FLS - Earnings call transcript Q3 2019

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Operator

Welcome to the Flowserve Corporation Quarter Three Earnings Conference Call. My name is Janine. I'll be your operator for today's call. [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

to third Thank you, in today participating we appreciate Flowserve's Janine, and good our morning, conference financial results. quarter everyone. you discuss XXXX call

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

replay is Following as a And our for being and call webcast, questions. prepared available. comments, the we will an audio this will event be open reminder,

our earnings included and do, our to reported release to will, call control. forward-looking are our measures measures October the These non-GAAP safe disclosure involve and you that available our reconciliation flowserve.com forecasts, based at XX, include note are as Please our information they which and of Investor the on presentation beyond encourage are risks fully materials Relations in statements. the which well in this of contain section. management other of harbor also as expectations We available and and our non-GAAP as and company's and website XXXX, of to earnings uncertainties, press statements upon results, both are many review

call over and would like turn prepared Scott to I Executive Rowe, Flowserve's now President Officer, to the Chief comments. his for

Robert Rowe

journey. good transformation Great. delivered X.X while results quarterly progress morning, call We everyone. our and to Flowserve today. Thanks, continuing good Jay, Flowserve appreciate you again on our make joining

are encouraged in in and As the we our approach the we this financial I point halfway seeing results. our by program, of increasing momentum strategic am operations

of build at any high organization the we changes to capable of parent enthusiasm in and engagement our to an our Additionally, sustainable drive level environment. expect to at Ultimately, levels organization. business performing a all employees'

reality. are on making way well a this the to We

adjusted financial $X.XX, XX% basis $X.XX EPS growth; the margins EPS X.X% year. nearly for and gross of in the reflects prior and reported a points Let's over of XX XXX well, our in quality the Flowserve's $X.XX, turn improvements earnings. quarter. operating of We improvement revenue was This executed XX% respectively; representing our significant earnings. to up third of and adjusted adjusted increase results year-over-year a delivering and

result strong we XXXX, a increased far ability of to lower year upper adjusted place range thus within range. of at performance our while our $X.XX. confident guidance As feel our keeping EPS in We end to end the $X.XX, in in the deliver this full the

like free flow I to would our cash highlight improvement. also

to last more now continued cash area all in operating capital million the flow growth. spending to We realignment income, spend, free make delivered have in progress disciplined over and contributed year-to-date flow $XXX than this year. cash Better reduced

in now grew third In improvement delivered and by year-over-year to FPD our to and financial income. gross continued X.X% operating Moving quarter, operational improved FPD Adjusted segment's both the in basis segments. performance. points. XX% the a XXX increase margins through flow operating The revenue adjusted

engineering well X.X% increased and and quarter third points headwinds. of by in initiatives, X% While aftermarket progress in value portfolio, year-over-year FPD's despite drive lean basis into including facilities, inventory IPD currency as operating ongoing as planning shift included footprint. legacy it continued our our driven deeper a was better primarily productivity this performance processes, manufacturing improvement management ongoing bookings initiatives XXX benefit, product improved mix our to divestiture

FCD. to now Turning

short-cycle The and distributor MRO impacted call. quarter our we be communicated third expected to business that year. began occurring FCD in the second and North on largely how earlier American the played the continues slowdown as destockings quarter in by out the

On improved dynamics gross second by am to basis by a operating FCD the market grew quarter, the and currency line that margins pleased year-over-year Third top and adjusted X.X%. quarter constant were mix the considering same. points sequentially, its the flat I essentially XXX revenues roughly basis, and FCD's were compared largely

to as percentage projects higher MRO were original higher-margin larger revenues a from equipment derived However, of work. short-cycle opposed

FCD declined by margins to XXX basis we third impacted were on focus XXX controlling the a With to points. limit decline compared margins a as more costs, on margins on negatively gross by our shift year-over-year points adjusted to operating were quarter. comparison this able basis impact of mix XXXX

also industries, X% currency in typically MRO have The The and the continued chemical the power including general bookings and the end to exposure impact. the a bookings. year-over-year, third a impact, Partially a markets year-over-year. Bookings quarter XX% in this in gas. decrease an the approximately impact biggest slowdown decrease decreased decline a in X% North offsetting oil had quarter saw decline of XX% American negative and type in distribution FCD's on increase XX% XX% that highest was business including work of in

