Flowserve Q1 2025 Earnings Report

Flowserve EPS Results

• Actual EPS: $0.72
• Consensus EPS: $0.59
• Beat/Miss: Beat by +$0.13
• One Year Ago EPS: $0.58

Flowserve Revenue Results

• Actual Revenue: $1.14 billion
• Expected Revenue: $1.11 billion
• Beat/Miss: Beat by +$35.02 million
• YoY Revenue Growth: +5.20%

Flowserve Announcement Details

• Quarter: Q1 2025
• Date: 4/29/2025
• Time: After Market Closes
• Conference Call Date: Wednesday, April 30, 2025
• Conference Call Time: 10:00AM ET

Flowserve (NYSE:FLS) designs, manufactures, distributes, and services industrial flow management equipment in the United States, Canada, Mexico, Europe, the Middle East, Africa, and the Asia Pacific. It operates through Flowserve Pump Division (FPD) and Flow Control Division (FCD) segments. The FPD segment offers custom and pre-configured pumps and pump systems, mechanical seals, auxiliary systems, replacement parts, upgrades, and related aftermarket services; and equipment services, including installation and commissioning services, seal systems spare parts, repairs, advanced diagnostics, re-rate and upgrade solutions, retrofit programs, and machining and asset management solutions, as well as manufactures a gas-lubricated mechanical seal for use in high-speed compressors for gas pipelines and in the oil and gas production and process markets. The FCD segment provides engineered and industrial valve and automation systems, including isolation and control valves, actuation, controls, and related equipment; and equipment maintenance services for flow control systems, including advanced diagnostics, repair, installation, commissioning, retrofit programs, and field machining capabilities. This segment's products are used to control, direct, and manage the flow of liquids, gases, and multi-phase fluids. It primarily serves oil and gas, chemical and pharmaceuticals, power generation, and water management markets, as well as general industries, including mining and ore processing, pulp and paper, food and beverage, and other smaller applications. The company distributes its products through direct sales, distributors, and sales representatives. Flowserve Corporation was founded in 1790 and is headquartered in Irving, Texas.

Flowserve Q1 2025 Earnings Call Transcript

Key Takeaways

• Flowserve delivered a strong Q1 with bookings up 18% to $1.2 billion, revenue growth of 5%, adjusted gross margin expansion of 80 bps to 33.5%, and adjusted EPS of $0.72, a 25% increase versus prior year.
• Aftermarket bookings reached a record ~$690 million, driving a 1.07 book-to-bill ratio, while nuclear and power orders topped $100 million for the third consecutive quarter.
• Management estimates a $90–100 million annualized tariff impact but plans full mitigation through targeted pricing actions, diversified sourcing, trade-agreement benefits and global footprint optimization.
• The company reaffirmed its 2025 guidance of 3–5% organic sales growth and $3.10–3.30 in adjusted EPS (+18–25% YoY), assuming current tariffs and steady end-market demand, with a stronger earnings contribution expected in H2.
• Operational excellence programs, including the 80/20 complexity reduction initiative and Mogus acquisition synergies, remain on track to deliver over 50 bps of margin benefit in 2025 and support long-term margin expansion.

Presentation

[Operator]

Day, and welcome to the Flowserve First Quarter twenty twenty five Earnings Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Brian Ezel, Vice President, Treasurer and Investor Relations and Corporate Finance. Please go ahead.

[Brian Ezzell, VP – Treasurer, Investor Relations and Corporate Finance at Flowserve]

Thank you, and good morning, everyone. Welcome to Flowserve's first quarter twenty twenty five business update. I'm joined by Scott Rowe, Flowserve's President and Chief Executive Officer and our Chief Financial Officer, Amy Schweitz. Following Scott and Amy's prepared remarks, we'll open the call for questions. Turning to Slide two.

[Brian Ezzell, VP – Treasurer, Investor Relations and Corporate Finance at Flowserve]

Our discussion will contain forward looking statements that are based upon information available as of today. Actual results may differ due to risks and uncertainties. Refer to additional information, including our note on non GAAP measures in our press release, earnings presentation and SEC filings, which are available on our website. With that, I will turn it over to Scott.

[Scott Rowe, President and Chief Executive Officer at Flowserve]

Thank you, Brian, and good morning, everyone.

[Scott Rowe, President and Chief Executive Officer at Flowserve]

I'll begin on slide three. We delivered a strong start to the year in the first quarter, demonstrating the strength of our diversified portfolio and the exceptional performance of our associates around the world, operating under the full serve business system. Looking at some of our headline numbers, bookings grew 18% versus last year to $1,200,000,000, revenue increased 5%, and adjusted gross margins expanded a 80 basis points to 33.5%. We delivered adjusted operating margins of 12.8 resulting in impressive incremental margins of more than 50% in the quarter. Adjusted earnings per share was 72¢ for the quarter, an increase of nearly 25% versus the prior year.

[Scott Rowe, President and Chief Executive Officer at Flowserve]

We enter the second quarter encouraged by our momentum, and we remain confident in our ability to execute at a high level. However, the current tariff environment introduces a new dynamic to our outlook, which I'll touch on in more detail shortly. We also recognize there is macroeconomic uncertainty as we look ahead. Accordingly, we are reaffirming our full year guidance and remain focused on navigating the current environment while building on the strong results of the first quarter. Amy will provide additional details on the financial outlook later in the call.

[Scott Rowe, President and Chief Executive Officer at Flowserve]

Turning to slide four. Our strong first quarter bookings performance resulted in a book to bill ratio of 1.07 times with outstanding growth in aftermarket bookings and nuclear activity. We continue to see outsized growth from our three d strategy with three d bookings representing 31% of our total awards for the quarter. Record aftermarket bookings of almost $690,000,000 represented the fourth consecutive quarter above $600,000,000. Our focus on growing the aftermarket business is paying dividends, where our high service levels continue to translate into increased aftermarket capture.

[Scott Rowe, President and Chief Executive Officer at Flowserve]

In the quarter, our aftermarket franchise benefited from a roughly $50,000,000 nuclear aftermarket order to upgrade a major nuclear power plant in North America. Our next largest award was a $42,000,000 original equipment award, also within the nuclear space for a new plant in Europe, followed by a $36,000,000 award for an energy project in The Middle East. In total, nuclear bookings were more than $100,000,000 for the third consecutive quarter, and power bookings were up more than 45% versus the prior year. We also generated 28% year over year growth in general industries. These results underscore the ongoing demand for our products and services in critical industries. Turning to slide five. I'll provide our view of how tariffs could impact our results and what actions we are taking to manage the current environment. As trade policy continues to evolve, we are focused on responding as quickly as possible to a very dynamic situation. We have clear visibility to tariff exposures down to the product family level, and we have a number of levers in place to mitigate the impact of the current tariff program. Specific to US tariffs, the vast majority of the products we sell in The US are manufactured, assembled, and tested within The United States. That said, we do import certain materials such as castings and forgings, as well as some components like electronics and motors into The US.

