FLS - Earnings call transcript Q1 2022

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Operator

Good day and welcome to the Q1 2022 Flowserve Corporation Earnings Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Jay Roueche, Vice President, Investor Relations and Treasurer. Please go ahead, sir.

Jay Roueche

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

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

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

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

Scott Rowe

midsized quarter level including its on our was the an global in since quarter joining to of Flowserve bookings you environment, our achieving Jay with the demand the first first the quarter and the projects, our turn Thanks, overview call. Thank results. of earnings want the good contributed for first morning capitalizing quarter in start success XXXX. and second I which to highlight then award operations of of several everyone. highest improving Clearly, our to bookings quickly

compared to also year over sequentially highest last XX% quarter the currency constant quarter, which of level First This was XX% quarter increased fourth billion up and was basis. bookings prior about bookings $X.XX XXXX. XX% a on of year’s

company, we are by ability cycle on year market that today, the coming in later those that and encouraged months. are a our demand dynamics improvement win we will the believe trends profitably observing seen Based As opportunities. to we these remain strong we the served end-markets our this have in

operations. Let me our now turn to global

our mid-February. The first our quarter, and in the quarter customers disruption, headwinds was worse we serve operating and supply logistics constraints, inhibited availability inflation anticipated Throughout of environment global more to than accelerated. The had labor significantly ability challenging recognize and combination revenue. got chain inflation significant the

result, XX% a these costs at quarter, historical our eroded As XXXX conversion increased volatility, regions situation impacted drove added with combined further facilities to with levels. Together, just under-absorption fell the norms. number and averaged and below conversion the Russian-Ukrainian To The In factors, general to similar complexities higher our conversion significantly backlog in context, put margins our performance quarter. backlog XX%. that our the all in operations.

our organization, to improve rates in challenging fully through this myself, overall our including historical to actions conversion significant levels taking margins. working and are We is our on restore focused Everyone revenue situation.

of accelerated implemented revenue our and open effect. now implemented categories enhanced price in other the XXXX, problematic procured have teams tighter fill is We for planning our meetings and finally, levels operation, positions, which at all created cadence capabilities, items, recruiting of second our increase to

to programs removed on internal focused we and distractions completely the business. teams our delayed to Additionally, operational have running allow remain

highly external dynamic, the While confident environment our to remains are large I and ability in am issues. work through challenges the these

time. to to our their personally support all Flowserve to future commitment recent this for company. want talented been a had have our of efforts I and volatile associates team their who and We the tirelessly thank working customers Flowserve for during

growth had the comes a positive our Last now to times XXXX. COVID-related me first represents year the of in by and financials and impacts have on contribution our by opportunities the delivery the our with bookings. full awards we quarter, customers quarter, bookings quarterly been quarter to presented equipment comes XX.X% to significant marked first margins supported shorter discussed which of – The hold cycle projects secured bookings. aftermarket solid obtained highest we year-over-year work. bookings have with pricing. as aftermarket it larger we $XXX was it return than aftermarket commodity our with details higher during in growth due that level of placed results, original our MRO quarter the in activity volatile starting in The Let million since

pleased this markets, mid environment, the several more of normalized our are $XXX traditional equipment of year, available plus in million capture spanned several including market The this was drove quarter of around or in awarded each projects downstream to and efforts our coupled growth and opportunities, projects larger our LNG, midsize original first power. and size, a million. million. with $XX across of bookings about return Flowserve that the XX.X% nuclear These oil We award $XX end to gas

focused strategy bookings made We on diversify which advantage of landscape the was changing the and our in implemented Flowserve’s growth. the the as further of decarbonization customers quarter beginning through growth new within accelerate the dedicated our We markets, strategy. teams of also Control. launched our capitalize year. first movement each assist digital is generated end traction strategy, effort our our the and to great on It we their aspect journey, XD progress Flow capitalized on at to to This take

XD traditional it remarks. in accelerate this I Flowserve’s markets have am that our through in we strategy. growth the deliver speak improvement we can my as in Looking further new end well some ahead, progress to made will the later confident as on prepared of I strategy

since year-over-year. we have third encouraged of This MRO strong aftermarket by is XX% opportunities of we $X.X backlog XD and we horizon. of level that XXXX a generated quarter highest see on the had quarter’s the bookings the are is traditional project Further, and which the level end quarter billion, up

position and these forward. Flowserve for well results improved factors believe together, Taken growth revenue financial moving we

representing the now at by first largest by This our In bookings aftermarket bookings as well up nuclear as growth $XXX solid XD year-over-year. strategy. awards OE first perspective, and Middle which General a growth driven several million. flat From driven gas, of essentially to quarter were last XX% East project part over market, XX%, XX% our up And were key from Water fairly project bookings improvement a Looking our included were compared bookings excess was was our also million market. and some of diversification North year Power performance down bookings XX% growth X%. year-over-year. our following and over end and and significant industry strong were performance, increasing Europe awards, respectively. oil $XX Africa, were XX%. in America, chemical primarily of bookings plans, and over year’s finally bookings regional bookings, provided served X%, from prior of year-over-year bookings quarter

essentially was declined while XX% last year. versus Asia-Pacific bookings flat, American Latin

operations. results to first quarter Turning and now

supply exasperated call headwinds continuing by significant logistics a very on We will soft COVID we you it and further costs, chain, availability faced indicated COVID all indirect challenging experienced direct would and impacts. driven quarter a in by be impacts As our number quarter. We that and last labor which earnings the were of the and environment was. operating recall, of

of weeks XX% full seen than rate roughly years had associates First, the This X we virus our the the in of a each in year. contracted was first XXXX the of XXXX. of or higher infection

