Flowserve(FLS) - 2024 Q1 - Quarterly Results

Executive Summary Flowserve delivered strong Q1 2024 results with significant EPS growth, solid bookings, and improved margins, leading to a raised full-year adjusted EPS guidance and strategic confidence First Quarter 2024 Highlights Flowserve reported strong Q1 2024 results with significant increases in reported and adjusted EPS, solid bookings, and improved margins, leading to a raised full-year adjusted EPS guidance First Quarter 2024 Key Financial Highlights (YoY Comparison) | Metric | Q1 2024 | Q1 2023 | Change (YoY) | | :------------------------- | :------ | :------ | :----------- | | Reported EPS | $0.56 | $0.20 | +180% | | Adjusted EPS | $0.58 | $0.40 | +45% | | Total Bookings | $1.04B | $1.06B | -1.8% | | Aftermarket Bookings | $575.8M | $550.3M | +4.6% | | Adjusted Gross Margin | 31.7% | 30.4% | +130 bps | | Adjusted Operating Margin | 10.9% | 8.3% | +260 bps | | Operating Cash Flow | $62M | $26.6M | +133.8% | | Sales | $1.09B | $0.98B | +10.9% | | Backlog (vs. Dec 31, 2023) | $2.6B | N/A | -3.1% | | Book-to-bill ratio | 0.95x | N/A | N/A | CEO Commentary CEO Scott Rowe highlighted strong Q1 performance driven by base business, including aftermarket and short-cycle original equipment. He noted significant project wins in the Middle East for Q2 and expressed confidence in the raised full-year Adjusted EPS guidance, attributing success to the 3D strategy (diversification, decarbonization, digitization) and commitment to margin expansion - Delivered strong first quarter results with significant year-over-year growth in revenue, margins, adjusted earnings, and cash flow[3] - Bookings were primarily driven by the strength of the base business, including aftermarket and short-cycle original equipment awards[3] - Announced winning two sizable projects in the Middle East in April, collectively valued at over $150 million, to be reflected in Q2 results[3] - Increased full-year Adjusted EPS target range to $2.50 to $2.70, a near 24% increase at the midpoint year-over-year[3] - Committed to building on operational momentum to expand margins through effective product management and portfolio optimization[3] - The '3D strategy' (diversification, decarbonization, and digitization activities) is delivering results and will be further expanded in faster-growing, attractive markets[3] Financial Results Flowserve's Q1 2024 financial results show significant year-over-year growth in sales, gross profit, and operating income, with strong performance across both FPD and FCD segments Consolidated Financial Performance This section details Flowserve's consolidated financial performance for Q1 2024, including GAAP income statement figures and a reconciliation to non-GAAP adjusted measures, highlighting the impact of specific adjustments on reported results Condensed Consolidated Statements of Income (GAAP) Flowserve's Q1 2024 GAAP income statement shows substantial year-over-year growth in sales, gross profit, operating income, and diluted EPS Condensed Consolidated Statements of Income (Amounts in thousands) | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | YoY Change | | :---------------------------------------- | :-------------------------------- | :-------------------------------- | :--------- | | Sales | $1,087,479 | $980,305 | +10.9% | | Cost of sales | $(748,511) | $(683,475) | +9.5% | | Gross profit | $338,968 | $296,830 | +14.2% | | Selling, general and administrative expense | $(228,418) | $(244,268) | -6.5% | | Operating income | $113,079 | $57,186 | +97.7% | | Earnings before income taxes | $98,057 | $34,449 | +184.6% | | Net earnings attributable to Flowserve Corporation | $74,220 | $26,766 | +177.3% | | Diluted EPS | $0.56 | $0.20 | +180.0% | Non-GAAP Consolidated Reconciliation This section reconciles GAAP to non-GAAP financial measures, detailing adjustments for realignment charges, discrete items, and foreign exchange impacts Consolidated Reconciliation of Non-GAAP Financial Measures (Amounts in thousands) | Metric | Reported Q1 2024 | Adjusted Q1 2024 | Reported Q1 2023 | Adjusted Q1 2023 | | :-------------------------------------- | :--------------- | :--------------- | :--------------- | :--------------- | | Gross Profit | $338,968 | $344,641 | $296,830 | $298,205 | | Operating Income | $113,079 | $118,246 | $57,186 | $81,251 | | Diluted EPS | $0.56 | $0.58 | $0.20 | $0.40 | | Realignment charges (Q1 2024) | N/A | $7,167 (Operating Income) | N/A | $16,879 (Operating Income) | | Discrete item (Q1 2024) | N/A | $(2,000) (Operating Income) | N/A | $4,090 (Operating Income) | | Below-the-line foreign exchange impacts (Q1 2024) | N/A | $(1,273) (Net Earnings) | N/A | $6,857 (Net Earnings) | - Adjustments for Q1 2024 include realignment charges of $7.167 million (operating income impact), a discrete item reducing reserves by $2.0 million, and below-the-line foreign exchange impacts of $(1.273) million[17][18] - Adjustments for Q1 2023 included realignment charges, discrete asset write-downs, acquisition-related costs, and below-the-line foreign exchange impacts[19][20] Segment Performance This section provides a detailed