Flowserve Corp Q4 FY2025 Earnings Call

Good day, and welcome to the Flowserve Fourth Quarter 2025 Earnings Call. Today's call is being recorded. At this time, I'd like to turn the call over to Brian Ezzell, VP of Investor Relations. Please go ahead.

Thank you, and good morning, everyone. Welcome to Flowserve's Fourth Quarter and Full Year 2025 Business Update. I'm joined by Scott Rowe, Flowserve's President and Chief Executive Officer; and Flowserve Chief Financial Officer, Amy Schwetz. Following Scott and Amy's prepared remarks, we'll open the call for questions. Turning to Slide 2. Our discussion will contain forward-looking statements that are based upon information available as of today. Actual results may differ due to risks and uncertainties, refer to additional information, including our note on non-GAAP measures in our press release, earnings presentation and SEC filings, which are available on our website. With that, I will turn it over to Scott.

Thank you, Brian and good morning, everyone. Before I turn to the presentation, I would like to thank our associates around the world for their hard work and dedication throughout 2025. We have made tremendous progress as a company, advancing our 3D strategy to drive growth and leveraging the internal processes of Flowserve Business System to deliver results. Our associates embrace significant change in a complex macro environment and I could not be more pleased with what we have accomplished as an organization. These efforts culminated in outstanding financial performance in 2025 and achievement of our long-term margin targets two years ahead of plan. Let's start on Slide 3 with bookings. Bookings for the quarter were $1.2 billion, growing roughly 3% versus the prior year period. Aftermarket bookings grew 10% to $682 million, representing the seventh consecutive quarter of bookings greater than $600 million. Project activity was steady in the quarter. We remain excited about the significant opportunities in nuclear and traditional power with notable awards in these markets, in addition to broadly positive trends in most of the other end markets. Our largest booking in the quarter was a $28 million power award, and we delivered nearly $100 million in total nuclear bookings. Larger engineered projects in the energy end markets across both FPD and FCD remain muted impacting original equipment bookings in the quarter. Our 3D diversification strategy has made Flowserve more cycle-resilient than ever before, with consistent and durable bookings in diverse end markets that are supported by secular megatrends offsetting temporary pockets of softness and more cyclical end markets. We have diversified our portfolio mix, and we continue to expand our aftermarket opportunities while selectively focusing on high-margin engineered projects with strong aftermarket potential. Given our progress to date and positive momentum entering 2026, we are confident our strategic areas of focus will provide the opportunity to drive growth and deliver increasing shareholder value for years to come. I will now turn it over to Amy to review fourth quarter financial results in more detail.

Thank you, Scott, and good morning, everyone. Turning to the fourth quarter in more detail on Slide 4. Our strong results reflect the continued effectiveness and resilience of the Flowserve Business System, supported by excellent execution across our global teams. Total revenues grew 4% year-over-year to $1.2 billion, with organic sales growth of roughly 1% and 240 basis points of benefit from foreign currency translation. Sales performance continued to benefit from our diversified portfolio and strong aftermarket activity. Aftermarket sales increased 8% in the quarter, partially offset by a 2% decline in original equipment revenues. OE revenues were lower than we anticipated coming into the quarter, largely due to customer delays and the timing of receiving materials on percentage of completion projects. We anticipate these modest short-term impacts will abate in the first half of 2026. Turning to profitability. Adjusted gross margin reached 36%, a 320 basis point improvement versus last year and our 12th consecutive quarter of year-over-year margin expansion. We continue to advance operational excellence initiatives, 80-20 complexity reduction and cost performance improvements, leading to a full year incremental margin of 95%. With additional SG&A leverage, adjusted operating margin expanded 420 basis points to 16.8%, exceeding our 2027 long-term target range of 14% to 16%. These results drove adjusted EPS of $1.11, an impressive 59% increase compared to the prior year. Moving to segment performance on Slide 5. FPD delivered another quarter of strong margin expansion with adjusted gross margin increasing 370 basis points to 37.1%, and adjusted operating margin expanding 350 basis points to 21%. FPD bookings grew 8%, led by aftermarket growth of 12%. Aftermarket momentum continues, and we see substantial opportunity to capture more business from our large installed base. Original equipment bookings were up a modest 1% as large engineered project activity in the energy end market remains muted and offset growth in other areas. FPD sales grew 5% to $833 million. This segment exited the year with a Q4 book-to-bill of 1.06x, positioning FPD well for 2026. Moving to FCD. As expected, margin performance improved meaningfully compared to the prior year period, reflecting continued execution of the Flowserve Business System and solid contributions from Mogas. Adjusted gross margin expanded 220 basis points to 34% and adjusted operating margin increased 440 basis points to 19.7%. Mogas delivered accretive operating margins for the quarter, consistent with our expectations at acquisition. Turning to bookings. Although growth remains a priority for FCD, margin improvement has been the segment's primary focus. For the quarter, FCD bookings declined driven by headwinds from our continued focus on the 80/20 program and lower original equipment awards from project delays. Aftermarket bookings were roughly flat year-over-year. FCD's book-to-bill for the quarter was 0.84x with overall strength in the power end market, reflecting our industry-leading position. Overall, both FPD and FCD posted adjusted operating margins well above our 2027 segment target ranges of 16% to 18%, reinforcing that operational excellence and 80/20 discipline are firmly embedded across our global operations.