[Scott Rowe, President and Chief Executive Officer at Flowserve]

These items represent a single digit percentage of our total cost of sales with the largest exposures to China, India, and Mexico. We also manufacture some products in The US for export to other geographies, but this activity represents a modest mid single digit percentage of our total sales and often comes with the ability to migrate this work to other non US facilities. In total, based on tariff rates known today, we estimate the annualized gross impact of the new tariffs before any mitigating actions is between 90 and $100,000,000. Following the first round of tariffs in 02/2018 and the supply chain disruptions of 2022, we developed a more resilient and regionally diverse supply chain. As a result, we are better positioned to navigate these challenges than ever before with a focus on delivering the best value to our customers.

[Scott Rowe, President and Chief Executive Officer at Flowserve]

Our global footprint is an advantage in this environment, and we are leveraging our network to optimize the location of our work to help mitigate the impact of tariffs. We're also actively shifting sourcing around the globe to deliver the lowest cost, highest quality products to our customers. In short, Flowserve is better positioned to navigate these challenges than ever before. We have also taken select pricing actions where needed to offset the impact of higher costs. In January, we executed our typical annual price increase.

[Scott Rowe, President and Chief Executive Officer at Flowserve]

And in March, we raised prices again to offset the impacts of incremental tariffs. Additionally, we are utilizing change orders to reprice projects in our backlog as appropriate. We have a dedicated team focused on understanding dynamic trade environment and ensuring that we are utilizing all of the available tools to mitigate their impact, such as USMCA and other trade agreements. Finally, we are tightly managing discretionary spending. And as we have in the past, we are prepared to move quickly to address costs if the macro environment changes.

[Scott Rowe, President and Chief Executive Officer at Flowserve]

Turning to page six. We are also focused on the potential for tariffs to impact global market demand. Despite the increased uncertainty, our end markets currently remain healthy. Asset utilization for large process industries remain steady, and maintenance spending has currently continued as expected. The spring turnaround season has been strong, and there have been no signs at this point that customers are deferring maintenance.

[Scott Rowe, President and Chief Executive Officer at Flowserve]

April bookings to date continue to look healthy across our run rate and aftermarket business. Our strong aftermarket business, which represents over 50% of sales, also provides some insulation from potential changes in near term demand that might first impact project spending. Our project funnel remains at an elevated level and increased sequentially in some of our largest end markets including energy, chemical, and power. Our nuclear opportunity funnel, in particular, continues to grow even as large project opportunities have converted to bookings. We are currently seeing a limited amount of project deferrals in select industries like mining and renewables.

[Scott Rowe, President and Chief Executive Officer at Flowserve]

Our strong backlog at $2,900,000,000 is another advantage in this environment and provides a level of certainty for future revenues. At this point, we have not seen anything out of the ordinary with backlog cancellations, and we expect 2025 to be in line with what we have experienced in past years. Overall, we have good near term visibility, and we will continue to monitor the macro environment as we move through the year. Turning to slide seven. Execution remains a key priority for us.

[Scott Rowe, President and Chief Executive Officer at Flowserve]

We are leveraging the Flowserve business system to drive consistency and results across the organization. The business system is a critical tool to help us navigate today's market volatility, something we did not have in place during the COVID downturn, and we're focused on leveraging a consistent and agile framework to run the business. Within the business system, core, our 8020 program, is accelerating with strong results in the first quarter, which were modestly ahead of our expectations. As an example of our progress, I recently visited one of our US locations that manufactures pumps for the North American market. At that one site, we reduced SKUs by nearly 80%.

[Scott Rowe, President and Chief Executive Officer at Flowserve]

These actions significantly reduced complexity and improved margins without having a significant impact on revenue. By mid year, all of our product revenue will be utilizing the eighty twenty methodology. For the year, we continue to expect the actions we are taking will benefit gross margins by roughly 50 basis points or more at the full serve level and then accelerate thereafter. We remain confident in our ability to generate 200 plus basis points of margin expansion from the portfolio excellence program by 2027. In summary, I am very pleased with the strong start to 2025 and the progress we have made on executing our strategic initiatives.

[Scott Rowe, President and Chief Executive Officer at Flowserve]

While we are mindful of the near term macro uncertainty, our end markets are currently healthy, bookings have been strong, and our improved execution provides a solid foundation for continued success. Let me now turn the call over to Amy.

[Amy Schwetz, Senior VP & CFO at Flowserve]

Thank you, Scott, and good morning, everyone. Turning to Slide eight. We delivered another strong performance with first quarter revenue of $1,100,000,000 adjusted operating margin of twelve point eight percent and $0.72 of adjusted earnings per share, representing earnings growth of almost 25% versus the prior period. For the quarter, we performed better than our expectations, driven by higher sales volume on improved revenue conversion and robust FPD margins on favorable mix and accelerating eightytwenty benefits. Overall, revenues grew 5% versus last year with organic growth of approximately four ten basis points and three thirty basis points benefit from the Mogus acquisition, while foreign currency translation negatively impacted reported sales growth by about two twenty basis points.

[Amy Schwetz, Senior VP & CFO at Flowserve]

Original equipment and aftermarket revenues grew both 5% versus the prior period, driven by FCD. Shifting to margins. We generated an adjusted gross margin of 33.5%, representing 180 basis point year over year increase and our sixth consecutive quarter of sequential margin improvement. We believe our operational and portfolio excellence efforts position us well to continue driving margin expansion. Higher gross margins, coupled with SG and A remaining consistent as a percentage of sales, led to adjusted operating margin expanding 190 basis points versus the prior period to 12.8% and represented exceptional incremental margins.

[Amy Schwetz, Senior VP & CFO at Flowserve]

Adjusted operating income was $147,000,000 a 24% increase versus last year. Altogether, we delivered adjusted earnings per share of $0.72 for the first quarter. Turning to our segments, starting with FPD on Slide nine. FPD delivered exceptional bookings growth of 21% versus last year with double digit growth in both original equipment and aftermarket activity. Growth was driven by continued strength in nuclear activity along with benefits in general industries and energy end markets.

