Flowserve (FLS) Stock Falls 1.5% Since Q3 Earnings Beat
Flowserve Corporation’s FLS third-quarter 2023 adjusted earnings (excluding 15 cents from non-recurring items) of 50 cents per share beat the Zacks Consensus Estimate of earnings of 41 cents per share. The bottom line increased 455.6% year over year.
Results were primarily aided by high revenues. However, an increase in the cost of sales was a headwind, which seems to have turned investors bearish on the stock, which fell 1.5% following the earnings release on Oct 25.
Flowserve’s total sales of $1,094.7 million beat the consensus estimate of $1,020 million. The top line increased 25.4% year over year. Sales increased 23% on a constant-currency basis.
Aftermarket sales in the reported quarter increased 22.7% year over year (or up 20.4% on a constant-currency basis) to $565.5 million. Original equipment sales totaled $529.2 million, reflecting an increase of 28.4% (up 25.9% on a constant-currency basis).
Bookings totaled $1.07 billion in the quarter, reflecting a decrease of 12.7% (or 14.3% on a constant-currency basis) from the year-ago quarter. The backlog at the end of the reported quarter was $2.77 billion, up 6.6% year over year.
Flowserve Corporation Price, Consensus and EPS Surprise
Flowserve Corporation price-consensus-eps-surprise-chart | Flowserve Corporation Quote
Segmental Details
The company currently has two reportable segments, which are the Flowserve Pump Division and the Flow Control Division. A brief discussion of the segments is provided below:
Revenues from the Flowserve Pump Division segment were $766.2 million, up 29.3% year over year. Bookings decreased 20.6% to $734.7 million. The segment’s operating income was $78.3 million for the quarter, up 101.3% year over year. Our estimate for the same was $76.9 million.
Revenues from the Flow Control Division segment were $330.7 million, up 17.0% year over year. Our estimate for segmental revenues was $297.7 million. Bookings of $330.5 million increased 10.2%. The segment operating income was $43.5 million for the quarter, up 46.5% year over year. Our estimate for the same was $35.0 million.Margin Profile
In the third quarter, Flowserve’s cost of sales increased 22.7% year over year to $777 million. Gross profit increased 32.6% to $317.7 million and the margin increased 160 basis points (bps) to 29.0%. Selling, general and administrative expenses were $252.1 million, up 14% year over year.
Operating income in the quarter increased 190.1% year over year to $70.3 million. The adjusted operating margin increased to 8.7%, up 630 bps year over year. The effective tax rate was (27.0%) in the quarter.
Balance Sheet and Cash Flow
Exiting the third quarter, Flowserve had cash and cash equivalents of $480.5 million compared with $435 million at the end of December 2022. Long-term debt (due after one year) was $1,266.4 million compared with $1,224.2 million at the end of December 2022.
In the first nine months of 2023, the company generated net cash of $131.1 million from operating activities against $109.5 million used in the year-ago period. Capital expenditure in the period totaled $47.5 million, up 3.7% from the year-ago period.
During the same time period, the company used $78.7 million for distributing dividends.
2023 Guidance Revised
Flowserve expects a 18.0-19.0% year-over-year increase in revenues in 2023 compared with 16.0-18.0% predicted before. The company anticipates reported earnings per share to be $1.40-$1.50. Adjusted earnings per share are estimated to be $1.95-$2.05 for the year compared with $1.85-$2.00 per expected earlier.
The midpoint of the guided range — $2.00 — lies above the Zacks Consensus Estimate of adjusted earnings of $1.98 per share. 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.
Zacks Rank & Stocks to Consider
FLS currently carries a Zacks Rank #3 (Hold). Some better-ranked companies from the Industrial Products sector are discussed below:
Applied Industrial Technologies, Inc. AIT presently carries a Zacks Rank #2 (Buy) and a trailing four-quarter earnings surprise of 13.9%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
AIT’s earnings estimates have increased 2.8% for fiscal 2024 (ending June 2024) in the past 60 days. Shares of Applied Industrial have risen 21.2% in the past year.
Axon Enterprise, Inc. AXON currently carries a Zacks Rank of 2. The company delivered a trailing four-quarter earnings surprise of approximately 60.2%, on average.
In the past 60 days, estimates for Axon’s earnings have remained steady for 2023. The stock has soared 38% in the past year.
Caterpillar Inc. CAT presently carries a Zacks Rank of 2. CAT’s earnings surprise in the last four quarters was 18.5%, on average.
In the past 60 days, estimates for Caterpillar’s 2023 earnings have increased 1.5%. The stock has gained 10.3% in the past year.
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