FLS - Earnings call transcript Q1 2018

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Welcome to the Flowserve 2018 First Quarter Earnings Call. My name is Christine, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] Please note that this conference is being recorded. the Relations to and turn President Roueche, now Investor of Treasurer. will call Jay over Vice I

You may begin.

John Roueche

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

Flowserve's Joining Executive and Vice and Officer, Scott Officer. Senior Chief Chief Eckert, President Financial me Lee are this President morning Rowe, and

our questions. prepared for call your comments, Following we the will open up

materials audio do this event this that is replay an will reminder, and note be a include As our will webcast earnings and call non-GAAP Also available. being measures.

reported our press You Accepted accordance prepared the presentation. Accounting reconciliation can Generally and release review adjusted of metrics with our to the results Principles earnings both in in

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

Scott Rowe

ended a start a booked quarter than that results quarter with total am I one. greater expectations today’s morning, to call. and Thanks, our the a the high aftermarket you we first solid appreciate year. provided with in-line good joining activity of delivered Jay, and and were book-to-bill level and financial everyone. We pleased Flowserve’s

journey Flowserve’s the streamline our operating complexity, accelerate also future. We to for model continued reduce growth and

me growth on start In with we X.X earnings $X.XX activities, first you X.X%. quarter adjusted our on let delivered sales the update. of a of updating Before Flowserve financial share per

these I both guidance. XX% total results and and expectations aftermarket were up and year-over-year. revenues mentioned, for our of As accounted align our were bookings up sequentially year-over-year XX% with and Aftermarket

our We also power based million, of broad with by pleased our industries, chemical this solid growth total and markets. are $XXX bookings in and driven general quarter

first As comparison quarter awards year-over-year refinery have project bookings the of an our not large did you as included recall, will $XX award XXXX, in any which skews we project million quarter. this the

the that in first businesses quarter we XXXX comparative in included two Additionally, sold results. are mid-XXXX

XX margins an backlog XXXX. it’s current levels points, adjusted improvement priority. of quality basis gross present segments, and as remains lower in Reducing from but IPD’s the operating XX% In the now improved progress drive year-over-year, helped in Turning gain to our quarter, the revenue turnaround achieve further delivered to expect growth respectively. and XXX The traction the elevated as and year quarter, of results past-due headwinds, throughout which showed delivered financial this modest shipments margin of progresses. will a backlog we we first

I However, improve driving They leadership the overall am the aggressively team. performance the in IPD are confident platform. of actions operating to

compared the to remain still improvements and year mid our optimistic delivered At to longer-term take adjusted to growth quarter margins I the the delivering to IPD not for throughout business. in the this also will We be we level, double-digit high-single-digit expect in profile this potential, for operating continue exit full year. to year. prior revenue as EPD the hold delivering

increase than equipment in the As lower XX% offset revenue, which Lee of accounting activity. discuss, some will recognition adoption accelerated aftermarket new original of more standards margin

a and declined XX points, basis XX EPD margins in respectively. result, gross adjusted As and operating

number a a quarter performance non-core on manufacturing will its a bookings business leverage completed XXXX. mid-last include of as committed divestitures this to our fourth dollar EPD’s highly year are to we of the the achieved capabilities. the closures We highest declined the engineered since equipment which FCD of improving facility year. original On basis, better reported segment’s revenue of in result value X% products, quarter

provide trend. color Excluding to these not approximately respectively exception. in has basis we no have and want and growth bookings points delivered issue would divestitures, adjusted consistently product and segment’s result realized little X%. margin I of timing mix operating that The will gross a of basis is and the indicative margins declined our anticipate full more a on XXX performance I be solid decline primarily FCD revenue this and end-markets. operating a timing. XXXX was confident FCD of year points The XXX and am year-over-year.

received included base which of large $X year the products first prior and we the – While number impact tough projects This offset refinery quarter, large awards to foundational by we comp, our or the divested win a million driven partially of solid bookings. performance did no helped the in businesses million $X business.

the Additionally, offset dynamic base growth of based initiated years. improve believe determined second industry-wide on market business optimistic and begin and beginning declines with two our environment. recent original the Furthermore, we changing quarter. we in help increases, that our and of mitigate of price we the pricing global activity, equipment increases near-term to about year, deliver on turning, quoting trade can cycle are Since visibility improved the some the our the a are environment recovering solid sequential of cost impact margins, to and have occurred we in bookings

long to original in platform. discipline and higher this journey for pricing believe threshold moved the We Additionally, this approach value in we deliver will run. shareholders our recovery over EPD have business our margin our begin the equipment margin

million, Our aftermarket franchise the delivered third highest of throughout has first level proven aftermarket XXXX. the the cycle. our In quarter we $XXX resilient bookings of quarter, since

and and turnaround return suggest increased Our discussions their to the on their smaller increasing efficiency activity with the projects within customers continues potential focus investments. indicating facilities of for improving upgrade

oil FCD’s activity, bookings by with were decreased XX% American starting bookings refinery with Bookings of due driven Middle while challenging including number approximately runrate our driven also primarily and XXXX. in to Turning and gas large and North and EPD EPD the the coupled challenging end-markets up oil IPD year-over-year, approximately by markets. East, modestly the XX%, by award improving commodity Asia-Pacific awards enhanced in conditions by a IPD first on-shore comparison gas. indicate now and to quarter comparison. decreased in for A price improved

