Crane (CR) Up 2.2% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for Crane (CR). Shares have added about 2.2% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Crane due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Crane Q1 Earnings and Revenues Miss Estimates, Down Y/Y

Crane reported weaker-than-expected results for the first quarter of 2020. Its earnings and sales missed estimates by 6.5% and 3.3%, respectively.

Adjusted earnings in the reported quarter were $1.15 per share, missing the Zacks Consensus Estimate of $1.23. On a year-over-year basis, the bottom line declined 20.7% from the year-ago quarter figure of $1.45 due to poor sales performance.

Revenues Decline Y/Y

In the quarter under review, Crane’s net sales were $797.9 million, reflecting a decline of 4.1% from the year-ago quarter. Results were adversely impacted by a fall in core sales of $80 million largely due to coronavirus outbreak-led issues and forex woes of $7 million, partially offset by the benefit of $54 million from acquisitions.

Crane’s net sales missed the Zacks Consensus Estimate of $825 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 $256.7 million, reflecting a decline of 6% from the year-ago quarter figure. Results were adversely impacted by forex woes and an organic sales decline. The segment’s order backlog was $293.4 million in the reported quarter, reflecting a sequential increase of 9.7%.

Revenues from Payment & Merchandising Technologies totaled $297.4 million, decreasing 2% year over year. Results were adversely impacted by an organic sales decline of 15%, and an adverse impact of 1% from forex woes, partially offset by 15% benefit from acquisitions. Order backlog at the end of the reported quarter was $326.3 million, up 4.8% sequentially.

Revenues from the Aerospace & Electronics segment were $192.9 million, declining 1% year over year. The fall was mainly attributable to a decline in core sales. Order backlog at the end of the quarter under review was $547.5 million, down 3.5% sequentially.

Revenues from the Engineered Materials segment dipped 15% year over year to $50.9 million on weak business in the recreational vehicle end market. Order backlog at the end of the reported quarter was $10.8 million, up 14.9% sequentially.

Operating Margin Declines Y/Y

In the first quarter, Crane’s cost of sales decreased 2.8% year over year to $513.3 million. It represented 64.3% of net sales compared with 63.5% in the year-ago quarter. Selling, general and administrative expenses grew 3.2% year over year to $196 million. It represented 24.6% of net sales versus 22.8% in the year-ago quarter.

Operating income in the quarter under review decreased 21.9% year over year to $89 million. Moreover, adjusted operating margin contracted 260 basis points to 11.1%.

Balance Sheet and Cash Flow

Exiting the first quarter, Crane had cash and cash equivalents of $302.8 million, down 23.1% from $393.9 million at the end of the last reported quarter. Long-term debt balance was marginally up sequentially to $842.2 million.

In the first quarter, the company used net cash of $35.5 million from operating activities compared with $100.4 million used in the year-ago quarter. Capital expenditure was $7.8 million, down 60.6% year over year. Free cash flow in the quarter was $43.3 million versus $120.2 million in the year-ago quarter.

In the first quarter, Crane used $25.5 million for paying dividends, with $23.4 million distributed in the year-ago comparable quarter. Also, $70 million worth shares were reacquired by the company in the quarter.

Outlook

On uncertainties, regarding the impacts of the coronavirus outbreak on financial and operating results, Crane has withdrawn its previously issued guidance for 2020.

For 2020, the company currently anticipates adjusted earnings per share of $3.00-$4.25. Sales are predicted to be $2.75-$2.95 billion, suggesting a year-over-year core sales decline of 17-22%. It anticipates operating cash flow of $245-$295 million and capital expenditure of $45 million for 2020. Free cash flow is projected to be $200-$250 million.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -58.76% due to these changes.

VGM Scores

Currently, Crane has a subpar Growth Score of D, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Crane has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.

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