FLS - Earnings call transcript Q4 2017

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Operator

Welcome to the Flowserve 2017 Fourth Quarter Earnings Call. My name is Paulette, and I will be your operator for today's call. [Operator Instructions]. Please note that this conference is being recorded. I will now turn the call over to Jay Roueche, Vice President of Investor Relations and Treasurer. ahead. go Please

John Roueche

and in Paulette, quarter everyone. appreciate We full Thank call good today participating results. our XXXX fourth to you year you, financial morning, discuss and Flowserve's

Rowe, me Flowserve's and Joining Eckert, President Officer. Vice Chief Senior call the are Lee President Chief Executive on and Officer; Financial and Scott

Also a earnings will audio is event being do, and an Following we call call non-GAAP to the open our will, prepared our your measures. reminder, up will note be and this available. replay the materials comments, questions. that And as include webcast

adjusted You accordance can review metrics principles release the to accepted generally presentation. reported reconciliation in in of prepared earnings our press our and results accounting both our with

flowserve.com available We our the are management any in Chief like the call earnings statements. safe Rowe, forecasts, obligation available And President and all based other any the Officer, these information Finally, numerous of Scott statements which that as no and are forward-looking Flowserve's harbor to upon turn beyond the in yesterday's disclaims and company's law, section. Flowserve materials this Executive call you and Relations which I duty to would his associated are review expectations update disclosures fully to at our of contained website XX, including undertakes many comments. Investor and to encourage materials, our on risks prepared earnings now extent over to for involve applicable control. XXXX. February uncertainties, required These by to statements, contain except forward-looking

Robert Rowe

we of The committed is well pleased I you appreciate last new leadership joining Flowserve nine overall is months Thanks, call. XXXX. Jay, and We the everyone. and the with journey. progress the in good transformational am team to performing made morning, today's

the the XXXX, profitable our years. believe need that will positive, turned which into markets give coming look drive growth we served for have foundation forward us we As we to

unlocking a into comments earnings In results. for Flowserve that delivered Starting streamlined Flowserve our each our larger strategy priority April has comprehensive is and me our per company. on adjusted our focus Flowserve shortly, revenue and potential, Flowserve near-term period. X.X when a pleased through our and these. industry transforming at X.X% of priority year-over-year number achieve significant We envisioned and activity. first both even some of and operating X.X%, to of on last were Fourth and program are with and more more on of I end Our to generally to quarter of the one all short, were strong and it committed a $X.XX the line $XXX share but will quarterly simplified our of million, with functions are our results markets processes. opportunities let touches expectations. were bookings chemical today, joined that decline I provide sequentially capitalize better-than-expected on our first I believe business discuss general up which I XX.X% in on is we

proud both am divesting of the team. a quarter noncore I operating fourth of strong sales during two segment. They by performance XXXX. businesses with despite distraction our They our growth. to Turning growth this margin FCD achieved and delivered

up been true businesses. sold and bookings down reported a For the bookings sales on and basis, But X% year, X%, comparison up FCD's were the approximately excluding flat sales have were modestly. essentially would

IPD to has platform. the build cycle. XX.X% in Additionally, the contrast, FCD out trough By operating the and segment performed pressure is of margins the year delivered the both turnaround strong cycle, this and of organically will through well continued despite we adjusted still mode. invest in for inorganically

meaningful operating positive delivered improvement committed more we quarter, to the fourth adjusted remain progresses. in income we as While XXXX

exit rate team to making mid- XXXX our margin. David and be under high in of leadership progress operating digits Wilson continue for expect and health performance the the The platform. to for this taking new We the this adjusted improve actions to overall is single business to necessary

financial by of the quarter, by than encouraged somewhere bookings. bookings disappointing of in XXXX in equipment was and original for better segments. unit. two us, is performance business driven performance I IPD's this the EPD other stronger While the am possibilities were of expected middle The outlook the EPD

particularly the offset struggled decline. business in business, margins American Latin one of sales increase point to segment both number longer-cycle completed This facility activities in in XXXX, equipment this basis profitability. and mix, a in our a execute majority original there The our partially in of to continues of plan. fourth backlog in replenish and due realignment and levels we will well aftermarket bookings I our additional to rationalization see the quarter EPD but we these were space. We within our As substantial original during XXX our represents a needed sequential realignment a OE the segment, as project manufacturing perform our believe locations. activity expectations, help OE also year work, XXXX large for improvement room profitability this equipment underperformed which the we in conclude to is

we as XX project detail, the investment our in XXXX short-cycle and and more progresses. turned last that of in markets FIDs end to bookings days, the would FIDs Before have expect cycle most we served discussing increase in believe I markets both in favorable our highlight and

price relatively conditions the customers early to through levels, spending some improved stable levels. reform, tax factors their supporting the higher recently our and this directly either quantify at While or public it's passed still oil U.S. environment, are the point, the increased saying, expected means, regulatory that at are opportunity of improving macro a

point this So reached we encouraged having of prospects are at the an cycle. inflection in

for quarter. the Now moving our to bookings

$XX a projects, $X which the were to to but X.X%. expected, base we any of award bookings was million, the $X business. year-over-year higher did largest by our not produce million quarter of Our in obtain combined book large solid foundational than The million growth did And or driven we projects period. in number

pleased we With bookings, are versus the X% order nearly modest backlog Additionally, discipline we growth. this foundation XXXX for Aftermarket bookings XXXX. year-over-year in a our the our in pricing grew of growth quarter. quality and with continue levels, continued improve level around total with year-end providing quarter, with stronger fourth to order selectivity, the us and sequential and resiliency in

upgrades. now, some rolling years deferrals level, franchise While better bookings level are quarter will we remain and time aftermarket per aftermarket the discretionary to limited investment the million of $XXX at that of following foundational optimistic our we three return for rates growth essentially, in

that absent now efficiency, turnaround higher an and potentially in they anticipate in which driving XXXX, aftermarket Our years. increase increased on activity project several focus has recent indicate small for largely discussions with been work, starting customers an