[Amy Schwetz, Senior VP & CFO at Flowserve]

FPD sales growth of 2% versus last year was modest, but ahead of our expectations on healthy book and ship activity and improved backlog conversion. FPD has generated adjusted gross margins of 34.7%, an increase of 180 basis points versus last year, driven by favorable mix, increased productivity and strong project management. Coupled with SG and A leverage, FPD delivered an outstanding adjusted operating margin of 17.7%, a two eighty basis point increase versus the prior year period. We've made tremendous progress in FPD driving growth and expanding margins. While FPD is now ahead of 2027 adjusted operating margin targets, we still see opportunities to expand margins from here, supported by disciplined price cost actions, continued aftermarket capture, our eightytwenty complexity reduction program and an enhanced approach to commercial excellence.

[Amy Schwetz, Senior VP & CFO at Flowserve]

Turning to FCD on Slide 10. FCD delivered strong growth in the quarter with bookings growth of 10% and sales growth of 14%. Mogus contributed 1,100 basis points of sales growth in the quarter. In FCD, aftermarket bookings increased by 19% versus last year, while original equipment bookings were up 7%, driven by General Industries, Energy and Power end markets. FCD adjusted gross and adjusted operating margins were 30.412.2%, respectively, an increase of one hundred and twenty and one hundred and ten basis points versus last year, driven by higher aftermarket margins and mix.

[Amy Schwetz, Senior VP & CFO at Flowserve]

We expect FCD margins will continue to expand as we leverage our eightytwenty program, improve execution through operational excellence and accelerate Mogus related synergies. Turning now to cash flow on Slide 11. Cash from operations was a $50,000,000 use of cash in the quarter, driven by higher temporary working capital requirements. While our receivables increased in the first quarter due to the timing of milestone billings and collections, we expect days sales outstanding to improve in the remaining periods of the year. We also paid the majority of our 2024 performance based incentive compensation in the quarter, which impacted the accrued liabilities account.

[Amy Schwetz, Senior VP & CFO at Flowserve]

In contrast, last year's performance based incentive compensation was paid in the second quarter. This difference in timing will be a tailwind for cash from operations next quarter. Overall, adjusted primary working capital as a percent of sales increased to 29.8%. Our efforts around a standardized inventory strategy resulted in improved inventory turns during the quarter, and we believe it points to further working capital opportunities and efficiencies ahead. From here, we expect significant improvement in our cash from operations and working capital efficiency, with full year cash flow to adjusted net earnings of 90% or more.

[Amy Schwetz, Senior VP & CFO at Flowserve]

Turning to capital allocation on Slide 12. With the recent market volatility, we view our share price at a discount to its intrinsic value. Guided by our capital allocation philosophy, we repurchased $21,000,000 of Flowserve shares during the first quarter and bought an additional $32,000,000 of shares during the month of April. In total, we have repurchased $53,000,000 of shares year to date at an average cost of $45 per share. We continue to believe that m and a will play an important role in our long term strategy, and we are maintaining a critical eye towards opportunities to create value from a purchase price, synergy, and balance sheet perspective.

[Amy Schwetz, Senior VP & CFO at Flowserve]

Altogether, our capital allocation framework will continue to guide us in fulfilling our commitments like the dividend and maintaining our investment grade rating while deploying excess cash to the highest long term return on investment, including share buybacks, acquisitions and prepayable debt. Turning to our 2025 outlook on Slide 13. The first quarter represents a great start to the year, and we remain focused on driving significant shareholder value in 2025. As Scott mentioned, while our end markets remain largely healthy and we're executing better than ever, we are operating in an uncertain and evolving macro environment. As we navigate the environment, we will stay nimble, leverage our significant internal capabilities, and continue delivering value for our customers with speed.

[Amy Schwetz, Senior VP & CFO at Flowserve]

With this backdrop, we are reaffirming our earnings guidance communicated in February, including organic growth of 3% to 5% and adjusted earnings per share of $3.1 to $3.3 representing an 18% to 25% increase over 2024 full year adjusted EPS. With the recent weakening of the U. S. Dollar, the sales headwinds from currency translation for the balance of the year should abate modestly. So given the two twenty basis point headwind in the first quarter and volatility in currency rates, we expect the full year impact to range from 100 basis point headwind to roughly neutral.

[Amy Schwetz, Senior VP & CFO at Flowserve]

Our guidance assumes tariff rates communicated to date are in place for the year. Guidance also assumes that general economic conditions and flow control demand remain relatively steady during the rest of the year. Considering the quarterly pace of performance, we expect second quarter results to be similar or slightly better than the first quarter. We anticipate modest year over year top line growth and Flowserve margin expansion with solid incremental margins, so incrementals are likely lower than in Q1 based on the expected mix of business in Q2. Similar to historical seasonality, we would expect the second half of the year to represent a higher contribution to earnings than the first half, given our near record backlog of $2,900,000,000 accelerating benefits from the Flowserve business systems and expected synergies from the Mogus acquisition.

[Amy Schwetz, Senior VP & CFO at Flowserve]

In summary, we are proud of our strong start to 2025 and the confidence it provides in delivering year over year earnings growth in 2025. We are well positioned to navigate the macro environment given our global footprint and the actions Scott outlined. We remain focused on executing our strategy, serving our customers and delivering value for our shareholders. Operator, we will now open the call for questions. Thank you.

[Operator]

Thank you. The first question will come from Andy Kaplowitz with Citigroup.

[Andrew Kaplowitz, Managing Director at Citi]

Good morning, everyone. Nice quarter.

[Scott Rowe, President and Chief Executive Officer at Flowserve]

Thanks, Andy.

[Andrew Kaplowitz, Managing Director at Citi]

Scott, maybe you can talk about the sustainability of bookings as you see it. Obviously, you said April looked pretty good. Aftermarket was very strong. You didn't put in the book to bill over one. I'm just curious about how you see the second half.

[Andrew Kaplowitz, Managing Director at Citi]

I think you mentioned the funnel, some of your end markets improve. So can that sort of offset any project deferrals you see to continue to have relatively solid bookings, especially aftermarket, maybe a $600 to new 500,000,000 in aftermarket bookings?

[Scott Rowe, President and Chief Executive Officer at Flowserve]

Sure. Let me just start with Q1 bookings. We had a fantastic start to the year. $690,000,000 of aftermarket bookings is the highest level I've seen since I've been here. A little we had a $50,000,000 nuclear award in that number, and so that won't repeat.

[Scott Rowe, President and Chief Executive Officer at Flowserve]

But, you know, we've been holding 600,000,000 now for quite some time on aftermarket. And then I'd just say as we kinda look forward, we feel pretty good about that run rate. And then q one projects, we also had a a nice healthy lift of list of projects, two nuclear awards, one in the energy space, and so nice conversion on some of those projects. And then if we go from the end of q one to today, you know, even as of last week, our markets continue to remain relatively healthy. Our run rate aftermarket bookings have remained elevated.

