Crane Co. Reports First Quarter Results

Monday, April 28, 2014 6:15 pm EDT

STAMFORD, Conn.--(BUSINESS WIRE)--Crane Co. (NYSE:CR), a diversified manufacturer of highly engineered industrial products, reported first quarter 2014 earnings of $0.82 per diluted share, compared to $0.99 per share in the first quarter of 2013. First quarter 2014 results included after-tax items of $9.2 million, or $0.16 per share, related to the recent acquisition of MEI, and after-tax charges of $4.3 million, or $0.07 per share, related to previously disclosed repositioning activities. First quarter 2013 results included after-tax transaction costs of $2.9 million, or $0.05 per share, related to the MEI acquisition. Excluding these Special Items in both years, first quarter 2014 earnings per diluted share increased 1% to $1.05, compared to $1.04 in the first quarter of 2013. First quarter 2013 earnings included a $0.05 per share benefit associated with the reinstatement of the R&D tax credit in the United States. (Please see the attached Non-GAAP Financial Measures table.)

First quarter 2014 sales of $716.8 million increased $89.3 million, or 14.2%, compared to $627.6 million in the first quarter of 2013, resulting from a core sales increase of $6.3 million, or 1.0%, sales related to the MEI transaction of $84.1 million, or 13.4%, and unfavorable foreign exchange of $1.2 million, or -0.2%.

Operating profit in the first quarter decreased 6.3% to $81.4 million, compared to $86.9 million in the first quarter of 2013. Excluding Special Items, first quarter operating profit increased 12.4% to $100.9 million, compared to $89.8 million in the first quarter of 2013. (Please see the attached Non-GAAP Financial Measures table.)

“We are pleased to report first quarter EPS of $1.05, excluding Special Items,” said Crane Co. president and chief executive officer Max Mitchell. “The integration of MEI is progressing smoothly, and we remain confident in delivering accretion of $0.20 per share in 2014. In addition, our repositioning actions that will benefit 2015 and 2016 are underway, and we are executing on our long-term growth investments, in particular in our Aerospace & Electronics businesses. We believe that we are on track to achieve our 2014 objectives, and are reaffirming our previously issued full year guidance.”

Cash Flow and Other Financial Metrics

Cash used for operating activities in the first quarter of 2014 was $18.9 million, compared to $20.4 million in the first quarter of 2013. Capital expenditures in the first quarter of 2014 were $9.4 million, compared to $5.5 million in the first quarter of 2013. The Company’s cash position was $250.3 million at March 31, 2014, compared to $270.6 million at December 31, 2013. Total debt was $893.0 million at March 31, 2014, compared to $875.0 million at December 31, 2013.

The effective tax rate was 31.9% in the first quarter of 2014, compared to 28.2% in the first quarter of 2013. Adjusting for Special Items, the tax rate was 31.7% in the first quarter of 2014, compared to 27.3% in the first quarter of 2013. The lower tax rate in the first quarter of 2013 reflected the aforementioned $0.05 per share benefit from the reinstatement of the R&D tax credit.

Segment Results

All comparisons detailed in this section refer to operating results for the first quarter 2014 versus the first quarter 2013.

Fluid Handling

       
First Quarter Change
(dollars in millions) 2014   2013  
 
Sales $ 310.8 $ 313.0 ($2.2 ) -0.7 %
 
Operating Profit $ 44.5 $ 45.9 ($1.4 ) -3.0 %
Operating Profit, before Special Items* $ 47.7 $ 45.9 $ 1.8 4.0 %
 
Profit Margin 14.3 % 14.7 %
Profit Margin, before Special Items* 15.4 % 14.7 %
 
*Excludes $3.2 million of repositioning charges in the first quarter of 2014
 

First quarter 2014 sales decreased $2.2 million, or -0.7%, which included a core sales decline of $1.9 million, or -0.6%, and unfavorable foreign exchange of $0.3 million, or -0.1%. The core sales decline was driven by continued softness in Canadian end markets and unfavorable comparisons for nuclear project based services. Excluding Special Items, segment operating margin increased from 14.7% to 15.4%, primarily reflecting continued productivity gains. Fluid Handling order backlog was $351 million at March 31, 2014, compared to $334 million at December 31, 2013 and $365 million at March 31, 2013. The year-over-year decrease in backlog was driven primarily by the timing of nuclear project based services.