American to yet business. We have for but a we to inflection expect in the time, North the FCD MRO bookings recover positive see

end and markets. Turning now bookings to our consolidated

from we by the increased or driven the which our one delivered pure of play. Flowserve of come our of to continues currency year-over-year divestitures, seal excluding level bookings book-to-bill combined leverage more a over marks customers quarter basis, quarter a the This -- and bookings to billion collaboration be impact $X year-over-year performance represents across X.XX%. half with $X.XX projects than This who billion, transformation pumps, products consecutive growth-oriented growth. our greater On of power X.X% X.X%, Third and initiatives and we've sixth and purchased have offering. valves bookings bookings nearly as of

in of numbers. year's third bookings X $XX year-over-year by In larger was are these last work. projects in million Flowserve Our above X booked growth awards quarter and quarter, There upgrade in driven the size. smaller projects the

to the do continue. progression of infrastructure We expect energy projects

to the or seen more difficult expect earlier opportunity forecast. more pricing, placement. there the timing in we commodity has move projects macro end as toward and backlogs is geopolitical chemical equipment EPC good situation and at the demand. Brexit continue macro significant uncertainty than we remain move by Whether increased in current uncertainty order level Refining, refineries issues and large projects set large the The LNG project year. current of the cancellations. environment However, The encouraging the global it's disputes, markets of East, to trade delays do awards in for increased Middle driven project are believe global capital plants chemical nor the We in driven especially have as will forward, spending. news they is the makes not

Our year-to-date. grown bookings original XX% have equipment by

out capturing to our we base there, with drive regions opportunities of markets, that focused We the our in quality growth are customer building and and backlog share a the are on are teams fair the pursue. margin

Turning to aftermarket.

essentially nearly constant a versus currency prior year were flat of Third quarter bookings on basis. $XXX million

which efficiency, continued maintenance. critical intensity the customers' customers' the And growing on to short-cycle increased our program, our focus commercial increase of execution proven share of North installed component growth changes in Our expect as we of we in fully offset aftermarket initiative, drive Flowserve base, growth helped our is combination America our and to slowdown the our a through of regulatory X.X growth franchise market initiatives.

gas. end largest and served a From and market our perspective starting market, with oil

with challenged third the Third and particularly in period by however, upstream spending million negative challenging and remained discipline, the to and impact which awards last and initially comparative pipeline highest gas American markets another a gas of quarter driven year. of upstream projects, to and thanks bookings gas level refinery We quarter air year's this ongoing our $XX Middle million to efforts. active, by oil provided and IMO The America FPD FCD. to the region's due both currency of number downstream North did, our year-over-year, impacted MRO decreased and across in more remains work bookings driven activity was has including XXXX award upgrades clean both mid-single-digit receive Asia East Oil orders. as oil stocking segments, strike quarter, zone declines North X% related $X Pacific including and distributor XXXX. X%

and Coast. currency increased come similar to near-term chemicals a a Gulf driven Coast We growth, in small award in in XX% quarter strong for the East, and to included bookings quarter, FPD's opportunities partially constant Asia region a FCD's decline. project expect growth. XX% by FPD driven by demand global forecasted the opportunities Middle by The XX% in pipeline see offset Gulf the Our

increased primarily was to X our due power lower over the compare, total XX% which bookings XXXX power in lowest markets years. Our

While million range, $X challenges in in a plant our representing in power markets awards continue, we in cycle the are with North Europe. pleased plant a combined X coal-fired and America

offering seals market, a of pumps, market. We the also and in a the provides remain differentiating pure-play concentrated growing solar focused valves power on Flowserve power with opportunities of

project set our and well opportunities installed and We in fossil and to in as Asia. continue participate upgrades global extensions America look to limited life maintenance, as a newbuild with base Europe support in switching fuel and North primarily nuclear

FCD's to build declined XX% East continues bookings of global quarter year-over-year, offset including growth industries included FCD Middle and in X.X% headwinds. decline Third largely was FPD's solid by markets. X% the in Africa general and Europe, XX% currency channel, third growth. quarter distribution its

categorized As of the FCD industries. channel, through sales distribution and about many go that general of of know, in you XX% much is

So experienced category. decline in industry the we've the general cause was distributor destocking activity primary the of

million that did was decline reoccur. also large a not by FCD's last addition, marine that In was $X impacted percentage year booked project

$X in and million bookings Lastly, water third which representing two North awards, in desalination combined, totaled increased water over million our range. each two for market, in including America, quarter, X% management the the smallest $XX awards

booking Latin Turning XX% year-over-year. region quarter bookings America bookings America and down single-digit Europe in geography. third Middle year, by East refining with and continued African delivered most the investment. and is to with up both North our now and while for the the chemical XX% in XX% was growth, strength overall, by Asia significant driven The growth low flat. markets over Pacific challenged remains

now detail. before Lee open to remarks the will closing to then results I'll greater I And cover Q&A. Lee? call our financial return in call for turn we to some the over

Lee Eckert

Scott, good and morning, Thanks, everyone.

