Flowserve (FLS) 2025 Conference Summary Company Overview - **Company**: Flowserve Corporation (FLS) - **Focus**: Transformational journey aimed at expanding margins and driving profitable growth within the multi-industrial sector, particularly in energy and power markets [1][3] Demand Outlook - **Aftermarket Performance**: Five consecutive quarters of aftermarket bookings exceeding $600 million, with over 50% of revenue driven by a resilient aftermarket revenue franchise [3][4] - **Market Positioning**: Focus on downstream assets and refining, with revenue streams driven by capacity utilization rather than capital spending or oil prices [3][4] - **Investment in Speed**: Emphasis on quick quoting and reliability in aftermarket services to meet customer demands [4][5] Project Activity and Economic Indicators - **Second Quarter Bookings**: Approximately $1.7 billion booked, with three large bookings under $12 million, indicating strength in the run rate business despite a slowdown in large projects [7][9] - **Market Confidence**: Confidence in future bookings, particularly in power and nuclear sectors, despite general economic uncertainties affecting project urgency [10][11] Nuclear Sector Insights - **Nuclear Project Mix**: Strong focus on aftermarket orders for life extensions of reactors, particularly in North America, with significant orders expected [18][19] - **Small Modular Reactors (SMR)**: Active involvement in SMR technology development, with prototype orders in backlog, indicating a commitment to future growth in this area [20][21] Regional Growth and Market Dynamics - **Middle East Growth**: Continued growth potential in the Middle East, with a shift towards medium-sized projects ($30 million to $50 million) that are easier to manage [23][24] - **Aftermarket Cycle**: Early aftermarket cycle begins before assets are operational, allowing for proactive parts supply [25] Margin Improvement Strategies - **80/20 Strategy**: Implementation of the 80/20 framework has led to significant margin expansion, with an expected 200 basis points improvement in operating margins, half attributed to this strategy [27][28] - **Operational Excellence**: Focus on operational improvements and commercial excellence to enhance margin expansion and revenue growth [30][34] Capital Deployment and M&A Strategy - **Strong Balance Sheet**: Net debt to EBITDA ratio under 1.5, providing flexibility for capital deployment and potential M&A opportunities [41] - **Shareholder Returns**: Consideration of share buybacks and strategic M&A to enhance shareholder value [42] Supply Agreements and New Product Development - **Supply Agreements**: Secured agreements to capitalize on revenue synergies, particularly in cryogenic pump development for LNG applications [43][45] - **Decarbonization Efforts**: Strong performance in decarbonization projects, with ongoing partnerships to explore new technologies and market opportunities [47][48] Conclusion - **Future Outlook**: Flowserve is positioned for continued growth through strategic investments in aftermarket services, nuclear projects, and operational improvements, while maintaining a strong balance sheet for future opportunities [1][41]

Core Insights - FLSmidth's Q2 2025 results show a strengthened profitability with an Adjusted EBITA margin of 15.2%, despite macroeconomic and geopolitical uncertainties [2] - The company achieved a 3% year-on-year growth in orders, particularly driven by a 44% increase in Products orders and a 13% organic growth in the Pumps, Cyclones & Valves segment [2][9] - Strategic milestones include the DKK 730 million sale of its headquarters, divestment of FLSmidth Cement, and the launch of a share buy-back program, reinforcing shareholder returns [2][23][24] Financial Performance - Consolidated revenue decreased by 12% in Q2 2025 compared to Q2 2024, primarily due to a 43% decline in Products revenue [13][11] - The Adjusted EBITA margin improved to 15.2% in Q2 2025 from 10.3% in Q2 2024, reflecting strong cost management [34] - Profit for the continuing business increased to DKK 262 million in Q2 2025, compared to DKK 76 million in Q2 2024 [14] Order Intake and Backlog - Service order intake decreased by 8% year-on-year in Q2 2025, attributed to delays in modernization projects in North America [6] - Products order intake saw a significant increase of 44% compared to Q2 2024, while the PC&V segment reported a 7% increase [7][8] - The consolidated order backlog decreased by 13% to DKK 10,650 million compared to Q2 2024 [9][34] Segment Reporting Changes - Following the divestment of FLSmidth Cement, the company will now report on three continuing segments: Service, Products, and Pumps, Cyclones & Valves [3][4] - The new segment structure aligns with the company's strategy to focus solely on the mining industry [4] Strategic Divestments - The divestment of the Cement business is expected to close in the second half of 2025, with an initial consideration of approximately DKK 550 million [24] - The sale of the corporate headquarters is anticipated to yield a net cash gain of approximately DKK 730 million [23] Financial Guidance - FLSmidth maintains its revenue guidance for 2025 at DKK 14.5-15.0 billion, with an expected Adjusted EBITA margin of 15.0-15.5% [28][29] - The guidance reflects anticipated lower revenue from the order backlog due to customer-driven delays [28]

Core Viewpoint - FLSmidth has announced preliminary and unaudited financial results for Q2 2025 and H1 2025, along with an update to its financial guidance for the full year 2025, reflecting a strategic shift towards being a pure-play supplier to the mining industry following the divestment of its Cement business [1][2]. Financial Performance - For Q2 2025, FLSmidth reported consolidated revenue of DKK 3.4 billion and for H1 2025, revenue was DKK 7.1 billion [4]. - The Adjusted EBITA margin for Q2 2025 was 15.2%, while for H1 2025 it was 14.9% [4]. - Order intake for Q2 2025 was DKK 3.5 billion, and for H1 2025, it was DKK 7.3 billion [4]. Segment Reporting - FLSmidth will report on three continuing segments: Service, Products, and Pumps, Cyclones & Valves (PC&V) starting Q2 2025 [3]. - The PC&V segment is expected to consist of approximately 25% equipment-related orders and 75% aftermarket-related orders [3]. Financial Guidance - The updated revenue guidance for the full year 2025 is DKK 14.5-15.0 billion, down from the previous guidance of approximately DKK 15.0 billion, due to customer-driven delays and adverse foreign exchange rate movements [7]. - The Adjusted EBITA margin guidance has been upgraded to 15.0-15.5%, reflecting stronger-than-anticipated benefits from ongoing corporate model implementation [8]. Market Outlook - Market demand for aftermarket services in the global mining industry is expected to remain stable, while demand for original equipment is anticipated to remain soft compared to 2024 [9]. Transformation Costs - Costs related to the ongoing transformation activities and the separation of the Mining and Cement businesses are expected to total approximately DKK 200 million for the full year 2025 [10].

Core Viewpoint - FLSmidth & Co. A/S has initiated a share buy-back program of up to DKK 1.4 billion, representing approximately 8 percent of its share capital, to enhance shareholder value and comply with market regulations [1]. Share Buy-Back Program Details - The share buy-back program allows FLSmidth to repurchase a maximum of 4,600,000 shares [1]. - As of the latest report, FLSmidth has accumulated a total of 631,500 shares under the buy-back program, with a total transaction value of DKK 246,211,512.53 [2][3]. - The average transaction prices for shares bought back during the period from 30 July 2025 to 5 August 2025 ranged from DKK 374.94 to DKK 395.94 [2]. Treasury Shares - Following the transactions, FLSmidth holds a total of 1,198,502 shares as treasury shares, which corresponds to 2.08 percent of the company's total share capital [3].