Payment & Merchandising Technologies

       
First Quarter Change
(dollars in millions) 2014   2013  
 
Sales $ 169.1 $ 89.5 $ 79.6 89.0 %
 
Operating Profit $ 7.4 $ 10.2 ($2.7 ) -26.7 %
Operating Profit, before Special Items* $ 19.8 $ 10.2 $ 9.6 94.9 %
 
Profit Margin 4.4 % 11.4 %
Profit Margin, before Special Items* 11.7 % 11.4 %
 
* Excludes $12.4 million of transaction- and integration-related expenses in 2014
 

Segment sales of $169.1 million increased $79.6 million, or 89.0%, driven primarily by $84.1 million of sales related to the MEI transaction, which was partially offset by an expected core sales decline of $3.3 million, or -3.7%, and unfavorable foreign exchange of $1.1 million, or -1.2%. As a reminder, MEI added additional unfavorable seasonality to the first quarter. Merchandising Systems sales were flat compared to last year. Excluding Special Items, operating profit increased to $19.8 million in the quarter, primarily reflecting the impact of the MEI acquisition.

Aerospace & Electronics

       
First Quarter Change
(dollars in millions) 2014   2013  
 
Sales $ 169.0 $ 164.9 $ 4.1 2.5 %
 
Operating Profit $ 32.6 $ 40.1 ($7.6 ) -18.8 %
Operating Profit, before Special Items* $ 35.4 $ 40.1 ($4.7 ) -11.8 %
 
Profit Margin 19.3 % 24.3 %
Profit Margin, before Special Items* 20.9 % 24.3 %
 
* Excludes $2.8 million of repositioning charges in the first quarter of 2014
 

First quarter 2014 sales increased $4.1 million, or 2.5%, reflecting a sales increases of $5.3 million, or 5.1%, in the Aerospace Group, and a sales decline of $1.2 million, or -2.0%, in the Electronics Group. The Aerospace Group sales increase reflected stronger commercial OEM and aftermarket sales activity. The decrease in Electronics Group sales was driven primarily by lower product shipments for defense applications. Excluding Special items, segment operating profit decreased $4.7 million, primarily due to anticipated higher engineering spending and other program investments supporting new product development. Aerospace & Electronics order backlog was $398 million at March 31, 2014, compared to $361 million at December 31, 2013, and $398 million at March 31, 2013.

Engineered Materials

           
First Quarter Change
(dollars in millions) 2014 2013
 
Sales $ 67.9 $ 60.2 $ 7.7 12.8 %
 
Operating Profit $ 10.8 $ 8.6 $ 2.2 25.9 %
 
Profit Margin 15.9 % 14.2 %
 

Segment sales of $67.9 million were 12.8% higher than the first quarter of 2013, primarily driven by higher sales to recreational vehicle equipment manufacturers. Operating profit increased 25.9% to $10.8 million, and margins increased from 14.2% to 15.9%, primarily reflecting the impact of the higher sales.

2014 Guidance Reaffirmed

The Company reaffirmed its 2014 guidance which was initially provided on January 27, 2014. Sales for 2014 are expected to be $3.0 billion, driven by a core sales increase of 1% to 3%, and a 14% contribution from the MEI acquisition. The 2014 earnings guidance is a range of $4.55 - $4.75 per diluted share, excluding previously disclosed Special Items. Including the Special Items, 2014 earnings guidance on a GAAP basis is a range of $4.28 - $4.48 per diluted share. Full year 2014 free cash flow (cash provided by operating activities less capital spending) is expected to be in a range of $225 to $250 million. (Please see the attached Non-GAAP Financial Measures table.)

Additional Information

Please see the Non-GAAP Financial Measures table attached to this press release for supporting details. Additional information with respect to the Company’s asbestos liability and related accounting provisions and cash requirements is set forth in the Current Report on Form 8-K filed with a copy of this press release.

