Release Date: February 19, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Q: Can you elaborate on the strategies that have driven the growth in aftermarket bookings? A: R. Scott Rowe, President and CEO, explained that aftermarket bookings reached $618 million in the quarter, marking several consecutive quarters above $600 million. This success is attributed to Flowserve's extensive installed base of pumps and valves, strong local presence, and customer relationships. The company focuses on reducing cycle times for quotes, parts delivery, and repairs, emphasizing high customer service levels. The macroeconomic backdrop, with high utilization rates of large plants globally, supports continued growth in aftermarket bookings.
Q: How does the 80/20 framework impact revenue, and why is there no expected revenue headwind from this initiative? A: R. Scott Rowe noted that the 80/20 initiative, called CORE for complexity reduction, aims to reduce business complexity. The initiative has led to a 10-15% SKU reduction in the first year for two business units. The resources from less profitable products are redirected to the best products and customers, resulting in negligible revenue impact for 2025. The initiative is expected to improve gross margins by 100 basis points in 2025 and contribute to a 200 basis point margin expansion by 2027.
Q: What gives you confidence in maintaining a book-to-bill ratio above 1.0 in 2025? A: R. Scott Rowe stated that the project funnel remains at an elevated level, with strong visibility into the project universe. While oil and gas is slightly down, power is up significantly, and general industry is strong. The company sees stable trends in end markets, with decarbonization and nuclear power projects providing growth opportunities. January's order rate was healthy, supporting confidence in achieving a book-to-bill ratio above 1.0.
Q: How do you plan to manage potential impacts from tariffs and geopolitical issues? A: R. Scott Rowe expressed confidence in Flowserve's ability to manage tariff impacts, having dealt with similar situations before. The company has visibility into its supply chain and product line impacts, allowing for quick actions like repositioning the supply chain and adjusting prices. With two-thirds of revenue outside the US and significant US manufacturing presence, the impact is more on the supply chain than finished goods. The company is prepared to handle moderate impacts from tariffs.
Q: What is the expected impact of the 80/20 initiative and commercial excellence program on margins by 2027? A: Amy Schwetz, CFO, explained that the 80/20 initiative is expected to contribute 200 basis points to margin expansion by 2027, with operational excellence adding another 200 basis points. The company is confident in achieving these targets, with operational excellence already showing progress, particularly in the FPD segment. The top end of the range for operating income is expected to come from volume leverage.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
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