Flowserve at Jefferies Conference: Strategic Moves and Market Resilience

On Thursday, 04 September 2025, Flowserve Corporation (NYSE:FLS) shared insights at the Jefferies 2025 Industrials Conference. The company highlighted its robust aftermarket performance and strategic initiatives, while also addressing challenges such as tariff impacts. Flowserve’s financial strategies, including capital deployment and margin expansion, were key discussion points.

Key Takeaways

• Flowserve achieved five consecutive quarters of aftermarket bookings exceeding $600 million.
• The company is actively managing tariff impacts through pricing adjustments and supply chain flexibility.
• The Flowserve Business System, particularly the 80/20 initiative, contributed approximately 100 basis points to margin expansion.
• Flowserve is exploring capital deployment opportunities, including M&A and shareholder returns, supported by a strong balance sheet.
• The nuclear business and small modular reactor technology are key growth areas.

Financial Results

Flowserve reported strong aftermarket performance, with bookings surpassing $600 million for five consecutive quarters. The company emphasized that approximately 50% of its revenue stems from aftermarket activities, driven by capacity utilization in downstream assets, particularly refining.

Despite some slowing in large projects, particularly in the power and nuclear segments, Flowserve’s run rate business remains robust. The company booked 1.7 billion dollars in the second quarter, with three large bookings, none exceeding 12 million dollars, indicating strength in smaller projects.

Operational Updates

Flowserve is managing the impact of tariffs, which primarily affect the supply chain, by implementing pricing changes and enhancing supply chain flexibility. The company is confident in its ability to offset these impacts.

The Flowserve Business System, especially the 80/20 initiative, has significantly contributed to margin expansion, with an improvement of about 100 basis points. The company has increased gross margins for seven consecutive quarters and expects similar margin expansion for both FPD and FCD platforms.

Future Outlook

Flowserve is exploring opportunities for capital deployment, including mergers and acquisitions and shareholder returns. The company is also focusing on diversification, decarbonization, and digitization to expand margins and cash flow.

In the Middle East, Flowserve is transitioning from mega-projects to smaller, more manageable ones, with a focus on building a strong aftermarket presence. The company is implementing a commercial excellence pillar to drive revenue growth and align sales incentives with strategic goals.

Q&A Highlights

Amy, CFO of Flowserve, emphasized the importance of the aftermarket business, stating, "Aftermarket is an area of the business that is very exciting to us. I think it’s one of the things that truly makes Flowserve differentiated in the market."

She also highlighted the company’s strategic positioning in regions like Saudi Arabia, stating, "We’ve positioned ourselves well in terms of both our ability to provide in Saudi, for example, in kingdom content. We also have established QRCs in region to allow us to support that install base going forward."

Amy reiterated that the integration of the 80/20 initiative is a process, not a project, and has provided a framework for data-driven portfolio management.

In conclusion, readers are encouraged to refer to the full transcript for a detailed understanding of Flowserve’s strategic initiatives and financial outlook.

Full transcript - Jefferies 2025 Industrials Conference:

Sari Borditzky, Client Multi-Industrialist, Trefries: Good afternoon. I am Sari Borditzky, a Client Multi-Industrialist here at Trefries. We’re very excited to have Amy, CFO of Flowserve, with us today. The company is on a transformational journey as part of the Flowserve business system, with a focus on expanding margins and driving profitable growth. Global demand remains strong as the company is levered to secular growth drivers within energy and power. There is lots to talk about today, so thank you so much for joining us.

Amy, CFO, Flowserve: Yeah, thanks for having us.

Sari Borditzky, Client Multi-Industrialist, Trefries: Let’s just get started with the demand outlook. You have delivered five consecutive quarters of aftermarket bookings above $600 million. You mentioned continued aftermarket capture. Could you just expand on what you’re seeing from customer demands and what you’re doing to maybe drive outperformance?

Amy, CFO, Flowserve: Aftermarket is an area of the business that is very exciting to us. I think it’s one of the things that truly makes Flowserve differentiated in the market. About 50%, a little bit more than that actually, is driven by a pretty resilient aftermarket revenue franchise. We have had very strong bookings over the last several quarters at $600 million or more. It’s been very resilient so far. I think one of the probably misunderstood things about Flowserve overall versus where we were at maybe 10 or 12 years ago is the type of work that we’re doing in the energy or oil and gas end market. It’s really very focused on downstream assets and refining in particular. As we look at that revenue stream, it’s not so much driven by capital spend or by rig count or the price of oil on any given day.