Core Insights - Flowserve Corporation's second-quarter 2025 adjusted earnings per share (EPS) of 91 cents exceeded the Zacks Consensus Estimate of 78 cents, marking a year-over-year increase of 24.7% driven by higher revenues [1][9] - Total revenues for the quarter were $1.19 billion, slightly below the consensus estimate of $1.21 billion, reflecting a year-over-year growth of 2.7% [2][9] - Despite a significant 13.8% decline in total bookings to $1.07 billion, the backlog increased by 6.3% year over year to $2.85 billion [2][9] Revenue Breakdown - Flowserve Pump Division generated revenues of $818.9 million, a 0.8% increase year over year, with bookings down 19.5% to $723.8 million [3] - Flow Control Division reported revenues of $371.5 million, up 6.8% year over year, with bookings increasing by 1.6% to $354.7 million [4] Margin Analysis - Cost of sales decreased by 1.2% year over year to $781.5 million, while gross profit rose by 11.1% to $406.6 million, resulting in a gross margin increase of 260 basis points to 34.2% [5] - Operating income increased by 20.8% year over year to $146.6 million, with an operating margin of 12.3%, up 180 basis points [5] Balance Sheet and Cash Flow - As of the end of the second quarter, Flowserve had cash and cash equivalents of $629.2 million, down from $675.4 million at the end of 2024, while long-term debt decreased to $1.44 billion [6] - The company generated net cash of $104.2 million from operating activities in the first half of 2025, compared to $49.5 million in the same period last year [6] Shareholder Returns - During the same period, Flowserve distributed $55.2 million in dividends and repurchased shares worth $52.8 million [7] 2025 Guidance - Flowserve has updated its 2025 revenue growth expectation to 5-6%, down from the previous 5-7%, while raising its adjusted EPS forecast to $3.25-$3.40 from $3.10-$3.30 [10]

PART I – FINANCIAL INFORMATION [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements, including statements of income, comprehensive income, balance sheets, statements of shareholders' equity, and cash flows, for the periods ended June 30, 2025 and 2024, along with detailed notes explaining accounting policies, acquisitions, revenue recognition, debt, equity, and other financial matters [Condensed Consolidated Statements of Income and Condensed Consolidated Statements of Comprehensive Income – Three Months Ended June 30, 2025 and 2024 (unaudited)](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income%20and%20Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20%E2%80%93%20Three%20Months%20Ended%20June%2030%2C%202025%20and%202024%20(unaudited)) Presents the unaudited consolidated income and comprehensive income for the three months ended June 30, 2025 and 2024, showing key financial metrics like sales, gross profit, operating income, net earnings, and comprehensive income Key Financial Data (Three Months Ended June 30) | Metric | 2025 (thousands) | 2024 (thousands) | | :------------------------------------------ | :--------------- | :--------------- | | Sales | $1,188,092 | $1,156,892 | | Net earnings attributable to Flowserve Corporation | $81,754 | $72,616 | | Diluted Net earnings per share | $0.62 | $0.55 | | Comprehensive income attributable to Flowserve Corporation | $192,078 | $49,100 | [Condensed Consolidated Statements of Income and Condensed Consolidated Statements of Comprehensive Income – Six Months Ended June 30, 2025 and 2024 (unaudited)](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income%20and%20Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20%E2%80%93%20Six%20Months%20Ended%20June%2030%2C%202025%20and%202024%20(unaudited)) Provides the unaudited consolidated income and comprehensive income for the six months ended June 30, 2025 and 2024, detailing sales, gross profit, operating income, net earnings, and comprehensive income over the half-year period Key Financial Data (Six Months Ended June 30) | Metric | 2025 (thousands) | 2024 (thousands) | | :------------------------------------------ | :--------------- | :--------------- | | Sales | $2,332,635 | $2,244,371 | | Net earnings attributable to Flowserve Corporation | $155,659 | $146,836 | | Diluted Net earnings per share | $1.18 | $1.11 | | Comprehensive income attributable to Flowserve Corporation | $313,879 | $96,660 | [Condensed Consolidated Balance Sheets – June 30, 2025 and December 31, 2024 (unaudited)](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets%20%E2%80%93%20June%2030%2C%202025%20and%20December%2031%2C%202024%20(unaudited)) Presents the unaudited consolidated balance sheets as of June 30, 2025, and December 31, 2024, outlining the company's assets, liabilities, and equity Consolidated Balance Sheet Highlights | Metric | June 30, 2025 (thousands) | December 31, 2024 (thousands) | | :-------------------------- | :------------------------ | :-------------------------- | | Total Assets | $5,682,525 | $5,500,821 | | Total Liabilities | $3,403,123 | $3,449,077 | | Total Equity | $2,279,002 | $2,051,712 | | Cash and cash equivalents | $629,203 | $675,441 | [Condensed Consolidated Statements of Shareholders' Equity – Three Months Ended June 30, 2025 and 2024 (unaudited)](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Shareholders'%20Equity%20%E2%80%93%20Three%20Months%20Ended%20June%2030%2C%202025%20and%202024%20(unaudited)) Details the changes in shareholders' equity for the three months ended June 30, 2025 and 2024, including common stock, capital in excess of par value, retained earnings, treasury stock, deferred compensation, and accumulated other comprehensive loss Shareholders' Equity Highlights (Three Months Ended June 30) | Metric | June 30, 2025 (thousands) | June 30, 2024 (thousands) | | :------------------------------------ | :------------------------ | :------------------------ | | Total Flowserve Corporation Shareholders' Equity | $2,223,051 | $2,016,324 | | Cash dividends declared ($0.21 per share) | $(27,795) | $(27,961) | | Repurchases of common shares | $(31,709) | $(13,612) | [Condensed Consolidated Statements of Shareholders' Equity – Six Months Ended June 30, 2025 and 2024 (unaudited)](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Shareholders'%20Equity%20%E2%80%93%20Six%20Months%20Ended%20June%2030%2C%202025%20and%202024%20(unaudited)) Outlines the changes in shareholders' equity for the six months ended June 30, 2025 and 2024, providing a comprehensive view of equity movements over the half-year period Shareholders' Equity Highlights (Six Months Ended June 30) | Metric | June 30, 2025 (thousands) | June 30, 2024 (thousands) | | :------------------------------------ | :------------------------ | :------------------------ | | Total Flowserve Corporation Shareholders' Equity | $2,223,051 | $2,016,324 | | Cash dividends declared ($0.42 per share) | $(55,740) | $(55,976) | | Repurchases of common shares | $(52,797) | $(16,161) | [Condensed Consolidated Statements of Cash Flows – Six Months Ended June 30, 2025 and 2024 (unaudited)](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows%20%E2%80%93%20Six%20Months%20Ended%20June%2030%2C%202025%20and%202024%20(unaudited)) Presents the unaudited consolidated statements of cash flows for the six months ended June 30, 2025 and 2024, categorizing cash flows into operating, investing, and financing activities Cash Flow Summary (Six Months Ended June 30) | Activity | 2025 (thousands) | 2024 (thousands) | | :------------------------------------ | :--------------- | :--------------- | | Net cash flows provided by operating activities | $104,212 | $49,475 | | Net cash flows (used) by investing activities | $(27,473) | $(30,090) | | Net cash flows (used) by financing activities | $(154,444) | $(36,683) | | Cash and cash equivalents at end of period | $629,203 | $515,083 | [Notes to Condensed Consolidated Financial Statements (unaudited)](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements%20(unaudited)) Provides detailed explanations and disclosures supporting the condensed consolidated financial statements, covering significant accounting policies, recent acquisitions, revenue recognition, debt, equity, and other material financial and operational items [1. BASIS OF PRESENTATION AND ACCOUNTING POLICIES](index=10&type=section&id=1.%20BASIS%20OF%20PRESENTATION%20AND%20ACCOUNTING%20POLICIES) Describes the basis of presentation for the unaudited condensed consolidated financial statements, highlights the impact of the Russia-Ukraine conflict and the NAF AB divestiture, and outlines recently implemented and not-yet-implemented accounting pronouncements - The company permanently ceased all operations in Russia in March 2022 due to the Russia-Ukraine conflict. A **$2 million adjustment** was made in Q1 2024 to reduce existing reserves, with no further adjustments through June 30, 2025, and no material incremental impact expected[29](index=29&type=chunk)[30](index=30&type=chunk) - Effective May 4, 2024, the company divested NAF AB, a control valves business, resulting in a **$13.0 million pre-tax and after-tax loss on sale of business**[31](index=31&type=chunk) - ASU No. 2023-05 (Joint Venture Formations) was adopted with no material impact. ASU No. 2023-09 (Income Taxes) and ASU No. 2024-03 (Expense Disaggregation) are effective for annual periods beginning after December 15, 2024, and December 15, 2026, respectively, with the company evaluating their impact on disclosures. ASU No. 2025-03 (Acquirer in VIE Acquisition) is effective after December 15, 2026, and is not expected to have a material impact[32](index=32&type=chunk)[33](index=33&type=chunk)[34](index=34&type=chunk)[35](index=35&type=chunk)[36](index=36&type=chunk) [2. ACQUISITION](index=12&type=section&id=2.%20ACQUISITION) Details the acquisition of MOGAS Industries, Inc. on October 15, 2024, for $290.0 million, plus a $15.0 million contingent earn-out paid in Q1 2025. The acquisition aims to enhance Flowserve's market presence and product portfolio, with goodwill of $127.2 million recorded - Acquired MOGAS Industries, Inc. on October 15, 2024, for **$290.0 million**, plus a **$15.0 million contingent earn-out payment** made in Q1 2025[38](index=38&type=chunk) - The acquisition was funded using cash on hand and term loan financing, resulting in **$127.2 million in goodwill**, expected to be fully tax deductible[38](index=38&type=chunk)[40](index=40&type=chunk) - Incurred **$5.2 million in acquisition and integration related costs** for the six months ended June 30, 2025, included in selling, general and administrative expense and cost of sales[40](index=40&type=chunk) [3. MERGER](index=13&type=section&id=3.