Release Date: October 29, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Flowserve Corp (FLS, Financial) reported strong Q3 2024 results with bookings of $1.2 billion and a book-to-bill ratio of over 1.06 times.
- The company achieved a 240 basis points year-over-year adjusted operating margin expansion, resulting in an 81% incremental margin.
- Flowserve Corp (FLS) delivered nearly 30% growth in power bookings year over year, with a year-to-date bookings growth of 23%.
- The acquisition of Mogas Industries is expected to enhance Flowserve Corp (FLS)'s portfolio and support long-term value creation.
- Flowserve Corp (FLS) generated record third quarter cash from operations of $178 million, driven by strong earnings and substantial working capital improvements.
Negative Points
- Flowserve Corp (FLS) faced a discrete $0.07 charge in Q3 2024 related to the annual actuarial assessment of certain undiscounted long-term liabilities.
- The company's FCD segment experienced a decline in original equipment bookings in the quarter and year to date.
- Flowserve Corp (FLS) anticipates less revenue from percentage of completion activities in Q4 2024 compared to the previous year.
- The chemical market remains challenged, particularly in Europe and the United States, impacting Flowserve Corp (FLS)'s performance in this sector.
- Despite strong operational performance, Flowserve Corp (FLS) acknowledges that its full year guidance implies a wide range of outcomes for Q4 2024.
Q & A Highlights
Q: Can you provide more color on what you're seeing in terms of bookings, especially regarding the Middle East and process markets? Do you believe your markets are still early in their upcycle?
A: The aftermarket business is very healthy, with two consecutive quarters at $600 million. Utilization rates in the process industry are stable, and we're seeing operators spend to maintain these levels. Our focus on capturing market share is yielding results. In terms of projects, the pipeline remains robust, especially in the Middle East, with strong activity in oil and gas, gas processing, and refining. We see continued opportunities in power generation and water demands in the region.
Q: Regarding Q4 EPS, it seems like the ramp in revenue is smaller than usual. Is there anything else affecting Q4 expectations?
A: The smaller ramp in Q4 revenue is due to less revenue from percentage of completion activities compared to last year. We expect continued margin improvement, particularly in FCD, driven by mix and cost-out activities. Our full-year guidance implies a range of outcomes, but we expect to be closer to the midpoint.
Q: Can you elaborate on the portfolio review process and its expected impact on margins by 2027?
A: We launched a formal portfolio excellence program using an 80/20 framework to optimize products, customers, and profitability. Three business units are currently in the process, and we expect all to complete by 2025. Early results are promising, reaffirming our target of 100 to 200 basis points of margin improvement by 2027.
Q: How do you see the power market, particularly nuclear, evolving over the next few years?
A: The power market, including nuclear, is at an inflection point. We see long-term growth opportunities, especially in nuclear, driven by life extensions and new builds in Europe and Asia. Our power funnel is up 20%, and we expect steady growth over the next decade as demand for electricity increases.
Q: Can you discuss the impact of the recent Mogas acquisition on your strategy and future growth?
A: The Mogas acquisition aligns with our strategy to diversify and enhance our portfolio. It offers strong financial returns and straightforward integration. We expect $15 million in cost synergies by the end of year two and incremental revenue synergies. This acquisition strengthens our position in severe service and supports long-term value creation.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
