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Crane (CR) Tops Earnings Estimates in Q3, Raises '18 View

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Crane Co. (CR - Free Report) reported better-than-expected bottom-line results for the third quarter of 2018, delivering a positive earnings surprise of 11.7%. This is the company’s 12th consecutive quarter when it recorded impressive results.

The company’s adjusted earnings in the reported quarter were $1.62 per share, surpassing the Zacks Consensus Estimate of $1.45. Moreover, the bottom line increased 43.4% from the year-ago tally of $1.13, primarily on the back of sales growth and margin improvement.

Buyout and Organic Growth Drive Revenues

In the quarter under review, Crane’s net sales were $855.8 million, up 23% from the year-ago quarter. The improvement was driven by 19% gain from acquired assets and 6% organic sales growth, partially offset by 2% adverse impact from foreign currency translations.

However, the top line lagged the Zacks Consensus Estimate of $862.4 million by 0.8%.

The company reports net sales under four segments — Fluid Handling, Payment & Merchandising Technologies, Aerospace & Electronics, and Engineered Materials. The segmental information is briefly discussed below:

Revenues from the Fluid Handling segment were $278.7 million, increasing 4.4% year over year. Results were driven by 7% gain from organic sales growth, offset by 1% impact from forex woes. Further, divestitures adversely impacted results.

This segment’s order backlog was worth $297.7 million in the reported quarter, reflecting slight improvement from $291.6 million reported in the last reported quarter.

Revenues from Payment & Merchandising Technologies totaled $327.4 million, increasing 73.6% year over year. The improvement was primarily driven by synergistic gains from buyouts and 7% core sales growth. However, unfavorable movements in foreign currencies had negative 5% impact. Order backlog at the end of the reported quarter was $359 million, up 2.4% sequentially.

Revenues from the Aerospace & Electronics segment were $189.5 million, increasing 10.2% year over year. The improvement was mainly driven by core sales growth. Order backlog at the end of the quarter under review was $445.1 million, up 0.9% sequentially.

Revenues from the Engineered Materials segment decreased 12% year over year to $60.2 million due to weak business in the recreational vehicle end market. Order backlog at the end of the reported quarter was $10.3 million, down 22% sequentially.

Margin Profile Improves

In the quarter under review, Crane’s cost of sales increased 23.4% year over year to $544.8 million. It represented 63.7% of net sales compared with 63.4% in the year-ago quarter. Selling, general and administrative expenses increased 17.5% year over year to $178.4 million. It represented 20.8% of net sales.

Adjusted operating income in the quarter under review increased 30.6% year over year to $138.2 million. Moreover, adjusted operating margin increased 90 basis points to 16.1%.

Balance Sheet and Cash Flow

Exiting the third quarter, Crane’s had cash and cash equivalents of $323.6 million, roughly 1.7% above $318.2 million at the end of the last reported quarter. Long-term debt balance was roughly unchanged at $937.5 million.

In the third quarter, the company generated net cash of $91 million from its operating activities, reflecting 12.3% fall from the year-ago quarter. Capital expenditure was $31.6 million, up significantly from $13.5 million in the third quarter of 2017. Free cash flow in the quarter was $59.4 million.

During the second quarter, the company used $20.9 million for paying dividends to shareholders.

Concurrent with the earnings release, the company announced that its board of directors approved payment of a quarterly dividend of 35 cents per share to shareholders of record as on Nov 30. The dividend payment will be done on Dec 10.

Outlook

In the quarters ahead, Crane is likely to benefit from solid demand in end-markets served, Crane Currency buyout, repositioning initiatives and repayment of debts. Further, strengthening business in Crane Currency, and Aerospace & Electronics markets will be boons.

The company raised its adjusted earnings per share projection for 2018 to $5.80-$5.90 from $5.60-$5.80 stated earlier.

Free cash flow is projected to be $260-$290 million compared with $250-$280 million mentioned earlier.

Crane Company Price, Consensus and EPS Surprise
 

Crane Company Price, Consensus and EPS Surprise | Crane Company Quote

Zacks Rank & Stocks to Consider

With a market capitalization of approximately $5.2 billion, Crane currently carries a Zacks Rank #4 (Sell).

Two better-ranked stocks in the industry are Macquarie Infrastructure Company and United Technologies Corporation . While Macquarie Infrastructure sports a Zacks Rank #1 (Strong Buy), United Technologies carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Another top-ranked company in the Zacks Industrial Products sector is Altra Industrial Motion Corp. . The stock currently sports a Zacks Rank #1.

In the past 60 days, earnings estimates for United Technologies and Altra Industrial Motion improved for the current year while remained unchanged for Macquarie Infrastructure. The average positive earnings surprise for the last four quarters was 8.05% for Macquarie Infrastructure, 7.31% for United Technologies and 4.01% for Altra Industrial Motion.
 
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