• Bookings: Increased 18% to $1.2 billion.
• Revenue: Grew 5% to $1.1 billion.
• Adjusted Gross Margin: Expanded 180 basis points to 33.5%.
• Adjusted Operating Margin: Reached 12.8%, a 190 basis point increase.
• Adjusted Earnings Per Share (EPS): $0.72, up nearly 25% from the prior year.
• Book-to-Bill Ratio: 1.07 times.
• Aftermarket Bookings: Record of almost $690 million.
• Nuclear Bookings: Exceeded $100 million for the third consecutive quarter.
• Backlog: Stands at $2.9 billion.
• Cash from Operations: $50 million use of cash due to higher temporary working capital requirements.
• Share Repurchases: $53 million year-to-date at an average cost of $45 per share.
• 2025 Guidance: Reaffirmed with organic growth of 3% to 5% and adjusted EPS of $3.10 to $3.30.

• Warning! GuruFocus has detected 4 Warning Signs with LANC.

Release Date: April 30, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Flowserve Corp (NYSE:FLS) reported an 18% increase in bookings, reaching $1.2 billion, demonstrating strong demand for its products.
• The company achieved a 5% revenue growth and expanded adjusted gross margins by 180 basis points to 33.5%.
• Adjusted operating margins improved to 12.8%, with adjusted earnings per share increasing by nearly 25% to $0.72.
• Record aftermarket bookings of almost $690 million, marking the fourth consecutive quarter above $600 million, highlight the success of Flowserve's aftermarket business strategy.
• Flowserve's nuclear bookings exceeded $100 million for the third consecutive quarter, with power bookings up more than 45% year-over-year, indicating robust demand in critical industries.

Negative Points

• The current tariff environment introduces uncertainty, with an estimated annualized gross impact of $90 million to $100 million before mitigation.
• Macroeconomic uncertainties pose potential risks to Flowserve Corp (NYSE:FLS)'s outlook, particularly in the second half of 2025.
• The company faces challenges in managing the impact of tariffs on imported materials, such as castings and forgings, which are sourced from China, India, and Mexico.
• Flowserve Corp (NYSE:FLS) is experiencing limited project deferrals in select industries like mining and renewables, which could impact future bookings.
• The timing of tariff impacts and mitigating actions may lead to mismatched margins, particularly affecting the flow control side of the business more than pumps.

Q & A Highlights

Q: Can you discuss the sustainability of bookings and how you see the second half of the year shaping up? A: Scott Rowe, President & CEO, noted that Q1 bookings were strong, with $690 million in aftermarket bookings, the highest since his tenure. While a $50 million nuclear award won't repeat, the $600 million run rate is expected to continue. The project funnel remains healthy, with power, energy, and chemical sectors showing sequential growth. However, if the tariff environment persists, there could be a slowdown in the second half of 2025. Currently, the market remains stable, but uncertainty could impact future bookings.

Q: Regarding Q2 guidance, why is EPS expected to be similar or slightly better than Q1, given typical seasonality? A: Amy Schwetz, CFO, explained that the tariff impact is largely a second-half issue. Q1 saw strong revenue conversion, impacting the spread across quarters. Operational momentum, 80-20 benefits, and pricing actions provide positive tailwinds. Margins are expected to be similar to Q1, but mix headwinds are anticipated. Overall, earnings are expected to be weighted towards the second half of the year.

Q: How does Flowserve's competitive footprint and pricing power compare to peers, especially regarding tariffs? A: Scott Rowe highlighted that Flowserve's global manufacturing footprint is a competitive advantage, allowing regional production to mitigate tariff impacts. The company sources castings and forgings from China, India, and Mexico, similar to peers. Recent organizational changes have strengthened supply chain and operations, enhancing the ability to pivot and mitigate tariff impacts. Pricing actions have been taken to offset costs, with early indications suggesting alignment with peers.

Q: Can you elaborate on the ability to manage margins in the backlog, especially with tariff impacts? A: Scott Rowe stated that Flowserve has updated terms and conditions to allow repricing of backlog projects affected by tariffs. The company is aggressively pursuing change orders to adjust for cost impacts. For non-project work, general price increases are expected to offset tariff impacts. The company is confident in its ability to manage margins through these measures.

Q: How is the Mogas integration progressing, and what contribution is expected? A: Scott Rowe expressed excitement about Mogas, noting its differentiated product and strong aftermarket business. While project bookings were lighter, visibility for future orders is promising. The integration is ahead of schedule, with cost-out actions progressing well. Mogas is expected to be accretive to earnings in the first year, with synergies accelerating throughout 2025.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.