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Crane Co. Reports Second Quarter Results

July 25, 2016

Second Quarter 2016 Highlights:

  • GAAP earnings per diluted share (EPS) of $1.15 increased 22% compared to 2015, and excluding Special Items, EPS of $1.21 increased 14% compared to 2015.
  • Sales of $712 million were approximately flat compared to 2015, with core growth of 1%.
  • Raising 2016 EPS guidance to $4.00-$4.20, from $3.85-$4.15, excluding Special Items. Revised GAAP EPS guidance of $3.95-$4.15, versus prior range of $3.85-$4.15.

Crane Co. (NYSE:CR), a diversified manufacturer of highly engineered industrial products, reported second quarter 2016 GAAP earnings of $1.15 per diluted share, compared to $0.95 per share in the second quarter of 2015. Excluding Special Items, second quarter 2016 earnings per diluted share were $1.21, compared to $1.06 per share in the second quarter of 2015. (Please see the attached Non-GAAP Financial Measures tables.)

Second quarter 2016 sales were $712 million, approximately flat compared to $711 million in the second quarter of 2015. Core sales increased $7 million, or 1%, offset by a $6 million, or 1%, impact from unfavorable foreign exchange.

Operating profit in the second quarter was $103 million, up 14% compared to $90 million in the second quarter of 2015. Excluding Special Items, operating profit was $108 million in the second quarter of 2016, up 9% compared to $99 million in the second quarter of 2015. (Please see the attached Non-GAAP Financial Measures tables.)

The effective tax rate in the second quarter was 27.0%, down from 31.5% last year. The lower rate primarily reflects the resolution of a tax audit during the quarter. Excluding Special Items, the effective tax rate was 27.4%, down from 31.0% last year. (Please see the attached Non-GAAP Financial Measures tables.)

“We are pleased with our second quarter results. We drove strong execution across all segments, order trends were consistent with our expectations, and EPS benefited from a lower tax rate. We are cautiously optimistic about the remainder of 2016 tempered only by continued economic uncertainty, including volatility in foreign exchange and commodity markets. Balancing these factors, we are raising the midpoint of our full-year adjusted EPS guidance range by $0.10,” said Max Mitchell, Crane Co. President and Chief Executive Officer.

Segment Results

All comparisons detailed in this section refer to operating results for the second quarter 2016 versus the second quarter 2015, excluding Special Items.

Fluid Handling

      Second Quarter       Change
(dollars in millions) 2016   2015    
Sales $ 266 $ 292 $ (26 ) (9 )%
 
Operating Profit $ 35 $ 33 $ 3 9 %
Operating Profit, before Special Items* $ 35 $ 38 $ (2 ) (6 )%
 
Profit Margin 13.3 % 11.1 %
Profit Margin, before Special Items* 13.3 % 12.9 %
 
*Please see the attached Non-GAAP Financial Measures tables
 

Sales decreased $26 million, driven by a $21 million, or -7%, core sales decline, and $5 million, or -2%, of unfavorable foreign exchange. Operating margin improved to 13.3%, compared to 12.9% last year, primarily reflecting the impact of productivity, repositioning benefits and favorable mix, partially offset by lower volumes, and to a lesser extent, competitive pricing. Fluid Handling order backlog was $246 million at June 30, 2016, compared to $267 million at December 31, 2015 and $287 million at June 30, 2015.

Payment & Merchandising Technologies

      Second Quarter       Change
(dollars in millions) 2016   2015      
Sales $ 193 $ 187 $   6 3 %
 
Operating Profit $ 34 $ 26 $ 8 32 %
Operating Profit, before Special Items* $ 34 $ 28 $ 7 23 %
 
Profit Margin 17.9 % 14.0 %
Profit Margin, before Special Items* 17.9 % 15.0 %
 
*Please see the attached Non-GAAP Financial Measures tables
 

Sales increased $6 million, or 3%, driven by $8 million, or 4%, of core growth, partially offset by a $2 million, or -1%, impact from unfavorable foreign exchange. Operating margin expanded 290 basis points to 17.9%, driven primarily by integration synergies, higher volumes and strong productivity.

