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FLOWSERVE CORP (FLS)·Q2 2025 Earnings Summary

Executive Summary

  • Adjusted EPS of $0.91 beat consensus by $0.13 (+16.8%) on robust margin execution; GAAP diluted EPS was $0.62. Revenue of $1.188B grew 2.7% YoY but modestly missed consensus ($1.226B) as organic sales dipped ~100 bps from SKU rationalization .*
  • Gross margin expanded 260 bps to 34.2% (adjusted 34.9%), and adjusted operating margin rose 210 bps to 14.6% on the Flowserve Business System and 80/20 program benefits; cash from operations was strong at $154M .
  • Management raised FY25 adjusted EPS guidance to $3.25–$3.40 (from $3.10–$3.30), lowered organic growth to 3–4% and acquisitions impact to ~200 bps; tax rate improved to ~20% (from 21%) .
  • Strategic update: Terminated Chart Industries merger; Flowserve received a $266M termination payment and retained flexibility (net debt/adjusted EBITDA 1.25x; >$200M remaining repurchase authorization), positioning capital deployment as a near-term catalyst .

What Went Well and What Went Wrong

What Went Well

  • Margin expansion: Adjusted gross margin reached 34.9% (+260 bps YoY) and adjusted operating margin hit 14.6% (+210 bps), driven by 80/20 complexity reduction, productivity, and favorable mix . “We generated an adjusted gross margin of 34.9%…our seventh consecutive quarter of sequential margin improvement” .
  • Aftermarket strength: Fifth straight quarter >$600M aftermarket bookings; Q2 aftermarket bookings $621M underpinning resilient base business and margin quality .
  • Tariff mitigation: Net tariff impact was neutral to earnings in Q2; annualized gross tariff headwind estimate reduced to $50–$60M (from $90–$100M in April), with pricing actions “fully in place” .

What Went Wrong

  • Topline vs estimates: Revenue ($1.188B) missed consensus (~$1.226B) as organic sales decreased ~100 bps from SKU rationalization under 80/20; original equipment sales were −2% YoY .*
  • FCD margin drag from MOGAS: FCD adjusted operating margin 12.2% was diluted by ~260 bps from MOGAS fabricated modules and inventory write-offs; management expects tail into early 2026 .
  • Project timing delays: Energy/chemical projects deferred amid tariff/macro uncertainty; nuclear bookings were $60M (down from prior quarters’ $100M+), highlighting lumpiness despite strong funnel .

Financial Results

Consolidated performance (oldest → newest)

MetricQ4 2024Q1 2025Q2 2025
Revenue ($USD Billions)$1.180 $1.145 $1.188
Diluted EPS (GAAP) ($)$0.59 $0.56 $0.62
Adjusted EPS ($)$0.70 $0.72 $0.91
Gross Margin % (GAAP)31.5% 32.3% 34.2%
Adjusted Gross Margin %32.8% 33.5% 34.9%
Operating Margin % (GAAP)10.6% 11.5% 12.3%
Adjusted Operating Margin %12.6% 12.8% 14.6%
Cash from Operations ($USD Millions)$197.3 ($49.9) $154.1

Q2 2025 results vs Wall Street consensus

MetricActual (Q2 2025)Consensus (Q2 2025)Surprise
Revenue ($USD Billions)$1.188 $1.226*Miss (~$0.038B; ~3.1%)*
Adjusted EPS ($)$0.91 $0.779*Beat (~$0.13; ~16.8%)*
EBITDA ($USD Millions)$161.174*$177.679*Miss (~$16.5; ~9.3%)*

Values retrieved from S&P Global.*

Segment breakdown (Q2 2025 vs Q2 2024)

SegmentBookings ($MM)Sales ($MM)Gross Margin %Segment Op Income ($MM)Segment OI Margin %
FPD (Q2 2025)$723.8 $818.9 36.5% $162.7 19.9%
FPD (Q2 2024)$898.8 $812.2 32.0% $131.0 16.1%
FCD (Q2 2025)$354.7 $371.5 29.0% $37.8 10.2%
FCD (Q2 2024)$349.2 $347.7 30.6% $32.3 9.3%

KPIs and order metrics

KPIQ2 2025Q2 2024YTD 2025
Total Bookings ($MM)$1,073.9 $1,246.1 $2,299.4
Aftermarket Bookings ($MM)$620.6 $614.0 $1,309.2
Original Equipment ($MM)$453.3 $632.1 $990.2
Backlog ($MM)$2,853.2 $2,684.4 $2,853.2
Book-to-Bill——0.99x (1H25)