%20MERGER) Reports the termination of the Merger Agreement with Chart Industries, Inc. on July 28, 2025. Flowserve received a $266 million payment, including a $250 million termination fee and $16 million for expenses, which will be recognized in Q3 2025 - The Agreement and Plan of Merger with Chart Industries, Inc. was **terminated on July 28, 2025**[43](index=43&type=chunk) - Flowserve received a **$266 million cash payment**, comprising a **$250 million termination fee** and **$16 million for expenses**, to be reflected in Q3 2025 financial statements[43](index=43&type=chunk) - A letter of intent was signed to amend an existing supply agreement between Chart and Flowserve, extending its term and expanding product coverage[43](index=43&type=chunk) [4. REVENUE RECOGNITION](index=14&type=section&id=4.%20REVENUE%20RECOGNITION) Details the company's revenue recognition policies, distinguishing between revenue recognized over time (17-18% of total) and at a point in time (82-83% of total). It also disaggregates revenue by business segment (FPD, FCD) and geography, and provides information on contract balances - Approximately **17-18% of total revenue** is recognized over time, primarily using the percentage of completion method, while **82-83% is recognized at a point in time**[46](index=46&type=chunk) Customer Revenues Disaggregated by Source (Three Months Ended June 30, 2025) | (Amounts in thousands) | FPD | FCD | Total | | :--------------------- | :------ | :------ | :-------- | | Original Equipment | $284,481 | $270,970 | $555,451 | | Aftermarket | $533,019 | $99,622 | $632,641 | | **Total** | **$817,500** | **$370,592** | **$1,188,092** | Customer Revenues Disaggregated by Source (Six Months Ended June 30, 2025) | (Amounts in thousands) | FPD | FCD | Total | | :--------------------- | :-------- | :-------- | :---------- | | Original Equipment | $564,711 | $547,785 | $1,112,496 | | Aftermarket | $1,034,278 | $185,861 | $1,220,139 | | **Total** | **$1,598,989** | **$733,646** | **$2,332,635** | - As of June 30, 2025, the aggregate transaction price allocated to unsatisfied performance obligations with an original expected duration over one year was approximately **$994 million**, with **$373 million expected in the remainder of 2025** and **$621 million in 2026 and thereafter**[53](index=53&type=chunk) [5. ALLOWANCE FOR EXPECTED CREDIT LOSSES](index=17&type=section&id=5.%20ALLOWANCE%20FOR%20EXPECTED%20CREDIT%20LOSSES) Explains the methodology for assessing and measuring expected credit losses for financial assets, primarily accounts receivable and contract assets. It provides a table detailing changes in the allowance for expected credit losses for trade receivables and contract assets for the six months ended June 30, 2025 and 2024 - The allowance for expected credit losses is estimated based on an aging schedule, historical losses, customer-specific credit risk factors, and current/forecasted macroeconomic conditions[60](index=60&type=chunk) Changes in Allowance for Expected Credit Losses (Six Months Ended June 30, 2025) | (Amounts in thousands) | Trade receivables | Contract assets | | :------------------------------------ | :---------------- | :-------------- | | Beginning balance, January 1, 2025 | $79,059 | $3,404 | | Charges to cost and expenses, net of recoveries | $8,617 | $1,076 | | Write-offs | $(722) | $(91) | | Currency effects and other, net | $4,957 | $188 | | Ending balance, June 30, 2025 | $91,911 | $4,577 | - The current expected credit loss for contract assets is estimated to be approximately **1% of the asset balance**[61](index=61&type=chunk) [6. STOCK-BASED COMPENSATION PLANS](index=19&type=section&id=6.%20STOCK-BASED%20COMPENSATION%20PLANS) Describes the Flowserve Corporation 2020 Long-Term Incentive Plan, including the types of awards (Restricted Shares, stock options) and their vesting provisions. It also details the stock-based compensation expense recognized and the number of unvested Restricted Shares outstanding - The 2020 Long-Term Incentive Plan authorized **12,500,000 shares**, with **5,350,333 shares available for issuance** as of June 30, 2025[65](index=65&type=chunk) Stock-Based Compensation Expense | Period | 2025 (millions) | 2024 (millions) | | :------------------------------------ | :-------------- | :-------------- | | Three Months Ended June 30 | $10.1 | $8.7 | | Six Months Ended June 30 | $18.8 | $17.4 | - As of June 30, 2025, **1,626,786 unvested Restricted Shares** were outstanding, including approximately **519,000 performance-based units**, with an estimated **583,000 shares expected to vest**[68](index=68&type=chunk) [7. DERIVATIVES AND HEDGING ACTIVITIES](index=19&type=section&id=7.%20DERIVATIVES%20AND%20HEDGING%20ACTIVITIES) Outlines the company's use of foreign exchange forward contracts to hedge cash flow risks, noting that hedge accounting is not elected for these contracts. It provides the notional value of contracts and the fair values of derivative assets and liabilities - Foreign exchange forward contracts are used to hedge cash flow risks, with a **notional value of $697.3 million** at June 30, 2025, and **$695.9 million** at December 31, 2024[69](index=69&type=chunk)[70](index=70&type=chunk) Fair Values of Foreign Exchange Contracts (June 30, 2025) | Type | Amount (thousands) | | :-------------------------- | :--------------- | | Current derivative assets | $9,383 | | Noncurrent derivative assets | $539 | | Current derivative liabilities | $6,411 | | Noncurrent derivative liabilities | $0 | Gains (Losses) Recognized in Income from Foreign Exchange Contracts | Period | 2025 (thousands) | 2024 (thousands) | | :------------------------------------ | :--------------- | :--------------- | | Three Months Ended June 30 | $2,520 | $(763) | | Six Months Ended June 30 | $(2,031) | $4,525 | [8. DEBT AND FINANCE LEASE OBLIGATIONS](index=21&type=section&id=8.%20DEBT%20AND%20FINANCE%20LEASE%20OBLIGATIONS) Provides a breakdown of debt and finance lease obligations, including Senior Notes and the Term Loan Facility. It details the Second Amended and Restated Credit Agreement, which increased the Term Loan to $500.0 million and extended its maturity to October 10, 2029, enhancing financial flexibility Debt and Finance Lease Obligations | (Amounts in thousands) | June 30, 2025 | December 31, 2024 | | :------------------------------------ | :------------ | :---------------- | | 3.50% USD Senior Notes due October 1, 2030 | $496,424 | $496,118 | | 2.80% USD Senior Notes due January 15, 2032 | $495,710 | $495,415 | | Term Loan Facility | $471,012 | $489,632 | | Finance lease obligations and other borrowings | $22,400 | $23,026 | | **Total Debt and Finance Lease Obligations** | **$1,485,546** | **$1,504,191** | | Less amounts due within one year | $(44,870) | $(44,059) | | **Total debt due after one year** | **$1,440,676** | **$1,460,132** | - The Second Amended and Restated Credit Agreement, effective October 10, 2024, increased the Term Loan from **$300.0 million to $500.0 million** and extended its maturity to **October 10, 2029**[77](index=77&type=chunk) - As of June 30, 2025, the company had **no revolving loans outstanding** and **$661.0 million available for borrowings** under its Revolving Credit Facility, and was in compliance with all applicable covenants[79](index=79&type=chunk)[80](index=80&type=chunk) [9. SUPPLIER FINANCE PROGRAMS](index=21&type=section&id=9.%20SUPPLIER%20FINANCE%20PROGRAMS) Describes the company's supplier financing programs with two banks, allowing suppliers early payment. Flowserve is obligated to reimburse banks for approved invoices but has no obligation for fees, pledged assets, or guarantees - The company partners with **two banks** for supplier financing programs, allowing suppliers early payment[81](index=81&type=chunk) - As of June 30, 2025, **$13.0 million remained outstanding** with supply chain financing partner banks, recorded within accounts payable[82](index=82&type=chunk) - Flowserve has **no obligation for fees, pledged assets, or other forms of guarantee** under these programs[81](index=81&type=chunk) [10. FAIR VALUE OF FINANCIAL INSTRUMENTS](index=22&type=section&id=10.%20FAIR%20VALUE%20OF%20FINANCIAL%20INSTRUMENTS) Defines fair value and categorizes financial instruments by hierarchical levels. It notes that recurring fair value measurements are limited to derivative instruments (Level II inputs) and that the carrying value of most financial instruments approximates fair value, except for long-term debt - Fair value measurements for derivative instruments are determined using models with observable market inputs and are classified as **Level II** under the fair value hierarchy[83](index=83&type=chunk) - The estimated fair value of Senior Notes at June 30, 2025, was **$899.4 million** compared to a carrying value of **$992.1 million**, based on Level I quoted market rates[84](index=84&type=chunk) - The carrying values of other financial instruments (e.g., cash, accounts receivable, accounts payable, short-term debt) approximated fair value due to their short-term nature[84](index=84&type=chunk) [11. INVENTORIES](index=22&type=section&id=11.%20INVENTORIES) Provides a detailed breakdown of inventory components, including raw materials, work in process, finished goods, and the excess and obsolete reserve, as of June 30, 2025, and December 31, 2024 Inventories (Amounts in thousands) | Component | June 30, 2025 | December 31, 2024 | | :-------------------------- | :------------ | :---------------- | | Raw materials | $412,748 | $391,562 | | Work in process | $275,040 | $262,173 | | Finished goods | $274,443 | $275,975 | | Less: Excess and obsolete reserve | $(97,699) | $(92,456) | | **Inventories** | **$864,532** | **$837,254** | [12. EARNINGS PER SHARE](index=23&type=section&id=12.