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Flowserve (FLS) to Post Q3 Earnings: Is a Beat in the Cards?

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Flowserve Corporation (FLS - Free Report) is likely to report third-quarter 2018 results on Nov 7, after market close.

In the last reported quarter, the company posted earnings of 22 cents, which missed the Zacks Consensus Estimate by 35.3%. In the last four quarters Flowserve beat estimates once, missed twice and reported in-line results in one, the average negative surprise being 7.6%.

We expect the company to score an earnings beat in the third quarter as well.

Why a Likely Positive Surprise

Our proven model shows that Flowserve has the right combination of the two key ingredients to beat earnings. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is the case here as you will see below:

Earnings ESP: Flowserve has an Earnings ESP of +1.72% as the Most Accurate Estimate is pegged at 43 cents, higher than the Zacks Consensus Estimate of 42 cents.You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: The company carries a Zacks Rank #2, which when combined with a positive ESP, makes us reasonably confident of an earnings beat.

Conversely, we caution against stocks with a Zacks Ranks #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is witnessing negative estimate revisions.

Factors Driving Better-than-Expected Results

Flowserve believes that the prospects in its end markets are bright. The company expects the oil and gas industry to gain from rising maintenance and upgrade demand at refineries, expanding pre-FEED and FEED pipeline, and pickup in liquefied natural gas-related activities in North America. In the chemical market, the company stands to gain from improving demand spurring investments in ethylene and derivative facilities. In the general industries, rise in mining investments and higher distribution activities, as a result of growth in the global economy, have increased growth prospects for the company.

Also, Flowserve is currently undergoing a transformational realignment program to optimize its manufacturing platform and reduce costs. Notably, it is focusing on improving on-time delivery, reducing backlog, enhancing sales process and further leveraging on the supplier relationships. Going forward, the company’s multiyear program — Flowserve 2.0 — is expected to enhance its ability to effectively support its customers, create better workplace for employees as well as drive significant long-term value for its shareholders.

Moreover, the Zacks Consensus Estimate for third-quarter revenues from the company’s Engineered Product Division segment is pegged at $443 million, reflecting growth of 4.5% year over year. Also, revenues from its Flow Control Division segment is expected to be $299 million compared with $288 million reported in the year-ago quarter. On the other hand, revenues from Industrial Product Division segment is expected to be $190 million, flat year over year.

Further, Flowserve invests in distribution channel and other industrial opportunities as well as product development and enhancement, which ensure long-term growth. In addition, the company has consistently returned capital to shareholders in forms of share repurchases and dividends. As a matter of fact, in 2018, it intends to pay $100 million in dividends and use $80-$90 million in cash for capital expenditures.

Other Stocks to Consider

Here are some other companies that you may want to consider, as our model shows that these too have the right combination of elements to post an earnings beat this quarter:

Applied Industrial Technologies, Inc. (AIT - Free Report) has an Earnings ESP of +0.16% and a Zacks Rank #2.  You can see the complete list of today’s Zacks #1 Rank stocks here.

Parker-Hannifin Corporation (PH - Free Report) has an Earnings ESP of +2.75% and a Zacks Rank #3.

Chart Industries, Inc. (GTLS - Free Report) has an Earnings ESP of +2.40% and a Zacks Rank #3.

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