North lower much Omicron and in supply rippled experienced variant’s illness through in prior and and what the employees While severity facilities, duration Europe, our was and chain the on than our particularly effect of years, and suppliers, operations. our America we

the adding more for of we higher our associates with addition, authorized impacted, further In available, costs. number those overtime significantly

than airfreight We our also utilized impact the to minimize customers. much normal to more heavy

took many America extraordinary April. ability disrupted subsided North March possible, typical as cadence. our factors combined to we Omicron ship at in actions through as and While our product complete and the

their However, global supply further the conflict sea since closed. local level high, right in in large current percentage they were our the freight Europe remain we that the in a onset. April operations as reporting continued issues in pandemic our to with reached highest our further time, lockdowns it impacting as are China Germany, has The Shanghai and Ukraine particularly Also, our add in chain, exasperates to environment. Since results. ports remain complexity Chinese began operating the currently which of cases quarter fourth our where

the time made the permanently impacts various team has Russian and will the it operations by on business. Amy cease but dedicated to the and financial significant the has effort of our arisen subsidiary. details, issues addressing our Our it we decision cover in

our Russia for orders existing new accepting or stopped fulfillment in and also of orders suspended have We entities canceled backlog.

with financial the potential new will our of in firm impact be in challenges, costs an In end are revenue these ongoing activity associated to there lost to we and but decision addition Russia. profit, our awards, opportunity

provided Flowserve European – our contributions our we associates. support While have have actions in humanitarian operate operations the Ukraine, does of through not and or

significant motors, products In to Over environment. materials logistic Flowserve as prices. were the the least of higher XX to the the nearly full transportation quarter other prepared to and the as times what the now to the and have cost ensure was We increasing first components of parts originally chain dozen operate at being global addition availability I Flowserve current costs year procure countries, quarter site with XX% on the the review high in weeks, led even the items impacted. in and to raw planned lead has a in The navigate of by most above these year-over-year saw inflation over best energy visited within are ongoing rate increase in we teams and rapid increase have Asia single-digit and operations particularly the move issues, China the us end we and full presence electronics, to inflation our network. is from throughout complex site expectations freight a recent expect at sites supply to deteriorated year our year.

before, focused on level As are highest revenue backlog our and I XXXX unlocking available since XXX% the our stated performance. we improving margin from

we the conditions, current recognize shift We contract to and under mitigate determined product the already, revenue. have are the and work

actions guidance. Amy growth the we Before support taking first our margin our year, over I the to me of detail are the to to details and revenue of financial let remainder outlook in updated call and deliver of the the and address performance for through go turn to improved the into XXXX remainder results

Amy Schwetz

good Scott, everyone. and morning, Thanks,

impacted demand with said, that our With financial of our we building Scott just that strong challenges As we number our the discussed, in to awards since highest continue are success the a XXXX. performance. level capturing first and environment pleased current in backlog quarter face

you Let through drivers the walk me our key results. of some of

continued Russian-Ukraine EPS revenue markets. disruptions, pockets absorption. primarily reflected Our our lockdown due and impacted quarter absenteeism million $XXX regional exit our of related our and situation revenue Russia. to ship current reported of quarter. a The The chain labor logistics of loss impact first to lower-than-expected from $X.XX decision in was of labor $X.XX in share and per to share the fully primarily light to adjusted ports tight supply basis, the Chinese the $X.XX was availability ability impacted per related under On COVID in quarter by further this and headwinds by driven and the

of We losses realignment FX also modest $X.XX very adjusted gains. and below-the-line for

actions press and terminate to non-cash As in well described filing obligations we country, million. XX-K $XX release, close in resulting taking the our contractual as we as charge Russian predominantly a our of our are QRC in

million this or $XX about anticipate will we removed backlog with cancel. action, have from existing Associated we on contracts we also

currency comparatively combination FCD As supporting may market FCD markets. our our capture its gas with customer seeing. Scott key you of our bookings or XX.X% flow later we’re from typically our of combined delayed recall, in FPD’s orders drove modest project and a including over on ability the XX% growth. constant orders leverage highlighted, equipment bookings constant year-over-year was oil were as improvement the or and lead growth quarter given And both currency basis. original bookings This and portfolio, primary nearly in two nuclear strong the benefits project in strong work contributed to growth shorter times. a driver, comprehensive control relationships power than several end aftermarket XX% FPD

business. MRO recall you nice FCD will Additionally, its last a saw recovery that in year

FCD. X.X% it discussed period. first So challenging X% Flowserve’s declined and by represents a comparative declines single-digit in the or constant operating revenue and more currency, FPD included impacted headwinds low both previously quarter

both logistics contributed and declines Asia ability our Europe, as labor in by East, clearly were X.X%. backlog, FPD supply as available ship digits. issues line with and we would both revenue. FPD Americas mix Aftermarket limited the more the revenue Shorter the segments’ Middle have single-digit in a Pacific be the FCD by in FCD. perspective, aftermarket impacted top record down high were geographically OE While years. both From the of and constraints and accounted Both chain less of well cycle and shipments, sales modest work sales and sales driven were mid-single as XX% the down a while headwinds growth first operational quarter for Africa affected, to expected,

Turning now margins. to

frictional our lower of decline, FPD to of shortages charges to minimize costs quarter The together related to logistics $XX related with discussed headwinds material the adjusted respectively. This of quarter margins $X.X million decrease exit well as XXX benefit disruptions On was XX.X%, to a as margin First to activity realignment as by our labor $XX previously million basis, under-absorption incurred the prior basis driven million of customers. basis to point XXX to offset FCD and discussed points revenues due earlier, we versus basis primarily which Russia, as the gross XXX XX.X%. year. the to decreased was and and plus first gross well decreased inflation XXX due the decreased expense reported points contributing and approximately

sales but to tight flat points to First increased year the largely of a levels. quarter cost prior due as was percent adjusted revenue on SG&A XX.X% basis XXX with management lower continued

a increase cost in improved deliver the the that well backlog plan quarter decline SG&A structure basis, by offset charges, included realignment increased near-term million On and of million Our Russian-related our rates. $XX reported which leverage through to expected conversion modest a million work to first has $X we partially labor and positioned we $X expenses. Flowserve chain growth as supply headwinds year-over-year,

in decreased XXX year-over-year operating with FPD primarily adjusted decline both points quarter X.X% gross basis and profit. adjusted margins driven roughly First FCD down of basis the points XXX by

