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Crane Co. Reports Strong Second Quarter Results; Increases Dividend 7%; Adjusts 2013 EPS Guidance to $4.10-$4.25, Excluding Special Items

July 22, 2013

Crane Co. (NYSE: CR), a diversified manufacturer of highly engineered industrial products, reported second quarter 2013 earnings of $0.93 per diluted share, compared to $1.07 in the second quarter of 2012. Second quarter 2013 results included transaction-related costs of $7.3 million, or $0.13 per share, related to the pending acquisition of MEI Conlux Holdings. Second quarter 2012 results included a $0.31 per share gain associated with divestitures, partially offset by $0.20 per share of repositioning charges. Excluding Special Items in both years, second quarter 2013 earnings per diluted share increased 10% to $1.06, compared to $0.96 in the second quarter of 2012. (Please see the attached Non-GAAP Financial Measures table.)

Second quarter 2013 sales of $648.7 million decreased $8.9 million, or 1.4%, compared to $657.7 million in the second quarter of 2012, resulting from a core sales decline of $5.9 million, or 0.9%, and unfavorable foreign exchange of $3.0 million, or 0.5%.

Operating profit in the second quarter increased 28.1% to $88.8 million, compared to $69.4 million in the second quarter of 2012. Excluding Special Items, second quarter operating profit increased 13.8% to $95.7 million, compared to $84.1 million in the second quarter of 2012, and operating profit margin increased to 14.8%, compared to 12.8% in the second quarter of 2012. (Please see the attached Non-GAAP Financial Measures table.)

“We are pleased to report second quarter EPS of $1.06 per share, excluding the MEI transaction costs,” said Crane Co. chief executive officer, Eric C. Fast. “On a slight decline in revenues, total Company operating margins expanded 200 basis points to a record 14.8%, led by solid execution in our Fluid Handling segment and strong productivity across the Company. Based on our expectation of record earnings this year and confidence in the future, we have increased our quarterly dividend by 7%. In connection with the pending acquisition of MEI, as previously reported, we are in negotiations with Bain Capital and Advantage Partners, the representatives of the owners of MEI, concerning the economic effects related to remedies required by the European Commission involving two Crane Payment Systems product lines.”

Updated 2013 Guidance

2013 EPS is now expected to be in a range of $4.10 to $4.25 per share, excluding Special Items, compared to the Company’s previous guidance range of $4.10 to $4.30 per share, reflecting lower than anticipated revenue growth. The 2013 guidance does not include potential impacts from the pending acquisition of MEI. Full year 2013 free cash flow is expected to be in a range of $190 to $220 million.

Cash Flow and Financial Position

Cash provided by operating activities in the second quarter of 2013 was $30.9 million, compared to $58.9 million in the second quarter of 2012. For the six months ended June 30, 2013, cash provided by operating activities was $10.5 million, compared to $16.1 million in 2012. The Company’s cash position was $420.9 million at June 30, 2013, compared to $423.9 million at December 31, 2012, and $252.3 million at June 30, 2012.

Segment Results

All comparisons detailed in this section refer to operating results for the second quarter 2013 versus the second quarter 2012. Beginning in the first quarter 2013, the operating results of the former Controls segment have been included in the Fluid Handling segment. Prior period amounts have been restated for comparative purposes.

               

Aerospace & Electronics

 
Second Quarter Change
(dollars in millions)   2013     2012  
 
Sales $ 172.4 $ 178.6 ($6.2 ) -3 %
 
Operating Profit $ 37.0 $ 38.9 ($1.9 ) -5 %
 
Profit Margin 21.5 % 21.8 %
 

Second quarter 2013 sales decreased $6.2 million, or 3%, reflecting a $4.0 million decline (4%) in Aerospace Group sales and a decline of $2.2 million (3%) in Electronics Group sales. The Aerospace Group sales decrease reflected lower commercial spares activity and the completion of a military upgrade program in 2012. The decline in Electronics Group sales was primarily due to continued delays in defense-related programs. Segment operating profit decreased 5%, as higher operating profits in the Aerospace Group were more than offset by lower profits in the Electronics Group. Aerospace & Electronics order backlog was $403 million at June 30, 2013, compared to $378 million at December 31, 2012 and $423 million at June 30, 2012.