breakdown of the financial performance for Flowserve's two main segments: Flowserve Pumps Division (FPD) and Flow Control Division (FCD), including bookings, sales, gross profit, and operating income, along with their respective margins Flowserve Pumps Division (FPD) FPD reported strong Q1 2024 sales and operating income growth, with improved gross and operating margins, despite a slight decrease in bookings Flowserve Pumps Division (FPD) Performance (Amounts in millions) | Metric | Q1 2024 | Q1 2023 | YoY Change | | :-------------------------------- | :------ | :------ | :--------- | | Bookings | $703.5 | $728.5 | -3.4% | | Sales | $769.4 | $700.1 | +9.9% | | Gross profit | $247.9 | $221.4 | +12.0% | | Gross profit margin | 32.2% | 31.6% | +60 bps | | Segment operating income | $110.9 | $79.1 | +40.2% | | Segment operating income as % of sales | 14.4% | 11.3% | +310 bps | | Backlog | $1,784.2 | N/A | N/A | Flow Control Division (FCD) FCD demonstrated robust Q1 2024 performance with significant increases in bookings, sales, gross profit, and operating income, alongside margin expansion Flow Control Division (FCD) Performance (Amounts in millions) | Metric | Q1 2024 | Q1 2023 | YoY Change | | :-------------------------------- | :------ | :------ | :--------- | | Bookings | $341.1 | $332.0 | +2.7% | | Sales | $320.5 | $281.6 | +13.8% | | Gross profit | $92.7 | $80.3 | +15.4% | | Gross profit margin | 28.9% | 28.5% | +40 bps | | Segment operating income | $34.7 | $18.5 | +87.6% | | Segment operating income as % of sales | 10.8% | 6.6% | +420 bps | | Backlog | $841.7 | N/A | N/A | Segment Reconciliation (Non-GAAP) This section reconciles reported to adjusted segment financial measures, detailing the impact of realignment charges and discrete items on FPD and FCD operating income Segment Reconciliation of Non-GAAP Financial Measures (Amounts in thousands) | Metric | FPD Reported Q1 2024 | FPD Adjusted Q1 2024 | FCD Reported Q1 2024 | FCD Adjusted Q1 2024 | | :-------------------------------------- | :------------------- | :------------------- | :------------------- | :------------------- | | Gross Profit | $247,938 | $252,982 | $92,695 | $93,462 | | Operating Income | $110,894 | $114,979 | $34,708 | $35,589 | | Realignment charges (FPD Q1 2024) | N/A | $6,085 (Operating Income) | N/A | N/A | | Discrete item (FPD Q1 2024) | N/A | $(2,000) (Operating Income) | N/A | N/A | | Realignment charges (FCD Q1 2024) | N/A | N/A | N/A | $881 (Operating Income) | - FPD's Q1 2024 adjustments include $6.085 million in realignment charges and a $(2.0) million discrete item impacting operating income[22][25] - FCD's Q1 2024 adjustments include $881 thousand in realignment charges impacting operating income[23][25] Condensed Consolidated Balance Sheets As of March 31, 2024, Flowserve's total assets increased slightly to $5.15 billion from $5.11 billion at year-end 2023, primarily driven by increases in accounts receivable and prepaid expenses. Total equity also saw a modest increase Condensed Consolidated Balance Sheets (Amounts in thousands) | Metric | March 31, 2024 | December 31, 2023 | QoQ Change | | :---------------------------------------- | :------------- | :---------------- | :--------- | | Total assets | $5,149,925 | $5,108,719 | +0.8% | | Cash and cash equivalents | $531,981 | $545,678 | -2.5% | | Accounts receivable, net | $914,357 | $881,869 | +3.7% | | Inventories | $883,341 | $879,937 | +0.4% | | Total current assets | $2,766,577 | $2,703,777 | +2.3% | | Total current liabilities | $1,474,176 | $1,438,576 | +2.5% | | Long-term debt due after one year | $1,152,336 | $1,167,307 | -1.3% | | Total Flowserve Corporation shareholders' equity | $1,953,980 | $1,936,100 | +0.9% | | Total equity | $1,996,212 | $1,975,051 | +1.1% | Condensed Consolidated Statements of Cash Flows Flowserve reported a significant increase in net cash provided by operating activities for Q1 2024, reaching $62.3 million, up from $26.6 million in Q1 2023, primarily due to higher net earnings and favorable changes in working capital. Net cash used in financing activities also increased Condensed Consolidated Statements of Cash Flows (Amounts in thousands) | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | YoY Change | | :---------------------------------------- | :-------------------------------- | :-------------------------------- | :--------- | | Net earnings (loss), including noncontrolling interests | $77,915 | $29,996 | +160.0% | | Net cash flows provided (used) by operating activities | $62,257 | $26,588 | +134.1% | | Net cash flows provided (used) by investing activities | $(13,586) | $(16,456) | -17.4% | | Net cash flows provided (used) by financing activities | $(54,214) | $(43,819) | +23.7% | | Net change in cash and cash equivalents | $(13,697) | $(30,245) | -54.7% | | Cash and cash equivalents at end of period | $531,981 | $404,726 | +31.4% | 2024 Guidance and Strategic Outlook Flowserve raised its full-year 2024 Adjusted EPS guidance and reaffirmed other financial targets, while continuing to advance its 3D strategy for market expansion and margin growth Revised 2024 Guidance Flowserve raised its full-year 