$XX spending. with quarter First $XX guidance by basis X.X%, previously our decreased year-over-year related were on XX% quarter and reported full offset adjusted tax discussed XX.X% taxes, points the to in operating million partially our rate million charges where first to challenges year reduction of Russian realignment margin And XXX line of of the was of XX%.

we first last in the as call, $XX was quarter use due liquidity, had operating and cash million our of to primarily cash million. a Turning forecast of $XX on earnings to build working capital

used end we the additional With in backlog assets the served increase strong we $XX net on we stock to million work and as $XXX environment to million liabilities sequential new for the seeing work for and inventory our capitalize our growth, prepare to in markets. are contract safety demand roughly and

capacity. I As by net decreases as our a of level points focused year-over-year inventory, increased million the basis position, inventory And a a inventory, liabilities sequential in cash quarter XXX first to basis million and of percentage and a management seasonally to driven and available facility pleased lowest of and since to XXXX. am sales, percent lower backlog first working XX.X%. growth drove capital total cash of our credit points second year-over-year backlog of $XXX liquidity including and $XXX XX.X%, quarter while including quarter spite contract improved strong assets bookings environment of flows In we strong maintain XXX modest the the has XX that

amortization $XX $X tax $XX $XX uses of of discrete of term Finally, million loan million. capital in million, and foreign quarter approximately the dividends other of included payment of cash million, significant a expenditures

a China ranges lost adjusting supply including our to we causing guidance cost our and XXXX Russian number environment. stronger headwinds factors, remain chain. work a ports ongoing in on global disruption by and of and the in opportunity expect based continued partially in the of Turning supply the and demand what we COVID-related lockdowns outlook, it’s hiring are challenges chain The are challenges, locations, revised the their offset logistics certain to now key

quarter the a of our dollar. $X.XX revised adjusted is impact on the only revenue revenue we factors, to X% significant expect growth Clearly, loss by revised the to result guidance of X%. now also expected by but revenue from not range full in As range the compared of EPS we price The Russia second as of are $X.XX then of represents a towards second year strengthening full the impact to these year well impacted U.S. improvement benefit also our our beginning to the year. half third quarter results. through further historical in exit include eases quarter. chain-driven first us as to Key as outlook Supply our the assumptions backlog conversion to latest progress delays increase stabilize expected rates the and modest of the our

the of including customer site-to-site Additionally, $XX $XX exit that discrete of impact currently expenses potential we related the and our exclude third for quarters. during the such customers expected approximately as commodity conditions larger current items year, the China, in second work are reasonably of no and Russian-Ukraine Including EPS expect ports per project acquisitions, etcetera. ranges expect as The effects special modest now and occur EPS and which future initiatives, target our reported expected chain. internal of divestitures, we market improve well in in range share. reported may and shipments below-the-line supply quarter release to improvement $X.XX to conditions, the Russian rates, $X.XX normal, Both million of to below stable gradually items, the such the to spending return charges to the currency as realignment shipping impact, FX tax in first as our adjusted ranges Russia significant in exit of target the our adjusted foreign continuation our as expectations also other foreign reform current assume realignment at laws, conflict to and impacting currency our charges, line prices, as the the supplier well million continue EPS and

We tax million rate between in of $XX also continue to XX% XX%. expense net $XX to the range adjusted million expect and an and interest

all in deck. press earnings You can our release metrics find of our guidance and

terms the and now in availability pronounced traditional quarter, initial and pattern our the assumed this chain, half-weighted expect be more to labor cash second considering our than supply flows, issues guidance of earnings we first phasing, In logistics Flowserve’s improve our are as third results reduced, with fourth margins costs expect levels fourth expected low-teens. throughout double to absorption quarter and exit operating frictional are improved we conversion digits And accelerate, quarters. revenue as low and in to to the the

such, expected ramp be are we As will margins, the improving the generated sequentially our forecasting due both half of year volume the nearly of XX% in full in range year. to and earnings second

our usages during for to million year, continue we to planned expect major dividends. $XXX shareholders return cash Turning the to through expectations over to

further of support to expenditures intend invest also million and in business the our continued $XX range, million to in productivity enterprise-wide our We improvements. operational systems capital the IT to further including with $XX build-out

invest solid digitize, delivered and Additionally, we QX bookings where diversify, and markets. transition other XD we to to to our decarbonize targeted will continue in strategy progress energy related

to me call the Scott. return Let now

Scott Rowe

strategy to progress with an Thanks, XXXX meet revised Amy. my remarks targets. on I financial actions XD our growth provide want update delivering and to on and commitment our the first close our

flow strategy Flowserve’s long-term support to and we with make digitize to markets, the purpose expect control our aligns provide clear, to fully To the solutions where better customers to or traditional the decarbonize growth to As everyone. growth. last diversify, world XD continue directly our for continue long-standing we be in supports I and outlined strategy extraordinary quarter, statement

within on enable to our Our that addressing cycles. and this through accelerated energy the business more market believe help flow providing on while control journey. us entire outsized end the solutions Flowserve’s space growth and strategy We XD various also resilience opportunities control will for customers’ capitalize allow transition available strategy flow focus deliver the efficiency us the improved broadly increased is providing model by designed to

includes the our have of chemical in strategy we and customers. and other passion the water, pillars, strategic seen progress to the in expanding aggressively our growth general the made specialty underserved maintain markets reach highlighting of of and attractive support want leg regions from each our long-term prospects The and the strategy strong capabilities. like we for and offering that targeting note I’ve industries, where diversified associates I Before the previously exhibit

for chemical first Specifically specialty automotive valves supported in in industries. a electronics by of the the China variety we to used in Flowserve of production a quarter, supplying plastics be and manufacturer engineered