XX% Flowserve reflect third the transformation share per $X.XX X.X per making has of basis, we sequentially. about XX% our Adjusted for On results and a share. XX% financial approximately year-to-date per increased the are earnings our to journey. increased in $X.XX progress quarter share earnings year-over-year adjusted Our

EPS reported charges impacts. the was of $X.XX, for realignment quarter and mainly transformation $X.XX included Our [indiscernible] below-the-line negative which currency and

months Looking of at first XXXX. X the

On reduced of a Xx reduction EPS. quality XX% Our million improving of $XX from over adjusted year, year. by or $X.XX versus XXXX our our $X.XX items increased we EPS continued and prior our represents it after-tax year-to-date demonstrates reported on over have earnings. focus last adjusted basis, of the the This EPS

third the quarter an of in Revenues were year. X.X% prior increase versus the million, $XXX

impact grew and X.X% divestiture exchange year-over-year. of foreign the organic Excluding headwinds, revenue

a essentially the sales, XX% total as increased to million $XXX or prior of aftermarket quarter represent currency same constant basis, year. on Third sales X.X% percentage X.X%, and the

our margins. to Turning

productivity XXX and strong the business key margin year-over-year adjusted year. earlier this improvements, implemented offsetting points XXX we quarter year-over-year pumps was a points adjusted year-over-year operational basis further Third margin XX of that continued was XX.X% leveraging increased improvement decline performance driver of including in a gross point XX.X%. sequentially. combination and gross as deliver the FCD's to Partially FPD's we FPD's basis basis to our

FCD modest in did MRO activity. of As larger sequential year, has of quarter points Scott third decrease. gross XXX by in headwinds faced adjusted a the project-oriented on for work FCD, growth in however, a this its much decline market strong improve offsetting margin discussed, revenue sequentially basis consisting cyclical

million gross reported in $X same of factors On spend as margins XX.X%, basis, basis discussed as well Flowserve's essentially driven the XXXX. to realignment lower increased I by approximately XXX points a

remain managing as flat in at and that cost with revenue We SG&A quarter growth prior the and $XXX structure essentially adjusted delivered approximately focused was third even year pleased we bookings our million, are quarter. on our

to driven versus SG&A decreased points adjusted basis sale, third $XX As year. basis, primarily quarter of by lower a approximately prior adjusted a SG&A million, XX.X%. the percentage reported XX On decreased items

in points margins by year-over-year, FCD by which basis a FPD's benefited cost offset XXX On adjusted operating operating XXX adjusted gross segments' operating which operating points leverage of a result including management. XX% year-over-year, well basis improvements partially margins basis decrease. items. from $XX as margin to approximately the basis, Reported point reduction strong basis adjusted our as as basis operating margin points. and op points XXX was continued increased and tight XXX XX% our At sales level, million adjusted improved FCD's both increased adjusted XXX sequential improved, margin

to to X full at the through rate of adjusted tax yesterday prior XX.X% of Our months adjusted XX.X%, our our guidance XX% rate to was low our XX% year was tax adjusted year full new tax of Considering XX%. tax end a we guidance XX%. range revised rate

months management. X by driven Turning versus Operating through the earnings to growth capital first well year, flows improved XXXX as working of cash prior as increased cash. $XXX million our

While embedding we've in we I over am more processes our will key expect goals. achieve capital within time far. inventory improvement are management, ability we've to incremental deliver and A our working order but enterprise-wide a to the progress thus sustainable systems be truly journey, systemic to demonstrated confident improvement our results in and processes. It delivered and our pleased cash implementing is with enabler

our At of cash than million $XXX was $XXX September quarter expenditures. year-over-year higher last quarter or comes third certain balance $XX cash year's approximately improvement approximately This XX, third after roughly [indiscernible]. million million

pension For shareholders capital $XX capital through repurchases, million plan. and and returned $XX dividends about retired U.S. million $XX in expenditures, the we of to to example, quarter, $XX debt, during contributed of our share million invested million