demand and of on to declined IPD by the chemical driven pipeline globally, our Middle approximately Asia-Pacific driven The in the shown driving markets had the economic hands East by by various in Flowserve’s industry perspective, in environment most in are an Our geographic to and and increased wave this to modest industry largely strength we low-single-digits. we our global cycle and be activity, by and X%. pre-feed and North space. marketplace to growth EPD strength saw cycle X%, large America the challenged XX%, stages also significant that was awards year-over-year, feed growth additional and bookings the prices helped over industry that we project. choppy several The and increase and increased is downturn has driven on we be anticipate General the has growth believe reverse included confidence IPDs the are U.S., to and and now we In counting of to and FCD nuclear a including quarter-to-quarter, beneficial supported supportive. we increased is last tax bookings strength challenged in others East. believe XX%, in course forward and industry, ahead. in increase Latin conditions the by distribution, and near-term to XX% and approximately three continues continues package is most are regulatory strong mid-single-digit project a Oil FCDs our projects XX% the IPD. expand. E&C bookings to where desalination In Africa in crackers continue in Overall and continued continues activities at in the East, higher EPD award by Power Middle We Asia-Pacific Asia, planning. Europe while Asia-Pacific, strong chemical driven America was global From growth Power year, short in the improved and a These grow somewhat summary, in improvements reform down investments rest Europe levels. ethylene the performance serve of with were move second in growing. while multi-year not offset EPD declines have which North America, world. region. started of expect down Due the in refinery pipeline while Middle low-double-digit stability delivering the

closing I transform greater the it over we We in we in before to our steady our realistic turn and few results to the in anticipate we now and to comments of sequential financial to expect deliver detail, growth terms shareholders. growth our our see and combination open believe will markets will discuss the company will disciplined our strengthen value Lee and and we While then Lee? position customers we are quarter. second turn do taking a that for to Flowserve for to remain internal Q&A. marketplace call initiatives I and improving outlook, in solid of the

Lee Eckert

good and Scott, you, Thank morning, everyone.

of to new start of accounting for the in the his had first As moving ASC requiring revenue a Flowserve also significant perspective, increase XXX. as comments, over contracts Scott PoC a standard, time. numerous Flowserve Percentage this due in referred implementation the XXXX mentioned primarily From implemented parts, at accounting, standard new of to Completion quarter,

OE contracts coming compared former now revenues $X.XX quarter to on X% under highlight increased as EPS, Percentage applied gross projects. the timing-related the We Under the SG&A standard very recognized retained recognized backlog our of X, XXXX I the to remaining as this operating of this $XXX that first retrospective are under period While primarily let and which Flowserve of year-end related and larger have Since the little this compared just revenue January to of date at recognized PoC of methodology, modified in impact mostly was These the million margin significant contracts, call earnings certain margins accretive XX% equating from were to lesson, approach. incremental the to the new to to an XXX modestly our new Completion, obligations standard. XXXX, of me our ASC retained is revenue were to reported The in was our EPS. don’t $XX in quarter implemented changes. amounts, effective was our of of for the XXXX. With this million accounting dilutive under become intend revenues some standard. was profit earnings

liabilities let contract To new and sheet has projects up primarily are inventory and now amounts that line items in balance called assets, from in new Our have new shown accounting me wrap categories The this would liabilities. coming. previously topic, accrued these processes. that essentially two knew reiterate we this was came for contract receivables, and standard what

reporting We a remaining were was reporting within the this for the a multiple prior accounting new our in the So year ERP PoC due proud this later of cycle based systems little our it the company and first and team timing. doing I major financial the expectations that done. on to occur it books using more the expect period accounting both similar am locations effort significantly, for exist however time, quarter’s this do and effected, new and the of and standards. guidance the contracts getting our will to for closing number that

per of for expectations the basis, $X.XX me of Again, discussed On line of per $X.XX quarter. very our much of results financial currency discussing now share why here, delivered Let is included with the of in call $X.XX. corporate are line discrete earnings our on return the reported impacts $X.XX and realignment adjusted guidance Flowserve below earnings last items. we share which our expense a to and $X.XX given. we and

to million. $XXX increased First quarter X.X% sales

$XXX the of In weaker headwind new XX% a incurred spoke approximately million X.X% currency we accounting our standard, representing U.S. Scott as to on offset the X% businesses are a by about for that of addition quarter. earlier, the sales increased which total divested tailwinds dollar. result to Aftermarket revenue of roughly XX% the

cost of prior margin was including our Lower our XXX year-over-year the weakened increased margin adjusted the versus at down offset flat incremental impact original impacts of basis On offset our margin, quarter which as incremental a margin standard, included now shift points initiatives towards the basis than XXX quarter. equipment our largely from a decreased higher gross the revenue XX.X% recognition basically our points margin reported Looking gross aftermarket more continued SG&A basis year’s point first revenues was cost realignment to and basis, charges, savings U.S. mix dollar. savings Adjusted activity. first new the XXX in gross XX.X%. the

As segments. currency the Reported decreased across sales, spends. adjusted SG&A XXX headwinds despite SG&A a cost basis percentage all due lower improvement of efforts and with to points increased realignment

declined First respectively. X.X% quarter XXX XX adjusted and and and operating reported X.X% margin points to basis

discussed, delivered Scott we improvement offset XXX of adjusted which As operating IPD’s modest basis mix. a timing point FCD’s in were as by and decrease margin, shipment result

know, adjusting million IPD’s $X.XX first in the is about for to PPA will are the longer we SIHI, no You quarter. related which

effective benefit the year was first tax to XX% reported for quarter, to line On primarily of in XX%. which in the is regions related adjusted was tax where quarter rate an certain our Our in effective expectation high basis, with full no realized. XX.X%, rate losses tax the was

to cash. Turning

XXXX. a traditional first expenditures from million, operating total the capital we cash through with about the million of of $XX.X quarter, cash million, our Although over and billion In our flow returned million balance to down above of March strong. seasonality, had $XXX million ago. shareholders and than $XX cash use We quarter $X.X year more cash a equivalents, remains was dividend XX, $X.X $XXX reflecting finished

a our focus I it first to the sustainable still While company’s implementing it capital improvement to the is on working XXXX, processes. seasonally tends capital discussed quarter In to reduce. where weak, performance its be, be and as remains before, needs not to working priority

all and sales aspects processes. are our changing of operational and the to of foundation We order cash planning

second year. these of the the to initial half expect We benefits changes of being begin, the in recognized

clear to is deliver our flow forward, Looking performance. stronger cash expectation

