Flowserve(US:FLS)2023-05-02 21:25Financial Data and Key Metrics Changes - First quarter adjusted EPS was reported at $0.40, with year-over-year revenue growth of nearly 20% [9][40] - First quarter revenue increased over 22% year-over-year on a constant currency basis [13] - Adjusted gross margin increased 370 basis points to 30.4% [14] - First quarter adjusted operating margin increased 500 basis points to 8.3% [15] - Book-to-bill ratio was 1.08, with backlog increasing to $2.8 billion, the strongest since 2014 [37][39] Business Line Data and Key Metrics Changes - MRO and Aftermarket bookings were close to record levels, driven by strong growth in FCD and seals business [5] - FPD contributed to OE and Aftermarket growth of 29% and 22% respectively, while FCD delivered growth of 18% and 11% [13] - Revenue from OE and aftermarket increased over 20% compared to the prior year [13] Market Data and Key Metrics Changes - Revenue growth was notable in the Middle East and Africa (up 58%) and Latin America (up 37%), while other regions saw mid to high teens growth [41] - Chemical and general industries markets saw 11% constant currency bookings growth, while power and oil and gas markets were down 32% and 4% respectively [38] Company Strategy and Development Direction - The company is focused on a 3D strategy of diversification, decarbonization, and digitization, with expectations for continued growth in these areas [22] - Significant investment in energy security and decarbonization is driving project activity, with a project funnel at its highest level since 2019 [10] - The company anticipates replacing lower margin project work with higher margin business, benefiting from price increases [11] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's positioning for 2023 and beyond, citing healthy end markets and solid bookings [10] - The operational environment is improving, with better supply chain stability and logistics [55] - Management expects revenue growth in the 10% to 12% range for the year, with adjusted EPS guidance increased to $1.65 to $1.85 [45][46] Other Important Information - The Velan acquisition is progressing well, with expectations for $20 million in annualized cost synergies by the end of the first year [21] - The company is actively working on decarbonization projects, including a large-scale direct air carbon capture project in Texas [23] Q&A Session Summary Question: How should we think about seasonality and throughput for the rest of the year? - Management indicated that the strong first quarter performance does not create a drag on revenue for the rest of the year, with expectations for Q2 and Q3 to resemble Q1 [54][55] Question: Can you discuss the visibility to your project funnel? - Management noted that the project funnel is at record levels, allowing for selectivity in project acceptance, which is expected to enhance margins [59] Question: What is the outlook for margin improvement? - Management confirmed that margins in backlog are improving, with expectations for better margins as lower margin projects from previous years roll off [64] Question: How does deal size impact margins? - Management explained that larger awards typically have lower margins, while smaller projects tend to yield better margins, contributing positively to the overall margin mix [92][102] Question: What is the company's approach to project selection? - Management emphasized a disciplined approach to project selection, ensuring that only projects meeting margin thresholds are accepted [88][100]