Flowserve Corporation (FLS) Earnings & Analysis

Latest quarter

Flowserve reported third-quarter revenue of $1.24 billion, approximately matching the consensus. Adjusted earnings per share of $1.07 beat the consensus estimate of $0.98.

The company’s filing says sales rose 5.4% from a year earlier, driven by aftermarket sales. Aftermarket work accounted for approximately 56% of sales, compared with approximately 53% a year earlier. CFO Brian Ezzell said aftermarket sales grew 12%, while original equipment sales declined 2% as the growing order backlog awaited conversion to revenue.

Gross margin rose to 33.5% from 32.4%; the filing attributes the increase primarily to operational and portfolio programs, partly offset by costs including acquisition-related amortization and Middle East disruption. Operating margin rose to 12.5% from 6.75%.

Diluted earnings per share fell to $0.84 from $1.67. The filing says other income declined primarily because the prior-year quarter included a $266.0 million payment related to a terminated merger. Free cash flow was $126.8 million, compared with $384.9 million a year earlier.

Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.

What management said on the call

CEO Scott Rowe said demand for both aftermarket services and original equipment contributed to a 14% year-over-year rise in bookings to $1.4 billion. Aftermarket bookings increased 11% to $728 million, while original equipment bookings grew 17% to $656 million. He pointed to power and nuclear projects, as well as an energy award, among the sources of equipment demand.

Rowe said customers were deferring noncritical maintenance and larger turnarounds as process facilities operated at high utilization. In the Q&A, he said Flowserve was seeing slower demand for routine parts and services but continued demand for replacement equipment. He said the company was improving account management, quoting speed and delivery responsiveness to capture more work from its installed base.

The Middle East created a roughly $40 million sales headwind in the quarter, Rowe said, and conditions worsened in October. He said customer site access and equipment acceptance would continue to affect deliveries and service work, while a few projects had shifted into 2027. Asked about the region’s outlook, he said repair and infrastructure-resilience opportunities depended on hostilities easing and customer access; he could not yet quantify the repair work because the company needed to assess sites.

CFO Brian Ezzell said adjusted operating margin reached 16.5%, helped by aftermarket mix, portfolio actions and operational execution, partly offset by higher selling and administrative costs. Responding to a question about the Flow Control Division, he said facility actions and Trillium integration synergies should help its margins. He also said a greater mix of nuclear work had lengthened backlog conversion, though he did not expect a major change in the proportion converting over the following year.

On pricing, Rowe said teams were tracking supplier costs and adjusting prices when costs rose. For the fourth quarter, Ezzell said backlog conversion, aftermarket demand and Trillium would support sales growth, partly offset by lower Middle East book-and-ship activity.

Guidance

Flowserve revised its FY2026 organic sales outlook to a decline of 1.5% to 2.5%, from a decline of about 1% previously, citing Middle East conditions. It now expects total sales growth of 2% to 3%, compared with approximately +3% in its previous outlook.

The company raised the lower end of its adjusted EPS guidance to $4.10 to $4.20. Ezzell also said Flowserve now expects full-year free cash flow conversion of approximately 80% of adjusted net earnings, citing delayed Middle East shipments and slower collections. The company revised expected capital expenditures to approximately $90 million.