Flowserve Corporation (FLS) | The Buildout — AI Infrastructure
The Verdict
Flowserve makes the pumps, valves, seals and automation that keep fluids moving through heavy industry - power generation, energy, chemicals, water and pharmaceuticals - and then services that installed base through a network of quick-response centers. In the AI build-out its role is indirect and second-order: more electricity demand means more traditional and nuclear power generation, and power generation is one of its four disclosed end markets. The company does not present itself as an AI supplier, names no AI customer and discloses no AI-attributed revenue. Any linkage is an analyst inference, not management's claim.
| Market Cap | — |
| Revenue (TTM) | $4.6B |
| Revenue Growth | −0.3% |
| EBITDA Margin (TTM) | 14.9% |
| Net Debt | $1.6B |
| Earnings Beats | 5 of 7 |
| P/E (TTM) | — |
| EV/EBITDA (TTM) | — |
What We Like
- Aftermarket bookings have run above $600M for nine consecutive quarters, reaching a record $696M in Q2 FY2026, up 12% yoy. Management calls $600M-$650M an entitlement floor and says aftermarket will always be more accretive than original equipment.
- Adjusted operating margin has expanded from 9.5% in 2023 to an expected roughly 16% in 2026, on the way to a 2030 target of 20%. Q2 FY2026 was the 14th consecutive quarter of year-over-year adjusted gross margin expansion.
- Bookings swung from -6% yoy in Q1 FY2026 to +26% in Q2, at a book-to-bill of 1.15x. Management says all end markets grew in Q2 both year-over-year and sequentially.
- Nuclear bookings exceeded $110M in each of Q1 and Q2 FY2026, with first-half awards up 34%. Management puts content at roughly $100M per reactor organically and ~$115M with Trillium.
- Q2 FY2026 free cash flow was 92% of adjusted net earnings against a full-year target of ~90%, and net leverage was 1.8x after the $490M Trillium acquisition.
What We’re Watching
- Middle East sales are down about $60M year to date, with the run-rate business down about 20%. Guidance assumes no improvement in the region, so further deterioration is unguided downside.
- The second-half organic ramp to roughly 5% depends on backlog conversion and on the book-and-ship business, which management names as the one thing that could disrupt the Q3 or early Q4.
- FCD adjusted operating margin was 12.6% in Q2 FY2026 against FPD's 21.3%. The company says FCD would have improved more than 100 bps absent the Middle East.
- Trillium closed 2026-06-30 and management has already flagged a 2027 sales headwind from 80/20 actions, with no synergy figure disclosed across either call.
The operating story is holding and the revenue story is not. Margins, bookings and cash generation all improved in Q2 FY2026, and the margin and cash-conversion guides were held through two cuts to the sales line - a cut sales, hold margin, nudge EPS pattern that repeated twice. Against that: revenue has fallen year over year in both quarters of FY2026, the second-half ramp is concentrated in Q4 and depends on short-cycle shipments management itself names as disruptable, and the largest stated opportunity in the Middle East is explicitly unsized. The open question is whether the sales shortfall is a Middle East event plus a self-inflicted 80/20 roll-off, or whether the gap between bookings strength and revenue conversion has become structural.
Earnings Beat
In Q2 FY2026, the quarter ended June 30, 2026, Flowserve reported sales of $1.2B, down 2% year over year and down 3% organically. Adjusted gross margin was 35.9%, up 100 basis points on that basis and the 14th consecutive quarter of year-over-year expansion, while adjusted operating margin was 15.3%, up 70 basis points, and adjusted EPS was $0.95, up 4%. The standout line was bookings of $1.35B, up 26% year over year at a book-to-bill of 1.15x, including record aftermarket bookings of $696M.
