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Why Is Crane (CR) Down 1.9% 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 lost about 1.9% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Crane due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Crane Beats Q1 Earnings and Sales Estimates, Ups View

Crane delivered impressive results for the first quarter of 2021. Its earnings surpassed the Zacks Consensus Estimate by 26.72%, whereas sales exceeded the same by 7.29%.

Adjusted earnings in the reported quarter were $1.66 per share, surpassing the Zacks Consensus Estimate of $1.31. On a year-over-year basis, the bottom line expanded 44.3% from the year-ago quarter figure of $1.15 on the back of sales growth and improved margin.

Revenues Details

In the quarter under review, Crane’s net sales were $833.5 million, reflecting growth of 4.5% from the year-ago quarter. Results benefited from core sales growth of 1%, contribution of 3% from movements in foreign currencies and 1% gain from acquired assets.

Also, Crane’s net sales surpassed the Zacks Consensus Estimate of $777 million.

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 $288 million, reflecting growth of 12.2% from the year-ago quarter figure. The results benefited from a 6% gain from organic sales, 5% from movements in foreign currencies and 2% from acquisitions. The segment’s order backlog was $325.4 million in the reported quarter, reflecting sequential growth of 3.8%.

Revenues from Payment & Merchandising Technologies totaled $337.5 million, increasing 13.5% year over year. Organic sales in the quarter grew 9%, while foreign currency translation had a positive impact of 4%. Order backlog at the end of the reported quarter was $337 million, down 3% sequentially.

Revenues from the Aerospace & Electronics segment were $154.1 million, down 20.1% year over year. Order backlog at the end of the quarter under review was $481.6 million, down 2% sequentially.

Revenues from the Engineered Materials segment increased 5.9% year over year to $53.9 million. Order backlog at the end of the reported quarter was $17 million, up 32.8% sequentially.

Margin Profile

In the first quarter, Crane’s cost of sales at $513.6 million represented a marginal increase from the year-ago quarter. It represented 61.6% of net sales compared with 64.3% in the year-ago quarter. Selling, general and administrative expenses decreased 11.5% year over year to $173.4 million. It represented 20.8% of net sales versus 24.6% in the year-ago quarter.

Adjusted operating income in the quarter under review increased 39.7% year over year to $134.7 million. Moreover, adjusted operating margin grew 420 basis points to 16.2%. Interest expenses, net, in the reported quarter were $13.2 million, up 9.1% year over year.

Balance Sheet and Cash Flow

Exiting the first quarter, Crane had cash and cash equivalents of $578.4 million, up 5% from $551 million at the end of the last reported quarter. Long-term debt balance was flat sequentially at $843.2 million.

In the reported quarter, the company repaid $27.1 million worth of commercial paper (maturity >90 days).

In the first quarter of 2021, it generated net cash of $50.2 million from operating activities as compared with $35.5 million net cash used in the year-ago quarter. Capital expenditure was $4.9 million, down 37.2% year over year. Free cash flow in the reported quarter was $45.3 million versus an outflow of $43.3 million in the year-ago quarter.

Shareholder-Friendly Policy

In the first quarter, Crane used $25 million for paying dividends, decreasing 2% from the year-ago quarter. Notably, no share was repurchased in the reported quarter.

Outlook

Based on the first quarter’s impressive results and strengthening end-market business, Crane increased its projections for 2021.

It now anticipates adjusted earnings per share of $5.65-$5.85 for the year, higher than $5.00-$5.20 mentioned previously.

Sales are predicted to be $3,185 million as compared with the previously stated $3,080 million. Acquired assets will likely benefit sales by $5 million (guidance maintained), whereas movements in foreign currencies are expected to boost sales by 2.5% versus 1.5% stated previously. Core sales are expected to increase 4-6% year over year, marking an increase from 2-4% stated earlier.

Corporate expenses in the year are expected to be $77 million, up from $65 million mentioned earlier. Adjusted tax rate will likely be 21% versus 21.5% in the year-ago quarter. The company anticipates operating cash flow of $375-$405 million and capital expenditure of $75 million for 2021. Free cash flow is projected to be $300-$330 million.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month. The consensus estimate has shifted 13.17% due to these changes.

VGM Scores

At this time, Crane has a subpar Growth Score of D, a grade with the same score on the momentum front. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. 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 these revisions looks promising. It comes with little surprise Crane has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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