FLS Q3 Deep Dive: Nuclear Power Momentum and Margin Expansion Shape Outlook

Flow control equipment manufacturer Flowserve (NYSE:FLS) missed Wall Street’s revenue expectations in Q3 CY2025 as sales rose 3.6% year on year to $1.17 billion. Its non-GAAP profit of $0.90 per share was 13.2% above analysts’ consensus estimates.

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StockStory’s Take

Flowserve’s third quarter results drew a positive response from the market, reflecting progress in margin expansion and continued growth in key business areas. Management pointed to robust aftermarket bookings and notable advances in the power and nuclear segments as major contributors. CEO Robert Rowe credited the “Flowserve Business System” and the company’s 80/20 complexity reduction program for driving higher adjusted gross margins despite ongoing project timing challenges in the energy sector. The quarter also saw increased cash generation, which enabled additional share repurchases and a strengthened balance sheet.

Looking ahead, Flowserve’s updated full-year guidance is anchored by confidence in nuclear power demand and ongoing operational improvements. Management emphasized anticipated double-digit growth in nuclear, citing Flowserve’s installed base in 75% of global reactors and high barriers to entry in this market. CFO Amy Schwetz noted that the recent divestiture of legacy asbestos liabilities will further simplify capital allocation, stating, “We now have more opportunities for capital allocation than ever before.” The company remains focused on capturing aftermarket growth, margin expansion, and leveraging its broad portfolio to support continued profitability.

Key Insights from Management’s Remarks

Management attributed the quarter’s performance to strength in nuclear project bookings, progress in aftermarket services, and successful execution of operational efficiency programs, while also addressing the impact of project mix shifts and selective bidding in large energy projects.

• Nuclear project momentum: Flowserve secured over $140 million in nuclear bookings, including two major European reactor awards, positioning the company to benefit from rising global investment in nuclear energy and life extension upgrades on existing plants.
• Aftermarket franchise resilience: The company reported its sixth consecutive quarter of aftermarket bookings exceeding $600 million, with management attributing this to strong asset utilization in power, refining, and desalination markets, as well as enhanced service offerings and proximity to customers.
• Operational improvements drive margins: The 80/20 complexity reduction program and Flowserve Business System contributed to a 240-basis-point increase in adjusted gross margins and improved working capital management, supporting higher cash flow conversion.
• Mogas integration and segment performance: The recently acquired Mogas business was fully integrated into Flowserve’s operations, helping drive margins in the Flow Control Division (FCD) and supporting 24% bookings growth in that segment, with synergies accelerating as legacy project challenges subsided.
• Portfolio simplification and capital allocation: Flowserve divested a small gear pump business and reached an agreement to transfer legacy asbestos liabilities, moves designed to streamline operations and enhance capital allocation flexibility for future growth investments and shareholder returns.

Drivers of Future Performance

Management expects continued strength in nuclear power and aftermarket services to drive growth, while operational discipline and selective bidding in large projects shape the margin outlook.

• Nuclear and power sector growth: Management anticipates double-digit growth in nuclear bookings, supported by investments in new reactors and life extension projects for existing nuclear facilities. Flowserve’s certifications and expertise create high barriers to entry, positioning the company to win a large share of an expected $10 billion nuclear flow control market over the next decade.
• Aftermarket and recurring revenue focus: The company sees ongoing strength in aftermarket demand as a stabilizing force for revenue, underpinned by high asset utilization across industrial sectors and targeted service expansion, helping to offset potential volatility in large engineered project timing.
• Margin expansion and cost control: Operational excellence initiatives, such as the 80/20 program and commercial excellence efforts, are expected to further improve margins and working capital, with management cautioning that shifts in project mix and tariffs could create cost pressures but are being actively managed through pricing discipline and process improvements.

Catalysts in Upcoming Quarters

Looking to future quarters, our team will closely watch (1) the pace of nuclear project bookings and Flowserve’s ability to capture new reactor and life extension work, (2) sustained strength and profitability in the aftermarket business, and (3) margin progression as operational excellence programs mature and synergies from recent acquisitions, such as Mogas, are realized. Execution on capital allocation and backlog conversion will also be important indicators.

Flowserve currently trades at $69.41, up from $52.65 just before the earnings. In the wake of this quarter, is it a buy or sell? Find out in our full research report (it’s free for active Edge members).

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