Flowserve (FLS) Up 0.9% Since Last Earnings Report: Can It Continue?
A month has gone by since the last earnings report for Flowserve (FLS). Shares have added about 0.9% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Flowserve due for a pullback? 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 Beat, Increase Y/Y
Flowserve’s second-quarter 2023 adjusted earnings (excluding 13 cents from non-recurring items) of 52 cents per share beat the Zacks Consensus Estimate of earnings of 40 cents per share. The bottom line increased 73.3% year over year.
Flowserve’s total sales of $1,080.4 million beat the consensus estimate of $981 million. The top line increased 22.5% year over year. Sales increased 22.9% on a constant-currency basis.
Aftermarket sales in the reported quarter increased 20% year over year (or up 19.5% on a constant-currency basis) to $562.6 million. Original equipment sales totaled $517.8 million, reflecting an increase of 29.5% (up 26.2% on a constant-currency basis).
Bookings totaled $1.11 billion in the quarter, reflecting an increase of 6.4% (or 6.6% on a constant-currency basis) from the year-ago quarter. The backlog at the end of the reported quarter was $2.8 billion, up 22.8% year over year.
Segmental Details
The company currently has two reportable segments, which are Flowserve Pump Division and Flow Control Division. A brief discussion of the segments is provided below:
Revenues from the Flowserve Pump Division segment were $765.4 million, up 24.5% year over year. Bookings increased 5.9% to $760.0 million. The segment operating income was $98.0 million for the quarter, up 71% year over year. Our estimate for the same was $80.5 million.
Revenues from the Flow Control Division segment were $317.7 million, up 18.4% year over year. Our estimate for segmental revenues was $293.3 million. Bookings of $359.7 million increased 9%. The segment operating income was $36.1 million for the quarter, up 18.8% year over year. Our estimate for the same was $29.6 million.
Margin Profile
In the second quarter, Flowserve’s cost of sales increased 19.8% year over year to $757.6 million. It represented 70.1% of sales, compared with 71.7% of sales in the year-ago quarter. Gross profit increased 29.2% to $322.8 million, and the margin increased 160 basis points (bps) to 29.9%. Selling, general and administrative expenses were $230.1 million, up 18.2% year over year. It represented 21.3% of sales.
Operating income in the quarter increased 60.2% year over year to $96.6 million. The adjusted operating margin increased to 10.4%, up 320 bps year over year. The effective tax rate was 27.9% in the quarter.
Balance Sheet and Cash Flow
Exiting the second quarter, Flowserve had cash and cash equivalents of $422.8 million, compared with $435 million at the end of December 2022. Long-term debt (due after one year) was $1,245.3 million, compared with $1,224.2 million at the end of December 2022.
In the first six months of 2023, the company generated net cash of $50.4 million from operating activities against $71.4 million used in the year-ago period. Capital expenditure in the period totaled $31.9 million, up 2.8% from the year-ago period.
During the same time period, the company used $52.5 million for distributing dividends.
2023 Guidance Improved
Flowserve expects a 16.0-18.0% year-over-year increase in revenues in 2023, compared with 10.0-12.0% predicted before. The company anticipates reported earnings per share to be $1.40-$1.65. Adjusted earnings per share are estimated to be $1.85-$2.00 for the year, compared with $1.65-$1.85 expected earlier. The adjusted tax rate is anticipated to be approximately 20%. The company expects net interest expense of approximately $60 million and capital expenditure of $75-$85 million for the year.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month.
VGM Scores
At this time, Flowserve has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. 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 #1 (Strong 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, Graco Inc. (GGG), a stock from the same industry, has gained 0.4%. The company reported its results for the quarter ended June 2023 more than a month ago.
Graco Inc. reported revenues of $559.64 million in the last reported quarter, representing a year-over-year change of +2%. EPS of $0.75 for the same period compares with $0.68 a year ago.
Graco Inc. is expected to post earnings of $0.74 per share for the current quarter, representing a year-over-year change of +12.1%. Over the last 30 days, the Zacks Consensus Estimate has changed -0.8%.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Graco Inc. Also, the stock has a VGM Score of D.
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