It’s driven by capacity utilization. As we see assets around the globe, but particularly in North America and Europe working hard and needing reliability and uptime, we feel like we are really well positioned to capture that demand. This has been a focus area, particularly within our FPD segment over the last couple of years. Some of the things that we’ve invested in and have been focused on have been front-end tools. We believe that in this business, speed wins. You’ll hear our aftermarket team quote that time and time again as they talk about their business. What they mean by that is that we want to be quoting to our customers as quickly as we can. That matters to them. They want certainty around that repair. That means both in the price and in the time that it’s going to take. We’ve been focused on that initiative.

Pump parts has been another area that has been a huge focus. It was actually an area that we highlighted at our last Investor Day in 2023 as something that we wanted to grow. It’s a high margin area of the business and something, again, where we think that speed is a differentiator. We’ve looked at that business a little bit differently than we have in the past. We’re centered around parts manufacturing hubs in different areas of the world that allow us relative proximity to our customers, but also the opportunity to get good at one thing. They are focused on churning out parts every day as quickly as they can to meet our customers’ needs.

Sari Borditzky, Client Multi-Industrialist, Trefries: You know, current project activity appeared to be on the smaller side in the quarter, although I think you had a couple of large projects coming into the third quarter. Just talk about how this provides confidence in the better book to build in the second half of the year.

Amy, CFO, Flowserve: Yeah, so we booked about $1.7 billion in the second quarter of the year. Of interest in that is normally at Flowserve, we consider a large booking as something at $10 million or more. We did have three large bookings, in air quotes, but none of them were over $12 million. In fact, that $12 million booking was an aftermarket valve booking for our nuclear business. Overall, we think that points to the strength of the run rate business, frankly, as we look at economic indicators. We did see some slowing or a lack of large projects in the quarter. I would put those into two kinds of buckets. One, around the power segment and nuclear in particular, where timing can be tricky. Obviously, those are very complex projects. They require a significant amount of quality control from a quoting and order perspective within Flowserve.

It also requires a high level of review and approval with our customers as well. Although the slip-outs were what I would call untimely, they’re not unusual in terms of that type of business. We have a great deal of confidence that on a couple of those bookings that we’ve either received or will receive in the back half of the year. The second I would kind of attribute to general uncertainty. It’s not that projects have been stopped, but projects have been slowed or the level of urgency that we’ve seen with customers and maybe had gotten used to in 2023 and 2024, the pace has changed a little bit. I think where customers have the opportunity to take a bit more time to understand the ramifications of what’s going on, either with supply chains around the world or interest rates or general economic conditions, they are taking that.

With that said, our funnel of opportunities, which to everyone in the room within Flowserve, we may talk about that funnel of opportunities beyond 12 months. As we look at it and talk to investors, we like to really focus on the next 12 months. We’ve seen that funnel grow sequentially the last few quarters. We have a high degree of certainty that our end markets, or at least a number of our end markets, are relatively strong. I’d point to obviously power. I’ve talked a fair amount about nuclear already without you even asking me. That’s a key source of strength for us. I would also point to overall just that run rate aftermarket business that we’re focused on, not just maintaining, but growing our share.

Lastly, areas of general industry that have been relatively strong over the last several months include water, pharmaceuticals, and some run rate in the mining area of the business, aside from projects. I think that as we look out over the course of 2025, we did not see the second quarter as a roadblock. It’s just something that our commercial team is working to overcome in the back half of the year.

Sari Borditzky, Client Multi-Industrialist, Trefries: As you think about margins on the projects, does it benefit margins if the projects are a little bit on the smaller side versus some of the larger projects you’ve seen in the past?

Amy, CFO, Flowserve: Yeah, I think our sweet spot, honestly, this run rate business is what we love. Why we like projects is because it feeds our aftermarket, essentially. We’ve tried to do as much work as possible to make sure that the projects that we’re winning are the ones that we want to win. That means that even as we are contemplating the project pipeline or our quotes on projects, we’re trying to assess the aftermarket opportunity on them over the next, call it, five to seven years. It helps us decide which are the ones that we sharpen our pencils on versus which are the ones that we may think that are better suited in someone else’s backlog. That said, the team has done a fantastic job within our large projects business in terms of increasing margins over time.

