from the new cryogenic pump acquisition in LNG?
A: Scott Rowe explained that the acquisition fills a gap in Flowserve's LNG offerings, with the potential for $50 million in annual revenue by 2026-2027. Amy Schwetz added that the acquisition is expected to be accretive to margins and provide long-term returns, with additional benefits from pulling through other Flowserve products into LNG facilities.
Q: How is the aftermarket business performing, and what are the drivers behind its growth?
A: Scott Rowe noted that aftermarket bookings reached a record $614 million in Q2, driven by high utilization rates and improved capture rates due to organizational changes. The company expects continued growth in aftermarket bookings, supported by a focus on speed and responsiveness in service delivery.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