FCD fourth project year-over-year, increased while by Turning EPD. market, bookings driven start by and awards X%. approximately I'll at IPD were by to quarter saw essentially our larger-served end Asia market gas. in flat, in Europe, X% with decreased included oil several bookings and small our bookings Bookings Pacific. EPD approximately

evidenced Looking forward, pre-FEED continue studies we FEED to expect our to traction, that continue oil that and and by expand. gas to of pipeline industry gain

we've our maintenance seen spend our Asia over of East. with many their XX%, refining that the year-over-year. EPD chemical increase Overall, to levels essentially bookings Middle industry, project grow minimal over expect by short-cycle chemical In customers driven bookings, the increased especially U.S., the in in we strong demand recent years. FCD while globally, continues opportunities and and on IPD flat to was Additionally,

more various others American The second in offsetting nuclear a E&C than now projects of move and X%, to several growth, FCD, slowly, small North wave hands continues strong in albeit Power Europe. forward, decreased planning. which project ethylene stages award in crackers bookings two by IPD's with driven include of

combined China, buildout the by Asia. opportunity installed competitive, a is Newbuild and partially in Germany, particularly base in where economic in switching fossil rationale. are opportunities but fuel continues natural cycle but remain provides decline very gas U.S. the in Nuclear to offset

distribution geographic all expect since power which XX%. across growth, we concentrated Europe delivered opportunities, segments. year's quarter, by FCD driven industry activity XX% and growth versus Finally, General driven was EPD. positioned. respectively, lowest where by America last X% From or is the perspective, an exception - Middle of regions the with delivered growth the North with the XX% fourth and Flowserve was primarily largely East, area and in increase down was increased The over XXXX. all well a bookings bookings expectation solar which

Asia Pacific XX%. Latin over increased challenged region, most And even X%. bookings its our America, by grew

the let Now expectations I model. during our turn streamline and and to for while my elements XXXX. me central last transforming to progress simplify company Late out the laid operating Flowserve year, X.X

and employees plan key shareholders. value to years, we model will company I stakeholders, XX the built foundation last more has the the operating an our to improved customers, believe our over our provide on While capitalize our

and As Flowserve is journey in we're the on health I've it accomplished and won't that the culture, multiyear Flowserve. X.X improving quickly. be a past, of the like easy the discussed one pursuing, will performance focuses change, the transformational be not

we journey more a will leaders and to implemented customer-focused, change. technology created us time, structure highlight we our XXXX. with flatter to new supply performance, leverage the the to business the take chain are ambition. our in scale development to excellence and began centralized want organization We moving capitalize the more of product on to and are installed a marketing and proactive improved organizational actively our global to team. market-led accelerate we reporting progress that KPIs corporate driving some streamlined our reduced and buying power. I implementing While our drive operational costs requirements to and be added We and that We and we We overhead our standardized and and made ensure corporate and many R&D operational an team efforts. efforts journey and consistent simplification

were those of XXXX. All changes implemented in

time cost We key leadership and a equivalent capital. a complete, to long-term with a of assessment a plans to we capture identify Earlier the of associates examination a G&A in is In company time This those to Flowserve, part operations, we across and and now the launched creation associates. to our and this spent the addressing assessment session, journey. deliver clear months, conducted better had Flowserve our conducted long new term. full-scale six the human each is evaluation the robust was capabilities a summit to and with detailed for engage driving conducting large long-term vision purpose the the need launched value the In the new come In working can this we XXX January, Flowserve to around due growth, to foundational at our side action we culture it assess and understand We Flowserve world. review of for running the a bottom areas, A conducted value We last changes, of value and every how currently a are and they of aftermarket, they work creation. values, leadership commercial, to our summit top success. and core associate or better value. opportunities for to we of impact we ourselves, this creating diagnostic devoted change. to became essentially me structure over organized that timeline complete diligence of my to fully operating aspects couple how new why addition address future, and top statement,

elements, change simplify In drive organization. global our a enhanced drastically and addition these we will foundational also that out to rolled accountability organizational

X.X organizational consistent Flowserve's changes As on entire will to P&Ls, leverage scale we more operating required model vast I will many the indicated, with similar too systems new Flowserve this in run operating a model. with the was intricate company be have than processes. and significantly in that decrease the have complexity manner The better previously The initiatives business. past

years. leaner, and present the be breaking make for business will many success. We're Flowserve decisions our for that informed We within have faster better essentially proper silos long-term to down been

multiyear As see a endeavor, we and every to expect the each Flowserve is potential I at discussed last do September, but this price progress and month. The is enormous.

In fact, originally I it's than expected. larger

mark will in some we foundational of capture with and elements significant culture. our to people this value, the address However, in to had start a order our excellence. our journey towards step XXXX to

and to we to opportunities. the X.X, if continue Flowserve financial quantifying community we with in forward progress the additional derived taking on initiatives it's these details As sharing be that with look we'll

me I'm shortly to ability changes to of for in our offsetting confident While long-term investments costs some comments, expect workplace our of support over now return we greater creating our this and our transformation are the meaningful let effectively Lee actions benefits savings. we our our employees some detail. material, I for important but year's anticipate these closing and customers, driving with much will turn drive more the value I'll fully our taking to shareholders. reprioritizing for discuss redirecting the associated increase are by financials call of that key significant

Lee Eckert

morning, Thank you, everyone. and good Scott,

our through Looking financials.

share we $X.XX, conference reform. highlighted, of recent basis, call. with the delivered in primarily our last loss the expectations Scott the As XXXX, adjusted generally quarter share tax fourth in of related On included impact per on earnings of of we of reported $X.XX U.S. the a items tax per line to $X.XX discrete discussed

