FLS - Earnings call transcript Q3 2021

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

Operator

Good day and thank you for standing by and welcome to the Q3 2021 Flowserve Corporation Earnings Conference Call. At this time all participants are in a listen-only mode. Please be advised that today's call is being recorded. [Operator Instructions] I'd now like to hand the conference over to Jay Roueche, VP Treasurer and Investor Relations.

You may begin.

Jay Roueche

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

On Officer; this President me Financial Officer. Vice the Scott Chief call Flowserve's Rowe, President morning and and Amy and are Executive Schwetz, Senior Chief with

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

harbor will These statements our and earnings review forecasts, encourage both As this being earnings is and will reported We forward-looking event a beyond upon and release materials replay note do our Please disclosures well measures fully available. measures our our they also Chief XX, webcast be in as in the call results, at on presentation of to prepared based turn available are our to Scott expectations control. risks Flowserve's included include the information Rowe, are are press flowserve.com this statements. XXXX, to and management non-GAAP are Officer, to Relations and for call reminder, as reconciliation uncertainties, contain involve you to President the section. October and which that and company's would and of other comments. which our his like over many of accessible website Executive as non-GAAP an of the and I now Investor audio safe

Scott Rowe

quarter our we thanks, call. everyone. want Great, joining today. you are third cover earnings morning, two Jay, and messages to good There for key that Thank

downturn. growth is the to driven a confident after dramatic are Flowserve pandemic First, on that we path

transition. our are the inflection opportunities about positive through optimistic we are seeing in We the cycle and energy future,

chain rate the in the our with labor challenges third come. quarter, normal quarter through conversion logistics a These profitability but revenue had and believe quarters on our issues number in in Second, problems will the and we we work to our a impact more of an and we that experienced to revenue availability. the supply restore

me move into prepared remarks. my now Let

which in third on As labor and of had been successful Flowserve confluence nature year, these to I the global of but just including issues navigate, largely first indicated, mitigating in availability. the challenges, chain and were in the quarter a supply These had industrials truly quarter. issues and have in number other we impact an continue the of presented the combined of the events by our Flowserve the by global remarks. healthy half the later related. impact experienced in and disruption fact markets of that challenges encouraged and third see challenges the end address are the on It I prepared we underlying the inflation quarter will primarily had that of our important headwinds our in and many many quarter that timing my to is an chain supply we the adverse specifically remain note across third effect results. with we logistics demand

expect that return to we and the that We to will the team in faced issues Flowserve diligently growth work that the our quarter. resolve will business

results. to turn our now me Let

logistics chain were quarter respectively. out $XX of revenue The shifted million Third $XX.XX quarter. expected adjusted supply the of labor and and cents EPS reported availability combination approximately of

quarters. backlog the recognize more rate are to a our normal secure we at the revenue in in Our remains confident backlog ability coming conversion and

improved assets GDP bookings in Aftermarket million, quarter increased to being our Aftermarket $XXX award X% at Our business and half larger increased while equipment benefiting pre-COVID first during aftermarket $XXX third XX% driven increasing of globe. trend around quarter million. bookings pre-pandemic this year-over-year year-over-year our utilization Original levels. levels. the a year strong of bookings over continues were to year's and $XXX continuing remain with MRO is consistent mobility by million XX% the growth. of rates The of from increase levels increased customers orders the represented below prior activity quarterly levels

Our $XX handful in in larger million a with less to to lag than two range. original the project recovery million continues awarded equipment orders projects $XX the business the quarter of in project or with only

first global Middle towards third and Africa. macro up million also quarterly to run these impacting Eastern $XXX we This of gas positions this of key million delivered are We to levels. the previously these in of fronts. COVID the our markets types and performance issues the largely to challenges around year, also on million bookings in all Historically I revenue financial our in from more was bookings rate bookings large but opportunities will mitigating Pacific, over the the $XX for We like our quarter forward. strong Project variable first of progress XXXX. half quarter in in and bookings the were returning oil impacted third the driven to expected Some regional growth Flowserve's quarter. year negatively quarter. the markets of operations our to very approximately during third was America locations bookings affect XX% in same progress $XX and logistics to but do thus perspective, fourth from the items half in for We and third of third fees levels of fourth well growth quarter had to in be logistics XXXX. and level the issues, project from bookings of the in range. were power believe that customers' continues given labor recognize growth exit in Approximately growth supply were moving a XX%. manufacturing growth bookings chain quarter expect first three bookings that will September's and Asia were in timing deferred From was confident three our of only not we significant gross any projects supply the end that return restore the saw our faced successful expect year-over-year faced up might chain would period revenue These recover XXXX to award. in Flowserve supply primarily availability. now to North issues quarter region as desalination global core operational due of and like our in solid far logistic chemical $XX profit which our challenges period, included up issues. facilities can with by we and grow XX% particularly pipeline in remain we during a overall number months believe those half in full the we XX% each to a the the up and chain we global rate growth few impact of both saw quarter We increase and XX%. year. We point of toward while the the million labor these the and Each award. work year-over-year Water

chain front, facing entire are across we the disruption the inflation and value On supply chain.

large that we supplier transformation. the managing X.X procured forgings, Flowserve We have machining, consolidation job and seeing from was And critical as such and quality items, done the a are good work vendors the for in castings, motors. completed benefits the our

product and extension essential motors, ability lead broad electronics to base impacted deliver our times issues our to coatings, of However, and have like across components the customers. consumables, materials, small

are quarters. to increase continue of offset fourth the our announced times, saw extended will fix mitigating on into the items the quarter, price there increased we disruption and identified efforts now coming third our we inflation in logistics now these in have We lead we go is to and at address the effect but expect and during have this year, accelerating immediate further no of the year costs the To that which marketplace. purchase end

enhanced We difficult environment pricing in a feel With are pursuit nice we've and three impacted growth. ways. but of job with logistics, inflation in and we cost getting our that done a are pressure, different I balancing