[Scott Rowe, President and Chief Executive Officer at Flowserve]

We track this now. I mean, we were tracking it before on a weekly basis. I'm looking at it. Amy and I are looking at it far more than ever before on a weekly basis. And, you know, even through last week, that run rate business and aftermarket remained at a very healthy level.

[Scott Rowe, President and Chief Executive Officer at Flowserve]

The project funnel on the forward look is at a high level. Power, energy, and chemical growth in our forward funnel for projects is, sequentially higher. And then at this point, we've seen limited project push outs. It's hard to say that if this is kinda normal project pushouts, or, you know, maybe a fact of some of the the macro concerns. We've seen this in some select markets like mining and in the renewable space.

[Scott Rowe, President and Chief Executive Officer at Flowserve]

But I'd say nothing, like, too dramatic in terms of projects coming out. And, again, that forward funnel is at a an elevated level and, you know, very similar to what we saw at the end of q four. And then I'd say within our backlog as well, we haven't seen any cancellations that would be considered out of the ordinary. And so up until today, the the market looks reasonably good for us. You know, the the question is is about the forward look.

[Scott Rowe, President and Chief Executive Officer at Flowserve]

And I'd say, you know, if the tariff program continues and the uncertainty caused by this dynamic environment continues, then we could potentially see a slowdown in the second half of twenty twenty five. We we haven't seen this yet. I think there's a a little bit of a wait and see with our customers. We're we're obviously staying in close contact with them. We're having a lot of discussions with our customers.

[Scott Rowe, President and Chief Executive Officer at Flowserve]

We know that they're doing scenario planning on on different things. But at this point, we we don't expect them to to stop capital dramatically. But I'd just say, you know, Andy, it's really hard to call kind of what our customers gonna do in the second half of the year given the amount of uncertainty that is out in the in the global market. And so we deliberately didn't put the full year book to bill over one point o in the prepared remarks. You know, obviously, we started q one at a 1.07, and so we're in a really good place.

[Scott Rowe, President and Chief Executive Officer at Flowserve]

And I'd say if if we continue to operate how we do today, then we we're gonna be way, you know, above one point o, and we feel really good with that. If the environment worsens, then there's a chance that the back half slows down.

[Andrew Kaplowitz, Managing Director at Citi]

Very helpful. And then, Amy, just to the guidance on Q2, the sort of similar or modestly better EPS, maybe you could talk a little bit more. You mentioned sort of mix could hurt incrementals a bit. Is there any sort of issue where tariffs ladder in before pricing or other countermeasures? Or sort of what's going on there?

[Andrew Kaplowitz, Managing Director at Citi]

Because usually, seasonally, Q2 is a pretty decent step up from Q1.

[Amy Schwetz, Senior VP & CFO at Flowserve]

Yes. So maybe to start with tariff impact, which we see largely as a second half issue as that works through our backlog. So as we think about the second quarter, a couple of things, similar or slightly better than the first quarter. We had really strong revenue conversion on our backlog in the first quarter, which is kinda impacting the spread of revenue across those two quarters. We obviously have really strong operational momentum coming from the first quarter.

[Amy Schwetz, Senior VP & CFO at Flowserve]

And we think that eightytwenty and pricing actions that we took early in the year, those increases that Scott mentioned in January provide some positive tailwinds. And then I think that as we look at, really, margin performance, we're looking at something that's pretty close to what we saw in the first quarter, first quarter of the year from both a gross margin and an operating margin standpoint, but we will have some mix headwinds that are that are in there based on what we see in the backlog today. So, I think, overall, you know, what can work well for us in the second quarter of the year, book to bill staying at elevated levels, will help. Continued strong revenue conversion will help. But overall, I think we're still seeing, our earnings profile be weighted towards the second half of the year.

[Scott Rowe, President and Chief Executive Officer at Flowserve]

And then, Andy, I'd just add. Q one was a is was a really, really strong performance across the board. And so we're starting at a very elevated level as we go from q one to q two. We'd be really excited to keep that or be slightly better and then, and then prepare to to deliver in the second half of the year like we normally do.

[Andrew Kaplowitz, Managing Director at Citi]

Appreciate the color.

[Operator]

And the next question will come from Mike Halloran with Baird.

[Michael Halloran, Associate Director of Research at Robert W. Baird & Co]

Thinking about this in terms of the footprint, the competitive footprint, the ability to push price. Twofold question. One, how do you view your footprint relative to the peer group? It feels like everyone buys castings fittings overseas, so I don't I don't know if there's really much difference there other than, you know, it seems like you're in a good position, but please love your viewpoint there. And then, also, how how receptive has the market been to pricing as you sit here today?

[Scott Rowe, President and Chief Executive Officer at Flowserve]

Sure. Let me just start. I'll level set everyone on the the flow serve kinda the layout. Two thirds of our business is outside of The US. And from a manufacturing perspective, about one third of that roofline is in North America.

[Scott Rowe, President and Chief Executive Officer at Flowserve]

We've got good coverage in kind of that that Europe and the Middle East region, and then we've got good manufacturing presence in Asia Pacific. And so I think from a manufacturing standpoint, and we put this as one of our mitigating actions, we are regionally positioned, and we can typically manufacture our product in the region where our customers need it. And so we're not getting tariffs essentially on finished goods. So we're not we don't ship a whole lot of stuff from Europe into The US as a finished good or a a finished pump or valve. The the impact for us is mostly on our supply chain.

[Scott Rowe, President and Chief Executive Officer at Flowserve]

And so I'd say from a footprint standpoint, where we can manufacture, that's actually a competitive advantage. And, you know, we're still cleaning up our roofline, and, you know, we we know we've got some more work to do with that. But right now, it actually gives us an advantage and allows us to manufacture in a region that may have a less tariff impact than some of our peer groups. And so I'll talk about going on the offense here at the end. But let me hit castings and forgings.

[Scott Rowe, President and Chief Executive Officer at Flowserve]

So castings and forgings are coming primarily from China, India, Everybody does that. So we're we're in line with the peer group within flow control. And, you know, what we're trying to do is just, you know, find a a scenario or a modeling that gives us the lowest tariff impact as we think through that. We do a little bit of that material in The US, but it's just the the the capacity in The US just isn't there to support the overall business. And so I'd say we're in line with the peers of where do you go for for that raw material.

[Scott Rowe, President and Chief Executive Officer at Flowserve]

And and then on the component level, it's motors and sensors, and essentially, everyone's buying from the same place. And so I don't think there's a big competitive advantage with the supply chain. The one thing I would say is that with the reorg design in 2023, we bolstered our supply chain and operations team. We're performing better than we ever have from an operational excellence standpoint and the ability to pivot and migrate that supplier base. We've been doing that work over the last two years in earnest.