Thanks, Amy. Turning now to Slide 7. We delivered outstanding results in 2025, including 300 basis points of expansion in adjusted operating margins, significant adjusted EPS growth of 38% and strong operating cash flow for the full year. The persistent strength of our aftermarket business resulted in $2.6 billion of bookings in 2025, representing 9% year-over-year growth. Our 2025 book-to-bill ratio was in line with expectations at 1.0x, and we closed the year with a backlog of $2.9 billion. I'm incredibly proud of our progress with the Flowserve Business System. We are driving improved processes and standardization across the enterprise. We are seeing exceptional results with operational excellence as we drive strategy deployment, perform daily operations management, optimize our materials management, and conduct real-time problem-solving on the shop floor. We see continued opportunities as we advance these principles to further improve our response to customers, deliver improved financials, and increase value for all stakeholders. Our portfolio excellence pillar is on track with all product business units having embedded 80/20 methodology and process into our product strategy and our daily operations. The cultural transformation we have undertaken is impressive and I'm confident that we have further opportunities to reduce complexity and simplify our operations for years to come. While our commercial excellence initiative is in the early phases of implementation, we are seeing wins with the program and are gaining confidence through our early projects that the visibility and processes we are putting in place will drive sustainable growth. Since the COVID pandemic, we have spent years building a more resilient supply chain that enabled us to quickly respond to shifts in evolving market conditions and the broader macroeconomic landscape throughout 2025. In response to tariffs, we successfully shifted sourcing and implemented pricing actions that allowed us to fully mitigate the tariff impact while maintaining a high level of service to our customers. We delivered $4.7 billion in bookings for the year, including $400 million in nuclear awards. Our four largest awards during the year were all global nuclear projects, combining to a total of over $150 million, highlighting our strong market position and key customer relationships in this exciting end market. We also entered several strategic commercial partnerships during the year, including an MOU with Honeywell to integrate our Red Raven digital offering into their Forge asset performance management system. This partnership will be instrumental in validating our innovative digital technology and its ability to enhance efficiency for our customers, allowing us to scale our offering for large industrial facilities over time. As Amy mentioned, the year was marked by disciplined capital allocation and a significant increase in cash returned to shareholders, supported by improved cash flow generation in the $266 million merger termination payment. We believe our strong execution and positive operational momentum provide the framework for continuing to deliver enhanced shareholder value in 2026 and beyond. Turning to Slide 8. The Flowserve Business System has transformed our company and the successful integration of Mogas onto the business system has proven that this is an effective model for integrating acquisitions. The realization of cost synergies from the Mogas acquisition contributed to progressive margin improvement throughout the year. Mogas is now accretive to FCD margins, and we believe we are in a position to drive growth and further margin expansion by leveraging all aspects of the Flowserve Business System. Turning to Slide 9. We continue to see M&A as an important element of our disciplined capital allocation strategy and an attractive way to increase shareholder value by growing the business, diversifying our end markets, and expanding our margins. We announced an aftermarket-focused bolt-on acquisition in December that fits our services and solutions model, and over time we believe is highly scalable across the global Flowserve QRC network. We also announced yesterday that Flowserve has signed a definitive agreement to acquire the valve and actuation business from Trillium Flow Technologies. Trillium valve serves the nuclear, traditional power, industrial, and infrastructure sectors through an offering of market-leading, mission-critical valves and actuators. This strategic acquisition strengthens our valve and actuation portfolio and expands our global reach in attractive end markets like nuclear. Trillium has an extensive installed base of over 200,000 units, including assets in 115 operating nuclear reactors, bringing significant recurring demand for high-margin aftermarket services and parts. This acquisition also increases our available content for new nuclear reactors. We shared last quarter that a large new reactor could represent $100 million of content opportunity for Flowserve, and the expanded Trillium valves offering could increase that amount by 15% to 20%. By replicating the successful playbook that we used with Mogas, we expect to leverage all aspects of the Flowserve Business System to increase Trillium's margins and grow the business over time. Turning to Slide 10. I'll provide some context about the operating landscape as we move into 2026. Our end markets have stable, positive trends with the potential for outsized growth in the traditional power and nuclear segments. The general industries end market is benefiting from sustained industrial expansion, notably in mining, pharmaceuticals, and water, particularly in North America and the Middle East. Within the energy end market, elevated utilization rates and maintenance activities for large process industries have remained robust. Our large installed base and our ability to drive a higher capture rate is delivering growth in this sector even as some project work has been slow to materialize. The chemical sector continues to represent our lowest growth end market. However, following a period of stabilization in 2025, we remain cautiously optimistic for a moderate recovery in an improved outlook in 2026. Our 12-month forward-looking project funnel remains healthy. All end markets show growth, both sequentially and versus the prior year. In 2026, we expect bookings to grow mid-single digits, assuming a generally consistent macroeconomic environment. Turning to Slide 11. I'll highlight a few key areas of opportunity in our strategy and the Flowserve Business System that support our efforts to deliver continued growth and value creation. First, our growth strategy continues to be aligned to the key global megatrends with significant investment in energy security, regionalization, and electrification. As we highlighted last quarter, we are laser-focused on the growth opportunity in nuclear. Flowserve is uniquely positioned as a global leader in nuclear flow control, supported by specialized product offerings, established customer relationships and approvals, as well as deep domain expertise, which is now further enhanced with the addition of Trillium Valves. Over the next 5 to 10 years, nuclear energy is projected to become an increasingly integral component of our business with the potential to accelerate our bookings growth above our long-term targeted growth rates. Additionally, we expect to see continued progress with the business system as commercial excellence delivers deliberate and sustainable growth. The strong progress in operational excellence and 80/20 is reducing overall complexity and freeing up capacity within our manufacturing footprint, allowing for the potential of further manufacturing consolidation. We will continue to redeploy resources to drive growth in our best products and deliver differentiated solutions for our customers. Lastly, we believe that M&A can continue to play an important role in our long-term growth strategy, given our healthy balance sheet and proven ability to leverage the Flowserve Business System for integration. We will maintain a disciplined eye towards inorganic opportunities that build on Flowserve's current capabilities and create long-term value for our shareholders. With this backdrop, I'll now hand it over to Amy to discuss our 2026 guidance and updated long-term financial targets.