First, of ever is less region and and ability before. chain product that out Americas from more to than is ship predictable Europe now the and to the our costly supply Asia predominantly

reliably or also products, to pickup from revenue of recognition. factories cases, timing or schedule difficult impacts some which our Second, product of delivery and it our to coordinate third, unable is in the our schedule to unwilling are customers. And our shipments customers

our the third While in is latter getting the quarter. we customers we better, situation with are weeks in the believe impacted the most

Finally, it the levels in is staffing to in environment. current in productivity maintain the of hard certain world parts

market. labor demand emerging significant keep we tight and and a to in areas, is is For in during of example, large the very In Europe, a having quarantine it local in rise, rate with up to labor hire saw also China, the Americas COVID satisfy associates we're new a tight number while especially Delta's laws. certain to

business We quarter COVID this through our quarantines trend. are the saw continuing in pleased by that the and encouraged have consistently related cases and October heightened third downward declined we we are across

will, continue We on the start to associates safety the as pandemic. have since of we been the our course, of of focus

before it'll disruption these labor extended working to supplier, quarters for the the return we more a operating and expect We adjust availability the take are actively the to each with through to we times, few of and us issues disruptions and model. normal lead logistics

nor from backlog. Additionally, cancellations an we we not do expect in seen have increase our

are deliver coming quarters. So, in to the for our revenues us there

adjusted that fourth Flowserve these quarter likely third yesterday. quarter impact the XXXX, our we year Following and the our XXXX full with assumption into results metrics guidance and issues in will

our $X.XX now As to detail. $X.XX. over cover we I is yesterday's revised a results to a adjusted our indicated EPS in turn, call range now to in press release, Amy greater will financial

Amy Schwetz

good and morning, Scott Thanks, everyone.

incurred gain certain the financial deferred our debt adjustment expenses, tax $X.XX adjusted excludes the third a items, at also our $X.XX liabilities. detail realignment EPS FX below quarter the in Flowserve’s of impacts from Partially and EPS million at exceeded tax our offsetting to certain taxes, reversal in $XX.X EPS discreet Looking including adjusted of costs results $X.XX greater due [indiscernible] refinancing. reported our line on

for quarter, a ESG by enable third amended as markets it, ongoing two extending have financial further well as cost to our in by as to financial enhancing options reductions credit took including debt of by facility we upcoming years Flowserve’s solidify credit revolving the the linked sustainability progress of ahead under We the and the and the liquidity we objectives. maturities. During years our fees pre-funding we senior commitment and flexibility facility restated maturity flexibility favorable advantage our and debt lowering

senior drawn XX-year X.X%, as and new accessed we the We October, notes. debt new in the historic included years senior all $XXX and participation look partners our we appreciate the cash sincerely senior forward facilities depository ahead. issued and from the excess in of $XXX of them totaling working closely in we owned this the to also a to fully in and in our $XXX markets maturities which In banking the the with with well. addition addition most investors to to offering in in of the loan, the million in minority We September, to and loan support institution capital notes, revolver. a obtained XXXX both redeem In million also revolver, fully banks from term term In notes value million confidence used XXXX. proceeds addition some together, syndicate

to third to Now financial return our I'd results. quarter like

quarter. mentioned, OE late decline just the quarter. decrease, that of in primarily $XXX revenue by XX% increase. third to had occurred partially revenue decreased X% Revenue chain, headwinds the logistics by third impacted driven the Scott deferred original the in by $XX and sales I These million we FPD’s to quarter roughly of million delays XX% offset but As due FPD’s mentioned. supply X.X% an or largely expected equipment labor was All-in, out issues

FPD’s was be versus by challenges the Aftermarket third impacted in to OE down, X% roughly offset FPD’s backlog, relatively XXXX. declined. by resilient down remained XX% in total increase beginning X% start XXXX roughly where which Beyond FDP of the its was continues sales quarter the XX%

engineers Turning due under XX.X% to basis at both adjusted quarter margins, sites and to related third margin, absorption, our our order segments. to to decline points decreased particularly the XXX in the primarily gross sales OE

year-over-year. by a logistics shift higher costs, by a driven X% mitigated the mentioned basis, charges offset mentioned prior These The in increased year. reported as XX.X% aftermarket sales. factors partially were the and On decreased partially margin mix XX% higher disruptive other versus which margin impacts about as headwinds million previously basis previously for realignment were decrease was gross well XXX points to by $X the

as prior which prior $X reported of adjusted in versus period offset $X.X offset control million adjusted increase quarter R&D $XXX due expense a headwinds decrease year’s by cost increases well $X increased Third were some increased as to and items to spending SG&A the million from million foreign these costs, with a to benefit year, in exchange. last temporary XXXX, flat potential incurred, discipline returns our travel reserves, a in was temporary related benefits. and Reported but million were SG&A from of primarily as cost return not

points decline, Third due XXX quarter XX% Primarily decreased points year-over-year increased margins. percent FPD’s decreased adjusted sales. XXX adjusted SG&A related year-over-year slightly higher adjusted to X% operating as under to operating in a basis OE mix revenue margins of basis absorption its XX.X% due of FPD’s margin operating to as and sales to

to margins We that operating million expected on point deferral our not up normalize sales basis. been revenue would to will improve. experienced adjusted modestly had that the sequential And volumes to a have margins flat Flowserve $XX

than X.X% the the points items. year-over-year basis more Third previously million adjusted $XX quarter of reduction reported challenges XXX operating offset margins to discussed decreased where

quarter mix globally adjusted quarter. our The to driven favorable is of tax third in tax XX% rate foreign XX.X% adjusted of resolution in audits income rate the by range. full expected and certain Our was the year normalize

our the quarter. debt discussed refinancing to earlier, balance cash as flow of and in third Turning cash solid $X.X as of quarter cash reflective performance billion the well liquidity,