%20EARNINGS%20PER%20SHARE) Reconciles net earnings and weighted average shares for calculating basic and diluted earnings per common share for the three and six months ended June 30, 2025 and 2024 Earnings Per Common Share (Three Months Ended June 30) | Metric | 2025 | 2024 | | :-------------------------- | :--- | :--- | | Basic EPS | $0.62 | $0.55 | | Diluted EPS | $0.62 | $0.55 | Earnings Per Common Share (Six Months Ended June 30) | Metric | 2025 | 2024 | | :-------------------------- | :--- | :--- | | Basic EPS | $1.19 | $1.12 | | Diluted EPS | $1.18 | $1.11 | [13. LEGAL MATTERS AND CONTINGENCIES](index=23&type=section&id=13.%20LEGAL%20MATTERS%20AND%20CONTINGENCIES) Discusses the company's involvement in asbestos-related lawsuits, detailing claim activity and the estimated asbestos liability. It also mentions other routine litigation, asserting that none are currently material to the company's financial condition Asbestos Claims Activity (Three Months Ended June 30) | Metric | 2025 | 2024 | | :-------------------------- | :--- | :--- | | Beginning claims | 8,131 | 8,225 | | New claims | 768 | 652 | | Resolved claims | (1,424) | (729) | | Ending claims | 7,487 | 8,146 | Estimated Asbestos Liability (Amounts in thousands) | Metric | 2025 | 2024 | | :-------------------------- | :----- | :----- | | Beginning balance, January 1 | $110,332 | $102,903 | | Ending balance, June 30 | $99,007 | $98,318 | - The company incurred expenses (net of insurance) of approximately **$4.1 million** for the six months ended June 30, 2025, to defend and resolve asbestos claims, compared to **$6.9 million** for the same period in 2024[90](index=90&type=chunk) - Management believes the reserve for asbestos claims and receivable for insurance recoveries reflect reasonable estimates, and other routine litigation is not currently material to the company's financial condition[93](index=93&type=chunk)[95](index=95&type=chunk) [14. PENSION AND POSTRETIREMENT BENEFITS](index=25&type=section&id=14.%20PENSION%20AND%20POSTRETIREMENT%20BENEFITS) Presents the components of net periodic cost for pension and postretirement benefits for the three and six months ended June 30, 2025 and 2024. It also details the freeze of the U.S. Qualified Defined Benefit Pension Plan for non-union employees and related transition benefits Net Periodic Cost Recognized (Six Months Ended June 30, 2025, Amounts in millions) | Plan Type | 2025 | | :-------------------------- | :--- | | U.S. Defined Benefit Plans | $3.1 | | Non-U.S. Defined Benefit Plans | $7.2 | | Postretirement Medical Benefits | $0.1 | - The Company-sponsored Qualified Plan for non-union employees was amended to **discontinue future benefit accruals** and **freeze existing accrued benefits** effective January 1, 2025[100](index=100&type=chunk) - A **pension settlement loss of $3.0 million** was incurred for the six months ended June 30, 2025, as part of an estimated full-year loss of **$6-7 million**, triggered by expected cash outflows exceeding service and interest costs[98](index=98&type=chunk) - Transition benefits, including a one-time cash payment and restricted shares, were provided to employees in Q1 2025 in conjunction with the Qualified Plan freeze[101](index=101&type=chunk) [15. SHAREHOLDERS' EQUITY](index=25&type=section&id=15.%20SHAREHOLDERS'%20EQUITY) Discusses dividends declared and the share repurchase program. It details the increase in share repurchase authorization to $300.0 million and the shares repurchased during the three and six months ended June 30, 2025 and 2024 Dividends Declared Per Share | Period | 2025 | 2024 | | :-------------------------- | :--- | :--- | | Three Months Ended June 30 | $0.21 | $0.21 | | Six Months Ended June 30 | $0.42 | $0.42 | - The Board of Directors approved an increase in the total remaining capacity under the share repurchase program to **$300.0 million**, effective February 19, 2024[103](index=103&type=chunk) Common Shares Repurchased | Period | Shares Repurchased (2025) | Value (2025, millions) | Shares Repurchased (2024) | Value (2024, millions) | | :-------------------------- | :------------------------ | :--------------------- | :------------------------ | :--------------------- | | Three Months Ended June 30 | 737,524 | $31.7 | 284,000 | $13.6 | | Six Months Ended June 30 | 1,165,098 | $52.8 | 341,000 | $16.2 | - As of June 30, 2025, **$227.1 million of remaining capacity** was available under the current share repurchase program[104](index=104&type=chunk) [16. INCOME TAXES](index=26&type=section&id=16.%20INCOME%20TAXES) Reports the provision for income taxes and effective tax rates for the three and six months ended June 30, 2025 and 2024, explaining variations from the U.S. federal statutory rate due to foreign operations and U.S. discrete items. It also discusses valuation allowances and the potential impact of the newly enacted One Big Beautiful Bill Act (OBBBA) Effective Tax Rates | Period | 2025 | 2024 | | :-------------------------- | :----- | :----- | | Three Months Ended June 30 | 15.1% | 23.8% | | Six Months Ended June 30 | 16.6% | 22.2% | - The effective tax rate varied from the U.S. federal statutory rate primarily due to the net impact of foreign operations and U.S. discrete items[105](index=105&type=chunk) - The company maintains a full valuation allowance against net deferred tax assets in certain foreign tax jurisdictions and is evaluating the impact of the newly enacted One Big Beautiful Bill Act (OBBBA) on its deferred tax balances for Q3 2025[107](index=107&type=chunk)[109](index=109&type=chunk) [17. BUSINESS SEGMENT INFORMATION](index=27&type=section&id=17.%20BUSINESS%20SEGMENT%20INFORMATION) Provides a summary of financial information for the two reportable segments, Flowserve Pumps Division (FPD) and Flow Control Division (FCD), reconciled to the consolidated financial statements. It includes sales, intersegment sales, cost of sales, SG&A, other segment items, segment operating income, depreciation and amortization, identifiable assets, and capital expenditures for the three and six months ended June 30, 2025 and 2024 Segment Financial Highlights (Three Months Ended June 30, 2025, Amounts in thousands) | Metric | FPD | FCD | Subtotal – Reportable Segments | | :-------------------------- | :-------- | :-------- | :----------------------------- | | Sales to external customers | $817,500 | $370,592 | $1,188,092 | | Segment operating income | $162,744 | $37,772 | $200,516 | | Identifiable assets | $3,289,405 | $1,778,910 | $5,068,315 | | Capital expenditures | $10,623 | $3,331 | $13,954 | Segment Financial Highlights (Six Months Ended June 30, 2025, Amounts in thousands) | Metric | FPD | FCD | Subtotal – Reportable Segments | | :-------------------------- | :---------- | :---------- | :----------------------------- | | Sales to external customers | $1,598,989 | $733,646 | $2,332,635 | | Segment operating income | $299,259 | $69,254 | $368,513 | | Identifiable assets | $3,289,405 | $1,778,910 | $5,068,315 | | Capital expenditures | $17,567 | $5,627 | $23,194 | - Total segment operating income for the six months ended June 30, 2025, was **$368,513k**, reconciling to **$201,060k in earnings before income taxes**[114](index=114&type=chunk) [18. ACCUMULATED OTHER COMPREHENSIVE LOSS](index=30&type=section&id=18.%20ACCUMULATED%20OTHER%20COMPREHENSIVE%20LOSS) Presents the changes in Accumulated Other Comprehensive Loss (AOCL), net of tax, for the three and six months ended June 30, 2025 and 2024, broken down by foreign currency translation items, pension and other postretirement effects, and cash flow hedging activity. It also details reclassifications out of AOCL Accumulated Other Comprehensive Loss (AOCL) (Amounts in thousands) | Metric | June 30, 2025 | January 1, 2025 | | :------------------------------------ | :------------ | :-------------- | | Balance - AOCL | $(590,429) | $(748,742) | Net Current-Period Other Comprehensive Income (Loss) (Amounts in thousands) | Period | 2025 | 2024 | | :------------------------------------ | :--------- | :--------- | | Three Months Ended June 30 | $110,384 | $(23,588) | | Six Months Ended June 30 | $158,313 | $(50,461) | - Reclassifications out of AOCL for the six months ended June 30, 2025, included **$(3,717)k (net of tax)** for pension and other postretirement effects and **$(48)k (net of tax)** for cash flow hedging activity[121](index=121&type=chunk) [19. REALIGNMENT PROGRAMS](index=32&type=section&id=19.%20REALIGNMENT%20PROGRAMS) Discusses the 2023 Realignment Programs, which are substantially completed, and the newly launched 2025 Realignment Programs (including the CORE program) focused on product rationalization and optimization. It provides a summary of restructuring and non-restructuring charges incurred by segment and type for the three and six months ended June 30, 2025 and 2024, as well as inception-to-date charges - The 2023 Realignment Programs, focused on consolidating FPD operations, are substantially completed. The 2025 Realignment Programs, including the CORE program, were launched in Q4 2024 and 2025, with an anticipated total investment of approximately **$28 million ($9 million non-cash)**[124](index=124&type=chunk)[125](index=125&type=chunk) Total Realignment Charges (Consolidated Total, Amounts in thousands) | Period | 2025 | 2024 | | :-------------------------- | :----- | :----- | | Three Months Ended June 30 | $3,318 | $20,235 | | Six Months Ended June 30 | $12,029 | $27,402 | Inception-to-Date Total Realignment Charges (Consolidated Total, Amounts in thousands) | Program | Inception to Date | | :-------------------------- | :---------------- | | 2025 Realignment Programs | $14,971 | | 2023 Realignment Programs | $112,591 | Restructuring Reserves Activity (Six Months Ended June 30, Amounts in thousands) | Metric | 2025 | 2024 | | :-------------------------- | :----- | :----- | | Balance at January 1 | $8,300 | $8,184 | | Charges, net of adjustments | $10,666 | $5,566 | | Cash expenditures | $(5,962) | $(72) | | Balance at June 30 | $14,160 | $10,964 | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=37&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition and operational results, offering insights into performance drivers, strategic initiatives, and