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What's in the Cards for Flowserve (FLS) in Q4 Earnings?

Flowserve Corp.FLS is set to report fourth-quarter 2016 results, after the closing bell on Feb 16.

In the last reported quarter, the Texas-based company had delivered a negative earnings surprise of 14.8%. Flowserve's earnings have missed the Zacks Consensus Estimate each time in the trailing four quarters, with an average negative surprise of 7.8%.

Let's see how things are shaping up for this announcement.

Factors to Consider

Flowserve's leading market position, diversified mix of products, end markets & geographies, and the "One Flowserve" culture are its key strengths, which have assisted the company in combating headwinds in the past. Additionally, the company's restructuring initiatives, which involve headcount reduction and other cost-cutting measures, are expected to be conducive to the company's fourth-quarter 2016 results.

Currently, the company is following its $400-million multi-year investment, which is likely to result in savings of $195 million in 2017. During third-quarter 2016, the company achieved $37 million of realignment savings. We believe that a leaner streamlined structure, combined with significant cost savings, will drive financial performance for the upcoming quarter.

Of late, the company has been experiencing some stabilization in the core aftermarket activities of parts, services, and repairs which are anticipated to be beneficial for the fourth-quarter results. In addition, we perceive that the previously concluded Netherland-based SIHI Group B.V. buyout will likely bolster revenues for the quarter to be reported. This engineered vacuum and fluid pumps provider company has offered Flowserve scope for opportunistic investments and product-offering expansions.

Despite these positives, macroeconomic woes, which have been plaguing the most well managed companies in the industrial space, have weighed down on the company's performance as well. It is vulnerable to cyclicality, primarily in the oil & gas, general industrial and chemical industries. It is also feared that oil & gas spending declines in both upstream and midstream channels, along with capital spending deferrals, would hamper the company's fourth-quarter results.

The company has cut its guidance twice during the year, thus miffing investors more. The downcast outlook underlines the ongoing sluggishness in global macroeconomic conditions, commodity price weakness and lack of visibility in end markets. In addition, extreme operational uncertainties in several regions like the Asia Pacific, North America, Middle East and Latin America, are estimated to affect the top line. We believe that the overall softness in broad-based industrial spending, which has marred the company's top line for most of 2016, will thwart fourth-quarter results too.

Earnings Whispers

Our proven model does not conclusively show that Flowserve will beat earnings in this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here as you will see below.

Zacks ESP: The Earnings ESP represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate. This leads to an ESP of -6.15% for Flowserve as the Most Accurate estimate is pegged at 61 cents, while the consensus estimate is pegged higher at 65 cents. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Flowserve Corporation Price and EPS Surprise

Flowserve Corporation Price and EPS Surprise | Flowserve Corporation Quote

Zacks Rank: Flowserve's Zacks Rank #3, when combined with a negative ESP, makes surprise prediction difficult.

Note that we caution against Sell-rated stocks (Zacks Rank #4 or 5) going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks That Warrant a Look

Here are some companies that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Fairmount Santrol Holdings Inc. FMSA has an Earnings ESP of +11.11% and a Zacks Rank #1.

Milacron Holdings Corp. MCRN has an Earnings ESP of +11.43% and a Zacks Rank #1. You can see the complete list of today's Zacks #1 Rank stocks here .

Cinemark Holdings Inc. CNK has an Earnings ESP of +2.38% and a Zacks Rank #3.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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