Thanks, Scott. Turning to our 2026 outlook on Slide 12. We are well positioned to deliver another year of profitable growth. We expect total reported sales growth of 5% to 7%, with organic sales growth of 1% to 3%, reflecting a healthy backlog, supportive end markets, advancement of our 80/20 initiatives, and gradually increasing contributions from our commercial excellence efforts. Reported sales are expected to benefit 100 basis points from favorable foreign currency translation and roughly 300 basis points of benefit from the Greenray and Trillium Valves acquisitions. We have assumed the Trillium Valves acquisition closes midyear and anticipate refining this estimate later in the year based on the final closing date. Turning to profitability. We expect continued growth and operating margin expansion from higher sales and further cost reductions through 80/20 portfolio refinement. Assuming a midyear close, we anticipate Trillium will benefit adjusted operating income and be neutral to adjusted EPS given incremental financing costs. Overall, adjusted operating margin is expected to expand approximately 100 basis points for the full year. We expect adjusted earnings per share of $4 to $4.20, representing a midpoint increase of 13% versus 2025. Our guidance assumes an adjusted tax rate of 21% to 22%. We anticipate the quarterly revenue and earnings cadence to follow historical seasonality with first quarter revenue and earnings being the lowest of the year. Original equipment bookings are expected to accelerate in the second half of the year, largely driven by increased activity in the Middle East and escalating nuclear investments, and we remain confident in continuing to expand our already healthy aftermarket capture. First half revenues will be impacted by ongoing headwinds from 80/20 and the backlog composition. As we enter 2026, we anticipate converting roughly 76% of our existing backlog into revenue in the next 12 months. A conversion factor lower than recent years, given an increasing mix of longer tenure nuclear projects and reduced OE energy projects. All in, first half earnings are expected to represent roughly 40% of full year earnings. Turning to Slide 13. Our consistent, disciplined approach to capital allocation continues to deliver value for shareholders. In 2025, we returned $365 million to shareholders through dividends and share repurchases, completed the acquisition of Greenray to strengthen our aftermarket capabilities and divested legacy asbestos liabilities, all while improving our leverage levels. Moving into 2026, we remain focused on strategically deploying capital towards growth-enhancing opportunities while staying committed to maintaining our investment-grade rating. In 2026, capital expenditure investments to drive organic growth and efficiency in our operations are expected to be $90 million to $100 million, and we anticipate at a minimum, repurchasing shares to offset equity dilution. Turning to Slide 14. I'm extremely proud of the progress we've made against our 2027 financial targets since establishing them in mid-2023. Though the macro environment has presented unforeseen challenges, we remain firmly on track to deliver our sales and adjusted EPS goals. We have also delivered exceptional margin expansion since launching the Flowserve Business System. Over the past 2 years, adjusted operating margins have improved by 530 basis points, and we reached our 2027 margin target 2 years ahead of schedule. FPD contributed meaningfully to this performance, while FCD's margin improvement has accelerated recently, given progress on operational excellence in our 80/20 program. Importantly, the structural enterprise-wide improvements we've made through the Flowserve Business System along with sustained operational rigor give us confidence that these gains are durable with more opportunity to enhance margins over time. Turning to Slide 15. Continued momentum in both growth and profitability forms the foundation of our new 2030 long-term financial targets. We are targeting a mid-single-digit organic sales CAGR from 2025 to 2030, supported by ongoing commercial excellence initiatives, our 80/20 progress, and our expected growth across end markets over the cycle. We believe disciplined M&A represents an opportunity to further enhance our sales growth profile over time. Turning to margins. The success of the Flowserve Business System provides confidence in our ability to continue driving margin enhancements. Commercial excellence is in the early stages, and we anticipate our 80/20 program will continue delivering benefits through 2030. We also see ongoing benefits from operational excellence as we continue to improve our execution and accelerate roofline consolidation. Overall, we are targeting 20% adjusted operating margins by 2030, representing an average annual expansion of 100 basis points. With the expected top line growth, expanding operating margins, and additional capital allocation opportunities, we are targeting a double-digit adjusted EPS CAGR from 2025 to 2030.