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Organic Sales GrowthFY 2025+3% to +5% +3% to +4% Lowered
Acquisitions ImpactFY 2025~+300 bps ~+200 bps Lowered
FX Translation ImpactFY 2025~(100) to 0 bps ~0 bps Improved
Total Sales GrowthFY 2025+5% to +7% +5% to +6% Lowered
Adjusted EPSFY 2025$3.10–$3.30 $3.25–$3.40 Raised
Net Interest ExpenseFY 2025~$70M ~$70M Maintained
Adjusted Tax RateFY 2025~21% ~20% Improved
Capital ExpendituresFY 2025$80–$90M $80–$90M Maintained
DividendsFY 2025$0.21/qtr authorized $0.21/qtr declared Aug 14 (pay Oct 10) Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4’24 and Q1’25)Current Period (Q2’25)Trend
Tariffs/MacroFY25 guide acknowledged tariff uncertainty (Q1) ; macro dynamic Net tariff impact neutral; annualized gross headwind cut to $50–$60M; pricing actions “fully in place” Improving operationally
80/20 Complexity ReductionFoundation of Flowserve Business System; margin expansion in Q4/Q1 Continued margin tailwind; organic sales −100 bps from SKU reduction Mixed (margins ↑, org. growth ↓)
Commercial ExcellenceNot yet launched in Q4/Q1Launched pillar in Q2 to offset 80/20 revenue impact and drive growth Emerging positive
Aftermarket StrengthQ4 bookings $618M ; Q1 record ~$690M Q2 aftermarket $621M; 5th consecutive quarter >$600M Sustained strength
Nuclear/SMRQ4 nuclear awards >$110M ; Q1 >$100M Q2 ~$60M; first SMR production order (primary coolant pumps) Lumpy near-term; strategic positive
MOGAS IntegrationPlanned EPS contribution of ~$0.16 in FY25 EPS contribution now ~$0.08; FCD margin −260 bps; fabricated modules tail into early 2026 Near-term headwind; long-term accretive
Digitization/AIRedRaven capabilities referenced MOU with Honeywell to integrate RedRaven with Forge; recurring revenue potential Positive scaling
Regional TrendsRobust power bookings (Q4/Q1) General industries +9%; energy/chemicals delayed; Middle East opportunities continue Mixed

Management Commentary

  • Strategy and outlook: “We increased our full-year adjusted EPS guidance to $3.25–$3.40…deliver sustained growth. The Flowserve Business System is accelerating performance…we see further opportunities to drive growth, productivity, and margin expansion” .
  • Tariffs mitigation: “We estimate the impact for tariffs to the second quarter, net of our mitigating actions, were neutral to earnings” .
  • Capital allocation: “We closed the quarter with a net debt to adjusted EBITDA ratio of 1.25x…over $200 million remaining under our share repurchase authorization” .
  • Segment execution: “FPD…adjusted operating margin of 20.3%, a 340 basis point increase…we still see opportunities to increase FPD margins from here” .
  • MOGAS update: “MOGAS unfavorably impacted FCD adjusted operating margins by roughly 260 basis points…we do not expect to continue [fabricated modules] after we ship the last remaining order” .

Q&A Highlights

  • Bookings visibility and book-to-bill: Management expects FY25 book-to-bill ~1.0x, with second-half >1.0x; project funnel up sequentially, some Q2 delays moving to Q3 .
  • Pricing/backlog margins: Pricing actions held with “no noticeable impact to demand”; backlog margins healthy with positive “out margins” on large projects .
  • MOGAS drag and timing: Fabricated modules ~90% complete; tail into early 2026; standard margin differential between modules and broader MOGAS portfolio is significant; integration and synergies on track .
  • Commercial excellence pillar: Launched to offset 80/20 revenue reductions; pilots underway with focus on analytics, pricing, channel, incentives; expected to show in 2026 bookings .
  • M&A appetite post-Chart: $266M break fee received; disciplined approach around Diversify/Decarbonize/Digitize; consider bolt-ons and larger deals if compelling; multi-year supply agreement with Chart remains .

Estimates Context

  • Q2 2025: Adjusted EPS $0.91 vs consensus ~$0.78 (beat); revenue $1.188B vs ~$1.226B (miss); EBITDA ~$161M vs ~$178M (miss). Values retrieved from S&P Global.*
  • Forward quarters: Q3 2025 consensus EPS ~$0.80 and revenue ~$1.206B; Q4 2025 consensus EPS ~$0.95 and revenue ~$1.263B.* Management guided Q3 revenue similar to Q2 with mix normalizing, and Q4 ramp on seasonal volume and synergy realization .*
  • FY25/26 consensus: FY25 EPS ~$3.48 and revenue ~$4.77B; FY26 EPS ~$3.95 and revenue ~$4.97B.* Raised FY25 EPS guidance ($3.25–$3.40) suggests upward bias to EPS estimates; organic growth tempering (3–4%) may cap revenue revisions .*

Key Takeaways for Investors

  • Margin story intact: Sequential and YoY margin expansion points to sustained earnings leverage; the Flowserve Business System and 80/20 deliver quantifiable improvements .
  • Guidance raised despite macro: EPS increased to $3.25–$3.40 and tax rate lowered to ~20%; signals confidence even as organic growth range narrowed .
  • Capital deployment optionality: $266M break fee, net leverage at decade lows (1.25x), and >$200M repurchase authorization provide near-term shareholder return catalysts .
  • Aftermarket resilience: Base business strength (> $600M bookings) supports earnings durability versus project timing noise .
  • Watch MOGAS/FCD trajectory: Near-term margin drag persists with a tail into early 2026, but integration synergies and project funnel in mining/minerals should improve accretion over time .
  • Nuclear/SMR optionality: First SMR production order and a record nuclear project funnel expand medium-term growth vectors, albeit with lumpy bookings cadence .
  • Trading setup: Expect Q3 revenue similar to Q2 with mix headwind; Q4 ramp and margin expansion could be the next positive inflection. Monitor tariff headlines, project approvals, and any buyback updates from the $266M break fee .

Additional Q2 2025 Materials

  • Earnings press release and full 8-K (Item 2.02): second quarter results; non-GAAP reconciliations; segment details .
  • Conference call transcript: detailed margin drivers, tariffs update, bookings funnel, capital allocation, MOGAS integration – –.
  • Related press releases: earnings timing update ; merger termination ($266M payment) ; quarterly dividend declared ($0.21/share) .