Flowserve Down 0.2% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Flowserve FLS. Shares have lost about 0.2% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Flowserve due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Flowserve Q2 Earnings & Revenues Top Estimates, Rise Y/Y

Flowserve's second-quarter 2024 adjusted earnings (excluding 18 cents from non-recurring items) of 73 cents per share beat the Zacks Consensus Estimate of 63 cents. The bottom line increased 40.4% year over year. Results primarily benefited from higher revenues, partially offset by an increase in operating costs and expenses.

Flowserve's total revenues of $1.16 billion beat the consensus estimate of $1.12 billion. The top line increased 7.1% year over year. Sales increased 7.7% on a constant-currency basis.

Aftermarket sales increased 5% year over year (up 5.8% on a constant-currency basis) to $590.5 million. Original equipment sales totaled $566.4 million, reflecting an increase of 9.4% year over year (up 9.8% on a constant-currency basis).

Total bookings amounted to $1.25 billion, reflecting an increase of 12.2% (up 13% on a constant-currency basis) year over year. The backlog at the end of the quarter was $2.7 billion, up 2.8% sequentially.

Segmental Details

Flowserve currently has two reportable segments, Flowserve Pump Division and Flow Control Division. A brief discussion of the segments is provided below:

Revenues from the Flowserve Pump Division segment were $812.2 million, up 6.1% year over year. Bookings increased 18.3% year over year to $898.8 million. Segmental operating income was $131 million, up 33.7% year over year.

Revenues from the Flow Control Division segment were $347.7 million, up 9.4% year over year. Bookings of $349.2 million decreased 2.9% on a year-over-year basis. The segment's operating income was $32.3 million, down 10.5% year over year.

Margin Profile

In the second quarter, Flowserve's cost of sales increased 4.4% year over year to $790.8 million. Gross profit increased 13.4% year over year to $366.1 million and the margin increased 170 basis points (bps) to 31.6%. Selling, general and administrative expenses were $238.6 million, up 3.7% year over year.

Operating income increased 25.5% year over year to $121.3 million. The adjusted operating margin was 12.5%, up 210 bps year over year. The effective tax rate was 23.8%.

Balance Sheet and Cash Flow

Exiting the second quarter, Flowserve had cash and cash equivalents of $515.1 million compared with $545.7 million at the end of December 2023. Long-term debt (due after one year) was $1.21 billion compared with $1.17 billion at the end of December 2023.

In the first six months of 2024, the company generated net cash of $49.5 million from operating activities compared with $50.4 million in the year-ago period. Capital expenditure totaled $28.3 million, down 11.3% year over year.

During the same period, the company used $55.3 million for distributing dividends.

2024 Guidance

Flowserve continues to expect a 4-6% increase in revenues from the year-ago levels. The company anticipates earnings per share (on a reported basis) to be between $2.25 and $2.45. Adjusted earnings per share are now estimated in the $2.60–$2.75 band, higher than the earlier guidance of $2.50-$2.70. The Zacks Consensus Estimate for adjusted earnings is pegged at $2.68 per share.

The adjusted tax rate is projected to be approximately 21%. The company forecasts net interest expense and capital expenditure to be in the range of $60-$65 million and $75-$85 million, respectively.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review.

VGM Scores

Currently, Flowserve has an average Growth Score of C, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions has been net zero. Notably, Flowserve has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.

Performance of an Industry Player

Flowserve is part of the Zacks Manufacturing - General Industrial industry. Over the past month, Barnes Group B, a stock from the same industry, has gained 0.4%. The company reported its results for the quarter ended June 2024 more than a month ago.

Barnes Group reported revenues of $382.23 million in the last reported quarter, representing a year-over-year change of +12.8%. EPS of $0.37 for the same period compares with $0.58 a year ago.

Barnes Group is expected to post earnings of $0.39 per share for the current quarter, representing a year-over-year change of +105.3%. Over the last 30 days, the Zacks Consensus Estimate has changed -3.3%.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #5 (Strong Sell) for Barnes Group. Also, the stock has a VGM Score of F.

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