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Understanding Flowserve’s Operations

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Flowserve’s segments

Flowserve (FLS) conducts its operations through the following three business segments based on product type:

  • Engineered Products
  • Flow Control
  • Industrial Products

Flowserve’s operating segments have a high number of common customers, and this helps the company to offer combined products and technologies. According to the management, its combined application strategy gives FLS net competitive advantages, which include research and development, supply chain, quality assurance, and a lower cost structure.

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Original equipment booking

According to Flowserve’s management, sales of original equipment have the potential to earn attractive margins. A recent EIF study reported that the total available market of the pump, valve, and seal industry is ~$130 billion (60% capital expenditure and 40% operating expenditure), of which FLS has a market share of nearly 4%. This means that there is a significant opportunity for FLS to grow within its own installed base for both original equipment and aftermarket opportunities.

Critical worldwide presence

In 2015, Flowserve had 80 manufacturing facilities and 195 aftermarket “Quick Response Centers.” The management has undertaken initiatives to retain full capacity utilization to reduce manufacturing sites by nearly 30%, from 80 sites to 57, by 2018.

Approximately 43% of FLS’s revenues come from aftermarket servicing. Quick response centers play an important role in understanding local market conditions, and personally knowing customers helps problem solving, without needing to travel long distances.

Notably, on a year-over-year basis as of May 20, 2016, both FLS and the S&P 500 ETF Index SPY declined by 19.5% and 3.6%, respectively. By comparison, welding product peers Graco (GGG) and Xylem (XYL) saw increases of 6.9% and 18.3%, respectively, over the same period, while Emcor Group (EME) declined by 0.7%.

Continue to the next part for a tour of FLS’s regional presence.

 

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