Crane Posts In Line Q1 Earnings, Revs Lag - Analyst Blog

Crane Co. CR, a diversified machinery company, reported adjusted earnings per share of $1.05 for first-quarter 2014, up 1% year over year and in line with the Zacks Consensus Estimate.  

Revenue

Crane generated net sales of $716.8 million in first-quarter 2014, reflecting an increase of 14.2% year over year. The improvement can be attributed to a 1.0% core sales increase and a 13.4% contribution from acquisitions, offset partially by a 0.2% negative foreign currency translation impact.

However, the top-line result lagged the Zacks Consensus Estimate of $734 million.   

Total order backlog at the end of first-quarter 2014 was $823.7 million, up 8.1% sequentially.
 
Crane generates revenues under four heads, results of which are briefly discussed below.

Revenues from the Aerospace & Electronics segment increased 2.5% year over year to $169.0 million. Order backlog at the end of the quarter was $397.5 million, up 10% sequentially.  

The Payment & Merchandising Systems segment generated revenues of $169.1 million, up 89.0% year over year. Oder backlog was $58.8 million, up from $51.9 million at the end of the preceding quarter.

The Engineered Materials segment's revenues in the quarter were $67.9 million, up 12.8% year over year. The segment recorded 13.4% sequential increase in its order backlog, settling at $16.6 million.

Revenues from the Fluid Handling segment decreased 0.7% year over year to $310.8 million. Order backlog was $350.7 million, up 5.1% sequentially.

Margins

Crane's cost of goods sold in first-quarter 2014 increased 11.7% year over year and, as a percentage of revenue, it was 63.9%, down 140 basis points (bps) year over year. Gross margin in the quarter was 36.1%. Selling, general and administrative (SG&A) expenses, as a percentage of revenue, were 22.0% versus 20.4% in the year-ago quarter.

Adjusted operating margin from continuing operations contracted 20 bps year over year to 14.1% in the quarter.

Balance Sheet/ Cash Flow

Exiting first-quarter 2014, Crane had cash and cash equivalents of $250.3 million, down from $270.6 million at the end of the previous quarter. Long-term debt increased sequentially to $749.2 million.

Crane, in first-quarter 2014, used $18.9 million of cash for its operating activities, lower than $20.4 million used in the year-ago quarter. Capital expenditure, however, increased 71.6% year over year to $9.4 million. Cash dividends paid in the quarter amounted to $17.6 million, up from $16.1 million in the comparable quarter a year ago.

Concurrent with the earnings release, Crane also announced that its board of directors has approved payment of a quarterly cash dividend of 30 cents on Jun 10, 2014 to shareholders of record as of May 30.

Outlook

For 2014, Crane reiterated its earnings per share guidance in the $4.55−$4.75 range. The prediction excludes 22 cents of integration costs and 5 cents of costs related to facility repositioning actions. Accounting for these one-time expenses, the company's Generally Accepted Accounting principles (GAAP) earnings per share are expected in the $4.28−$4.48 range.    
 
Sales are predicted to be roughly $3.0 billion, including the impact of the MEI Conlux Holdings acquisition (completed in Dec 2013) and core sales growth of 1−3%. Free cash flow is anticipated to be within $225−$250 million.

Crane currently has a market capitalization of $4.1 billion and holds a Zacks Rank #3 (Hold). Some better-ranked stocks in the industry include Icahn Enterprises, L.P. IEP, Federal Signal Corp. FSS and Noble Group Limited (NOBGY), all of which carry a Zacks Rank #1 (Strong Buy).