By finding a niche producing waterjet machine tools within the otherwise oligopolistic machine tools industry, Flow International has claimed 60% of the global waterjet market.[1] Its waterjet machine tools are more versatile than traditional cutting machines; traditional cutting machines cause shearing and friction, which make minute dents and scratches in the materials post-cut. High pressure and high velocity aerospace applications require highly precise cuts, making waterjets the most useful ways to cut aerospace supply metals.[2] Airbus and Mitsubishi Heavy Industry are both large customers, and have awarded FLOW multi-million dollar contracts, including a $30 million contract from Airbus.[3] Like all machine tools companies, FLOW has been affected by rising raw materials prices, particularly steel prices. From March 2006 to March 2008, the average price of scrap steel increased from $212.50/tonne to $500/tonne, decreasing FLOW's operating margins from 8.76% to 2.37%.[4]

Business Financials

Flow International operates in four main segments:

N. America Waterjet (55% of sales, 58% of gross margin)

The N. America Waterjet segment sells to the United States, Canada, and Mexico. The U.S. Aerospace & Defense industry is the segment's largest buyer. Because of increased waterjet shaping product demand for the Iraq War, N. America Waterjet sales increased 16.5% from Q3 2007 to Q3 2008.

Asia Waterjet (14% of sales, 19% of gross margin)

Asia Waterjet segment sells to Eastern countries, including India and China. From Q3 2007 to Q3 2008, Asia Waterjet sales increased 0.6%. Nanojet launch order that occurred in the fourth quarter of fiscal 2006 and a slow down in sales to the semiconductor industry.

Other International Waterjet (23% of sales, 21% of gross margin)

Other International Waterjet segment sells to Europe and South America. From Q3 2007 to Q3 2008, Other International Waterjet sales increased 33.9% due to the increased value of the Euro.

Applications (8% of sales, 2% of gross margin)

FLOW offers specialty engineered robotic systems designed for material removal and separation of various materials and for factory automation. FLOW sells these products to the automotive, military, and consumer products industry. ROLL also provides services such as robot programming and systems integration to improve the productivity of automated assembly lines. From Q3 2007 to Q3 2008, Applications sales grew 22.1%

From 2006 to 2007, FLOW sales increased 5.8%, gross profit decreased 2.1%, and total costs increased 12.5%.[5] Flow leads the machine tools & accessories industry in quarterly revenue growth (yoy). In 2007, FLOW had backlog of $31 million.


Trends and Forces

FLOW competes in machine tools & accessories industry by producing niche waterjet machines.

In the machine tools industry, Flow International competes in an oligopoly against Timken Company (TKR), Stanley Works (SWK), and Kennametal (KMT). In 2007, FLOW's sales total is 4.36% as large as its biggest machine tools competitor, TKR. These three companies have pricing power and more capital for investments and acquisitions, so FLOW and other smaller cap companies, such as Kaydon (KDN) with wind energy products and RBC Bearings (ROLL) with military products, find niche products to gain revenue. FLOW makes niche waterjet machine tools.

Flow International Corporation, leads the industrial waterjet machines business with a 60% worldwide market share.[1] Waterjet cutting is a more versatile alternative to traditional cutting methods such as lasers, saws or plasma, as it can cut a greater variety of products. Therefore, waterjet cutting has applications in many industries, including aerospace & defense, automotive , semiconductors, food, consumer products, and textiles. In the machine tools industry, FLOW had the highest quarterly revenue growth (27.6%).[6] To further enhance its waterjet product manufacturing, FLOW announced it will build a single facility for designing and building its advanced waterjet systems, which include large aerospace systems and robotic waterjet cutting cells.[7]

FLOW benefits from booming aerospace industry with new multi-million dollar contracts.

The aerospace industry has had success in the past decade. Some of FLOW's products, such as waterjet shaping machines and systems, are used for aerospace product manufacturing. FLOW has attained multi-million dollar contracts with Airbus and Mitsubishi Heavy Industries because of the increasing demand for their aerospace products.

FLOW attains contract with Airbus.