Our $XX quarter year-to-date three flow. last flow results quarter, year. our up prior financial position quarter a the third progress is $XXX through million On of cash versus spot end $XXX on We the at million the third years. continued bright net is million third cash the believe million a declined nearly $XXX of operating the basis, over by debt our of in in has

during of increased While has free In total. or is year-to-date free of cash year. This $XX XX% XX% no cash our we the ago. funding up prior a contribution comparable compared to performance funding third the year quarter, million third flow versus $XXX pension $XX quarter despite million $XX delivered million period the XXXX, voluntary of or a over quarter the in million approximately

our our quarter source with And cash of XXXX. in to confident improved stay ability of We are fourth prepaid the in a and contributors receivable account million are year. capital pace typically, and again where with in deliver major income increase free our performance strong once seasonally pleased $XX over million improvements Working a process of this last a Accrued our cash third conversion liability, with our XXX% $XX we adjusted versus expense flow year-to-date. the net cash continued quarter quarter. ahead, on flow in to

increase As disruptions Both modest market would a inventory also highlight I flat turns saw percentage like of due roughly to sequentially. sales, the inventory primary working CSO capital management. XX.X% to a the quarter. XX our basis to disciplined in and point sequential were primarily

have contract third our inventory the Major of and usages the increase elevated quarter of million challenges. CapEx holding to while the inventory and liabilities end consecutive quarter, assets $XX to XXXX third Since million quarter finished and and For liabilities inventory million $XX due despite $XX logistics process $XXX decline in and has assets goods balance year work and combined contract dividends of increased include end and backlog while and and continued respectively. decreased backlog at million.

notes, completed the I $XX level of XXXX quarter Pension October As a $XX In largely mentioned, expected a we to Cash just senior of major million U.S. spend. dividend, to keep the Plan XXXX fully also fourth and includes our Balance and funded. retirement higher the contributed uses million CapEx it

quarter, expect conditions late and on and on our will now expectations supply that accelerated remainder Flowserve third persist. revised ranges. challenges in XXXX. revenue arose We quarter year X.X% logistics now of impact XXXX cover revenue briefly for full earnings Turning process. chain of a an and of and the these year our full respectively. X.X% to outlook to the decline that to Based year EPS its the EPS and our the $X.XX $X.XX full and reported adjusted thought $X.XX $X.XX guidance To our to

deferred and quarter. the out revenues largely the to fourth the that quarter were in third realized income expect We be of

for However, of to quarter few third continue expect the challenges industry the we quarters. the next wide

we a similar our to denominated experienced. for the on in we year revenue impact are This particularly impact assuming of strengthening strong what non-U.S. has quarter revenue will deferred conversion. the with have coupled dollar the quarter fourth fourth the So, just expectations resulted with expect revenue. seasonality closer full traditional Euro that We lowering the XXXX quarter our for sales do the fourth

up we not the fully at be and year-end. caught do will profit However, expect that revenue associated

expenses, other as as items, line such note. the which premium to to the a year, impact Our exclude below retire the may the continues realignment expected foreign adjusted discrete as of and effects occur range currency to fees potential well and during incur EPS

terms rate increase $XX full $XX full million interest we our expense tax of to and year net million, approximately we the other to a In year adjusted XX%. in standpoint, remains guidance to year-over-year. our range guidance From metrics XX% expect unchanged bookings XXXX lowered modestly at booking now

aftermarket of products. come Additionally, expenditures million, $XXX usages debt the MRO our the The to cash of October million roughly year and expect share of range. shorter the full categories equipment in we this increase will from purchases core majority include capital dividends cycle retirement, our original $XX continue and major

and that build in momentum backlog our growth and earnings interest the solid pension flow positioned is transitory. Flowserve The third by our progress chain alignment broader model in in labor increasing by we energy in industry XXXX. of programs. and operational growing to cash believe logistics and There's our transition to the the supply managing offerings, In continue headwinds, these a conclusion, positive. and and we deliver headwinds, quarter to With we and now well our The markets looks third while view funding supply backdrop our was primarily three traditional quarters impacted chain, contribution for logistics as an progress.

the Scott. return call now me with Let

Scott Rowe

Thank you, Amy.

Before first remainder year to addressing the our and me thoughts some strategic our initiatives. XXXX, provide let an outlook of early the on update on

diversification our energy position long-term conditions for energy to markets, Flowserve, increased digitization, our opportunity shareholders the transition are have that three favorable themes: our world. To steps growth a and we and on all presents efforts, around XXXX major While traditional is increasingly accelerate in our for current focus significant beyond. best underway we which already and our decarbonization, company strategic stakeholders the for in support to are taking the

have opportunities we transition to identify been our applications where We customers decades. energy significant continue and for supporting

on advance our investing we capture, we including aspirations, carbon carbon to customers are capabilities energy in As and lower energy technology hydrogen production, focus additional within: storage.

We of are early $XX still and upgrades. work, energy market power this million including: tapping and in into innings over growing transition third of the quarter energy solar bookings biodiesel conversions, our efficiency projects, included

funnel few to our to I'd grow, to customers Flowserve stories. our control expertise provide project transition have and products for to flow sustainable that through the the lifecycle highlight will fuel success and quarter booking project to pumps today the from selected produce examples XX%. for when and to continues energy Our Netherlands. the a potential energy aviation a transition third has compared sustainable support their emissions The of we fuel jet journey. demonstrating fossil in seals facility cut with by fuel up like aviation aviation

total of to remain ownership will Additionally, years solutions. with come active for lifecycle facility ensuring aftermarket of advantage we Flowserve's cost the the inclusion on the lowest

reduce per XX-month normal recently XX-week – project the seven startup States. The compress expected up in tons to time payback. and in months COX faster to seals supporting by Flowserve from a United diesel a cycle year. earlier from is production pumps a project conversion for were helped engineering also chosen Our to emissions an biodiesel and XXX,XXX delivering plant approval

to power thin reducing India, the production In support equipment the technology technology leading require. overall in consumption, the and in new our [indiscernible] a for pump for vacuum of film solar panels. facilities provider provide of selected will power U.S. addition, was the maintenance downtime [indiscernible] in

time to which offering emissions. capability to driven on launched on their improve me pump, and our the customers of how update with let earlier up asset progress to valves provide this approach Finally, reduce increase a associated operations, assist instruments energy year, you RedRaven, and systems IoT seal our the data

expand quarter We in increase the while access distribution developing continue portfolio to further instrumentation the across product our channel. RedRaven the and for customers