Certainly, as part of our FPD margin expansion story, improvement in our engineered pump business in terms of their ability to not just achieve the margins that we’ve quoted on, but actually exceed those on an out margin perspective has really improved over the last couple of years.

Sari Borditzky, Client Multi-Industrialist, Trefries: Getting ahead of me with the margins, we’ll get to that in a second. I think I wrote these questions ahead of some of the tariff announcements. I know I was going to ask, have you seen, you mentioned some of these deferred projects on the high level uncertainty. Has this changed with the new legislation? Maybe I’ll add in here the recent Section 232 tariffs and how you’re seeing that impact your business.

Amy, CFO, Flowserve: I would say it’s impacting the way that we allocate our time internally within Flowserve a lot. We spend a lot of time talking about and analyzing our response to tariffs. I’ll start generally and then get more specific. Generally, we have a number of levers to pull with respect to response to tariffs. Maybe sizing the issue, about a third of our business is to U.S. customers. Thinking about that, we still have a large portion of our business that is outside the U.S., so our exposure to tariffs is largely on the supply chain side. It’s not necessarily impacting product that we are bringing into the U.S. from other countries to sell within the U.S. As we think about response, the obvious one is pricing, and that is certainly the largest lever that we have to pull.

Even post-earnings, where we sized sort of the gross impact of our tariffs ahead of some of these new announcements, we pushed through another pricing change on some of our products. We don’t think that we’re alone in that. We think that this is part of the playbook of most in our space as we look at that, and that has led to a great deal of stickiness on those pricing increases. We also have flexibility in our supply chain. Where possible, we are on a sometimes daily basis making decisions about where we bring in components from to ensure we’re getting the best outcome. Some of the announcements that we’ve had in recent weeks have changed what those source countries are that we’re utilizing for certain components. Lastly, from a trade compliance standpoint, we’ve needed to get much better.

That means that in instances where we can take advantage of trade agreements that are in place between countries, we’ve got the boots on the ground to put the documentation in place to do that. It’s been a huge effort and a huge amount of time. Ultimately, regardless of where tariffs go, I think that our supply chain was made more resilient by actions that we took following COVID. I think it’s been made even more resilient by actions that we’ve taken with respect to the tariff guidance. In terms of where we stand today, we still feel very confident that we’re in a position to offset the impact of tariffs through those actions. There may be a mismatch from time to time in the quarter in which that occurs, but over a 12-month period, we’re pretty confident in our ability to make the impact fairly de minimis.

Sari Borditzky, Client Multi-Industrialist, Trefries: You mentioned strength in nuclear. The nuclear project funnel remains strong, and I think you’ve mentioned some small modular reactor award in the quarter. What is the project mix within nuclear, and how do you think about that mix going forward?

Amy, CFO, Flowserve: Yeah, so the mix within nuclear can vary a lot from quarter to quarter. We have pretty standard run rate business that we’re not going to talk about in individual order that we get that just happens on a monthly or quarterly basis. We have two types of large orders that come in. We’ve got large aftermarket orders that come from life extensions of reactors or plants across the globe. I would say over the last several quarters have been focused on North America. Those tend to be orders that we like a lot. There are plants where we have original equipment that’s been specced in. There is, for obvious reasons, a real bias and, in fact, automatic look to the original equipment manufacturer for those upgrades and replacements. Those can be very large, you know, kind of in order of magnitude.

We had a large pump aftermarket order in the first quarter, $55 million. That aftermarket order will be delivered over the next 18 months at margins that are very accretive to Flowserve’s overall margins. On the new build, we are seeing obviously that activity skewed to certain areas of the world. We have seen a great deal of activity in Europe. We have strong relationships in Europe on the new builds. That’s, and those, when I talk about, you know, what can happen in terms of deferrals or slip-outs or however you want to call it in any given quarter, that tends to be what we’re talking about. That work will be in our backlog or a portion of it will be in our backlog for several years as we go through more detailed engineering. We go through the procurement process and ultimately the build process with our customers.