Conference Call

Crane Co. has scheduled a conference call to discuss the first quarter financial results on Tuesday, April 29, 2014 at 10:00 A.M. (Eastern). All interested parties may listen to a live webcast of the call at http://www.craneco.com. An archived webcast will also be available to replay this conference call directly from the Company’s website. Slides that accompany the conference call will be available on the Company’s website.

Crane Co. is a diversified manufacturer of highly engineered industrial products. Founded in 1855, Crane provides products and solutions to customers in the hydrocarbon processing, petrochemical, chemical, power generation, unattended payment, automated merchandising, aerospace, electronics, transportation and other markets. The Company has four business segments: Fluid Handling, Payment & Merchandising Technologies, Aerospace & Electronics and Engineered Materials. Crane has approximately 11,000 employees in North America, South America, Europe, Asia and Australia.

Crane Co. is traded on the New York Stock Exchange (NYSE:CR). For more information, visit www.craneco.com.

This press release may contain forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. These statements present management’s expectations, beliefs, plans and objectives regarding future financial performance, and assumptions or judgments concerning such performance. Any discussions contained in this press release, except to the extent that they contain historical facts, are forward-looking and accordingly involve estimates, assumptions, judgments and uncertainties. There are a number of factors that could cause actual results or outcomes to differ materially from those addressed in the forward-looking statements. Such factors are detailed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013 and subsequent reports filed with the Securities and Exchange Commission.

(Financial Tables Follow)

       
CRANE CO.
Income Statement Data
(in thousands, except per share data)
 
Three Months Ended
March 31,
2014 2013
Net Sales:
Fluid Handling $ 310,837 $ 312,998
Payment & Merchandising Technologies 169,092 89,461
Aerospace & Electronics 168,960 164,882
Engineered Materials 67,941   60,230
Total Net Sales $ 716,830   $ 627,571
 
Operating Profit (Loss):
Fluid Handling $ 44,501 $ 45,891
Payment & Merchandising Technologies 7,447 10,165
Aerospace & Electronics 32,557 40,111
Engineered Materials 10,793 8,574

Corporate *

(13,912

)

(17,841

)

Total Operating Profit 81,386 86,900
 
Interest Income 388 632
Interest Expense (9,809 ) (6,718 )
Miscellaneous- Net (204 ) (120 )
Income Before Income Taxes 71,761 80,694
Provision for Income Taxes 22,889   22,752
Net income before allocation to noncontrolling interests 48,872 57,942
 
Less: Noncontrolling interest in subsidiaries' earnings 188 151
 
Net income attributable to common shareholders $ 48,684   $ 57,791
 
Share Data:

Earnings per Diluted Share

$ 0.82 $ 0.99
 
Average Diluted Shares Outstanding 59,514 58,389
Average Basic Shares Outstanding 58,516 57,479
 

Supplemental Data:

Cost of Sales $ 457,954 $ 409,819
Selling, General & Administrative 157,936 127,964
Repositioning Charges (see non-GAAP measures) 6,050 -
Acquisition Related Charges (see non-GAAP measures) 13,504 2,888
Depreciation and Amortization ** 21,775 12,710
Stock-Based Compensation Expense 5,647 5,379
 
* Corporate included acquisition related cost of $1.1 million and $2.9 million for the three months ended March 31, 2014 and 2013, respectively.
** Amount included within cost of sales and selling, general & administrative costs.
       
CRANE CO.
Condensed Balance Sheets
(in thousands)
 
March 31, December 31,
2014 2013
 
ASSETS
Current Assets
Cash and Cash Equivalents $ 250,274 $ 270,643
Accounts Receivable, net 457,180 437,541
Current Insurance Receivable - Asbestos 22,783 22,783
Inventories, net 389,301 368,886
Other Current Assets 50,548 49,239
Total Current Assets 1,170,086 1,149,092
 
Property, Plant and Equipment, net 303,778 305,055
Long-Term Insurance Receivable - Asbestos 143,044 148,222
Other Assets 689,337 707,922
Goodwill 1,247,100 1,249,316
 
Total Assets $ 3,553,345 $ 3,559,607
 
LIABILITIES AND EQUITY
Current Liabilities
Notes Payable and Current Maturities of Long-Term Debt $ 143,804 $ 125,826
Accounts Payable 214,107 229,828
Current Asbestos Liability 88,038 88,038
Accrued Liabilities 233,505 223,148
Income Taxes 1,519 2,062
Total Current Liabilities 680,973 668,902
 
