Flowserve (FLS) Stifel 2024 Cross Sector Insight Conference summary

Margin improvement and operational strategy

• Operational excellence and product management initiatives are driving margin improvement, with a target of 14%-16% operating margins seen as sustainable through the cycle, not just peak levels.

• Product management reorganization across seven business units has created clear accountability for growth and margin improvement, with aggressive portfolio optimization underway.

• Selective bidding on large projects ensures only high-margin opportunities are pursued, supporting strong incremental margins and a healthy project pipeline.

• Margins in backlog are currently better than realized margins, reflecting improved pricing discipline.

Market diversification and growth drivers

• The three-pronged strategy focuses on diversification, decarbonization, and digitization to reduce cyclicality and drive long-term growth.

• Expansion into less cyclical markets like water, chemicals, mining, and power is underway, with power demand rising due to electrification and data centers.

• Nuclear power is a significant growth area, with a strong installed base and new build activity in Europe and Asia, plus life extension projects in mature markets.

• Middle East and Latin America continue to see strong investment in oil, gas, and refining, though a slowdown is expected in the Middle East in 3-5 years.

Decarbonization and energy transition

• Decarbonization and new energy projects are growing 15%-20% annually, with a 25% year-on-year forward funnel, driven by carbon capture, energy efficiency, and asset conversions.

• Existing refineries are investing in biodiesel conversions, carbon capture, and energy efficiency, creating multiple touchpoints for new products and services.

• Hydrogen and concentrated solar power are emerging opportunities, though hydrogen adoption is progressing slowly.