Flow control equipment manufacturer Flowserve (NYSE:FLS) missed Wall Street’s revenue expectations in Q2 CY2025 as sales rose 2.7% year on year to $1.19 billion. Its non-GAAP profit of $0.91 per share was 16.7% above analysts’ consensus estimates.
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Flowserve (FLS) Q2 CY2025 Highlights:
- Revenue: $1.19 billion vs analyst estimates of $1.23 billion (2.7% year-on-year growth, 3.1% miss)
- Adjusted EPS: $0.91 vs analyst estimates of $0.78 (16.7% beat)
- Management raised its full-year Adjusted EPS guidance to $3.33 at the midpoint, a 3.9% increase
- Operating Margin: 12.3%, up from 10.5% in the same quarter last year
- Free Cash Flow was $137.5 million, up from -$27.46 million in the same quarter last year
- Backlog: $2.85 billion at quarter end, up 6.3% year on year
- Market Capitalization: $7.17 billion
“Our strong second quarter results reflect the successful ongoing execution of our 3D strategy and the Flowserve Business System. We delivered another quarter of sales and earnings growth while also expanding margins, reflecting the resilience of our business model and progress on our operating initiatives. With the Flowserve Business System firmly established across the organization, we recently went live with our commercial excellence pillar to complement our 80/20 program and drive outsized growth, leveraging the optimized portfolio and delivering the best value to our customers,” said Scott Rowe, Flowserve’s President and Chief Executive Officer.
Company Overview
Manufacturing the largest pump ever built for nuclear power generation, Flowserve (NYSE:FLS) manufactures and sells flow control equipment for various industries.
Revenue Growth
Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Unfortunately, Flowserve’s 3.7% annualized revenue growth over the last five years was sluggish. This fell short of our benchmark for the industrials sector and is a rough starting point for our analysis.
We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Flowserve’s annualized revenue growth of 8.1% over the last two years is above its five-year trend, suggesting some bright spots. 
Flowserve also reports its backlog, or the value of its outstanding orders that have not yet been executed or delivered. Flowserve’s backlog reached $2.85 billion in the latest quarter and averaged 1.6% year-on-year growth over the last two years. Because this number is lower than its revenue growth, we can see the company fulfilled orders at a faster rate than it added new orders to the backlog. This implies Flowserve was operating efficiently but raises questions about the health of its sales pipeline. 
This quarter, Flowserve’s revenue grew by 2.7% year on year to $1.19 billion, falling short of Wall Street’s estimates.
Looking ahead, sell-side analysts expect revenue to grow 6.9% over the next 12 months, similar to its two-year rate. This projection is underwhelming and indicates its products and services will face some demand challenges.
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Operating Margin
Flowserve has done a decent job managing its cost base over the last five years. The company has produced an average operating margin of 8.5%, higher than the broader industrials sector.
Analyzing the trend in its profitability, Flowserve’s operating margin rose by 2.4 percentage points over the last five years, as its sales growth gave it operating leverage.
In Q2, Flowserve generated an operating margin profit margin of 12.3%, up 1.9 percentage points year on year. Since its gross margin expanded more than its operating margin, we can infer that leverage on its cost of sales was the primary driver behind the recently higher efficiency.
Earnings Per Share
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 an unimpressive 7.4% compounded annual growth rate over the last five years. On the bright side, this performance was better than its 3.7% annualized revenue growth and tells us the company became more profitable on a per-share basis as it expanded.
Diving into the nuances of Flowserve’s earnings can give us a better understanding of its performance. As we mentioned earlier, Flowserve’s operating margin expanded by 2.4 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its higher earnings; interest expenses and taxes can also affect EPS but don’t tell us as much about a company’s fundamentals.
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 31.8% was higher than its five-year trend. This acceleration made it one of the faster-growing industrials companies in recent history.
In Q2, Flowserve reported EPS at $0.91, up from $0.73 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 $2.85 to grow 20.4%.
Key Takeaways from Flowserve’s Q2 Results
We were impressed by Flowserve’s optimistic EPS guidance for next quarter, which blew past analysts’ expectations. We were also glad its full-year EPS guidance trumped Wall Street’s estimates. On the other hand, its revenue missed and its backlog fell short of Wall Street’s estimates. Zooming out, we think this was a mixed quarter. The stock traded up 5.9% to $58.13 immediately following the results.
Is Flowserve an attractive investment opportunity right now? If you’re making that decision, you should consider the bigger picture of valuation, business qualities, as well as the latest earnings. We cover that in our actionable full research report which you can read here, it’s free.