Yahoo Finance Flowserve's (NYSE:FLS) Q2: Beats On Revenue
Flow control equipment manufacturer Flowserve (NYSE:FLS) reported results ahead of analysts' expectations in Q2 CY2024, with revenue up 7.1% year on year to $1.16 billion. It made a GAAP profit of $0.55 per share, improving from its profit of $0.39 per share in the same quarter last year.
Is now the time to buy Flowserve? Find out in our full research report.
Flowserve (FLS) Q2 CY2024 Highlights:
Revenue: $1.16 billion vs analyst estimates of $1.13 billion (2.4% beat)
Operating profit: $121.3 million vs analyst estimates of $123.9 million (2.1% miss)
EPS: $0.55 vs analyst expectations of $0.62 (11.9% miss)
Gross Margin (GAAP): 31.6%, up from 30.3% in the same quarter last year
Free Cash Flow was -$27.46 million, down from $48.65 million in the previous quarter
Backlog: $2.68 billion at quarter end
Market Capitalization: $6.67 billion
Manufacturing the largest pump ever built for nuclear power generation, Flowserve (NYSE:FLS) manufactures and sells flow control equipment for various industries.
Gas and Liquid Handling
Gas and liquid handling companies possess the technical know-how and specialized equipment to handle valuable (and sometimes dangerous) substances. Lately, water conservation and carbon capture–which requires hydrogen and other gasses as well as specialized infrastructure–have been trending up, creating new demand for products such as filters, pumps, and valves. On the other hand, gas and liquid handling companies are at the whim of economic cycles. Consumer spending and interest rates, for example, can greatly impact the industrial production that drives demand for these companies’ offerings.
Sales Growth
Examining a company's long-term performance can provide clues about its business quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Unfortunately, Flowserve's 3.4% annualized revenue growth over the last five years was sluggish. This shows it failed to expand in any major way and is a rough starting point for our analysis.
We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Flowserve's annualized revenue growth of 13.6% over the last two years is above its five-year trend, suggesting its demand recently accelerated.
This quarter, Flowserve reported solid year-on-year revenue growth of 7.1%, and its $1.16 billion of revenue outperformed Wall Street's estimates by 2.4%. Looking ahead, Wall Street expects sales to grow 3.3% over the next 12 months, a deceleration from this quarter.
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Operating Margin
Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses–everything from the cost of goods sold to advertising and wages. It's also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.
Flowserve was profitable over the last five years but held back by its large expense base. It demonstrated mediocre profitability for an industrials business, producing an average operating margin of 7.7%.
On the bright side, Flowserve's annual operating margin rose by 2.1 percentage points over the last five years
In Q2, Flowserve generated an operating profit margin of 10.5%, up 1.5 percentage points year on year. This increase was encouraging, and since the company's operating margin rose more than its gross margin, we can infer it was recently more efficient with expenses such as sales, marketing, R&D, and administrative overhead.
EPS
We track the long-term growth in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company's growth was profitable.
Flowserve's unimpressive 4.2% annual EPS growth over the last five years aligns with its revenue performance. On the bright side, this tells us its incremental sales were profitable.
Like with revenue, we also analyze EPS over a shorter period to see if we are missing a change in the business. Flowserve's two-year annual EPS growth of 63% was fantastic and topped its 13.6% two-year revenue growth.
In Q2, Flowserve reported EPS at $0.55, up from $0.39 in the same quarter last year. Despite growing year on year, this print missed analysts' estimates. Over the next 12 months, Wall Street expects Flowserve to grow its earnings. Analysts are projecting its EPS of $1.93 in the last year to climb by 46.9% to $2.84.
Key Takeaways from Flowserve's Q2 Results
We enjoyed seeing Flowserve exceed analysts' revenue expectations this quarter. On the other hand, both its operating profit and EPS missed, showing worse-than-expected efficiency and profits on this revenue. Overall, this quarter could have been better. The stock traded down 3.7% to $49 immediately after reporting.
Flowserve may have had a tough quarter, but does that actually create an opportunity to invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.
