Why is Flowserve (FLS) up 4.3% since its last earnings report?

It’s been a month since Flowserve’s (FLS) last earnings report. Shares rose about 4.3% in that time, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Flowserve headed for a recession? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at the company’s most recent earnings report in order to better understand the important catalysts.

Flowserve’s best estimates for Q1 earnings and revenue, YoY growth

Flowserve’s first-quarter 2024 adjusted earnings (excluding 2 cents from non-recurring items) of 58 cents per share beat the Zacks Consensus Estimate of 47 cents. The financial result increased by 45% year on year. The results were driven primarily by higher revenues, partially offset by increases in operating costs and expenses.

Flowserve’s total sales of $1.09 billion topped the consensus estimate of $1.04 billion. The value of revenues increased by 10.9% year on year. Sales increased by 10.6% on a constant basis.

Aftermarket sales in the reported quarter increased 8.1% year-over-year (up 8.1% in constant currency) to $558.9 million. Total original equipment sales were $528.6 million, reflecting a 14.1% year-over-year increase (13.5% increase in constant currency).

Total bookings were $1.04 billion for the quarter, reflecting a decline of 1.8% (down 1.8% on a constant basis) year-over-year. Backlogs at the end of the reported quarter were $2.6 billion, down 6.9% year-over-year.

Segment details

FLS currently has two reportable segments: Flowserve Pumps and Flow Control. Below is a brief overview of the segments:

Flowserve Pump Division revenues were $769.4 million, up 9.9% year-over-year. Reservations fell 3.4% year-over-year to $703.5 million. Segment operating income was $110.9 million, up 40.2% year over year.

Flow Control Division revenues were $320.5 million, up 13.8% year-over-year. Bookings of $341.1 million increased 2.7% year-over-year. Segment operating income was $34.7 million, up 87.6% year-over-year. We estimated the same to be $32 million.

Margin profile

In the first quarter, Flowserve’s cost of sales increased 9.5% year-over-year to $748.5 million. Gross profit increased 14.2% year-over-year to $339 million and margin increased 90 basis points (bps) to 31.2%. Selling, general and administrative expenses were $228.4 million, down 6.5% year-over-year.

Operating income for the quarter increased 97.7% year-over-year to $113.1 million. Adjusted operating margin was 10.9%, up 260 basis points year over year. The effective tax rate for the quarter was 20.4%.

The story continues

Balance sheet and cash flow

At the end of the first quarter, Flowserve had cash and cash equivalents of $532 million, compared to $545.7 million at the end of December 2023. Long-term debt (due after one year) was $1.15 billion, compared to 1. USD 17 billion at the end of December 2023.

In the first three months of 2024, the company generated net cash from operations of $62.3 million, compared to $26.6 million in the same period a year ago. Capital expenditure for the year was $13.6 million, down 11.1% year-over-year.

In the same period, the company allocated USD 27.7 million for dividend payments.

Guidelines 2024

Flowserve continues to expect revenue growth of 4-6% over last year levels. The company expects earnings per share (on a reported basis) to be between $2.25 and $2.45. Adjusted earnings per share are now estimated in the range of $2.50-$2.70, up from the previously expected range of $2.40-$2.60.

The adjusted tax rate is expected to be approximately 20%. The company forecasts net interest expense and capital expenditure to be $60 million to $65 million and $75 million to $85 million, respectively.

How have estimates changed since then?

Investors have witnessed a downward trend in estimate revisions over the past month.

VGM results

Currently, Flowserve has a great Growth Score of A, although well behind its Momentum Score of D. However, the stock is rated a B on the value side, putting it in the second quintile of this investing strategy.

Overall, the stock has a composite VGM score of B. If you’re not focused on one strategy, this score should interest you.

Perspectives

Estimates for this company are generally on a downward trend, and the magnitude of these revisions indicates a downward shift. Notably, Flowserve carries a Zacks Rank #2 (Buy). We expect an above-average rate of return on shares in the coming months.

Industry player performance

Flowserve is part of the Zacks Manufacturing – General Industrial industry. Over the past month, Dover Corporation (DOV), a company in the same industry, has gained 2.3%. More than a month ago, the company published its results for the quarter ended March 2024.

In the most recent quarter, Dover reported revenue of $2.09 billion, representing a year-over-year change of +0.7%. EPS of $1.95 in the same period compared to $1.94 a year ago.

For the current quarter, Dover is expected to report earnings per share of $2.22, representing a change of +8.3% from the prior-year quarter. The Zacks Consensus Estimate has remained unchanged over the past 30 days.

The overall direction and magnitude of estimate revisions translates into a Zacks Rank #3 (Hold) for Dover. The stock also has a VGM Rating of C.

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