Flowserve(FLS) - 2024 Q2 - Earnings Call Transcript

Financial Data and Key Metrics - Revenue for Q2 2024 was $1.15 billion, a 7% increase year-over-year [5][10] - Adjusted gross margin increased by 200 basis points to 32.3%, and adjusted operating margin increased by 210 basis points to 12.5% [5][10] - Adjusted earnings per share (EPS) increased by over 40% to$ 0.73 [10] - Bookings reached $1.25 billion, a 12% increase year-over-year and 20% sequential growth, with a book-to-bill ratio of 1.08x [10] - Backlog grew by$ 70 million sequentially to $2.7 billion [10] Business Line Performance - The aftermarket business achieved record bookings of$ 614 million, marking the seventh consecutive quarter above $550 million [17][78] - The chemicals market saw$ 272 million in bookings, a 14% year-over-year increase, driven by a major petrochemical project in Saudi Arabia [46] - Power generation bookings were $153 million, a 34% increase year-over-year, with nuclear activity contributing over$ 70 million [27] - The mining sector is expected to grow, with current efforts contributing roughly $100 million annually, and plans to expand through organic and inorganic strategies [28] Market Performance - Oil and gas generated the highest dollar growth, with a 22% year-over-year increase, driven by large projects in the Middle East [23] - Middle East bookings grew significantly due to three large projects, while Europe and Asia-Pacific saw slight declines [24] - The project funnel increased by 8% year-over-year, with strong visibility into opportunities in the Middle East and other regions [24] Strategic Direction and Industry Competition - The company is focused on operational and product excellence, aiming for 100-200 basis points of margin improvement by 2027 [12][65] - The 3D strategy (Decarbonization, Diversification, Digitization) represents over 25% of total bookings, with a focus on energy transition and digital solutions [45][48] - The acquisition of in-process R&D for submerged cryogenic pumps in LNG aims to strengthen the company's position in the energy transition market [18][96] Management Commentary on Operating Environment and Future Outlook - Management expressed confidence in achieving 2027 financial targets, with a focus on margin expansion and operational improvements [21][60] - The company expects a stronger second half of 2024, with adjusted EPS guidance raised to$ 2.60- $2.75, representing a 27% increase year-over-year [29][31] - The macro environment remains favorable, driven by global megatrends such as energy transition, decarbonization, and digitization [48] Other Important Information - The company launched a product excellence program, with early progress expected to show results in late 2024 and 2025 [12][65] - Red Raven, the company's IoT offering, is gaining traction, with 2,250 assets instrumented and positive customer feedback [110][130] - The company is actively managing pricing, with a 4-5% price increase announced at the beginning of the year, and improved project pricing environments [126][127] Q&A Session Summary Question: Gross margin trends and FCD performance [131][143] - The company is focused on operational and product excellence to expand margins, with a target of 150 basis points or more in 2024 [143] - FCD's gross margins are impacted by product mix, but improvements are expected in the second half of the year [162] Question: Aftermarket business sustainability [17][78] - The aftermarket business is expected to remain strong, driven by high utilization rates and pent-up demand, with a focus on improving capture rates [78][118] Question: LNG and cryogenic pump acquisition [96][158] - The acquisition of cryogenic pump technology is expected to generate$ 50 million in annual revenue by 2026-2027, with potential for additional market share in LNG [96][158] Question: Nuclear and power generation outlook [102][120] - Nuclear power generation is expected to grow, with strong visibility into life extensions and new projects in Europe and North America [102][120] - Power demand is increasing, driven by electrification and data center growth, with a 20% increase in power bookings year-over-year [120][124] Question: Pricing environment [126][127] - The company has improved pricing discipline, with a 4-5% price increase and better project pricing environments [126][127] Question: Red Raven adoption and digital capabilities [110][130] - Red Raven adoption is progressing, with 2,250 assets instrumented and positive customer feedback, leading to repeat orders and increased aftermarket opportunities [110][130]