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Crane (CR) Beats on Q4 Earnings, Hikes Quarterly Dividend

Zacks Equity Research

Crane Co. CR kept its earnings streak alive in the fourth quarter of 2018, pulling off positive earnings surprise of 6.5%. This is the company’s 13th consecutive quarter of recording impressive results. Along with this, the company impressed shareholders with a hike in the quarterly dividend rate.

Adjusted earnings in the reported quarter were $1.64 per share, surpassing the Zacks Consensus Estimate of $1.54. The adjusted figure includes 8 cents of discrete tax benefit, excluding which adjusted earnings were 1.58.

On a year-over-year basis, the bottom line of $1.64 increased 39.6%, driven by sales growth and margin improvement.

For 2018, Crane’s adjusted earnings were $5.99 per share, up 1.7% from the Zacks Consensus Estimate of $5.89. On a year-over-year basis, the bottom line increased 32.2% from $4.53 in 2017.

Revenues Gains From Organic Growth and Acquisitions

Crane’s net sales were $839.7 million in the quarter under review, reflecting growth of 17.6% from the year-ago quarter. The improvement was driven by 16% gain from acquired assets and 4% organic sales growth, partially offset by 2% adverse impact of foreign currency translations.

However, the top line lagged the Zacks Consensus Estimate of $863.2 million by 2.7%.

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 $279.7 million, reflecting growth of 2.8% from the year-ago tally. Results were driven by 6% gain from organic sales growth, offset by 3% impact of forex woes. Further, divestitures adversely impacted results. This segment’s order backlog was $279.6 million in the reported quarter, reflecting a decline from $297.7 million reported in the last reported quarter.

Revenues from Payment & Merchandising Technologies totaled $312.8 million, increasing 60.9% year over year. Improvement was primarily driven by synergistic gains from buyouts and 7% core sales growth. However, unfavorable movements in foreign currencies had negative 4% impact. Order backlog at the end of the reported quarter was $331.5 million, down 7.7% sequentially.

Revenues from the Aerospace & Electronics segment were $196.5 million, increasing 6.3% year over year. The improvement was mainly driven by core sales growth. Order backlog at the end of the quarter under review was $446.6 million, up 0.3% sequentially.

Revenues from the Engineered Materials segment decreased 19.1% year over year to $50.7 million due to weak business in the recreational vehicle end market. Order backlog at the end of the reported quarter was $14.9 million, up 44.7% sequentially.

For 2018, the company’s net sales were $3,345.5 million, up 20.1% year over year. The top line, however, lagged the Zacks Consensus Estimate of $3.37 billion.

Operating Margin Improves Y/Y

In the fourth quarter, Crane’s cost of sales grew 19.5% year over year to $544.6 million. It represented 64.9% of net sales compared with 63.8% in the year-ago quarter. Selling, general and administrative expenses increased 11.2% year over year to $170.9 million. It represented 20.4% of net sales versus 21.5% in the year-ago quarter.

Adjusted operating income in the quarter under review increased 19.5% year over year to $129.8 million. Moreover, adjusted operating margin increased 30 basis points to 15.5%.

Balance Sheet and Cash Flow

Exiting the fourth quarter, Crane had cash and cash equivalents of $343.4 million, up 6.1% from $323.6 million at the end of the last reported quarter. Long-term debt balance inched up 0.4% sequentially to $941.3 million. Notably, the company raised $13.1 million from issuance of long-term debts in the fourth quarter while repaid $1.4 million debts.

In the fourth quarter, the company generated net cash of $191.4 million from operating activities, reflecting growth of 33.5% from the year-ago quarter. Capital expenditure was $33.2 million, above $14.7 million in the fourth quarter of 2017. Free cash flow in the quarter increased 22.9% year over year to $158.2 million.

Shareholder-Friendly Policy

In 2018, Crane used $83.5 million for paying dividends, with roughly $20.8 million distributed in the fourth quarter. Also, shares worth $50.1 million were reacquired in the year, of which roughly $25.1 million buyback activity was carried in the fourth quarter.

Concurrent with the earnings release, the company announced that its board of directors approved the payment of a quarterly dividend of 39 cents per share. This dividend rate reflects 11% increase over the previous rate of 35 cents. The annual dividend rate now stands at $1.59 versus $1.40 mentioned earlier.

The revised dividend will be paid on Mar 11 to shareholders of record as of Feb 28, 2019.

Outlook

In the quarters ahead, Crane is likely to benefit from growth investments, the Crane Currency buyout (integration on track), repositioning initiatives and focus on the development of products.

The company anticipates adjusted earnings per share of $6.25-$6.45 in 2019, reflecting year-over-year growth of 6% at the mid-point. The projection excludes integration costs related to acquired assets of 7 cents and repositioning costs of 13 cents. By 2021, the company intends on generating earnings of $7.50-$8.00 per share.

Revenues for the year will likely be $3.3 billion. Core sales will be down slightly and forex woes will represent a 2% headwind. However, core sales, excluding impacts of two important projects in Payment & Merchandising Technologies, will likely grow in a low- to mid-single digit.

Operating cash flow in the year is anticipated to be $425-$455 million and capital expenditure is expected to be $90 million. Free cash flow is projected to be $335-$365 million.

Crane Company Price, Consensus and EPS Surprise

 

Crane Company Price, Consensus and EPS Surprise | Crane Company Quote

Zacks Rank & Stocks to Consider

With a market capitalization of approximately $4.7 billion, Crane currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the industry are Hitachi, Ltd. HTHIY, Carlisle Companies Incorporated CSL and HC2 Holdings, Inc. HCHC. While Hitachi currently sports a Zacks Rank #1 (Strong Buy), both Carlisle and HC2 Holdings carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Hitachi’s earnings estimates for fiscal 2019 (ending March 2019) and fiscal 2020 (ending March 2020) have improved in the past 60 days. Further, the company pulled off average positive earnings surprise of 55.51% for the last four quarters.

Carlisle’s earnings estimates for 2018 decreased and that for 2019 improved in the last 60 days. The company pulled off average positive earnings surprise of 11.90% for the last four quarters.

HC2 Holdings’ bottom-line estimates remained unchanged for 2018 and 2019 in the past 60 days. The company delivered positive earnings surprise of 111.90% in the last reported quarter.

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