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Why Is Flowserve (FLS) Up 3.9% Since Its Last Earnings Report?

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A month has gone by since the last earnings report for Flowserve Corporation (FLS - Free Report) . Shares have added about 3.9% in that time frame.

Will the recent positive trend continue leading up to its next earnings release, or is FLS 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 drivers.

Flowserve Q4 Earnings Miss Estimates, Revenues Fall Y/Y

Flowserve reported fourth-quarter 2017 adjusted earnings of 50 cents per share, missing the Zacks Consensus Estimate of 52 cents by 3.8%. Also, adjusted earnings were down 30.6% on a year-over-year basis, as the effect of a decline in revenues trickled down to the bottom line

On a reported basis, the company’s loss per share came in at 81 cents, and included $158 million of discrete and non-cash tax expenses related to the effect of the U.S. Tax Cuts and Jobs Act of 2017.

For full-year 2017, the company’s adjusted earnings per share came in at $1.36, down 37.9% year over year.

Quarter in Detail

Revenues fell 3.4% year over year to $1,034.1 million. However, the reported figure surpassed the Zacks Consensus Estimate of $1,031 million. Apart from lower sales across two of three segments, negative impact related to divested businesses dragged down revenues.

For full-year 2017, the company’s top line declined by 8.3% to $3,660.8 million compared with the year-ago tally.

In the fourth quarter, the company’s bookings totaled $985 million, up 8.5% year over year, partially offset by negative impact of divested businesses. After-market bookings totaled $464 million, up 3.9%. Overall improvement in bookings was backed by modest growth in bookings across all three segments.

Adjusted gross margin declined to 30.5%, compared with 33.2% in the year-ago quarter. Also, operating income of the company declined 17.2% from the year-ago period and came in at $85.5 million. Adjusted operating margin in the quarter was 9.8% compared with 13.2% in the prior-year period.

Segmental Details

Engineered Product Division revenues were down 9.6% year over year to $498.9 million in the reported quarter. However, bookings experienced an increase of 11.1% year over year to $485.5 million on account of stability in oil price levels.

Sales at the Industrial Product Division were down 1.8% year over year to $215.3 million. Meanwhile, bookings were up 9.1% to $205.8 million.

Flow Control Division sales recorded an increase of 8.3% year over year to $344.6 million driven by increase in bookings. At the segment bookings improved 3.3% year over year and came in at $314.1 million.

Balance Sheet & Cash Flow

Flowserve ended the quarter with cash and cash equivalents of $703.5 million compared with $367.2 million as of Dec 31, 2016. On Dec 31, 2017, the company’s long-term debt totaled $1,499.7 million, up from $1,485.3 million as of Dec 31, 2016.

The company’s net cash flow provided by operating activities came in at $311.1 million for the 12-month period (ended Dec 31, 2017), up from $240.5 million in the prior-year period.

2018 Outlook

Concurrent with the fourth-quarter 2017 results, Flowserve provided its 2018 outlook. The company expects adjusted earnings per share guidance to lie in the band of $1.50-$1.70. Revenues are anticipated to increase in the range of 3-6%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. There have been three revisions lower for the current quarter.

Flowserve Corporation Price and Consensus

 

Flowserve Corporation Price and Consensus | Flowserve Corporation Quote

VGM Scores

Currently, FLS has an average Growth Score of C, however its Momentum is doing a lot better with an A. 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.

Based on our scores, the stock is primarily suitable for momentum investors while also being suitable for those looking for value and to a lesser degree growth.

Outlook

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


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