Aerospace & Electronics

    Second Quarter       Change
(dollars in millions) 2016   2015      
Sales $ 189 $ 167 $   22 13 %
 
Operating Profit $ 39 $ 32 $ 7 22 %
Operating Profit, before Special Items* $ 39 $ 32 $ 6 19 %
 
Profit Margin 20.4 % 18.9 %
Profit Margin, before Special Items* 20.4 % 19.4 %
 
*Please see the attached Non-GAAP Financial Measures tables
 

Sales increased $22 million, driven by a 13% increase in core sales. Operating margin improved 100 basis points to 20.4%, primarily reflecting higher volumes and productivity, partially offset by higher planned engineering spending and unfavorable mix. Aerospace & Electronics order backlog was $436 million at June 30, 2016, compared to $436 million at December 31, 2015 and $448 million at June 30, 2015.

Engineered Materials

    Second Quarter       Change
(dollars in millions) 2016   2015    
Sales $ 64 $ 66 $ (1 ) (2 )%
 
Operating Profit $ 14 $ 12 $ 1 11 %
 
Profit Margin 21.0 % 18.5 %
 

Sales decreased $1 million, driven by lower sales to the Recreational Vehicle and Transportation markets, partially offset by higher sales to the Building Product market. Operating margin increased 250 basis points to 21.0%, primarily reflecting strong productivity and lower material costs, partially offset by competitive pricing.

Raising 2016 Guidance

The Company is raising its 2016 GAAP EPS guidance to a range of $3.95-$4.15, versus a prior range of $3.85-$4.15. Excluding Special Items, EPS is now expected to be in a range of $4.00-$4.20, from the prior range of $3.85-$4.15. Management continues to expect that sales for 2016 will approximate $2.7 billion, reflecting core sales in a range of -1.5% to +1.5% compared to 2015. Full year 2016 free cash flow (cash provided by operating activities less capital spending) is now expected to be in a range of $195 to $220 million versus prior guidance of $190 to $220 million. (Please see the attached Non-GAAP Financial Measures tables.)

Non-GAAP Items

Special Items in the second quarter of 2016 totaled $3.3 million in net after tax charges, or $0.05 per share, related to a legal settlement of the previously disclosed Huttig matter. Special Items in the second quarter of 2015 included $5 million in after-tax charges, or $0.09 per share, related to repositioning activities, and $1 million, or $0.02 per share, of after-tax restructuring and integration-related charges associated with the MEI acquisition. For additional information, please see the attached Non-GAAP Financial Measures tables.

Additional Information

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 26, 2016 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. Slides that accompany the conference call will be available on 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 hydrocarbon processing, petrochemical, chemical, power generation, unattended payment, automated merchandising, aerospace, electronics, transportation and other markets. The Company has four business segments: Fluid Handling, Payment & Merchandising Technologies, Aerospace & Electronics and Engineered Materials. Crane has approximately 11,000 employees in the Americas, Europe, the Middle East, 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, 2015 and subsequent reports filed with the Securities and Exchange Commission.

(CR-E)

(Financial Tables Follow)

CRANE CO.

Income Statement Data
(in millions, except per share data)
     
 

 

Three Months Ended

 

Six Months Ended

 

June 30,

 

June 30,

2016

2015 2016 2015
Net Sales:
Fluid Handling $ 265.9 $ 291.8 $ 513.9 $ 567.3
Payment & Merchandising Technologies 192.6 186.5 364.5 358.4
Aerospace & Electronics 189.2 167.1 361.0 328.7
Engineered Materials 64.5   65.8   132.8   135.5  
Total Net Sales $ 712.2   $ 711.2   $ 1,372.2   $ 1,390.0  
 
