A month has gone by since the last earnings report for Crane (CR - Free Report) . Shares have added about 7.8% 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 catalysts.
Crane Misses Earnings Estimates in Q3, Lowers '19 View
Crane reported weaker-than-expected results for the third quarter of 2019. Its earnings lagged estimates by 9.68%, while sales lagged the same by 2.5%. Notably, the company delivered positive earnings surprise in the previous 15th consecutive quarters.
Adjusted earnings in the reported quarter were $1.40 per share, lagging the Zacks Consensus Estimate of $1.55. On a year-over-year basis, the bottom line declined 13.6% from the year-ago quarter figure of $1.62 due to poor sales performance and fall in operating margin.
Revenues Decline Y/Y
In the quarter under review, Crane’s net sales were $772.3 million, reflecting a decline of 9.8% from the year-ago quarter. Forex woes adversely impacted results by 1% while organic sales were down 8%. Also, divestitures had adverse impact of $2 million.
However, its net sales lagged the Zacks Consensus Estimate of $792.2 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 $276.1 million, reflecting a decline of 0.9% from the year-ago quarter figure. Organic sales in the quarter grew 1.5%, which were more than offset by unfavorable movements in foreign currencies of 2%. The segment’s order backlog was $272.1 million in the reported quarter, reflecting a sequential decline of 1%.
Revenues from Payment & Merchandising Technologies totaled $248.9 million, declining 24% year over year. Organic sales in the quarter dipped 22% while forex woes had adverse impact of 2%. Divestitures had negative impact of $2 million. Order backlog at the end of the reported quarter was $291.8 million, up 1.7% sequentially.
Revenues from the Aerospace & Electronics segment were $197.2 million, rising 4.1% year over year. The improvement was mainly driven by core sales growth. Order backlog at the end of the quarter under review was $564.3 million, up 12.2% sequentially.
Revenues from the Engineered Materials segment dipped 16.8% year over year to $50.1 million on weak business in the recreational vehicle end market. Order backlog at the end of the reported quarter was $10.1 million, down 12.2% sequentially.
Operating Margin Decline Y/Y
In the third quarter, Crane’s cost of sales declined 9.3% year over year to $494.4 million. It represented 64% of net sales compared with 63.7% in the year-ago quarter. Selling, general and administrative expenses dipped 5.5% year over year to $168.6 million. It represented 21.8% of net sales versus 20.9% in the year-ago quarter.
Adjusted operating income in the quarter under review declined 14.2% year over year to $114 million. Moreover, adjusted operating margin declined 70 basis points to 14.8%.
Balance Sheet and Cash Flow
Exiting the third quarter, Crane had cash and cash equivalents of $388.8 million, up 26.6% from $307 million at the end of the last reported quarter. Long-term debt balance was down 0.6% sequentially to $934.9 million.
In the third quarter, the company generated net cash of $118.5 million from operating activities, mirroring growth from $91 million generated in the year-ago quarter. Capital expenditure was $14.8 million, down 53.2% from the year-ago quarter. Free cash flow in the quarter was $103.7 million versus $59.4 million in the year-ago quarter.
In the third quarter, Crane used $23.4 million for paying dividends, with roughly $20.9 million distributed in the year-ago comparable quarter.
For 2019, the company lowered adjusted earnings per share projection to $5.90-$6.10 from the earlier $6.25-$6.45. The revision mainly resulted from lower U.S. Government sales for Crane Currency.
It anticipates operating cash flow of $365-$395 million (down from previously stated $425-$455 million) and capital expenditure of $80 million (versus $90 million mentioned previously) for 2019. Free cash flow is projected to be $285-$315 million (down from $335-$365 million stated earlier).
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -9.89% due to these changes.
Currently, Crane has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Crane has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.