Long-Term Debt 749,181 749,170
Long-Term Deferred Tax Liability 50,907 76,041
Long-Term Asbestos Liability 592,428 610,530
Other Liabilities 220,411 240,291
 
Total Equity 1,259,445 1,214,673
 
Total Liabilities and Equity $ 3,553,345 $ 3,559,607
 
       
CRANE CO.
Condensed Statements of Cash Flows
(in thousands)
 
Three Months Ended
March 31,
2014 2013
Operating Activities:
Net income attributable to common shareholders $ 48,684 $ 57,791
Noncontrolling interest in subsidiaries' earnings   188     151  
Net income before allocations to noncontrolling interests 48,872 57,942
Restructuring - Non Cash 366 -
Depreciation and amortization 21,775 12,710
Stock-based compensation expense 5,647 5,379
Defined benefit plans and postretirement expense (2,908 ) 943
Deferred income taxes 4,738 8,200
Cash used for operating working capital (69,322 ) (98,534 )
Defined benefit plans and postretirement contributions (4,761 ) (2,816 )
Environmental payments, net of reimbursements (2,683 ) (3,505 )
Other   (7,709 )   9,771  
Subtotal (5,985 ) (9,910 )
Asbestos related payments, net of insurance recoveries   (12,925 )   (10,493 )
Total used for operating activities   (18,910 )   (20,403 )
 
Investing Activities:
Capital expenditures (9,393 ) (5,473 )
Proceeds from disposition of capital assets   231     196  
Total used for investing activities   (9,162 )   (5,277 )
 
Financing Activities:
Dividends paid (17,616 ) (16,144 )
Stock options exercised - net of shares reacquired 3,752 10,389
Excess tax benefit from stock-based compensation 5,145 2,928
Change in short-term debt   18,000     -  
Total provided by (used for) financing activities   9,281     (2,827 )
 
Effect of exchange rate on cash and cash equivalents   (1,578 )   (10,801 )
Decrease in cash and cash equivalents (20,369 ) (39,308 )
Cash and cash equivalents at beginning of period     270,643     423,947  
Cash and cash equivalents at end of period   $ 250,274   $ 384,639  
 
             
CRANE CO.
Order Backlog
(in thousands)
 
March 31, December 31, September 30, June 30, March 31,
2014 2013 2013 2013 2013
 
Fluid Handling $ 350,720 $ 333,860 $ 355,192 $ 349,545 $ 365,231
Payment & Merchandising Technologies 58,787 * 51,888 * 23,901 25,641 21,399
Aerospace & Electronics 397,541 361,323 381,830 403,400 397,518
Engineered Materials   16,624   14,661   12,572   14,122   16,138
Total Backlog $ 823,672 $ 761,732 $ 773,495 $ 792,708 $ 800,286
 
* Includes $37.0 million and $31.9 million of order backlog as of March 31, 2014 and December 31, 2013, respectively, pertaining to the MEI/Conlux business acquired in December 2013.
 
CRANE CO.
Non-GAAP Financial Measures
(in thousands)

INCOME ITEMS

         
Three Months Ended Percent Change
March 31, March 31, 2014
2014 2013 Three Months
 
 
Net Sales $ 716,830 $ 627,571 14.2 %
 
 
Operating Profit 81,386 86,900 -6.3 %
Percentage of Sales 11.4 % 13.8 %
 

Special Items impacting Operating Profit:

 
Acquisition transaction costs (a) - 2,888
 
Acquisition related inventory and backlog amortization (b) 4,790 -
 

Acquisition related integration costs (c)

4,391 -
 

Acquisition related restructuring costs (d)

4,323 -
 
Repositioning charges (e) 6,050 -
   
Operating Profit before Special Items $ 100,940   $ 89,788   12.4 %
 
Percentage of Sales 14.1 % 14.3 %
 
 
Net Income Attributable to Common Shareholders $ 48,684 $ 57,791
Per Share $ 0.82 $ 0.99 -17.4 %
 

Special Items impacting Net Income Attributable to Common Shareholders:

 
Acquisition Transaction Costs - Net of Tax (a) - 2,888
Per Share $ 0.05
 
Acquisition related inventory and backlog amortization - Net of Tax (b) 3,018 -
Per Share $ 0.05
 
Acquisition related integration charges - Net of Tax (c) 3,209 -
Per Share $ 0.05
 
Acquisition related restructuring charges - Net of Tax (d) 2,980 -
Per Share $ 0.05
 
Repositioning Charges - Net of Tax (e) 4,330 -
Per Share $ 0.07
 
   
Net Income Attributable To Common Shareholders Before Special Items $ 62,221 $ 60,679 2.5 %
Per Share $ 1.05 $ 1.04 0.6 %
 
(a) During the three months ended March 31, 2013, the Company recorded transaction costs associated with the acquisition of MEI/Conlux.
 
(b) During the three months ended March 31, 2014, the Company recorded inventory step-up and backlog amortization relating to the acquisition of MEI/Conlux.
 
(c) During the three months ended March 31, 2014, the Company recorded integration costs associated with the acquisition of MEI/Conlux.
 
(d) During the three months ended March 31, 2014, the Company recorded restructuring costs associated with the acquisition of MEI/Conlux.
 

(e) During the three months ended March 31, 2014, the Company recorded repositioning charges associated with certain facility consolidation activities in our Fluid Handling and Aerospace & Electronics segments. These charges primarily included severance and move costs related to the transfer of certain manufacturing operations.

     
2014 Full Year Guidance
 
2014 Earnings Per Share Guidance Low High
 
Earnings Per Share - GAAP basis $ 4.28 $ 4.48
 
Acquisition integration costs, inventory step-up and backlog amortization - Net of Tax(f) 0.22 0.22
 
Anticipated facility repositioning actions, net of real estate divestiture gains - Net of Tax (g) 0.05 0.05
   
Earnings Per Share - Non-GAAP basis $ 4.55 $ 4.75
 
(f) In connection with the MEI/Conlux acquisition, the Company expects to incur transaction and integration related costs, and inventory step up and backlog amortization charges in a range of $18 million to $21 million. The $0.22 represents the estimated Earnings Per Share impact for the mid-point of the $18 million to $21 million range.
 

(g) In 2014, the Company expects to incur costs associated with facility repositioning actions related to the consolidation of certain smaller manufacturing sites and expects to record gains from the sale of certain Company owned real estate.

               

CASH FLOW ITEMS

 
Three Months Ended
March 31, 2014 Full Year Guidance
2014 2013 Low High
Cash Provided from Operating Activities
before Asbestos - Related Payments $ (5,985 ) $ (9,910 ) $ 345,000 $ 354,000
Asbestos Related Payments, Net of Insurance Recoveries   (12,925 )   (10,493 )   (70,000 )   (64,000 )
Cash Provided from Operating Activities (18,910 ) (20,403 ) 275,000 290,000
Less: Capital Expenditures   (9,393 )   (5,473 )   (50,000 )   (40,000 )
Free Cash Flow $ (28,303 ) $ (25,876 ) $ 225,000   $ 250,000  
 
Certain non-GAAP measures have been provided to facilitate comparison with the prior year.
 
The Company reports its financial results in accordance with U.S. generally accepted accounting principles (GAAP). However, management believes that non-GAAP financial measures which exclude certain non-recurring items present additional useful comparisons between current results and results in prior operating periods, providing investors with a clearer view of the underlying trends of the business. Management also uses these non-GAAP financial measures in making financial, operating, planning and compensation decisions and in evaluating the Company's performance.
 
In addition, Free Cash Flow provides supplemental information to assist management and investors in analyzing the Company’s ability to generate liquidity from its operating activities. The measure of Free Cash Flow does not take into consideration certain other non-discretionary cash requirements such as, for example, mandatory principal payments on the Company's long-term debt. Non-GAAP financial measures, which may be inconsistent with similarly captioned measures presented by other companies, should be viewed in addition to, and not as a substitute for, the Company’s reported results prepared in accordance with GAAP.

Contact:

Crane Co.
Richard E. Koch, 203-363-7352
Director, Investor Relations
and Corporate Communications
www.craneco.com