future outlook. It covers consolidated results, segment performance, liquidity, critical accounting estimates, and forward-looking statements [EXECUTIVE OVERVIEW](index=37&type=section&id=EXECUTIVE%20OVERVIEW) Provides an overview of Flowserve Corporation as a global manufacturer and aftermarket service provider of flow control systems, emphasizing its two business segments (FPD and FCD), strategic focus (3D Strategy: diversification, decarbonization, digitization), and operational excellence initiatives (Flowserve Business System, CORE program). It also mentions the impact of the OBBBA and the 2025 outlook - Flowserve is a world-leading manufacturer and aftermarket service provider of comprehensive flow control systems, operating through two business segments: Flowserve Pumps Division (FPD) and Flow Control Division (FCD)[145](index=145&type=chunk)[147](index=147&type=chunk) - The company's strategic plan, the '3D Strategy,' focuses on diversification, decarbonization, and digitization to accelerate growth, complemented by the Flowserve Business System for operational efficiency, including the CORE program for product rationalization[149](index=149&type=chunk)[151](index=151&type=chunk) - For 2025, the company expects annual revenue growth driven by a strong backlog, improved execution, and the recent MOGAS acquisition, despite macroeconomic uncertainties[153](index=153&type=chunk) - The One Big Beautiful Bill Act (OBBBA), enacted July 4, 2025, is being evaluated for its impact on the company's Q3 2025 financial statements[150](index=150&type=chunk) [OUR RESULTS OF OPERATIONS — Three months ended June 30, 2025 and 2024](index=39&type=section&id=OUR%20RESULTS%20OF%20OPERATIONS%20%E2%80%94%20Three%20months%20ended%20June%2030%2C%202025%20and%202024) Discusses the consolidated financial performance for the three and six months ended June 30, 2025 and 2024, including the impact of foreign currency fluctuations, the MOGAS acquisition, and realignment activities. It provides detailed analysis of bookings, sales, backlog, gross profit, SG&A, and other income/expense items - The MOGAS acquisition resulted in **$5.2 million in acquisition and integration related costs** for the six months ended June 30, 2025, which were not material to the period's results[156](index=156&type=chunk) - The 2025 Realignment Programs are anticipated to involve a total investment of approximately **$28 million**, with **$9 million estimated as non-cash**[157](index=157&type=chunk) Total Realignment Charges (Consolidated Total, Amounts in thousands) | Period | 2025 | 2024 | | :-------------------------- | :----- | :----- | | Three Months Ended June 30 | $3,318 | $20,235 | | Six Months Ended June 30 | $12,029 | $27,402 | [Bookings, Sales and Backlog](index=40&type=section&id=Bookings%2C%20Sales%20and%20Backlog) Reports consolidated bookings, sales, and backlog, noting changes in end market categories. Bookings decreased for the three months but increased for the six months, while sales increased for both periods. Backlog also increased, with a significant portion related to aftermarket orders Consolidated Bookings and Sales (Amounts in millions) | Metric | Period | 2025 | 2024 | | :-------------------------- | :-------------------------- | :----- | :----- | | Bookings | Three Months Ended June 30 | $1,073.9 | $1,246.1 | | | Six Months Ended June 30 | $2,299.4 | $2,283.8 | | Sales | Three Months Ended June 30 | $1,188.1 | $1,156.9 | | | Six Months Ended June 30 | $2,332.6 | $2,244.4 | - Bookings for the three months ended June 30, 2025, **decreased by 13.8% ($172.2 million)**, while for the six months, they **increased by 0.7% ($15.6 million)**. Sales **increased by 2.7%** for the three months and **3.9%** for the six months[165](index=165&type=chunk)[166](index=166&type=chunk)[167](index=167&type=chunk)[168](index=168&type=chunk) - Backlog **increased by 2.3% to $2,853.2 million** at June 30, 2025, compared to December 31, 2024, with approximately **40% related to aftermarket orders**[169](index=169&type=chunk) [Gross Profit and Gross Profit Margin](index=41&type=section&id=Gross%20Profit%20and%20Gross%20Profit%20Margin) Analyzes the increase in gross profit and gross profit margin for both the three and six months ended June 30, 2025, attributing it primarily to sales price increases, improved bidding, and decreased realignment charges, partially offset by MOGAS acquisition costs Consolidated Gross Profit and Margin (Amounts in millions, except percentages) | Metric | Period | 2025 | 2024 | | :-------------------------- | :-------------------------- | :----- | :----- | | Gross profit | Three Months Ended June 30 | $406.6 | $366.1 | | Gross profit margin | Three Months Ended June 30 | 34.2% | 31.6% | | Gross profit | Six Months Ended June 30 | $775.9 | $705.1 | | Gross profit margin | Six Months Ended June 30 | 33.3% | 31.4% | - Gross profit **increased by 11.1%** for the three months and **10.0%** for the six months, driven by favorable sales price increases, an improved selective bidding approach, and decreased realignment charges[170](index=170&type=chunk)[171](index=171&type=chunk) - The increase was partially offset by **$3.4 million (Q2)** and **$6.9 million (H1)** in integration costs and amortization related to the MOGAS acquisition[170](index=170&type=chunk)[171](index=171&type=chunk) [Selling, General and Administrative Expense](index=42&type=section&id=Selling%2C%20General%20and%20Administrative%20Expense) Examines the increase in SG&A expenses for the three and six months ended June 30, 2025, primarily due to Chart Merger transaction costs, MOGAS acquisition integration costs, and increased bad debt expense, partially offset by lower incentive compensation and decreased realignment charges Consolidated SG&A (Amounts in millions, except percentages) | Metric | Period | 2025 | 2024 | | :-------------------------- | :-------------------------- | :----- | :----- | | SG&A | Three Months Ended June 30 | $265.9 | $238.6 | | SG&A as a percentage of sales | Three Months Ended June 30 | 22.4% | 20.6% | | SG&A | Six Months Ended June 30 | $509.1 | $467.0 | | SG&A as a percentage of sales | Six Months Ended June 30 | 21.8% | 20.8% | - SG&A **increased by 11.4% ($27.3 million)** for the three months and **9.0% ($42.1 million)** for the six months, primarily due to **$15.5 million in Chart Merger transaction costs** and MOGAS acquisition integration costs (**$4.5 million for Q2, $7.1 million for H1**)[172](index=172&type=chunk)[173](index=173&type=chunk) - Increases were partially offset by decreased realignment activities charges (**$1.5 million for Q2, $4.3 million for H1**) and lower research and development costs[172](index=172&type=chunk)[173](index=173&type=chunk) [Loss on Sale of Business](index=42&type=section&id=Loss%20on%20Sale%20of%20Business) Reports a $13.0 million decrease in loss on sale of business for the three and six months ended June 30, 2025, due to the divestiture of NAF AB in 2024 not recurring in the current period Consolidated Loss on Sale of Business (Amounts in millions) | Period | 2025 | 2024 | | :-------------------------- | :--- | :----- | | Three Months Ended June 30 | $0 | $(13.0) | | Six Months Ended June 30 | $0 | $(13.0) | - The **$13.0 million loss on sale of business** in 2024 was related to the divestiture of NAF AB and did not recur in 2025[174](index=174&type=chunk) [Net Earnings from Affiliates](index=43&type=section&id=Net%20Earnings%20from%20Affiliates) Shows a decrease in net earnings from affiliates for the three months ended June 30, 2025, but an increase for the six months, primarily due to the performance of the FPD joint venture in South Korea Consolidated Net Earnings from Affiliates (Amounts in millions) | Period | 2025 | 2024 | | :-------------------------- | :--- | :--- | | Three Months Ended June 30 | $5.9 | $6.8 | | Six Months Ended June 30 | $11.6 | $9.3 | - Net earnings from affiliates **decreased by $0.9 million (13.2%)** for the three months but **increased by $2.3 million (24.7%)** for the six months, primarily due to the FPD joint venture in South Korea[175](index=175&type=chunk)[176](index=176&type=chunk) [Operating Income](index=43&type=section&id=Operating%20Income) Highlights a significant increase in operating income for both the three and six months ended June 30, 2025, driven by higher gross profit, partially offset by increased SG&A Consolidated Operating Income (Amounts in millions, except percentages) | Metric | Period | 2025 | 2024 | | :-------------------------- | :-------------------------- | :----- | :----- | | Operating income | Three Months Ended June 30 | $146.6 | $121.3 | | Operating income as a percentage of sales | Three Months Ended June 30 | 12.3% | 10.5% | | Operating income | Six Months Ended June 30 | $278.5 | $234.4 | | Operating income as a percentage of sales | Six Months Ended June 30 | 11.9% | 10.4% | - Operating income **increased by 20.9% ($25.3 million)** for the three months and **18.8% ($44.1 million)** for the six months, primarily due to increased gross profit, partially offset by higher SG&A[177](index=177&type=chunk)[178](index=178&type=chunk) [Interest Expense and Interest Income](index=43&type=section&id=Interest%20Expense%20and%20Interest%20Income) Reports an increase in interest expense for both periods due to higher outstanding debt, and an increase in interest income due to higher average cash balances Consolidated Interest Expense and Income (Amounts in millions) | Metric | Period | 2025 | 2024 | | :-------------------------- | :-------------------------- | :----- | :----- | | Interest expense | Three Months Ended June 30 | $(20.3) | $(16.9) | | Interest income | Three Months Ended June 30 | $2.5 | $1.2 | | Interest expense | Six Months Ended June 30 | $(39.4) | $(32.2) | | Interest income | Six Months Ended June 30 | $4.3 | $2.3 | - Interest expense **increased by $3.4 million** for the three months and **$7.2 million** for the six months due to higher outstanding debt. Interest income **increased by $1.3 million** for the three months and **$2.0 million** for the six months due to higher average balances[179](index=179&type=chunk)[180](index=180&type=chunk) [Other Expense, Net](index=44&type=section&id=Other%20Expense%2C%20Net) Details