Crane (CR) Misses Earnings Estimates In Q3, Lowers '19 View

Crane Co. (NYSE:CR) 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.

Shareholder-Friendly Policy

In the third quarter, Crane used $23.4 million for paying dividends, with roughly $20.9 million distributed in the year-ago comparable quarter.

Concurrent with the earnings release, the company announced that its board of directors approved the payment of a quarterly dividend of 39 cents per share to shareholders of record as of Nov 29, 2019. The dividend payment will be made on Dec 9.

Outlook

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).

Crane Company Price, Consensus and EPS Surprise