It has been about a month since the last earnings report for Flowserve (
FLS Quick Quote FLS - Free Report) . Shares have added about 3.2% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Flowserve due for a pullback? 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 drivers.
Flowserve Q1 Earnings & Revenues Surpass Estimates
Flowserve reported better-than-expected first-quarter 2021 results, with earnings beating estimates by 40%. Also, quarterly sales surpassed estimates by 5.3%.
The machinery company’s adjusted earnings in the reported quarter were 28 cents per share, beating the Zacks Consensus Estimate of 20 cents. Further, the bottom line increased 33.3% from the year-ago figure of 21 cents, backed by lower cost and expenses. Revenue Details
In the quarter under review, Flowserve’s sales were $857.3 million, reflecting a year-over-year decline of 4.1%. Movement in foreign currencies had a positive impact of 2.9 percentage points on sales.
Notably, the company’s top line surpassed the Zacks Consensus Estimate of $814 million. Aftermarket sales in the reported quarter were up 1.9% year over year (or down 0.9% on a constant-currency basis) to $450.4 million. Furthermore, original equipment sales totaled $406.9 million, reflecting a year-over-year decrease of 9.9% (or 13.1% on a constant-currency basis). Bookings totaled $945 million in the quarter, reflecting a decline of 3.3% (or 6% on a constant-currency basis) from the year-ago quarter. 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 $602.6 million, decreasing 5.2% year over year or 8.1% on a constant-currency basis. Bookings fell 4.6% year over year to $653.8 million. Revenues from the Flow Control Division were $255.8 million, declining 1.4% year over year or 4.6% on a constant-currency basis. Bookings of $294 million also declined 0.8% year over year. Margin Profile
In the quarter under review, Flowserve’s adjusted cost of sales decreased 3.3% year over year to $606.4 million. It represented 70.7% of sales compared with 70.2% in the year-ago quarter. Gross profit decreased 5.9% to $250.9 million, and margin fell 50 basis points (bps) to 29.3%. Selling, general and administrative expenses fell 19.2% year over year to $198.3 million. It represented 23.1% of sales.
Operating income in the quarter under review increased 131.8% year over year to $56.1 million. Adjusted operating margin also increased 250 bps to 8.1%. Net interest and other expenses jumped 34.3% to $18 million. Effective tax rate was 23.2% versus 24.6% in the year-ago quarter. Balance Sheet and Cash Flow
Exiting the first quarter of 2021, Flowserve had cash and cash equivalents of $659.3 million, down 39.8% from $1,095.3 million at previous quarter-end. Long-term debt declined 23.9% sequentially to $1,307.6 million.
In the first three months of 2021, it generated net cash of $36.4 million from operating activities, down 23.4% from the previous year. Capital expenditure for the period totaled $11.4 million, decreasing 28.8% from $16 million spent in year-ago period. During the quarter, the company used $26.5 million for distributing dividends and $5.1 million for repurchasing shares. Outlook
Flowserve is progressing well with transformation initiatives. The multi-year Flowserve 2.0 strategy is likely to help the company simplify the operating model and spur growth. However, the lingering impacts of the pandemic might affect its operations and overall performance.
For 2021, the company anticipates revenues to decline 3-5% year over year. It predicts adjusted earnings per share in the $1.40-$1.60 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, estimates review flatlined during the past month.
At this time, Flowserve has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Charting a somewhat similar path, 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.
Flowserve has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.