FLOW has announced that Airbus awarded a $30 million dollar[8] contract to manufacture and install multiple Composite Machining Center (CMC) waterjet machine tool systems. These machines will be built and installed over the next 18 to 24 months for use in manufacturing the new Airbus A350 XWB (Xtra Wide-Body) aircraft.[9]

FLOW attains contract with Mitsubishi Heavy Industries.

Mitsubishi Heavy Industries (MHI) has awarded FLOW a second multi-million dollar contract to supply it with FLOW's Composite Machining Center (CMC) waterjet machine tools to cut the carbon fiber wing skins for a major commercial jet aircraft program.[2] Mitsubishi chose FLOW's products because waterjets eliminate cutting problems that occur with aerospace composites such as friction and shearing.[2]

FLOW adjusts to rising steel, plastics, and oil prices.

Steel and plastics are the main ingredients in Flow's waterjet machines, so rising steel and plastics costs increase Flow's cost of production. From 2004 to 2008, scrap metal price grew from $75 per ton to over $550 per ton.[10] FLOW also uses oil and gas in manufacturing and transportation. Oil prices have increased 35% since the end of 2007.[11] From 2006 to 2007, raw material costs increased 16.06%[12]; despite making efforts to pass costs to consumers, operating margins decreased from 8.76% to 2.37% from 2006 to 2007.[13]


Machine Tools & Accessories

  • Kennametal (KMT) - Global producer of tools, machine accessories, and advanced materials and second largest metal cutting tools manufacturer in the world.[14]
  • Stanley Works (SWK)- World-renowned brand of consumer and industrial tools, including a line of cutting machine tools to compete with FLOW's waterjet cutting tools.[15]
  • Hardinge (HDNG)- HDNG manufactures cutting machine tools in Western Europe, being FLOW's largest international competitor in cutting machine tools. .
  • Thermadyne Holding (THMD)- Producer of gas and electric arc cutting and welding products for the Americas.
Competition Flow International (FLOW)[16] Thermadyne Holding (THMD)[17] Hardinge (HDNG)[18] Kennametal (KMT)[19] Stanley Works (SWK)[20]
Market Cap $Mil 299.57 80.17 206.27 2,830.00 3,800.00
Revenue $Mil 217.28 177.68 356.32 2,385.49 4,483.80
Gross Profit $Mil 92.14 45.23 107.41 841.56 1,692.20
Net Profit Margin % 2.00% 5.05% 4.19% 7.50% 7.51%
Operating Margin % 2.37% 8.75% 6.42% 11.29% 10.06%


  1. 1.0 1.1 Flow website, "Company"
  2. 2.0 2.1 2.2 FLOW website, "Flow International Receives Multi-Million Dollar Aerospace Contract With Mitsubishi Heavy Industries"
  3. MarketWatch, "Flow International Corporation to Begin Work on the Airbus Contract"
  4. MarketWatch: FLOW
  5. FLOW 2007 10-k, Item 6: Selected Financial Data, page 18
  6. Yahoo! Finance, Machine Tools & Accessories Leaders and Laggards
  7. Forbes, "Flow International Announces Establishment of Advanced Waterjet Systems Manufacturing and Technology Center," 06/02/08
  8. MarketWatch, "Flow International Corporation to Begin Work on the Airbus Contract"
  9. Forbes, "Airbus Awards Multi-Million Dollar Contract to Flow International Corporation," 06/25/08
  10. Forbes, "Timken Steeled by Steel," 4/30/08
  11. Wikipedia, "Oil Price Increases Since 2003"
  12. FLOW 2007 10-k, Item 8: Financial Statements and Supplementary Data, page 56
  13. MarketWatch: FLOW
  14. KMT 2007 10-k, Item 6- Selected Financial Data, page 11
  15. Stanley Works website, "Businesses"
  16. FLOW 2007 10-k, Item 6: Selected Financial Data, page 18
  17. THMD 2007 10-k, Item 6: Selected Financial Data, page 18
  18. HDNG 2007 10-k, Item 6: Selected Financial Data, page 21
  19. KMT 2007 10-k, Item 6- Selected Financial Data, page 11
  20. SWK 2007 10-k, Item 6: Selected Financial Data, page 14
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