Flowserve(US:FLS)2021-08-06 20:16Financial Data and Key Metrics Changes - The adjusted EPS for Q2 2021 was $0.37, reflecting a 32% sequential improvement [6] - Reported EPS increased significantly to $0.35 compared to the prior year [18] - Revenue for Q2 2021 was $898 million, down 2.9% year-over-year [20] - Adjusted gross margin decreased by 70 basis points to 31.4% [21] - Cash balance at the end of Q2 was $630 million, with liquidity remaining strong at nearly $1.4 billion [26] Business Line Data and Key Metrics Changes - Bookings for Q2 2021 totaled $953 million, a nearly 18% year-over-year improvement [6][13] - Aftermarket awards reached almost $525 million, returning to pre-pandemic levels [13] - Original equipment sales declined by 6.1%, while aftermarket sales were relatively resilient [20] Market Data and Key Metrics Changes - Solid growth was observed globally, except in the Asia Pacific market, which was impacted by COVID-19 resurgence in India [14] - The oil and gas and chemical markets were the biggest drivers of year-over-year growth, increasing by 39% and 19% respectively [13] Company Strategy and Development Direction - The company is focused on energy transition opportunities, estimating $100 million to $150 million annually in related business [36] - The Flowserve 2.0 operating model is expected to be fully embedded by the end of the year, aiming for continuous improvement and margin expansion [45][47] - The company anticipates a return to growth and margin expansion in 2022 [34] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in restoring bookings to pre-pandemic levels, driven by increased customer spending as economies recover from COVID-19 [7][8] - The Delta variant poses challenges, but management does not foresee a negative impact on business growth outlook [11] - The company expects to see significant bookings growth in the next two quarters compared to 2020 [16] Other Important Information - The company experienced significant disruption in Indian operations but has seen improvements, currently operating at about 80% associate participation [12] - The company is committed to delivering free cash flow conversion in excess of 100% of net income for the second consecutive year [29] Q&A Session Summary Question: Will the backlog continue to build and potentially exceed $2 billion? - Management expects to continue building backlog and anticipates a higher backlog at the end of the year compared to last year [49] Question: Can you provide more details on the margin impacts this quarter? - The largest impact on margins was due to foreign exchange movements and the return of certain temporary cost benefits from 2020 [50][51] Question: How is the company managing price costs? - The company is experiencing inflation on costs, particularly in motors, electronics, and logistics, and has announced price increases to mitigate these impacts [56][57] Question: What indicators are being used to track the larger project funnel? - The company has seen a 25% increase in its project funnel compared to last year, supported by customer discussions and improved market conditions [62] Question: How is the Flowserve 2.0 program performing? - The program has been effective in driving growth in aftermarket and MRO business, returning to pre-pandemic levels [69]