We previously in to flow Gradiant, partnership also water of and with Gradiant partnership Flowserve supporting systems. formed in The control provide advanced technology project reliable provide desalination regions various is us a and and efficient and is opportunities developer to supplier water, products us water with a wastewater designed extremely and and positions opportunities. markets well systems. underserved

our decarbonized efforts. is to control decarbonization, of is enable the COX Flowserve energy reduction energy assist loop and This full emissions in Next is on effort an customers’ capitalize our strategy. aspect efficiency. to reduction and and carbon positioned flow uniquely

a a at is COX project we Flowserve valves apply and pumps chemicals over decarbonization recycling experience to and waste control the tons play large Flowserve’s Upon CCUS gas industries the it is capture permanently open-source were is supplied supply into technology expected an awarded flow to expertise Norway’s future this increased for carbon convert our This will exciting storage and in waste an on of scale. sustainable this and and use. over knowledge area capture a sustainable decades contract project of recently oil significant role project for a supporting portion and have cross-border coming to recently capture of facility. the flow into We and and is first completion, leverage the to to control efforts. As projects. where awarded other and million to an of use a store also project, expected is first facility world’s the chemicals. our X were in we operations Flowserve plastic Europe equipment plastic is in example, decades. storage, utilizing The annually carbon which this for

focus our platform value effort creates represents digitization growth IoT opportunities the the the it driven Finally, our customers. our on and RedRaven by for

in the for we and offering the a market new year, has only continue to gain traction existing over little customers. While a with been

customer in operating currently markets. are across end our We sites XX core

In We first provided the have application and which in opportunities X,XXX RedRaven. valves to X,XXX In example, alone, now for quarter with the system or over RedRaven triggered nearly our intubated product recently Flowserve. technology an pumps, offshore alerts on and service aftermarket seals notifications one customers, we deployed incremental Malaysia.

As part of a instrumenting long-term service equipment agreement gas with a of we offshore flow platforms. control customer, critical major XX pieces their oil across are of and XX

We instrumenting will recurring as profitable on to as of increased of goal our with equipment existing our continue focus base to providing a opportunities. revenue solution converting aftermarket installed pull-through well the stream new

Turning in remainder picture the first in we as we run move to the in XXXX. expectation I from earlier, will rate project environment and year, our as and delivered the at continue to the customers least believe the outlook global mentioned We that second third macro on of continue quarters. for opportunities improved see pipeline our of our quarter forward will supports market the project we demand our strong for

gas our beyond in to late awards inflation business. remain to aftermarket and project should rates providing strength and XXXX could and oil and of investments we pressured. increase become Regardless, current MRO expectations, chemical and expect do interest and customers utilization high, However, XXXX rates our

energy only capitalize commitments an and as targets traditional energy climate new as markets sources. in energy ESG as to XD conflict transition independence. driven continue sanctions both accelerated investment energy as well opportunities, also and The the on increasing change are significant has for Russia which Ukraine in cleaner independence desire by energy well We desire and will for

have discussions secure projects world new away We in a the repositions into this added seen continue more as have to source. space and Russia from more

support of in next We does control the or attracting seen Flowserve’s in over we and of offering expected see proposed supports provide years, opportunities is of source. the energy not to energy technology significant broad well the Significant opportunities nuclear LNG is well our regardless for ramp flow investment positioned the on $XXX transition amount ambition energy of million to years. over in are the include coming capitalize growth we have goal in energy customers’ in as couple flow potential XXXX. control independence. This energy as the now this transition growth Flowserve

strong confirm priority Before rate realized that urgent margins. billion more backlog most while our normal converting $X.X me closing, let conversion expanding at our a near-term is the

I As profitability in earlier, conversion frictional costs on revenue, a backlog coupled incurred challenges significant impact with in the first the through Amy and recent the both indicated of many decline work to to the had percentage we quarter. the

XXXX, price/cost several exited we As we roughly and were surcharges. neutral following price increases

With the adequate X% the early price not the begin inflation incur implemented the our flowing XXXX, which we through experienced implemented was rapid Flowserve will increase in to neutrality, to increases we recently cost cover year that and increase XXXX, we in second begin incremental price our to we quarter third we financials. least back in of announced return to in XXXX. at To expect expected

price or about work long-term note is benefit of half would only a either that under are we half However, our while priced cost-plus under model from increases, these list sales of other driven and the typically agreements. our

our base where predictability. We supplier delivery also mitigate time more environment and lead repositioning appropriate are and to the expanding certainty expanded provide around

and address facing are inventory the with planning of business. a We to our challenges are the critical sense materials quarter In purchases the components. a forward truly while and urgency enhancing closing, working we unprecedented was tools, environment our expediting Flowserve, for updating with first further operating strategic

to impacting our and prepared operations. are navigate market, expect headwinds solid operating deliver Flowserve We bookings continue to through teams this and the that in our current leadership will I’m that confident market

financial to momentum. substantial drive to strong We for with expect position sequential us improvement and a back XXXX quarterly enter half year the results, of our which in should strong

and The progress work feel in backlog the meaningful highest second in us. for is Most we critical importantly, that there quarter. second quarter confident I so deliver will team step, the of the is years, first a our have level

shareholders. our committed team and for strong dedicated our for a have and associates We delivering to leadership customers

demand associates, and drive of long-term short, to to Additionally, and accelerate our and XD end traditional the Flowserve the remain for to will the value in we prepared concludes outlook call open markets near-term is positioned like trajectory. shareholders believe customers strategy market remarks, growth our only fundamentals our progress questions. markets, our now and and beyond. we’d for strong our served remains In well Operator, strong XXXX this our

Operator

you. will Instructions] first Thank take question Capital from with RBC And [Operator Deane Markets. we our Dray

Deane Dray

you. Thank Good everyone. morning,

Amy Schwetz

morning, Good Deane.