Operating Profit (Loss):
Fluid Handling $ 35.4 $ 32.5 $ 60.8 $ 66.8
Payment & Merchandising Technologies 34.5 26.1 62.5 47.3
Aerospace & Electronics 38.6 31.7 71.7 61.7
Engineered Materials 13.5 12.2 27.2 26.4
Corporate (19.4 ) * (12.3 ) (34.1 ) * (26.1 )
Total Operating Profit 102.6 90.2 188.1 176.2
 
Interest Income 0.5 0.5 1.0 1.0
Interest Expense (9.2 ) (9.5 ) (18.3 ) (19.4 )
Miscellaneous- Net (0.2 ) 0.4   (0.6 ) 0.0  
Income Before Income Taxes 93.7 81.5 170.2 157.8
Provision for Income Taxes 25.2   25.7   46.6   50.6  
Net income before allocation to noncontrolling interests 68.4 55.9 123.6 107.2
 
Less: Noncontrolling interest in subsidiaries' earnings 0.2 0.1 0.3 0.4
       
Net income attributable to common shareholders $ 68.2   $ 55.8   $ 123.3   $ 106.8  
 
Share Data:
Earnings per Diluted Share $ 1.15 $ 0.95 $ 2.09 $ 1.82
 
Average Diluted Shares Outstanding 59.2 58.8 59.0 58.8
Average Basic Shares Outstanding 58.3 58.0 58.3 58.0
 

Supplemental Data:

Cost of Sales $ 449.1 $ 470.8 $ 875.2 $ 910.8
Selling, General & Administrative 160.5 * 141.5 308.9 * 289.8
Repositioning Charges (see non-GAAP measures) - 7.1 - 9.7
Acquisition Related Charges (see non-GAAP measures) - 1.8 - 3.6
Depreciation and Amortization ** 17.6 17.4 34.1 33.9
Stock-Based Compensation Expense ** 5.3 5.0 11.4 10.8
 

* Includes a $5 million legal settlement charge.

** Amount included within cost of sales and selling, general & administrative costs.
 
 
CRANE CO.
Condensed Balance Sheets
(in millions)
             

    June 30,    

December 31,

    2016    

2015
 
ASSETS
Current Assets
Cash and Cash Equivalents $ 408.9 $ 363.5
Accounts Receivable, net 435.2 397.6
Current Insurance Receivable - Asbestos 20.5 20.5
Inventories, net 389.4 376.9
Other Current Assets 54.5 45.0
Total Current Assets 1,308.5 1,203.5
 
Property, Plant and Equipment, net 281.7 276.0
Long-Term Insurance Receivable - Asbestos 100.6 108.7
Other Assets 564.7 580.8
Goodwill 1,176.9 1,167.9
 
Total Assets $ 3,432.4 $ 3,336.9
 
LIABILITIES AND EQUITY
Current Liabilities
Notes Payable and Current Maturities of Long-Term Debt $ 100.9 $ 49.6
Accounts Payable 205.9 223.3
Current Asbestos Liability 75.0 75.0
Accrued Liabilities 215.3 218.6
Income Taxes 4.5 6.3
Total Current Liabilities 601.6 572.8
 
Long-Term Debt 745.0 744.6
Long-Term Deferred Tax Liability 52.5 50.0
Long-Term Asbestos Liability 436.7 470.5
Other Liabilities 326.8 348.1
 
Total Equity 1,269.8 1,150.8
 
Total Liabilities and Equity $ 3,432.4 $ 3,336.9
 
 
             
CRANE CO.
Condensed Statements of Cash Flows
(in millions)
 