Let's turn to Slide 16 to close out the prepared remarks. 2025 was a tremendous year for Flowserve. I am proud of our achievements and the significant progress made by our associates, culminating and delivering our 2027 margin target 2 years ahead of schedule. Looking forward, we are well positioned to continue advancing and unlocking even greater potential for the company. Our updated long-term financial targets highlight our commitment to growth and further improve profitability. We are confident our strategic approach and the Flowserve Business System have positioned the organization for continued, sustainable growth and margin improvement. And with that, I'll turn the call back to the operator for Q&A.

We'll take our first question from Deane Dray with RBC Capital Markets.

Just I thought I'd give you a shout-out for the quarter and for the year, great job on margins and free cash flow. So great progress there. And just maybe first question, can we talk about the organic revenue growth, which was a bit light this quarter and also the guide is a bit light for '26 on the organic side. And Amy mentioned some of the timing of projects, percentage of completion. Just some context there, size for us. And how does that especially percentage of completion, how does that kind of come through in the first half of '26?

Sure. So if we look at the fourth quarter revenue, probably about 50 basis points or a little bit higher than that of revenue headwinds from engineered projects on POC revenue that were pushed into the first half of the year. That was largely due to either customer delays or delays in getting inventory into some of our facilities that created that headwind. That will work itself out in the first half of the year. But as we look at our backlog that's in place in the first half of the year, we're really looking at revenue conversion in 2026 that's a little bit lower than what we've seen in prior years. So about 76% of our current backlog will turn in 2026. And it's really the tale of two cities if you think about our business today, a really strong aftermarket, which can convert into revenue really quickly when it comes into the backlog. And then if we look at the strength of the nuclear market, that takes a little bit more time to develop through the system. And so that's the movement that you're seeing in revenue conversion. So in the first half of the year, we'd anticipate growth to be muted as we look at that. And so you think about that in two ways. One, both the backlog that's in place. And the second piece of that is really 80/20 efforts that accelerated in the second half of the year wrapping around into 2026. I'd just comment overall that what we've been trying to do with this business is create a much more resilient business model. And so if we think about where we're at from a margin expansion standpoint, we built a model that we think margin expansion can continue to happen even in periods of time when revenue growth is muted. So we remain bullish on our opportunities to increase margins in the first half of the year, but we'll expect for some of that revenue growth to accelerate in the second half.

Amy, that's really helpful. As a follow-up, I didn't expect to ask this question last quarter, but here I am. Can you talk about the opportunity in Venezuela? Flowserve had a significant presence there up until about 11 years ago, so you likely have valuable insights. What is the opportunity? What is the time frame, and what should we be watching for?