[Scott Rowe, President and Chief Executive Officer at Flowserve]

We've already seen some of the supply chain movements taking place and putting us in a really, really good position as we go forward. And then on your second question on price, Mike, you know, we do we do our annual price increase at the beginning of the year. That's always reason reasonably sticky. It's always a modest level that goes in that we start to see a little bit of that impact in q two and q three. When we put that in in the the beginning of the year, we felt like that was very much, a a number or an amount that that put us squarely above price cost and felt very good about, you know, our ability to to stay positive in that ratio.

[Scott Rowe, President and Chief Executive Officer at Flowserve]

And then with the tariff situation escalating, we went pretty aggressive in March with another price increase and did that at the product family level. And so we really focused on exactly where our our the tariffs were impacting. We are very clear with our customers of exactly why this price increase was going in, and that we would monitor the situation globally. We did that at the base level. We didn't do it as a surcharge, and typically, we find that a little bit stickier when we go that way.

[Scott Rowe, President and Chief Executive Officer at Flowserve]

And so, you know, I'd say we don't know exactly what the stickiness is at this point. We'll start to get some data points on that in the second quarter. But the the feedback is most of the peer group is doing something similar. We're relatively in line, and, you know, I believe that that that will go in relatively smoothly. The other thing on price I just wanna add, Mike, within the 8020 framework, we've been moving prices up in our quad two and quad three, and those are very healthy price increases.

[Scott Rowe, President and Chief Executive Officer at Flowserve]

And so at this point, we feel relatively good about the pricing lever. We feel good about the the ability to to generate the, you know, the price cost ratio moving up with the the aggressive price actions we've taken thus far this year.

[Michael Halloran, Associate Director of Research at Robert W. Baird & Co]

That's super helpful. Last one for me then. Just, you know, based on the comments, you seem seem very confident in the ability to manage margins in the backlog. So just maybe talk about the mechanics there that whether that's hedging, price changing orders, whatever it is, and and how that dynamic plays out? Thanks again.

[Scott Rowe, President and Chief Executive Officer at Flowserve]

Yeah. So, again, obviously, price is a important part of that. We are a little bit early on moving in March, and so the the intention there was to get that in front of the the cost impact. And then with our projects and backlog, we've done a nice job updating our terms and conditions from what we learned in the the COVID crisis and supply chain crisis. And so we've got the ability now in projects that are in our backlog to reprice that backlog given some of the macro dynamics.

[Scott Rowe, President and Chief Executive Officer at Flowserve]

And so we're aggressively looking to do change orders on our cost position that got impacted by tariffs for things that are in the backlog. And sometimes that's a little bit of a negotiation. But, again, with our terms and conditions position, we feel very good about our ability to to get that priced in. There is a piece of business that, you know, that wouldn't be able to do price or or wouldn't be able to do change orders. So our nonproject work that's, you know, somewhere in that kind of four to six week, window, and then that's where we're looking for the general price increase to over cost overcome the tariff impact.

[Operator]

And our next question will come from Deane Dray with RBC Capital Markets.

[Deane Dray, Managing Director at RBC Capital Markets]

Thank you. Good morning, everyone.

[Amy Schwetz, Senior VP & CFO at Flowserve]

Morning, Dean.

[Deane Dray, Managing Director at RBC Capital Markets]

Hey. We'd love to, continue this, this topic, following up on Mike's question. So, on pricing, just, you know, some of the nuances you you parse between aftermarket versus OE. Just kinda talk about your pricing power between the two. You know, switching costs, you know, for a customer, you know, demand elasticity, at what point would they walk away?

[Deane Dray, Managing Director at RBC Capital Markets]

And just you because it sounds like you've moved early and you have the ability to reprice backlog, which is fabulous. But just, you some of the nuances here, aftermarket versus OE and demand elasticity.

[Scott Rowe, President and Chief Executive Officer at Flowserve]

Sure. I think on the aftermarket side, it's obviously stickier. Typically, lead times, speed of quoting, making sure that we can deliver on time are far more important than price. And so I I feel really good about our ability to get the price within the aftermarket. So that impacts our seals business.

[Scott Rowe, President and Chief Executive Officer at Flowserve]

It's our pump parts. It's a lot of the components within the control valve that have a heavy aftermarket content there. And so I'd say that part, we feel really good. The pricing dynamics in the backlog with our change orders for projects, we feel good about our ability to get that done. Again, a little bit of a negotiation, but I feel confident in our ability to overcome the tariff cost.

[Scott Rowe, President and Chief Executive Officer at Flowserve]

And then I just say on the price side with the go forward projects, that that'll be the one that we'll see what happens as we go forward. And you know, these tariffs globally have put an inflationary pressure on on all costs. It's us and our peer groups. And so as our customers start to process the new cost profile within their project spending and their project budgets, yeah, that'll be a a discussion. You know, obviously, we're getting some pushback with our our customers on wanting to share some of those inflationary costs, similar to what we're doing with some of our suppliers.

[Scott Rowe, President and Chief Executive Officer at Flowserve]

But I don't think there's an alternative. And so at this point, you know, we feel that these projects continue to move forward, despite the the inflationary pressures with their cost profile. We feel like we're in a good position to continue to win the work that we feel we're entitled to win there.

[Amy Schwetz, Senior VP & CFO at Flowserve]

Yeah. And I think one other thing just to point out from a from a global perspective, you know, a number of our projects are coming from bookings outside of The US. And so we continue to use our global footprint to serve our customers. So with two thirds of our business outside of outside of The US, we we do view sort of a ring fence around around the tariff concerns.

[Deane Dray, Managing Director at RBC Capital Markets]

I appreciate all the precision in these pricing, the pricing strategy and how it's being implemented. And my follow-up question is more on the M and A side. Would love an update on Mogas integration, early read, and what kind of contribution you're expecting.

[Scott Rowe, President and Chief Executive Officer at Flowserve]

Sure. I'll start, maybe Amy can jump in on a couple points. Look. We're still excited. We we're very excited about the Mogast business.

[Scott Rowe, President and Chief Executive Officer at Flowserve]

The the product is highly differentiated. It puts us it positions us incredibly well within the severe service ball valve ball valve market. The bookings in the quarter were a little lighter than we would want, and most of that was driven by project bookings. And so what we've seen is a bit of a slowdown in project bookings over the last two to three quarters. We have good visibility to project bookings on the forward look, and we're pretty excited about, you know, the order rate as we look in the back half of the year.

[Scott Rowe, President and Chief Executive Officer at Flowserve]

With that said, the the margins are at the gross level. Gross margin levels are accretive to what we see at FCD. We like what we can do there. The aftermarket business remains incredibly strong, and so we're seeing good MRO work, good aftermarket at really high margins. And we feel like we can pull through a lot of the Mogus product on the back of of the the flow serve network and certainly our QRC network.