I think an area that you referenced that we are excited about, although it’s not necessarily material to our business today, is the evolution within SMR technology and really the need to see this technology be commercialized. We are working with a handful of technology developers within the SMR space. We do have a couple of prototype orders that are currently in our backlog. They are not incredibly material. They’re not material, I should say. They’re indicative of the fact that we are active in the space. We’re devoting resources within Flowserve to this. We do have a resident nuclear expert to help us with our relationships with customers, with engineering and design firms, as well as governmental agencies to the extent that that’s necessary, and obviously end users.

As we think about our nuclear offering, we’re working more and more to think about that holistically as a nuclear offering within pumps, valves, and seals rather than this pump order and this valve order. We’re really trying to think about what do our customers need and want in this space.

Sari Borditzky, Client Multi-Industrialist, Trefries: One more on demand before we get to margins. The Middle East has been a growth engine for a bit. I think last year was a little bit larger projects. This year, more medium. Where are we in that investment cycle?

Amy, CFO, Flowserve: Yeah, I think we still have some runway to grow in the Middle East. The way that I think about this internally and why I’m a big supporter of this is for the exact reason that we talked about earlier about the relationship between install base and aftermarket. I think today from an OE perspective, the Middle East, our projects are skewed towards the Middle East versus other regions of the world. I think that represents tomorrow’s aftermarket. We’ve positioned ourselves well in terms of both our ability to provide in Saudi, for example, in kingdom content. We also have established QRCs in region to allow us to support that install base going forward. I think we’ve got a couple more years at least of growth, and then a number of years of aftermarket resiliency in the region.

You commented on project size, and I think that’s a great summary of it. We were seeing somewhat of the mega projects two, three years ago in the Middle East, and now those projects are moderating in size. Last year, we were seeing between the $50 million and $100 million. Now I think that $30 million to $50 million is kind of more of where we expect to see projects. I think you referenced earlier what do we think of project size. I think that those projects are actually better for us to manage internally, don’t require quite the infrastructure that, for example, a $240 million order did that we worked through over the last couple of years. We feel pretty good about our positioning.

Sari Borditzky, Client Multi-Industrialist, Trefries: When does that switch then? When does the Middle East become more aftermarket than OE?

Amy, CFO, Flowserve: The aftermarket cycle actually begins very early. I don’t know about when that tipover point will be when we see that shift happen. Most sites, before most assets even begin to actually churn out product or commissioning, are putting spare parts in the warehouse. The ability to kind of supply those parts, supply replacements and components can happen before an asset is even placed into service. One of the things that we try and do, and a benefit of having a leader in pumps that looks over both original equipment and aftermarket, is it creates a link between those two businesses, which means that as we’re delivering original equipment, we’re also on the ground with our aftermarket team trying to make things as easy as possible for our customers, for us to be first in mind when those parts orders need to come.

Sari Borditzky, Client Multi-Industrialist, Trefries: Makes sense. Let’s get into the work you’ve done to improve margins. I think all products are now utilizing 80/20. How are you assessing the margin impact of 80/20 today? How does it impact growth and margins as we go forward?

Amy, CFO, Flowserve: Yeah, so 80/20 has been a huge lever for us. I think we understood as we put out our 2027 financial targets that portfolio management needed to be a big element of this. We weren’t quite sure how to do that at the time. We knew that product rationalization was important. 80/20 has really given us a framework to use a data-driven approach to manage the portfolio. I’ve said this several times as I’ve talked to people today that this is really a process, not a project. It’s a tool that’s in the kit of our business leaders to say this is how we manage the portfolio going forward. Process adherence is managed and reviewed in terms of what that looks like.

We thought going into 2025, because we had only really launched two to three of our, I’ll say, two and a half of our business units going into 2025, that the impact to revenue was going to be negligible and that we’d see probably about 50 basis points of margin expansion as a result. The improvement has been more significant than that. As we look at our margin performance over the course of the year, where we’re at on a year-to-date basis and where we expect to be, which is right around 200 basis points of operating margin improvement, about half of that, so 100 basis points, has come from 80/20. It’s been a very effective tool for us.

