Crane Co. 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2020. The filing identifies the registrant as Crane Co.; it reports four segments: Fluid Handling, Payment & Merchandising Technologies, Aerospace & Electronics, and Engineered Materials.
Business Context and Key Financial Metrics
| Metric | Three Months 2020 | Three Months 2019 | Six Months 2020 | Six Months 2019 |
|---|---|---|---|---|
| Net sales | $677.9 million | $841.6 million | $1,475.7 million | $1,673.3 million |
| Operating profit | $30.5 million | $122.8 million | $119.1 million | $236.5 million |
| Operating margin | 4.5% | 14.6% | 8.1% | 14.1% |
| Net income attributable to common shareholders | $14.8 million | $91.0 million | $77.6 million | $173.4 million |
| Diluted EPS | $0.25 | $1.50 | $1.31 | $2.85 |
| Cash provided by operating activities | Not separately provided | Not separately provided | $76.6 million | $52.5 million |
- Second-quarter sales declined 19.5%, operating profit declined 75.2%, and net income declined 83.7% year over year. Six-month sales declined 11.8%, operating profit declined 49.6%, and net income declined 55.2%.
- Cash and cash equivalents were $592.1 million at June 30, 2020, compared with $393.9 million at December 31, 2019. Total current assets were $1.63 billion versus current liabilities of $1.23 billion.
- Total debt was approximately $1.43 billion, consisting of $585.3 million of short-term borrowings and $842.5 million of long-term debt. The company also had a $550 million revolving credit facility, with no borrowings outstanding at quarter-end.
- Free cash flow is not directly presented. Capital expenditures were $13.5 million in the first six months, and management expected approximately $45 million of capital expenditures for 2020.
- Dividends per share were $0.43 in the second quarter and $0.86 for the first six months. The company repurchased $70.0 million of shares during the first quarter.
- Backlog was $1.10 billion at June 30, 2020; management expected 68.7% of remaining performance obligations to convert to revenue in 2020 and 25.1% in 2021.
Material Changes Versus Prior Comparable Period
- COVID-19 drove a $203.2 million, or 24.1%, second-quarter core sales decline, partly offset by $47.0 million of acquisition-related sales and unfavorable currency translation of $7.5 million.
- All four segments reported lower second-quarter sales and operating profit. Payment & Merchandising Technologies operating profit fell 95.7%, Aerospace & Electronics fell 60.5%, Fluid Handling fell 45.8%, and Engineered Materials fell 76.0%.
- Commercial aerospace, payment equipment, vending equipment, oil and gas-related demand, recreational vehicle production, and transportation markets were particularly affected. Military-related sales and banknote and security products provided areas of relative strength.
- The company completed the January 2020 acquisition of CIRCOR’s Instrumentation & Sampling Business for $172.3 million. The December 2019 Cummins-Allison acquisition also contributed to reported sales.
- Restructuring and related charges increased to $25.1 million in the second quarter from $6.4 million in the prior-year period. The company initiated workforce reductions of approximately 1,000 employees, or 9% of its global workforce, and expected approximately $80 million of annualized pretax savings.
- Interest expense increased to $14.4 million in the second quarter from $11.4 million, reflecting higher borrowings. The company also entered into a new 364-day credit facility and borrowed $343.9 million under it.
Guidance, Outlook, Risks, and Unusual Items
- Management expected 2020 sales of $2.8 billion to $3.0 billion, representing a core sales decline of 17% to 22%. The filing did not provide a specific 2020 operating profit or EPS forecast.
- Management expected lower sales and margins across Fluid Handling, Aerospace & Electronics, and Engineered Materials, and modestly lower sales in Payment & Merchandising Technologies. Acquisition benefits and approximately $100 million of incremental cost reduction actions were expected to partially offset COVID-19 effects.
- COVID-19 risks included reduced customer demand, supply-chain and delivery disruptions, employee availability constraints, customer payment delays, financial-market volatility, and potential limitations on liquidity or credit-market access.
- Asbestos liabilities were $686 million at June 30, 2020, with $92 million of estimated insurance recoveries. The company had approximately 28,927 pending asbestos claims and expected approximately $50 million of 2020 net asbestos settlement and defense payments. Management made no change to its asbestos estimate during the quarter.
- Environmental remediation liability related primarily to the Goodyear, Arizona site was $42.1 million, with an $8.7 million receivable for expected U.S. government reimbursements. Additional Crab Orchard Site obligations could not be reasonably estimated.
- The company deferred $18.2 million of U.S. pension contributions until January 1, 2021 under the CARES Act. It expected 2020 pension and postretirement contributions of $3.2 million and $2.5 million, respectively.
- Management performed COVID-19-related goodwill and indefinite-lived intangible asset sensitivity analyses and concluded that impairment was not more likely than not at June 30, 2020; however, a material future impairment charge remains possible if estimates or market conditions deteriorate.
Important Facts for Investors to Verify
- Whether COVID-19 demand, supply-chain, aerospace, oil and gas, vending, and recreational vehicle pressures persist beyond the assumptions underlying the $2.8 billion to $3.0 billion sales outlook.
- The timing and realization of the projected $80 million annualized restructuring savings and the broader approximately $100 million cost-reduction benefit.
- Debt maturities, refinancing requirements, interest costs, and liquidity following the 364-day credit facility and increased short-term borrowings.
- The final purchase-price allocations and integration performance for the I&S and Cummins-Allison acquisitions.
- Changes in asbestos claims, settlement costs, insurance recoveries, and actuarial assumptions, including the potential for material future adjustments.
- Potential goodwill or intangible-asset impairment if market valuations, operating results, or economic conditions weaken further.