Three Months Ended Six Months Ended
June 30, June 30,
2016 2015 2016 2015
Operating Activities:
Net income attributable to common shareholders $ 68.2 $ 55.8 $ 123.3 $ 106.8
Noncontrolling interest in subsidiaries' earnings   0.2     0.1     0.3     0.4  
Net income before allocations to noncontrolling interests 68.4 55.9 123.6 107.2
Restructuring - Non Cash - 1.2 - 1.4
Depreciation and amortization 17.6 17.4 34.1 33.9
Stock-based compensation expense 5.3 5.0 11.4 10.8
Defined benefit plans and postretirement credit (2.4 ) (2.0 ) (4.8 ) (3.6 )
Deferred income taxes 2.3 3.7 7.6 8.0
Cash provided by (used for) operating working capital 0.9 2.4 (81.1 ) (54.7 )
Defined benefit plans and postretirement contributions (2.2 ) (5.2 ) (4.4 ) (8.2 )
Environmental payments, net of reimbursements (4.6 ) (3.5 ) (6.6 ) (7.6 )
Other   (0.6 )   (3.0 )   (2.3 )   (16.4 )
Subtotal 84.7 71.9 77.5 70.8
Asbestos related payments, net of insurance recoveries   (14.9 )   (14.1 )   (25.7 )   (24.8 )
Total provided by operating activities   69.8     57.8     51.8     46.0  
 
Investing Activities:
Capital expenditures (15.6 ) (9.9 ) (26.6 ) (20.1 )
Proceeds from disposition of capital assets   0.2     0.5     0.7     1.9  
Total used for investing activities   (15.4 )   (9.4 )   (25.9 )   (18.2 )
 
Financing Activities:
Dividends paid (19.3 ) (19.2 ) (38.5 ) (38.3 )
Reacquisition of shares on open market - - - (25.0 )
Stock options exercised - net of shares reacquired 3.6 0.3 2.2 7.0
Excess tax shortfall from stock-based compensation - (1.1 ) - (0.2 )
Repayment of credit facility - - - (100.0 )
Proceeds from issuance (repayment) of commercial paper   22.8     (4.8 )   51.3     121.9  
Total provided by (used for) financing activities   7.1     (24.8 )   15.0     (34.6 )
 
Effect of exchange rate on cash and cash equivalents   (6.6 )   5.7     4.5     (13.3 )
Increase (decrease) in cash and cash equivalents 54.9 29.4 45.4 (20.0 )
Cash and cash equivalents at beginning of period   354.0     296.9     363.5     346.3  
Cash and cash equivalents at end of period $ 408.9   $ 326.3   $ 408.9   $ 326.3  
 
 
CRANE CO.
Order Backlog
(in millions)
           
June 30, March 31, December 31, September 30, June 30,
2016 2016 2015 2015 2015
 
Fluid Handling $ 246.3 $ 263.4 $ 267.2 $ 278.6 $ 287.3
Payment & Merchandising Technologies 65.8 60.4 62.6 55.5 61.1
Aerospace & Electronics 435.9 418.7 436.4 459.9 448.1
Engineered Materials   15.4   16.0   15.2   13.7   15.4
Total Backlog $ 763.5 $ 758.6 $ 781.5 $ 807.8 $ 811.9
 
 
CRANE CO.
Non-GAAP Financial Measures
(in millions, except per share data)
               

INCOME ITEMS

    Three Months Ended Six Months Ended Percent Change Percent Change
June 30, June 30, June 30, 2016 June 30, 2016
2016 2015 2016 2015 Three Months Six Months
 
 
Net Sales $ 712.2 $ 711.2 $ 1,372.2 $ 1,390.0 0.1 % (1.3 %)
 
 
Operating Profit 102.6 90.2 188.1 176.2 13.8 % 6.8 %
Percentage of Sales 14.4 % 12.7 % 13.7 % 12.7 %
 

Special Items impacting Operating Profit:

 

MEI Acquistion related integration charges

- 1.8 - 3.4
 

MEI Acquistion related restructuring charges

- - - 0.2
 
Repositioning charges - 7.1 - 9.7
 
Legal settlement charge   5.0     -     5.0     -  
Operating Profit before Special Items $ 107.6   $ 99.1   $ 193.1   $ 189.5   8.6 % 1.9 %
 
Percentage of Sales 15.1 % 13.9 % 14.1 % 13.6 %
 
 
Net Income Attributable to Common Shareholders $ 68.2 $ 55.8 $ 123.3 $ 106.8
Per Share $ 1.15 $ 0.95 $ 2.09 $ 1.82 21.6 % 15.0 %
 

Special Items Impacting Net Income Attributable to Common Shareholders:

