A month has gone by since the last earnings report for Flowserve (FLS Quick QuoteFLS - Free Report) . Shares have lost about 2.4% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Flowserve due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Flowserve Q4 Earnings Lag Estimates, 2021 View Weak

Flowserve reported weaker-than-expected results for the fourth quarter of 2020, with earnings lagging estimates by 3.6%. However, quarterly sales surpassed estimates by 2.8%.

The machinery company’s adjusted earnings for the reported quarter were 53 cents per share, lagging the Zacks Consensus Estimate of 55 cents. Further, the bottom line decreased 17.2% from the year-ago figure of 64 cents due to weak sales generation and margins.

For 2020, its adjusted earnings were $1.74 per share, declining 16.3% year over year and lagging the Zacks Consensus Estimate of $1.79.

Revenue Details

For the quarter under review, Flowserve’s sales were $985.3 million, reflecting a year-over-year decline of 7.8%. Notably, unfavorable movement in foreign currencies had a positive impact of 1.1 percentage points on sales.

However, the company’s revenues surpassed the Zacks Consensus Estimate of $958.6 million.

Aftermarket sales for the reported quarter were down 8.4% year over year (or 9.3% on a constant-currency basis) to $478.4 million. Furthermore, original equipment sales totaled $506.9 million, reflecting a year-over-year decrease of 7.1% (or 9.4% on a constant-currency basis).

Bookings totaled $825.1 million for the quarter, reflecting a decline of 21.6% (or 22.7% on a constant-currency basis) from the year-ago quarter. Of the end markets, booking decreased in oil & gas and general industries. Backlog at the end of the reported quarter was $1.9 billion.

The company currently has two reportable segments — Flowserve Pump Division and Flow Control Division. A brief discussion of the segments is provided below:

Revenues from the Flowserve Pump Division were $695.7 million, decreasing 5.9% year over year or 7.4% on a constant-currency basis. Bookings fell 25.1% year over year to $566.5 million.

Revenues from the Flow Control Division were $290.7 million, declining 12% year over year or 12.3% on a constant-currency basis. Bookings of $258.4 million also declined 13.5% year over year.

For 2020, the company’s revenues were $3.7 billion, down 5.4% year over year. However, the top line was in line with the Zacks Consensus Estimate.

Margin Profile

For the quarter under review, Flowserve’s adjusted cost of sales decreased 4.3% year over year to $683.2 million. It represented 69.3% of sales compared with 66.8% in the year-ago quarter. Adjusted gross profit decreased 14.7% year over year to $302.1 million, while margin fell 250 basis points (bps) to 30.7%. Selling, general and administrative expenses fell 17.2% year over year to $192.9 million. It represented 11.3% of sales.

Adjusted operating income for the quarter under review decreased 9.6% year over year to $111.8 million. Adjusted operating margin also fell 30 bps to 11.3%. Net interest and other expenses for the quarter grew 47.1% year over year to $18.9 million. Effective tax rate was 21% versus 22.2% in the year-ago quarter.

Balance Sheet and Cash Flow

Exiting the fourth quarter of 2020, Flowserve had cash and cash equivalents of $1,095.3 million, up 18.9% from $921.2 million at third quarter-end. Long-term debt grew 1% sequentially to $1,717.9 million.

In 2020, it generated net cash of $310.5 million from operating activities, down 4.2% from the previous year. Capital expenditure for the period totaled $57.4 million, decreasing 24.2% from $75.7 million spent in 2019.

During the year, the company used $104.2 million for distributing dividends and $32.1 million for repurchasing shares.

Outlook

Flowserve is progressing well with transformation initiatives. The multi-year Flowserve 2.0 strategy will likely help the company simplify the operating model and spur growth. However, it is wary of the adverse impacts of the pandemic on operations and overall performance.

The company anticipates revenues to decline 4-7% year over year in 2021. It predicts adjusted earnings per share in the $1.30-$1.55 range. Net interest expense is expected within $55-$60 million and adjusted tax rate in the 22-24% range.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -20.4% due to these changes.

VGM Scores

Currently, Flowserve has a nice Growth Score of B, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Flowserve has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.