a significant increase in other expense, net, for both periods, primarily driven by increased losses from foreign currency transactions and a pension settlement loss related to the U.S. Qualified pension plan freeze Consolidated Other Expense, Net (Amounts in millions) | Period | 2025 | 2024 | | :-------------------------- | :----- | :----- | | Three Months Ended June 30 | $(25.0) | $(5.3) | | Six Months Ended June 30 | $(42.3) | $(6.1) | - Other expense, net, **increased by $19.7 million** for the three months and **$36.2 million** for the six months, primarily due to increased losses from foreign currency transactions (**$23.1 million for Q2, $26.0 million for H1**) and a pension settlement loss (**$1.5 million for Q2, $3.0 million for H1**)[181](index=181&type=chunk)[182](index=182&type=chunk) [Income Taxes and Tax Rate](index=44&type=section&id=Income%20Taxes%20and%20Tax%20Rate) Reports a decrease in the effective tax rate for both the three and six months ended June 30, 2025, primarily due to the net impact of foreign operations and U.S. discrete items Consolidated Effective Tax Rate | Period | 2025 | 2024 | | :-------------------------- | :----- | :----- | | Three Months Ended June 30 | 15.1% | 23.8% | | Six Months Ended June 30 | 16.6% | 22.2% | - The decrease in the effective tax rate was primarily due to the net impact of foreign operations and U.S. discrete items[183](index=183&type=chunk)[184](index=184&type=chunk) [Other Comprehensive Income (Loss)](index=45&type=section&id=Other%20Comprehensive%20Income%20(Loss)) Shows a significant increase in other comprehensive income for both periods, primarily driven by favorable foreign currency translation adjustments due to exchange rate movements of the Euro, British pound, and Mexican peso against the U.S. dollar Consolidated Other Comprehensive Income (Loss) (Amounts in millions) | Period | 2025 | 2024 | | :-------------------------- | :----- | :----- | | Three Months Ended June 30 | $110.4 | $(23.6) | | Six Months Ended June 30 | $158.3 | $(50.5) | - Other comprehensive income increased significantly due to **favorable foreign currency translation adjustments**, primarily from exchange rate movements of the Euro, British pound, and Mexican peso versus the U.S. dollar[185](index=185&type=chunk)[186](index=186&type=chunk) [Business Segments](index=45&type=section&id=Business%20Segments) Provides a detailed analysis of the performance of Flowserve's two business segments, FPD and FCD, covering bookings, sales, gross profit, SG&A, and operating income for the three and six months ended June 30, 2025 and 2024 [Flowserve Pumps Division Segment Results](index=45&type=section&id=Flowserve%20Pumps%20Division%20Segment%20Results) Details the performance of the FPD segment, which designs, manufactures, and services highly engineered pumps and mechanical seals. Bookings decreased for both periods, while sales and gross profit increased, leading to a significant rise in segment operating income FPD Segment Bookings and Sales (Amounts in millions) | Metric | Period | 2025 | 2024 | | :-------------------------- | :-------------------------- | :----- | :----- | | Bookings | Three Months Ended June 30 | $723.8 | $898.8 | | | Six Months Ended June 30 | $1,576.1 | $1,602.2 | | Sales | Three Months Ended June 30 | $818.9 | $812.2 | | | Six Months Ended June 30 | $1,602.1 | $1,581.6 | - FPD bookings **decreased by 19.5%** for the three months and **1.6%** for the six months, primarily driven by decreased customer orders in the energy and chemical industries[191](index=191&type=chunk)[192](index=192&type=chunk) - FPD sales **increased by 0.8%** for the three months and **1.3%** for the six months, driven by aftermarket customer sales[193](index=193&type=chunk)[194](index=194&type=chunk) - FPD gross profit margin increased to **36.5% (from 32.0%)** for the three months and **35.4% (from 32.1%)** for the six months, primarily due to strategic sourcing, improved bidding, and decreased realignment charges[195](index=195&type=chunk)[196](index=196&type=chunk) - FPD segment operating income **increased by 24.2% ($31.7 million)** for the three months and **23.7% ($57.4 million)** for the six months[199](index=199&type=chunk)[200](index=200&type=chunk) - FPD backlog **increased by 2.6% to $1,980.7 million** at June 30, 2025, compared to December 31, 2024[201](index=201&type=chunk) [Flow Control Division Segment Results](index=47&type=section&id=Flow%20Control%20Division%20Segment%20Results) Presents the performance of the FCD segment, which focuses on isolation and control valves. Bookings and sales increased for both periods. Gross profit margin decreased due to MOGAS integration costs and realignment charges, but operating income increased due to the non-recurrence of the NAF AB divestiture loss FCD Segment Bookings and Sales (Amounts in millions) | Metric | Period | 2025 | 2024 | | :-------------------------- | :-------------------------- | :----- | :----- | | Bookings | Three Months Ended June 30 | $354.7 | $349.2 | | | Six Months Ended June 30 | $730.4 | $689.9 | | Sales | Three Months Ended June 30 | $371.5 | $347.7 | | | Six Months Ended June 30 | $735.6 | $668.2 | - FCD bookings **increased by 1.6%** for the three months and **5.9%** for the six months, driven by increased customer orders in the energy and general industries[204](index=204&type=chunk)[205](index=205&type=chunk) - FCD sales **increased by 6.8%** for the three months and **10.1%** for the six months, driven by both original equipment and aftermarket customer sales[206](index=206&type=chunk)[207](index=207&type=chunk) - FCD gross profit margin **decreased to 29.0% (from 30.6%)** for the three months and **28.3% (from 29.8%)** for the six months, primarily due to MOGAS integration costs and increased realignment charges[208](index=208&type=chunk)[209](index=209&type=chunk) - FCD segment operating income **increased by 17.0% ($5.5 million)** for the three months and **3.4% ($2.3 million)** for the six months, benefiting from the non-recurrence of the **$13.0 million loss on sale of business** in 2024[212](index=212&type=chunk)[213](index=213&type=chunk)[215](index=215&type=chunk) - FCD backlog **increased by 1.3% to $880.9 million** at June 30, 2025, compared to December 31, 2024[216](index=216&type=chunk) [LIQUIDITY AND CAPITAL RESOURCES](index=49&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) Discusses the company's liquidity position, including cash flows from operating, investing, and financing activities, and available borrowing capacity. It highlights the decrease in cash balance, increased operating cash flow, and significant cash outflows from financing activities due to share repurchases, dividends, and MOGAS acquisition payments Cash Flow Summary (Six Months Ended June 30, Amounts in millions) | Activity | 2025 | 2024 | | :------------------------------------ | :----- | :----- | | Net cash flows provided by operating activities | $104.2 | $49.5 | | Net cash flows (used) by investing activities | $(27.5) | $(30.1) | | Net cash flows (used) by financing activities | $(154.4) | $(36.7) | | Cash and cash equivalents at end of period | $629.2 | $515.1 | - The cash balance **decreased by $46.2 million to $629.2 million** at June 30, 2025, compared to December 31, 2024[218](index=218&type=chunk) - Key financing outflows for H1 2025 included **$52.8 million in stock repurchases**, **$55.2 million in dividend payments**, **$18.8 million in Term Loan payments**, and a **$15.0 million contingent consideration payment** for the MOGAS acquisition[226](index=226&type=chunk) - As of June 30, 2025, the company had **$661.0 million of available capacity** under its Second Amended and Restated Credit Agreement[227](index=227&type=chunk) [Cash Flow Analysis](index=49&type=section&id=Cash%20Flow%20Analysis) Provides a detailed breakdown of cash flow movements across operating, investing, and financing activities for the six months ended June 30, 2025 and 2024, explaining the drivers behind changes in working capital components and capital expenditures - Operating cash flows for H1 2025 were positively impacted by increased cash flows from accounts receivable, inventories, and prepaid expenses, but negatively by contract assets, accounts payable, contract liabilities, and accrued liabilities[219](index=219&type=chunk) - Days' sales outstanding (DSO) remained at **80 days** at June 30, 2025 and 2024, while inventory turns slightly decreased to **3.5 times from 3.6 times**[220](index=220&type=chunk)[221](index=221&type=chunk) - Capital expenditures for H1 2025 were **$28.3 million**, with an estimated full-year capital expenditure between **$80 million and $90 million**[224](index=224&type=chunk)[225](index=225&type=chunk) [Financing](index=50&type=section&id=Financing) Reaffirms compliance with credit facility covenants and reiterates sufficient liquidity from cash on hand, operating cash flows, and available credit facilities to meet short-term and long-term business needs - The company was in compliance with all applicable covenants under its Second Amended and Restated Credit Agreement as of June 30, 2025[231](index=231&type=chunk) - Management expects current liquidity, including **$629.2 million in cash** and **$661.0 million available** under the credit agreement, to be sufficient for short-term and long-term business needs[232](index=232&type=chunk) [OUR CRITICAL ACCOUNTING ESTIMATES](index=50&type=section&id=OUR%20CRITICAL%20ACCOUNTING%20ESTIMATES) States that critical accounting policies and estimates, including revenue recognition, deferred taxes, contingent loss reserves, pension benefits, and goodwill valuation, remain unchanged from the 2024 Annual Report. It emphasizes the use of estimates and assumptions in financial statement preparation and the potential for material differences in actual results - Critical accounting policies, including Revenue Recognition, Deferred Taxes, Reserves for Contingent Loss, Pension and Postretirement Benefits, and Valuation of Goodwill, remain unchanged from the 2024 Annual Report[233](index=233&type=chunk)[239](index=239&type=chunk) - The preparation of financial statements involves significant estimates and assumptions, which