XX connected to the working assets; increase. have currently nearly are customers we and are with rollout relatively while over in continues customer still We early interest X,XXX

of out for October, Turning XXXX. plan bookings year about the for we in to fourth we market close think improve the and and as now quarter our positioning in our continuing outlook as outlook the to With XXXX. the are remainder confident we

I also we on growth activity. million, our By expect quarter continue lessening our of We and achieving transition to in bookings indicated project we customers, growth energy $XXX our current rate. increased backlogs level of of roughly our fourth pandemic our XXXX, demand, EPC create compelling on year-over-year year-over-year the a As bookings and based conditions bookings be believe this depending view the XXXX level, combined de-carbonization Based market the to project deliver on XX% with funnel. will opportunities markets. impacts earlier, growth energy economic that discussions expect with a global growing and

Additionally, prices plans levels, that capacity the funnel spending as while end-markets. year aftermarket coupled above with that our remains utilization, pre-pandemic expect as with well above these project levels, larger energy our project uncertain. will prior continue A the of that across we their well of MRO return return timing well served expansion confidence in remains to providing customers are their increased

that move expect forward many will We ultimately XXXX. in

striving increased in All bookings market the of throughout growth confidence us this flow control gives XXXX.

that our believe diversification de-carbonization, added enhance will digitization we Additionally, outlook. on focus only our and growth

longer transition and opportunities investment will provide term, energy strong Flowserve. near for both Looking

with Longer execution confident that the we currently X.X processes business resolve and served the and the support energy our term, has the tools these through to to an work to initiatives. from arose and that third our markets the issues our Operationally third and team our combined improved are to operational have customer's we quarter. mitigate opportunities traditional While challenges. and we quarter we the to visibility positioned our we culture teams applications, believe improvement customer's the the address in during Flowserve improvements, working support are transition issues provided in to I'm well expect deliver our be continue Analyst believe growth will the enable continuous and In deliver to we return last we execution margins positioned closing, Day. on expected Flowserve stronger embedded well that to introduced with continued will incremental longer-term targets the to results. original excess long-term financial targets, XX% achieve in XX% range, ability in flow the of of to believe our including free already overall margins demonstrated. We continue company's operating which ROIC XX%, XX% XX% in and we've to cash conversion and Flowserve to

Our open execution supporting to prepared we on for our focus long-term shareholders customer's, Operator, and like call capitalizing value concludes improved our remarks, markets now our questions. drive remains to this and to stakeholders. the and on our

Operator

Instructions] Markets. Capital from our [Operator Dray RBC comes first Deane question from And

Deane Dray

Good morning, everyone. Thank you.

Scott Rowe

morning. Good Deane. Hey

Deane Dray

Hey.

on I'm more to you the can bit out able the maybe assumption on the And ship more analysis a Just from quarter? not really appreciate your have repeat, curious kind or able hearing quarter products those a are the of door. be $XX all fourth a revenue logistics a is bottom-up start that of not just of of line of number may done million on you being the for that placeholder peers kind to consistent. here. We've with and specifics we the to or the heard of that's fourth what sight push, get pretty But in a

Amy Schwetz

color. some add can Scott and start, I'll Sure.

with experienced if quite major start quarter about occur is, that wasn't third our the the with, of did it in the – one frustrating late things and components. challenge our with to think it I we wasn't

that really there to the an of largely million on future. that $XX So, element which this somewhat revenue fourth was late or deferred in do sight the plan shipped good in What very ship has of is difficult we quarter. the makes was of have will occurring, it line

just continued so, congestion revenue it as see quarter fourth we similar our line we were the that general as was quarter this of deferral on at to well, going in of point looking we to in the were projections, sight a fourth prudent to assume at these fourth out based And quarter challenges. thought

Scott Rowe

that to on throughout points, late add and in quarter just a came really August I'll third of September. and built the roost lot this Yes. to Amy's

so, we're and the We that And know well in we're wrestling guidance best in of of woods. that still viewing out we We site have. we're that's we the the don't for out know not put the that still – we there's challenges fourth through think quarter this. there ahead

of in resolution working right goes through can get on every all are and the do now. We more certainty and actions more we by, XXXX. And week QX that we what

Deane Dray

an I said appreciate quality was free is will you now. in spots don't cash improve be And details is really improvement above look, XXX% And being bright did you of one needed at then a from of it ago coming and the years that flow And it. its quarter free Amy, this, Got caller. on was but the that if the flow I appreciate that once cash Flowserve. again conversion area like not provided. routine routine through and because to intentionally the, the a earnings know couple

of a that but at are more efficiency, permanent least perspective, years, made XXX%? should should over What we Is couple from from your that asset what hopefully past take lifting changes Amy, routine this your look, of Flowserve? heavy it? lot was perspective from of have a more structural has see capital the this it the just be conversion working done a us So, utilization of through kind made

Amy Schwetz

conversion. and both cash efforts flow functions the put proud has improving into and team our platforms that the performance. And across that of the Yes. really that improvement free been working capital I'm really in key

into to been inventory but challenges, centralizing in trying would've standard that have really been And think to team me done I you it's you of manage that and started I really collections of inventory from This the around in the an – backlog we the invoicing standpoint that and demand efforts could floor. a and cash process, will to has means with given the growing of our and that end is told our this and I a this that that process year management on sequentially, both planning extremely tell that the inventory the would've without I quarter the been not revenue process. has focus example with what last has focus into surprised, work the year so, that. needed that's had and deferral quarter, processes process team if team efforts where at management but indication the shop improved excellent just on think the the the that systems getting performance we collections do that, and insight put using the of an

Deane Dray

Great Thank you. to hear.

