Flowserve 4Q15 Earnings Call Notes

Mark Blinn

The downturn was more severe and widespread than originally anticipated

“The downturn in our served markets during 2015 was more severe, widespread and persistent than we and the industry at larger originally anticipated a year ago. The sharp declined that began in upstream oil and gas spread across the industrial complex as year progressed. ”

End markets are sound though cyclically challenged

“As we look to the future, global macro fundamentals suggest that Flowserve’s end markets will continue their longer term secular growth patterns confirming we serve the right strategic industries. Population growth in an emerging middle class will drive energy demand. And aging infrastructure in energy, power, chemical and general industries will require refurbishment or replacement. Our end markets are inherently sound over the long run. Although, they are currently cyclically challenged.”

There is a building tailwind the longer maintenance is delayed

“And while we won’t predict the timing, we do realize there is a building aftermarket tailwind coming from last year’s deferred maintenance activities. As we’ve seen in the past, the longer facilities continuously run, the greater the workload is available to us when customers do catch up. ”

Near term market visibility will remain limited

“In closing, Flowserve expects near term market visibility to remain limited as customers calibrate around the persistent macro uncertainties. We expect this will result in continued delays in investment decision. However, as you have heard the near term market challenges provide us the opportunity to focus on cost take out, our operational performance and growth opportunities while remaining disciplined in our bidding. ”

Engineering projects do get pushed out

“our business primarily in EPD is what you call late cycle. And as we talked about before and you started to see this happen in the middle part of 2014, they start to curtail their CapEx expenditures, you’ve seen this with the multinationals trying to protect their dividend. And the fact is as those things can go off the drawing board, get pushed a little bit and they don’t come back real quick from — primarily from the multinationals so they don’t decide necessarily over night to bring it back online.”

CHina isn’t necessarily the only low cost manufacturing area since labor rates have gone up

“part of what we’ve been working on over the last couple of years through the LPO/SPO strategy is working with our customers to qualify some of the manufacturing in low cost parts of the world. And don’t just mention China because labor rates are gone up quite a bit there. We are talking about various parts of the world, India, Mexico. But the other thing to remember with our customers as well is often times they want to deal with the OECD facilities”

Karyn Ovelmen

Latin America is most challenged region

” Latin America, our most challenged region throughout 2015 remains extremely soft with delays occurring in nearly all projects with our important customers in Brazil, Venezuela and Argentina. Considering the quarterly volatility in our served end markets and region we experienced this year, our visibility heading into 2016 remains limited”