Flowserve (FLS) Q3 Earnings and Revenues Miss Estimates

Flowserve Corporation’s FLS 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%.

Flowserve Corporation Price and Consensus

Flowserve Corporation Price and Consensus

Flowserve Corporation price-consensus-chart | Flowserve Corporation Quote

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.

Zacks Rank & Stocks to Consider

FLS currently carries a Zacks Rank #5 (Strong Sell).

Some better-ranked companies from the Industrial Products sector are discussed below:

Enerpac Tool Group Corp. EPAC delivered an average four-quarter earnings surprise of 3.4%. EPAC presently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks.

EPAC’s earnings estimates have increased 9.1% for fiscal 2023 (ending August 2023) in the past 60 days. The company’s shares have gained 20.8% in the past six months.

Applied Industrial Technologies, Inc. AIT presently has a Zacks Rank #1 and a trailing four-quarter earnings surprise of 24.8%, on average.

AIT’s earnings estimates have increased 3% for fiscal 2023 (ending June 2023) in the past 60 days. The company’s shares have risen 12.5% in the past six months.

IDEX Corporation IEX presently has a Zacks Rank of 2 (Buy). IEX’s earnings surprise in the last four quarters was 5.7%, on average.

In the past 60 days, IDEX’s earnings estimates have increased 1.5% for 2022. The stock has rallied 11.8% in the past six months.

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