It has been about a month since the last earnings report for Crane (CR). Shares have added about 0.6% in that time frame, outperforming 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 the most recent earnings report in order to get a better handle on the important catalysts.
Crane Tops Earnings Estimates in Q3, Raises '18 View
Crane reported better-than-expected bottom-line results for the third quarter of 2018, delivering a positive earnings surprise of 11.7%. This is the company's 12th consecutive quarter when it recorded impressive results.
The company's adjusted earnings in the reported quarter were $1.62 per share, surpassing the Zacks Consensus Estimate of $1.45. Moreover, the bottom line increased 43.4% from the year-ago tally of $1.13, primarily on the back of sales growth and margin improvement.
Buyout and Organic Growth Drive Revenues
In the quarter under review, Crane's net sales were $855.8 million, up 23% from the year-ago quarter. The improvement was driven by 19% gain from acquired assets and 6% organic sales growth, partially offset by 2% adverse impact from foreign currency translations.
However, the top line lagged the Zacks Consensus Estimate of $862.4 million by 0.8%.
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 segmentwere $278.7 million, increasing 4.4% year over year. Results were driven by 7% gain from organic sales growth, offset by 1% impact from forex woes. Further, divestitures adversely impacted results.
This segment's order backlog was worth $297.7 million in the reported quarter, reflecting slight improvement from $291.6 million reported in the last reported quarter.
Revenues from Payment & Merchandising Technologies totaled $327.4 million, increasing 73.6% year over year. The improvement was primarily driven by synergistic gains from buyouts and 7% core sales growth. However, unfavorable movements in foreign currencies had negative 5% impact. Order backlog at the end of the reported quarter was $359 million, up 2.4% sequentially.
Revenues from the Aerospace & Electronics segment were $189.5 million, increasing 10.2% year over year. The improvement was mainly driven by core sales growth. Order backlog at the end of the quarter under review was $445.1 million, up 0.9% sequentially.
Revenues from the Engineered Materials segment decreased 12% year over year to $60.2 million due to weak business in the recreational vehicle end market. Order backlog at the end of the reported quarter was $10.3 million, down 22% sequentially.
Margin Profile Improves
In the quarter under review, Crane's cost of sales increased 23.4% year over year to $544.8 million. It represented 63.7% of net sales compared with 63.4% in the year-ago quarter. Selling, general and administrative expenses increased 17.5% year over year to $178.4 million. It represented 20.8% of net sales.
Adjusted operating income in the quarter under review increased 30.6% year over year to $138.2 million. Moreover, adjusted operating margin increased 90 basis points to 16.1%.
Balance Sheet and Cash Flow
Exiting the third quarter, Crane's had cash and cash equivalents of $323.6 million, roughly 1.7% above $318.2 million at the end of the last reported quarter. Long-term debt balance was roughly unchanged at $937.5 million.
In the third quarter, the company generated net cash of $91 million from its operating activities, reflecting 12.3% fall from the year-ago quarter. Capital expenditure was $31.6 million, up significantly from $13.5 million in the third quarter of 2017. Free cash flow in the quarter was $59.4 million.
During the second quarter, the company used $20.9 million for paying dividends to shareholders.
In the quarters ahead, Crane is likely to benefit from solid demand in end-markets served, Crane Currency buyout, repositioning initiatives and repayment of debts. Further, strengthening business in Crane Currency, and Aerospace & Electronics markets will be boons.
The company raised its adjusted earnings per share projection for 2018 to $5.80-$5.90 from $5.60-$5.80 stated earlier.
Free cash flow is projected to be $260-$290 million compared with $250-$280 million mentioned earlier.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
At this time, Crane has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% 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 these revisions indicates a downward shift. Notably, Crane has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.