Flowserve (FLS)

Flow control equipment manufacturer Flowserve (NYSE:FLS) fell short of the market’s revenue expectations in Q4 CY2025 as sales rose 3.5% year on year to $1.22 billion. Its non-GAAP profit of $1.11 per share was 18.4% above analysts’ consensus estimates.

Company Overview

Manufacturing the largest pump ever built for nuclear power generation, Flowserve (NYSE:FLS) manufactures and sells flow control equipment for various industries.

Gas and liquid handling companies possess the technical know-how and specialized equipment to handle valuable (and sometimes dangerous) substances. Lately, water conservation and carbon capture–which requires hydrogen and other gasses as well as specialized infrastructure–have been trending up, creating new demand for products such as filters, pumps, and valves. On the other hand, gas and liquid handling companies are at the whim of economic cycles. Consumer spending and interest rates, for example, can greatly impact the industrial production that drives demand for these companies’ offerings.

Competitors offering similar products include Emerson Electric (NYSE:EMR), ITT (NYSE:ITT), and Grundfos (private).

A company’s long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Over the last five years, Flowserve grew its sales at a tepid 4.9% compounded annual growth rate. This wasn’t a great result compared to the rest of the industrials sector, but there are still things to like about Flowserve.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Flowserve’s annualized revenue growth of 4.6% over the last two years aligns with its five-year trend, suggesting its demand was consistently weak.

We can better understand the company’s revenue dynamics by analyzing its backlog, or the value of its outstanding orders that have not yet been executed or delivered. Flowserve’s backlog reached $2.87 billion in the latest quarter and averaged 1.8% year-on-year growth over the last two years. Because this number is lower than its revenue growth, we can see the company hasn’t secured enough new orders to maintain its growth rate in the future.

This quarter, Flowserve’s revenue grew by 3.5% year on year to $1.22 billion, falling short of Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 5.2% over the next 12 months, similar to its two-year rate. This projection doesn't excite us and indicates its newer products and services will not accelerate its top-line performance yet. At least the company is tracking well in other measures of financial health.

Flowserve’s unit economics are better than the typical industrials business, signaling its products are somewhat differentiated through quality or brand.As you can see below, it averaged a decent 31.1% gross margin over the last five years. That means for every $100 in revenue, roughly $31.09 was left to spend on selling, marketing, R&D, and general administrative overhead.

In Q4, Flowserve produced a 34.8% gross profit margin, marking a 2.5 percentage point increase from 32.3% in the same quarter last year. Flowserve’s full-year margin has also been trending up over the past 12 months, increasing by 2.2 percentage points. If this move continues, it could suggest better unit economics due to more leverage from its growing sales on the fixed portion of its cost of goods sold (such as manufacturing expenses).

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Flowserve’s operating margin might fluctuated slightly over the last 12 months but has generally stayed the same, averaging 8% over the last five years. This profitability was higher than the broader industrials sector, showing it did a decent job managing its expenses.

Looking at the trend in its profitability, Flowserve’s operating margin might fluctuated slightly but has generally stayed the same over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

In Q4, Flowserve generated an operating margin profit margin of 3.5%, down 7.1 percentage points year on year. Conversely, its revenue and gross margin actually rose, so we can assume it was less efficient because its operating expenses like marketing, R&D, and administrative overhead grew faster than its revenue.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Flowserve’s EPS grew at a spectacular 14.9% compounded annual growth rate over the last five years, higher than its 4.9% annualized revenue growth. However, this alone doesn’t tell us much about its business quality because its operating margin didn’t improve.

We can take a deeper look into Flowserve’s earnings to better understand the drivers of its performance. A five-year view shows that Flowserve has repurchased its stock, shrinking its share count by 2%. This tells us its EPS outperformed its revenue not because of increased operational efficiency but financial engineering, as buybacks boost per share earnings.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For Flowserve, its two-year annual EPS growth of 29.8% was higher than its five-year trend. We love it when earnings growth accelerates, especially when it accelerates off an already high base.

In Q4, Flowserve reported adjusted EPS of $1.11, up from $0.70 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Flowserve’s full-year EPS of $3.54 to grow 14%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Flowserve has shown mediocre cash profitability over the last five years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 5.4%, subpar for an industrials business.

Taking a step back, an encouraging sign is that Flowserve’s margin expanded by 3.7 percentage points during that time. The company’s improvement shows it’s heading in the right direction, and we can see it became a less capital-intensive business because its free cash flow profitability rose while its operating profitability was flat.

Flowserve burned through $25.57 million of cash in Q4, equivalent to a negative 2.1% margin. The company’s cash flow turned negative after being positive in the same quarter last year, prompting us to pay closer attention. Short-term fluctuations typically aren’t a big deal because investment needs can be seasonal, but we’ll be watching to see if the trend extrapolates into future quarters.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Flowserve’s management team makes decent investment decisions and generates value for shareholders. Its five-year average ROIC was 10.3%, slightly better than typical industrials business.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Flowserve’s ROIC averaged 3 percentage point increases each year. This is a great sign when paired with its already strong returns. It could suggest its competitive advantage or profitable growth opportunities are expanding.

We were impressed by how significantly Flowserve blew past analysts’ backlog expectations this quarter. We were also glad its full-year EPS guidance exceeded Wall Street’s estimates. On the other hand, its revenue missed. Overall, we think this was a solid quarter with some key areas of upside. The stock traded up 2.4% to $80.87 immediately after reporting.

Updated: February 5, 2026 at 10:22 PM EST

A common mistake we notice when investors are deciding whether to buy a stock or not is that they simply look at the latest earnings results. Business quality and valuation matter more, so we urge you to understand these dynamics as well.

Flowserve isn’t a bad business, but we have other favorites. Although its revenue growth was uninspiring over the last five years, its spectacular EPS growth over the last five years shows its profits are trickling down to shareholders. Investors should still be cautious, however, as Flowserve’s backlog growth has disappointed.

Flowserve’s P/E ratio based on the next 12 months is 19.8x. While this valuation is fair, the upside isn’t great compared to the potential downside. We're pretty confident there are superior stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $82.20 on the company (compared to the current share price of $80.57).