Flowserve (FLS) To Report Q1 Earnings: Is A Beat In Store?

Flowserve Corporation (NYSE:FLS) is scheduled to report first-quarter 2018 results on May 10, after the closing bell.

In the last reported quarter, the company’s earnings came in at 50 cents per share, which missed the Zacks Consensus Estimate by 3.9%. Overall, Flowserve has an average negative surprise of 5% for the trailing four quarters, marked by two earnings beats for as many misses.

However, we expect Flowserve to score an earnings beat in the to-be-reported quarter.

Why a Likely Positive Surprise?

Our proven model shows that Flowserve is likely to beat estimates this quarter. This is because the stock has the right combination of two ingredients — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for this to happen. This is perfectly the case here as you will see below:

Zacks ESP: Flowserve has an Earnings ESP of +1.10% as the Most Accurate estimate of 28 cents is pegged higher than the Zacks Consensus Estimate of 27 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: The company carries a Zacks Rank #3, which when combined with a positive ESP makes us reasonably confident of an earnings beat.

Conversely, we caution against stocks with a Zacks Ranks #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is witnessing negative estimate revisions.

Factors Driving Better-Than-Expected Results

Flowserve is well poised for growth, courtesy of its leading position in the flow control industry, comprehensive product portfolio, wide global footprint and strong customer relationships. Additionally, the company has an installed base with over 2 million pumps worldwide. Its investments in distribution channel and other industrial opportunities as well as new product development and enhancement will also continue to be the strongest growth drivers.

In the to-be-reported quarter, we believe the company’s top line will benefit from modest natural gas investments in North America and Asia. Furthermore, impressive prospects of the U.S. chemical market business are likely to emerge as a key growth driver for the company. Also, the company has been witnessing some stabilization in core aftermarket activities, including parts, services and repairs, which is expected to act as a major growth catalyst.

Meanwhile, Flowserve’s short- and long-term strategic plans that include manufacturing optimization via transfer of activities from high-cost regions to lower-cost facilities have enabled it to reduce manufacturing costs and enhance long-term efficiency. For instance, the company’s full-annualized program is expected to result in $230 million savings in 2018.

The company’s focus on improving on-time delivery, reducing backlog, enhancing the sales process and leveraging on the supplier relationships are also anticipated to boost revenues in the first quarter.

Given this backdrop, the Zacks Consensus Estimate for first-quarter revenues from the company’s Engineered Product Division segment remains high at $429 million, reflecting growth of 1.7% year over year. Revenues from Industrial Product Division segment are also expected to chart decent growth, with an estimate of $181 million compared with $178 million in the prior-year quarter. This apart, the company’s restructuring efforts, undertaken over the past few quarters, are likely to add value to its upcoming results.

However, over the past few quarters, pricing pressure has proved to be a major drag on the company’s top-line performance. In addition, loss of sales leverage and related under-absorption has been hurting the company’s profitability.

Stocks to Consider

Here are some other companies that you may want to consider, as our model shows that these too have the right combination of elements to post an earnings beat this quarter:

Sun Hydraulics Corporation (NASDAQ:SNHY) has an Earnings ESP of +0.55% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Colfax Corporation (NYSE:CFX) has an Earnings ESP of +0.88% and a Zacks Rank of 3.

Welbilt, Inc. (NYSE:WBT) has an Earnings ESP of +3.77% and a Zacks Rank #3.

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