I think overall that pace of improvement is something that we should expect, or at least I should demand of the business units going forward in terms of what can be accomplished. I will say because of some of the rapid implementation, I think that it’s perhaps been a slightly heavier revenue headwind than we might have anticipated before we started the process. I think it’s because some of the more commercial elements of the process in terms of expanding business with larger customers and that differentiated treatment can take longer to pay dividends. The other thing is some of the pricing components of 80/20 take a little bit more time to put in place. This idea around, for those familiar with 80/20, of this quad four pricing increases, it takes some time to get as aggressive as you can be with those pricing increases.

I think we’re in earlier innings on that on the revenue side of 80/20 than where we might eventually land.

Sari Borditzky, Client Multi-Industrialist, Trefries: You’ve done a lot of work with the operations with 80/20 or operations team. What about on the sales side? How have you aligned them to adhere to the 80/20?

Amy, CFO, Flowserve: Yeah, so in addition to where we’re at with the Flowserve business system, it includes an operational excellence pillar, which was the first thing that we sort of launched internally and started to deliver some of the margin expansion that we’ve seen. We launched 80/20 as part of our portfolio pillar. Given what we’ve seen and the tendency for businesses that adopt 80/20 to see some headwinds with respect to revenue, we’ve launched a commercial process pillar as well, which is commercial excellence. There’s a number of things that we’re focused on with commercial excellence. The three pilots include areas around cross-selling, which include improving the data that’s available to our sales team in order to identify opportunities where we might be able to cross-sell.

For example, seals to customers who use our ANSI pumps as an example of cross-selling, or automation valves to a customer that utilizes our isolation valves, for example, in the mining industry. Those are some of the cross-selling opportunities that we see over time. That’s actually two of the pilots. We have another pilot around business development efforts for our industrial products to make sure that we’re identifying the right opportunity set. A piece that we are looking at going into 2026 is actually how do we align incentives to both what we’re trying to do from a strategy perspective and what is happening from an 80/20 perspective.

The idea is really around benefits coming from selling to our strategic customers with strategic products and almost a detractor coming from selling those products that we either want inside sales to be focused on or ones that are not providing as much benefit to the overall portfolio.

Sari Borditzky, Client Multi-Industrialist, Trefries: This will be something that happens next year.

Amy, CFO, Flowserve: That’s right. I would say overall, if I look at the cadence of the Flowserve business system, I think 2023 and 2024, a lot of the story was about operational improvements and operational excellence. I think we’ve been building on that in 2025 with 80/20 and management of the portfolio. I think in 2026, you start to blend in some growth aspects around commercial excellence and what we can do to enhance that margin expansion through growth of the top line.

Sari Borditzky, Client Multi-Industrialist, Trefries: Putting this all together into margins, I think you’ve increased gross margins for seven consecutive quarters. How should we think about continued expansion and the contribution from the Flowserve business system, 80/20 mix, operating leverage, all those pieces?

Amy, CFO, Flowserve: Yeah, I think that extremely proud of the fact that the playbook that has been given to the teams, that the execution is taking place. I think it builds a great deal of confidence within the organization that more is possible. I said earlier to someone, I think the great thing is, I look, for example, at FPD margins. I think they can be higher, and I think the FPD team does as well, which oftentimes in my role, you need to convince before you can get the results that you want to see. It’s fantastic to see the level of conviction and confidence that the playbook is adding to the organization. I think about it in two components.

As we look at the FPD segment where we’ve seen the most margin improvement over the last several years, I think that we are probably at an inflection point where we’re going to start to see more margin expansion possible through 80/20 and through expansion of the top line around commercial excellence. Operations need to continue to stay steady and look at incremental improvement. I think that we’ve made a lot of the hard moves necessary on the operational side. As we look at our valves portfolio and FCD, I think we’ve got a little bit more room to run with both of those initiatives. Groundwork has been laid within FCD in terms of some footprint moves that have been made over the last couple of years. We’re starting to see improvements in our organic piece of the business.

As we bring the MOGUS acquisition into our business system, I think that’s going to add up to operational improvements that are on par with the opportunities that we have with 80/20. I think the goal is that overall this business is expanding margins, but we’re expanding margins that are at similar levels for the two platforms.

Sari Borditzky, Client Multi-Industrialist, Trefries: The next few questions.

Amy, CFO, Flowserve: It’s good to talk too much. I’m sorry.

