What happened

Shares of industrial flow-management equipment manufacturer Flowserve (NYSE:FLS) jumped more than 12% in early trading Thursday before settling down to a still-respectable 6.1% gain as of 1:20 p.m. EDT.

The company seems to have beaten Wall Street's earnings targets, reporting "adjusted" earnings -- pro forma profits -- of $0.41 per share versus Wall Street's expectation for profits of $0.34.

Quarterly sales were $973.1 million -- more than 5% above predictions.

Dripping faucet

Flowserve stock, up strongly on an earnings beat, is seeing its gains dribble away. Why? Image source: Getty Images.

So what

Sales grew 11% year over year in the second quarter, albeit two of those percentage points of gains came from favorable currency exchange rates. A more important concern is that profits -- although they looked great when counted according to Flowserve's own private math -- came out to just $0.10 per share, by GAAP.

This represented a 69% decline from the $0.32 Flowserve earned in the year-ago quarter.

Now what

Still, based on its performance in the first quarter, Flowserve management reaffirmed its guidance for full-year pro forma earnings of between $1.50 and $1.70 per share. What's significant here, though, is that Flowserve just finished beating expectations in Q2. All things being equal, therefore, one might have expected the company to bank those extra profits (even if they were only pro forma), and then raise guidance for the rest of the year.

It did not. Instead, Flowserve's reaffirmed guidance range still falls about a penny short of the $1.61 per share in pro forma profits that Wall Street is expecting it to produce this year.

And that may be the reason why Flowserve, up more than 12% at one point today, has already given back half of its gains.