               
Engineered Materials
 
Second Quarter Change
(dollars in millions)   2013     2012  
 
Sales $ 57.7 $ 54.5 $ 3.3 6 %
 
Operating Profit $ 9.2 $ 5.5 $ 3.6 65 %
Operating Profit, before Special Items* $ 9.2 $ 6.6 $ 2.6 39 %
 
Profit Margin 15.9 % 10.2 %
Profit Margin, before Special Items* 15.9 % 12.1 %
 
*Repositioning charges in 2012 primarily associated with the closure of a manufacturing facility.
 

Segment sales of $57.7 million were 6% higher than the second quarter of 2012, driven by higher sales to recreational vehicle equipment manufacturers. Excluding Special Items, operating profit increased 39% to $9.2 million, and margins increased from 12.1% to 15.9%, reflecting the impact of higher sales and savings associated with repositioning actions taken in 2012.

               
Merchandising Systems
 
Second Quarter Change
(dollars in millions)   2013     2012  
 
Sales $ 84.8 $ 97.6 ($12.7 ) -13 %
 
Operating Profit $ 8.9 $ 9.1 ($0.2 ) -3 %
Operating Profit, before Special Items* $ 8.9 $ 11.4 ($2.5 ) -22 %
 
Profit Margin 10.5 % 9.3 %
Profit Margin, before Special Items* 10.5 % 11.7 %
 
* Repositioning charges in 2012 associated with optimizing manufacturing operations and a facility sale.
 

Merchandising Systems sales of $84.8 million decreased $12.7 million, or 13%, with higher sales in Payment Solutions, more than offset by a decline in Vending Solutions. The significant decline in Vending Solutions sales and operating profit was the result of lower capital spending by certain bottler customers and continued weakness in Europe. Operating profit and margins increased in Payment Solutions, reflecting the impact of higher sales and continued productivity gains.

               
Fluid Handling
 
Second Quarter Change
(dollars in millions)   2013     2012  
 
Sales $ 333.8 $ 327.0 $ 6.7 2 %
 
Operating Profit $ 54.2 $ 30.6 $ 23.6 77 %
Operating Profit, before Special Items* $ 54.2 $ 42.0 $ 12.2 29 %
 
Profit Margin 16.2 % 9.4 %
Profit Margin, before Special Items* 16.2 % 12.8 %
 

*Repositioning charges in 2012 primarily associated with transferring certain European production to lower cost Company facilities.

 

Second quarter 2013 sales increased $6.7 million, or 2%, which included a core sales increase of $9.2 million (3%), and unfavorable foreign exchange of $2.5 million (1%). The sales increase reflected higher demand from chemical, energy and nuclear valve services customers. Excluding Special Items, segment operating margin increased from 12.8% to 16.2%, reflecting continued strong execution, productivity gains and savings associated with the repositioning actions taken in 2012. Fluid Handling order backlog was $350 million at June 30, 2013, compared to $343 million at December 31, 2012 and $351 million at June 30, 2012.

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 second quarter financial results on Tuesday, July 23, 2013 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.

Crane Co. is a diversified manufacturer of highly engineered industrial products. Founded in 1855, Crane provides products and solutions to customers in the aerospace, electronics, hydrocarbon processing, petrochemical, chemical, power generation, automated merchandising, transportation and other markets. The Company has four business segments: Aerospace & Electronics, Engineered Materials, Merchandising Systems, and Fluid Handling. 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, 2012 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 Six Months Ended
June 30, June 30,
2013 2012 2013 2012
Net Sales:
Aerospace & Electronics $ 172,392 $ 178,591 $ 337,275 $ 353,759
Engineered Materials 57,747 54,487 117,977 112,647
Merchandising Systems 84,831 97,577 174,291 185,252
Fluid Handling 333,776 327,031 646,774 651,641
Total Net Sales $ 648,746 $ 657,686 $ 1,276,317 $ 1,303,299
 