Yes, you've Flowserve for a very long time, Venezuela was a meaningful market for us. This was before I got here, kind of that 2010 to 2014 timeframe. And at one point, we were doing probably at the most roughly $80 million of revenue a year. We had 3 QRCs that were fully operational and quite frankly, a very healthy business. The good news today is we have a large installed base across pumps and valves. And so if somebody were to go in and resume operations and start to invest in the country, we are well positioned to support that. We currently have 1 QRC operational with a handful of people and we're confident that we could kind of restart operations when appropriate. With all of that said, we don't have that in our 2026 numbers. I'm not going to predict or forecast to win if somebody will commit to go into the country and get things moving. But I would say if and when it happens, Flowserve is prepared to kind of pick back up and it will be a really nice opportunity that wasn't planned. And like you said, I certainly did not expect this in the last time we spoke in the Q3 earnings call.

We'll take our next question from Mike Halloran with Baird.

Can we just talk through the simple question here, the confidence in the mid-single-digit order progression this year? I know I certainly heard the front back half but maybe some more detail on where that's stemming from, what your customers are saying, and any specific areas that you think drive it more than others?

Yes, absolutely. I'd say, Mike, we feel really good right now about mid-single digits. Obviously, the world is a dynamic place and we just talked about Venezuela, we can talk about other countries. With that said, we've got a lot of confidence in what we're doing. The teams are working really hard to grow the business. And I'll just kind of run through some of the reasons why we believe that mid-single digits is a good number. And I'll also just add, we believe that's an organic number. And so I'm sure we'll talk about Trillium here very soon in one of the Q&A. But when we talk mid-single digits on the bookings side, we were really thinking organic. And so maybe I'll start with our aftermarket, and you've seen the numbers here. Our aftermarket continues to grow as we get more focused on our installed base and improving our capture rates. We believe that momentum is incredibly strong and we believe that we can continue to grow the aftermarket at least at the mid-single-digit levels. And so that's half of our business. And so we've got a team that's highly focused on that, great customer relationships and we continue to find more opportunities to expand that. And then on just the end markets, the single largest growth factor for us in 2026 and beyond is the power end market. We talked a lot about nuclear in the Q3 earnings call. But traditional power is doing incredibly well additionally. And so we feel really good about those end markets in power being at least a double-digit number for us. And then general industries is also strong. And so we're seeing an uptick in general industry kind of project and base activity that's primarily in North America and a little bit in the Middle East and in some parts of Latin America as well. And then finally, when we look at our project funnel, we have seen an increase both sequentially and year-on-year in our project funnel, again, giving us confidence that mid-single digits is a place that we feel pretty good about.

Great. Super helpful. And then on Trillium, congrats on getting that portion of the company, good assets. So twofold question here. First, with the 70% power exposure, what kind of momentum are they seeing on the order side? Is it similar to what you just talked to? And then secondarily, maybe just talk through the commercial and cost synergy opportunity as well.

We're excited about Trillium, which is a valuable asset that emerged from the Weir business. To clarify, we are acquiring the valve portfolio of Trillium. We believe they possess top-notch valve assets that cater to critical flow control needs, mainly in the nuclear and traditional power sectors, which represent 70% of their business. Furthermore, they contribute significantly to the aftermarket. We feel confident in our ability to utilize our QRC network to access their 200,000 valves and actuators worldwide and to continue expanding this area. Like us, they've experienced a solid performance in both nuclear and traditional power bookings. We appreciate the positive trend in these markets and the growing backlog as we approach the transaction. With our established nuclear relationships, a strong customer base, and a favorable market environment in power, we are optimistic about the commercial prospects and the potential to grow this business in line with the nuclear outlook. And I would say that's obviously the new nuclear reactors some of the life extensions in nuclear and then potentially and when things move forward in SMR, this business is positioned well to take share in that upcoming and emerging market. And so all in all, we feel good. Just on the synergy side, we didn't publish a number on the cost synergy. I would say that there are cost synergies in this business. It would be exactly what you would expect. We'll use our operational excellence program in the Flowserve Business System to do exactly what we did with Mogas to get the manufacturing improvements, the supply chain savings. We will run 80/20 very quickly in the portfolio. In fact, we had a conversation last week about starting to pull that data in the right way that allows us to launch 80/20 right out of the gates. And there will be some roofline consolidation as we move forward as well. The one thing I will highlight that this is a carve-out, so it's owned by private equity today. We're carving out the valve business. And so the overhead and some of that corporate synergies won't come through like you would normally see. But overall, I'd say a high level of confidence that we can continue to grow this business and that we can move the margins forward by running the Flowserve Business System playbook.

We'll take our next question from Amit Mehrotra with UBS.