| Metric | Q2 FY2026 | Q1 FY2026 | Q2 FY2025 | YoY |
|---|---|---|---|---|
| Revenue | $1.2B | $1.1B | $1.2B | −1.6% |
| Gross margin | 32.9% | 37.1% | 34.7% | -180bps |
| EBITDA | $176M | $170M | $168M | +4.6% |
| EPS | $0.77 | $0.64 | $0.62 | +24.0% |
| Bookings | $1.35B | $1.15B | n/a | +26% |
| Aftermarket bookings | $696M | $680M | n/a | +12% |
we're now in the ninth consecutive quarter greater than $600 million. And so I think we kind of established a floor here, $600 million, $650 million is kind of what we think is our entitlement, and we really want to grow on the back of that.— Robert Rowe, President and Chief Executive Officer, 2026-07-30
Management tone: Management's framing moved up a level between the two calls. Q1 FY2026 was presented as "resilience in a highly dynamic environment," with sales guidance lowered and EPS and margin reaffirmed. On the Q2 FY2026 call, after cutting the organic sales guide a second time, the CEO opened that he could not be more pleased with the quarter and the last several years, and the company said it was "gaining momentum and confidence" in its long-term 2030 financial targets. Management also stated that guidance assumes no Middle East recovery and pre-announced a 2027 Trillium sales headwind from 80/20 actions.
Management Guidance
For FY2026, management guides organic sales growth down approximately 1% and total sales growth approximately 3%, which includes roughly 300 bps of net benefit from acquisitions and divestitures and about 100 bps of FX. Adjusted EPS is guided to $4.05-$4.20 and adjusted operating margin expansion to approximately 100 bps. Free cash flow conversion is held at approximately 90% of adjusted net earnings, and organic bookings growth is reaffirmed at mid-single digits with the company at 8% year to date. For the second half, organic sales growth of approximately 5% is expected. Q3 FY2026 is guided to roughly flat organic sales, mid-single-digit total sales growth, adjusted operating margins expanding modestly from Q2, and net earnings similar to Q2 including a higher tax rate. The guidance assumes conditions in the Middle East continue without improving and tariff rates as in place as of April 2026. Middle East rebuild is sized at approximately $50M of incremental bookings in late 2026 and into 2027.
Trajectory
Revenue has fallen year over year in both quarters of FY2026 and the decline is named and quantified. Q2 FY2026 reported sales were down 2% with organic down 3%, which management walks as 1 point of underlying growth less about 2 points of Middle East headwind and about 2 points of 80/20 portfolio actions. Margins have moved the other way: adjusted operating margin was 15.1% in Q1 and 15.3% in Q2, expanding 230 bps and 70 bps respectively on falling sales, and trailing-twelve-month EBITDA is $691.1M, 14.9% of revenue. The forward shape is a second-half organic ramp to roughly 5% that management says is backlog-supported, with Q3 roughly flat and Q4 carrying the step-up.
The Model
The model projects FY+1 revenue of $4,875M with EBITDA of $863M, a 17.7% margin, and FY+2 revenue of $5,205M with EBITDA of $973M, an 18.7% margin. The near-term anchor is the backlog, which grew 9% year over year excluding Trillium, plus a second-half organic ramp of roughly 5% that guidance says is backlog-supported and an aftermarket line management describes as running above a $600M-$650M floor. FY+2 depends on converting nuclear awards into revenue at roughly $100M-$115M of content per reactor, on Trillium margin enhancement as 80/20 actions work through, and on continued progress toward the company's 20% adjusted operating margin target for 2030.
| Metric | FY2025 | Next FY (E) | Following FY (E) |
|---|---|---|---|
| Revenue | $4.7B | $4.9B | $5.2B |
| YoY Growth | — | +3.1% | +6.8% |
| EBITDA | $673M | $863M | $973M |
| EBITDA Margin | 14.2% | 17.7% | 18.7% |
Projections are the median of 5 independent model runs. The model’s revenue sits 0.3% above analyst consensus.