For rate. Flowserve, a lower be this repatriation remaining offset benefit deferred the discrete adjustments by is tax is tax tax credits. to to the impact noncash tax related tax expense existing will of as items from The legislation

which weaker roughly XX% sequentially total U.S. fourth prior billion $X $XXX were X% quarter, were Year-over-year small a a divestitures. of on Additional impairment, a of revenue currency adjustments and Total our the included dollar include a X.X%, delivering realignment of for XX.X% headwind below-the-line high a XXX spend seasonally declined Aftermarket asset impacts quarter and PPA. the flat year. fourth million, and with were $X.XX tailwind quarter on currency basis and increase. sales essentially sales revenue in point comprised representing $X.XX

margin margins. points and down sales included quarter. at decreased leverage, challenged reported towards year-over-year margin our XX.X%, points fourth gross of shipments quarter. backlog XXX a the gross the adjusted the activity. and year's at incremental offset from was to basis XXX were prior a SG&A gross charges, reported and in shift adjusted fourth basis, aftermarket Looking our savings basis realignment At EPD now point our modestly mix Both lower-margin On project than basis cost more XXX in reduction higher-margin which XX.X%. a down Loss versus

operating Continued from points dollar and sufficient margins adjusted loss performance. lower of basis the U.S. by America benefit and reporting margin declines incremental sales XXX quarter EPD's were expense. leverage, XXX offset other to cost IPD's operating actions from and project headwinds. were Fourth weakening driven realignment X.X%, to respectively, reported and impact Latin primarily X.X% XXXX did and

high U.S. quarter reform Our effective related an to XX.X%, the adjusted reported low due rate act allowances. to favorable the older at in certain issues. effective quarter, On resolution the rate fourth primarily tax was valuation tax basis, was primarily in of tax tax for

our and global for the growth financial prices, oil many served the our incremental initial will and reduced bill, prove the taxes record the the increases of regulation tax tax not expense but very relatively year, cash to volatility quarter, the to full With XXXX entities believe we without stable flexibility. adjusted our set line rates, quarterly we our the believe tax generating tax back our the at Revenues It While conditions in in our our are U.S.-centric Act much as substantial ability are move Quickly tax international we during guidance in saw X/X with in to rates Despite in provided. of U.S. inflection end markets. substantial performance income, were the was decline third during $X.X Considering $X.XX, as and Tax much since respectively. and future. at customers, the international, our XXXX This EPS jurisdictions rate effective tax year the billion quarter year for is guidance XXXX, X.X% Reform that in full our the reported XX%. results. rate of is was results. with adjusted we beneficial future clearly XX.X%, recorded expect we down level consistent not the markets approximately looking will current still we foreign we Flowserve's

year-over-year, to in primarily capital cash reduction due million Strong working fourth quarter. million fourth improved flow cash. in million quarter to $XXX Turning $XX of the $XXX operating

year, helped $XXX the capital flow million. million For our in reduction increase a from cash working operations generate $XX $XXX million to

priority pleased are cash operating where still we remains needs our capital and to the to While year-over-year is a working flow reduce. be achieve not to it improvement,

million bringing to Cash program. full million. to the year total realignment the fourth $XX we to were through quarter, million this In returned dividends. $XX Moving roughly shareholders approximately costs $XX the quarter,

we expenditure business. with disciplined even very and our capital were our invested we XXXX, in core spending, During maintained as properly

For million, year the $XX full which capital to million, level brought expenditures were $XX the lowest in over a quarter, the decade. approximately

quarterly a the of cash we a flow, strong million, with As over quarterly increase balance our ended cash $XXX a result $XXX sequentially. million year of of

to Turning the XXXX outlook.

currency well effects We approximately acquisitions, The adjusted as potential as EPS X%, from et of which to EPS are approximate of X% such currency below-the-line year share impact approximately $XX to headwind targeting as revenue reform expected items, range tax of increase X% on businesses. year adjusted during more expense other which of $X.XX XXXX of share expected divested offset than X% full the occur a law, cetera. will million discrete may $X.XX realignment target the a tailwind, including the excludes and divestitures, foreign an

outlook and variable of offset range FX rates commodity and Our Both price to to the prices. annual plans. assumes incremental adjusted the headwinds in broad-based and due merit EPS current backlog, expected the the levels the range compensation principles. inflation, year-end reported the performance-driven of of and volume, assumes reset a target million XXXX tax market of expected rate with interest minimal from expense new XXXX $XX adoption booking impact and XX%. in $XX XX% to and million to accounting Net is productivity conditions

being phasing the we in in traditional Additionally, second although weighting. pronounced with of expect half it seasonality earnings, the more quarterly

expected for spending, full In the other in which usage approximately will XXXX dividends our includes shareholders. year addition anticipated realignment cash to complete program, million the $XXX

$XX to CapEx our remain to will enabling will Flowserve capital for to some expenditures bring invest technologies range. disciplined which the in $XX in year plan million but We million full X.X,

expect to global largely plan, cover million plan approximately as costs $XX pay We and U.S. to $XX ongoing pension fully funded. down to debt mainly contribute service million approximately will in our remains

Scott New week, the pump City. I Company's and in in valve and water will Next conference & participate Gabelli York systems

will be would Mike session and Scott's these week hope and to who Conference like see attend many events, our of next will in International Citi's Florida at Jay listen. those Additionally, for shareholders We webcast well. to as

realistically opportunities the engagement year. look to do forward financial While active Flowserve again community available to us, with the can't participate this in all maintaining we

closing to Let me the his back turn for Scott now call remarks.

Robert Rowe

we not Lee. we to our that Thanks, I but deliver of XXXX comments considering levels, in expected. again. internal on with We it. I these profitability issues in significant intend will the in. originally and still to am incremental with short we falling a more don't that the point why annual also in believe an guidance exceed that few did we we most is realistic, confident the this overall I'm marketplace and repeat I range seen inflection would uncomfortable headwind. close guidance that participate was have markets overcome aspirations our Clearly, have an note

begin David Additionally, XXXX. Flowserve a will in and healthy are a that in the contribute team also IPD substantial performance contained issues segment more and has that XXXX. fixable backlog and confidence in the way past to have I the

not our to unlock this and full beyond. will year forecast XXXX well work Flowserve's While position is for expect us potential, we it

new progresses. Operator, trajectory and prepared action shareholders. forecasting would from Nevertheless, XXXX of value the more to enhancements of include we We to declining We revenues I pleased for will be with years is that guidance a longer our the initiate a value this seeing to to our years. and and for beginning our with owners the forward the benefits expectation after deliver open have we doesn't expect remarks. Lee, like expect productivity Flowserve for and shareholders drive and earnings. represents look in to company guidance Our value. This many take concludes call to every term our later year we now year in XXXX you positive mind one several our significant as we'll long-term for Like in questions. meaningful are full we X.X the

Operator

first And our Brady Instructions]. Charley SunTrust. [Operator comes question from from

Charles Brady

getting fixing the kind and much what's how margin to through rate, of that rate, Just progressions year of to is on volume-dependent wrong-dependent? to that, internal, exit that versus get the IPD

Robert Rowe

really Yes, internal It's no. - Good Charley. it's question, focus.

