A month has gone by since the last earnings report for Crane (CR). Shares have added about 1.3% in that time frame, underperforming 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 its most recent earnings report in order to get a better handle on the important drivers.
Crane Q2 Earnings and Revenues Beat Estimates, Down Y/Y
Crane reported better-than-expected results for the second quarter of 2020. Its earnings and sales surpassed the Zacks Consensus Estimate by 36.2% and 10.8%, respectively.
Adjusted earnings in the reported quarter were 64 cents per share, beating the consensus estimate of 47 cents. On a year-over-year basis, the bottom line declined 59.5% from the year-ago quarter figure of $1.58 due to a decline in sales.
Revenues Decline Y/Y
In the quarter under review, Crane’s net sales were $678 million, reflecting a decline of 19.5% from the year-ago quarter. Results were adversely impacted by a fall in core sales of $203 million largely due to the coronavirus outbreak-led issues and forex woes of $8 million, partially offset by the benefit of $47 million from acquisitions.
Crane’s net sales beat the Zacks Consensus Estimate of $612 million.
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 $239 million, reflecting a decline of 18% from the year-ago quarter figure. Results reflected a 21% decline in core sales and a 2% impact of forex woes. The segment’s order backlog was $299 million in the reported quarter, reflecting a sequential increase of 1.9%.
Revenues from Payment & Merchandising Technologies totaled $248 million, decreasing 15% year over year. Results were adversely impacted by a core sales decline of 25%, and an adverse impact of 1% from forex woes, partially offset by an 11% benefit from acquisitions. Order backlog at the end of the reported quarter was $285.5 million, down 12.5% sequentially.
Revenues from the Aerospace & Electronics segment were $157 million, declining 23% year over year. The fall was mainly attributable to a decline in core sales. Order backlog at the end of the quarter under review was $506 million, down 7.6% sequentially.
Revenues from the Engineered Materials segment dipped 40% year over year to $34 million on lower sales to recreational vehicle customers. Order backlog at the end of the reported quarter was $10.1 million, down 6.5% sequentially.
Operating Margin Declines Y/Y
In the second quarter, Crane’s cost of sales decreased 15.5% year over year to $452.1 million. It represented 66.7% of net sales compared with 63.6% in the year-ago quarter. Selling, general and administrative expenses grew 6.3% year over year to $195.3 million. It represented 28.8% of net sales versus 21.8% in the year-ago quarter.
Operating income in the quarter under review decreased 74.8% year over year to $31 million. Moreover, adjusted operating margin contracted 670 basis points to 8.9%.
Balance Sheet and Cash Flow
Exiting the second quarter, Crane had cash and cash equivalents of $592.1 million, up 95.5% from $302.8 million at the end of the last reported quarter. Long-term debt balance was marginally up sequentially to $842.5 million.
In the first six months of 2020, the company generated net cash of $76.6 million from operating activities compared with $52.5 million generated in the year-ago comparable period. Capital expenditure in the same period was $13.5 million, down 62.6% year over year.
In the second quarter, free cash flow was $106.4 million versus $136.6 million in the year-ago quarter. In the quarter, Crane used $24.9 million for paying dividends, whereas it distributed $23.3 million in the year-ago comparable quarter.
For 2020, the company currently anticipates adjusted earnings per share of $3.30-$4.10 compared with $3.00-$4.25 mentioned earlier. Sales are predicted to be $2,800-$2.925 million, suggesting a year-over-year core sales decline of 17-21%. Free cash flow is projected to be $200-$250 million for 2020.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted -7.21% due to these changes.
At this time, Crane has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. 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 this revision indicates a downward shift. Notably, Crane has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.