of the for outlook our to the year. Turning remainder

results and X for again fourth the quarter. performance first our solid in We the the are strong expect of with year months XXXX pleased

the by and As XXXX. adjusted as increased FX impact excludes expense per full line potential range expect approximately discrete items, as approximately which year now realignment $X.XX million for target our global share low $XX may such, $X.XX of currency of of and foreign the and between occur. and transformation end This XXXX well EPS we $X.XX range

range EPS $X.XX reported our per increased also share. $X.XX We between and

these including now revenue year's to increased and X.X% year approximately last upon growth currency divestitures. approximately full We expect of full X.X%, due headwinds X.X% business to of roughly expected year results X.X% from based

fourth cash quarter. Turning usage to our the expected in

through dividends pension shareholders this the do Following and do returning payments approximately year-to-date year any million million have the our $XX in months, X full not fourth contribution million invest we $XX although $XXX to to fourth areas through expected we share our of during $XX further million repurchases. during to have to the We approach. our And capital and and commitment business we'll first we debt remain in of met already through expenditures quarter continue quarter, reduced in these payments expect $XX anticipate million as year. spend disciplined our

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

Robert Rowe

up and progress Thanks, on outlook Lee. of spending our efforts. wrap few to a the I'd like minutes by

note. As strong indicates, expect we finish on to our XXXX guidance a

confident new first and are ability which XX% to We the in over XX% XXXX, adjusted my our year range, to at year-over-year than guidance of growth nearly deliver Flowserve. EPS represents better

I the of journey. Flowserve date, by mark also to of we even will optimistic point have our remain encouraged progress opportunities XXXX Year-end about multiyear more us. but made transformation halfway the X.X that am extremely the front in

changes truly that of made cultural operations. significant the enterprise we have employees they challenge, within to I and our We investments the and making encouraged results. drive progress the to global excitement impressed drive have am risen and by level continue to our embrace and are changes, and

continue operational expect the to To on transformation we our will maintain XXXX. the have I with momentum, throughout growing continuing XXXX company. dedicated focus to progress initiatives, a team in while significant

reduce our deliverability significantly to foundation manufacturing produce. of the our improve products to laying are cost We and dramatically

I the Flowserve, forward deliver shareholders fully to and to well employees, the are transforming our journey. to We customers look our transformation to and increased way continuing value we as our continue on

concluded now now our have the questions. we prepared to I to like comments. Operator, open call would

Operator

[Operator Instructions]. our first Giordano from question And comes . Joe

Joseph Giordano

So and quarter down industrial sector. more than see stock good the the I

from heard last this well. have with comments there's as lot that of So sense that belief orders real a our that has negative days, today other we've this just cliff. there's that year do short-cycle really of couple this the over is I'm to faced next -- assuming companies But

know we you're today delivering stand of publicly is up been on. right you something is looking realm dogmatic of you very that what order year? making as with have to guys realistic flat people of kind about But possibilities? forward, thing the I say comfortable So very within major next like is growth think that a now. Like, I that's struggling are sure

Robert Rowe

the to commentary start I'll Well, and short answer, I'll with give it. Yes. a very

today, say that had in we something absolutely bookings pick middle we're in our today, and is -- if over budget year can right grows it And next to and process grows Flowserve if do. of now, pick bookings or the range think I'd the I had in we but to XXXX. we

just impacting at not some there, And valve I XXXX, distribution a dealing challenging geopolitically, American overall made North some mean are and equipment and the in of is We've it up give at say the doubt, that incredible mean going got look there. environment. adverse this channel color hurting also market with right? progress, driving we some high you there's the So certainly all-time I aftermarket we've But got Brexit Spanish on stuff we of right? where I'll we're correction constant But and no and at we've original uncertain Our project us business are and on look clearly to grow uncertainty to at going that's bookings X%. a the our upstream basis. XX% then able been currency almost by you've a with on. Europe -- but level, high, mix when

trade, the U.S.-China then Eastern Latin stuff America got you've got tensions and got You as you've well. Middle

I at we're that but way the is But we grow XXXX, think best to can say to think rate in it we XXXX. we we the when don't we I'd grow, grow think think going about characterize

but still think growth it's would And But so XXXX decelerated it's growing now. just I we year. a say is are from a environment, where we

you months, last only kind full come the got little -- We down modestly. to has good at got it of down ago a our X I'll LNG. And very good or years to down X.X say that. funnel, we've funnel almost project in moved It's come bit when just our X to force our CRM hasn't in pipeline so but come and we've visibility significantly. so petrochemical look now opportunities And or refining, our moved we XX-month