And volume. we've got so the

the in there. number fact, nice we quarter, In had fourth a

The first quarter, lower. from be a seasonality will perspective,

a level of And in really feel as some of and on additional we've just what so big overcoming operations we've talked inspection and and it redundancies. things, I about little ages and testing past a bit this a we're that little we've got scale about of it before, backlog on And and substantial is the that. sits the to expediting good there, pretty adding bookings And the the headwinds cost done. got is But the just one backlog. via we bit revenue, focusing due

now margin. five I'll we're get and And think importantly and the starting is fully then January. growth on doing really it due But in people. process a operational to past the the the team, he's you, And David just more so but backlog - expanding adherence, they're cleared, And entire our job, job. on driving headwind in upgrading probably we and platform until good on that. tell disciplined line at and profitable We're a I manufacturing month and is we're focusing process we reorganized the we're that

take committed to more discipline deserve margin And to got our But operating focused we're high year. to we to get of great. better XXXX. in at I and to procedural platform, mid- some due would quarter. things, just at got not so the get place. progress, as But more single There's be And and cost say, past take on that process that just year, big realignment we're clear And going the in that pricing in out, there'll We've value then to going going capturing the And to quarter it cost. continues think be is to be income activity I the platform. backlog. both the adherence year, and it's in got cost restructuring we overhead look product still so We've fourth to the time. the kind we throughout end to the first and we've gets the that of continue when done

Charles Brady

costs you of on incremental assuming Can go what back out three be one-off we comment we any margins segments? just forward, should if the we restructuring as kind across of kind

Robert Rowe

Across all three?

Charles Brady

I obviously, segment. profile for each a different there's of guess, Well, margin the

what's I'd guess, by segment, I like - your on... to thinking I So guess,

Robert Rowe

improve a exit high want get year in we'll Yes, one-offs. color. don't into we'll We to should But continue about, I I give progress QX, just give won't I'll exact And I'd great. be, at say mid- can little - be that to So to to I digits. IPD, it in just IPD. we that's while the business, right? single progress QX it We mean, QX. a not where mid-teens want we be progression. drive should talked

think the EPD you just I valve a there And think the pretty saying we if place. talked on. remarks. where good improvements so And side progression normal don't And it get it's we kind do get but back into operating that I'm not the in continue being I I they think at we not things quarter we've in as some of back FCD we're we think slow good - about the On and progress platform. side, we better, FCD, to then want the on got out, fourth that margins prepared margins

Operator

Andrew Our next Citi. question comes Kaplowitz from from

Andrew Kaplowitz

but margin issues. EPD based fact you that the the relatively noise about knew weak was was execution margin - was in already, amount fair still talked the about I think a project Scott, there quarter. IPD of on there We

get you here sort seat we for in a able 'XX? to realignment, see surprises, little you we point stepping few but stuff quarters. begin on this So less in 'XX? and see the the down level pretty now been been IPD, sort you already you've and feel talked Outside nicks of noise pretty go should about significantly the of these where start have to back, of in to noise maybe top I should mean, to of

Robert Rowe

Yes. great a honestly, what's me that it's here. it's bothering I've question. every been been quarter Andy, And

had some at IPD. an nick our then And driving to been something it's least, right? say quarter, down. we've pump metrics, equipment got how adherence, structure doing, new just side, And everything isolated to that's so an right the this think or EPD at of that's we're the issue right equipment I'd consistency original doing we're Flowserve we margins to quarter. on isolated every this is everything drive KPIs, procedural in and is right, terms is that the in X.X So But point, right, our original the defining operations. on it organizational what about we And - the issue process,

quarter. keep that that 'XX, do consistency better. We've move things in cost. our expect better drive happen. And got then That focus. we've next half get this the I we've to more think to due this past gets surprised got by do I out So But is unfortunately, got backlog accruing I operations. even large year, a to that and getting shouldn't Again, in that's right but unfortunately, to is that in now, first journey. of start a

And new delivering we've in to the the place, right organization get got just so got - we've maniacally on equipment. to to be and focused we've that got process, right

Andrew Kaplowitz

Scott. color, Okay. helpful That's

on for second. focusing aftermarket just So a

creeping years. range than the they are X.XX industrial You ago, for certainly, it, again, bookings were. last is the short-cycle better about the has been up been And couple right, aftermarket talked mentioned but versus years short-cycle kind energy; have a of the couple you of thing

of we why range of deferred You in out that confident you break 'XX? maintenance should mentioned And this But haven't guys? you and already small projects. back more come the for are really they absence

Robert Rowe

Yes.

nothing But the years. say obviously, the in the X.X would last we've discussion QX, seen then 'XX, a is view that than I turnaround X.XX. to the uptick so into in years. - about. been think We've at we've but got little And hitting and as every bit we too I been two better be the excited almost what of X, we've quarter toward turn for now an

ago, And so of yet. there I'd on this also a money prevailing I happened X.X One optimism that's for is they're there's And program it would not come just focus spending had - and this year cautiously is on kind maintenance it's maintaining completely type And without in would years we've pent-up demand optimism be say and bit But sure this don't that through. maintenance absolutely because this say, would of little making what it hasn't there, a things breaking. optimistic twofold. trend long reliability break. but and there's facilities, of hasn't our I say and I we've okay, these now gone saying, ago,

approach. to solution do to And forward. so how we're We're more and is much about provide more being trying go trying technology we in what come with into proactive a our predictive

particularly I say aggregate, in more that optimistic would North in more visibility more is that to so Pacific We growth our QX confidence and And I'm operators wins starting get are get what see some this but year early Asia in aftermarket I'd and and to the truly love America, in and in to space. do to growth in turnarounds, I XXXX. spending QX about have guess, sustained

Andrew Kaplowitz

one think How comp is 'XX to swing incrementals about underlying so the there? can Just a incentive quick in 'XX much really from for Lee. we

Lee Eckert

have but given far if But So it. it's number that correct we've been on I'm out meaningful. as historically, we Andy, not as that it's a me But prescriptive wrong, not - relevant number. Jay,

Operator

Graham Scott And our Markets. Capital from from question comes next BMO

Robert Graham

margin, the extension, the Could maybe talk you Scott, pricing out quarter. of come of run the then was despite together situation's to a on on part gross what heard bookings impact of down, kind put on understand regime suggesting I But to well help that said, the are the equation for gross only one well. project? the years. we've that as I margin? for the selectivity maybe on from the any for backlog the project continues gross you as here us hoping rate Could quantify the continues by shipments nick word And business the down. the come understand the so they've some help as prior me, that from And for impact margin

