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Flowserve (FLS) to Report Q1 Earnings: Will it Disappoint?

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Flowserve Corporation (FLS - Free Report) is set to report first-quarter 2019 results on May 2, after market close.

In the last reported quarter, the company posted earnings of 58 cents, which came in line with the Zacks Consensus Estimate. Overall, Flowserve delivered average negative surprise of 4.66% in the trailing four quarters with one beat, one miss and in two in-line results.

In the past three months, the company’s shares have gained 12.6%, underperforming the industry growth of 15.5%.

Let’s see how things are shaping up for this announcement.

Factors to Consider

Flowserve is facing dearth of projects opportunities, particularly in the power end markets, evident from its low bookings in Asia and Western markets. Notably, of late, opportunities in fossil power projects in Asia remains competitive, while Western nuclear projects are limited. Hence, this is a matter of concern for the company. In addition, absence of significant project awards in the water industry might prove detrimental to its top line in the first quarter.

Although Flowserve's realignment plan will benefit it in long run, currently it is increasing expenses. We believe high restructuring costs will weigh on first-quarter earnings. Also, pricing pressure is likely to be a major drag on the company's revenue performance. In addition, huge debt levels can be detrimental to its financials. Further, divested businesses might have an adverse impact on first-quarter sales.

Flowserve, which generates more than half of its net sales from overseas operations, remains vulnerable to uncertainty in the broader macro environment. Factors including currency rates and market volatility might put pressure on both top- and bottom-line performance in the first quarter. Particularly, the company expects the currency headwinds to weigh on its profitability.

However, the company’s investments in distribution channel and other industrial opportunities, as well as product development are likely to prove conducive to its profitability. Notably, the Zacks Consensus Estimate for first-quarter revenues of the company’s Engineered Product Division segment is pegged at $487 million, reflecting growth of 4.1% year over year. Revenues estimates from Industrial Product Division segment are currently standing at $187 million compared with the reported figure of $198 million in the prior-year quarter. Also, revenues from the company’s Flow Control Division segment is expected to be $285 million compared with the reported figure of $277 million in the year-ago quarter and $326 million in the previous quarter.

Earnings Whispers

Our proven model does not conclusively show an earnings beat for Flowserve in the to-be-reported quarter. This is because 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. But that is not the case here as you will see below.

Zacks ESP: Flowserve has an Earnings ESP of -5.33%, as the Most Accurate Estimate of 32 cents is pegged lower than the Zacks Consensus Estimate of 34 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 #4 (Sell).

As it is, we caution against Sell-rated stocks (Zacks Rank #4 or 5) going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Key Picks

Here are some companies in the Zacks Industrial Products sector that you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:

DXP Enterprises, Inc. (DXPE - Free Report) has an Earnings ESP of +2.50% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Dover Corporation (DOV - Free Report) has an Earnings ESP of +0.29% and a Zacks Rank #2.

Colfax Corporation (CFX - Free Report) has an Earnings ESP of +2.27% and a Zacks Rank #3.

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