Deane Dray

questions gains there order any embedded the between could, if share aftermarket? growth you us Thanks. on orders? backlog and in margins in congratulations first, take of were you and there. sense parse a qualitatively you through, can the winning that OE And a today couple Hi, those Did get

Scott Rowe

about increases. And the Thanks, does the Sure. embedded we both level equipment, Deane. projects. focused QX. aftermarket of What cost we’ve sides the of original say we’re said, pricing been pricing there margins on latest that on Yes, would sure mix both I excited and is like the nice on these, accommodate our the in very a side making on bookings or

of those to progression is so we what that think And now And delivery there. that, see nice make – margins. frictional sure seen will erode cost we’ve I doesn’t a we’ve got

other and spotlighted other frictional And got the say type markets. in think end some we just nuclear costs to streamline I of the QX. we and of work, saw I’d higher We’ve projects And so and LNG well. execution the priced like of we contribute margins mix this, also of that without again, some execute does and that in it then

That be about cycle. on And we that is what’s up in backlog in product much the the so feel side, the QX that about about again, feel the margins in there. And on good project then margins think happened side. certainly as it we and we should aftermarket good we pretty booked shorter

So of typically, X anywhere a $XXX in and aftermarket right then And on and minimize we’re side, get as aftermarkets, mix to really now. that for nice tailwind million operations and the accurately the well. ability delivering price our between good the disruption X so feels with on weeks the we

in to the higher we execute. product think some to that got that, about should we’ve the And should drive But there as margin if be we got net-net, and frictional We’ve do of costs. margins gross XXXX. so eliminate

Deane Dray

think you you do gained share? And

Scott Rowe

Yes.

But share didn’t won, quarter losing say that very we taking were in that when that about competitive for feel I one. and to good Sorry, Look, and it’s work. taking yes, we share. hard the you’re answer on those projects one

certainly that part, and so MRO. And MRO and we or we’re winning the we suggest the $XXX seals feel million, share valve side then And good, both that we level think at does in that that our side, on work won I aftermarket the the targeted.

of those ability in And feel of good parts so our our two about winning business. share we

Deane Dray

is shutdowns? extent is it. product, sourcing just the follow-up the which Is as concern? product, moving and And the a concerns about today? sourcing it link weakest where Got Because for question, of in area that China side the you’re all you the to base

Scott Rowe

Sure. primarily It and really it’s Asia, is, around Deane.

And so to our percentage chain tied large Greater of a is has supply and Asia. Flowserve China

of exporting there out in around really trying only actually think it businesses so and get our product products about us. to for existing difficult as the to becomes world, support And that Asia but that we not

our current supply The have into and get we product sites impacting are our extended an so there. of Shanghai in to region disruptions that ability chain that operations. certainly And our

And suppliers. so repositioning more what we’re challenge. local And or that’s working on is really to the regionalized

in our product us. hard working very within is are right important get We’re product difficult. now to I key finding we components China, of a And operations. of out that are ways And of think that vendors But there. that’s, new aspects proximity really to now, we’re unfortunately, of And very, to there qualifying different then China. to out are get couple closer

The electronics. be first would

the China. coming of lot electronics of a out are so And

our our companies, while buying China then And name big we’re motors. And lot large portion from motors China. predominantly tied to a the of subcomponents type we’ve U.S. the European and castings got a out India. motors third, is are coming Secondly of and in of

in valves, And into pumps in longer so moving extended America a basically of over we’re source our and becomes a all routes our and product product the and chain that that which foundation supply longer North manufacturing on is as Europe. concern of castings, for

Deane Dray

Thank Appreciate you color. all for it. that

Operator

with on Thank Andy we move to next, And Citigroup. will you. Kaplowitz

Andy Kaplowitz

everyone. morning, Good

Scott Rowe

Andy. Yes. Hi, good morning,

Andy Kaplowitz

in guidance the mid-teens bookings growth the year. for Scott, you QX versus had

here? of growth inflation was you obviously, bookings you had bookings awards. your bookings hearing continuing then Are gas I the in think the terms in you as accelerate see customers? from and know a I headwind or on And power quarter. and you in mentioned nice jump from that bookings your oil growth. single-digit took of a And rate of percentage bookings high Do QX possible even could

more LNG, forward. some color opportunities power you So could how thinking give going into about maybe nuclear you’re us

Scott Rowe

to time out got the good in to a start Andy, QX We great about a on visibility was here we’re year. projects. activities clearly, feel Yes. nice bookings. And interesting there. really really the We’ve

for now of quarters. that had a we’ve so And couple

little we seen now But last see line of And up. kind than is part a X those expected. those over Some of years. slipped bit we’ve that to underinvestment starting more of we’re the that

that close Ukraine in projects those And then And what’s independence. is FID. so to I to feel that many happening this and forward. There now Russia energy very and move continue that with couple for strong good are desire you

this LNG is awards the LNG and back in say dramatically, drive we’re so quarter, expect will year. going to it the – awards we in that. saw We seeing the half more I’ll well, of accelerate And and first

for In Flowserve fact, It’s million. is largest the over a time. pipeline just seen our in in products $XXX we’ve very long LNG

in and we that, nuclear we work work expect in saw the to XXXX. further addition quarter, In nuclear first

is nuclear decade. over on pipeline in as high we’ve Our seen as up a

now larger remarks, that the you’re in QX. what these And and in to desire going into is as sector the think help inflation going this think independence put I this point, projects. utilization and concern, on know I we MRO let MRO so here there energy it we certainly aftermarket. do, the don’t accelerates the work us prepared aftermarket the high of we we when I returns for interest booking And the at I And some backwards that progress side. dramatically, absolutely through viability this rates level is factor will of And and The throughout right really spend hold XXXX. that had customer refining projects I is to putting these to a slowdown. also price well and chemical in together point, we that don’t saw But see that I’ll large-scale single the inflationary rates I one of they see discussions environment and not We are other say then our money. in What business indicating the as any I’m first business in think that. address forward both the move continue the of an but when some not do is sure of now to at continues They can me number digits indicate the start the as aftermarket the quarter. of the current overcome nice year. change right

