Crane Co. 10-Q Summary
Reporting period: Three months ended March 31, 2022. The filing is for Crane Co., the predecessor company associated with the requested Crane NXT metadata. Results exclude the Engineered Materials segment from continuing operations because it was classified as discontinued operations and held for sale.
Business Context
Crane reported three continuing segments: Aerospace & Electronics, Process Flow Technologies, and Payment & Merchandising Technologies. On March 30, 2022, the Board approved a plan to separate Crane into two independent publicly traded companies, expected within approximately 12 months, subject to customary conditions and final Board approval. The company also pursued a holding-company reorganization requiring shareholder approval.
Key Financial Metrics
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Net sales | $801.1 million | $779.6 million | Up 2.8% |
| Operating profit | $133.6 million | $140.0 million | Down 4.6% |
| Operating margin | 16.7% | 18.0% | Down 130 basis points |
| Income from continuing operations | $94.7 million | $103.4 million | Down 8.4% |
| Net income attributable to common shareholders | $105.0 million | $108.4 million | Down 3.1% |
| Diluted EPS | $1.81 | $1.84 | Down $0.03 |
| Dividend per share | $0.47 | $0.43 | Up $0.04 |
| Effective tax rate | 25.0% | 20.9% | Up 410 basis points |
Revenue and segment performance: Aerospace & Electronics sales rose 2.0% to $157.2 million and operating profit rose 8.1% to $28.1 million. Process Flow Technologies sales rose 8.1% to $311.3 million, while operating profit declined 1.8% to $49.0 million, partly because the prior-year period included a $12.6 million restructuring gain. Payment & Merchandising Technologies sales declined 1.5% to $332.6 million and operating profit declined 2.0% to $84.2 million.
Cash flow and liquidity: Operating cash flow from continuing operations was negative $49.3 million, compared with positive $47.6 million in the prior-year quarter, primarily because of higher working capital and bonus payments. Capital expenditures were $12.5 million. Financing cash flow used $97.8 million, including $175.8 million of share repurchases and $26.7 million of dividends, partially offset by $104.0 million of commercial paper borrowings. Cash and cash equivalents declined to $307.2 million from $478.6 million at December 31, 2021.
Debt and balance sheet: March 31, 2022 debt consisted of $104.0 million of commercial paper and $842.7 million of long-term debt. The company had a $650 million revolving credit facility and a commercial paper program with a $650 million maximum. Total assets were $4.35 billion and total equity was $1.73 billion. Accounts receivable and inventory increased to $510.9 million and $471.3 million, respectively.
Backlog: Total backlog was $1.31 billion at March 31, 2022. Management expected approximately 85% of remaining performance obligations to be recognized as revenue in 2022, 13% in 2023, and the balance thereafter.
Material Changes Versus Prior Period
- Sales growth was primarily pricing-driven: core sales increased 4.6%, while unfavorable foreign exchange reduced sales by 1.8%.
- Operating profit declined because the 2021 period benefited from $13.1 million of net restructuring gains and 2022 included $6.1 million of separation-related transaction costs. These effects were partly offset by $12.9 million of operational improvement across the segments.
- Cost of sales as a percentage of sales improved to 59.1% from 60.4%, but selling, general and administrative expense increased to 24.2% of sales from 23.4%.
- Net interest expense declined because the company repaid its 364-day credit facility in April 2021.
- The company repurchased 1.79 million shares during the quarter for $175.8 million. Shares outstanding declined to 56.3 million from 57.8 million at December 31, 2021.
- Engineered Materials generated $10.3 million of discontinued-operations income after tax, compared with $5.0 million in the prior-year quarter.
Guidance, Outlook, Risks and Unusual Items
- Management expected 2022 sales to increase approximately 3% to 4%, reflecting approximately 5% core growth offset by 1% to 2% unfavorable foreign exchange.
- Management expected operating profit to improve 1% to 2%, driven by productivity and operating leverage, partly offset by separation-related costs and unfavorable mix.
- Expected 2022 capital expenditures were approximately $60 million, and expected net asbestos settlement and defense payments were approximately $45 million.
- Management cited inflation, supply-chain disruption, raw-material costs, foreign exchange, COVID-19 effects, geopolitical and macroeconomic conditions, cyclical demand, cybersecurity, regulatory compliance, and international operations as key risks.
- The proposed sale of Engineered Materials for $360 million remained subject to regulatory approval. On March 17, 2022, the Department of Justice filed a complaint seeking to block the transaction; management continued to believe closing was probable.
- On April 8, 2022, after the reporting date, the company agreed to sell Crane Supply for CAD 380 million, subject to customary conditions and regulatory approvals. The transaction was expected to close in the second quarter and was not included in the 2022 outlook.
- Asbestos liabilities totaled $600 million at March 31, 2022, offset by $70 million of estimated insurance recoveries. The company had approximately 30,312 pending asbestos claims and recognized no change in its liability estimate during the quarter.
- The Goodyear environmental remediation liability was $30.6 million, with a $6.6 million receivable for expected U.S. Government reimbursements.
Facts Investors Should Verify
- Whether the planned separation and holding-company reorganization receive required shareholder, regulatory, and Board approvals and are completed on schedule.
- Whether the Engineered Materials sale closes despite the DOJ antitrust complaint and whether the Crane Supply divestiture closes as expected.
- Whether pricing actions fully offset inflation, labor, materials, and supply-chain costs without weakening demand.
- Whether working-capital consumption normalizes and operating cash flow improves after the substantial first-quarter outflow.
- Whether asbestos claim activity, settlement costs, insurance recoveries, or environmental remediation requirements cause material future changes to liabilities, cash flow, or earnings.
- Whether the Payment & Merchandising Technologies recovery and Aerospace & Electronics growth support management’s full-year outlook.