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Flowserve (FLS) Up 5.8% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Flowserve (FLS - Free Report) . Shares have added about 5.8% 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 its most recent earnings report in order to get a better handle on the important catalysts.

Flowserve Q4 Earnings & Revenues Top Estimates, Up Y/Y

Flowserve’s fourth-quarter 2023 adjusted earnings (excluding 21 cents from non-recurring items) of 68 cents per share beat the Zacks Consensus Estimate of 61 cents. The bottom line increased 7.9% year over year. Results were primarily benefited from higher revenues, partially offset by an increase in operating costs and expenses.

Flowserve’s total sales of $1,165.2 million beat the consensus estimate of $1,136 million. The top line increased 12.1% year over year. Sales increased 10.1% on a constant-currency basis.

Aftermarket sales in the reported quarter increased 9.3% year over year (up 7.2% on a constant-currency basis) to $589.1 million. Original equipment sales totaled $576.1 million, reflecting an increase of 15.3% (up 13.1% on a constant-currency basis).

Bookings totaled $1.04 billion in the quarter, reflecting a decrease of 5.7% (down 7.1% on a constant-currency basis) from the year-ago quarter. The backlog at the end of the reported quarter was $2.70 billion, down 1.5% year over year.

Segmental Details

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 segment were $832.8 million, up 12.6% year over year. Bookings decreased 8.1% to $722.2 million. Segmental operating income was $93.5 million for the quarter, up 3.1% year over year.

Revenues from the Flow Control Division segment were $336 million, up 11.3% year over year. Bookings of $326.9 million increased 0.6%. The segment’s operating income was $49.8 million for the quarter, up 30.7% year over year. Our estimate for the same was $40 million.

Margin Profile

In the fourth quarter, Flowserve’s cost of sales increased 11% year over year to $825.6 million. Gross profit increased 15% to $339.5 million and the margin increased 70 basis points (bps) to 29.1%. Selling, general and administrative expenses were $234.7 million, up 21.2% year over year.

Operating income in the quarter increased 4% year over year to $109.5 million. The adjusted operating margin came in at 10.5%, down 30 bps year over year. The effective tax rate was 7.8% in the quarter.

Balance Sheet and Cash Flow

Exiting the fourth quarter, Flowserve had cash and cash equivalents of $545.7 million compared with $435 million at the end of December 2022. Long-term debt (due after one year) was $1.17 billion compared with $1.22 billion at the end of December 2022.

In 2023, the company generated net cash of $325.8 million from operating activities against $40 million used in the year-ago period. Capital expenditure in the year totaled $67.4 million, down 11.7% from the previous year.

During the same period, the company used $105 million for distributing dividends.

2024 Guidance

Flowserve expects a 4-6% year-over-year increase in revenues. The company anticipates earnings per share (on a reported basis) to be between $2.25 and $2.45. Adjusted earnings per share are estimated in the $2.40-$2.60 band.

The adjusted tax rate is projected to be approximately 20%. The company forecasts net interest expense and capital expenditure to be $60-$65 million and $75-$85 million, respectively.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month.

VGM Scores

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 second quintile 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.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions has been net zero. 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 is part of the Zacks Manufacturing - General Industrial industry. Over the past month, RBC Bearings (RBC - Free Report) , a stock from the same industry, has gained 0.2%. The company reported its results for the quarter ended December 2023 more than a month ago.

RBC Bearings reported revenues of $373.91 million in the last reported quarter, representing a year-over-year change of +6.3%. EPS of $1.85 for the same period compares with $1.64 a year ago.

For the current quarter, RBC Bearings is expected to post earnings of $2.37 per share, indicating a change of +11.3% from the year-ago quarter. The Zacks Consensus Estimate remained unchanged over the last 30 days.

RBC Bearings has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of D.


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