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Why Is Crane (CR) Up 9.1% Since Last Earnings Report?

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It has been about a month since the last earnings report for Crane (CR - Free Report) . Shares have added about 9.1% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Crane 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.

Crane Q4 Earnings & Revenues Miss Estimates, Down Y/Y

Crane reported weaker-than-expected fourth-quarter 2020 results. Its earnings and sales missed the Zacks Consensus Estimate by 8.3% and 2.8%, respectively.

Adjusted earnings in the reported quarter were $1.00 per share, missing the consensus estimate of $1.09. On a year-over-year basis, the bottom line declined 36.7% from $1.58 due to lower sales.

In 2020, the company’s adjusted earnings came in at $3.84, down 36.2% year-over-year.

Revenues

In the quarter under review, Crane’s net sales were $726.4 million, reflecting a decline of 13.4% from the year-ago quarter. Results were adversely impacted by a fall in core sales of $178 million, largely due to the coronavirus outbreak-led issues, partially offset by foreign exchange of $12 million, and a benefit of $55 million from acquisitions.

Crane’s net sales lagged the Zacks Consensus Estimate of $747 million.

In 2020, the company’s net sales were $2,936.9 million, down 10.5% on a year-over-year basis.

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 were $258 million, down 7% from the year-ago quarter. Results reflected a 14% decline in core sales, partially offset by benefits of 2% from foreign exchange and 5% from acquisitions. The segment’s order backlog was $313.4 million in the reported quarter, reflecting a sequential increase of 2.7%.

Revenues from Payment & Merchandising Technologies totaled $283 million, decreasing 10% year over year. Results were hurt by core sales decline of 25%, partially offset by a 13% benefit from acquisitions and 2% from foreign exchange. Order backlog at the end of the quarter was $347.6 million, up 28.7% sequentially.

Revenues from the Aerospace & Electronics were $143 million, declining 29% year over year. The fall was mainly attributable to a decline in core sales. Order backlog at the end of the quarter was $491.2 million, down 1.4% sequentially.

Revenues from the Engineered Materials declined 2% year over year to $43 million on lower sales to building products market. However, it was partially offset by higher sales to recreational vehicle customers. Order backlog at the end of the quarter was $12.8 million, up 15.3% sequentially.

Margin Profile

In the fourth quarter, Crane’s cost of sales decreased 38.2% year over year to $491.1 million. It represented 67.6% of net sales compared with 94.9% in the year-ago quarter. Selling, general and administrative expenses dipped 1.1% to $176.4 million. It represented 24.3% of net sales compared with 21.3% a year ago.

Operating income in the fourth quarter was $59 million against an operating loss of $135 million recorded in the year-ago-quarter. Notably, operating margin in the quarter was 8.1%.

Balance Sheet and Cash Flow

Exiting the fourth quarter, Crane had cash and cash equivalents of $551 million, up 1.2% from $544.6 million at the end of the last reported quarter. Long-term debt balance was marginally up sequentially to $842.9 million.

In 2020, the company generated net cash of $309.5 million from operating activities compared with $393.9 million in the previous year. Capital expenditure in the year was $34.1 million, down 50.4%.

In the fourth quarter, free cash flow was $88 million compared with $205 million in the year-ago quarter. In the fourth quarter, Crane used $25 million for paying dividends, whereas it distributed $23.1 million a year ago.

Outlook

For 2021, the company currently anticipates adjusted earnings per share of $4.90-$5.10. Sales are predicted to be about $3.05 billion, suggesting year-over-year core sales growth of about 2%. Free cash flow is projected to be $260-$290 million for the year.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 6.85% due to these changes.

VGM Scores

Currently, Crane has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the second quintile 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 trending upward for the stock, and the magnitude of this revision looks promising. Notably, Crane has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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