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Flowserve (FLS) to Report Q2 Earnings: What's in the Cards?

Zacks Equity Research

Flowserve Corporation FLS is scheduled to release second-quarter 2019 results on Jul 31, after market close.

The company delivered better-than-expected results twice in the last four quarters, met estimates in one and lagged in the other — the average positive earnings surprise being 0.49%. Notably, the company’s first-quarter earnings of 41 cents per share surpassed the Zacks Consensus Estimate of 34 cents by 20.59%.

In the past three months, the company’s shares have rallied 5.9% against industry’s decline of 0.5%.

Let us see how things are shaping up for Flowserve this quarter.

Factors to Influence Q2 Results

Flowserve is set to benefit from strength in its end markets. In the oil and gas industry, the company stands to gain from rise in maintenance, repair & operation spending across the globe on account of increased focus on maintenance and efficiency, higher demand for cleaner fuels, and pickup in liquefied natural gas-related activities in North America. Also, rising demand, which is spurring investments in ethylene and derivative facilities, has positioned the company to benefit from the chemical market. In addition, higher distribution activities will increase growth prospects in the general industries. All these are expected to be reflected in the upcoming results.

Also, the company is undergoing a transformational realignment program to optimize its manufacturing platform and reduce costs. Notably, it is focusing on improving on-time delivery, reducing backlog, enhancing sales process and further leveraging on the supplier relationships. Moreover, the company benefits from its initiatives to improve working environment for employees, strengthen operational and productivity improvements and enhance its ability to effectively support customers. All these are expected to drive second-quarter results.

Notably, the Zacks Consensus Estimate for second-quarter revenues from the company’s Flow Control Division segment is currently pegged at $309 million, higher than $307 million reported in the year-ago quarter.

In addition, Flowserve has consistently returned capital to shareholders in forms of share repurchases and dividends. As a matter of fact, in 2019, the company intends to pay $100 million in dividends to shareholders and use $90-$100 million in cash for capital expenditures.

However, challenging conditions in the power market resulted in roughly flat bookings in the first quarter of 2019. As a matter of fact, the company predicts harsh conditions to persist in the near term. Moreover, high debt level and rising costs related to realignment expenses remain concerns for Flowserve.

Earnings Whispers

Our proven model provides some idea on the stocks that are about to release earnings. Per the model, a stock needs to have a combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to beat estimates. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

The case with Flowserve is given below:

Earnings ESP: Flowserve has an Earnings ESP of -5.84% as the Most Accurate Estimate is pegged at 48 cents, lower than the Zacks Consensus Estimate of 51 cents.

Flowserve Corporation Price and EPS Surprise

Flowserve Corporation Price and EPS Surprise

Flowserve Corporation price-eps-surprise | Flowserve Corporation Quote

Zacks Rank: Flowserve carries a Zacks Rank #3, which increases the predictive power of ESP. However, its negative ESP makes surprise prediction difficult.

We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Key Picks

Here are some companies from the same space you may want to consider as our model shows that these have the right mix of elements to beat estimates this earnings season:

Axon Enterprise, Inc. AAXN has an Earnings ESP of +10.21% and a Zacks Rank of 1.You can see the complete list of today’s Zacks #1 Rank stocks here.

AptarGroup, Inc. ATR has an Earnings ESP of +0.56% and a Zacks Rank of 2.

Ingersoll-Rand plc IR has an Earnings ESP of +0.37% and a Zacks Rank #2.

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