Flowserve Q1 Earnings Call Highlights

Key Points

• Flowserve delivered 230 basis points of adjusted operating margin expansion (adjusted operating margin 15.1%) and adjusted EPS of $0.85 (up 18%), while reaffirming full-year adjusted EPS guidance of $4.00–$4.20 and targeting about 100 bps of operating margin expansion for 2026.
• Bookings and revenue were pressured by Middle East delays and a softer early-year original equipment cadence—Q1 bookings fell 6% to $1.15B and revenue declined 7%—but aftermarket stayed resilient with $680M in bookings and 4% aftermarket sales growth.
• Q1 included unanticipated items that produced a net $0.07 EPS benefit (notably a $0.19 tariff refund benefit offset by roughly $0.06 tax and $0.06 Middle East impacts), and the company ended the quarter with net leverage ~1.2x and an amended credit facility to boost financial flexibility.

Flowserve NYSE: FLS reported first-quarter 2026 results that management said showed continued progress on margin expansion despite lower sales and booking pressure tied to disruptions in the Middle East and a softer start to the year in North American MRO demand.

President and CEO Scott Rowe said Flowserve delivered “strong adjusted operating margin expansion of 230 basis points and adjusted earnings per share growth of 18%,” while maintaining its full-year adjusted EPS outlook of $4.00 to $4.20. CFO Amy Schwetz added that adjusted operating margin reached 15.1% and adjusted gross margin rose 370 basis points to 37.2%, marking the company’s 13th consecutive quarter of year-over-year adjusted gross margin expansion.

Bookings pressured by Middle East delays, while aftermarket stays resilient

Flowserve posted first-quarter bookings of $1.15 billion, down 6% from the prior-year period, with a book-to-bill of 1.07x. Rowe attributed the decline largely to customer delays in the Middle East and softness in original equipment early in the quarter. He said January and February started “softer than expected bookings,” particularly in run-rate MRO and smaller projects that shifted later into the year, though activity improved in March and continued into April.

Rowe said bookings would have been “largely in line with our expectations” absent an estimated $50 million headwind related to delays in the Middle East. He also noted healthy aftermarket bookings of $680 million, representing the eighth consecutive quarter above $600 million, though modestly down year over year due to a prior-year comparison that included a large nuclear order.

Flowserve highlighted nuclear as a strategic growth area, with Rowe noting more than $110 million of nuclear awards in the quarter, including two projects larger than $20 million each.

Middle East disruptions weighed on sales and earnings, but operations have improved under ceasefire

Management emphasized employee safety and support for roughly 800 associates across manufacturing facilities and QRC locations in the Middle East. Rowe said first-quarter sales and earnings were negatively impacted by shutdowns in logistics and limited access to customer sites “at the height of the conflict,” though the company’s ability to operate has improved under a recent ceasefire, with temporary work pauses implemented as needed.

Schwetz quantified the impact, estimating the Middle East disruption reduced both reported and adjusted EPS by approximately $0.06 in the quarter, and also reduced sales by about 200 basis points year over year.

Rowe said the company is adapting its supply chain to address transportation delays, inflationary pressures and potential broader disruption, leveraging the Flowserve Business System to reposition sourcing and utilize its regional and global footprint. Looking ahead, he said Flowserve anticipates “asset restarts and rebuilding activity will begin later in the year,” though timing remains uncertain.

Margins expanded sharply; Q1 EPS included net benefit from unanticipated items

Flowserve reported first-quarter revenue of $1.1 billion, down 7% year over year, with a 360 basis point benefit from foreign currency translation and a 20 basis point contribution from acquisitions. Schwetz said the company anticipated a modest sales decline, but results were “further hampered” by Middle East disruption and the slower early-quarter run rate bookings.

Aftermarket sales grew 4% in the quarter, while original equipment revenue declined 18%. Schwetz said the original equipment decline was “largely expected” due to a difficult year-over-year comparison and slower backlog conversion as nuclear becomes a larger portion of the company’s mix. Management reiterated that nuclear backlog typically converts more slowly, and Schwetz noted the conversion of year-end backlog was expected to be around 76% entering 2026 versus historical levels in the mid-80s or higher.