Sari Borditzky, Client Multi-Industrialist, Trefries: You currently have a strong balance sheet. I think under 1.5 times net debt to EBITDA. Given this and the $266 million inflow from the break fee, how are you thinking about capital deployment?

Amy, CFO, Flowserve: Scott and I are thrilled to be thinking about capital deployment through improved cash generation. I think right now we’re at a point, obviously, our investors were patient with us this summer as we explored very publicly a large transformational transaction. We were disappointed that that didn’t come to fruition. Ultimately, the merger with Chart Industries was an opportunity. It was not a must-have. We like our story internally. We think over time that M&A has a place in our playbook. That means that we’ll use M&A smartly to diversify, to meet our strategy of diversification, decarbonization, and digitization. We think it can be a lever to expand margins and cash flow. I think importantly, the strong balance sheet you referenced, we think it matters. We think it matters to investors. We think it matters to our customers. We are protective of that.

As we look at M&A right now, we think there may be more attractive options in the company that we know best in terms of deploying cash flow more quickly in the form of shareholder returns. I would say at a minimum, anything that we look at from an inorganic perspective, we have the opportunity to take a step back and say what makes more sense to our shareholders from a financial decision and whether or not that is in the form of share buybacks or M&A. I think there’s probably a bit of a dissection here between how we’re thinking about it today versus how we might think about it in 6 to 12 months.

Sari Borditzky, Client Multi-Industrialist, Trefries: Maybe sticking with just Chart aftermath, I think you have a secured supply agreement to capitalize on some of the revenue synergies that you guys were excited about. Could you just provide more color on that and what that adds to the company?

Amy, CFO, Flowserve: Sure. I would say just start by the general caveats that supply agreements require performance from us. We obviously have details that need to be put in place between the companies. Overall, some of these opportunities that we had do not require that we operate as one company to get. Some of the revenue synergies that we talked about over the course of the transaction, including opportunities, for example, with Houden compressors to utilize Flowserve mechanical seals, are an element of the supply agreement that we are seeking. They were obviously purchased by a company that does have valves in their portfolio, but there are areas where our portfolio doesn’t overlap. We look for some opportunities in the valves portfolio to supplement what might be an internal supply chain going forward.

Lastly, in an area that we’re pretty excited about is a new product development in the cryogenic area around a cryogenic pump for an LNG application. That pump is going to go into commercialization, is being commercialized late this year. It’s something that we thought that together we had a better opportunity to gain market acceptance. I think that that’s an area that we’re going to look for help from the supply agreement.

Sari Borditzky, Client Multi-Industrialist, Trefries: You mentioned the 3D strategy. I think bookings there represented more than 25% of your overall bookings in the last quarter. Just maybe some color on the mix of those projects. I think you removed LNG and decarbonization commentary from the recent deck. Maybe that’s a little too specific, but I’m just curious what you’re seeing in those markets.

Amy, CFO, Flowserve: Yeah, decarbonization has been an area of real success for us, I would say, in the 3D strategy, and in part due to the nuclear renaissance in terms of what we’ve seen. We’ve been pleased with our ability to drive 3D bookings. I would say it’s been much stronger on the decarbonization side than the bookends. It is something that we continue to focus on internally. We are very excited about the MOU that we’ve signed in recent months with Honeywell to explore partnership around our Red Raven product and their Honeywell Forge system. I think that digitization is an area that although we’re not seeing significant impact today from a revenue or a margin perspective, it continues to be something that we want to explore. We think that we’ve got sort of a unique type of domain expertise as we look at our customer installations around the world.

As we really take a step back and study what we were trying to accomplish with Red Raven, the monitoring capability is important. A lot of service providers can provide the monitoring. The question is, what can you do with the data once you have it? I think a partnership like this may be an opportunity for us to think about that commercialization broadly and actually look for a monetization stream that is more tied to what is special to Flowserve versus what others can do. I think that additionally, digitization really gives us a great view to expand the aftermarket. If we know what the bad actors are in a particular installation, if we know what the assets are that are going to need maintenance sooner, it allows us to serve our customers better.

Sari Borditzky, Client Multi-Industrialist, Trefries: That’s that. We’re timed, so thank you so much for joining us today.

Amy, CFO, Flowserve: Thanks for having me.

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