[Scott Rowe, President and Chief Executive Officer at Flowserve]

From an integration standpoint, it's, it's progressing ahead. In fact, we're we're ahead of pace in terms of some of the cost out actions that we identified early on, and we feel confident in our ability to deliver our our synergy target number as well as being accretive to to earnings in the first year.

[Amy Schwetz, Senior VP & CFO at Flowserve]

Yeah. And the only other thing that I'll point out to what Scott Scott added on synergies is is just the acceleration of those synergies and, you know, getting up to run rate levels is part of the first half, back half story for us from an earnings perspective. And so we're seeing that we're seeing that play out with with Mogus being accretive to earnings in the first quarter, and we can continue to think that that will accelerate over the course of 2025.

[Deane Dray, Managing Director at RBC Capital Markets]

Thank you.

[Operator]

And we'll take a question from Nathan Jones with Stifel.

[Nathan Jones, Managing Director at Stifel Financial Corp]

Good morning, everyone.

[Scott Rowe, President and Chief Executive Officer at Flowserve]

Hey, Nathan.

[Nathan Jones, Managing Director at Stifel Financial Corp]

I guess I guess starting off with a question on the visit visibility into the project pipeline. I I think, typically, you know, when you're booking project orders, those projects are fairly advanced. And so if you were to see a drop off in project orders, it probably doesn't happen in the first quarter. It doesn't happen in second quarter. It might not even happen in the third quarter of this year, but maybe a bit further out.

[Nathan Jones, Managing Director at Stifel Financial Corp]

Do you guys have visibility to those projects that might turn into into orders for flow served six, twelve, eighteen months ahead? And is that where you would see project pushouts if they were to occur?

[Scott Rowe, President and Chief Executive Officer at Flowserve]

Yeah. I think it's a it's a really good point. And, again, I wanna reemphasize what Amy said. A lot of our projects are are outside of The US, and we're well positioned to manufacture that work with our global our global footprint manufacturing presence outside The US. But to your point on on it's a really good one.

[Scott Rowe, President and Chief Executive Officer at Flowserve]

And so when we think about project visibility in the second quarter and even into the third quarter, a lot of those projects have already received FID, and they've they're well, well down the line of engineering procurement and construction. And so, you know, unwinding that project, pausing that project, we really don't ever see that. Even in the COVID downturn, you don't see a whole lot of that. And so, you know, our funnel for for kinda q two and q three would would remain kind of as is. And, you know, obviously, we're competing for that work, and we'll put our best foot forward.

[Scott Rowe, President and Chief Executive Officer at Flowserve]

But we're we're very confident in that that visibility in moving those projects forward. The FID decisions that, you know, could be made in the second quarter or potentially delayed given some of the global environment would impact our bookings in 2026 and maybe even in 2027. But, again, we haven't seen that at this point. You know, we typically will get kind of a one year out visibility for these large projects. You know, we'll get a little bit of the commentary from some of our larger customers.

[Scott Rowe, President and Chief Executive Officer at Flowserve]

They'll they'll talk about it in earnings calls or investor presentations, but it's it's difficult for us to see that type of visibility beyond kind of a one year. Now the one market that is a little bit different would be nuclear. We get very, very long visibility into our nuclear orders. We'll typically start to track those projects two years, maybe two and a half years before we would get the order. And because of it's such a long natured type, and I'm talking about, you know, really about nuclear power generation, so big traditional nuclear power plants.

[Scott Rowe, President and Chief Executive Officer at Flowserve]

So we'll get strong visibility for up to two years there. That funnel is is still incredibly robust, and we still feel that that we're gonna continue to have, you know, outsized nuclear bookings as we go forward. And those obviously are are dependent on, you know, governments and energy security, and I really don't see those trends changing as we go forward.

[Amy Schwetz, Senior VP & CFO at Flowserve]

Yeah. And the other thing that I just comment on the nuclear funnel, Nathan, which is is comforting in uncertain times is, you know, we've had three three quarters in a row over a hundred million dollars of nuclear bookings, and that does impact the amount of our of our backlog that ships within the next twelve months. So it starts to provide us visibility into into revenue, not just in the current year, but in upcoming years. And I think particularly environments in environments like this, it's a nice piece of business to have.

[Nathan Jones, Managing Director at Stifel Financial Corp]

Excellent. Thanks very much for that. I guess, second question, I guess, this is on tariffs. You've you've had 90,000,000 to $100,000,000 of of gross unmitigated impact. Can you talk about what you intend to offset with price and what you intend to offset with other, you know, supply chain initiatives or manufacturing initiatives?

[Scott Rowe, President and Chief Executive Officer at Flowserve]

Sure. Yeah. I'll just let me make sure So it's 90 to a hundred million dollars of gross tariff impact. That's unmitigated, and that's the annualized number.

[Scott Rowe, President and Chief Executive Officer at Flowserve]

A room in headquarters here that we, we watch very carefully because that number's changed a lot over the last, month and a half. And then what we do is also track the activities toward mitigating that. And so, obviously, price is a a big lever there. We think prices, you know, could mitigate potentially half of that. And then we're really deliberately working through those supply chain actions to make sure that we're repositioning the supply chain to the lowest tariff impacted country or potentially moving that into the the region where there is no no no tariff impact.

[Scott Rowe, President and Chief Executive Officer at Flowserve]

And then secondly is the the repositioning of the manufacturing that I talked about earlier. We feel like with our vast manufacturing network, we've got a a bit of a competitive advantage to move things around the world and reposition them where we need to. And so I think that's actually an opportunity in this dynamic time to win a little bit more work and take some market share given our presence in the region. And then finally, would just say I wanna touch on 8020. And while it might not be obvious that that would be a help here, anytime you're reducing the complexity in your portfolio, it allows us to focus on the areas that make the biggest impact.

[Scott Rowe, President and Chief Executive Officer at Flowserve]

And so when we talk about moving supply chain or repositioning some of that assembly, we're really talking about our Quad One products. And now that's dramatically a a much shorter list, dramatically less complexity than what we've had in the past, and it allows us to move with speed as we're doing some of this repositioning. So we feel very good about our ability to mitigate. You know, obviously, we're we're leveraging trade agreements as well, and so there's been a lot of work of just making sure that all of our coding is in the right place and making sure that we can capitalize on those trade agreements. And so we we feel that the combination of efforts does allow us to fully mitigate the impact.

[Scott Rowe, President and Chief Executive Officer at Flowserve]

We think the timing could be a little bit mismatched as we work through the quarters. But overall, for the full year of 2025, and we said this in the prepared remarks, we feel like we can mitigate the full 90 to a hundred million dollars.

