Crane Q4 Earnings Beat but Revenues Lag; '16 Outlook Soft
Crane Co. CR impressed investors with better-than-expected results for fourth-quarter 2015, leading to a 6.77% hike in the stock price since the after-market earnings release on Jan 25. The company’s adjusted earnings (before special items) came in at $1.12 per share, surpassing the Zacks Consensus Estimate of $1.10 by 1.82%. However, Crane’s adjusted earnings per share for the quarter fell 1.1% year over year.
For 2015, Crane’s adjusted earnings were $4.13 per share, down 7.3% year over year.
Crane Company - Earnings Surprise | FindTheBest
Revenues
Crane’s top-line performance in fourth-quarter 2015 was weak, as net sales declined 6.9% year over year to $680.6 million. The year-over-year decline was triggered mainly by 3% adverse impact from unfavorable foreign currency movements as well as a 3% decline in core sales. Also, the top line lagged the Zacks Consensus Estimate of $694 million.
At quarter-end, total order backlog was $781.5 million, down 3.3% year over year.
Crane generates revenues under four heads, results of which are briefly discussed below.
Revenues from the Aerospace & Electronics segment were $190.9 million, down 4.7% year over year. Order backlog was $436.4 million, down 5.1% sequentially.
The Payment & Merchandising Systems segment generated revenues of $174 million, down 1.8% year over year. Order backlog was $62.6 million, up 12.8% sequentially.
The Engineered Materials segment’s revenues were $56.4 million, down 1.7% year over year. Order backlog for the segment increased 10.9% sequentially to $15.2 million.
Revenues from the Fluid Handling segment decreased 17.4% year over year to $259.4 million. Order backlog was $267.2 million, down 4.1% sequentially.
For 2015, Crane’s revenue totaled $2,740.5 million, decreasing 6.3% year over year.
Margins
Crane’s cost of goods sold decreased 8% year over year, and, as a percentage of revenues, came in at 64.9% versus 65.7% in the prior-year quarter. Gross margin was 35.1%. Selling, general and administrative (SG&A) expenses, as a percentage of revenues, were 19.8% as against 19.6% recorded in the year-ago quarter.
Adjusted operating margin from continuing operations expanded 60 basis points (bps) year over year to 15.3%.
Balance Sheet and Cash Flow
Exiting fourth-quarter 2015, Crane had cash and cash equivalents of $363.5 million versus $335.2 million in the previous quarter. Long-term debt stood roughly stable at $749.3 million.
Cash generation from operating activities declined 24.5% year over year to $113.6 million for fourth-quarter 2015. Capital expenditure was roughly flat at $11.4 million; while approximately $19.2 million were paid as dividends to shareholders. Free cash flow in the quarter was $102.2 million, down from $138.9 million in the year-ago 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. The dividend will be paid on Mar 10, 2016 to shareholders of record as on Feb 29.
Outlook
Crane briefly discussed its long-term expectations and also provided its short-term guidance for 2016. Over the long run, the company anticipates benefiting from new aerospace programs that are slated to be launched in the years ahead, a favorable product portfolio for its Fluid Handling customers, and expansion in the Payment & Merchandising sales and margins.
For 2016, Crane anticipates weak oil and commodity prices, low industrial demand and adverse impact of unfavourable foreign currency movements to restrict the top-line performance of its Fluid Handling segment. These negatives are likely to offset the impact of $25 million in repositioning and synergy savings.
The company expects earnings within $3.85−$4.15 per share in 2016, roughly flat to down 7% from adjusted earnings of 2015. Sales are forecasted to be $2.7 billion, while core sales will be down 1.5% to up 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 $240−$270 million, while capital spending is likely to be $50 million. Free cash flow is anticipated within $190−$220 million.
With a market capitalization of $2.7 billion, Crane currently carries a Zacks Rank #4 (Sell). Better-ranked stocks in the sector include Macquarie Infrastructure Corporation MIC, LSB Industries Inc. LXU and Barloworld Ltd. BRRAY. While Macquarie Infrastructure sports a Zacks Rank #1 (Strong Buy), both LSB Industries and Barloworld carry a Zacks Rank #2 (Buy).
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