Flowserve Corporation (FLS) is a leading global provider of flow control products and services for the infrastructure markets. With a history dating back over 230 years, the company has evolved through organic growth and strategic acquisitions to become a diversified industrial conglomerate serving customers across a wide range of end markets.
Business Overview Flowserve Corporation was originally incorporated in the State of New York on May 1, 1912, although some of its heritage product brand names date back to its founding in 1790. The company's over 230-year history of heritage brands serves as the foundation for the breadth and depth of its products and services today. Flowserve now operates in approximately 50 countries, with a global network of manufacturing facilities and Quick Response Centers.
Throughout its history, Flowserve has faced numerous challenges, including the cyclical nature of its industries, a competitive environment, global economic conditions, and foreign currency exchange rate movements. The company has also dealt with raw material cost volatility and supply chain management issues common to many global manufacturers. To mitigate these challenges, Flowserve has implemented strategies such as global sourcing, vertical integration, and operational excellence initiatives.
Today, Flowserve operates through two primary business segments - the Flowserve Pumps Division (FPD) and the Flow Control Division (FCD). FPD, the larger of the two, focuses on highly engineered pumps, pump systems, mechanical seals and auxiliary equipment, while FCD specializes in engineered-to-order and configured-to-order isolation valves, control valves and valve automation products. Both segments leverage Flowserve's extensive global manufacturing footprint, with 37 production facilities worldwide for FPD and 19 for FCD, as well as a network of 157 Quick Response Centers to provide localized aftermarket services and support.
The Flowserve Pumps Division (FPD) designs, manufactures, pretests, distributes and services highly custom engineered pumps, pre-configured industrial pumps, pump systems, mechanical seals, and auxiliary systems, as well as related services. FPD's products and services are primarily used by companies operating in the oil and gas, power generation, chemical, water management and general industries. FPD operates in 49 countries with 37 manufacturing facilities worldwide, including 12 in North America, 11 in Europe and the Middle East, 8 in Asia Pacific and 6 in Latin America. FPD also has 130 Quick Response Centers (QRCs), some of which are co-located in manufacturing facilities and shared with the FCD segment.
The Flow Control Division (FCD) designs, manufactures and distributes a broad portfolio of engineered-to-order and configured-to-order isolation valves, control valves, valve automation products and related equipment. FCD leverages its experience and application know-how to offer a complete menu of engineered services to complement its product portfolio. FCD has a total of 46 manufacturing facilities and QRCs in 22 countries around the world, with 7 of its 19 manufacturing operations located in Europe, 6 in the United States, 5 in Asia Pacific and 1 in Latin America. Based on independent industry sources, Flowserve believes FCD is the second largest industrial valve supplier globally.
Flowserve's diverse customer base includes some of the world's leading engineering, procurement and construction (EPC) firms, original equipment manufacturers, distributors and end-users across a variety of critical infrastructure industries. In 2024, the company's bookings were fairly well-balanced, with 37% from oil and gas, 26% from general industries, 19% from chemicals, 13% from power generation, and 5% from water management. This diversification helps mitigate the impact of cyclicality in any one end market.
Financial Performance Over the past three years, Flowserve has delivered a relatively stable financial performance, navigating the challenges posed by the COVID-19 pandemic, supply chain disruptions and economic uncertainty. In 2024, the company reported total revenue of $4.56 billion, up 5.5% year-over-year, with growth across both its original equipment and aftermarket segments. Adjusted gross margin expanded 300 basis points to 31.5%, while adjusted operating margin increased 210 basis points to 12.6%, reflecting the benefits of the company's operational excellence initiatives.
Financials Flowserve's financial performance in 2024 demonstrated solid growth and margin expansion. The company's total revenue of $4.56 billion represented a 5.5% increase from the previous year. Net income for 2024 was $282.76 million. Adjusted gross margin improved significantly, rising 300 basis points to 31.5%. Similarly, adjusted operating margin saw a 210 basis point increase to 12.6%, showcasing the effectiveness of Flowserve's operational initiatives.
In the Flowserve Pumps Division (FPD), bookings increased by 12.3% to $3.30 billion in 2024 compared to 2023, driven by increased orders across various industries including oil and gas, power generation, general industries and water management. Sales for FPD also increased by 3.1% to $3.16 billion in 2024, primarily driven by higher aftermarket customer sales. Gross profit margin for FPD improved to 32.2% in 2024 from 29.6% in 2023, due to the favorable impact of price increases, higher sales volumes, and lower incentive compensation, partially offset by higher realignment charges. FPD's operating income increased 37.6% to $480.2 million in 2024 compared to the prior year.
For the Flow Control Division (FCD), bookings increased 1.8% to $1.37 billion in 2024 compared to 2023, driven by increased orders in the power generation and oil and gas industries. FCD's sales grew 11.3% to $1.41 billion in 2024, with increases in both original equipment and aftermarket sales. Gross profit margin for FCD improved to 30.1% in 2024 from 29.4% in 2023, due to the benefits of price increases, higher sales volumes and lower realignment charges, partially offset by amortization costs related to the MOGAS acquisition. FCD's operating income increased 7.0% to $158.3 million in 2024.
