Flowserve Q2 Earnings Call Highlights

Flowserve NYSE: FLS reported second-quarter 2026 bookings growth of 26% year over year to $1.35 billion, supported by record aftermarket orders, large engineered projects and demand in power and nuclear markets. Adjusted earnings per share rose 4% to $0.95, while the company modestly lowered its full-year organic sales outlook because of continuing disruption in the Middle East.

President and Chief Executive Officer R. Scott Rowe said the quarter reflected “meaningful customer bookings, solid execution, and strong financial performance,” despite a dynamic operating environment. Adjusted operating margin expanded 70 basis points from a year earlier to 15.3%, and adjusted gross margin increased 100 basis points to 35.9%.

Bookings Rise as Aftermarket Reaches Record

Second-quarter bookings included nearly $700 million of aftermarket orders, up 12% year over year and the company’s ninth consecutive quarter with aftermarket bookings above $600 million. Original equipment bookings increased 44% to roughly $650 million. The resulting book-to-bill ratio was 1.15 times.

Rowe attributed the aftermarket performance partly to the company’s focus on faster quoting, delivery and local customer support through its quick-response center network. He also cited Flowserve’s commercial-excellence initiatives, including account planning and improved visibility into the company’s installed base.

Bookings grew across the company’s major end markets during the quarter:

• Energy: Bookings increased 48%, aided by large LNG awards in the Middle East and Canada.
• Power: Bookings rose 39%, including more than $110 million in nuclear orders.
• General industries: Bookings increased 11%, with strength in pharmaceutical and water applications.
• Chemicals: Bookings rose 7%, including a large Middle East project award.

The nuclear orders included an award for new large reactors in Asia and life-extension projects in North America. Rowe said Flowserve remains optimistic about nuclear demand, citing new-build activity, plant life extensions and the developing small modular reactor market. He said the company’s Trillium Valves acquisition increases its estimated content opportunity per reactor from about $100 million to roughly $115 million.

Backlog increased 6% sequentially and 9% from a year earlier, excluding backlog from Trillium. Flowserve continues to expect mid-single-digit organic bookings growth for the full year.

Middle East Disruption Pressures Sales Conversion

Reported second-quarter sales were $1.2 billion, down 2% year over year. Organic sales declined 3%, as one percentage point of underlying growth was more than offset by an estimated two-point headwind from Middle East disruption and a two-point headwind from 80/20 portfolio actions. Acquisitions added 90 basis points to reported sales growth, while foreign exchange added 80 basis points.

Year-to-date sales in the Middle East have declined by approximately $60 million, or about three percentage points of organic sales growth, according to Rowe. The conflict has limited operational activity at customer locations and delayed customer acceptance of equipment deliveries. Flowserve said cancellation rates in the region remain immaterial.

The disruption has had a disproportionate effect on the Flow Control Division, or FCD, where book-and-ship valve activity has slowed. Rowe said the company’s Middle East run-rate business is down about 20%, and management assumes similar conditions will continue through the second half of 2026.

While Flowserve expects healthy project bookings in the region, the majority are not expected to convert to sales this year. Some projects initially expected in 2026 could move into 2027. The company estimates that restoration work at damaged customer sites could represent approximately $50 million of incremental bookings late in 2026 and into 2027, though Rowe said the estimate could change as site access improves.

Management also sees longer-term opportunities tied to energy-security investments, including potential capacity expansion, redundant pipelines and storage facilities. However, Rowe said the company was not prepared to estimate the size of that opportunity.

Segment Margins Expand Despite Lower Sales

Flowserve Pump Division, or FPD, recorded bookings of $938 million, up 30% from a year earlier. Sales declined 1% to $814 million, but adjusted operating income increased 4% to $173 million. Adjusted operating margin rose 100 basis points to 21.3%, supported by favorable mix, 80/20 actions and improved project execution.

Flowserve Control Division bookings increased 18% to $417 million, with growth in both original equipment and aftermarket orders. Sales fell 4% to $357 million, reflecting Middle East run-rate weakness and planned 80/20 actions. Adjusted operating margin expanded 40 basis points to 12.6%.

Chief Financial Officer Amy Schwetz said FCD would have delivered more than 100 basis points of margin improvement in the quarter absent the Middle East impact. She said footprint consolidations, 80/20 actions and increased backlog conversion are expected to support second-half margin improvement.

Guidance Updated; Trillium Integration Begins

Flowserve now expects full-year organic sales to decline approximately 1%, compared with its previous outlook range. It forecasts about 300 basis points of combined benefit from acquisitions and divestitures and a 100-basis-point foreign-exchange benefit, resulting in expected total sales growth of approximately 3%.

The company raised the lower end of its adjusted EPS outlook and now expects adjusted EPS of $4.05 to $4.20. It continues to forecast approximately 100 basis points of adjusted operating-margin expansion and free-cash-flow conversion of about 90% of adjusted net earnings.

For the second half, Flowserve expects approximately 5% organic sales growth, supported by backlog, aftermarket demand, steady maintenance and repair activity, and increasing project activity. Third-quarter organic sales are expected to be roughly flat, while total sales are expected to grow at a mid-single-digit rate.

Flowserve closed its acquisition of Trillium Valves Division on June 30. The company said approximately 85% of Trillium sales will be reported in FCD and 15% in FPD beginning in the third quarter. Management expects the acquisition to add to adjusted operating profit dollars in 2026 while being roughly neutral to adjusted EPS after financing costs.

The company generated $129 million of operating cash flow during the quarter and returned $80 million to shareholders year to date, including $55 million of dividends and $25 million of second-quarter share repurchases. Flowserve also repurchased an additional $25 million of shares in July.

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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