Turning to to range reported share the kept basis and to results our target for first of adjusted. as our our per us on $X.XX full which EPS in per pace year, quarter line, $X.XX share we reaffirm XXXX outlook. year $X.XX a full on With $X.X

well target realignment as confirmed XXXX a year. effects a in impact revenue as and the benefit backlogs, target range, also minimal expected year-end from and the of the $XX expense Net XX%. currency current the year’s and year new to and market reported including coming and to X% business are offset expected the to the lost our The levels, as million other may adjusted transformation approximately currency We accounting range awards and expected of is million tax of with divestitures. prices, the EPS growth of new rate $XX FX XX% million X% excludes items, below which and Both adjusted of rates EPS occur impact booking X% a position assume principles discrete foreign range potential the commodity $XX expense expected a full to of interest X% negative headwind last line backlog. during roughly in from the adoption expected

although seasonality second in year. the the half of to earning be traditional expect we for pronounced Additionally, more

to million approximately in shareholders. pay XXXX of also expect dividend to our cash these We $XXX

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

fully We expect million to products as mainly our plants contribute to our remain $XX in ongoing largely down approximately debt funded. approximately U.S. million plan, to pay global due service and pension $XX

Now, for to let Scott me turn his remarks. it closing back

Scott Rowe

our in the from future. with a we days, completion office I capital. but our have and the the initiative time, assessment call, our designed six full action. some shareholders. now taking discussed In the internal with transformational it working highlighted conclude Thanks, assessment aftermarket, scale Flowserve commercial, associates our a the an for and recent dedicated to transform operations, our X.X we G&A growth, areas, our [Indiscernible]. initiative Great. engage internal formed business still early of length Since on and is and February gone taking on our to from we’ve now across are Lee. best improving key to initiatives the It past, customers, fully Recall that serve call better cost, I’ll an model update reward

The third-party group is operating We where and this needed. value-creating our are sustainable of and model. team focus drive singular augmenting with expertise accelerate change to this to improve

better think, scale the various office operate reduce that transformational and We projects planning growth. that underway The reduce These and are way costs. to better in of changing to is drive work accelerate we are leverage enterprise streams focused and initiatives and on complexity stages. scoping act different fall growth currently intended under broad Flowserve, are the sequencing our ultimately

delivery focus are developing improve our set chain cost through and effectiveness while to consistency selling becoming footprint employing markets, on-time growth reducing our optimizing the efficiency examples some people vision. cost improving automation and our structurally to supply govern across organization costs, embraces product our driving driving common excellence reduce Improving activities rationalizing process select driving we these functions, material that enterprise tools, non-material times, goods process operating a and principles, common our do. a and value our strategic across systems sold, to what improving platform, design attempting are efficiency of of increased pricing effectiveness, and global profitability lines Here to decisions, and core and and G&A methodical operational on first aftermarket a the lead and reduce of across manufacturing

transformational is we or As change easy not pursuing quickly. I are before, said like accomplished

and comprehensive am drive long-term now model that like employees the but for to actions shareholders. our these our prepared significant open to trimming effectively Operator, workplace support the questions. more for to will concludes our meaningful We our pursuing a I call long-term not to customers, deliver business that edges, our our comments. increase stakeholders. ability for value around we that create change We a confident benefits our are are will

Operator

go Instructions] your first you. Thank line Baird. And of please if Mike [Operator question phone. is unmute from Our your is muted, ahead. Halloran Please Mike,

Scott Rowe

morning, Mike. you Are Good there?

Operator

We Charlie go is will Brady move on. The from Humphrey. question Please ahead. of SunTrust next Robinson

Charlie Brady

questions A Good thanks. Hey, here. Morning. couple

the more you more line or looking sequentially but FCD, you of And you on and yet, hit a bit can you in will? commented improving visibility, that function are kind on timing confidence a expect follow-up bookings that, bookings through Just what hasn’t it your as with that, that a think little impacted just elaborate to is QX? towards QX that just likely issue Is QX. you you May see a that in that in quotation from of April activity of as

Scott Rowe

I’ll do and the I’ll Lee outlook let then on part, on FCD take bookings. the

Lee Eckert

quarter, the Charlie, fourth year Hey, lot fourth first from FCD this is Yes. pulled and a that their of a performance the into record shipments finished quarter. Lee. had the quarter some of

So, quarter. expected a think I due of results the quarter performed this they fourth impacted their were as basically lot to strong and really of

Scott Rowe

Yes, mean, just to team. very I’d say, FCD a add so we’ve I strong to that, got

a that get confident starts to normal are operating We that margin back level. more into

we the pretty feel good. bookings, On QX

April clear to got to higher near-term, So a we’ve line of than be in and and and we’ve solid bookings, we the visibility work we refining had QX believe that petrochemical going got sight is QX. that

Charlie Brady

that ones ethylene to On the equipment you that plants on gone that yet? to those Thanks. –to are those Has been plants the have EPCs, you those have awarded? the gone mentioned

Scott Rowe

in pipeline. Some the are and are others participating, still have and we

Charlie Brady

queue. Thanks. back the in I’ll hop

Operator

you. Thank

Citi. from is next Andrew ahead. go Please question of Our Kaplowitz

Andrew Kaplowitz

morning guys. good Hey,

Lee Eckert

Hey, Andy.

Scott Rowe

Good morning, Andy.