For FY2026, management guides organic sales growth down approximately 1% and total sales growth approximately 3%, which includes roughly 300 bps of net benefit from acquisitions and divestitures and about 100 bps of FX. Adjusted EPS is guided to $4.05-$4.20 and adjusted operating margin expansion to approximately 100 bps. Free cash flow conversion is held at approximately 90% of adjusted net earnings, and organic bookings growth is reaffirmed at mid-single digits with the company at 8% year to date. For the second half, organic sales growth of approximately 5% is expected. Q3 FY2026 is guided to roughly flat organic sales, mid-single-digit total sales growth, adjusted operating margins expanding modestly from Q2, and net earnings similar to Q2 including a higher tax rate. The guidance assumes conditions in the Middle East continue without improving and tariff rates as in place as of April 2026. Middle East rebuild is sized at approximately $50M of incremental bookings in late 2026 and into 2027.
What Could Go Right — and Wrong
- The Middle East run-rate business recovers from down about 20%; guidance assumes no improvement, so a recovery would be additive to the sales line and would land in the short-cycle book-and-ship work.
- The Middle East redundancy opportunity gets sized or produces a named award. Management calls it "the biggest prize" and has declined to give an estimate; the stated window is 2027-2030 and the work sits mainly in FCD.
- Nuclear awards keep landing - including new large reactors in Asia and several North American life extensions - and could convert into revenue well beyond the roughly $100M a quarter the company books today.
- FCD narrows part of its margin gap to FPD, from 12.6% against 21.3% in Q2 FY2026, as Middle East volume returns and the two FCD consolidations annualize.
- Free cash flow conversion holds near the 90% target and net leverage stays around 1.8x, leaving room for the further portfolio moves management says are still coming.
- The Middle East disruption persists or worsens. Guidance embeds no recovery, so any further deterioration flows straight through to the full-year numbers.
- The second-half ramp misses. Q3 is guided roughly flat and Q4 carries the step-up, and management names the book-and-ship business as the one thing that could disrupt it in Q3 or early Q4.
- FCD does not recover and Trillium's 80/20 actions remove revenue on top of it. About 85% of Trillium lands in FCD, and a 2027 sales headwind there has already been flagged.
- Large projects slip from 2026 into 2027. Management says there is further potential for that, and most second-half Middle East project bookings are not expected to convert to sales this year.
- Working capital stays tied up. Slowed Middle East shipments and elongated customer payment cycles held inventory turns at 3.3x versus 3.6x a year earlier.
Looking Ahead
Over the next twelve months the story turns on three things the company has dated. The second half of FY2026 has to deliver the roughly 5% organic sales growth management says is backed by a backlog that grew 9% year over year excluding Trillium, with Q3 guided roughly flat and Q4 carrying the step-up. Middle East rebuild should begin showing up as approximately $50M of incremental bookings in late 2026 and into 2027, and Trillium's first full quarters should clarify both the margin enhancement management expects into 2027 and the size of the 80/20 sales headwind it has already flagged. Behind those sit the 2030 targets - 20% adjusted operating margin and mid-single-digit organic growth - which management keeps returning to.
- Q3 2026Third-quarter results — Tests roughly flat organic sales and whether the Q4 step-up holds.
- 2026-10-01CFO transition — Brian Ezzell becomes SVP and CFO, succeeding Amy Schwetz.
- Q3 2026Valves divestiture closes — Small valves product line expected to close; PMV Automation sold.
- During 2026European reactor awards — Q1 pointed to new-reactor awards in Europe; Q2 did not confirm.
- Late 2026 into 2027Middle East rebuild bookings — ~$50M of incremental bookings expected; management says it may go up.
- 2027-2030Middle East redundancy sizing — Unsized opportunity in pipelines, storage and incremental capacity.
