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Why Flowserve Reduced Its Earnings Guidance after 2Q16

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Flowserve’s outlook for 2016

For 2016, analysts expect Flowserve (FLS) to report revenue of ~$4.0 billion, ~10% lower than its 2015 revenue of $4.5 billion. Gross margins and restructuring efforts will play important roles for the company in 2016.

Analysts expect FLS to report adjusted EPS (earnings per share) of ~$2.40–$2.60 in 2016 compared to $2.86 in 2015. The company’s management has tightened its 2016 EPS guidance range, as it expects the current market conditions to persist.

For 2016, FLS projects its capital expenditure to be ~$105 million–$115 million. It will look to invest nearly $150 million in strategic alliances. FLS plans to reduce its debt by $60 million.

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Flowserve’s peers’ 2016 outlooks

In 2016, Emcor Group (EME) expects its 2Q16 revenue to rise by 9.3% to $7.3 billion, compared to $6.7 billion in 2015. Its net profit is also expected to rise by 4.3% in 2016.

Graco (GGG) expects its revenue to rise by 3.0%, and it expects its net profit to fall by 2.1% in 2016.

Pentair (PNR) expects its 2Q16 revenue to rise by 32.7% to $4.1 billion, compared to $3.0 billion in 2015. Its net profit is also expected to rise by 32.4% in 2016.

Flowserve’s stock performance

FLS rose by 11.3% from January 1, 2016, to August 1, 2016, in comparison to the ~11.0% rise in the Industrial Select Sector SPDR ETF (XLI) in the same period. From August 1, 2015, to August 1, 2016, FLS fell by 1.6% while XLI rose by 6.9%.

We can see that Flowserve’s revenue and earnings outlooks for 2016 are suppressed compared to those of its peers. Now let’s see whether Flowserve is trading at a premium or at a discount to its peers following its 2Q16 results.

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