Robert Rowe

would margins. I'll Yes, turn of what's really where this I'll we're but I'm not on let happening a these in much probably around pump way of philosophy say we value over projects. earnest are the But talk back, with more going about about of to kind pricing So both what and really go right start I'm side. me I kind there. industrial QX in trying it gross this right? Lee - kind speaking to robust hit larger we OE, get just I'll that is now, of on to doing to about in And and put deserve year, the and engineered -

our selectivity we the feel then feel pricing I and ability in Certainly, orders pretty brought the good we so And did QX, forward. better. QX, deliver on about And good. that to the I pretty in

into is And maybe the as so let to inability on side profit our quite our as Lee, gross we should. but - manufacturing go to going higher that's to the going think really QX... to execute problem a and touch on I'm And Lee the and that, in to hurting help details, you underabsorption more go And these of I we as us are want forward. part well frankly, variances profits. ability the drive

Lee Eckert

forward. to the so of going kind margins talk Yes, just about

about in talked Scott headwinds. we my and comments, the So

So between provides as most merit headwind adjustments people pretty paying and that our businesses. the X.X% significant and AIP for inflation,

unique to maybe the due what's also current Scott backlog. somewhat think alluded situation, as is Flowserve's past to, I

was meaningful have to that's which is going And that to say number. sales going so going I That's low it. to also compress margins, a be

So that's to through. going come

implementing also around is facilities are robust the continuous first Our belief supply going productivity programs. half the improvement year. same that's for of realignment around the continuing come we programs to and the our our At through chain, time,

being of cleaning headwinds. expansion. now, a masked is So for little But some it's plants. right being muted the that we bit that, driving unfortunately, margin of are normalize by up some in When by currently you work what's the

Robert Graham

So that, So flat has backlog the fact keep harking essentially the while, to on held statements the a regime comments the from relevant them them, right? just a in prior been regarding set comment the said, the and to now, that of I'm for to case. that but margin of that's one kind the but back the regime your of fact gross not that's sorry suggest - prior your backlog,

Lee Eckert

well, the past What with The the me is due backlog just I'm issue clarify. saying let backlog. -

reality And to. that about has are that the efficiencies at - get us product we talked used and number to of reasons. for on, is of order this as we've earlier, is So the are Scott had - a are late not in facilities that running many

backlog. the - And so believe in wouldn't cost. lot old, margins order - issue to is that's requirements, margins. customer be new I versus is that low it's past reduce our get at on the having the stuff - attractive of to new We and to out, currently flushed product out we product to focus a meet say but the our the at the due the that we incremental coming that new an orders, are late associated, product, the should going gets it's have we're When

Robert Rowe

past the and right, the declined I - say I'd But about expected as-booked Again, in go said. talk to margin management due don't want has margin. the now back prior is backlog, there's what this or from what the margin

just original the So our it's people the material margins down belief there's it's both definition out bringing longer - move around system. this the the work variances as it cost, was. we and And lower costs, lower of to hanging that's is now of facilities collecting and what

Robert Graham

us places. update not systems the were cutting in on because SG&A kind cutting sense. makes That from Could helping you initially indicated places ensure question on your in right sure is where Last of over SG&A ton make you the were that a progression the pace slow to right taking reducing this. kind of reduction to stands you you quarter, expected were needed Last you today? of

Robert Rowe

us you back Yes. important. No. this bringing appreciate to topic. I Yes. It's

what of - making we end time paused focus could pretty cuts on the process QX sure frame. So QX, that right and to some In in did we we we could value forward. look cut break wanted make we're XXXX, sure not we on that more was completely things the and to that as right do create long-term and we focused we really healthy - in in weren't that things but

now - pretty talked and done And have assessment due so this about prepared remarks, in upon my this diligence ourselves. we we significant

say, now, start in Okay, But to can that, do got to that's to to achieve yes, so highlight is we've to forward we doing And path place. savings. put this starting process more what

we transition get through this on our what And expect better and leverage we our to year. start much so quarter cost of to ability I would XXXX, structure that is as in the third second

Operator

Our from question Robert next Susquehanna. Barry from comes

Robert Barry

and Just in kind to you'll think plan you think some to business? can point, is follow-up commentary. a position lay you it, of the midterm take for be X.X a out you Flowserve there of Is on when when the where this

Robert Rowe

today, what we this great we it's Look, what know is, a some I can And to the a thought and honestly. out you have I and I to really, big is wish first potential question. could provide color about the price put We and I we there. do where around going [Indiscernible] price out number the fast guys we And more that. are. And when were ask for the opportunity can know come early get terms really frankly, where have have would there, more that quite XXX% loved out six something it. that opportunities our about the is is is to have confident the in achieve. issue We done how buckets are know But it's I'm putting of big we can buckets. we me, with there. earlier

execution, talk we as look is the I to I'm just at changes and ability so quickly drive what when these at as And to look people should. and and Flowserve we around concerned our our about world go

so pencils these kind our initiatives. are of right are to need the we're These the actions And saying take. sharpening we now,

publicly close we Here's after getting all doing pulled how to come And - about the by all and it? what price, the this then break we how I going is we're of prices. And them. at to about to out that sequence talk are and And the progression the of do together. we thinking start how do pretty This resource to here's it. And that organization once? so need we're here's

I So there. that, to I'm on do a date not going know clock you to and the but know when I I is have to it, ticking do we're give going

give couple months. So us a

Robert Barry

backlog? past it, the Got is That reasonable. How big due got it. sounds

Robert Rowe

but going exactly a as we're twice disclose don't would lot not We get on what specific got large it's system - is, what we've give And meaningful. a causing as it be. got clear to because is of to to It's out problems. Yes. it we've probably should say it I the it number it's that. But

Robert Barry

what the you earnings. this seasonality on lastly it a of is just Got typical bit color and remind the you. little will what And be maybe level just on year? the Can more just us

Lee Eckert

want kind typical... you to go Yes, do Jay, of

John Roueche

Rob, But best and years the few we the year to with out. fourth quarter. in quarter strong how trend, this Typically, what of Yes, quarter, then be. Again, expectation of at take coming is third that's saw first quarter where time sure quarter, past weak no. confirm past earlier, as our with strongest. full quarters, end lower the tends some to - be be it'll to you've due XX% trying we first quarter. those got And be And the progression. as high teens the probably through the model, and towards QX, second would indicated the shake always fourth I'm the you then backlog can second look

Robert Barry

Yes.

or to to So I XX% XX% half-loaded? what, expect, second be will XX% XX%

John Roueche

Yes, traditionally.