Andy Kaplowitz

me half Scott. let let Deane’s very you then He about helpful. question. And about the a asked China, earnings to you That’s general ask but me just ask in follow-up ramp. second

normal at your out, second modest progress point $XX your of you you half some almost for conversion, to I trend million how of costs the called mentioned conversion the year? frictional in QX. What’s close the You but frictional assuming expectation second will backlog back half? in think are levels costs, terms were in in And gets

Scott Rowe

I’ll our look answer for forward on year. the let Amy bridge got Yes. that. She’s the

Amy Schwetz

Yes.

we things perspective. is and mind. one, in weighted I XX% Flowserve earnings half I mean, from keep that an So earnings as ramp typically up, think about to think of between second a XX% couple generally,

gate to going certainly, second is the the our $X.XX more earnings with adjusted out that So weight than of half earnings automatically of towards year. of getting the

that look we assuming in One improves that. that, of the situation supply couple modestly. that the things back We are back things of we not and a to at get normal. half chain assuming stabilizes year the But are happen as

to So, that to not once expecting that we the slightly. perspective, rates. see in get of back into get improve modest lead again, we suspect a are period But will And historical time. those From that we – during are rate also improvement conversion levels. are logistics we we going times and stabilized anticipating back stabilize conversion

well are with two will going incredibly back the half are in historical costs be rates. So, the frictional anticipating we limiting frictional terms a impactful for those be that will that do there what fourth even quarter us perspective, year, we forward. our in the in can things of below particularly From of cost

those is regional logistics. pockets more the is, And second those to first mentioned, labor COVID areas. cost that the as shortages, The choices with labor we of getting in absenteeism level around a and stabilized

sites everything to most and expediting our be ability important. materials our the stop effective to So, transport way to choosing will

increase, of a that to these course seeing is in last recognize, I as that optimal are comment a terms operate that at that to about project anticipating incredibly OE we price are long more last of inflationary over the any largely year. are impacts and to cover make We market this answer, mix OE And our we the returning, we having talked the that plants helpful increasing going have level. bookings us with that’s other I large really and then – and will

last of by the the issues the and quarter seen and some both year did shortages. supply exacerbated that labor have that of this some we issues So, were under-absorption chain

which over expand to improve going course year, see to us of is margins. sequentially the our going are those the We help

Andy Kaplowitz

the color. Appreciate all

Operator

Thank you.

will take Walsh, we question Suisse. Next, John from our Credit

John Walsh

Good Good Hi. thinking sequentially thanks appreciate commentary. morning the we first you are first to Can HX just the associated and the sales so that’s revenue with from you Maybe calibrate questions. quarter? understand morning. HX that question, us growth how split for is the that what help way, taking earnings can

Amy Schwetz

Sure.

earnings. half to be similarly going second weighted, extent sales but not of certainly, are the to So,

stabilize, over as that we growth in see start as year, anticipating we So, those the maybe of normalize margins sort word a the revenue that or to excess things stabilization. incremental of second of half better we see improve are

John Walsh

cadence? I do maybe differently, guess as through go sales each Is the I you should think mean that if see you about quarter ask it I growing year? we how the Great. revenue sequentially

Amy Schwetz

Yes.

So, could I you a think mean I line. draw

be levels the we traditionally in continue. case. case, been is Second year. pattern XXXX. quarter That’s And deliver than the our be of That the we feel will same. will and levels, at quarter fourth say more at to that highest operated should quarter the confident able And was not-so-distant will that revenue quarter see the the certainly on. fourth the we case third And traditionally quarter I quarter, first in be have we will that it’s past. as

John Walsh

then C-level? level, more go at it And any supply it would the down around are meetings you just kind remind the Great. business where of up on managing corporate the And the to from? organization Is level? a cadence broadly us an that question just that of you segment? kind maybe managing at maybe as chain. Can then Is

Scott Rowe

Yes, supply we John, – our are manage others. sure. chain I like would many we say like for

a supply the that’s runs group as on that We incredibly group, what the chain. the job category It’s and to have but got at quality management their level. large well. do also central do chain supply set is strategy supplier not corporate They an they

then the that managing or large that And would so partner when at tactical divisions each and of our at you be level. for activity. manufacturing divisional is more management about procurement their preferred resides orders our like embedded own That adding then executing the the And suppliers And that do would plants. think chain then accounts, really, of and team responsible organization. in supply

as a to Supply weekly now from say I the And doing as would would with to these are and of on as where are years through where went and a possible. Operations that and in to type I this kind of from never meetings so we then sure have we meeting got we X efficiently ago, of Chain have cadence it effectively standpoint, sit Presidents the make working tiered. meeting Head And we

we of the place And that. are have a in and where We it’s put that are focus long-term table. programs are things restore deck start that in we to the initiatives But on to to and the we things so doing visibility we would everything the supply I and talked chain. about really, to – on challenged. slide putting got say, And short-term the a is ton different

And We the maybe that expediting. to then put formalized we towards as more not resources resources of qualified formal be. in new We We that things actively some closer proximity to were, call, it vendors category more have put to are as management. have been would used regions operate. now chain more on say this the on long-term, where we on we regional working focus. term, But supply nine months for would different to reposition we – have this our know And to then longer six the to we our have I months. got I

got And so to area – that do that won’t have we know it’s But happen overnight. that we an this.

lot of purchase We having have have call and already And a essentially, to having rather got Flowserve suppliers. this than under secondly, the more And reactionary we redundancy spend that’s managed we partners then started work in enhance create to we what reposition our of partnership and And and orders. X.X to preferred just partnerships. more a in and did chain. supply create our resiliency strategic relationships

expanding deeper are partnerships right the looking basically that. do relationships are with even suppliers. how we so have now and we And we really at

so competencies. all planning just going. things enhance big is other those or and finally, tools And And continuing our the are then to of thing advance

progress got the years X And so we it’s better but have in that continue absolutely over as good in. made last uncertain becomes on, has planning in invest get a something competency an critical and environment, to Flowserve to

time the are we planning for talking of so plan spending lot how a we about And work and our future.

John Walsh

you. Thank answers. detailed Appreciate the Great.