Operator

Thank you. Karas question from And from CBS. comes next our Damian

Your open. not line is

Damian Karas

good Hi, morning, everyone.

Scott Rowe

Good morning.

Damian Karas

$XXX on there? color you I'm see if are hit if of kind supply to continue how guys, thinking fortunate headwinds some I'm but how much there. need through October. do bookings good the good trending of, to maybe get additional to the to at flipside; the just us million, all you about look bookings on you wondering activity some the Was curious chain give project see the could any

Scott Rowe

Sure.

spending confident all the through and the is So and year. coming right It now, far. so the rate dependent million. We the on really getting MRO on we aftermarket booked consistent that's at $XXX feel run about our end of feel thus projects good been year and

kind right number at pre-pandemic aftermarket level, million was of that which level. is that the in solid. And QX $XXX Our it's

little good of to at we the a really QX and aftermarket year, see feel uptick of QX MRO typically we so, an from on there. end bit and the continuing, And

well. And think help so, that I will as

say as I get adjusted, operators times projects to what operators confident move with I this, And so, would but is, with are the on think comes that get normally to changing continued are of these all down are the and on incredibly our those. and And as to prices lead projects. confidence be hesitant I it have the would large some whether forward pull very trigger booked

larger we've our planned but And risk I'd And will believe we've of what got XXXX. adjusted that the numbers, we so, few is a in more now. projects in happen right say

it. this do the matter committed year range trigger the on million to kind through will of currently to It's projects the have of they by they million the that We of, end And or $X They're it optimistic XXXX? the of We're so, $XX end year. just will a of really this situation. work. coming just it's a matter know to pull at to of rollover

Damian Karas

Okay. show thinking And when a up thinking guess Got pieces margins price I going we how chunk you cost should now moving are all decent in to return the about it. of deferred now which year? growth then the to about be sales, and dynamics, with next incremental XXXX

Amy Schwetz

Sure.

margins, to key backlog volume through fourth we margins way as mix we that respect favorable we our XXXX. those to think in So, make that have expanding the is and actually do currently margins is in with The our into growth. quarter

to mix equipment, and strength If you the aftermarket those original in what between OE at see look we'd go some like is bookings.

in helpful that particular, be will expanding at absorptions, get order levels factories volume So, those to obviously our up in of cover really and large engineer to some margins. our we

has say solid. So, one performance is that our would I SG&A thing that that, been

So, as as item income to to of growth stand operating we're those that the well. a we line see lot drop going margins see

the that's done Given work been to SG&A. respect with

Damian Karas

my Thanks taking great. Okay, for questions.

Operator

Thank Citigroup. you. And question comes from Kaplowitz from Andy our next

open. line now Your is

Andy Kaplowitz

everyone. morning, Good

Scott Rowe

morning. Hey, Andy, good

Andy Kaplowitz

have amounts the we energy several an obviously Scott, in parts what of world. crisis to

more it to work? where most could helpful? chemicals, do they you you power speak they your you the XXXX Then being with have Is As you defer you a bookings markets, think into XXXX? us revival end some more color in expect as L&G, see XXXX? traditional in Any color still as be look more give see your customers, related would can in can major growth at you of CapEx

Scott Rowe

new don't projects them, spending can that so your and longer, operators confident a it there's I any in talking well. Andy, pretty feel little as know there's but capital expansions hold of point, Sure. books, to Yes. there's in think Adding a we product already, XXXX. the we happened the projects shocking lot It's hasn't first on spending to and on

And do year really the believe so, I of XXXX kind unlocked that. that that is

certainly are spend there's of and the books that a we'll for. that middle-east As major we big we lots well know projects the regions, positioned think about is money region on that

relooking there's we for investment the in be the have of that done in at, then schedules. like really the would crisis project uptick and and pumps the there we – United States, when chemicals in products of we're go move in COVID but then valves with be in as Asia excited there We know side, to potentially to in and one, India, our chemical got so continue go there then second Pacific And go the the about from seen sure plans quarter, could infrastructure XXXX. year, their we well market know other in spending will for but here us in this markets some hit And on project they're and we our awards in smaller will like forward also and their got to no and work out. additional and significantly I would support and also that's as that still L&G infrastructure also obviously the so we they they're India reemerging have as there's were some fourth quarter, growth get kind look things forward. that third built an have, quarter think major specialty that expect forward vacuum that we And be

as in expansions as the big I On that side, well general parts of the, Asia. think sure run with major capital I just expect do don't there'll be more redeployed of the and refineries on new some assets of the kind the investment China refining upgrade's just in exception making or possible.

things – forward for challenges where oil are, invest solve move world and is some that to gas are the customers, the now, to prices power I countries, overall natural places situation all just with the the where of looking are, in operators right think seeing

Andy Kaplowitz

helpful that you Very beginning of up wouldn't you the cost but last then early the a I said can price being what you also price XXXX. you ultimate in QX, increase of the benefit the versus until And QX? announced you impact color. quarter ended at see that know us tell had said

for the another just price year You of end here. the announced increase

when Flowserve? costs you ultimately could price for think So positive turn versus do

