A month has gone by since the last earnings report for Flowserve (FLS Quick QuoteFLS - Free Report) . Shares have added about 7.4% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Flowserve due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers. <p style="text-align: justify;"><strong><u>Second-Quarter 2018 Highlights</u></strong><br /><br />Flowserve&#39;s adjusted earnings in the reported quarter were 41 cents per share, excluding 12 cents and 19 cents per share charges related to realignment initiatives and other items. Moreover, the bottom line increased 86.4% from the year-ago tally of 22 cents, primarily on the back of sales growth and a lower tax rate.<br /><br />However, excluding the impact of realignment initiatives, the bottom line came in at 22 cents. The Zacks Consensus Estimate for the reported quarter was 34 cents.<br /><br /><strong>Segmental Performance Drives Revenues</strong><br /><br />In the quarter under review, Flowserve&#39;s sales were $973.1 million, reflecting growth of 11% from the year-ago quarter. Foreign currency movements had a positive 1.9% impact on sales growth while divested businesses negatively impacted top-line growth by 1%.<br /><br />Moreover, the top line surpassed the Zacks Consensus Estimate of $921.6 million by 5.6%.<br /><br />Aftermarket sales in the reported quarter grew 12.4% year over year (or 10.2% on a constant-currency basis) to $488 million. Furthermore, original equipment sales totaled $485 million, reflecting year-over-year growth of 9.5% (or 7.9% on a constant-currency basis).<br /><br />Bookings totaled $1 billion, reflecting growth of 6.8% over the year-ago quarter. Of the end markets, booking strengthened in oil &amp; gas, chemical, and general industries end markets while remained stable for water and declined for power. Backlog at the end of the reported quarter was $1.8 billion, flat sequentially.<br /><br />The company reports its net sales in three segments, a brief discussion of those are provided below:<br /><br />Revenues from the <strong>Engineered Product Division</strong> were $480.7 million, increasing 12.4% year over year or 11.4% on a constant-currency basis. Bookings increased 8.7% year over year to $505.7 million.<br /><br />Revenues from the <strong>Industrial Product Division</strong> totaled $205.7 million, increasing 7.2% year over year or 4.2% on a constant-currency basis. Bookings were solid in the quarter under review, increasing 10.2% to $235 million.<br /><br />Revenues from the <strong>Flow Control Division</strong> were $306.5 million, increasing 11.3% year over year or 8.9% on a constant-currency basis. Bookings of $318.6 million inched up 0.8% year over year while organically recorded a 1.4% decline.<br /><br /><strong>Mixed Margin Profile</strong><br /><br />In the quarter under review, Flowserve&#39;s adjusted cost of sales increased 10.4% year over year to $663.1 million. It represented 68.1% of sales compared with 68.5% in the year-ago quarter. Adjusted gross margin increased 40 basis points (bps) year over year to 31.9%. Selling, general and administrative expenses increased 6.9% year over year to $221.4 million. It represented 22.7% of sales.<br /><br />Adjusted operating income in the quarter under review increased 25% year over year to $90.1 million. Moreover, adjusted operating margin grew 110 bps to 9.3%. Effective tax rate was 26.1% versus 46.3% in the year-ago quarter.<br /><br /><strong>Balance Sheet and Cash Flow</strong><br /><br />Exiting the second quarter, Flowserve had cash and cash equivalents of $517.4 million, down 3.4% from $535.7 million at the end of the last-reported quarter. Long-term debt balance decreased 3.1%, sequentially, to $1,455 million.<br /><br />In the first half of 2018, the company used net cash of $56.7 million for its operating activities against $46.6 million net cash generated in the year-ago comparable period. Capital expenditure amounted to $31.7 million, slightly above $29.4 million in the first half of 2017.<br /><br />During the first half of 2018, the company used $49.7 million for distributing dividends.<br /><br /><strong>Outlook</strong><br /><br />Flowserve is progressing well with its transformation initiatives. The multi-year Flowserve 2.0 strategy will help in simplifying the operating model and spur growth.<br /><br />The company has maintained adjusted earnings per share projection of $1.50-$1.70. Revenues are anticipated to increase 3-6%. Adjusted tax rate for the year is predicted to be 27-28%. Capital expenditure is predicted to be $80-$90 million.</p>

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

At this time, Flowserve has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Flowserve has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.