Operating Profit (Loss) from Continuing Operations:
Aerospace & Electronics $ 37,041 $ 38,931 $ 77,152 $ 77,001
Engineered Materials 9,172 5,543 17,746 13,952
Merchandising Systems 8,868 9,115 19,033 13,828
Fluid Handling 54,202 30,620 100,094 73,697
Corporate (20,437) (14,832) (38,279) (30,804)
Total Operating Profit from Continuing Operations 88,846 69,377 175,746 147,674
 
Interest Income 519 454 1,151 849
Interest Expense (7,245) (6,785) (13,963) (13,496)
Miscellaneous- Net 406 (351) 286 (698)
Income from Continuing Operations Before Income Taxes 82,526 62,695 163,220 134,329
Provision for Income Taxes 27,112 19,857 49,864 40,518
Income from Continuing Operations 55,414 42,838 113,356 93,811
 
Profit from Discontinued Operations attributable to common shareholders - 2,513 - 3,777
Gain from Sales of Discontinued Operations attributable to common shareholders - 28,060 - 28,060
 
Profit from Discontinued Operations attributable to common shareholders, net of tax - 1,633 - 2,456
Gain from Sales of Discontinued Operations attributable to common shareholders, net of tax - 18,276 - 18,276
Gain / Profit from Discontinued Operations, net of tax - 19,909 - 20,732
 
Net income before allocation to noncontrolling interests 55,414 62,747 113,356 114,543
 
Less: Noncontrolling interest in subsidiaries' earnings 540 185 691 319
       
Net income attributable to common shareholders $ 54,874 $ 62,562 $ 112,665 $ 114,224
 
Share Data:
Earnings per share from Continuing Operations $ 0.93 $ 0.73 $ 1.92 $ 1.59
Earnings per share from Discontinued Operations - 0.34 - 0.35
Earnings per Diluted Share (a) $ 0.93 $ 1.07 $ 1.92 $ 1.95
 
Average Diluted Shares Outstanding 58,828 58,614 58,594 58,704
Average Basic Shares Outstanding 57,908 57,762 57,684 57,787
 

Supplemental Data:

Cost of Sales $ 426,025 $ 436,095 $ 835,844 $ 865,717
Selling, General & Administrative 133,875 137,467 264,727 275,161
Repositioning Charges - 14,747 - 14,747
Depreciation and Amortization * 13,014 15,274 25,724 29,948
Stock-Based Compensation Expense 5,007 4,451 10,386 8,458
 
* Amount included within cost of sales and selling, general & administrative costs.
 
(a) Earnings per share amounts may not add due to rounding
 
 
CRANE CO.
Condensed Balance Sheets
(in thousands)
             

June 30,

December 31,
2013 2012
 
ASSETS
Current Assets
Cash and Cash Equivalents $ 420,918 $ 423,947
Accounts Receivable, net 379,373 333,330
Current Insurance Receivable - Asbestos 33,722 33,722
Inventories, net 358,471 352,725
Other Current Assets 38,669 36,797
Total Current Assets 1,231,153 1,180,521
 
Property, Plant and Equipment, net 257,793 268,283
Long-Term Insurance Receivable - Asbestos 154,025 171,752
Other Assets 426,982 455,530
Goodwill 802,447 813,792
 
Total Assets $ 2,872,400 $ 2,889,878
 
LIABILITIES AND EQUITY
Current Liabilities
Notes Payable and Current Maturities of Long-Term Debt $ 14,422 $ 1,123
Accounts Payable 168,191 182,731
Current Asbestos Liability 91,670 91,670
Accrued Liabilities 186,437 220,678
Income Taxes 1,954 15,686
Total Current Liabilities 462,674 511,888
 
Long-Term Debt 399,181 399,092
Long-Term Deferred Tax Liability 34,722 36,853
Long-Term Asbestos Liability 657,528 704,195
Other Liabilities 292,350 310,474
 
Total Equity 1,025,945 927,376
 
Total Liabilities and Equity $ 2,872,400 $ 2,889,878
 
 
CRANE CO.
Condensed Statements of Cash Flows
(in thousands)
                   
