Crane Company 2024 First-Quarter Form 10-Q Summary
Business context and reporting period
Crane Company reported unaudited results for the three months ended March 31, 2024. The company operates through three reportable segments: Aerospace & Electronics, Process Flow Technologies, and Engineered Materials.
Comparisons are affected by the April 3, 2023 separation of Crane NXT, Co. The Payment & Merchandising Technologies segment is presented as discontinued operations; therefore, 2024 continuing-operations results exclude that business, while first-quarter 2023 included $49.8 million of after-tax discontinued-operations income.
Financial performance and key metrics
- Net sales: $565.3 million, up 10.0% from $513.8 million. The increase comprised $25.8 million from the Baum and Vian acquisitions, $24.1 million of core growth primarily from pricing, and $1.6 million of favorable foreign currency translation.
- Operating profit: $89.4 million, up 15.4% from $77.5 million.
- Operating margin: 15.8%, compared with 15.1% in the prior-year quarter.
- Net income from continuing operations: $64.8 million, up 15.9% from $55.9 million.
- Diluted earnings per share from continuing operations: $1.12, compared with $0.98.
- Total diluted EPS: $1.12, compared with $1.84, reflecting the absence of $49.8 million of discontinued-operations income in 2024.
- Effective tax rate: 21.0%, compared with 21.6%.
- Cash flow from continuing operations: $79.9 million of cash used, an improvement from $105.4 million used in the prior-year quarter. Working capital used $162.4 million.
- Capital expenditures: $9.1 million, compared with $8.9 million.
- Acquisitions: $105.6 million of cash used, primarily for the $102.5 million Vian acquisition and the $3.1 million final working-capital adjustment for Baum.
- Cash and cash equivalents: $219.4 million at March 31, 2024, down from $329.6 million at December 31, 2023.
- Debt: $110.0 million outstanding under the revolving facility and $246.8 million of long-term term-facility debt, for total reported borrowings of $356.8 million.
- Liquidity: The company had an $800 million revolving facility, with stated availability through March 2028, and a $300 million term facility through March 2026. Management stated that cash, expected operating cash flow, and available borrowing capacity should fund near- and long-term requirements.
- Dividend: $0.205 per share declared and paid during the quarter. No open-market share repurchases were made.
Segment results
| Segment | Sales | Year-over-year change | Operating profit | Operating margin |
|---|---|---|---|---|
| Aerospace & Electronics | $225.9 million | +25.4% | $48.3 million | 21.4% |
| Process Flow Technologies | $284.3 million | +4.8% | $56.9 million | 20.0% |
| Engineered Materials | $55.1 million | -11.6% | $8.1 million | 14.7% |
- Aerospace & Electronics benefited from higher commercial and military original-equipment and aftermarket demand, aircraft build-rate recovery, improving airline traffic, and geopolitical-driven military demand. Backlog was $791.8 million.
- Process Flow Technologies sales benefited from Baum, but core sales declined 2.0% and operating margin contracted to 20.0% from 23.3%, primarily due to lower volumes, higher costs, and unfavorable mix. Backlog was $393.3 million.
- Engineered Materials experienced lower volumes in building products and transportation markets. Backlog declined to $12.8 million from $16.8 million.
Material changes versus the prior comparable period
- Sales increased 10.0% and operating profit increased 15.4%, supported by productivity, pricing, higher volumes, and acquisitions.
- Cost of sales rose faster than revenue, increasing to 61.0% of sales from 59.7%, while selling, general and administrative expense improved to 23.2% of sales from 25.2%.
- Operating cash use improved by $25.5 million, but cash flow remained negative because of substantial working-capital investment.
- Cash used in investing activities increased to $114.5 million from $8.7 million, primarily because of the Vian acquisition.
- Financing activities provided $87.9 million, versus $67.8 million used in the prior-year quarter, primarily reflecting $140.0 million of new long-term borrowings and $110.0 million of revolving-facility borrowings, partially offset by debt repayments and dividends.
- Goodwill increased to $791.6 million from $747.7 million, and net intangible assets increased to $137.6 million from $87.9 million, primarily due to Vian.
Guidance, outlook, risks, contingencies, and unusual items
- 2024 outlook: Management expects total sales growth of approximately 10%, including 4% to 6% core growth and approximately 5% contribution from Baum, Vian, and CryoWorks. Operating profit is expected to improve through lower transaction costs, productivity, operating leverage, pricing, and acquisitions, partly offset by unfavorable mix.
- Segment outlook: Aerospace & Electronics sales are expected to grow in the mid-teens; Process Flow Technologies sales approximately 7%; and Engineered Materials sales are expected to be flat.
- CryoWorks: The company completed the $61 million acquisition of CryoWorks on May 1, 2024, after the reporting date. It borrowed approximately $50 million under the revolving facility on April 29, 2024 to fund the transaction.
- Backlog: Total remaining performance obligations were $1.20 billion at March 31, 2024; management expects to recognize approximately 76% in 2024 and 20% in 2025.
- Debt covenants: The company was in compliance with its credit-facility covenants at March 31, 2024. The agreement generally requires a maximum total net leverage ratio of 3.50 to 1.00 and minimum interest coverage of 3.00 to 1.00, subject to specified acquisition-related provisions.
- Environmental matters: The Goodyear Site remediation liability was $19.4 million gross, with $3.8 million of expected government reimbursement receivable. The company cannot reasonably estimate obligations beyond current accruals through the 2027 forecast period. Potential Crab Orchard Site remediation obligations also cannot presently be reasonably estimated.
- Other risks: Key exposures include cyclical demand, aircraft production and airline traffic, defense spending and government contracts, inflation and supply-chain conditions, raw-material costs, foreign currency, acquisition integration, cybersecurity, environmental remediation, pension funding, tax matters, and litigation.
- Restructuring: The company’s restructuring liability was $2.4 million at March 31, 2024, and the workforce-reduction program is expected to be completed in the fourth quarter of 2024.
Important facts for investors to verify
- Reconcile reported EPS with the prior-year period after adjusting for discontinued operations from the Crane NXT separation.
- Assess whether Aerospace & Electronics growth and backlog conversion offset weakness and margin pressure in Process Flow Technologies and Engineered Materials.
- Monitor working-capital absorption, cash generation, acquisition spending, and the additional debt used for CryoWorks.
- Evaluate execution of the 2024 sales and operating-profit outlook, including the stated core-growth and acquisition assumptions.
- Review leverage and covenant headroom after the CryoWorks acquisition and any further borrowings.
- Follow the Vian purchase-price allocation, contingent consideration of up to $7.5 million, and possible measurement-period adjustments.
- Track environmental remediation developments, particularly Goodyear and the currently unquantifiable Crab Orchard obligations.