I wanted to discuss the outlook for 2030 and the expected acceleration in growth after 2025, as well as your guidance for 2026. I believe this is linked to your observations regarding power bookings, which were up in the mid-teens this quarter. Additionally, this segment is becoming a more significant part of the business with Trillium, possibly reaching high teens, especially in nuclear. Could you elaborate on this and explain what these trends may indicate for structural changes in through-cycle growth as we approach the end of this year and into 2027?

Sure. Yes. I'll just tie it to like some of the mega themes that we're seeing. Obviously, electricity is a big one, and that's something that's important around the world to drive security and then further regionalization and then there's a digital component. And so all of those things have played into kind of how do we think about the long term and how do we grow our business. The other thing I would say is when we think about our Flowserve Business System, we've been hitting 80/20 hard. We've put a little bit of a dampener on some of the growth as we've been focusing on our margins and cleaning up that portfolio, the heavy lift of SKU reductions is essentially complete, and now we've launched commercial excellence. And so we're about six months into commercial excellence. We believe we have a long way to go. We are in the very early innings here. And that, again, gives us a foundation to grow the business for years to come. And so I think mid-single digits here on the long-term 2030 makes a lot of sense. We've got many levers to pull to drive that growth. And we need the macro environment to hold up. But right now, we think the mega trends and what's going on in the world should support this target and the team is very focused to drive this growth.

The other thing that I've mentioned, and this is more formulaic in nature, is that if you look at our backlog conversion in 2026, which is a bit of a headwind in terms of organic growth. With the nuclear component, that's really a tailwind for us in terms of 2030 targets. So we've got a large portion of our backlog that's going to materialize over the next 5 years, and really presents an opportunity for us to compound from a revenue growth perspective.

Right. I guess that was my point, right? At the end of the day, if you look at the compounded growth over time versus what you're doing in '26, it implies a step-up in '27, exactly that point. Can I just ask another question on general industrial and what you saw? Because obviously, there's a view right now that cyclicals are doing quite well because of this anticipation of some improvement. Are you seeing any evidence of that in your bookings? And then just related to that backlog conversion, I think you might have mentioned that earlier, I joined a little bit later. But is there an EPS cadence that gets maybe pushed out a little bit more to the back end because that backlog is converting a little bit later?

Yes. I'll let Amy hit the backlog conversion. I'll start on the general industrial side. So general industries has been really strong for us this year. We continue to make progress. A lot of that's part of our 3D strategy and the diversification and just getting the teams very focused in this market. And so I think we've been able to take a little bit of share here as we lean in on the diverse end markets that we've got a product and offering for. And quite frankly, we're seeing nice growth in North America, parts of Latin America on general industries, and then there's parts of the Middle East that this is working as well. Some of the themes here would be the water markets, pharmaceuticals, and then just to say just kind of broader industries across the board where we're able to put full control product in.

Yes. And from an EPS cadence, obviously, it's going to be impacted by some of the revenue cadence that we talked about. We're really going back to a more typical Flowserve year, which looks more with the first half being muted from a volume perspective. We're still confident about our ability to perform well and expand margins over that period of time, but probably about 40%, maybe a little bit more of our EPS will come in the first half of the year, with the remainder in the second half. And as this is always the case, our first quarter, we would expect to be the lowest quarter of the year from an EPS perspective.

We'll take our next question from Joe Giordano with TD Cowen.

So we've discussed this, but regarding the 2030 margin guide, how much of that is reliant on volume? To be fair, that's where we might see the most challenges given the mid-single-digit order growth this year. A significant portion of that is likely in the second quarter where the comparisons are easier. Organically, we just haven't really exceeded the $1.25 mark with any strong momentum. So if I were to question the top line a bit, how much of that margin do you believe you can still achieve without considering volume?

Yes. So Joe, I'll start. I'm sure Amy will chime in on this one too. I'd say we feel really good about our ability to drive margins. And so when we think about our plan, the way we look at things is the initiatives and the actions we need to do to drive margin expansion. And if you kind of look backwards, right, we haven't had significant revenue growth over the last 2 years, but we've been able to expand margins significantly. And so obviously, some of the, I'm not going to call it, low-hanging fruit because it was a lot of work, but a lot of the bigger gains have been realized. And we've got what I'll call is to get to the 20%, a steady progression of margins of 500 basis points or 100 basis points approximately every year. And I just think through operational excellence. 80/20 still has more room to run. The ability to continue to get a better mix with aftermarket, all gives us confidence that we can continue to do this. And so obviously, revenue growth and leverage would help us substantially, but I feel confident that we can get to these margins even without significant revenue growth.