Operator

next comes Our question Nathan from Stifel. Jones from

Nathan Jones

could little that you expected out I the getting and the if bit door. guess about wonder due talk how backlog I a of Scott, past difficulty

you the at there? You're to that you that actually challenges How given operational the having company of now top grow creates looking grow Do - and stacking know risk orders to growth the on XXXX. in What had look to orders, actually allowing comfortable these you growth after go have. revenue volume more circumstances are this problems? stacking is under to

Robert Rowe

in And and that problems we're out move alluded regularly. Sure, at unfortunately, America to Nathan. problem, facility that recently, of it's Thank looking you. complex of some others. orders Latin into had and the It's with we've something I a to,

world, news So around. flexibility some problem. say got around us a to And complex a have realignment does all we robust things our good move I is would despite still, it's network we've the efforts, of which give the - pretty

have to ability kind markets to if a at in what look and potentially But got get have do XXXX meet I more. to grow productivity revenue, moving any this to we a when 'XX. on - and growth that the meet orders we're plant I'd said can concerns, little but got is no the house But numbers it concern - make XXXX all in And say job we've we in to one give and our in locations unfortunately, we've managing. I'd much is truly we've every something have get at execute to 'XX, what up customer don't we've say were so bit demands. start go our And and plant I earnest with that sure of that at I manufacturing our of each around in from to got to better us actively our and to we're our order, and again,

Nathan Jones

here. poor And and at company several working capital cash the then has my follow-up going question's be to on years relatively which been flow, for

in longer help you to even generation anything identify And over of a quarter Lee, you Any a maybe term? place the you've target had number seasonally had was kind one-off capital that you fourth about than to talk fourth put you've better a that You chance there? the if very working cash kind much manage be good of that is quarter, usually what in helped percent Can quarter. processes sales that? of do would

Robert Rowe

the Lee. me then So in, fourth had third said, and focus. just a came on and quarter of right we let Lee the heavy I'll a to it's - to that a lot the this direction. the then generally, now, got moving have it little did been I it's both Lee, lifting force, and nice sure, talk I've as right? brute in - get I'd shared just been Right And in I'll bit over there meeting basically turn and But say September Yes, did call. progression we in quarter. in this we we

here set on the right just we push cadence manually to do drive capital. we so levers And how up working a

side. focus, in transition quarter. now, so But And capital? in very Lee, just systems been to heavy it's results want and inventory of to heavy, generated about fourth working you nice some the the We to particularly talk effort and and right nuances just process, it do need on now

Lee Eckert

Yes.

Scott said, and quarter was force. attention fourth Like So brute management

enterprise need into go a to we the we better year, have much solution. as So

for kind So - of area area. it's by

authorization side, So around much from far is going needs more ownership to to total have AR DSO on take the be, to where our it's it and that.

looking improving and of working one So we With our bonus bonuses, is are metrics people talking at processes, about ownership. capital.

So everybody's of invested to at some in result. behavior. that policies We're better drive looking our

ownership down it to So and behavior, insight, accountability. comes

the On facilities run as efficiently. more side, much inventory talked Scott's about, having the

where we're And be better to better back planning, our need chain payables, area our out, terms on then an inventory. where payment. that's due So the we backlogs supply better inventory renegotiating from get execution, far to all market think again, getting turns. to through will currently at are all and past looking drive is a these we But as we on business, on

improvement. conversation, value in that. So it's is transformational from probably same be large area And can we investment X.X tactical. working freed looking Flowserve a made as we're At for point, our - once have very so that a Scott and the from that there's fix major couple mentioned, also this clearly, a a a lot of our we're capital, we

Robert Rowe

- we're be, of - Lee I we we're a that big when capital we a XXXX, working to And point. continue said off price business a here, we right? the not near to think we it's there that. don't not the about a said, we backing our put couple And said Yes. such to I've think grow forward to couple need our in that of and dollars million guidance. hundred deliver discussion, it because And And want times, where there's just

our now organization we've planning so we to planning of do, includes a we've lot platform and - And at our and function, just excellence part of of up planning central put levels. operational work each stood have that a

people drive further. big and this we're put We're now understand we've so this. right to that do the to putting on the even process And a starting got place in attention this, down how to

Nathan Jones

into be to had the to you to capital sufficiently business look of appropriate working time evaluate the able for level is? Have this what

Robert Rowe

No.

all when roll before, we that again, I've opportunity we we'll won't said and of think couple But dollars change I that. out I'm it million price. the here. - a X.X not hundred about talk There's Flowserve

Operator

Hammond And our next question comes from from Jeff KeyBanc.

Jeffrey Hammond

that you the just the into of recover? margins some to about just doing talked as orders orders as you backlog? this through, to about are you're And coming see coming come the improvement to you in. ensure speak structurally margins those larger we what then how quality and you kind feeling So you're think start hold projects up Can on

Robert Rowe

we I'll the on of price prepared in an we said and in did feel quality coming good little a terms and in fourth about those of in repeat I the earlier what But bit orders both what or quarter orders. question. the Sure. ability in, and deliver remarks execute of that's to

it's twofold, making them two, is for making execute we we me, get one, price; sure execute. So today, that that can hurting It's because what's the then really sure right? to us ability our and that's

quarter was and good. platforms, number the the And we of orders. well our we saw in fourth of the quality each nice fourth terms in of across that We believe in those inbound what quarter is did a so quite orders

we should don't ability right? that get as execute. our we change believe that, we fact, we to only forward, go about expect so And to better In

our that [indiscernible] our at a Our level is in a margins. and very and are can pricing believe we we're we comfortable expand fees that level with,

where is to And pretty basically, about do this. market feel the good and so ability that, I our

XXXX to tighter continue walk to we a a obviously, long to starts today. little the to have than Now bit need back is pricing and way we 'XX levels, as market up restore get go that the it to to and

say environment, down variances America is in our the have or [indiscernible] to quarter some door, And what to the much projects for is really make feel divisions. other a I'd saw as point the we to that about overall, faced good larger to very got Latin the we focal focus get we So and get in us. turn it just not of we've fourth that the and issues the sure - in we that that have we

And in the tracking is of a that we we've things place, we very we booked how in in in out that these KPIs so also think progressing management, making that we some program put how about in of put in robust orders, terms project talked about margins we execution we when them should sure larger measure we the we're getting at progress, and that measure them our door how the estimates process, at.