Andrew Kaplowitz

give point update, an can Scott, obviously, think talked official some last you about you about at I out targets. Flowserve X.X, think us quarter setting when you so,

how chain timeframe other might a at optimizing you improving to you of you when the this we you efficiency today are company us able think among to point talked in and see simplified more judge you You on But ready factories, Should the things. some should X.X? is do be the on by think Flowserve meaningful about improvement supply performance say the investors that in year? give end

Scott Rowe

think best are using to the our in little about we it, is transformation. I it’s said I the a bit way accelerate think, the Sure. Flowserve Yes, to prepared the is remarks X.X way vehicle

change, to got the start as kind through last of performance we the I financially. a to with company and the satisfied why to it not catalyst back operationally something And do we’ve We internally are so created -- differently. drive know as to had both things of this and was do that’s significant work of half we’ve initiative. We year,

just this we launched that dedicated staffed massive that’s in we to We’ve quarter, the that the fourth did into G&A continue aftermarket, very defined to require our and potential with investment the point, ready of driving to see the XXXX is half transformational of effort benefits XXXX. that then got Flowserve and augmenting will start timeline, completed improvement about, I with The or is achieve structure cost, here that. change do potential back going basically don’t expect talked on while where team commercial, not of majority sequence, initiatives got out would into our of are prize, a is we growth, in to leading process, completed. long I associates assessment a and We’ve is we here and beyond, come fully help streams and the love pretty our – turning are And It’s and in a assessment large be best systems just recognize say, Flowserve is is number the to office and just and and process now for and and or think we I’d a here and the people, the and which work actions, talent holistic the to script, we and but at the our so commented with results that and in we to the transformation. working we where third-party that have As six prize in this we’ve that now this success Flowserve. that just say, then are capital, first are prize in significant associates that the run. it we quarter, assess we the bring to are practice or operations, skills cost are can’t we

sequencing We are things. still

wins I committing as think win program, of point are to I a it’s more what at see I get we’ll on the program but we’ll the under and and holistically holistic we potential action. still get what confidence the do a think more some talk right is belt the get some want belt for But two come our now and to We here. metrics. story, get can milestone traction of And and actions, and frankly, Flowserve, we some under go about think need quite our to in or let’s where out with we high-level Flowserve then kind the – think some

Andrew Kaplowitz

Scott but helpful. $XX you seasonally had rev have that’s bit, then, in either usually Flowserve, orders cash and you I know negative $XXX the rec, that weak know Lee, assets. a little somebody mentioned increase million, first million the guess, you free for that Scott, And I mean a who like or in quarter, we contract you [indiscernible]

about can So, that you the of in talk quarter? in excess you in working improvement And half it’s talk the maybe capital. expect higher revenue second about billings, why

look at working look last of a QX, end the better year working by capital at XX.X% and we itself? that see capital were than numbers, should we If should this how of as sales percent you the

Lee Eckert

we where that’s clearly accounting little changed contract have customer that the not should the so work Yes, bit. the billed performed. the I assets, One represents for formula cases thing mention a has that in

Q. say of X.X accounting management of of adjustments running, that, out that fourth some that manual a would in Unfortunately, fourth provide year made part lot profit disclosed driving could was is is the in we in working just these a in just in to not stepping the But quarter, of, get performance. included the quarter same, Flowserve capital and very Coming get intensity I there to areas. we say the trying it back, new the we all the management progress the tremendous I So the trying around would lot intensity. running,

– as working as we make not AR, I So, progress would did much like.

to We the to in in collections. more process us fixes understand are that preventing systematic of putting getting from what’s drive

last my we On change I have backlog and as in call talked – and the we I then, our what from process remarks, that’s talked about driving guess, the been some production. the been would hard the We third inventory are Scott’s liked in did not make we progress highlight major about as side, we providing these working executing the is and as part past-due historically is would our call, – we’ve SNOP around overhang. much run. implementing that, the building And our forecasting, right we in That processes. And inventory buying in processes how company of remarks has performance.

so, starting start institutionalize get the time added areas. Scott And skilled of pilots to to that’s running going year. has the to some effort. that take course are individuals to during time and who extremely the taking in these But it’s

a year. nutshell, the that the the are quarter feel of But, corner and in drive we the played pleased we balance first out. turn how we improvements So, not to can

Scott Rowe

Lee I by doing been much flow are. we said Yes, is, a more think, management systematic are drive now systematic where cash turning this. it with working We’ve just on bit little not what happy eloquent and summarize, long-term we that and results approach. intention That’s into capital and to are can

do And back resources. XXXX part major we and we to of on the half expect of Flowserve see It’s adding working capital. during progress are X.X a so, the

Andrew Kaplowitz

just and Lee clarifying thing. one Okay,

the there first it timing. more think quarter of think You that year? that as was you to that about on? of the from clarity in how benefit rest I and it had said sort $X.XX, impact Does Any the ASC mean and the XXX recedes in of year goes

Lee Eckert

we that be to retained communicated XXX lost we’ve other So, going in our from XXXX XXX, that into through pull-in we the got believe and into we $X.XX out that’s restatement what earnings. XXXX. guidance, adjusted went effectively we from What XXX, to ASC said,

So, is is the net-net, there potentially year. impact is we don’t during think Where timing any there impact. some

for this that, quarters going figure year, And be effect course over how that difficult the to got the this sequenced. we should when get in – to it out is year, was is going feel and so, we offset balanced. the quarter other be to $X.XX it the of But,

Operator

you. Thank

of next from Markets. Graham is question BMO Please Scott Capital Our go ahead.

Scott Graham

Hey, good morning.

Scott Rowe

Yes, hey, Scott.

Scott Graham

Hey.

So, comp, made, when commentary EPD, comp was gas EPD down and bit? Some little why the it and bookings still oil was you a of or down because and you there the remove the chemical in Scott, could of down? you the was unbundle

Scott Rowe

first comp. last year. refinery we Yes, EPD on $XX award or large in The OE so, million specifically, oil quarter in the gas the had and

oil up that, and side, I on And the then, that. slightly look on you kind was number do the Jay, chemicals when gas the have of on don’t year-over-year exact know, remove we chemicals? you excluding If actually apples-to-apples at

John Roueche

on the Sure. on actually slightly were bookings and constant mentioned suggest I basis. They comments, for we The timing, is optimistic a a during outlook his going Scott were basis prepared down currency dollarized that would it because predominantly about chemicals are fairly up as chemical forward.