[Amy Schwetz, Senior VP & CFO at Flowserve]

And and, Nathan, just to double down on on one point with with core or 8020 and and other, you know, sort of benefits from the way we run the business through the Flowserve business system we three we see playing out over the year. When we reiterated guidance, we're reiterating our margin expansion as well for for the full year. And so we said in February, a hundred basis points of operating margin expansion year over year. Our q one operating margin performance was actually a hundred basis points better than our full year 2024 operating margin performance. So we feel like we've got a really strong start to the year from that perspective.

[Amy Schwetz, Senior VP & CFO at Flowserve]

Now what I will say is as we look at tariffs, there is a bit of a disparity in terms of our segments that are impacted. So a higher proportion of our tariff exposure is actually on the flow control side of the business, the valve side of the business than on FPD. So as we look at margin expansion playing out over the course of the year, we may see valves being slightly more pressured than pumps in this area.

[Nathan Jones, Managing Director at Stifel Financial Corp]

And just a quick clarification. The timing being a bit mismatched would imply that there's a bit of margin pressure in the second quarter and a bit less in the second half?

[Amy Schwetz, Senior VP & CFO at Flowserve]

I would consider the margin pressure to be more between the third and fourth quarters. So I think second quarter, as we as we look at our our backlog, a a lot of that is gonna be fulfilled with with materials that are in inventory already. And so, really, the the second half, I think, is where we see more pressure coming in, and that price mismatch probably occurring more between the third and fourth quarters.

[Operator]

And the next question comes from Andrew Obin with Bank of America.

[David Ridley-Lane, Analyst at Bank of America]

Yes. This is David Ridley Lane on for Andrew Obin. Last quarter, you said that inventory positions at your distributors were at pretty normal levels. Wondering if you saw any prebuy activity from your distributors maybe ahead of the March price action.

[Scott Rowe, President and Chief Executive Officer at Flowserve]

Sure. We'll talk about our our distributors, and these would be the stocking distributors that are primarily in the valve business, but we have a little bit of this in pumps and our mechanical seals. They have been under a lot of pressure on inventory management over the last year and a half, and so we really didn't see a whole lot of prebuying. We know there's a little bit of it with a few of our distributors, but but really nothing material and no big boost to kind of the the February or March bookings levels through that distribution channel.

[David Ridley-Lane, Analyst at Bank of America]

Understood. And then do you see any need to add to your capacity as you are seeing these elevated nuclear orders continue? And maybe, you know, would you need to add capacity on the on some of the specialized LNG or power generation projects, which are

[Amy Schwetz, Senior VP & CFO at Flowserve]

Sure.

[Scott Rowe, President and Chief Executive Officer at Flowserve]

Sure. We're we're blessed and cursed with a a large roofline. And so at this point, we we don't see any scenario where we need to add incremental roofline. In fact, we're continuing to to to take roofline out of the global network. With that said, we there are a lot of things that we can do to expand capacity within the sites that we have.

[Scott Rowe, President and Chief Executive Officer at Flowserve]

And so, obviously, we've got dedicated nuclear facilities to support the the rigid quality plans that are required in the nuclear product space. And in those sites, we are looking to expand that capacity. But we can do that with minimal investment. It's more through process change and staffing effectively. And a lot of that work really relies more on the front end with your project management and your engineering.

[Scott Rowe, President and Chief Executive Officer at Flowserve]

And so, yeah, we've got a a pretty good view of of forward product demand. We'll ensure that we can continue to to increase capacity more through our operational excellence program as part of the full serve business system than needing to drive incremental roofline or add facilities into the network.

[David Ridley-Lane, Analyst at Bank of America]

Okay. Understood. Thank you very much.

[Scott Rowe, President and Chief Executive Officer at Flowserve]

Yep. Thank you.

[Operator]

And our next question will come from Joe Giordano with TD Cowen.

[Joseph Giordano, Managing Director at TD Cowen]

Hey, guys. Good morning.

[Amy Schwetz, Senior VP & CFO at Flowserve]

Good morning, Joe. So

[Joseph Giordano, Managing Director at TD Cowen]

maybe I'll start. The three d bookings obviously have a lot of momentum here. How do you square that with, like, some of the actions taken from a policy standpoint? I think recently DOE is saying, like, cutting something like $10,000,000,000 in funding funding for, you know, clean energy projects spanning carbon capture and hydrogen and some of the stuff that you've been doing very well in at customers that you serve. So how do you how do you see that interplay?

[Scott Rowe, President and Chief Executive Officer at Flowserve]

Sure. Those would all fall in our decarbonization line. We continue to see a lot of activity around decarbonization. I would say it's it's changing. The mix is changing a bit in terms of, you know, less focus on kind of the things that were further out like a green hydrogen, but we're seeing continued support for for carbon capture.

[Scott Rowe, President and Chief Executive Officer at Flowserve]

And, you know, obviously, Europe is a has been a a big, you know, big proponent of of the energy transition type bookings or the decarbonization type bookings. But The US activity hasn't changed either. And so, you know, I I think companies are are pretty focused on reducing their carbon footprint and ensuring that their assets are are, you know, running at a a reasonably clean type level. And so we haven't seen any slowdown in our forward foot funnel there. We have seen some projects come off the list that that were never economical or never were gonna make a whole lot of sense.

[Scott Rowe, President and Chief Executive Officer at Flowserve]

So I'd say even for for US decarbonization activity, we still think that moves forward. I mean, I I just say we also have LNG within our our decarbonization lane and, you know, obviously, the rhetoric in The United States is now very, very promotional around natural gas and around the LNG export side. And so we we feel pretty pretty good about the visibility to LNG projects globally, but certainly kind of a resurgence in The US LNG activity.

[Joseph Giordano, Managing Director at TD Cowen]

And then second question on just I want to understand what's embedded in the guidance from a macro standpoint. I know the slide deck says you're assuming that kind of general economic conditions stay largely the same. But at the same time, I guess, you're raising prices here. It seems like you've built in somewhat of a contingency on volumes going down as a result of price because the, you know, the organic growth is is the same despite the higher price component. So, like, is it fair to say that if macro conditions really do stay the same and you're booking, like, one one, one two, like, under normal circumstances, you'd probably be raising now?

[Amy Schwetz, Senior VP & CFO at Flowserve]

So I I think, you know, we we talked a lot about our guidance range internally before before today, and I'd I'd start with saying that our strong execution in the first quarter gives us a lot of confidence in our ability to perform over the course of the full year. So what we factored into our guidance is what we know today. So tariff tariff climate as it is today, inflation as what we know today, and demand signals that that we're seeing, you know, through kind of the the last several several weeks. We also considered our risks and opportunities, and we feel like we have a very clear path, or I should say, actually, path to delivering on our original guidance. And it might help to kind of frame this within the context of what the low end of the range and what the high end of the range, might look like.