 
MEI acquisition related integration charges - Net of Tax - 1.2 - 2.3
Per Share $ 0.02 $ 0.04
 
MEI acquisition related restructuring charges - Net of Tax - - - 0.1
Per Share $ 0.00
 
Repositioning charges - Net of Tax - 5.4 - 7.2
Per Share $ 0.09 $ 0.12
 
Legal settlement charge - Net of Tax 3.3 - 3.3 -
Per Share $ 0.05     $ 0.05    
Net Income Attributable To Common Shareholders Before Special Items $ 71.5 $ 62.3 $ 126.5 $ 116.4 14.8 % 8.7 %
Per Share $ 1.21 $ 1.06 $ 2.14 $ 1.98 14.1 % 8.3 %
 
 
 
 

Special Items Impacting Provision for Income Taxes

 
Provision for Income Taxes - GAAP Basis $ 25.2 $ 25.7 $ 46.6 $ 50.6
 
Tax effect of MEI acquisition related integration charges - 0.6 - 1.1
 
Tax effect of MEI acquisition related restructuring charges - - - -
 
Tax effect of repositioning charges - 1.7 - 2.5
 
Tax effect of legal settlement charge   1.8     -     1.8     -  
Provision for Income Taxes - non-GAAP Basis $ 27.0   $ 28.0   $ 48.4   $ 54.2  
 
 

For the three months ended June 30, 2016

             

Segment Information:

 
Fluid Handling Payment & Merchandising Technologies Aerospace & Electronics Engineered Materials Corporate Total Company
Net Sales 265.9 192.6 189.2 64.5 - 712.2
 
Operating Profit - GAAP 35.4 34.5 38.6 13.5 (19.4) 102.6
Legal settlement charge - - - - 5.0 5.0
Operating Profit before Special Items 35.4 34.5 38.6 13.5 (14.4) 107.6
Percentage of Sales 13.3% 17.9% 20.4% 21.0% 15.1%
 
 

For the three months ended June 30, 2015

 
Fluid Handling Payment & Merchandising Technologies Aerospace & Electronics Engineered Materials Corporate Total Company
Net Sales 291.8 186.5 167.1 65.8 - 711.2
 
Operating Profit - GAAP 32.5 26.1 31.7 12.2 (12.3) 90.2

Acquisition related integration charges

- 1.8 - - - 1.8
Repositioning Charges 5.1 - 0.8 - 1.1 7.1
Operating Profit before Special Items 37.7 28.0 32.5 12.2 (11.2) 99.1
Percentage of Sales 12.9% 15.0% 19.4% 18.5% 13.9%
 
 
CRANE CO.
Guidance
(in millions, except per share data)
               
2016 Full Year Guidance
2016 Earnings Per Share Guidance Low High
 
Earnings Per Share - GAAP basis $ 3.95 $ 4.15
 
Legal settlement charge - Net of Tax 0.05 0.05
   
Earnings Per Share - Non-GAAP basis $ 4.00   $ 4.20  
 
 
 
 
 

CASH FLOW ITEMS

 
Three Months Ended Six Months Ended
June 30, June 30, 2016 Full Year Guidance
2016 2015 2016 2015 Low High
Cash Provided by Operating Activities
before Asbestos - Related Payments $ 84.7 $ 71.9 $ 77.5 $ 70.8 $ 300.0 $ 325.0
Asbestos Related Payments, Net of Insurance Recoveries   (14.9 )   (14.1 )   (25.7 )   (24.8 )   (55.0 )   (55.0 )
Cash Provided by Operating Activities 69.8 57.8 51.8 46.0 245.0 270.0
Less: Capital Expenditures   (15.6 )   (9.9 )   (26.6 )   (20.1 )   (50.0 )   (50.0 )
Free Cash Flow $ 54.2   $ 47.9   $ 25.2   $ 26.0   $ 195.0   $ 220.0  
 
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.
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.
Jason D. Feldman, 203-363-7329
Director, Investor Relations
www.craneco.com

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