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Flowserve (FLS) Up 0.5% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Flowserve (FLS - Free Report) . Shares have added about 0.5% 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 catalysts.

Flowserve Q1 Earnings & Revenues Miss Estimates, Down Y/Y

Flowserve reported weaker-than-expected first-quarter 2022 results, wherein earnings and sales missed estimates by 66.7% and 4.5%, respectively.

In the reported quarter, the machinery company’s adjusted earnings were 7 cents per share, lagging the Zacks Consensus Estimate of 21 cents. The bottom line decreased 75% from the year-ago figure of 28 cents due to lower sales.

Revenue Details

In the first quarter, Flowserve’s sales were $821.1 million, reflecting a year-over-year decline of 4.2%. The metric was down 2% on a constant currency basis.

The company’s top line missed the Zacks Consensus Estimate of $859 million.

Aftermarket sales in the reported quarter were down 2.8% year over year (or down 0.4% on a constant-currency basis) to $437.9 million. Original equipment sales totaled $383.2 million, reflecting a decrease of 5.8% (or down 3.8% on a constant-currency basis).

Bookings totaled $1.09 billion in the quarter, reflecting an increase of 14.9% (or 17.6% on a constant-currency basis) from the year-ago quarter. Backlog at the end of the reported quarter was $2.23 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 $575.6 million, decreasing 4.5% year over year or 2.1% on a constant-currency basis. Bookings rose 21.7% to $795.6 million.

Revenues from the Flow Control Division were $247.9 million, decreasing 3.1% year over year or 1.2% on a constant-currency basis. Bookings of $294.3 million increased 0.1%.

Margin Profile

In the first quarter, Flowserve’s cost of sales increased 0.8% year over year to $611.4 million. It represented 74.5% of sales compared with 70.7% in the year-ago quarter. Gross profit decreased 16.4% to $209.6 million, and margin contracted 120 basis points (bps) to 25.5%. Selling, general and administrative expenses were $206.1 million, up 3.9% year over year. It represented 25.1% of sales.

Adjusted operating income in the quarter decreased 61% year over year to $27.2 million. Adjusted operating margin fell 480 bps to 3.3%. Net interest and other expenses (adjusted) declined 32.2% to $12.2 million. Effective tax rate was 22.2% compared with 23.2% in the year-ago quarter.

Balance Sheet and Cash Flow

Exiting the first quarter, Flowserve had cash and cash equivalents of $575.8 million, down from $658.5 million at the previous quarter-end. Long-term debt was $1,251.6 million, down 0.8% on a sequential basis.

In the first three months of 2022, it used net cash of $26.8 million from operating activities versus $36.4 million generated in the year-ago period. Capital expenditure in the period totaled $14.1 million, increasing 23.7% from $11.4 million spent a year ago.

During the first three months of the year, the company used $26.1 million for distributing dividends and refrained from repurchasing shares.

Outlook

For 2022, the company expects revenues to grow 5-7% year over year compared with a rise of 7-9% guided earlier. It predicts adjusted earnings per share in the range of $1.50-$1.70, lower than $1.70-$1.90 estimated previously. For the year, the adjusted tax rate is expected to be 20-22%.

For the year, its interest expense (net) is anticipated to be $45-$50 million, while capital expenditures are likely to be $60-$70 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

The consensus estimate has shifted -40.7% due to these changes.

VGM Scores

At this time, Flowserve has a poor Growth Score of F, a grade with the same score on the momentum front. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. 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. Notably, Flowserve has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

Flowserve belongs to the Zacks Manufacturing - General Industrial industry. Another stock from the same industry, Idex (IEX - Free Report) , has gained 0.2% over the past month. More than a month has passed since the company reported results for the quarter ended March 2022.

Idex reported revenues of $751.1 million in the last reported quarter, representing a year-over-year change of +15.2%. EPS of $1.96 for the same period compares with $1.51 a year ago.

Idex is expected to post earnings of $1.90 per share for the current quarter, representing a year-over-year change of +18%. Over the last 30 days, the Zacks Consensus Estimate has changed +2%.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #2 (Buy) for Idex. Also, the stock has a VGM Score of C.


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