So the we still good feel funnel. about project

our side, continue entitlement the on our that base. installed the And defining booked we've on the and got And continue grow $XXX working then other aftermarket intensity. over capitalize had capture pipeline Basically, base get and strike strike one's is basically tremendous installed that installed commercial must making that's to and we And within in we've to with the We zone, to zone. On X we We've sure growth, initiatives to customers. around wins. awards. transformation, one right, major then playbook base on million got our that. the

to into We other initiatives have zone pipeline expect do XXXX. continue We strike well. as

those as through, ability we've the to that. with share play So kind grow got of and take market

so rate And the think good reasonably feel will about again, I grow. don't that in ability XXXX. it our I we grew to at be just

Joseph Giordano

every That's you systematic now. really there. nice much a are manually the helpful guys guys Lee, that's work you journey? really which of and How a of is commentary -- doing couple for in cash, for how where -- you kind there day, been of quarters you and mentioned improvement still this that

Lee Eckert

Thanks, Joe.

one we're think I'm one effort, roughly are a are my I'll XX% there new coming a a that It's I but manual excited in The making I I for where number say, particularly obviously online. say, capabilities launching, would see can time, the tool first of, of significant still we're system. invoices progress. about,

got ERPs. So over know, as you XX we've

our customers we so month, now across in averaging and tool invoices access basically the give to business. a our us And new launched last other that

tool. have a So now we

we to and use Now execute got it.

people what's what's understand sessions we there how on to and out to so and launched collect. management figure and due how and training change can date past so them And

our also and shared driving efficiency. talk to about collections want addition, In that at efforts services to inventory to all? continuing you more move Hungary, is in Scott, operation we're

Robert Rowe

Yes.

and and the it again, but probably the AR kind way phase side, next We've change, it's world, both a of perfect inventory in adherence significant to we're best I'd describe is, the say process the will now phase not a inventory. On be driven on automation. and process then

adherence are different I using visibility, that world. us to to we're are automate starting tools procedure that's the and that give better absolutely drive we some getting around got going and now feel we've process good results, very While

area and an to make And we've start as would I really made we so automate more process I good progress. to to think more. say can And continue we're adhering and this progress is we

Joseph Giordano

the of the seen sneak had that there's think just side, impact. can markets further, could much short-cycle you quick see we I weakness weakness much mean impact? offset decline can already of you negative you how more a already we've -- last how get this one in distribution neutralize given if If the do of You've hit worse, point? at those FCD margin that if volume the and I that on If one. lot accelerates,

Robert Rowe

But going XX% on Let business so set I'll everybody ability big to in me -- of is just kind that. North that a go And get probably America. basically, about more orders, chunk talk about our And distribution. scene to for I'm through the of to our then valves margins. is

distributors happened have so upstream business about we've and our downstream and that And what's of side. distributors valves with with the the are got back, upstream destocking pulling the the side -- talking carry I'm upstream these in carry the that side --

basically, and where as their start inventory come the down count off, clamp and levels. really to rig completions production get so they begin they down to And comes signals on

in that saw start and QX in earnest then we really QX. so in And

decelerated. our actually same, if has some environment order the though has tailwind they've then then deliver And actually that need got destocking Now stays what is, to product because we to that. business the

step okay North I so down another a to don't And dramatic activity And unless that. don't actually feel anybody's predicting I worse. think took see even this change America I that in

a little will activity that's of I FCD. most for to actually in be would tailwind of that XXXX saying think bit a that bookings similar case, And the now. are we're terms in I the get if people

do product America, the is would say actions there. North valve things would I just taking FCD And continue that doesn't deliver we and the that, appropriate or say business the to happen and that that Let's worse. that. within get facilities that cost

the pull on I continue is see to actually cost say, the I down. goes would versed We'll slight just so as as in control. I market well business don't levers that growth the those likely MRO to But to FCD. a of see And team scenario. the drive flat

Operator

Our next Kaplowitz. comes from Andrew question

Andrew Kaplowitz

your Scott, estimates. growth funnel intensity your Again, tease can visibility incremental you order on You comment your your today but up conversion now but that that did so much, on you're And not you in do down, pipeline internal of just bookings additive following overall has versus has from project versus your about much come have comment to how own up XXXX. too XXXX? your expecting how initiatives? maybe conviction on seeing the funnel strike in commercial expected into zone and in suggest

