Flowserve Corporation just released its fourth-quarter 2023 adjusted earnings, beating the Zacks Consensus Estimate and impressively increasing 7.9% from the previous year. The company reported earnings of 68 cents per share (excluding 21 cents from non-recurring items), surpassing the estimate of 61 cents. The significant bottom line improvement was primarily driven by higher revenues, although this was partially offset by an increase in operating costs and expenses.
Flowserve’s total sales of $1,165.2 million also outperformed market expectations of $1,136 million, reflecting an impressive 12.1% increase from the previous year. When analyzed on a constant-currency basis, sales saw a solid 10.1% surge, illustrating substantial growth.
Aftermarket sales for the quarter grew by 9.3% year over year, reaching $589.1 million (7.2% increase on a constant-currency basis), while original equipment sales stood at $576.1 million, marking a growth of 15.3% from the previous year (13.1% increase on a constant-currency basis).
However, new bookings totaled $1.04 billion, reflecting a decrease of 5.7% (down 7.1% on a constant-currency basis) from the year-ago quarter. Furthermore, the backlog at the end of the reported quarter stood at $2.70 billion, down 1.5% year over year.
Segmental Performance
Flowserve currently operates two segments, the Flowserve Pump Division and Flow Control Division, both of which performed impressively in the quarter. Revenues from the Flowserve Pump Division increased by 12.6% year over year to reach $832.8 million, beating the estimated revenue of $802 million. The segment’s bookings decreased by 8.1% to $722.2 million, while its operating income for the quarter saw a 3.1% increase year over year, reaching $93.5 million.
Meanwhile, the Flow Control Division segment’s revenues grew by 11.3% year over year, standing at $336 million. This exceeded the estimated segmental revenues of $331.1 million. Additionally, its bookings of $326.9 million increased by 0.6%, with the segment’s operating income soaring by 30.7% to reach $49.8 million for the quarter, outperforming estimates of $40 million.
Margin Profile and Financials
In the fourth quarter, Flowserve’s cost of sales increased by 11% year over year to $825.6 million, resulting in a 15% increase in gross profit to $339.5 million, with a margin increase of 70 basis points (bps) to 29.1%. The company also reported a 21.2% increase in selling, general, and administrative expenses, amounting to $234.7 million.
Moreover, operating income for the quarter grew by 4% year over year to $109.5 million, while the adjusted operating margin came in at 10.5%, a decrease of 30 bps year over year. Additionally, the effective tax rate was reported at 7.8% for the quarter.
Cash Flow and Future Projections
Exiting the fourth quarter, Flowserve reported cash and cash equivalents of $545.7 million, compared with $435 million at the end of December 2022. The company’s long-term debt was $1.17 billion, down from $1.22 billion at the end of December 2022.
Looking ahead, Flowserve projects a 4-6% year-over-year increase in revenues for 2024. The company anticipates earnings per share (on a reported basis) to be between $2.25 and $2.45, with adjusted earnings per share estimated to fall within the $2.40-$2.60 range. Additionally, Flowserve expects the adjusted tax rate to be approximately 20%, with net interest expense and capital expenditure estimated to range between $60-$65 million and $75-$85 million, respectively.
Zacks Rank & Other Key Picks
Notably, Flowserve currently holds a Zacks Rank #2 (Buy), exuding confidence in the company’s potential for growth. Additionally, the industrial sector contains other promising picks, including Parker-Hannifin Corporation, Applied Industrial Technologies Inc., and Tetra Tech Inc., each with a Zacks Rank of 2 and exhibiting solid performances, suggesting positive industry sentiments.
Flowserve’s exceptional Q4 performance underscores the company’s commitment to sustained growth and innovation. With optimistic projections for 2024 and a strong showing in various segments, the company has set a promising trajectory for future growth with solid earnings. Investors can confidently look forward to Flowserve’s continued success as it navigates through an evolving market landscape.
