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Crane Co. Reports Third Quarter Results

October 28, 2013

Adjusts 2013 EPS Guidance to $4.10-$4.20, Excluding Special Items

Crane Co. (NYSE: CR), a diversified manufacturer of highly engineered industrial products, reported third quarter 2013 earnings of $0.97 per diluted share, compared to $0.99 in the third quarter of 2012. Third quarter 2013 results included transaction-related costs of $4.1 million, or $0.07 per share, related to the pending acquisition of MEI Conlux Holdings. Third quarter 2012 results included a $0.02 per share gain associated with divestitures, offset by $0.02 per share of repositioning charges. Excluding Special Items in both years, third quarter 2013 earnings per diluted share increased 5% to $1.04, compared to $0.99 in the third quarter of 2012. (Please see the attached Non-GAAP Financial Measures table.)

Third quarter 2013 sales of $637.5 million decreased $8.5 million, or 1.3%, compared to $646.0 million in the third quarter of 2012, resulting from a core sales decline of $6.2 million, or 1.0%, and unfavorable foreign exchange of $2.3 million, or 0.3%.

Operating profit in the third quarter increased 2.8% to $89.0 million, compared to $86.6 million in the third quarter of 2012. Excluding Special Items, third quarter operating profit increased 4.5% to $91.9 million, compared to $87.9 million in the third quarter of 2012, and operating profit margin increased to 14.4%, compared to 13.6% in the third quarter of 2012. (Please see the attached Non-GAAP Financial Measures table.)

“In spite of a difficult revenue growth environment, we are pleased to report third quarter EPS of $1.04 per share, excluding the MEI transaction costs,” said Crane Co. chief executive officer, Eric C. Fast. “On a 1% decline in revenues, total Company operating margins grew to 14.4%, with solid performance in our Fluid Handling, Payment Solutions and Engineered Materials businesses. In connection with the pending acquisition of MEI, we are actively engaged in satisfying the remedies required by the European Commission and expect to close the acquisition late in the fourth quarter.”

Updated 2013 Guidance

2013 EPS is now expected to be in a range of $4.10 to $4.20 per share, excluding Special Items, compared to the Company’s previous guidance range of $4.10 to $4.25 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 now expected to be in a range of $190 to $210 million, compared to the Company’s previous guidance of $190 to $220 million, reflecting the impact of the lower sales and transaction costs associated with the pending acquisition of MEI.

Cash Flow and Financial Position

Cash provided by operating activities in the third quarter of 2013 was $80.5 million, compared to $63.2 million in the third quarter of 2012. For the nine months ended September 30, 2013, cash provided by operating activities was $91.0 million, compared to $79.3 million in 2012. Free cash flow (cash provided by operating activities less capital spending) for the third quarter of 2013 was $73.5 million, compared to $57.0 million in the third quarter of 2012. The Company’s cash position was $403.4 million at September 30, 2013, compared to $423.9 million at December 31, 2012, and $280.5 million at September 30, 2012. During the quarter, the Company repaid its $200 million 5.50% notes, which came due in September 2013.

Segment Results

All comparisons detailed in this section refer to operating results for the third quarter 2013 versus the third 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

 

      Third Quarter       Change

(dollars in millions)

2013       2012    
 
Sales $169.8 $171.4 ($1.6) (0.9%)
 
Operating Profit $38.1 $39.8 ($1.7) (4.3%)
 
Profit Margin 22.4% 23.2%
 

Third quarter 2013 sales decreased $1.6 million, or 0.9%, reflecting a $0.8 million increase (0.9%) in Aerospace Group sales and a decline of $2.4 million (-3.7%) in Electronics Group sales. The Aerospace Group sales increase reflected stronger OEM sales partially offset by weaker aftermarket sales, primarily related to a military upgrade program that was completed in 2012. The decline in Electronics Group sales was primarily due to continued delays in defense-related programs. Segment operating profit declined modestly, reflecting lower operating profits in the Aerospace Group due to the less favorable OEM / aftermarket mix. Aerospace & Electronics order backlog was $382 million at September 30, 2013, compared to $378 million at December 31, 2012 and $393 million at September 30, 2012.

Engineered Materials

    Third Quarter     Change
(dollars in millions) 2013     2012    
 
Sales $62.0 $57.0 $5.0 8.8%
 
Operating Profit $10.8 $7.2 $3.6 49.3%
Operating Profit, before Special Items* $10.8 $8.3 $2.4 29.3%
 
Profit Margin 17.4% 12.7%
Profit Margin, before Special Items* 17.4% 14.7%

*Repositioning charges in 2012 primarily associated with the closure of a manufacturing facility.