Scott Rowe

it Andy. how And saw get or the of that QX. we quarter But it's announced throughout we our say we can QX slightly aggressive and now, components. into to say, our question, can many was when I'd We certainly lag a right between significant negative a good pending when so realize customers. commodities negative. in in We there's I'd anywhere were inflation really – two we a month a it's and our contracts how Yes,

announced through increase, XXXX. go effect the and fourth significant a come will Now, that of will we into price which that year pretty X, January increase the end to the have at be expect we

weeks And kind so, two reasonable eight I again, think doing job, a probably months XX maybe weeks behind. – but of we're behind we're to

catch And the year out XXXX. as finishes so, up we'll into

do the pricing large The a valve other point engineered truly to that model. and the and is is want business is make on percentage of cost-plus I engineered that pumps our the a

And that contract. and as get hold so, can they'll we vendors solid typically our a and we we suppliers build up the in from it, see costing quotation

as we've and actually margin And margins, well. that our improvement in so, about think the of we're and XXXX. the got tracking on we're expected backlog that margins our doing we side business, We're confident

cost, just the done price what type you And again, of expect across trying like I seeing that you're inflation – would XX% environment on inflation a just commodities seeing never challenging some to across that we're of incredibly we're So, XX%, buy. on. think now. right the things but this nice job It's increases it's overall, some tremendous, an it's we've of

And like We'll a continue to good position we've costs. to but this, reasonably so, got on stay work price in feel we're overall, I diligent.

Andy Kaplowitz

appreciate I it, Scott.

Operator

from Stanley. our Pokrzywinski Morgan from Thank next you. And question Josh comes

is line Your now open.

Josh Pokrzywinski

Good morning, guys.

Scott Rowe

Hi, Josh.

Josh Pokrzywinski

Hi, Scott.

time the too size talked kind you would to the quarters that supply and the on were anticipating kind those over been been now is and any, we've chain had what restock. was Maybe the over on that progress, IPD low were of that make fairly customers the I has thing So, business a that surprising if what you historically of have your point inventory. been about exact few distributor the of and last one at not quarter? kind to issues, of imagine able but some because where replenishment

Scott Rowe

important a North market our the Sure. really in Yes, part exceptionally of it's distribution America. present is in channel and

and is so, we would our pump And in all distributors time QX have bookings say our talked their And and the what valve I QX. distributors. increased to certainly

And so, now. seeing that we're restocking happening

MRO on general we through in breakout. side that aftermarket category can you our and the As see and it that numbers comes the industries

there's level. of good we're feel at levels. some They're inventory our pre-pandemic come. more about over at that the what's we We're last two that quarters, confident so, happening to not distributor And and still looking

so, And their continue their support going to levels overall we they're to that business. inventory to move up know

again and we growth for about So, quarter I And and come that come into think the think, more fourth bucket. more, through as in it's us MRO XXXX. a that's certainly to up spot aftermarket it and and bright chose in we expect industry general

Josh Pokrzywinski

environment square help biggest struggling might've years help guess, out there, of project relative you the ago? macro few ago it's Got that obviously would you do the on has high the it's an helpful. opportunities mean, And been had Can kind a order you a can impact remain, But like, put up just like or years like way clearly And you see you super sort seems of where you out? have when the gaps margin targets. those kind have a margin. activity biggest with guys bit project the yet, where expected to activity you maybe, you the I on been I like would it. doesn't where come I'm That's of seem of few and guys surprise, maybe XXXX, then margins been than opportunities thought it's seen what rank different

Scott Rowe

that, and that it what is I'll start what we're me margin which and mix. Amy MRO – strong Yes, but answer wanted growth, let have I can does really year then a this we seeing positive let aftermarket

us business a be going gives now missing to margins, lower in on come through top to absorption start And we're significant bit help to our so And that that, but what will want of the right sites. that at And that's little a then the now. that we system. project

side and it's as of the so, has definitely we it's P&L with and to deal the business, that coming margins we're in And through a grow absorption having can under the headwind we come see feel that. start and to our much better margins lot got Probably has ability the Amy in more on about absorption up. a better details to place get a

Amy Schwetz

I thematically Yes, spot on say, would there. Scott,

one. of downturn a I two things driven here believe a margin and perspective, that think mitigated we and in the by trough really it's from we're by

that impacting the two level us the in the set the this really fact And the of at piece volume in us booked downturn. and height are OE on does experiencing were that impact of second our isn't terms is performance. margin that right the the that the a are so, we're things OE And off right now side sales now

is bookings Scott our the this indicated, in as of of been today. margins us are OE very feeling fact So, mitigation as that terms and our it for The has second, And that that was both made that XXXX environment, pricing as – mix, the fourth our way really the in in XXXX. quite competitive favorable third about think it's of through sales. quarter we we we is and our

we So OE and will fourth back XXXX. as from normalized some kind the away levels volume the as even of quarter XX% to built into to and down backlog we XX% gets this and in that

margin expansion. We are see to going

Josh Pokrzywinski

helpful. that's team. Thanks right, All luck. Good

Scott Rowe

you. Thank

Operator

comes And from our Cowen. next from Joe you. Giordano Thank question

is now open. Your line

Joe Giordano

good morning. Yes,

Scott Rowe

Joe. Hi,

Amy Schwetz

Good morning.

Joe Giordano

Hi.

cancellations haven't You there. mentioned yet, Scott, that happened earlier, comfortable feel you so

chain Just like to logical these just are people thing the like that these gives out projects supply a longer. problems like you that's lot as longer just have the go a linger, next of things that of happen that going that's to all just extension what confidence these not

Scott Rowe

the backlogs don't typically a and we're not see our months. lot are weeks, Yes, cancellations that in we experiencing delays of

And backlog. so, expect cancellation I don't of really

lead to the a and say make concern probably And so, bigger project. that financially times push that environment out that. confident that customers the to viable gets our it's I'm higher fairly going relook costing are on I'd sure project

of that's the kind risk. And so, I think

don't that's potential a We haven't we that see yet, happening. that customers But a risk. there there's from cancellations really think lot of concerns that I do our or some but a in that heard happen backlog, could

Joe Giordano

you And the it's of energy what's the then to a acquisition, guys, way, – company. bold it's but like through perception certainly growing an be, as maybe that to some your stuff, for it's Like you appetite like as balance it's in sheet have some nice the a the thematic area accelerate a stuff. transition to not far do still –

that something move are fast like how willing really that on people to So, to make you focus it on?