are reviewed quarterly with the Audit Committee, and actual results could differ materially[234](index=234&type=chunk) [ACCOUNTING DEVELOPMENTS](index=51&type=section&id=ACCOUNTING%20DEVELOPMENTS) Refers to Note 1, "Basis of Presentation and Accounting Policies," for information on pronouncements not yet implemented - Information regarding pronouncements not yet implemented is presented in Note 1, "Basis of Presentation and Accounting Policies"[236](index=236&type=chunk) [Cautionary Note Regarding Forward-Looking Statements](index=51&type=section&id=Cautionary%20Note%20Regarding%20Forward-Looking%20Statements) Warns that the report contains forward-looking statements subject to numerous risks and uncertainties that could cause actual results to differ materially from forecasts. It lists specific factors such as global supply chain disruptions, economic conditions, customer spending, execution of initiatives, international operations risks, and cybersecurity threats - The report contains forward-looking statements, identified by terms like "may," "expects," and "plans," which are subject to numerous risks and uncertainties[237](index=237&type=chunk)[238](index=238&type=chunk) - Key risks include global supply chain disruptions, changes in global economic conditions, dependence on customer capital investment, execution of restructuring initiatives, risks associated with international operations, and potential adverse effects from litigation or cybersecurity breaches[240](index=240&type=chunk)[247](index=247&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=52&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Discusses the company's market risk exposure, primarily from foreign currency exchange rate movements, and its strategy to mitigate these risks through foreign exchange forward contracts [Foreign Currency Exchange Rate Risk](index=52&type=section&id=Foreign%20Currency%20Exchange%20Rate%20Risk) Discusses the company's exposure to foreign currency exchange rate risk due to substantial international operations. It outlines the use of foreign exchange forward contracts to mitigate transactional exposure and provides figures for translation adjustments and transactional gains/losses Foreign Currency Translation Adjustments (Amounts in millions) | Period | 2025 | 2024 | | :-------------------------- | :----- | :----- | | Three Months Ended June 30 | $111.7 | $(24.4) | | Six Months Ended June 30 | $159.2 | $(52.7) | - The company uses foreign exchange forward contracts with a **notional value of $697.3 million** at June 30, 2025, to mitigate transactional exposure to exchange rate fluctuations[244](index=244&type=chunk) Transactional Currency Gains and Losses (Amounts in millions) | Period | 2025 | 2024 | | :-------------------------- | :----- | :----- | | Three Months Ended June 30 | $(20.0) | $(0.2) | | Six Months Ended June 30 | $(31.4) | $1.1 | - A sensitivity analysis indicates a **10% change in foreign currency exchange rates** would impact net earnings by approximately **$16.0 million** for the six months ended June 30, 2025, excluding hedging impacts[245](index=245&type=chunk) [Item 4. Controls and Procedures](index=52&type=section&id=Item%204.%20Controls%20and%20Procedures) This section addresses the effectiveness of the company's disclosure controls and procedures and reports on any changes in internal control over financial reporting [Disclosure Controls and Procedures](index=53&type=section&id=Disclosure%20Controls%20and%20Procedures) States that management, under the supervision of the Principal Executive Officer and Principal Financial Officer, evaluated the effectiveness of disclosure controls and procedures as of June 30, 2025, and concluded they were effective - Management concluded that the company's disclosure controls and procedures were **effective** as of June 30, 2025[249](index=249&type=chunk) [Changes in Internal Control Over Financial Reporting](index=53&type=section&id=Changes%20in%20Internal%20Control%20Over%20Financial%20Reporting) Reports that there have been no material changes in internal control over financial reporting during the quarter ended June 30, 2025 - No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2025[250](index=250&type=chunk) PART II – OTHER INFORMATION [Item 1. Legal Proceedings](index=54&type=section&id=Item%201.%20Legal%20Proceedings) Refers to Note 13 for details on legal proceedings, including asbestos-related claims. Management does not expect current litigation, individually or in aggregate, to have a material adverse effect on financial position, results of operations, or cash flows - Legal proceedings are described in Note 13, "Legal Matters and Contingencies"[253](index=253&type=chunk) - Management does not currently expect any liability from lawsuits or other proceedings to have a **material adverse effect** on the company's financial position, results of operations, or cash flows[253](index=253&type=chunk) [Item 1A. Risk Factors](index=54&type=section&id=Item%201A.%20Risk%20Factors) States that there have been no material changes to the risk factors discussed in the 2024 Annual Report and subsequent SEC filings. It advises careful consideration of these factors, as well as potential new, currently unknown risks - No material changes in risk factors have occurred since the 2024 Annual Report and subsequent SEC filings[255](index=255&type=chunk) - Readers should carefully consider the risk factors identified in the 2024 Annual Report and other SEC filings, as well as potential new, currently unknown risks[254](index=254&type=chunk)[255](index=255&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=54&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) Discusses the company's share repurchase program and quarterly dividends. It details the shares repurchased during the three months ended June 30, 2025, and the remaining capacity under the program - The Board of Directors approved a **$300.0 million share repurchase authorization**, effective February 19, 2024[257](index=257&type=chunk) Share Repurchase Activity (Three Months Ended June 30, 2025) | Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Program | | :-------------------------- | :----------------------------- | :--------------------------- | :----------------------------------------------------------------- | | April 1 - 30 | 2,088 | $42.93 | 737,524 | | May 1 - 31 | 2,737 | $48.73 | — | | June 1 - 30 | 811 | $47.15 | — | | **Total** | **5,636** | **$46.36** | **737,524** | - As of June 30, 2025, **$227.1 million of remaining capacity** was available under the current share repurchase program[257](index=257&type=chunk) [Item 3. Defaults Upon Senior Securities](index=56&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) States that there were no defaults upon senior securities - There were **no defaults upon senior securities**[260](index=260&type=chunk) [Item 4. Mine Safety Disclosures](index=56&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) States that this item is not applicable - This item is **not applicable**[261](index=261&type=chunk) [Item 5. Other Information](index=56&type=section&id=Item%205.%20Other%20Information) Reports that no insider trading plans or arrangements (Rule 10b5-1(c) or non-Rule 10b5-1) were adopted, terminated, or modified during the quarter ended June 30, 2025 - No insider trading plans or other arrangements were adopted, terminated, or modified by directors and executive officers during the quarter ended June 30, 2025[262](index=262&type=chunk) [Item 6. Exhibits](index=57&type=section&id=Item%206.%20Exhibits) Lists the exhibits filed with the Form 10-Q, including the Restated Certificate of Incorporation, By-Laws, Mutual Termination Agreement with Chart Industries, Inc., certifications, and XBRL documents - Key exhibits include the Restated Certificate of Incorporation, By-Laws, and the Mutual Termination Agreement with Chart Industries, Inc. (Exhibit 10.1)[265](index=265&type=chunk) - Certifications from the Principal Executive Officer and Principal Financial Officer (Exhibits 31.1, 31.2, 32.1, 32.2) are included, along with XBRL documents[265](index=265&type=chunk) SIGNATURES [SIGNATURES](index=58&type=section&id=SIGNATURES) Contains the signatures of Amy B. Schwetz, Senior Vice President and Chief Financial Officer, and Scott K. Vopni, Vice President and Chief Accounting Officer, certifying the report on July 30, 2025 - The report is signed by Amy B. Schwetz, Senior Vice President and Chief Financial Officer, and Scott K. Vopni, Vice President and Chief Accounting Officer[269](index=269&type=chunk) - The report was signed on July 30, 2025[269](index=269&type=chunk)

Financial Data and Key Metrics Changes - The company reported second quarter earnings with adjusted EPS of $0.91, reflecting a 25% increase year-over-year [9][19] - Full year adjusted EPS guidance was raised to $3.25 to $3.40, indicating a more than 25% year-over-year increase at the midpoint [8][29] - Revenue for the second quarter was $1,200,000,000, representing a 3% growth compared to the prior year [19][20] - Adjusted gross margins expanded by 260 basis points to 34.9%, while adjusted operating margins increased to 14.6% [9][21] Business Line Data and Key Metrics Changes - The Aftermarket business achieved bookings above $600,000,000 for the fifth consecutive quarter, with aftermarket revenues growing by 7% [10][19] - Original Equipment sales decreased by 2%, primarily due to lower engineered-to-order work [20] - FPD (Flowserve Pump Division) reported a 1% sales growth driven by aftermarket activity, with adjusted gross margins improving to 36.8% [23] - FCD (Flowserve Control Division) experienced a 2% growth in bookings and a 7% increase in sales, but margins were impacted by the Mogus acquisition [24][25] Market Data and Key Metrics Changes - Strong year-over-year growth of 9% was noted in general industries, while energy and chemical bookings decreased due to the non-recurrence of large projects [12] - The project funnel remains healthy, with a strong backlog of $2,900,000,000, providing certainty for future growth [14][15] - The macroeconomic environment has caused some project approvals to be delayed, particularly in the chemical and energy