Lee Eckert

Yes.

Scott Graham

Gotcha.

Scott Rowe

work about the Scott, bookings were we just not just there. pump was quarter. in lot really excited are There OE out the I more would a of say, generally, where

side, started up QX cycle to so probably and have stronger the in as kind approach ratcheted And tenders rifle materialize we on to visibility on more We said those bit we’ve the QX of our got especially But into to went on are pricing. overshot much a forward little we we’ve that. saw EPD QX probably so, expectations also little this and prepared and a to in shot looking what comments, just these we the do QX, and get a things. through but margin I

QX won, know been we’d that potentially we’ve not lost have that. we so And we could pushing in work had some

to at look strong than pricing on there we should pricing. commands be so, what’s also that, But higher and are this a we today. business continuing out also, And

And be disciplined so the take, these going the we about are we take awards. deserve to that pretty and system that sure what we can in generate make we we into value

Scott Graham

you. Thank Gotcha.

of I stuff require bit you kind are Flowserve X.X mean, wrong a of ones, side. in it, more of where happened But Flowserve little to things going all maybe level Just the question? Maybe the less? maybe to with of Because, Flowserve – here. tell that couple and some Scott. be bad really last going is as you three some intensive? that six, it room. these a by when out, the lot seems am six, areas that others. in them. kind are assuming there and have intensity like, assuming company is six same two I and more maybe to see and working guys not of have X.X which could am the which don’t some of make the you they It up years follow-up markets don’t me went it the of Flowserve areas I could maybe am that with of on that on is the you bad Could capital the of as where us, has by on of the some am old I you I phrases a is X.X but this where that, And or X.X, lay of some some that

Scott Rowe

confuse the to X.X, to because X.X going my here. XX,XXX that’s Sure. am and of all I associates going use

But just say better. So, six the is across the would working let significantly what different intensity obviously, but, capital. – is I’ll start to get but capital there clearly, it, got sorry, me Working aftermarket I go initiatives. on through is that,

we’ve so is already area resources and And operations, an significant into area chain focus. we Under are another that’s moving that systemic supply of process added change.

got to and go we decisions scale statement, back the made the different basically leveraging lots problem acquisitions, you’ve that sites not originally we we of lot have Flowserve. at are And so, a of

year can a would intensity say would we consolidate chain correctly. value able centralized should to then top creation process, prize nice we some so, to supply that’s we chain here wins big three start kind immediately be as more And with it list I get our the is do supply really, this third and if be should a a of of one a And that little aftermarket.

And the I aftermarket what and breadth, and the right, back franchises field our so, while to absolutely continue be can impressed with kind we flat need way I do, of is over look with business continues should fantastic, grown years, relatively grow in that last really aftermarket aftermarket. And been installed on yet to our haven’t three that we’ve the and or we it. grow base the if we

lot we big unlock initial we to and have of areas focus And couple how getting last and here attention more a aftermarket that’s of do is, really of the so, one than the the start grow in years.

of relatively actions we’ll So XXXX of critical rewards leaders I coming intensity are and areas initiatives those to and have But streams. early half all quick a across are of XXXX. lot six and three back and would that work and say, we we in the each those are see have with expect

Scott Graham

announcing you mention could And Thank closures? Understood. when start you maybe, expect you. to one Thanks. on, the plant if just quick

Scott Rowe

The Is plant closures, what? correct? that that is

Scott Graham

Yes, yes.

Scott Rowe

– announced fourth announced and three actually in have some we quarter quarter the here year. we first in we of so, the Yes, this

ongoing restructuring, say, kind right. would generally And of so, the is and I it’s that on

program end our that part We quarter say are in quarter. in the They there. smaller, clean and we added to would program. did those needed a of was expect complete as was first course haven’t do original the up. at relatively the original We largely But of first changed the desperately I we year. That the this announce few

to plenty expand can continuing a We And footprint. we So, that still we to have press this. capacity refine that roofline standpoint with believe continue to significantly of from going capacity are are productivity. we we and

Scott Graham

announcement, an that I Was that. is missed because or apologize that news internal release I a if

Scott Rowe

do don’t Yes, We it’s just that externally. internal.

Scott Graham

Gotcha. Thank All right. you.

Operator

Thank you.

Steven from of Please question is UBS. ahead. Our Fisher next go

Steven Fisher

Thanks. Good morning.

Scott Rowe

Hi, Steve.

Steven Fisher

FCD little to mix just the you You the guys And think the more give when headwind margin. on you a us explained Can will timing the experienced? return do year-over-year? you margin improving see you color FCD part of

Lee Eckert

So, this is Lee.

expectation start said lot issue first and and expectation. into of, first that’s on quarter, key pulled we third a said, the the deliver we second pressure historically I them the where should like moved back My So, to going quarter, service into say, like our is, of quarter, we in, lot a in they to they exceeded is, seeing I and parts put those been. the got really going would margins I

Steven Fisher

to past-due margin not improvements going versus of backlog, margin should is just Okay. And dynamic? result gross achieving this a lower if thing? directly to that extent IPD be targets, what a then, margin is sure how gross Or SG&A? I your in past about – am backlog that more we think

Scott Rowe

line. it’s in IPD around o execution Yes. But the performance. margin some there. progression SG&A is The work There be gross really savings and will primarily

and are not better, bit talked first sites are some the in I stability quarter, significant a pain what They would now. worse. a quite in did didn’t it get the causing pretty us concern. of past-due get significantly about and right And but we’ve say have in that mode IPD we now so, Those a backlog the is,

start second kind make And the on we’ve stabilized if start feel really margin we’ve optimizing will platform now we this the and and for transition to we see But will of progress confident to you got to improvements the of future. think I so, in quarter the the and it focus do that you and third on line gross year. more

