Crane (CR) Q2 Earnings Beat, Fall Y/Y on Lower Revenues

Crane Co. CR reported impressive results for second-quarter 2017, with earnings and revenues surpassing their respective Zacks Consensus Estimate by 0.86% and 0.82%. Despite the outperformance, we believe that roughly 8% fall in the company’s share price since the earnings release factors in the year-over-year decline.
   
Excluding the impact of special items, Crane’s earnings came in at $1.17 per share, surpassing the Zacks Consensus Estimate of $1.16. However, the bottom-line decreased 2.8% from the year-ago quarter’s tally of $1.21.

Revenues totaled $702.5 million, above the Zacks Consensus Estimate of $697 million but fell 1.4% from $712.2 million in second-quarter 2016. The company’s core sales inched up 0.1% and acquisitions had 0.5% positive impact. These were more than offset by 1.9% adverse impact from unfavorable foreign currency movements.

At the quarter end, total order backlog was $689 million, down 2.4% sequentially.

Segmental Revenues

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

Revenues from Aerospace & Electronics segment totaled $171.1 million, down 9.6% year over year. It represented 24.4% of second-quarter revenues. Order backlog was $328.2 million, down 6.9% sequentially.

Payment & Merchandising Technologies segment generated revenues of $198.2 million, up 2.9% year over year. It represented 28.2% of second-quarter revenues. Order backlog was $87 million, up 1.4% sequentially.

Engineered Materials segment’s revenues were $69.4 million, increasing 7.6% year over year. It represented 9.9% of second-quarter revenues. Order backlog for the segment decreased 16.3% sequentially to $14.9 million.

Revenues from Fluid Handling dipped 0.8% year over year to $263.8 million. It represented 37.5% of second-quarter revenues. Order backlog was $258.9 million, up 3.6% sequentially.

Margins

In the quarter, Crane’s cost of goods sold declined 1.1% year over year and as a percentage of revenues came in at 63.2% versus 63.1% in the prior-year quarter. Gross margin fell 10 basis points (bps) to 36.8%. Selling, general and administrative expenses, as a percentage of revenues were 20.9% compared with 22.5% in the year-ago quarter.

Operating margin, before special items, increased 80 bps year over year to 15.9%.

Balance Sheet and Cash Flow

Exiting the second quarter, Crane’s cash and cash equivalents were $509.3 million, above $504.8 million at previous-quarter end. Long-term debt was roughly flat sequentially at $745.7 million.

Net cash generated from operating activities totaled $66.9 million, down 4.2% year over year. Capital spending was $11.2 million, below $15.6 million spent in the year-ago quarter.

Dividend paid in the quarter was approximately $19.7 million. Also, the company invested $58 million for acquiring Westlock Controls and Microtronic during the quarter.

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 for third-quarter 2017. The dividend will be paid on Sep 8, to shareholders on record as of Aug 31.

Outlook

For 2017, Crane reaffirmed its previously issued earnings guidance of $4.35−$4.55. Cash flow from operating activities is anticipated to be within $325−$355 million while capital spending is likely to total $50 million.

Crane Company Price and Consensus

 

Crane Company Price and Consensus | Crane Company Quote

Zacks Rank & Key Picks

With a market capitalization of $4.6 billion, Crane currently carries a Zacks Rank #2 (Buy). Other stocks worth considering in the diversified operations industry include Federal Signal Corporation FSS, 3M Company MMM and Danaher Corporation DHR. While Federal Signal sports a Zacks Rank #1 (Strong Buy), both 3M Company and Danaher carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Federal Signal’s earnings estimates for 2017 and 2018 were revised upward over the last 60 days. Also, the company pulled off an average positive earnings surprise of 3.10% for the trailing four quarters.

3M Company performed well in the last four quarters, with an average positive earnings surprise of 1.34%. Also, earnings estimates for 2017 and 2018 improved in the last 60 days.

Danaher Corporation delivered an average positive earnings surprise of 2.50% in the trailing four quarters. Also, its earnings estimates for 2017 improved in the last 60 days.  

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