Robert Rowe

Yes.

teams the our that, operations we what have to and do in still right and do a of of is planning. our better reducing commercial better do at lead we're on products people. job getting just of things innings So develop our a competency front one do process as of of teams functions. funnel X really, sales job kind And that come and adherence, still it and driving has all to operational costs the no really playbooks working of down middle better the mature again how and together. kind say of the doubt, of of dramatically. Do significant better I times, trying years slightly, And in I've opportunity last we're down, right our develop our I'd hasn't are with a is the in job impressed kind the But been down transformation we come think actually

"Gosh, track And self-help we've I things is list far every And so here. some on there's I that a just do just wish could little opportunities. we We say, -- we we've a track got of were. we we can just capitalize things these losses, say there's go, wins longer and that unfortunately, differently, than done quarter, it still where lot I'd bit that." if

-- XXXX. still you project question, there. number we ability And we combine looks share the the those It's if I in believe our to project wins. drive comfortable market can grow right? good. together, to so So out funnel feel back in a still two huge The

Andrew Kaplowitz

Great.

the And have sort of could and around step of sort you that the question, possible. mix have a sort in feedback and If as these here XXXX You've margin What as you pullback terms about back continues how can I already having now of you about as the offset lean. you a OE its think are related into in you initiatives? kind to issue that that lot just headwind FCD of QX FPD, talked of easy up ramp business lean? go impact in in mix with from

Robert Rowe

No. good question. Yes. really a It's

I on got think what grown to go back real, the that just right? And so bookings is headwind currency. said we've constant I OE have XX%

aftermarket X%. growing Our is at

got the definition, our that verge and in the chain higher got we're offset the transformation, margins the so by is business. the What things supply to that And rate, with productivity, we've engineering with stuff. -- And aftermarkets than it lean in we've those pressure value growth with do that in OE absolutely puts savings, manufacturing all on the margin.

of that. done thus And we've far, job so a think I really good

with certainly with that. I And said then even In hit remarks, So think bit FCD the mix able gotten upside. still mix with still have my drive a I the -- But XX% be to huge transformation. prepared harder change. little continuing complete we're has we're about in a the margins, the opportunity on to we changes, set that

margin we second into which on us ultimately a initiatives and half around turn will costs transformation, the the of As help down operations driving and side. lot of

Operator

John question Walsh. next comes from Our

John Walsh

capital a wanted of the bit little just and on to look. again forward kind So I touch allocation

some where hadn't which Kind dividend seen return If see in I think of a going caught to you $XX I given we more that said something correct? seems comment to in your is sits, in the prepared we're like QX. remarks, that share repurchase, while. million

Robert Rowe

let's let Lee. Yes. I'll Lee go -- ahead,

Lee Eckert

And bought about goal shares our happening quarter. is the some of basically third correct. We in long-term Yes. XXX,XXX incentive John, is that that's offset to our the plan. dilution with

dilution that's the to that's count. share a been were at little for the taking looking normalize And we main focus we place. bit So of as wanted the some

John Walsh

you. Got

talk Okay. last an get product you're then on costs? maybe, you've little couple price. of about seeing selectively Scott, gone to bit you I what Kind categories Obviously, can on of [indiscernible] in certain seeing quarters, guess you're there. update And a out what

Robert Rowe

Yes.

FPD I So But was to to and increases just reasonably the we then side there. in the a QX. of XXXX. margins year, beginning the with X end pretty do in this. of our the significant at ability good One positive one more kind got reminder, about with And of obviously did on stay pressures, as price feel we've

-- pricing. And continue relook to we so we're our

will of annualized this at say it's increase inflation. And tariff put another what I'd end of We and the combination a is year.

so that we And that. got make we've to offset sure

of so how we and about think how pricing. bringing a is transformation And to part that price the and we work rigor analytical stream pricing

So good I to there. things continue we'll do think

then kind discipline more seeing, we the of of that, project on And bit the pump say, pricing. are little side I'd a

as so unbelievable the in providers but getting bigger getting And going pump project capacity it's provide stuff, everyone's touch say with discipline do disciplined. ones levels think I that the not I the up. pricing, I'm and to more think improved a we're coming

side. concern where the I then is the valve still say on is, And

price to is the be. needs it so just valve particular, engineered is area, side not And that where in

XXXX I we we're much focused we're year take this up do so margin probably feel at at And the But the able get do move how to on eroding reasonably overall, focused on we'll out price. aggressive year. it. that of part to the it sure there. be ability too of that, we're more good end first And cost we'll but been and make on not -- pretty our to We've

Operator

question next from Our Dray. Deane comes

Deane Dray

good of Lots color.

issues you're in really the as and it And you now that a pushing can just just to point, really to were cadence plus, year If the be on outlook. And such more ago the you on team. refined also hear the but you a in what the was I getting addressing back call, step you're say-- -- on of answers, both interested it's you story,

Robert Rowe

There's better, that. definitely It Definitely. feels doubt about Deane. no

Deane Dray

right. All Good.

