Flowserve (FLS) Gains From Solid End Markets Despite Cost Woes
Flowserve Corporation FLS is gaining from strength across its oil & gas, chemical, power, general Industries and water end markets. Core market growth and Diversify, Decarbonize and Digitize (3D) strategy are driving the company’s bookings. Also, its realignment activities are helping it capture more margin enhancement opportunities with efficient cost management and higher productivity. For 2023, the company expects bookings of $2.7 billion driven by supportive end markets. Revenues are anticipated to increase in the range of 9-11% from the prior-year reported figure.
In February 2023, Flowserve inked a deal to acquire Velan Inc. in an all-cash transaction valued at approximately $245 million. The buyout will strengthen FLS’ valves portfolio and build upon its existing assets through the addition of Velan’s premier brands, strong heritage and technical expertise in diverse end markets. Velan will become part of Flowserve’s Flow Control Division (FCD) segment. The deal is expected to be completed by the end of the second quarter of 2023.
Flowserve utilizes its cash flow to reward its shareholders by distributing dividends. The company paid out dividends worth $104.5 million to its shareholders in 2022.
However, FLS has been witnessing supply-chain challenges and logistics problems. Flowserve’s cost of sales increased 5.1% and selling, general and administrative expenses rose 2.3%, year over year in 2022. A potential recessionary environment is expected to weaken its GDP-driven markets, including chemicals and general industries.
Foreign exchange is an added headwind for FLS, given its widespread presence in the international markets. A stronger U.S. dollar might dampen the company's overseas business results in the quarters ahead.
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In the past year, this current Zacks Rank #3 (Hold) stock has increased 9.1% compared with the industry’s 5.1% rise.
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