Steven Fisher

why should Okay. not, not? that for target on past-due backlog, be the zero? And if And ultimate the

Scott Rowe

to it’s our zero. lead will so, it customers balance commitment of a never our times. be and And really Yes,

of ideal times right, of is kind commitment running X% customers, focused of situation if be as which are what’s quarters, miss But you we maybe our possible. and is, some an total even be then the to or that a We so, don’t make at we want on a to want late – to that are we delivery, a we days short weeks. two world, the today. our to we late And of days probably as don’t in backlog. are we the past-due or one the week And do when lead X% a want those important in what getting backlog months to more is kind

and past-due it’s down our up be be lead what going to to ability to so, will always and – our backlog we driving And aggressively doing variability there, is, execute. tightening times but want really

Steven Fisher

you. Okay. Thank

Operator

Thank you.

Our ahead. of Sachs. is from Please go next Joe question Ritchie Goldman

Joe Ritchie

guys. Thanks, morning good

Lee Eckert

Joe. Hey,

Scott Rowe

Good morning, Joe.

Joe Ritchie

function that for liquidated have, margins like, Maybe through extra – trying our that damages on now. at backlog through it is what’s to to just sticking going Or a do so, of a just just guys cost is am I serve? right Is the going you just past-due understand are second, all? – this

Scott Rowe

is inventories. customers, have concerns collection We and issues, No, look, causes revenue, it’s receivables not it’s late delivering is working good, with capital. There It right. damages. do liquidated

past-due So, and large don’t want it a is bad backlog. so, you

we I was working we didn’t didn’t what so, it bring on want, to continuing got on But major the continuing one or that focus that but lot down is, things a is the big surprises we performance and on relatively touched to of are any really got would or – backlog of to a one the IPD that we but on operations we focused focusing And And flat, we’ve you of and there, issues are say in things past-due down. our have Lee quarter. And FCD. is, – manufacturing didn’t drive grew in and EPD if we’ve bring both and and this planning.

the process. are we introducing SNOP so, And

think planning We just don’t I we and then you are manufacturing. basics production you But well, a that the of really to these are material lot are investing if issues in they get today. management do facing which

X.X get got And at. an and our and it’s so, space. our added this area is already we’ve in strengthened competency we’ve better that and under Flowserve the people But significantly to

John Roueche

one we be late. would to damages, liquidated when that damages, add is realize to that we Joe, potential going is, identified once that thing I for product is them a we record liquidated there

the quarter, known before. timing the So, we did liquidated lot necessarily this a of much in not last of and quarter was because quarter damages shipment incur

Joe Ritchie

the being and little is improvement why know they Got But, a we were, And to I’d $X for Jay. given back we you get that guys and it. had well, per capabilities wondering, the a before internally quarter right down the a year-over-year I helpful, Or bookings the very sequentially. Scott. And an in fix sequential would orders? that billion some were of in down then those kind orders, appreciate bit when on step in you at backlog? Scott, talked going backdrop there that now, maybe secondly, that the to in take That’s old actually it it’s I backdrop can look place am do take just, And right guess, have of to I color I deliver XQ. take back organic things also strengthened? on strong. they just today as about time but to expectation is types like

Scott Rowe

say divestiture the really would we we if so down XX%. did good grew you is add I number. FCD aftermarket are on We up a sequentially. XXX the What actually, is, Yes, exclude come and

just And, execute, than back the I up to to And billion comp is, had say think, we growing of planning higher in what is and we on $X strategy. some to of the we hard where had the focused being going focusing problems and at execution to a understanding will is billion, sales a capacity have on from are. know top-line and on QX would are award I the QX. And do are some theme doing and year-over-year We quarterly ability where our with to get spots would if Hengli be what that are the don’t and I really level. confidence but we and lining $X we then But our quarter. kind like so, see bright we everything And the divestitures. that’s we are on

sure making actually we do the We are and about can we deliberate bring the that throughout being more that execute work that deliver in, system.

are lot sure work and can that that do to backlog clear as do put in we we selective we and so, execute. think And is past-due we is the a which making facility where of starting being

execute. progress our chasing we’ve I that today, operational are will to capability. what confident But we able to continue to got am we be So,

Joe Ritchie

how you about flow I then? flow What cash Got But accounting one cash expectation be in either conversion did anything? we it. I don’t a free could Lee. should flow Lee, be the And like thinking for change guys? for you from rules have if guys cash sneak guidance know maybe generation year. a or the for should the more

Lee Eckert

the It obviously different standard in So, it buckets. new puts does not impact flow. cash really

capital. working our are is So, expectation driving we that, down

but we transparency capital. of the again, need metrics getting more of up the worked. to accounting, in Under the some we what inventory. come are are are how better accounting need and different contract, We used to accounts. we receivables, how new we was But, working expectation going inventory through are to of analysis around so, we around with velocity I still it how are contract be improving – the with things velocity accounting that. it comfortable assets, some But mean, And balance quickly drive investment put cash, and doesn’t facilities impact collecting. is, it well in going sheet to does our in reduce the

Joe Ritchie

to I bogey? for bogey from But, think. flow have year, the an at a like least that have to guys cash perspective have internal You would a do you'd like you have

Lee Eckert

that, Well, we’ve cash with not we are year-over-year. operating but the is flow improvement gone expectation in flow driving guidance, out cash

Operator

Thank you.