Is has you when the biggest of you've Pareto where the look love business hearing business Is missed, a product answer what kind Just at it that it chart a reference do post valve on the lost. mortem delivery? the I price? is So pricing, on like in you that change? to issues fact it specs? And to of the on do

Robert Rowe

competitors. I a don't map give to Yes. road want to our

answer little to I say right that we're Where that we didn't thing going we over-spec a frustrate bit or the would communicating there's right? conservative I'm it be on times, the to we would are on reasons competitor. But So unfortunately I able not little deliver than that. again, of products of here would cost our careful do at self-induced ones, a it's and the lead there. something got everything. the but or be the ones we Or do and to weren't longer say on we a lots needed like, super to higher than our me is list, But

Deane, that, opportunities. is by just we've Our mitigate that we that and correspondence significant and doing sure team. cooperation operations our And control ones focus, though, making got to tight got our the we've sales between can pretty and

know, we're working And through in market to so and no forward. go progress as going I moving have we capture make our that. as doubt And keep more with we mature I we share again, ability Flowserve that people the continue playbooks to our to

Deane Dray

lots and really bed? doesn't all year issue about been an ago, that be anymore. to Is And like past due That's a of consternation there helpful. to that was put backlog, seem

Robert Rowe

was Yes. delivering the We're it came And to say, Flowserve. but we're is that never not when of the not satisfied, right? on time it I'll time, I XXX% issue

And But so to backlog topic time shipped on sure that times be more better terms of to to talking and at We're deliverabilities. call, but definitely our do to going of an kind get continue better a like good than it's more past earnings lead that the even say, something job. on there's And we'd to competitive deliveries, it we're focus really on we on we operational in work and not on a there, get we right? But at about I is are work lead our so today. discussion, as teams are focused would times Flowserve. for doing due always making

Deane Dray

us, multiple sell the happen terms destock, the I your really And be this in than is of this where sell-in to for we've calibrated about really there's through. right. versus when that good seeing. back looking pressure But hear the typically they're to last topic you're short-cycle the questions sell To me, heard answer wanted one in less was that Joe's we at talking All means for And usually to hear. companies overused does, it one it blaming destocking. most can't distributors has demand. sell-through. the to to quarters. If or a falloff the of go just That's And about

clarify, think of they you a out to and see that quarter, what has just you for this if been at stage volumes replenishment? kind this where might do of So you replenish have

Robert Rowe

Yes.

down the predominantly channel. definitely was And speaking distribution QX I'm through on us valve the business. for So

there's doubt a in quarter. can't that stable no in that third the point, so destocking And to there's your reasonably environment. And continue

at seen high some we of not time orders. of XXXX you stability orders if the from even and to start then activity, in of production frame run certainly -- we've I in getting going we hopefully in as But say more about think go XXXX. year-over-year be we've got that's in side, And oil are American or if to little QX completions distributors. North and get think They're QX, and we on gas so from early before, And both I the as stocking just down us, for comparisons. rates the they're tailwind point, a terms the would significantly a bit in a kind the our think

Operator

Nathan comes question from next Our Jones.

Adam Farley

for on Adam is Nathan. Farley This

zone it's guys. I you focus Turning to midstream. know for strike

how guys doing? there. you on any in a color pretty seeing market that project you I pushed think provide getting award to projects projects Could you any nice Are mentioned right? is or deceleration any the

Robert Rowe

visibility Yes. No. XXXX of we've keep they capital you're It's going spending on to But QX at some a question this. kind the got really early into and because not that good are. good point,

the continue we're reasonably feel is the with to win say our entire I storage portfolio. work, get midstream starting ability to about good And So to both our and what the work I'd side. side pipeline

of that we is bearing the So that really space the a side. weren't leveraging efficiency technology the we pump with you're really have the this in power And before. pure-play,

going our absolutely some But spending we're work X more the think there. see and and downstream, to share. think and build feel say good expect kind not months, taking pipeline. I significant say about I we ability to to works one market would storage so pretty this to if capital And And then win out do for at slow we in But you naïve see still for start opportunities point. down that some -- that I go some very you're step would you next does I'm us. of more see But

