Flowserve(FLS) - 2024 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported sales of $1.1 billion, reflecting a year-over-year growth of 3.5% [11] - Adjusted EPS for the third quarter was$ 0.62, a 24% increase compared to the previous year [11] - Cash from operations reached $178 million, driven by working capital efficiency and earnings improvements [11][42] - Adjusted operating margin expanded by 240 basis points year-over-year to 11.1% [38] Business Line Data and Key Metrics Changes - The company achieved strong aftermarket bookings of approximately$ 615 million, marking two consecutive quarters above the $600 million level [20] - Original equipment and aftermarket work each represented about half of total bookings, with original equipment awards contributing approximately$ 130 million [19] - FPD segment delivered an adjusted operating margin of 16.4%, a 410 basis point improvement year-over-year [40] - FCD segment's adjusted operating margin was 14%, showing a 60 basis point sequential improvement [41] Market Data and Key Metrics Changes - Bookings in the oil and gas sector increased by 7% to nearly $455 million, driven by activity in the Middle East [21] - Power bookings rose nearly 30% to$ 155 million in the quarter, with year-to-date growth at 23% [22] - Nuclear activity saw over $100 million in bookings, supported by life extensions and new capacity being built [25] Company Strategy and Development Direction - The company is focused on its 3D growth strategy, which emphasizes diversification and decarbonization, contributing to 34% of total bookings [17][48] - The acquisition of MOGAS Industries is expected to enhance the company's offerings and support long-term value creation [15] - A portfolio excellence program has been launched to optimize product offerings and improve customer service, targeting a margin improvement of 100 to 200 basis points by 2027 [13][14] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the power markets and the potential for significant growth in global power demand over the next decade [24][27] - The company anticipates continued strength in the aftermarket business and a healthy project pipeline, particularly in the Middle East [60][62] - Management reaffirmed full-year guidance metrics, expecting adjusted earnings per share to be between$ 2.60 and $2.75 [31] Other Important Information - The company completed the acquisition of MOGAS Industries, which is expected to provide$ 15 million in cost synergies by the end of year two [16][45] - The cash conversion cycle improved by nine days year-over-year, indicating enhanced working capital efficiency [42][81] Q&A Session Summary Question: Insights on bookings and market conditions - Management noted that the aftermarket business remains healthy, with strong utilization rates in process industries and robust project activity in the Middle East [56][60] Question: Q4 EPS guidance and revenue ramp - Management indicated that the revenue ramp in Q4 is expected to be smaller than in previous years, primarily due to improved conversion rates and strength in the aftermarket business [63][64] Question: Portfolio excellence program and margin targets - Management confirmed the launch of a formal portfolio excellence program, expecting to see early results and reaffirming the target of 100 to 200 basis points margin improvement by 2027 [69][72] Question: Free cash flow and operational changes - Management highlighted improvements in cash conversion and inventory processes, indicating a structural change that could lead to higher free cash flow conversion rates in the future [78][82] Question: Importance of selectivity in bookings - Management emphasized the importance of being selective in project awards to ensure long-term profitability and aftermarket entitlement [86]