[Amy Schwetz, Senior VP & CFO at Flowserve]

So, you know, if we were to deliver, at the low end of our range, which still, by the way, provides 18% earnings growth year over year for for Flowserve, That would include, you know, some mismatch in in tariff impact and mitigating actions over the course of the year, and it might include some level of of demand destruction in the back half of the year. Delivering at the high end of the range means that we execute well on our mitigation actions, and we continued the strong book to bill business that we've seen in the first quarter of the year and and into April. And we see continued momentum under the Flowserve business system with both with both operational excellence and the eighty twenty activities. I think either way, we're gonna see margin expansion year over year. And I would say the other wild card out there is certainly around around FX.

[Amy Schwetz, Senior VP & CFO at Flowserve]

The current environment and when I say current, I'll say, you know, the last week has been very favorable. Obviously, that's been volatile as well. But the US dollar remaining at relatively weak levels, in comparison to the first quarter could be could be a tailwind as well.

[Scott Rowe, President and Chief Executive Officer at Flowserve]

Yeah. So just to reiterate what Amy said, this is you know, we put the guidance out there given everything that we know today. Obviously, this is a very dynamic environment. But right now, we feel and, you know, very confident that we can deliver. And as a reminder, you know, that guidance for 2025 is 18% higher on the low end and 25% higher on the high end, which would be outstanding performance in any operating environment.

[Scott Rowe, President and Chief Executive Officer at Flowserve]

And so, you know, we'll monitor the next ninety days here, and we'll get a chance to to to talk about guidance at the end of our our second quarter. And if things change, we'll certainly update the guidance to reflect those changes.

[Joseph Giordano, Managing Director at TD Cowen]

Very clear. Thanks, guys.

[Operator]

And we have a question from Saree Boroditsky with Jefferies.

[Jae Hyun Ko, Equity Research Senior Associate at Jefferies]

Good morning. This is James on for Seres. Thanks for taking questions. I wanted to understand 1Q and 2Q dynamic a little bit more here. So you talked about strong backlog conversion in the quarter that is kind of impacting the, like, spread between 1Q and 2Q.

[Jae Hyun Ko, Equity Research Senior Associate at Jefferies]

So, look, can can you talk about what drove the strong conversion? I I think you talked about there wasn't really a prebuy, so I just wanted to understand why why there was such a strong conversion in backlog.

[Amy Schwetz, Senior VP & CFO at Flowserve]

Sure. So it really the the conversion in backlog was was really around things that were already in backlog entering the year in our in our more engineered business. So just continuing to execute well from an operational excellence perspective, hitting milestones, delivering kinda what we say we're gonna do for for our customers or or in some cases, even even over delivering in those instances. And I I think that this is really just an indication that operational excellence is in, is in a really good place, within within our platforms, and and that's really the the conversion that we saw in the first quarter.

[Jae Hyun Ko, Equity Research Senior Associate at Jefferies]

Got it. Thanks for the color. And I guess I wanted to touch on the margin side a little bit more. So I think going into the year, I think you were expecting FCD to show a little bit better margin expansion compared to FPD, but it seems like FPD can perform better in the quarter. So how should we think about the margin expansion in each segment?

[Amy Schwetz, Senior VP & CFO at Flowserve]

Sure. So FPD has been on a really great run. The results that we posted in the first quarter of this year are the best that we've seen since that segment's been in existence as it is today. So we we really can't say enough about about the performance from that segment, and we think there's still more gas in the tank there. So, yeah, we're just starting to see the the benefits of 8020 come through system there.

[Amy Schwetz, Senior VP & CFO at Flowserve]

They continue to focus on operating and operational excellence under the Flowserve business system and and delivering on the benefits of that as well. They've also seen a strong a strong mix benefit in the numbers with really the focus on growing the aftermarket and investing in the right type of engineer to order projects. And so we think there's still more room above the levels that we saw in q one. And and and we're at our long term target levels for 2027. We're gonna continue to try and and surpass those and and determine what we think is the art of the possible in terms of margin performance in FPD.

[Amy Schwetz, Senior VP & CFO at Flowserve]

Turning to FCD, we have made important structural changes within FCD to bring our margins up. And under normal circumstances, we do or we would see FCD margins expanding more than FPD in the current year. And just to kinda outline what those what those are, it's really around around footprint decisions that were made and executed in in 2024. It's around the Mogus acquisition, which already is accretive at the gross margin margin level. And it's about really selective bidding and margins and backlog that we saw coming into 2025.

[Amy Schwetz, Senior VP & CFO at Flowserve]

The headwinds that we face are are what I referenced in one of the earlier questions, which is just that the the tariff impact and exposure is greater on the FCD side of the business. That's in part because they've done a nice job shifting their supply chain to low cost countries and also manufacture more in low cost countries in in certain instances than FPD. And so as we work our way through the course of course of 2025, the the risk around the mismatch of the timing between mitigating actions and and our order delivery is greater on that side of the business. And then I wanna finish what's a long answer to a simple question by saying, just to reiterate, we feel very good about overall margin expansion, for for Flowserve or of a hundred basis points or better in, in 2025, and and we're gonna continue to deliver that knowing that is incredibly important to our investors.

[Jae Hyun Ko, Equity Research Senior Associate at Jefferies]

Great. Thanks for the color.

[Operator]

Thank you. And that does conclude the question and answer session. I'll now turn the call back over to Brian Ezel for any additional or closing remarks.

[Scott Rowe, President and Chief Executive Officer at Flowserve]

Great. Thank you to everyone for joining the call today. We look forward to seeing many of you at upcoming conferences and then again when we report Q2 earnings. If you have any questions following the call, please reach out to the Investor Relations team. We'll be happy to connect.

[Scott Rowe, President and Chief Executive Officer at Flowserve]

And with that, we appreciate the time. Have a great day.

[Operator]

Thank you. That does conclude today's conference. We do thank you for your participation. Have an excellent day.

Participants

Executives

• Brian Ezzell, VP – Treasurer, Investor Relations and Corporate Finance
• Scott Rowe, President and Chief Executive Officer
• Amy Schwetz, Senior VP & CFO

Analysts

• Andrew Kaplowitz, Managing Director at Citi
• Michael Halloran, Associate Director of Research at Robert W. Baird & Co
• Deane Dray, Managing Director at RBC Capital Markets
• Nathan Jones, Managing Director at Stifel Financial Corp
• David Ridley-Lane, Analyst at Bank of America
• Joseph Giordano, Managing Director at TD Cowen
• Jae Hyun Ko, Equity Research Senior Associate at Jefferies