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It has been about a month since the last earnings report for Crane (CR). Shares have added about 3.7% in that time frame, outperforming 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 the most recent earnings report in order to get a better handle on the important drivers.
Crane Q3 Earnings & Revenues Surpass Estimates, Up Y/Y
Crane reported impressive third-quarter 2021 results. Its earnings surpassed the Zacks Consensus Estimate by 37.96% and sales exceeded the same by 7.72%.
Adjusted earnings were $1.89 per share, surpassing the Zacks Consensus Estimate of $1.37. The bottom line expanded 80% from the year-ago quarter figure of $1.05 on the back of sales growth and improved margin.
In the quarter, Crane’s net sales were $833.5 million, reflecting growth of 21.4% from the year-ago quarter. Results benefited from core sales growth of 20% and contribution of 2% from movements in foreign currencies.
The company’s net sales surpassed the Zacks Consensus Estimate of $774 million.
The company reports net sales under three segments — Process Flow Technologies, Payment & Merchandising Technologies, and Aerospace & Electronics. In May 2021, it entered into a deal to divest its Engineered Materials segment. Effective second-quarter 2021, it represents the Engineered Materials segment as discontinued operations. The segmental information is briefly discussed below:
Revenues from Process Flow Technologies were $299.1 million, reflecting growth of 19% from the year-ago quarter. The results benefited from a gain of 16% from organic sales and 3% from movements in foreign currencies. The segment’s order backlog was $351.4 million in the reported quarter, reflecting sequential growth of 2.1%.
Revenues from Payment & Merchandising Technologies totaled $365.8 million, increasing 32% year over year. Organic sales grew 30% while foreign currency translation had a positive impact of 2%. Order backlog at the end of the reported quarter was $387.9 million, up 3.5% sequentially.
Revenues from the Aerospace & Electronics segment were $168.6 million, increasing 7% year over year. Order backlog at the end of the quarter was $478.5 million, up 1.2% sequentially.
In the third quarter, Crane’s cost of sales of $509.1 million reflected a 14.5% increase from the year-ago quarter. It represented 61.1% of net sales compared with 64.8% in the year-ago quarter. Selling, general and administrative expenses increased 12.3% to $186.2 million. It represented 22.3% of net sales compared with 24.2% in the year-ago quarter.
Adjusted operating income in the third quarter increased 69% year over year to $139.6 million. Adjusted operating margin grew 480 basis points to 16.8%. Interest expenses, net, in the reported quarter were $11 million, down 23.6% year over year.
Balance Sheet and Cash Flow
Exiting the third quarter, Crane had cash and cash equivalents of $450.8 million, up 16.6% from $386.7 million at the end of the second quarter. Long-term debt balance was $842.2 million, down from $843.4 million sequentially.
In the reported quarter, the company did not make any repayment of commercial paper (maturity >90 days).
In the first nine months of 2021, it generated net cash of $311.7 million from operating activities compared with $197 million in the year-ago period. Capital expenditure was $25.3 million, up 26.5% year over year.
Free cash flow in the reported quarter was $102.8 million compared with $114.9 million in the year-ago quarter.
In the third quarter, Crane used $25.2 million for paying dividends, increasing 0.8% from the year-ago quarter. No shares were repurchased in the reported quarter.
Based on the third quarter’s impressive results and strengthening end-market business, Crane increased its projections for 2021.
It now anticipates adjusted earnings per share of $6.35-$6.45 for the year, higher than $5.95-$6.15 mentioned previously.
Sales are predicted to be $3,150 million compared with the previously stated $3,100 million. Acquired assets will likely benefit sales by $5 million (guidance maintained), whereas movements in foreign currencies are expected to boost sales by 2.5% compared with 3.5% stated previously. Core sales are expected to increase 10-12% year over year, marking an increase from 7-9% stated earlier.
Corporate expenses for the year are expected to be $90 million, up from $80 million mentioned earlier. Adjusted tax rate will likely be 17.5% compared with 20.5% estimated earlier. The company expects operating cash flow of $400-$425 million and capital expenditure of $60 million for 2021. Free cash flow is projected to be $340-$365 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -11.05% due to these changes.
Currently, Crane has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Crane has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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