Operator

you. Thank

Jones Next, with we will Stifel. take our question from Nathan

Nathan Jones

everyone. Good morning

Scott Rowe

Hi Nathan.

Nathan Jones

have even supply moment. probably XQ, barely on chain think to at the You we have in of effects situation started do that’s see today. And XQ the going XQ, the got what to I to ripple with China whole going

about maybe you an in the out You the seeing are of some chain just way the that in that into and at there moment? conclusion, back that are moment investors that the lead there year. you half or the anything at improvement are are modest supply you stabilization is talking to you that building guiding Is assumption

Scott Rowe

conversion. answers. what we do comments revenue to is put seeing in us will the Stability and and I to we her step of the would are do improve better probably Nathan, can drive that say, allow some So, first one stability. clearly, Amy this we think

that lot they seeing world and – better, the commodities, not more getting in predictable. or in necessarily it’s the but logistics accurate and more deliveries where And seeing things times, the a our in are are getting seeing We some suppliers from of changes from the we lead parts are are are our of not we side.

is right concern the So, area. things We are biggest as now of I Shanghai need China to the and single unlocking down. The go for that think definitely we do forward. settling progress us

in So, Suzhou today, facilities open. our remain

transport in or within people to anywhere However, China. difficult region – in very it’s that product

is point QX. so see we open additional And if China up some definitely don’t there in risk at

we QX. our assumption that is open So, do in up

then to what We orders half in open demand have we doesn’t have the in it back the there. the additional got risk the good of up need QX, we in year. and in visibility If

Amy Schwetz

in And tailwind The just FCD, bit perspective. they call same produce, little the With more of on true sites uncertain Flowserve actually our internally at reporting, I terms to exposed both India with that in the from from improving situation, color that. give respect to particular, a to a at that logistics bit supplier is segment see and China in particular of a best, for And a of a out particularly India. product segment. we is do would although and situation providing the remains perspective, what China

Nathan Jones

not margin for as the by a have that of and just What’s perhaps counteract eroded extract try potential business out been priced pricing. are those kind here. and you the deliver cost-plus of kind your some or The here further is expecting then there question to projects contracts MRO going new focus of last that, on are counter projects? go And those to And year are on project of is measures into we back to the that any in under inflation? a model. embedding the that inflation follow-up price ability business was It’s short-term

Scott Rowe

it’s Yes. a good question. No,

the where So, we at. been that cost that sure margins we just pricing, focused for we everyone’s an to benefit, that look plus have do our we project on business, that’s make area can deliver very

before secure do prime we pricing booked project, we is first the so from suppliers. step the our And

there. big would big motors And and our the castings, components so our this be

recently Where the so get large we And have projects. worry an the the where wouldn’t smaller at in inflationary good profile a time feel have of have been on months that very to things has here lot booking, about seen normally for we erosion we the – six last of environment. in we from locked cost we some that that

certainly Now, of they a those of are that margin up make the some but smaller cost, offsetting percentage potential.

And projects, the within things is so that has now we doing are quote the shortened validity one substantially. our

change a we things adjust make to can on general into sure we project. we And if that that get so and pricing do that the are see able basis,

are now the on putting into quotes inflationary metrics large those very we projects. Secondly,

But to a the not fixed we – in going to are is get increased a those additional metric smaller Now, that there. what order mechanism itself. the us, of that to margin is on to we difficult happen. to outside it’s bigger up then just on that ability sure with I projects, price getting it’s and will do projects change But project change to management through project we open the there say are success that the the for manage is that if and change in going an make price in other trying projects. the And that starting that back on see the price that, and only really project. really And is are put inflation to aggressively process,

Nathan Jones

project? cost already What is at booked in you most is that are locked that your saying you of the time

Scott Rowe

in. Yes. absolutely our big There of locked are all is certainly, – Nathan, costs,

things that So, other we costs motors, our castings before and supplier book work. firm are from

Nathan Jones

you. Great. Thank

Operator

And Cowen. Joe you. will Thank to on Giordano with we next, move

Joe Giordano

Good morning. guys. Hey

Scott Rowe

morning. Good

Amy Schwetz

Hi Joe.

Joe Giordano

than from to headwinds is incremental have guide. that Russia and the you So, reduction the the below in exit revenue the expectation revenue on guide, your XQ from and FX the the coming in more of

expecting you effectively, look, in backlog know And came quarter and backlog better definitely people bookings was and the high, this at your rest you in quarter the a last are So, confidence but from I that than is were were line. high raising the all-time year of under. top

Because doesn’t you actually some So, the be you almost right? drive at like what than backlog matter, backlog confidence alone So, can you gives the confidence that what could clearing? point, more XQ headwinds can backlog that infinity. gives offset It here?

Scott Rowe

going backlog year. we Joe, than MRO you at first these are is, what to as the But will. the we not in And are we the that’s absolutely lot – work secondly, said will it at think Amy shift on have that within in Yes. have we is still were I big MRO second in was mean, there. going right. more normal strong The MRO higher on of I quarter the if have to point, we than said believe expected. most before, that’s And the backlog optimal a aftermarket you ship And the side on No, A booked got the the also pace. a the we into work expectations. that higher bookings challenge our exactly ship and quarter year. again, it. second convert to quarter that MRO, will then believe, levels, got we through the And and And is some to back of

got lot couple We know to will you sites to I And have recently don’t our a to of as are in our throughout percentage And We increase And the start teams have stability think some why the in gone of what good We year. willing know the markets, what I shortages just then convert I our last do are on see are. in And the convert exactly think, the stacked of ability projects? of call We pretty this. we have that. what’s to XX completion there the with I gone products showing, to Amy, all sites, end a some to we gradual weeks. touch missing. ability of up.

