Mike Halloran: And then on the pricing side of things, obviously, you’re very comfortable with the margins that you’re pulling into the backlog here, but maybe give some context to the market pricing environment. How much of that confidence in the margin, in the backlog and the pricing that you’re specifically getting, is more Flowserve specific in your — and you’re just being diligent about what kind of pricing we receive versus how competitive the marketplace is, and if there’s any variation that you’re seeing out there?
Scott Rowe: Let me — I’ll split that question between kind of our project business and our run rate MRO business. On the run rate MRO aftermarket parts, seals, replacement valves, all of that, we typically go with the price list strategy. We’re doing our best to balance price costs. And I think this year, we finally got in a more positive position than we’ve seen over the last 12 or 18 months. And so we did a 5% price increase at the beginning of this year. I don’t remember exactly it was like the fourth one we’ve done in two years, but we feel really good about that. We’ll announce our new price increase for 2024 at the end of this year and we’ll move pricing up again. And so I feel very good on kind of the run rate business on where our pricing is.
We’re seeing basically our raw materials, the inflation is subsided. And so we feel like we can kind of take another step up on price cost with that side of the business. Now let me switch to project pricing. And I would say this is still an area that I’m not satisfied with in terms of kind of the global marketplace. It’s still very competitive with the larger projects and the more kind of attractive projects potentially in one of the energy transition lanes or some of the very large ones in the Middle East. And so given our current backlog and given kind of how we view the world and the outlook going forward, we’ve been incredibly selective. And in fact, we walked away from a very large project in the third quarter that didn’t meet our pricing expectations.
And so the discipline, while it’s gotten tremendously better than a year ago, it’s still not exactly where we would like to see it. Now hopefully, we’ll start to see a little bit more disciplined behavior in some of the larger projects as we turn the corner into 2024 as most of the peer group, certainly on the engineered pumps is now significantly fuller in terms of capacity. And so I would say the environment will improve in 2024. We’re very close to being at the expectations that we believe we deserve given the risk of execution and the technology that we put into these projects. And so again, I feel good about the pricing environment, it’s dramatically better than a year ago, our margins in backlog are higher across the board within Flowserve.
And I believe that our discipline in the new focus with the org design will allow us to price effectively as we go into 2024.
Operator: Out next question or comment comes from the line of Damian Karas with UBS.
Damian Karas: I mean obviously, you guys are reiterating those ’27 targets a month later. Good stuff.
Scott Rowe: Appreciate that.
Damian Karas: I was just curious, you talked a little bit about some of these projects in the funnel that kind of continues to grow. Is there any sense you could give us for the cumulative size of these projects that are lining up and how we should think about the timing there, whether more first half, second half of next year, really any color — any additional color you can provide?
Scott Rowe: The project funnel is healthy and we’re seeing a lot of awards, and I would say the Middle East is where we’re seeing the largest size project. So obviously, Aramco is investing substantial money to meet some of their big commitments that they’ve made in terms of driving a mix shift in their economy. But I would say the whole Middle East looks really, really good right now. And so we’ve got visibility to several projects there. And then in addition to that, and we talked about this last month at the Investor Day, LNG and nuclear are both very attractive markets and those projects can have pretty sizable content in them, call it, somewhere between $40 million and kind of $80 million. And so we’re seeing a nice lineup on the LNG side and on the nuclear side.
And then I’d just say on the timing comment, gosh, it is really hard to predict when these projects get awarded. We get visibility to them and just inevitably, they slide to the right. And so committing first half versus second half becomes very difficult. I did mention in the prepared comments, though, we had a few of the projects slide from Q3 into Q4. So we do expect to see kind of a little bit of an uptick. None of the bigger projects above kind of $50 million to $100 million, but very nice sized projects over the $20 million mark get booked in Q4. And then I’d just say our expectations for next year would be, certainly, when we look at the full year, we’re going to have improved project bookings in 2024 over 2023, timing is uncertain, though, in terms of which quarter they show up.
Damian Karas: And then as you highlighted earlier, Scott, that vacuum technology — on the 3D, the semiconductor manufacturing vacuum technology. So that caught my attention. I’m just curious, when you bid on a project like that, that nature, kind of what kind of profit margin do you — are you anticipating on a project like that?
Scott Rowe: The vacuum technology is a really good product for us. It’s differentiated and the competition is relatively smaller than some of our other products. And so this is an area where we can get good margins on the OE side. But I’d say more importantly, the vacuum technology has substantial aftermarket capability. And so when a new customer is putting in a greenfield facility for semiconductors, they obviously — uptime and reliability would be front and center in terms of what they expect from their OEM. And so we really like the OE business, it’s at what I’ll call normal levels for the pumps division. But then that aftermarket drives substantially accretive margins as we start to replace spindles and upgrade and repair those vacuum products.
But I also just want to add, vacuum has been on our list of areas to grow. We haven’t done a great job in the semiconductor market historically. And so we’ve now really made an effort to get into this growing market, especially as companies look to reposition their supply chain and their production closer to the regions where the consumer is. And so this is an area that we’re very excited about. Again, limited competition compared to some of the other applications and we’re very excited about the technology that we can put into this end market.
Operator: We’ll go next to the line of Saree Boroditsky with Jefferies.
Saree Boroditsky: Congrats on the quarter. You highlighted some moderate destocking in the distribution channel. Where are inventory levels today, and what was the catalyst for destocking, given what seems like a pretty positive outlook?
Scott Rowe: The destocking really for us, impacts our valve division and again, very modest. And so we’ve seen some of the public comments with the distributors and some of the comments directly that our teams had, there’s just a lot of pressure on their inventory levels, and they’re being cautious about it. But I would say, overall, like it’s been very minor to our bookings. And when you look at the general industry side of our bookings, we’re seeing tremendous growth year-over-year. And so I actually expect them to start ordering more inventory as we close out the year and they transition to revenue growth in 2024. So while we’ve seen it modestly, not a major concern for us, and again, we remain very positive about our ability to grow not only the valves business but the overall business within the general industries category.
