Back to top

Analyst Blog

Crane Co. (CR - Analyst Report) reported in-line results for second-quarter 2014, along with announcing a 10% quarterly dividend increase on Jul 28. Since then, the share price of this diversified machinery company has edged up by 0.9%.

A brief discussion on Crane’s second-quarter results is provided below:

Crane reported adjusted earnings per share of $1.15, up 8.5% year over year but in line with the Zacks Consensus Estimate.

Revenues: The company generated net sales of $750.1 million, reflecting an increase of 15.6% year over year. The improvement can be attributed to 0.1% core sales growth, 14.5% contribution from acquisitions and 1.1% positive foreign currency translation impact. However, the top-line result lagged the Zacks Consensus Estimate of $758 million.   

At quarter-end, total order backlog was $853.2 million, up 7.6% year over year.

Crane generates revenues under four heads, results of which are briefly discussed below.

Revenues generated from the Aerospace & Electronics segment were $177.6 million, up 3.0% year over year. Order backlog was $396.8 million, down 0.2% sequentially.  

The Payment & Merchandising Systems segment’s revenues were $184.6 million, soaring 117.6% year over year. Oder backlog was $69.9 million, up 18.8% sequentially.

The Engineered Materials segment reported revenues of $63.4 million, increasing 9.8% year over year. The segment, recording a sequential increase of 2.4% in its order backlog, settled at $17.0 million.

Revenues from the Fluid Handling segment decreased 2.8% year over year to $324.5 million. Order backlog was $369.5 million, up 5.3% sequentially.

Margins: Crane’s cost of goods sold increased 14.4% year over year and, as a percentage of revenue stood at 65%, versus 65.7% in the prior-year quarter. Gross margin came in at 35%. Selling, general and administrative (SG&A) expenses, as a percentage of revenue, were 21.2% as against 19.6% in the year-ago quarter.

Adjusted operating margin from continuing operations contracted 20 bps year over year to 14.6%.

Balance Sheet/ Cash Flow: Exiting second-quarter 2014, Crane had cash and cash equivalents of $314.2 million, up compared with $250.3 million in the previous quarter. Long-term debt remained stable at $749.2 million.

The company generated cash of $64.2 million from its operating activities, more than double of $30.9 million generated in the year-ago quarter. Capital expenditure escalated 72.1% to $11.3 million. Cash dividends paid amounted to $17.7 million, up from $16.2 million in the comparable prior-year quarter.

Concurrent with its earnings release, Crane announced that its board of directors has approved a 10% increase in the quarterly dividend to 33 cents per share. The dividend will be paid on Sep 9 to shareholders of record as on Aug 29.

Outlook: For 2014, Crane reiterated its earnings per share guidance in the $4.55−$4.75 range. The prediction excludes 22 cents of integration costs, 5 cents of costs related to facility-repositioning actions, 7 cents of lawsuit-settlement charges and 2 cents loss on business divestiture. Accounting for these one-time expenses, the company’s Generally Accepted Accounting principles (GAAP) earnings per share are expected in the $4.18−$4.38 range. This guidance stands revised from the prior forecast of $4.28−$4.48.
Sales are predicted to be roughly $3.0 billion, including core sales growth of 1−3%. Free cash flow is anticipated to be within $225−$250 million.

With a market capitalization of $4.2 billion, Crane currently carries a Zacks Rank #4 (Sell). Some better-ranked stocks in the industry include Noble Group Limited (NOBGY - Snapshot Report), CLARCOR Inc. (CLC - Snapshot Report) and Macquarie Infrastructure Company LLC (MIC - Snapshot Report). While Noble Group sports a Zacks Rank #1 (Strong Buy), both CLARCOR and Macquarie Infrastructure hold a Zacks Rank #2 (Buy).