Flowserve(FLS) - 2025 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Bookings grew 18% year-over-year to $1,200 million, while revenue increased by 5% [4] - Adjusted gross margins expanded by 80 basis points to 33.5%, and adjusted operating margins reached 12.8%, resulting in incremental margins of over 50% [4] - Adjusted earnings per share was $0.72, reflecting a nearly 25% increase compared to the previous year [4][20] Business Line Data and Key Metrics Changes - Aftermarket bookings reached a record of almost $690 million, marking the fourth consecutive quarter above $600 million [6] - Nuclear bookings exceeded $100 million for the third consecutive quarter, with power bookings up more than 45% year-over-year [7] - FPD segment saw bookings growth of 21% and adjusted operating margin of 17.7%, while FCD segment experienced bookings growth of 10% and sales growth of 14% [22][24] Market Data and Key Metrics Changes - The company reported strong asset utilization in large process industries, with maintenance spending continuing as expected [14] - April bookings remained healthy across run rate and aftermarket business, with limited project deferrals observed in select industries [15] - The backlog stood at $2,900 million, providing a level of certainty for future revenues [16] Company Strategy and Development Direction - The company is focused on navigating the current tariff environment while building on strong first-quarter results [5] - Emphasis on the 8020 program to reduce complexity and improve margins, with expectations of 200 basis points of margin expansion by 2027 [18] - The company is leveraging its global footprint to optimize work locations and mitigate tariff impacts [12] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ability to execute at a high level despite macroeconomic uncertainties [5] - The company is monitoring customer behavior closely, with expectations of continued capital spending unless the macro environment worsens [42] - Overall visibility into project pipelines remains strong, particularly in the nuclear sector, which provides long-term revenue assurance [90][92] Other Important Information - The company repurchased $53 million of shares year-to-date at an average cost of $45 per share, viewing its share price as undervalued [27] - Adjusted primary working capital as a percentage of sales increased to 29.8%, with expectations for significant improvement in cash flow and working capital efficiency [26] Q&A Session Summary Question: Sustainability of bookings and outlook for the second half - Management noted strong aftermarket bookings and a healthy project funnel, but acknowledged potential uncertainties due to tariffs and macroeconomic conditions [36][42] Question: Guidance for Q2 and impact of tariffs - Management indicated that Q2 results are expected to be similar or slightly better than Q1, with some mix headwinds anticipated [45][48] Question: Competitive footprint and pricing power - The company highlighted its regional manufacturing advantages and noted that pricing actions have been well-received, with expectations for continued pricing power [52][60] Question: Visibility into project pipeline and potential pushouts - Management confirmed strong visibility into project pipelines, particularly in nuclear, with limited signs of project pushouts at this time [88][90] Question: Mitigation of tariff impacts - The company plans to offset tariff impacts through pricing actions and supply chain repositioning, with expectations to mitigate the full $90 to $100 million impact [94][96]