Our go is ahead. KeyBanc Hammond next from Jeff question Please Capital. of

Jeff Hammond

Hey, guys. good morning

Scott Rowe

morning. Good

Jeff Hammond

get about visibility you just the better pricing? is for pacing, how you on building comment differently you then you – price? seeing in doing build as to are just drive on talk order can I larger to is environment Just What projects? are guess, one, funnel starting the And or what on the

Scott Rowe

at the price the with in out the import on steel back certain followed items. Yes, prepared of the of increase tariffs. on then much pacing, come very a year increase on end QX, I a the we remarks, And broader talked we a little price of general that industry with bit on did beginning

got year. second sure terms that’s a too little tell would And is and say, making one we’ve two this work. of so, the traction there to I in going that early out to

The other on thing EPD did specifically. we that was

a margin and that saw last a expectations, a bookings the that we as did been than is that we higher our is a what in we so, probably could And aggressive OE QX pricing. had did – EPD third our the price. work results been So And of mixed we QX ratchet we on model quarter have had cost up year. little plus of in list rather lot less

are our price. a this what through we yet, that to should pricing the we be a before, of we side we front want of And make want leader more stealing But And do that given be we some about little increased selective. talked be that in operational bit to we the of challenges to and struggling environment, so sure are a get way on kind but believe traction. we are

we do. stuff on rewarded we get and bringing for are we we that do actually the when that We work it, that can work the

Jeff Hammond

then And project larger visibility.

Scott Rowe

I say, visibility, projects is seen last project in the funnel better have of our larger probably Yes, I than XX would months.

two $XX ones last size seeing the On of or that months But a in we last really though, on. at pipeline $XX are $XXX large the not that larger are million at the healthy seeing anything we million or year where to had kind of one XX at we kind range. million

those And QX complete see so and I to would and the as expect in of we year. more QX

Jeff Hammond

then, Okay. past-due Great. on And backlog. back just, get to

demand, kind think of of improvement, quarter I to making gating like to as stable particularly it can this you to start kind factors to want a progress. you get that said was in of you Thanks. the continue and pick-up kind I big – So get I of make back just

Scott Rowe

thorough super past-due to want I so, on Yes, backlog.

past-due terms to change got side one, not the strengthen we’ve and in we and in planning our stable talked manufacturing process we EPD of around went and fixing we this, the the grew backlog it up QX do. is side competency And Where so what want really reasonably was and on in quarter. it, was to but about then IPD So actually FCD which improvement. certainly

the We’ve plans that ability Flowserve plan large umbrella X.X execute to basically and our so, and the work. within focus. on that’s are And we through systematically going got

has lot a Flowserve had of delivery planning success strength. while historically, been real and never a so, And have

something strong we we’ve comprehensive very at a look got in competency it’s are around making sure taking so execution. that manufacturing planning that And that and

Jeff Hammond

Okay. guys. Thanks

Operator

you. Thank

go question Dray next RBC Deane Our is of ahead. from Capital. Please

Deane Dray

morning Thanks, everyone. good

Lee Eckert

Deane Hi,

Deane Dray

about two put you price around was some through. I to I might missed Hey. that color reference get have increases the but, this, hoping

are of of of the that Just, customers? yield the pricing? Just any getting you the color What's what's What be those? reaction kind on been would cadence helpful.

Scott Rowe

Yes, Deane.

discrete. talked again. bit. there and on what into I certainly We would select very of the get that’s worried uptake. I would about that we’ve year go did I successful losses some were pushback we data reasonably the the was say a And, with saying nice now about. or And was got we relatively So, the it items and want a at that was little didn’t that beginning

so, that through And one well. went reasonably

steel. on second the import the tariffs The back one on was of

did we early that on at we the that to and so of one. just end tell are March And too

intelligent really are looking And drive yet Flowserve much more decisions. is, generally. that say something two what happened more to I for we have is, X.X. so stream the those just, I And analytics about are we’ve that is across prices haven’t commercial haven’t in very then are what year at work that And utilized the this talked pricing would really Flowserve

And that’s on and our we more we standard jumping so, pricing our where and some type that something like got are on opportunities got products. think service we absolutely pricing, of parts, we’ve aftermarket then

with pricing move and to we we that We are have and that making sure to up and able don’t logic are that spare done progressively intelligence. some

Deane Dray

And today you a basis? sand in on then, for does this it. on that line here. the into where a goal specific year? Lee, think you got had for does But how to translate stand if I price/cost on are don't you've net the tracking the how draw Got price/cost

Lee Eckert

see So, other. at on one kind a side, who looking right go proactive each cost inflation. the plays out. We’ll now supply chain didn’t even we we to of consolidate detail, are kind that Scott, group that mean, the trying of is, buy of assuming the some of we from be into lot two are our how offset on suppliers, I of

being is there pretty with the be our be going changes there we that some assumed consistent going pretty with what and assume, the be inflation in We is net are out assume and originally assume that, is So, to we guidance. then we since our price that we guidance. to assuming consistent year, the to assumption also it’s

Deane Dray

Thank you. it. Got

Scott Rowe

Deane. Thank you,

Operator

you. Thank

Giordano is next from question ahead. Our Please Cowen. go Joe of

Joseph Giordano

Hey my guys. Thanks question. for taking

Scott Rowe

Joe. Hey,

Joseph Giordano

going on disciplined of and the to that’s firm strong I the some sacrifice been out into on you and maybe a more work loss market are Scott, summit how guess, is kind lead orders remain there. to pricing, this? your long of the How scenario?