In the most recent quarter (Q4 2024), Flowserve reported revenue of $1.18 billion, up 1.3% year-over-year. Net income for the quarter was $77.54 million. The increase in revenue was driven by both aftermarket and original equipment sales, partially offset by lower percentage of completion revenue compared to the prior year period. Aftermarket sales grew 4% while original equipment sales declined 2%.
Flowserve has a global footprint, with approximately 64% of total sales to international customers in 2024, including export sales from the US. Sales to customers in Europe, the Middle East and Africa (EMA) were approximately 35% of total sales in 2024. Sales to customers in Asia Pacific were approximately 17% of total sales in 2024, while sales to customers in Latin America were approximately 7% of total sales in 2024.
Liquidity Flowserve's balance sheet remains healthy, with $675.4 million in cash and cash equivalents as of December 31, 2024 and a net debt position of $828.8 million. The company generated strong operating cash flow of $425.3 million in 2024, allowing it to fund capital expenditures of $81.0 million while also returning cash to shareholders through $110.4 million in dividend payments and $20.1 million in share repurchases. Free cash flow for 2024 was $344.29 million.
The company's debt-to-equity ratio stands at 0.84, with $656 million available under its $800 million Revolving Credit Facility as of December 31, 2024. Flowserve's current ratio is 1.98, and its quick ratio is 1.41, indicating a strong liquidity position.
Looking ahead, Flowserve provided guidance for 2025 that calls for organic sales growth of 3-5%, with the recently acquired MOGAS business contributing an additional 300 basis points. Currency headwinds are expected to negatively impact reported sales by approximately 100 basis points. The company anticipates a full-year book-to-bill ratio of over 1.0 and expects to continue expanding its adjusted gross and operating margins. Flowserve provided adjusted earnings per share guidance of $3.10 to $3.30 for 2025, which would represent 22% growth at the midpoint compared to 2024. The company expects a quarterly earnings profile similar to historical trends, with Q1 being the lowest and Q4 the highest. The impact of MOGAS, including synergies, and the benefits from the portfolio excellence initiative are expected to accelerate through the year.
Strategic Initiatives Flowserve's long-term growth strategy is centered around its "3D" initiatives - Diversification, Decarbonization and Digitization. On the diversification front, the company is focused on expanding its presence in attractive end markets like water, specialty chemicals and new vacuum and seal technologies, while also maintaining a strong position in its core oil and gas, power generation and chemical sectors.
In terms of decarbonization, Flowserve is leveraging its flow control expertise to develop innovative products and services that enable customers to reduce their carbon emissions and improve energy efficiency. This includes solutions for carbon capture, hydrogen, nuclear power and renewable energy applications. The company's Energy Advantage Program provides a holistic approach to helping customers meet their sustainability goals.
Flowserve's digitization efforts center around its proprietary Industrial Internet of Things (IIoT) platform, RedRaven, which allows for remote monitoring and optimization of customers' flow control equipment. By integrating predictive analytics and domain expertise, RedRaven helps customers improve the reliability and efficiency of their operations.
Risks and Challenges As with any industrial conglomerate, Flowserve faces a variety of risks and challenges that could impact its future performance. These include:
- Cyclicality of end markets - Demand for Flowserve's products and services is closely tied to the capital investment and maintenance spending patterns of its customers, which can be highly cyclical. - Supply chain disruptions - The company's global manufacturing footprint and diverse supplier base leave it exposed to potential supply chain challenges, such as those experienced during the COVID-19 pandemic. - Competitive pressures - The pump, valve and seal industries are highly fragmented, with Flowserve competing against a number of large global players as well as regional and local competitors. - Regulatory and environmental compliance - As a manufacturer of products used in sensitive applications, Flowserve must navigate a complex web of regulations around areas like export controls, data privacy and environmental protection.
Despite these risks, Flowserve's diversified business model, technological leadership and focus on operational excellence position the company well to navigate the changing infrastructure landscape and deliver long-term value for shareholders.
Conclusion Flowserve's 230-year history, global scale and leading market positions in critical flow control technologies make it a compelling investment opportunity in the industrial sector. The company's strategic initiatives around diversification, decarbonization and digitization are driving sustainable growth, while a strong balance sheet and cash flow generation provide financial flexibility. As infrastructure investment continues to evolve in response to global megatrends, Flowserve appears well-positioned to capitalize on the changing landscape and deliver value for its customers and shareholders.
The flow control industry, which includes pumps, valves and seals, is expected to see moderate growth, driven by infrastructure investment, water management needs and energy transition initiatives. With an estimated industry CAGR of around 5%, Flowserve's diversified portfolio of highly engineered flow control products and services across the FPD and FCD segments has allowed the company to maintain a leading market position. The company's ability to capitalize on growth opportunities in its core end markets as well as emerging energy transition applications, coupled with its focus on operational excellence, new product innovation, and strategic acquisitions like MOGAS, position Flowserve well to continue delivering value to its customers and shareholders in the years to come.