Adjusted EPS was $0.85, up 18% from the first quarter of 2025. Schwetz said results included three items not anticipated when the company provided guidance in February:

• A $0.19 EPS benefit from IEEPA tariffs, for which Flowserve has filed for refunds following a U.S. Supreme Court decision in February
• A $0.06 negative impact tied to a Latin American taxing authority related to prior years
• An estimated $0.06 EPS headwind from Middle East disruption

Altogether, Schwetz said these unanticipated items resulted in a net $0.07 benefit to first-quarter results.

In response to analyst questions, management also discussed margin performance excluding one-time items. Rowe said that excluding the tariff benefit and the Latin America tax item, but including the Middle East disruption, “we're very confident on the 80/20 and the operational excellence coming through and continuing to drive margin expansion,” reiterating the company’s full-year goal of about 100 basis points of adjusted operating margin expansion.

Segment performance: FPD margin gains continue; FCD focused on improving profitability

In the Flowserve Pump Division (FPD), adjusted gross margin rose 300 basis points year over year to 37.7% and adjusted operating margin increased 140 basis points to 19.1%. FPD bookings were $774 million, down 9%, and revenue was $745 million, down 5%. The segment delivered 5% growth in aftermarket revenue, which was offset by lower original equipment volume. FPD book-to-bill was 1.04x.

In the Flow Control Division (FCD), adjusted gross margin increased 480 basis points to 35.2% and adjusted operating margin rose 370 basis points to 15.9%. FCD bookings were $374 million, roughly flat year over year, with 10% growth in aftermarket bookings offset by a decline in original equipment awards. Revenue declined 10% to $328 million, which Schwetz said was “with the majority driven by 80/20 activities.” FCD book-to-bill was 1.14x.

Addressing FCD profitability, Schwetz said lower volumes were expected in the first quarter due to 80/20 impacts, noting FCD began its 80/20 initiative later than FPD and management anticipated headwinds in the first half. She said gross margins were “basically flat with lower volume,” which management viewed as a positive sign, and added that operational excellence and “roofline consolidations” have accelerated since the start of the year.

Cash flow, balance sheet, and 2026 outlook

Cash from operations was a use of $43 million in the quarter, which Schwetz said was in line with expectations and driven by seasonal working capital needs and modest Middle East headwinds. She reiterated Flowserve’s expectation for full-year free cash flow conversion of 90% or more of adjusted net earnings. Net leverage was approximately 1.2x at quarter end.

Schwetz also said Flowserve amended its credit agreement in April, extending maturity by five years and increasing revolver capacity “to further enhance our financial flexibility.”

For 2026, Flowserve reaffirmed adjusted EPS guidance of $4.00 to $4.20 and expects about 100 basis points of adjusted operating margin expansion. Schwetz said the company now expects organic sales ranging from a 1% decline to a 2% increase, which supports total sales growth of 3% to 6% including about 300 basis points from acquisitions. She noted the outlook includes the anticipated mid-year closure of the Trillium Valves acquisition, though management said it was “early days” on synergy discussions and not ready to quantify expected synergies.

On quarterly phasing, Schwetz said second-quarter sales are expected to be down low- to mid-single digits year over year and “second quarter earnings are expected to be similar to the first quarter.” Management expects original equipment bookings to accelerate in the second half, supported by increased project activity, rising nuclear investment, and potential rebuild activity in the Middle East, though Schwetz said it is “too early to know” how the conflict could affect project timing and acknowledged some projects could slip into 2027.

Rowe said the company’s 12-month project funnel remains robust and expanded across end markets sequentially and year over year, adding that Flowserve has not seen projects canceled but has seen uncertainty in timing. He also pointed to continued aftermarket momentum, saying increased capture rates across Flowserve’s installed base remain a key pillar of the outlook.

About Flowserve NYSE: FLS

Flowserve Corporation NYSE: FLS is a leading provider of fluid motion and control products and services. The company designs, manufactures and services engineered and industrial pumps, mechanical seals, valves and related flow management equipment. Flowserve's offerings are utilized across a broad spectrum of end markets, including oil and gas, power generation, chemical processing, water management, pharmaceutical and semiconductor manufacturing, as well as mining and general industrial applications.

Flowserve's product portfolio encompasses a wide range of centrifugal and positive displacement pumps, high-performance control valves, butterfly and ball valves, as well as mechanical seals and seal support systems.

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