Yes. The only thing I'll add to what Scott mentioned is that those actions have already started. As I indicated in my remarks, the roof line actions are picking up speed. We are seeing the advantages of the 80/20 program, which is now well integrated into our business units and our Business System. We are very confident that the measures we have implemented will contribute to improved margins, regardless of volume fluctuations. However, it's a two-pronged strategy. We are concentrating on growth. The commercial excellence initiative is just getting underway, and I'm enthusiastic about it. I believe it will yield positive results. Therefore, when we combine our focus on commercial excellence with the markets we are addressing, I anticipate it will create a favorable scenario for revenue growth in the future.

Fair enough. You're making a bet on nuclear, both financially and in your messaging, and we all understand why. If, for any reason, the power build-out involves significantly more gas turbines and less nuclear than currently expected, what would that mean for Flowserve in terms of lower content and how it would affect your targets?

Yes. I believe that nuclear will continue to advance. I've spoken with several customers in recent weeks, and I think nuclear must be included in our future plans. The outlook is not as optimistic as some of the projections we shared in the third quarter, which aligned with public expectations for nuclear growth. However, if there is a shift towards more traditional power, we are well-equipped to capitalize on that growth. We offer products that support single cycle combined cycle setups, and we can cater to coal needs in China, as well as contributing to some renewable projects. While our content in these areas may not be as significant and the barriers to entry differ from nuclear, we are still poised for growth moving forward. The Trillium acquisition also reinforces this strategy, as they have a strong traditional power segment, which we will continue to develop. Furthermore, on the aftermarket side, we expect to continue receiving nuclear aftermarket work, alongside traditional power investments aimed at upgrades and increasing capacity. As these opportunities develop, we are generally well-positioned to handle aftermarket demand for both traditional and nuclear projects.

We'll take our next question from Andy Kaplowitz with Citi.

This is actually Jose Sulca on for Andy. I did want to touch on Mogas. It seems like you've been able to integrate that now and you're getting that accretion to segment margins. So maybe you can talk a little about what you've learned from that integration. But I'm also curious, if you could talk about what you're seeing for bookings opportunities for that business, given that Mogas is about 50% mining exposed and some of the mining read-throughs, there's been recently positive.

Yes, we are very enthusiastic about the Mogas transaction and the product we acquired. This product is a critical service ball valve with top-tier coatings and technology, capable of performing in harsh environments, including refining harsh chemicals and assisting in the leaching process for extracting precious metals. We have confidence in the end markets associated with this product. However, I will note that bookings for 2025 are taking time to materialize, while the project pipeline for 2026 appears strong, giving us a clear path for business growth. Regarding integration, we adhered to a traditional integration strategy, initiating essential activities from day one, implementing the Flowserve Business System, and systematically pursuing synergies. I am very satisfied with how the integration has progressed. We ensured timely compensation for everyone and swiftly transitioned our systems. The business system is now established with significant improvements made on the shop floor, enhancing our capability to serve customers better. As a result, we have seen a noticeable increase in margins throughout the year, and we are optimistic about the business prospects moving into 2026 and beyond.

And Jose, one thing I might add on this one as well is this is a technical sale in terms of the types of valves that Mogas is as part of our commercial excellence program. We have trained over 100 of our valve sales force members on the Mogas valves technically and vice versa within the sales force that we brought with us from Mogas on our severe service applications and products. And so we really feel like going into 2026, we're well positioned in this area of the business.

I did also see there was a comment on the slide about you guys haven't fully mitigated tariff impacts in 2025. And I'm sure that wasn't easy. But with regards to the 2026 guide, I was curious if you guys could talk about what you're baking in for tariffs? And how much of the higher metal prices is accounted for in the guide currently?

Yes. The team has performed exceptionally well in what I would describe as an extremely dynamic environment. We gained valuable insights from our supply chain team during 2020 and 2021, and we've used that knowledge to be more agile than ever. By adjusting the supply chain and realizing cost savings, along with making pricing adjustments, we have effectively managed the impacts expected in 2025. I want to emphasize that the guidance for 2026 considers tariffs, and we believe we can maintain this positive momentum. We're pursuing this through pricing strategies and ongoing supply chain improvements. While I can't forecast the timeline regarding tariffs, we will remain adaptable and continue to reposition ourselves. Overall, our supply chain is in a strong state, thanks to our team's diligent efforts in navigating this challenging situation.

We'll take our next question from Brett Linzey with Mizuho.

I wanted to come back to the procurement issue in the quarter. Can you just talk about the nature of the dynamic and which components you might be referring to? And then anything on the remedy actions in place that give you the better visibility this year?