sectors [14][16] Company Strategy and Development Direction - The company remains committed to a disciplined approach to capital allocation, including potential share repurchases and M&A opportunities [6][64] - The Flowserve business system is being fully implemented across all business units, focusing on operational excellence and margin expansion [18][34] - The company is exploring partnerships, such as the MOU with Honeywell to integrate digital offerings, enhancing efficiency and creating recurring revenue streams [12][13] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to navigate a dynamic macro environment and maintain strong execution [7][34] - The company anticipates organic sales growth of 3% to 4% for the full year, slightly down from previous guidance [29] - Management highlighted the importance of maintaining a healthy balance sheet and investment-grade rating while pursuing growth opportunities [66] Other Important Information - The company received a $266,000,000 termination payment from the terminated merger with Chart Industries, which will be used for capital allocation [5][62] - The impact of tariffs is estimated to be neutral to earnings for the second quarter, with ongoing efforts to mitigate tariff effects [16][28] Q&A Session Summary Question: Can you provide more insight into the bookings environment and expectations for the book-to-bill ratio? - Management noted that the project spending was impacted by macroeconomic uncertainties, but the aftermarket business remained strong, with a book-to-bill ratio expected to be around 1.0 for the year [40][46] Question: How should we view the potential improvement in the FCD segment moving forward? - Management indicated that while FCD margins are currently below expectations, they are implementing the same operational excellence strategies that have benefited FPD, with confidence in future margin improvements [48][56] Question: What are the implications of the Chart merger experience on future growth ambitions? - Management emphasized that while disappointed with the merger outcome, they remain committed to pursuing M&A opportunities that align with their strategic goals [61][66] Question: Can you elaborate on the commercial excellence initiative and its deployment? - Management explained that the commercial excellence initiative aims to enhance commercial performance across the organization, focusing on growth and offsetting revenue reductions from the 8020 program [90][94]

Financial Data and Key Metrics Changes - The company reported second quarter earnings with adjusted EPS of $0.91, representing a 25% increase year-over-year [19][8] - Full year adjusted EPS guidance was increased to $3.25 to $3.40, reflecting a more than 25% year-over-year increase at the midpoint [7][30] - Revenue for the second quarter was $1.2 billion, a 3% growth compared to the prior year [19][7] - Adjusted gross margins expanded by 260 basis points to 34.9% [21][19] - Adjusted operating margins were reported at 14.6%, with impressive incremental margins of 94% during the quarter [8][21] Business Line Data and Key Metrics Changes - The Aftermarket business achieved bookings above $600 million for the fifth consecutive quarter, with aftermarket revenues growing by 7% [9][19] - Original Equipment sales decreased by 2%, primarily due to lower engineered-to-order work [20] - FPD (Flowserve Pump Division) reported a sales growth of 1% year-over-year, driven by aftermarket activity, with adjusted gross margins of 36.8% [23][20] - FCD (Flowserve Control Division) experienced a 2% growth in bookings and a 7% increase in sales, but margins were impacted by the Mogus acquisition [24][20] Market Data and Key Metrics Changes - Strong year-over-year growth of 9% was observed in general industries, while energy and chemical bookings decreased due to the non-recurrence of large projects [12][11] - The project funnel remains healthy, with a strong backlog of $2.9 billion, positioning the company well for future growth [14][15] - The nuclear project funnel is at its highest level, with total nuclear bookings of nearly $60 million in the second quarter [10][11] Company Strategy and Development Direction - The company remains committed to a disciplined approach to capital allocation, including M&A opportunities, despite the termination of the merger with Chart Industries [5][6] - The Flowserve business system is being fully implemented across all business units, focusing on operational excellence and margin expansion [17][21] - The company is excited about the potential of the Mogus acquisition to enhance offerings in the mining and minerals markets [24][25] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ability to execute at a high level despite a dynamic macro environment [7][6] - The company anticipates organic sales growth to range from 3% to 4% for the full year, a slight decrease from previous guidance [30][31] - Management noted that while the macroeconomic environment remains uncertain, the project funnel is growing, and they expect a book-to-bill ratio of approximately 1.0 for the full year [14][45] Other Important Information - The company received a $266 million termination payment from the terminated merger agreement, which will be evaluated for shareholder value creation [5][6] - The impact of tariffs is estimated to be neutral to earnings for the second quarter, with ongoing efforts to mitigate tariff impacts [15][16] - The company closed the quarter with a net debt to adjusted EBITDA ratio of 1.25 times, the lowest level in a decade, providing flexibility for capital allocation [29][28] Q&A Session Summary Question: Can you provide more insight into the bookings environment and expectations for the book-to-bill ratio? - Management indicated that while the macro environment has caused some project delays, the aftermarket business remains strong, and they expect a book-to-bill ratio of 1.0 for the year, with a positive outlook for the second half [40][45] Question: How should we view the potential improvement in the FCD segment moving forward? - Management acknowledged that while FCD margins are currently below expectations, they are implementing the same operational excellence strategies that have benefited FPD, and they expect improvements in the future [48][56] Question: What are the implications of the Chart merger experience on future growth ambitions? - Management confirmed that they remain open to M&A opportunities that align with their strategic goals, emphasizing a disciplined approach to any future transactions [60][66] Question: What are the biggest remaining levers for margin expansion in the FPD segment? - Management highlighted initiatives focused on aftermarket capture and the ongoing implementation of the 8020 program as key drivers for margin expansion [72][74] Question: Can you clarify the timing and impact of the remaining modular deliveries from Mogus? - Management confirmed that the last large fabrication is nearly complete and will be delivered in 2026, with a significant margin differential expected once these modules are cleared from the business [100][103]

Q2 2025 Financial Highlights - Total bookings reached $1.1 billion, driven by aftermarket and MRO activity[8, 11] - Sales amounted to $1.2 billion, representing a 3% revenue growth compared to the prior year[8] - Adjusted gross margins improved to 34.9%, a robust year-over-year increase of 260 basis points[8] - Adjusted EPS increased by 25% versus last year, reaching $0.91[8] - Adjusted operating margins increased by 210 basis points versus prior year to 14.6%[8] - Cash from operations generated a strong $154 million during the second quarter[8, 24] Segment Performance - FPD segment bookings were $723.8 million, a decrease of 19.5% year-over-year, while revenue increased by 0.8% to $818.9 million[21] - FPD adjusted gross margin was 36.8%, up 390 basis points year-over-year, and adjusted operating margin was 20.3%, up 340 basis points[21] - FCD segment bookings were $354.7 million, an increase of 1.6% year-over-year, and revenue increased by 6.8% to $371.5 million[22] - FCD adjusted gross margin was 30.8%, up 20 basis points year-over-year, while adjusted operating margin was 12.2%, down 120 basis points[22] Market Outlook and Tariffs - The company estimates the annualized gross impact of tariffs to be between $50 million to $60 million, which they expect to fully offset through mitigating actions[17] - The company expects full-year book-to-bill conversion ratio to be approximately 1.0x[14] Full Year 2025 Guidance - The company increased full-year earnings guidance on robust first-half results and continued execution momentum[30, 39] - Organic sales growth is expected to be up 3% - 4%, and total sales growth is expected to be up 5% - 6%[30] - Adjusted EPS is projected to be $3.25 - $3.40, which equates to nearly 60% growth in adjusted EPS since 2023[30, 32] - Expect full-year adjusted operating margin expansion of approximately 200 basis points[32]

Core Insights - Flowserve reported revenue of $1.19 billion for the quarter ended June 2025, reflecting a year-over-year increase of 2.7% but a slight miss of 1.98% against the Zacks Consensus Estimate of $1.21 billion [1] - The company's EPS for the quarter was $0.91, up from $0.73 in the same quarter last year, resulting in a positive surprise of 16.67% compared to the consensus estimate of $0.78 [1] Financial Performance Metrics - Flowserve's sales in the FCD segment were $371.5 million, which was below the average estimate of $388.79 million from four analysts, but showed a year-over-year increase of 6.8% [4] - In the FPD segment, sales were reported at $818.9 million, slightly below the estimated $824.2 million, with a year-over-year change of 0.8% [4] - Adjusted Operating Income for the FPD segment was $166.52 million, exceeding the average estimate of $144.45 million, while for the FCD segment, it was $45.47 million, falling short of the $54.96 million estimate [4] Stock Performance - Over the past month, Flowserve's shares have returned +4.8%, outperforming the Zacks S&P 500 composite's +3.6% change [3] - The stock currently holds a Zacks Rank 1 (Strong Buy), indicating potential for outperformance in the near term [3]