Segment sales of $62 million were 8.8% higher than the third quarter of 2012, driven by higher sales to recreational vehicle equipment manufacturers. Excluding Special Items, operating profit increased 29% to $10.8 million, and margins increased from 14.7% to 17.4%, reflecting the impact of higher sales, savings associated with repositioning actions taken in 2012 and strong productivity.

Merchandising Systems

    Third Quarter     Change
(dollars in millions) 2013     2012    
 
Sales $83.6 $92.5 ($8.9) (9.6%)
 
Operating Profit $7.9 $9.5 ($1.6) (17.1%)
 
Profit Margin 9.4% 10.3%
 

Merchandising Systems sales of $83.6 million decreased $8.9 million, or 9.6%, with slightly higher sales in Payment Solutions, more than offset by a decline in Vending Solutions. The decline in Vending Solutions sales and operating profit was the result of lower capital spending by certain bottler customers and, to a lesser extent, continued weakness in Europe. Operating profit and margins increased in Payment Solutions, reflecting the impact of higher sales and continued productivity gains.

Fluid Handling

    Third Quarter     Change
(dollars in millions) 2013     2012    
 
Sales $322.2 $325.2 ($3.0) (0.9%)
 
Operating Profit $46.6 $45.7 $0.9 1.9%
Operating Profit, before Special Items* $46.6 $46.0 $0.6 1.3%
 
Profit Margin 14.5% 14.1%
Profit Margin, before Special Items* 14.5% 14.1%

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

Third quarter 2013 sales decreased $3 million, or 0.9%, which included a core sales decline of $1.3 million (-0.4%), and unfavorable foreign exchange of $1.7 million (-0.5%). While order momentum and backlog were positive in the Chemical, Power, and Refining markets, quarterly sales were modestly lower due to project delays and modestly lower book / ship revenues. Excluding Special Items, segment operating margin increased from 14.1% to 14.5%, reflecting continued strong execution, productivity gains and savings associated with the repositioning actions taken in 2012. Fluid Handling order backlog was $355 million at September 30, 2013, compared to $343 million at December 31, 2012 and $348 million at September 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 third quarter financial results on Tuesday, October 29, 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 10,000 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.

 
CRANE CO.
Income Statement Data
(in thousands, except per share data)
 
  Three Months Ended   Nine Months Ended
September 30, September 30,
2013   2012 2013   2012
Net Sales:
Aerospace & Electronics $ 169,771 $ 171,368 $ 507,046 $ 525,127
Engineered Materials 61,956 56,956 179,933 169,603
Merchandising Systems 83,636 92,489 257,927 277,741
Fluid Handling 322,152   325,168   968,926   976,809  
Total Net Sales $ 637,515   $ 645,981   $ 1,913,832   $ 1,949,280  
 
Operating Profit (Loss) from Continuing Operations:
Aerospace & Electronics $ 38,105 $ 39,833 $ 115,257 $ 116,834
Engineered Materials 10,792 7,226 28,538 21,178
Merchandising Systems 7,869 9,496 26,902 23,324
Fluid Handling 46,594 45,736 146,688 119,433
Corporate (14,351 ) (15,707 ) (52,630 ) (46,511 )
Total Operating Profit from Continuing Operations 89,009 86,584 264,755 234,258
 
Interest Income 337 443 1,488 1,292
Interest Expense (6,688 ) (6,618 ) (20,651 ) (20,114 )
Miscellaneous- Net (456 ) (6 ) (170 ) (704 )
Income from Continuing Operations Before Income Taxes 82,202 80,403 245,422 214,732
Provision for Income Taxes 24,719   23,997   74,583   64,515  
Income from Continuing Operations 57,483 56,406 170,839 150,217
 
Profit from Discontinued Operations attributable to common shareholders - - - 3,777
Gain from Sales of Discontinued Operations attributable to common shareholders - 1,385 - 29,445
 
Profit from Discontinued Operations attributable to common shareholders, net of tax - - - 2,456
Gain from Sales of Discontinued Operations attributable to common shareholders, net of tax -   901   -   19,177  
Gain / Profit from Discontinued Operations, net of tax - 901 - 21,633
 
Net income before allocation to noncontrolling interests 57,483 57,307 170,839 171,850
 
Less: Noncontrolling interest in subsidiaries' earnings 352 182 1,043 501
       
Net income attributable to common shareholders $ 57,131   $ 57,125   $ 169,796   $ 171,349  
 