2024 Adjusted EPS guidance to $2.50 - $2.70, up from the prior range of $2.40 - $2.60, reflecting strong Q1 performance. Other financial targets, including revenue growth, reported EPS, net interest expense, adjusted tax rate, and capital expenditures, were reaffirmed Revised 2024 Guidance Metrics | Metric | Prior Target Range (Feb 20, 2024) | Revised Target Range | | :-------------------- | :-------------------------------- | :------------------- | | Revenue Growth | Up 4.0% to 6.0% | Reaffirmed | | Reported EPS | $2.25 - $2.45 | Reaffirmed | | Adjusted EPS | $2.40 - $2.60 | $2.50 - $2.70 | | Net Interest Expense | $60 to $65 million | Reaffirmed | | Adjusted Tax Rate | ~20% | Reaffirmed | | Capital Expenditures | $75 - $85 million | Reaffirmed | - The 2024 Adjusted EPS target range excludes expected adjusted items including realignment charges of approximately $30 million, potential impact of below-the-line foreign currency effects, and certain other discrete items[6] Strategic Initiatives Flowserve is committed to its 3D strategy (diversification, decarbonization, and digitization) to expand into faster-growing, attractive markets. The company aims to build on operational momentum to expand margins through effective product management and portfolio optimization - Committed to building on recent operational momentum to expand margins, including through effective product management and portfolio optimization[3] - The '3D strategy' (diversification, decarbonization, and digitization activities) is delivering results and will be further expanded in faster-growing, attractive markets[3] Additional Information This section provides essential background on Flowserve, details for the upcoming conference call, important safe harbor statements, non-GAAP financial disclosures, and investor contacts About Flowserve Flowserve Corporation is a global leader in fluid motion and control products and services, operating in over 50 countries. The company manufactures engineered and industrial pumps, seals, and valves, along with related flow management services - Flowserve Corp. is one of the world's leading providers of fluid motion and control products and services[8] - Operates in more than 50 countries[8] - Produces engineered and industrial pumps, seals and valves as well as a range of related flow management services[8] Conference Call Details Flowserve will host a conference call with the financial community on Tuesday, April 30th at 11:00 AM Eastern, featuring President and CEO Scott Rowe and other management team members. Access is available via the company's investor relations website - Conference call with the financial community on Tuesday, April 30th at 11:00 AM Eastern[7] - Presenters include Scott Rowe, President and Chief Executive Officer, and other members of the management team[7] - The call can be accessed at www.flowserve.com under the 'Investor Relations' section[7] Safe Harbor Statement This section outlines the company's safe harbor statement regarding forward-looking statements, emphasizing that such statements are predictions based on current expectations and are subject to numerous risks and uncertainties that could cause actual results to differ materially - News release includes forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995[9] - Forward-looking statements are based on current expectations, projections, estimates, and assumptions, and are predictions, not guarantees[10] - Subject to numerous risks and uncertainties that are difficult to predict, including economic, political, international operation risks, global supply chain disruptions, volatile raw materials prices, and litigation[10][12] - The company assumes no obligation to update any forward-looking statement[13] Non-GAAP Financial Measures Disclosure Flowserve uses non-GAAP financial measures to provide additional useful comparisons of current and prior period results, offering a clearer view of underlying business trends. Management uses these measures for internal decisions and performance evaluation, noting they should be viewed in addition to, not as a substitute for, GAAP results - Management believes non-GAAP financial measures provide additional useful comparisons between current and prior operating periods, offering a clearer view of underlying business trends[14] - Non-GAAP measures are used by management in making financial, operating, planning, and compensation decisions and in evaluating the Company's performance[14] - Non-GAAP financial measures should be viewed in addition to, and not as a substitute for, the Company's reported results prepared in accordance with GAAP[14] Investor and Media Contacts This section provides contact information for Flowserve's Investor Relations and Media Relations teams Flowserve Contacts | Role | Name | Phone | | :-------------------------------------- | :-------------------------------------- | :---------- | | Vice President, Investor Relations & Treasurer | Jay Roueche | (972) 443-6560 | | Director, Investor Relations | Tarek Zeni | (469) 420-4045 | | Vice President, Marketing, Communications & Public Affairs | Wes Warnock | (972) 443-6900 |