Yahoo Finance Flowserve (FLS) Up 10.7% Since Last Earnings Report: Can It Continue?
It has been about a month since the last earnings report for Flowserve (FLS). Shares have added about 10.7% 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 the most recent earnings report in order to get a better handle on the important catalysts.
Flowserve Q3 Earnings and Revenues Miss Estimates
Flowserve’s third-quarter 2022 adjusted earnings (excluding 20 cents from non-recurring items) of 9 cents per share missed the Zacks Consensus Estimate of 24 cents. The bottom line declined approximately 67% year over year. Supply-chain woes and inflationary pressure hurt the performance.
Flowserve’s total sales of $872.9 million missed the Zacks Consensus Estimate of $877 million. However, the top line increased 0.8% year over year. Sales increased 7.2% on a constant-currency basis.
Aftermarket sales in the reported quarter increased 4.5% year over year (or up 10.6% on a constant-currency basis) to $460.8 million. Original equipment sales totaled $412.1 million, reflecting a decrease of 3.1% (up 3.6% on a constant-currency basis).
Bookings totaled $1.22 billion in the quarter, reflecting an increase of 34.2% (or 40.8% on a constant-currency basis) from the year-ago quarter. The backlog at the end of the reported quarter was $2.6 billion, up 29.9% year over year.
Segmental Details
The company 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 were $592.6 million, down 1.5% year over year. Bookings rose 40.1% to $925.8 million.
Revenues from the Flow Control Division were $282.6 million, up 6.2% year over year. Bookings of $300 million increased 18.3%.
Margin Profile
In the third quarter, Flowserve’s cost of sales increased 3.4% year over year to $633.3 million. It represented 72.6% of sales compared with 70.7% in the year-ago quarter. Gross profit decreased 5.5% to $253.5 million, and margin contracted 190 basis points (bps) to 27.4%. Selling, general and administrative expenses were $221.1 million, up 10.1% year over year. It represented 25.3% of sales.
Operating income in the quarter decreased 57.8% year over year to $24.2 million. Adjusted operating margin deteriorated to 2.4% from 7% in the year-ago quarter. The effective tax rate was 4.3% in the quarter.
Balance Sheet and Cash Flow
Exiting the third quarter, Flowserve had cash and cash equivalents of $ 351.9 million compared with $658.5 million at the end of December 2021. Long-term debt (due after one year) was $1.2 billion, compared with $1.3 billion at the end of December 2021.
In the first nine months of 2022, the company used net cash of $109.5 million from operating activities versus $151.1 million generated in the year-ago period. Capital expenditure in the period totaled $45.8 million, up 34.7% from the year ago.
During the first nine months of the year, the company used $78.4 million for distributing dividends. Flowserve did not buy back shares during the period.
Outlook
Flowserve expects an 8-10% year-over-year increase in revenues in fourth-quarter 2022. The company anticipates reported and adjusted earnings per share of approximately 40 cents for the quarter.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
The consensus estimate has shifted -35.09% due to these changes.
VGM Scores
At this time, Flowserve has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. Charting a somewhat similar path, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. 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 indicates a downward shift. It's no surprise Flowserve has a Zacks Rank #5 (Strong Sell). We expect a below 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, Illinois Tool Works (ITW), a stock from the same industry, has gained 5.2%. The company reported its results for the quarter ended September 2022 more than a month ago.
Illinois Tool Works reported revenues of $4.01 billion in the last reported quarter, representing a year-over-year change of +12.8%. EPS of $2.35 for the same period compares with $2.02 a year ago.
For the current quarter, Illinois Tool Works is expected to post earnings of $2.60 per share, indicating a change of +33.3% from the year-ago quarter. The Zacks Consensus Estimate has changed +1.7% over the last 30 days.
Illinois Tool Works has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of D.
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Flowserve Corporation (FLS) : Free Stock Analysis Report
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