Three Months Ended Six Months Ended
June 30, June 30,
2013 2012 2013 2012
Operating Activities:
Net income attributable to common shareholders

$

54,874 $ 62,562 $ 112,665 $ 114,224
Noncontrolling interest in subsidiaries' earnings   540     185     691     319  
Net income before allocations to noncontrolling interests 55,414 62,747 113,356 114,543
Gain on divestiture - (28,060 ) (28,060 )
Restructuring - Non Cash - 2,761 - 2,761
Depreciation and amortization 13,014 15,274 25,724 29,948
Stock-based compensation expense 5,007 4,451 10,386 8,458
Defined benefit plans and postretirement expense 1,416 4,982 2,359 9,973
Deferred income taxes 1,447 7,199 9,647 15,743
Cash provided by (used for) operating working capital (15,884 ) 12,889 (114,418 ) (90,614 )
Defined benefit plans and postretirement contributions (7,705 ) (1,638 ) (10,521 ) (2,821 )
Environmental payments, net of reimbursements (1,970 ) (4,724 ) (5,475 ) (7,303 )
Other   (1,344 )   4,010     8,427     2,691  
Subtotal 49,395 79,891 39,485 55,319
Asbestos related payments, net of insurance recoveries   (18,447 )   (20,982 )   (28,940 )   (39,217 )
Total provided by operating activities   30,948     58,909     10,545     16,102  
 
Investing Activities:
Capital expenditures (6,566 ) (6,615 ) (12,039 ) (13,780 )
Proceeds from disposition of capital assets 91 1,686 287 1,858
Payment for acquisition, net of cash acquired - - - -
Proceeds from divestiture   -     52,665     -     52,665  
Total used for investing activities   (6,475 )   47,736     (11,752 )   40,743  
 
Financing Activities:
Dividends paid (16,194 ) (14,985 ) (32,338 ) (30,075 )
Reacquisition of shares on open market - (29,991 ) - (29,991 )
Stock options exercised - net of shares reacquired 9,653 - 20,042 8,426
Excess tax benefit from stock-based compensation 1,994 331 4,922 3,278
Change in short-term debt   12,905     318     12,905     -  

Total provided by (used for) financing activities

  8,358     (44,327 )   5,531     (48,362 )
 
Effect of exchange rate on cash and cash equivalents   3,448     (5,879 )   (7,353 )   (1,273 )
Increase (decrease) in cash and cash equivalents 36,279 56,439 (3,029 ) 7,210
Cash and cash equivalents at beginning of period     384,639     195,860     423,947       245,089  
Cash and cash equivalents at end of period   $ 420,918   $ 252,299   $ 420,918     $ 252,299  
 
 
CRANE CO.
Order Backlog
(in thousands)
                   
June 30, March 31, December 31, September 30, June 30,
2013 2013 2012 2012 2012
 
Aerospace & Electronics $ 403,400 $ 397,518 $ 378,152 $ 392,862 $ 423,282
Engineered Materials 14,122 16,138 12,689 11,357 13,884
Merchandising Systems 25,641 21,399 14,686 19,957 23,587
Fluid Handling   349,545   365,231   343,370   348,120   350,883
Total Backlog $ 792,708 $ 800,286 $ 748,897 $ 772,296 $ 811,636
 
 
CRANE CO.
Non-GAAP Financial Measures
(in thousands)
 
      Three Months Ended   Six Months Ended   Percent Change   Percent Change
June 30, June 30, June 30, 2013   June 30, 2013
  2013       2012     2013       2012   Three Months   Six Months

INCOME ITEMS

 
Net Sales $ 648,746 $ 657,686 $ 1,276,317 $ 1,303,299 -1.4 % -2.1 %
 
 
Operating Profit from Continuing Operations 88,846 69,377 175,746 147,674 28.1 % 19.0 %
Percentage of Sales 13.7 % 10.5 % 13.8 % 11.3 %
 

Special Items impacting Operating Profit from Continuing Operations:

 
Non-deductible Acquisition Transaction Costs (a) 6,853 9,741
 
Repositioning Charges (b) 14,747 14,747
       
Operating Profit from Continuing Operations before Special Items $ 95,699   $ 84,124   $ 185,487   $ 162,421   13.8 % 14.2 %
 