Amy Schwetz

Sure.

these milestones. I of and revenue think are terms projects we recognizing one is are point life other is the in larger OE we This of that of This revenue projects is not as clear on sort we So, recognition. that those booking. the just done over

some have dependent arranging situation, certainly, were the constraints bookings. to work in logistics So, supply through. to still some the chain need respect not we we customers, the of like in of the POC we on and see with of issues current the But challenges terms that that

detracting revenue recognition of with point time sales So, it. POC having the of from to in a our predictability of this nice mix and revenue adds some the versus on actually MRO aftermarket

Joe Giordano

mentioned follow of rest chain, on on that – it times to we is I also getting and And that year seems or easing for like feel feel – many worse. think the time like keeps think reasonable. the are every I the like I just improve. is then inflation But supply just COVID expectation the easing, you it does the stabilizes we done is

visibility any I that like guess gets give you whatsoever if some the guide not have do you gives of confidence So, and better – some improvement to on any some maybe why chain sort or under sort this Now do edge hoping we level that then as for there that, the just just stuff comfort none extent? this? deliver are almost is a to circumstance, like embedded they have of can supply we that, then in maybe of

Scott Rowe

Yes. And to goes it think volatility, right. the stability I back and

actually the And continuing to and we struggle stabilization, lead get extended that as catch time. able to so and lead things then we deliver are we volatility If new move, with provide to shipments. to start any change, start or things where out that’s really to to see times up pushed

We in system. lot the have a got of products

WIP in see can in our inventory. that You numbers the

door. to as right we relieve start that in so some at components the the And we get point,

got again, feel the there. have we that And we so confident visibility

as ability our right different on work. shop the start to supply And that a We of sitting vehicles. or we it’s have have And unlock now. chain lot these performed floors to in this we convert WIP

what And rate, that doing. just this so have the to and but we believe a help grow us through that at even work something I that will conversion to our will sense confidence we I our, not stability starts normal makes in that is we as year, continue and revenue call, to that say something unlock

Amy Schwetz

receipts, of versus the in did see had month a in increase example, in quarter. points. what Just data for March We couple the month the seen of we previous

well. and lead that times think there be, stabilized. of will in and it’s the where you be have of India, it And increasing, delivery from our stabilized. performance logistics our points it’s But are on foresee seen little to delivery, the have on-time of up, certain challenges which for our declining not then levels data next issues that particularly double-whammy improvements. in categories I And – vendors we sure. seeing are doesn’t about popping over trying work of really the provide when looking It’s relief those it where We in to on-time the of really, us the us want signs like again, last have to starting feel side, couple that where been see quarters, we a impactful to stabilization are particular of terms categories. are And some we we at out bit of but we

Joe Giordano

guys. Thanks

Operator

Thank Sachs. will on with Joe move you. next, Goldman we Ritchie And to

Joe Ritchie

Thanks. Good everyone. afternoon

Scott Rowe

Hi Joe.

Joe Ritchie

now impacting guess you what – clear I And pretty quarters rate, starting has XXX just quarter. to margin the margins. your look several order am it rate I for see from take like the the quarters. we under-absorption guys if been been your you sub-XXX of at kind to troughing improvement is been has get start fulfilled? orders start expect this for engage that last seems in here And trying OE what maybe revenue OE at like issue we off, have So, order to probably I several this number should a when your above are

just across how you on sequential improvement some margin volumes? from to coming start we either about like as incremental ship businesses through the of do margins So, or think here OE these

Amy Schwetz

Yes.

at fourth anticipating year we at are level. the we going even that exit of to OI XX% as sort So, to look the quarter are XX% we of a

system the result will working of the quarter, fourth getting year. that’s level course as a in sequential stabilization. be the optimal as at the – improvement say but heard times, some of you that We multiple over will us see probably not And

that to are largest are got – line have where continue seeing bookings in that in have and we expertise the you facilities it’s the coming type on have got And where in require are labor large place we that of certainly of sight think specialized into I oftentimes that FPD right ETO site. absolutely under-absorption segment. we we that amounts at

deliver in, in bookings the larger that so And on to be we of better we the that, first OE the that is some quarter. that in coming anticipate increase start we to based going in we as first project on much saw absorption XX% level bookings see these quarter,

Joe Ritchie

And question maybe just helpful. a follow-on That’s there. it. Got

XX%, So, in level. am am me total rate to That there, wrong if at FCD, if your exit assuming I is correct XX% maybe the would I it’s that’s segment be…

Amy Schwetz

the at company level. actually That’s

Joe Ritchie

company the level, At okay.

say So, of you at changes that of forward mean business seasonality year? hundred in point – as kind from – is starting what’s several about that Is recognize expect type your be is the next well. level, better improvement year. margin we should – kind exit think nothing so be the I happening currently? year, for as would fair I I current basis from really of that we company like then next of to carrying is that the than the then assuming And we rate last fully there right kind should points mean it

Amy Schwetz

to in Joe. We see expect continue that we business, will seasonality our

the be So, quarter relatively first margin we oftentimes a from see weak perspective.

system that But don’t thing I those the we So, We to margin exit build is the that, that don’t of rate – that fourth we anticipate I working to as would to from exactly necessarily guide that prematurely say want on. intend what should. XX% that that’s no to sort think something quarter do degradation XX% is levels. it

to So, improve the we we to into and specifically performance. as working move be continue XXXX rate revenue financial conversion of around will look as our XXXX, performance we for

total, higher or in better. margins that I or that at anticipate XXXX be, would rate exit will So,

Joe Ritchie

you. Okay. Thank

Scott Rowe

today’s for Alright. operating challenging everyone, call. you, the first a closing, Thank volatile and environment faced in joining quarter. we In

to in Flowserve expect us traditional challenges, of a on growth and XD are quarter, growth with $X.X the spending phase. teams first confidence markets combined our in Our us The which we actively will strong increased through give position convert billion is successfully working entering that now bookings these backlog. the

am talented progress see a as I have the and year. interest throughout Flowserve. you for We team and support margin and your of Thank associates, we confident improvement will of that revenue you

Operator

That We participation. teleconference. today’s you. your Thank do conclude does appreciate

may now You disconnect.

Flowserve (FLS) 3 May 222022 Q1 Earnings call transcript