Scott Rowe

Yes, so it's very point and it's a really we're focused on. good something

this of $XXX million already space. year we And kind can million we're about this to Hopefully, finish here million at bookings $XXX so, $XXX of of in bookings.

I got can flow of the something around we're we're the committed so, from part our And would issues this. And this a what some being really internal things fit to say And that is we've a that operating customers direction that doing. solve our are they're and then employees control the that that of major about in excited seeing does really globe. really

the quarter And so, power. couple awards biodiesel sustainable conversion, aviation around we've of solar this fuels, spotlighted a

development internal to our have we've can that sure of And kind control this is an type retooled product in atmosphere. R&D solution make what done in in so, we all now of offering a of full

side. digital doing and R&D or a And so, our diversification, now development the all over decarbonization been is new product of And for now either year. on focused that on we've

of designated activities that kind around up teams there energy and our pivoted all stood really so, to of now effort And business transition. support we've development

going that not this, growth pretty significant on we're markets committed. to in faster than we're engine the will current confident We're are think, in. but we grow a and that is participating outlook say us I the all so, And I'm for

space can efforts we're with the control going to in capture the energy share resources the associated put spending we continue and of the so, And to transition. there big that a flow

Amy Schwetz

standpoint. And on an might acquisition from that just touch I

it at align his around digitization we diversification. in I and the and decarbonization, doesn't think there look ask focus opportunity of as Scott any with areas question as defined we strategic sort the first that remarks prepared

there, forward. ensure shareholder going it and have give doesn't up piece lines move that it and that And to us we as is a attractive So, of financially on from drives bigger obviously returns. we then it

So, feel us for I the financial to needs the think answer that be that we it and that strategy align closely forward, results part of to want but that can strategic drive question, going see. with that we

Joe Giordano

guys. Thanks

Operator

thank Goldman question from And Joe comes Ritchie our Sachs. And you. next from

Your line is now open.

Joe Ritchie

morning, Good everyone. you. Thank

Scott Rowe

morning. Good

Joe Ritchie

model for to the like maybe of to put it my improvement I just in a guide XQ both and a as numbers of some wrong, maybe pretty good second. wondering I'm margin So, doing into sequential try I'm kind about seems just this the When imply talk segments.

quarter. to give know of are trying improvement. color sequential that, then of you higher But the just and volumes that for going I so kind And what's the can segments, each driving specifically to fourth any be in margin great. the on would understand, be

Amy Schwetz

Sure.

of things, loss in now a element us an in improving couple million $XX one of the So, performance you’ve four call margin had of that me volume it impact that is probably important our a certainly heard the third our certainly we think that do the quarter. margin the on say over three performance. or times pretty course And

that driven by amount So, is backings volume of a increase. fair

continue The talk other that I say is that element to comes issue into would play we mix that about. this

of booking expansion that and segments aftermarket at driving in is look it quarter-on-quarter. backlog both our focused that some the the is we and the resiliency aftermarket on as in So, of volume

Joe Ritchie

it. Got

say should that like incremental from So, sequentially XX% XQ? it’s I margin XQ be XX%, to to mean fair

Amy Schwetz

quarter-on-quarter we're expand seeing although not absolutely. that, margins and we're see, specifically on guiding We

Joe Ritchie

then understand of on, your these of kind clearly the in in. we're deferred that customers curious with I'm shipments, associated there the And I'm some maybe environment and Okay. customers environment assuming those the we're just that follow-up penalties just given one backdrop. on of are quick any are But shipments, kind understand

Scott Rowe

the delayed damages. somewhat had say our those not through quarter, provisions. formal will that issue have right is we're a with when cause primarily sure. now products the of been on projects some the the come and sympathetic damage had right something, system. The in to bit I'd now current Yes, the that times of smaller environment, What are penalties customers There little We have within the seeing we've than really I'd is liquidated liquidated our facility, the that's significant some but damages. disruption that say our bigger delays rather liquidated Most impacted of the with would the were DLDs.

the we valves lot two our kind ability in business it saw aftermarket the And services on MRO liquidated care off in or And damages. that of valve one business off a carry and our wouldn't we that were side, to in liquidated get delays delays business that typically damages. as workout saw seal just typically wouldn't so, well, and and saw of our we in then

of carry so, with conversations and set open a kind dialogue rather lot just question. been part the are And of confident projects, big chain type that the to you our The has ability I that. we're with broader But just more of but products a seeing that feel LDs good of the and than this basic of projects it's mitigate that other what our things. supply disruption with

Joe Ritchie

helpful. it. you. Got That's Thank

Operator

next comes And Walsh our you. question Suisse. Credit from Thank from John

open. now is line Your

John Walsh

Hi good morning.

Amy Schwetz

morning, Good John.

Scott Rowe

Good morning, John.