Scott Rowe

something good officer Yes, Joe. quite talk platform a myself. our it’s president And question, our between it’s about a commercial and we bit

on in strong pretty evaluating went we to hoping And more we QX. think, it’s a basis. I did we traction something get regular that than are

And so, say, we going not I are business. dogmatic to are the we drive want we understand be that it going rationally. would growth to completely We in very and do to

our know that take annuity. to time, And not work we for very aftermarket are work so we are that. on at to gives committed not who and going and can are want going make going it – doesn’t that us we the not that to take take we work are Right, practice. we to we to jeopardize same But money long-term focused

planning say, us deliberate I’d rich have about we’ve got so, early and a methodical early we And these the and in in allows that much pursuits. to project more pricing discussions and more are getting cycle more visible cycle our

Joseph Giordano

like a it Is handful…

Scott Rowe

but We got past-due backlog mean, in in to balance. a We’ve got on others. absorption going Right, it’s I do are some some under this. we areas, we know anything crazy

what are more targeted. pretty And to want win are be we going about we we to so, good and

Joseph Giordano

to like actors for process willing with guys kind Or outlier of it, in it a thought are your just do now? you is of handful Is things right zero? bad or

Scott Rowe

these are it’s a as large Well, and like obviously, bidding you say, dynamic right. tendering pretty and projects you environment, we are things, outlier

and I capacity we we’ve would has ones down think are say need excess want Everybody we at But we and the move mean, is, So, will here. I we we sure time, but the signals were said we can same in down three our to. what and make be price underabosrption want fill eager is, I what minimize our folks capacity that cycle. we get years to moving as yes, to up been a their to the market

Joseph Giordano

am past-due and that I to why kind then, And in up, questions environment? this understand as hate EPD a down I but FCD up did the can I backlog, on in – you Okay. bringing actually why but, go little maybe, go the same much, of

Scott Rowe

project. in I but say think, isolated was quarter a we the is, and good would systemically, Yes, question again, the to day time, focus they deliver have didn’t are to that and very because late. need, that or to don’t true the a operational I large be probably don’t XX that XX we late One what have really it two planning projects quarter we range we just and late, are significantly or in on of these going

our clear operational And this it a QX excellence. in remains and some of significant focus to we to so, on expect do us improve

Joseph Giordano

if could I sneak for one And in Lee.

given year EPD Regarding think those and full do could FCD you performance, in XQ margins, you the two that year-on-year be segments? up for

Lee Eckert

my some again, of pushed use prepared basis the if had bit I XXX think, down earlier old new little accounting. Yes, I when have in margins. mean, our we mean, is, I a been I to remarks expectation. would accounting that’s points said that, the higher, EPD the

so, it very periods, And prior of would it, have comparing competitive some to been that margin.

our expectation drive year. margins So, is the to throughout

Joseph Giordano

last you we we booked versus two for do year? But it’s this up that to things using are for booking that think possible structure XQ, be currently year-on-year what for still those

Lee Eckert

Yes.

Joseph Giordano

Okay. Thanks guys.

Operator

Thank you.

Robert of Our Please Susquehanna. go is from next ahead. question Barry

Robert Barry

guys. Hey

for think can say minutes, I morning. more good I two

Scott Rowe

Good morning.

Robert Barry

Maybe are. another you where hour and two

Scott, are Because targets on we trying that you to it comments be does a mid-term for sounds to like targets. it just of one under belt what wait I providing hands finding like lot to reasonable the mean? and think I investors long-term your around get of or pick-up about Flowserve. when to want while wanted exactly So first, might number two say you get mid-term some the a their kind get just earnings the before earlier

Scott Rowe

sure want long the to we We are is Sure. No, – go We assessment in we do think to now a got and, that really of do you. is, in to we couple or pipeline. to got number. And potential get showing we we it we talk would completed out where the is I when of want expect back want the place, program then, that, We’ve moving We’ve large so, process think I got talk thing something of commit are in got sequencing. quickly last QX future what if formed QX. Flowserve having I in talked at team. since. doing is that understand this this. the team we very to the we we Flowserve I the And transformation, the as about run. the And about make reasonably haven’t with get end or what the about the The things a to preparing to say, wins be prize and able and to we that be

Robert Barry

last case the a given XX%, I around do that’s done out bit op-margin decade, all have good XX%. a you that? do that at Got that’s higher already for it. and it’s target? base say, just the planned what has a to than you little you’ve assume over just if reasonable directionally, mean, at I think peaked think margins restructuring the least big you look Or – mean, picture back I the

Scott Rowe

into ambitious things trying going Flowserve. incredibly exceeding And are but Again, we got I’d this, what on ready and the and have done they here. in we’ve been at not we fully just the in that add. that’s go do top and to that ever doing team to focused quartile are space energized about Yes, a be are to margins are

Robert Barry

it. Got it. Got

Scott Rowe

– program But the to before the how are looks and future get more little got what time like. to show leads to we we've what a ready commit

Robert Barry

I just upstream. perspective have to about And you bit it. Got clarify gas. wanted and know, just little maybe finally I for little me, especially a the oil in end-market very

the Thanks. of up connecting impact or of on moved talk has here, limited the been tertiary but oil, higher business? what’s perhaps, direct about has the oil can some dots So of secondary as kind oil impact actually on you higher of the

Scott Rowe

Yes, obviously, energy. price lot of oil in a strategy, I things think,

portfolio of the pump it’s oil upstream is looking the projects those we don’t of side, $XX that are products of good certainly to that to giant it’s we to like above and gas our are when And big make said, are start industry valves small. And are FPSOs is customers And touching that production see and confidence to gas definitely we operators pump their at the offering product type production our to certainly to come sure harsh money both have that a lot critical really move upstream participate. would positive is, larger service is growing. projects. our relatively forward and on we environments attractive for and important, side you and FCD gives the on so, pumps and do kind land. business. systems now and are what And, things smaller us, seeing worst just valves. it our spend side upstream our in is, What say $XX we it and oil and projects. are things and ability probably a overall, markets really we I platforms have and for exposure stability and $XX us does internationally is that we a is good where into in what in to doing start oil And, exposure driving But around to

And of helpful. of stability so, is any the is positive price the to new here comes stacking that kind that and system

Robert Barry

Thank All that color. you right. for

Scott Rowe

Okay. Thank you.

Operator

for And Thank gentlemen, time you. Thank allotted we conclude. call. participating. our and you will for you we have today’s reached thank now And ladies

You disconnect. may now

Flowserve (FLS) 11 May 182018 Q1 Earnings call transcript