Andres

Andres from Stifel inquired about the successes and areas for improvement in Flowserve's 80/20 implementation after two to three years. He also asked about the company's balance sheet flexibility post-Trillium deal, specifically whether the short-term focus is on further M&A or integrating Trillium.

Answer

President and CEO Scott Rowe highlighted the incredible success of 80/20, with all product business units fully implemented, leading to complexity reduction, focused organization, margin expansion, and growth in best products/customers. He cited the industrial pumps business unit's 150 basis points margin improvement and 45% SKU reduction as representative examples, expecting similar wins in 2026 and beyond, with potential for roofline consolidation. CFO Amy Schwetz stated that Flowserve's healthy balance sheet (1x net leverage) provides flexibility for capital allocation. She outlined a balanced approach, exemplified by 2025 share repurchases and M&A (Greenray, Trillium), emphasizing strategic fit, margin/cash flow accretion, and balance sheet protection, indicating M&A can continue to play a role.

Andres inquired about the successes and areas for improvement in Flowserve's 80/20 implementation after two to three years. He also asked about the company's balance sheet flexibility post-Trillium deal, specifically whether the focus is on further M&A or short-term Trillium integration.

Answer

President and CEO Scott Rowe highlighted incredible success with 80/20, including complexity reduction, margin improvement, and growth in focused areas, citing a previous example of 150 basis points margin improvement and 45% SKU reduction in industrial pumps. He noted that 80/20 also enables operational changes and potential roofline consolidation. CFO Amy Schwetz stated that with 1x net leverage, Flowserve has flexibility for capital allocation, demonstrated by balanced returns to shareholders ($250M in share repurchases) and M&A (Greenray, Trillium) in 2025, with a continued focus on strategic fit, margin/cash flow accretion, and balance sheet protection.

Andres asked for an update on the progress of restructuring the European business and inquired whether the increased engineering spending in Asia, which impacted adjusted EBITDA, is expected to continue or sustain.

Answer

EVP and CFO Mark Oswald explained that Europe's restructuring spend is expected to be around $120-$130 million in fiscal year 2026, similar to last year, and will decrease in 2027, with future magnitude dependent on customer program decisions. For Asia, he noted that while there will be quarters with increased launch and engineering costs, overall APAC business performance is expected to be positive for full year 2026, with these costs offset by other efficiencies.