Jeffrey Hammond

getting still saying Okay. you on like just seems or your just starting the coming see Can smaller it larger projects are visibility what to you're customers And speak front? project to on in. what you're

Robert Rowe

can say just we We - the fourth the good really I'd many those one on more was $X they $X Yes. we had have system million had a that quite bunch what's money million large million [indiscernible] that bucket. and is projects. make and quarter out that of in And $X we kind of didn't frankly, to to XX, whole get faster. thing can our

the again. base pretty quality fill that's to of ideally, excited And of the So work we're want those up. That's we level. that shops about the the orders foundational our

that the the solution. we that contrary is. ones, bigger technology competitors. quite are, attracts of which And that the our is more to there and hard the On frankly, they the bigger deserve, quite bringing more complexity the visibility to margins it's And make we're to it

important but more in getting to to want calories would work some orders, we us about foundational talk big it. of yes, is got that's So I for level more say and this base nice

seeing orders at with Now the even pipeline, of are XXXX. seeing we than XXXX of the we beginning that, more large in our in have we're

power side think seeing type - regionally, the about increase lot would got of some in well. we petrochemical, I they projects. some markets be Middle And and we've then North in in so of And what are America. the as East got in to say are, And We're seeing it a in going lot if we've refining we about think we're a a mix of those the space. when and

bigger And work, so expansions seeing major markets. now or each served our across greenfield we're projects large of new

Operator

John comes question next Research. Our from from Vertical Walsh

John Walsh

in of at I understand to something incremental range, if XX% about is And comp you've XXXX a growing historically, going more XX% look just think range. So to sales? have margin you normal restructuring. the to when But historically? the guys has lower my question. been we model, forward better Or think to gross all and been basis, the We that margin be gross your headwind. done incentive I kind where that? sales higher right wanted could margins XX% do the come or than back you margin's Obviously, relative kind to a little you're gross that How was XX% on of growing than bit when about it it this

Lee Eckert

Yes.

So this is Lee.

so forward continue Obviously, - through. the we be profit challenge think, to backlog, number and through burned from think range. and reported, the XX% that the what that range a little be depressed. think when numbers XX% going number it's I we'll XX% this top-down due is through you'll until on XX% bunch is clear of until gets what we kind versus we, burn a the past probably to it this is - little view through that, my Once it gets burn to I I we I are. it, going should juncture underlying revenue past at very going to more number. number. think of right going to in XX% XX% I a to It's by a - it's that it's have different standpoint, What be 'XX, But see, with probably little grow to than that - mean

John Walsh

And cost also this headwind is year. we're something that with the dealing

Lee Eckert

point. Right. Right. Yes, Good

Robert Rowe

to largest guys to those I'd add again, when on like for going efforts, operations and the focus we But six we're you two the more and where of it, is our Yes. And in to to chain future on prices. of say just us. looks are go buckets we owe back categories what what supply color terms

chain and - start leverage we know on a And our and materials. large price we when our get the supply to scale get inbound so better costing start there's to centralize

and then that's going the bucket to margins, so we've gross one manufacturing. that's one productivity the is And to within that the attack got other big help

And we're there. so still variances having that is -

too many things people. that of are We've manufacturing the have too we process. just We lot too a think got much about and taking long costing as

doing price margin it are at in side. But the time. about articulate what there potential we'll those what is and significant again, a we're future so the And buckets on gross

John Walsh

normal? That's Got going want you're cut, forward? things and of portfolio is you. And portfolio trying this but then I do, the kind just the about helpful. of we to is actions a think of that And as part the some we continued about cut as follow-up, word a - pruning don't should think new use to

Robert Rowe

Sure.

the terms with if what - do provides we've - integration I acquisitions think about some we portfolio, we're think - future. in some to make synergy are things do trying in we've and that got to sure or to right of got the products

side, we in weren't that core the do valve with cut to product facilitate the didn't we so lines long what two And wanted and run. out

adding and that, potentially, to both to before EPD, in is bring some got the got We've start on products anything side of to looking greenlighting IPD continue to then we'll other and a and the lines right what side. deliver fix management pumps, doing. now, both general our development well, what inorganic in to that some or move and flow on one we're opportunities right? bring we're performing new say higher to team in I'm to And do tuck-ins, things products growth level, control At - We've kind that's got product the So confident do We've out. in. I a portfolio. ability would we're we or is product that to

Operator

And our Pokrzywinski next question from comes Research. from Josh Wolfe

Joshua Pokrzywinski

think ways, kind this I Scott, few out we tried people may have incentive I that so respect. that and know call it's think cost that calling to ask should ex with comp cost coming you of of incremental and out question volume doing at I to items today? that you and price some this what's from savings the away, other to But business, discrete you've different noise discreetly, puts think don't incentive restructuring done, a business already probably margin think a should but be a is want some XXXX, comp base pure kind takes go that And we basis? about on how

Lee Eckert

this take one. Lee. another attempt to So is to We'll this try

every our is that a think be standpoint, So headwinds. clean more of and point. we're we're currently to is But to But aggregate and volume I every backlog, you lot goal And clean got not number. the up to view would our price, have think year, in the I an due again, a is got with is to we with in obviously business, say noise, - where - XX% there to back my after basis, I And the going to I relatively deal that's unique - past inflation, at to now, offset think inflection right the productivity. goes got is like back you now. right what's to productivity with on It noise, we're that deal so offset - you still it's muted. that's merit, and XX%

Robert Rowe

provided deliver realistic take owe feel we we just year. guidance, is, XXXX and actions, prepared and to the what add, to community this that's price the guidance. We what potential And we're these investment Yes. the is. that, just We very what when that's

give And we'll so we've and we And like. looks come us that. months said, with know got to I that what a out do just couple

