Crane (CR) Tops Q2 Earnings & Revenues; Ups '16 View

Crane Co. (NYSE:CR) kept its earnings streak alive in second-quarter 2016 by posting a positive earnings surprise of 18.63%. The company’s share price has increased 6.6% since the earnings release on Jul 25.

The company’s earnings of $1.21 per share exceeded the Zacks Consensus Estimate of $1.02. Also, the bottom line came in above the year-ago tally of $1.06.

In regard to Crane’s top-line results, net sales in the quarter were $712.2 million, above the Zacks Consensus Estimate of $665.5 million. Also, the top line inched up a mere 0.1% year over year as core growth of roughly 1% was partially offset by 1% adverse impact from foreign currency movements. At the quarter-end, total order backlog was $763.5 million, down 6% year over year.

Segmental Details

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

Revenues from Aerospace & Electronics totaled $189.2 million, up 13.2% year over year. Order backlog was $435.9 million, up 4.1% sequentially.

Payment & Merchandising Technologies generated revenues of $192.6 million, up 3.3% year over year. Order backlog was $65.8 million, up 8.9% sequentially.

Engineered Materials’ revenues were $64.5 million, down 2% year over year. Order backlog for the segment decreased 3.8% sequentially to $15.4 million.

Revenues from Fluid Handling decreased 8.9% year over year to $265.9 million. Order backlog was $246.3 million, down 6.5% sequentially.

Margins

In the quarter, Crane’s cost of goods sold decreased 4.6% year over year, and, as a percentage of revenues came in at 63.1%, down from 66.2% in the prior-year quarter. Gross margin inched up 310 basis points (bps) to 36.9%. Selling, general and administrative expenses, as a percentage of revenues were 22.5% up from 19.96% recorded in the year-ago quarter.

Adjusted operating margin from continuing operations increased 120 bps year over year to 15.1%.

Balance Sheet and Cash Flow

Exiting second-quarter 2016, Crane’s cash and cash equivalents were $408.9 million, up from $354 million recorded in the previous quarter. Long-term debt was roughly flat sequentially at $745 million.

In the quarter, Crane generated cash of $69.8 million from its operating activities, above $57.8 million generated in the year-ago quarter. Capital expenditure grew 57.6% year over year to $15.6 million. Dividend paid in the quarter was approximately $19.3 million.

Concurrent with the earnings release, Crane announced that its board of directors has approved the payment of a quarterly dividend of 33 cents per share. The dividend will be paid on Sep 9, 2016 to shareholders of record as on Aug 31.

Outlook

For 2016, Crane is optimistic about its segmental performance. However, it remains cautious of the adverse impacts from unfavorable foreign currency movements and volatility in commodity markets.

Crane has increased its non-GAAP earnings guidance to $4.00−$4.20 per share, from $3.85−$4.15 expected earlier. Sales are still expected to be $2.7 billion, with core sales growth to be within (1.5%) to +1.5% year over year. Adverse foreign currency movements will likely hurt the top line by 2%.

Cash from operating activities is projected in a range of $245−$270 million (versus the prior expectation of $240−$270 million), while capital spending is likely to be $50 million. Free cash flow is anticipated within $195−$220 million versus $190−$220 million anticipated earlier.

Zacks Rank & Stocks to Consider

With a market capitalization of $3.6 billion, Crane currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the industry include Carlisle Companies Incorporated (NYSE:CSL) , Leucadia National Corporation (NYSE:LUK) and Swire Pacific Limited (OTC:SWRAY) . All these stocks carry a Zacks Rank #2 (Buy).

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