Share Data:
Earnings per share from Continuing Operations $ 0.97 $ 0.97 $ 2.89 $ 2.56
Earnings per share from Discontinued Operations -   0.02   -   0.37  
Earnings per Diluted Share (a) $ 0.97   $ 0.99   $ 2.89   $ 2.93  
 
Average Diluted Shares Outstanding 59,035 57,873 58,737 58,435
Average Basic Shares Outstanding 58,093 57,123 57,814 57,565
 

Supplemental Data:

Cost of Sales $ 421,317 $ 424,954 $ 1,257,161 $ 1,290,671
Selling, General & Administrative 127,189 133,089 391,916 408,250
Repositioning Charges - 1,354 - 16,101
Depreciation and Amortization * 12,435 13,174 38,159 42,122
Stock-Based Compensation Expense 5,913 4,402 16,299 12,860
 
* 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)
 
  September 30,   December 31,
2013 2012
 
ASSETS
Current Assets
Cash and Cash Equivalents $

403,404

 

$

423,947

 

Accounts Receivable, net 382,348 333,330
Current Insurance Receivable - Asbestos 33,722 33,722
Inventories, net 361,026 352,725
Other Current Assets 39,698   36,797  
Total Current Assets 1,220,198 1,180,521
 
Property, Plant and Equipment, net 259,551 268,283
Long-Term Insurance Receivable - Asbestos 147,953 171,752
Other Assets 419,169 455,530
Goodwill 811,274   813,792  
 
Total Assets $ 2,858,145   $ 2,889,878  
 
LIABILITIES AND EQUITY
Current Liabilities
Notes Payable and Current Maturities of Long-Term Debt $ 124,672 $ 1,123
Accounts Payable 175,731 182,731
Current Asbestos Liability 91,670 91,670
Accrued Liabilities 189,781 220,678
Income Taxes 10,874   15,686  
Total Current Liabilities 592,728 511,888
 
Long-Term Debt 199,220 399,092
Long-Term Deferred Tax Liability 36,145 36,853
Long-Term Asbestos Liability 632,081 704,195
Other Liabilities 288,495 310,474
 
Total Equity 1,109,476   927,376  
 
Total Liabilities and Equity $ 2,858,145   $ 2,889,878  
 
CRANE CO.
Condensed Statements of Cash Flows
(in thousands)
 
  Three Months Ended   Nine Months Ended
September 30, September 30,
2013   2012 2013   2012
Operating Activities:
Net income attributable to common shareholders $ 57,131 $ 57,125 $ 169,796 $ 171,349
Noncontrolling interest in subsidiaries' earnings  

352

    182     1,043     501  
Net income before allocations to noncontrolling interests 57,483 57,307 170,839 171,850
Gain on divestiture - (1,385 ) - (29,445 )
Restructuring - Non Cash - 16 - 2,777
Depreciation and amortization 12,435 13,174 38,159 43,122
Stock-based compensation expense 5,913 4,402 16,299 12,860
Defined benefit plans and postretirement expense 1,180 4,796 3,539 14,769
Deferred income taxes 8,477 8,674 18,124 24,417
Cash provided by (used for) operating working capital 25,277 11,292 (88,808 ) (79,322 )
Defined benefit plans and postretirement contributions (2,664 ) (1,642 ) (13,185 ) (4,463 )
Environmental payments, net of reimbursements (5,727 ) (3,953 ) (11,202 ) (11,256 )
Other   (2,546 )   (8,696 )   5,548     (6,005 )
Subtotal 99,828 83,985 139,313 139,304
Asbestos related payments, net of insurance recoveries   (19,374 )   (20,834 )   (48,314 )   (60,051 )
Total provided by operating activities   80,454     63,151     90,999     79,253  
 
Investing Activities:
Capital expenditures (6,977 ) (6,164 ) (19,016 ) (19,944 )
Proceeds from disposition of capital assets 85 396 372 2,254
Payment for acquisition, net of cash acquired - - - -
Proceeds from divestiture   -     934     -     53,599  
Total used for investing activities   (6,892 )   (4,834 )   (18,644 )   35,909  
 
Financing Activities:
Dividends paid (17,440 ) (15,923 ) (49,778 ) (45,998 )
Reacquisition of shares on open market - (20,000 ) - (49,991 )
Stock options exercised - net of shares reacquired 4,041 - 24,083 8,426
Excess tax benefit from stock-based compensation 865

(45)

5,787 3,233
Change in short-term debt 110,292

-

 

 

123,197 -
Repayment of long-term debt   (200,000 )   -     (200,000 )   -  
Total used for financing activities   (102,242 )   (35,968 )   (96,711 )   (84,330 )
 