Joshua Pokrzywinski

No.

there the great. helpful clean on And that, missed the point that's calibrate and think management. some in then I guess, Is cash XX% free conversion starting of to of as I XXXX? really on XX%, target flow the follow-up of. a off working it. And maybe questions kind - - a as just that you a I said is capital and for

Robert Rowe

did We target out. a conversion publicly not put

Joshua Pokrzywinski

It years? you better guys starting say are in targeting to that recent Safe than capital to... like something is working seems

Robert Rowe

opportunity said I What price, know there. before, huge there's a Yes. we it's and

lot from We lot heavy got all that. There's And that. attack and it's lifting we we've just will an get better. doubt force been manual And effort a about of to about standpoint. unfortunately, how brute continue get a no to smarter

We're and be we see managing And going half systems, so into cadence keep as it, brute tools. our on improvements we'll to that's more way to of we're start the the because - to focused just process, 'XX capital. that of in 'XX, force we transition working it's back going on

Lee Eckert

Yes.

how So assets velocity, we're at turning. quickly these looking are

the on capital for our capital. reduce the looking to sales go sales up. to But velocity we and towards obviously, working so And pick as investment increase there's typically a up, working that are element

Robert Rowe

that add, in these that disclosed. is inventory. again, Yes. the doing we platform driving Working and got of and at we're We've the process, focus we're inventory. what to in robust us and buckets just this lot how of toward capital with of we've what And buckets to the out got planning then really for really got is, figure better one year. We've it we a is big what facilities And it have first level. quarter then do that's both a the our much six in

Operator

Giordano next Cowen. question Joe Our from comes from

Joseph Giordano

to think, I fixed. in be obviously, going a the story here that into like to of does not think part problem devolve has that itself needs big be forward So a I EPD

we're there's We Scott, been that about America. And what point your to south. feel thing Latin So that about a up. we write-downs good like a in project we've always this earlier pops but doing, had got quarter went

So you every that not business? happening gives how quarter keeps something confidence do is in we what that, that - that

Robert Rowe

to in we've Sure. is of ability on this the real most just did No, And I'm reorganization. concerned OE I'd got about issue, lot was what deliver is and work. of that beginning XXXX and of that to that attention a point our what thing - focus big and it's it a we the

operational we've to each at platform. that so across drive put of now consistency manager an platforms And the

of Operations And then and raised President much Vice that up focused project execution. we also now to delivery is higher a EPD has the P&L a level. So on

P&L XXX talked a of complexity. and managers and so before And I've closer about kind lot having of of general

specifically, Manager and does are Americas, EPD that for that emphasis General Americas network of it it where But does P&Ls regional-based. that just bigger for is allows what the three and so it is [indiscernible] use operations. putting example, what - is the provide allow I'll And in we're across consistency on to right stewardship

addition And or every either by got something operational IPD confidence with we've I've our give two project and things, been the quarter, forward. so equipment system. our in us KPI, trackings that out EPD, in again, reviews on surprised and project move new that to our we to those But of get

And I'm again, And to need get our that on more ability point. we're be this so execute But that doing getting are we not the confident. where those to orders out. we're at things to

Joseph Giordano

confidence last then stay year spending for pretty like to you market me. it's - but when in that go the competitive going CapEx like of you're And benefits the is off next to trying And low guys things number. a of up tough order, cutting win you the enough a get ahead very Are to The tech might you're gives small R&D day. where balance in curve? the incremental and what on a

you how where do and do decisions those kind stand... weigh of you So

Robert Rowe

where It's on didn't good me CapEx. of let 'XX and kind the Yes. R&D But question. our start just we're We at. disclose a

So in, we're of basically right? money on spending just spending, CapEx, I stopped so the spending And where 'XX happy the wasn't we're really we capital how in or our came improvement. when on I process

to down and in got this clamped how that's hard, we so And XXXX. number pretty low we pretty

we now, capital has we all built think to moved And keep in where foundation the business of transition so level what maintenance basically to to XXXX spending been - maintain that that is and kind we capital be we're want the enterprises. - our As of is 'XX, place, up able to we in needed of and about productivity. where we've

So we're doing our it solutions. with IT enterprise-wide

Flowserve. a launching much approach are standardization uniform we're now of more drive enterprise-wide going systems and that so to start to across all And of

come that, number In addition the does to R&D up.

The things R&D with that our little a year-over-year the move we're - in rest R&D. so has And actually building an and from capital the up side spending of we on R&D that improvement expense, is of pushed some expense in bit we perspective. of

Flowserve that creation talked I've about function. the so but in was X.X, in of our of or original the and technology And tenets this marketing Flowserve technology

much product need. got we're we've leader development and with of a market and research a so more money and outlook got spending linking there, money, better And our strong that we're where spending what customers the we've process and combining

about to forward And technology. our really so good ability on I drive feel

not So it was discussion. a 'XX. down from backing 'XX And actually versus money key X.X we're that. spending tenet more of the first We're in Flowserve

Operator

Our Walter next Seaport Liptak Global. question from from comes

Walter Liptak

to XXXX? have like Just rolled to tied those be for on are now? to local Flowserve at level compensation those to the been clear going employees incentive X.X, the be out the KPIs, the And

Robert Rowe

Yes.

in So 'XX the much and what the made adding is the 'XX the and to difference to we're - we operational mix. more business did plan the we level, incentive from it at unit local performance

important And they operating to the local we're and on-time have and it's revenue super the the so control. some now working and operational delivery capital, metrics, income income while of pushing other and down top facilities line what to overall

So I how and to terms going aligned the that's an starting and get standpoint, business. us run incentive to of of in follows think KPIs the kind it we're

for so that XXXX, And change made in it's now. we and place

Lee Eckert

the highlight, One thing I'd Scott, we've simplified process. also

focus think with I'm align completely on and we've And AIP deliverables would investors' extremely program to simplified all, you it was complicated. not say cash I important - I what to sure the the the Before interest. is earnings, growth.

major was of was in think past, with so to your And what the a correlate it more interest. change it's done and going I

Walter Liptak

motivator. a That good good. Money be right. can sounds All

Operator

you This gentlemen. Thank and ladies now disconnect. you, concludes Thank may participating, conference. today's for and you

Flowserve (FLS) 16 Feb 182017 Q4 Earnings call transcript