Financials
Annual Summary
| Metric | FY2024 | FY2025 | TTM | YoY |
|---|---|---|---|---|
| Revenue | $4.6B | $4.7B | $4.6B | +3.8% |
| Gross Margin | 32.1% | 34.6% | 35.1% | +243bps |
| EBITDA | $587M | $673M | $691M | +14.7% |
| EBITDA Margin | 12.9% | 14.2% | 14.9% | +136bps |
| Net Income | $283M | $346M | $371M | +22.5% |
| Free Cash Flow | $344M | $435M | $411M | — |
| Net Cash | — | — | — | — |
Key Ratios (Trailing)
- P/E TTM—
- EV/EBITDA TTM—
- EV/Revenue TTM—
- Price/FCF TTM—
- Gross Margin (TTM)35.1%
- EBITDA Margin (TTM)14.9%
- Net Margin (TTM)8.0%
- ROIC12.2%
- FCF Conversion59.5%
- SBC / Revenue0.6%
The Company
Flowserve's own 10-K description is "a world-leading manufacturer and aftermarket service provider of comprehensive flow control systems." It makes precision-engineered equipment that moves, controls and protects the flow of materials in customers' critical processes: pumps, mechanical seals and auxiliary systems in the Flowserve Pumps Division, and isolation valves, control valves and valve automation products in the Flow Control Division. End markets are energy, chemical, power generation and general industries including water management and pharmaceuticals. The reason this matters to the AI build-out is narrow and second-order: power generation is one of those end markets, and power bookings grew 39% in Q2 FY2026 on nuclear and traditional generation.
The company runs in two reporting segments and leans on a large installed base. FPD is described in the 10-K as "our largest business segment" and designs, manufactures, pretests, distributes and services engineered and pre-configured pumps, seals and auxiliary systems; FCD designs and distributes engineered-to-order and configured-to-order valves and valve automation. Roughly 43% of backlog is aftermarket, and the aftermarket is the higher-margin, recurring half of the business, serviced through a quick-response center network and a dedicated aftermarket organization created in 2023. Management says its facilities "are performing at the highest levels in Flowserve history" and is consolidating its roofline. The evidence set names no plant sites, square footage or capacity figures.
Business Segments
Competitive Landscape
The 10-K names the competitive set explicitly. In pumps and seals it lists Sulzer Pumps, Ebara, Eagle Burgmann, John Crane (a unit of Smiths Group), Weir Group, ITT Industries and KSB. In valves it lists Emerson Electric, Cameron International (a Schlumberger company), Baker Hughes, Rotork, Valmet, IMI and Crane. Competitors' own filings also name Flowserve: Baker Hughes lists "Sulzer, Flowserve, and Emerson" among its competitors, Ingersoll Rand names Flowserve among its compression competitors, and Honeywell names it among its Energy and Sustainability Solutions competitors. Management's own claim to differentiation is installed base and service proximity in the Middle East, where it says it has "probably more pumps than any other provider in the world across the various countries in the region." Peers in the same chain run higher margins in overlapping categories - the evidence carries Baker Hughes IET at 20.6%, Emerson segment EBITDA at 28.5%, Honeywell at 19%, Crane adjusted operating at 21.3% and Ingersoll Rand PST at 31.5%, against Flowserve's 15.3% adjusted operating and FCD's 12.6% - though the mixes differ.
- Sulzer PumpsNamed in the 10-K list of largest pumps and seals competitors; also named by Baker Hughes in its own competitor list. Not discussed further in the evidence.
- Emerson ElectricNamed in the 10-K list of largest valve competitors and also by Baker Hughes as a competitor; appears in the supply-chain wiring as both a customer and a supplier. Not discussed further.
- Baker HughesNamed in the 10-K valve competitor list. Baker Hughes' own filing lists "Sulzer, Flowserve, and Emerson" among its IET competitors, and its latest quarter showed record IET orders of $7.1B, up 100% yoy, at 2.2x book-to-bill and a 20.6% IET margin.
- ITT IndustriesNamed in the 10-K list of largest pumps and seals competitors. Not discussed further in the evidence.
- KSB SE & Co. KGaANamed in the 10-K list of largest pumps and seals competitors. Not discussed further in the evidence.
Supply Chain
Flowserve sits between metals and castings suppliers and heavy-industry operators, buying steel and specialty alloys and selling pumps and valves into power, energy and chemical plants. No supply relationship is documented: the 10-K's supply-risk extract is empty, and every named supplier comes from the wiring file's product tags.
More on FLS: Earnings recap