John Walsh

do absorption concerns absorption calendar it if of to QX kind question, through Hi. larger could orders like here or won't engineered kind your kind past into that see going we there business year, project issues looks the that need go as the kind Maybe you year, we hit to kind follow and have of under just any into this QX of to of the or on next visibility kind alone of back that does any under give get guidance what business? enough we XXXX through end of project be as of the go we first orders you

Amy Schwetz

I'll so there. Yes, start

and equipment completion generally think we uptick of first can I in it's still year, accounting. need the fourth work of that in and the that under second both of quarter percentage next original some see business quarter to much in start

of those may the those for start to, absorb quickly start not that to we some in time it some the costs future. orders pretty fact able ship despite we to in, come as we So, be

coming first of in So, of next to is year the we see driver will of business strength with play. being understood well. as mix to some the but of the be important, want obviously of the this continue into in We but see aftermarket And is half fourth want business that. to ultimately quarter project supplemented back the that and the MRO, important some

Scott Rowe

Yes.

optimization. thing done other is route the our we're Just I'd not an by add with just

Flowserve we continue X.X. and our so, some turn to to the we work facilities And apply capacity. look we're in ability have of and enhance productivity, in increases is seeing that some at which that our What did

And sites for the increases that valves, further our so, at rationalization. our are look at and pumps, can sites as then capacity preferred start we seals, manufacturing, to

And We'll doing kind to will additionally future, four from consolidations absorption so, side. pace help continue the two we've on that a been year. which the into anywhere of

John Walsh

on maybe super go look where then, year this as the that. X-K I Thank active been can side have you I an guess the guys to rid majority things. earlier back back approval And got on Great. this almost year. you some a you for governance of

the to you It be pretty side. help your of the those Could out some of seems You've report. on governance also kind catalyst understand us behind active put things? ESG of kind just

Scott Rowe

I out. you No, that absolutely. pointing Yes, appreciate

to we're is that's at and the slide slide things It's very everyone to and go presentation, Board the me. We a to and in look so shareholders. progress. listening encourage important on doing important to that our something our I This some of have our to ESG

great here And focused with more done since on kind your of with framework. made done want normal different around really, point, the up been to so, would where we've our we progress and I've tightening we've succession, broad a it it making our governance more – things in And very governance this. the and we've or of structure that we're some within governance

on it's we ESG sustainability environmental the our the report report had side, this year. first what ESG we spoke Traditionally, side. put that was we Additionally, out ever and really the on sustainability called and

it first And it month the was we report. ESG put last so, in was XXXX, really out

with diversity, aspect of on in side go employees you and KC, what poster on the that. really with is which to is inclusion. where part the doing live talked sure forefront make the we'd that about it's a carbon make the board. And website it's positive So around And with we our cares making impression in emissions. about of taking really impact there our communities that ESG all equity in purely we've our that's and work. doing side, a the with. community around find that discussions And where live we've positive sure and in want its the forward we and progress is to encourage governance are can talk and then Flowserve communities some already our we But work. been again, of talked the where reducing of And move we to something you on about, things we We this social having I'd

John Walsh

questions. the Appreciate you. you Great. Thank taking

Operator

from our Obin Bank comes question And Thank from Andrew next America. of you.

open. now is line Your

Andrew Obin

you Thank afternoon guess fitting I for Yes. in. now. good me

Scott Rowe

great Andrew. Right,

Andrew Obin

for still I morning you guess it's there. guys

of customers, totally so a you works this of to and on you because I appreciate and not guys labor So they between more of shipments certain are right, right, question, does it. they're sort your sort how war of going philosophical shortages facing are tug be saying, cancellations.

You being aggressive guys of absorbing fixed clearly costs between war pricing. there for on you, volumes, and is absorbing tug this

product they insight right. And are contract you customers, could of this your your want because to right, give make terms healthy find and you middle in want pricing So, don't how ground to us do ship stuff, you for free. you away to give dynamic, structure and sure clearly able an with

are what like you. environment? just, Thank could this conversations you if So, crazy the in

Scott Rowe

for by start pointing to environment. it there want a thank out that and I you comment your is Yes. crazy last

have go good we'll lot and to April partners. XXXX truly So, had was COVID with there about the customers that of back customers with that and a partnerships committee with. us and business top they a the historic we have are news February, steering of list strategic our pandemic we the hit discussions And in and is I March dramatically long XX%.

future so, Flowserve. operations, and the Flowserve importance do their think important and installation, the I to their they that that's know that And most probably we that is into in recognize the value thing, their at recognize to brings of everything we here them

other starts is think, out But space And that. want on is I a with happening standpoint. so, I'd the this it the to point thing like, in to everybody competitive

back not we're So dynamic this And it move experiencing pressures. last forward a an now spike the issues across supply right? from still disruption chain year and re-emerged and year. around and this you're chain. world shock so, we're all environment, incredibly alone causing supply we're massive are is is facing same now seeing to companies And that the But COVID the push the the in massive this recession starting entire all and as it's

And so, customers We've dialogue them. are an got our continue with sympathetic. open to

that to transparent much have. have we're Flowserve job We than be what with doing. doing at say ever I'd a we're we better of And

the day, shareholder long-term so, the partnerships, drive do dialogue. run. can of at to transparent sure over support we issues open then end that for the that going and with growth make with we Flowserve that value the those have the to We'll to the continue And facing. we're making that be the continue things And long sure right we're we'll

Andrew Obin

you've that impact China but reading reassess in anything follow-up about sort And heard energy this I you. flow power consuming them the some question. crisis if just a and know making industry, we've I that lower impact conversations more don't suppliers? more right? coming with it, the How any does Thank of been industries. your it out Is of is dynamic? any there. policy? sort had casting lot coming lot Because you of portions of, Thank generic Does there competitive from impact products that a of the you. of in Have out China, a guess

Scott Rowe

Europe haven't of we're mean, that issues things Yes, seeing in dealing we at as nothing point. logistics seen the and with I front this and but been still there We're any significant suppliers with get to now it's close product our on into North America, impact. okay.

Andrew Obin

for I Thanks much. me in, Thanks so as said, fitting

Scott Rowe

Yes, you. thank

Operator

And you you. participating. conference today's our this gentlemen, for This call. concludes and concludes Thank thank program. ladies now And

disconnect. You may now

Flowserve (FLS) 28 Oct 212021 Q3 Earnings call transcript