I wouldn't necessarily classify it as a procurement issue. It's more about delays in the timing of receipts, which are not limited to a specific type of part or component. These situations can occur from time to time, and when they happen at the end of the year, it can be particularly challenging. However, the supply chain is performing well, and when we encounter isolated incidents like this, we quickly engage expeditors to coordinate with our vendors so we can get back on track.

Okay. Great. And then just a follow-up on nuclear. So on Slide 9, you gave the content opportunity is now 15% to 20% on new nukes. Where was that previously? And just I guess the spirit of the question is trying to take your Q3 commentary on some of the dollar figures and where that's moved to with the content expansion.

Yes, that's a great question. In Q3, we mentioned that the historical content for a new nuclear reactor, specifically the large 1 gigawatt reactors, is around $100 million per reactor. This can vary based on the operator and location, but that's our current opportunity with Trillium Valves. We now believe that this figure has increased to between $115 million and $120 million per reactor, reflecting a 15% to 20% growth. Additionally, we've seen success with our mainstream isolation valves, such as gate valve technology, and actuators. With Trillium, we have introduced four new products: a nuclear certified triple offset butterfly valve, a check valve, a different type of actuator, and a control valve. We are excited about enhancing our portfolio, which will boost our content. Our team is eager to present these offerings to the right customers and expand our nuclear opportunities.

We'll take our final question from Nathan Jones with Stifel.

This is Andres on for Nathan Jones. Just regarding 80/20, you talked a little bit about this earlier, but maybe after two, three years of 80/20 implementation, can you maybe talk about successes and where the company still needs to improve? You made note of a couple of improvements earlier, just to round it about.

Sure. The 80/20 concept is an exciting topic for us, and we are thrilled about the success we’ve seen so far. We are now entering our third year, with this being the second full year of the initiative. All of our product business units are fully engaged in the 80/20 program. We have experienced significant success in reducing complexity and creating a more focused organization. This has positively impacted our margins, and we are beginning to see growth by concentrating on our best products and customers. In our Q3 earnings presentation, we shared some figures from one of our business units, specifically industrial pumps, which was our initial focus. We noted a 150 basis points improvement in margin attributed to 80/20, along with a 45% reduction in SKUs and a 21% increase in target selling. This trend is reflected across all our business units, and we anticipate similar results as we progress through the 2026 program. Companies that excel in this area typically achieve around 100 basis points of margin improvement per year over a 4- to 5-year span. I believe we are on the right path, having seen slightly more success in 2025, positioning us well to continue our efforts. Additionally, as we streamline product complexity, we can operate differently, potentially reduce our overhead over time, and continue to cut costs across Flowserve. This initiative has truly been a catalyst for us, and we are excited about the advancements we can achieve in 2026 and beyond.

Awesome. And then just on the balance sheet, obviously, still remains flexible after the deal with capacity for further capital allocation, is the focus on just maybe further M&A or the integration of Trillium in the short term?

Yes. So we do feel like we're in a great place from a balance sheet health perspective, about 1x net levered at the end of the year. And so it does give us an opportunity with the substantial cash flow generation that we have and expect to continue to have to look for ways to allocate capital, to create value from our shareholders. I think the last six months have been a really good road map of how we think about capital allocation. We've been relatively balanced. But in 2025, we saw a really great opportunity to invest in Flowserve. And so we bought back about $250 million of our shares at an attractive valuation. And you also saw us be active in the M&A space. And so whether it's the small tuck-in that we had with Greenray or the slightly larger Trillium announcement from today, we think that M&A can play a role in growth of the business. And just to remind everyone what our filters are, when we look at that, one, it's got to fit the strategy. We look at Greenray from an aftermarket perspective and the ability to expand that business, and you look at Trillium in terms of the diverse markets that they serve, including a really heavy emphasis on power and both tick the boxes there. And then lastly, we're going to do this in a way that financially makes sense. So we expect accretion to margins and cash flow, and we're going to protect our balance sheet going forward. But we're excited about the ability to really continue to broaden the product portfolio to continue to make our end markets very resilient and using M&A to do that.

That will conclude our question-and-answer session. At this time, I'd like to turn the call over to Brian Ezzell for any additional or closing remarks.

Yes. Thank you to everyone for joining the call today. One item I'll note, we are planning to host an Investor Day later this year to provide further insight on our strategic and financial plans. We're going to provide more information soon about that event, so you can plan accordingly. In the meantime, if you have any questions on Q4 results, please reach out to the Investor Relations team. And with that, we appreciate the time, and have a great day.

That will conclude today's call. We appreciate your participation.