Effect of exchange rate on cash and cash equivalents   11,166     5,888     3,813     4,615  
Increase (decrease) in cash and cash equivalents (17,514 ) 28,237 (20,543 ) 35,447
Cash and cash equivalents at beginning of period     420,918     252,299     423,947       245,089  
Cash and cash equivalents at end of period   $ 403,404   $ 280,536   $ 403,404     $ 280,536  
 
CRANE CO.
Order Backlog
(in thousands)
 
  September 30,   June 30,   March 31,   December 31,   September 30,
2013 2013 2013 2012 2012
 
Aerospace & Electronics $

381,830

 

$

403,400

 

$

397,518

 

$

378,152

 

$

392,862

 

Engineered Materials 12,572 14,122 16,138 12,689 11,357
Merchandising Systems 23,901 25,641 21,399 14,686 19,957
Fluid Handling   355,192     349,545     365,231     343,370     348,120  
Total Backlog $ 773,495   $ 792,708   $ 800,286   $ 748,897   $ 772,296  
 
CRANE CO.
Non-GAAP Financial Measures
(in thousands)
 
 

Three Months Ended

 

Nine Months Ended

  Percent Change   Percent Change

September 30,

September 30,

September 30, 2013   September 30, 2013
2013   2012 2013   2012 Three Months   Nine Months

INCOME ITEMS

 
Net Sales $ 637,515 $ 645,981 $ 1,913,832 $ 1,949,280 -1.3 % -1.8 %
 
 
Operating Profit from Continuing Operations 89,009 86,584 264,755 234,258 2.8 % 13.0 %
Percentage of Sales 14.0 % 13.4 % 13.8 % 12.0 %
 

Special Items impacting Operating Profit from Continuing Operations:

Non-deductible Acquisition Transaction Costs (a) 2,854 12,595
 
Repositioning Charges (b) 1,354 16,101
       
Operating Profit from Continuing Operations before Special Items $ 91,863   $ 87,938   $ 277,350   $ 250,359   4.5 % 10.8 %
Percentage of Sales 14.4 % 13.6 % 14.5 % 12.8 %
 
 
Net Income Attributable to Common Shareholders $ 57,131 $ 57,125 $ 169,796 $ 171,349
Per Share $ 0.97 $ 0.99 $ 2.89 $ 2.93 -2.0 % -1.4 %
 

Special Items impacting Net Income Attributable to Common Shareholders:

 
Non-deductible Acquisition Transaction Costs (a) 2,854 12,595
Per Share 0.05 0.21
 
Repositioning Charges - Net of Tax (b) 948 12,828
Per Share 0.02 0.22
 
Withholding taxes related to acquisition funding (c) 1,240 1,700
Per Share 0.02 0.03
 
Gain on Divestitures - Net of Tax (d) (900 ) (19,176 )
Per Share (0.02 ) (0.33 )
       
Net Income Attributable To Common Shareholders Before Special Items $ 61,225   $ 57,173   $ 184,091   $ 165,001   7.1 % 11.6 %
Per Diluted Share $ 1.04 $ 0.99 $ 3.13 $ 2.82 5.0 % 11.0 %
 
 

Three Months Ended

Nine Months Ended

September 30,

September 30,

2013 2012 2013 2012
Adjusted EBITDA Schedule (Non-GAAP)
 
Net Income Attributable To Common Shareholders Before Special Items from Continuing Operations $ 61,225 $ 57,173 $ 184,091 $ 165,001
 
Interest, Net 6,351 6,175 19,163 18,822
 
Provision for Income Taxes 23,479 23,997 72,883 64,515
 
Depreciation and Amortization 12,435 13,174 38,159 42,122
 
Stock Based Compensation 5,913 4,402 16,299 12,860
       
Adjusted EBITDA from Continuing Operations (Non-GAAP) $ 109,403   $ 104,921   $ 330,595   $ 303,320   4.3 % 9.0 %
(a) During the three and nine months ended September 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 and nine months ended September 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   Nine Months Ended
September 30, September 30,
2013   2012 2013   2012
 

CASH FLOW ITEMS

 

Cash Provided from Operating Activities before Asbestos - Related Payments

$ 99,828 $ 83,985 $ 139,313 $ 139,304
Asbestos Related Payments, Net of Insurance Recoveries   (19,374 )   (20,834 )   (48,314 )   (60,051 )
Cash Provided from Operating Activities 80,454 63,151 90,999 79,253
Less: Capital Expenditures   (6,977 )   (6,164 )   (19,016 )   (19,944 )
Free Cash Flow $ 73,477   $ 56,987   $ 71,983   $ 59,309  
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.
 

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

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