And the then really focused is I'd add thing hadn't other side we the on midstream globally.

the We're And very -- initiative around as good more on that think zone awards to the world. for initiative. well. is are strike we're American-focused much again, globally here pipeline a midstream We some now I starting pretty North migrate looking

Adam Farley

color tied some it's are specifically, business energy business view business. there? to color any Okay. know portfolio. how you your desalination. That's Just then on just water a the be part it's and just of would shifting to sets opportunity the the Maybe not markets. the What I helpful. And great. Obviously, small

Robert Rowe

Sure. Yes.

release So in on Saudi press Rabigh Kingdom of Middle ago week project the Taweelah we in the about [indiscernible] had a awards the the two East, a and Arabia.

where is have us, a desalination side. technology is market for in so the the And and we nice pump

allow energy efficiencies cost of operators doing desalination. down, the largest their which our keep is so costs to And

is And of we're opportunity desalination. we a real works got nicely. more some and technology What pure-play so preferred there, trying to with do do it

start want And water around we got huge to globe. very got But desalination pressure services outlook the so as entire to what with put a water projects. products desalination. know, for We've drinking technology. we've more and exchange we And particularly good technology. the you and is ultimately valve And feel do issue is about

zone And our than keep is on our working working share so to one hard to initiatives, win keep we're desal. we'll hard, more of strike this going and where

Operator

Our from next question Linzey. comes Brett

Brett Linzey

all back pump It of XXXX? think the segments. cost initiatives. And out into good you've standpoint What come look sounds of much as year-to-date? of can you we the you do savings more traction combination like I on just bring those wanted realize how to to savings did made some that a from you very two

Robert Rowe

Okay.

the part. one So I missed

said a savings You standpoint? on

Brett Linzey

Correct.

Just cost.

Robert Rowe

Yes.

customer. the we pumps Okay. was reason cost really Yes. side. No. I'll the just wasn't together start. about It brought The the more

we a really properly customers we're supply is And talking concerted with balancing demand pump were. front more and than the and now appropriately the to seeing our so what team,

we with X company. would from did not I'd within platforms, so the as the same collaboration just you the the and even And different two expect have say cooperation entities

team now working So and is together. that's completely incredibly changed, that well

and and SG&A XXXX be there's beyond We engineering we are operate. probably one of we We start more of and there. definitely will as say prize more have in savings right? no immediate to the savings, seeing cost function kind two, So got team doubt, rationalize really right? of versus so footprint the bigger to I'd And the

margin savings, into the drive definitely here will we there's look more gross future. we've say captured think I that but I'd savings expansion so And as

Brett Linzey

to able you quantify what XXXX? for there Are you're targeting

Robert Rowe

out the the perspective. at a in guidance do margin don't really we to I of come XXXX we'll what And quarter. talk with want We'll from fourth do No. then always about particular. that looks as end like

Brett Linzey

one I little Okay. running Great. here of just And Conversion XX% to Good then as a see flow free net still in a QX. think income. light, follow-up. about cash is positive percent bit a adjusted

that target though? of XX% terms the any change for in In thinking, the conversion year,

Lee Eckert

is No. Brett, this Lee.

what in a to that's still sight -- earlier the XX% We year, to. I have of that and line the are we're we working communicated

general, in in the and cash there's more a focus importance Just on significant cash.

at this a metric we look feel still good closely, that is so very And XX%. we and at

Operator

this questions at no further We have time.

Robert Rowe

And myself. us the And forward Mullin to have or you you and All today. conferences look certainly, to thank Mike righty. call don't investor everybody we at really questions, Well, you in if we some joining follow-up and all again. appreciate weeks months ahead, hesitate seeing

Operator

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

disconnect. now may You

John Roueche	VP, IR & Treasurer
Robert Rowe	President, CEO & Director
Lee Eckert	SVP & CFO
Joseph Giordano	Cowen and Company
Andrew Kaplowitz	Citigroup
John Walsh	Crédit Suisse
Deane Dray	RBC Capital Markets
Adam Farley	Stifel, Nicolaus & Company
Brett Linzey	Vertical Research Partners

Flowserve (FLS) 31 Oct 192019 Q3 Earnings call transcript