Percentage of Sales 14.8 % 12.8 % 14.5 % 12.5 %
 
 
Net Income Attributable to Common Shareholders $ 54,874 $ 62,562 $ 112,665 $ 114,224
Per Share $ 0.93 $ 1.07 $ 1.92 $ 1.95 -12.6 % -1.2 %
 

Special Items impacting Net Income Attributable to Common Shareholders:

 
Non-deductible Acquisition Transaction Costs (a) 6,853 9,741
Per Share 0.12 0.17
 
Repositioning Charges - Net of Tax (b) 11,880 11,880
Per Share 0.20 0.20
 
Withholding taxes related to acquisition funding (c) 460 460
Per Share 0.01 0.01
 
Gain on Divestitures - Net of Tax (d) (18,276 ) (18,276 )
Per Share (0.31 ) (0.31 )
       
Net Income Attributable To Common Shareholders Before Special Items $ 62,187   $ 56,166   $ 122,866   $ 107,828   10.7 % 13.9 %
Per Diluted Share $ 1.06 $ 0.96 $ 2.10 $ 1.84 10.3 % 14.2 %
 
Three Months Ended Six Months Ended
June 30, June 30,
2013 2012 2013 2012
Adjusted EBITDA Schedule (Non-GAAP)
 
Net Income Attributable To Common Shareholders Before Special Items from Continuing Operations $ 62,187 $ 56,166 $ 122,866 $ 107,828
 
Interest, Net 6,726 6,331 12,812 12,647
 
Provision for Income Taxes 26,652 19,857 49,404 40,518
 
Depreciation and Amortization 13,014 15,274 25,724 29,948
 
Stock Based Compensation 5,007 4,451 10,386 8,458
       

Adjusted EBITDA from Continuing Operations (Non-GAAP)

$ 113,586   $ 102,079   $ 221,192   $ 199,400   11.3 % 10.9 %
 
 
 
(a) During the three and six months ended June 30, 2013, the Company recorded non-deductible transaction costs associated with the potential acquisition of MEI.
 
(b) The Company incurred repositioning charges in the second quarter of 2012, associated with productivity actions. The charges included severance and impairment costs related to the shutdown of certain facilities, the transfer of certain manufacturing operations, and staff reduction actions.
 
(c) In the three months ended June 30, 2013, the Company incurred withholding taxes related to the cash marshalling activities supporting the potential acquisition of MEI.
 
(d) In June 2012, the Company divested of a business within the Fluid Handling segment and a business within the Controls segment. The associated gains were included in the “Gain from Sale of Discontinued Operations attributable to common shareholders, net of tax" section on the accompanying Income Statement Data.
 
Three Months Ended Six Months Ended
June 30, June 30,
2013 2012 2013 2012
 

CASH FLOW ITEMS

Cash Provided from Operating Activities
before Asbestos - Related Payments $ 49,395 $ 79,891 $ 39,485 $ 55,319
Asbestos Related Payments, Net of Insurance Recoveries   (18,447 )   (20,982 )   (28,940 )   (39,217 )
Cash Provided from Operating Activities 30,948 58,909 10,545 16,102
Less: Capital Expenditures   (6,566 )   (6,615 )   (12,039 )   (13,780 )
Free Cash Flow $ 24,382   $ 52,294   $ (1,494 ) $ 2,322  
 
 
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.
 
The Company's definition of Adjusted EBITDA (Earnings before interest, taxes, depreciation, and amortization) is net income before special items plus an add-back for net interest, provision for income taxes, depreciation, amortization and stock-based compensation. Adjusted EBITDA is a non-GAAP financial measure. Management believes that this measure is meaningful to investors because Adjusted EBITDA provides additional information with respect to the Company’s operating 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.
 
Non-GAAP financial measures, which may be inconsistent with similarly captioned measures presented by other companies, should be viewed in the context of the definitions of the elements of such measures we provide and in addition to, and not as a substitute for, the Company’s reported results prepared in accordance with GAAP.

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

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