Crane NXT, Co. 2023 First-Quarter 10-Q Summary
Business context and reporting period
The filing covers the three months ended March 31, 2023. During the quarter, the company was still named Crane Holdings, Co.; it was renamed Crane NXT, Co. effective April 3, 2023. On that date, the company separated into two publicly traded companies, retaining Payment & Merchandising Technologies and spinning off Aerospace & Electronics, Process Flow Technologies, and Engineered Materials to shareholders. The quarter’s reported results include all four segments before the separation.
Financial performance and liquidity
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Net sales | $842.9 million | $871.5 million | Down 3.3% |
| Operating profit | $152.2 million | $147.0 million | Up 3.5% |
| Operating margin | 18.1% | 16.9% | Up 120 basis points |
| Income before taxes | $133.8 million | $139.7 million | Down 4.2% |
| Net income attributable to common shareholders | $105.7 million | $105.0 million | Up 0.7% |
| Diluted EPS | $1.84 | $1.81 | Up 1.7% |
| Operating cash flow | $(70.8) million | $(55.5) million | More cash used |
Cost of sales declined to 57.1% of sales from 60.4%, reflecting productivity, pricing and the 2022 Crane Supply divestiture. Selling, general and administrative expense increased to 24.8% of sales from 22.8%, including $11.7 million of transaction-related expenses.
- Aerospace & Electronics sales increased 14.6% to $180.1 million; operating profit rose 34.2% to $37.7 million and margin improved to 20.9%.
- Process Flow Technologies sales decreased 12.8% to $271.4 million, primarily because of the Crane Supply divestiture; operating profit increased 29.2% to $63.3 million and margin improved to 23.3%.
- Payment & Merchandising Technologies sales declined 1.1% to $329.1 million; operating profit decreased 5.7% to $79.4 million and margin declined to 24.1%.
- Engineered Materials sales declined 11.5% to $62.3 million; operating profit decreased 14.9% to $11.4 million.
Cash used in operating activities increased primarily because of a $215.0 million investment in operating working capital. Capital expenditures were $12.9 million, dividends paid were $26.6 million, and cash declined by $147.4 million to $510.2 million at March 31, 2023.
At March 31, 2023, short-term borrowings were $308.5 million and long-term debt was $880.7 million. The company borrowed $350.0 million under a new term facility and repaid the remaining $400.0 million under its 364-day credit agreement. The new credit agreement also provides a $500.0 million five-year revolving facility, subject to customary conditions and covenants. The company stated that cash, expected operating cash generation and revolving-credit availability should be sufficient for capital requirements and expected pension contributions.
Material changes versus the prior comparable period
- Reported sales declined 3.3%, but core sales increased 6.2%, primarily from higher pricing. Foreign-currency translation reduced sales by $21.0 million, and the Crane Supply divestiture reduced sales by $61.7 million.
- Operating profit and margin improved despite lower reported sales, reflecting $43.9 million of higher pricing net of inflation and productivity, partly offset by unfavorable mix, divestiture effects and currency.
- Interest expense increased to $17.0 million from $11.1 million, while miscellaneous income in the prior-year period became miscellaneous expense of $2.4 million.
- The effective tax rate declined to 21.0% from 25.0%, primarily due to a greater benefit from share-based compensation.
- Working-capital use increased to $215.0 million from $183.7 million, driven particularly by inventories, accounts payable and accrued liabilities.
- Backlog was $1.58 billion at March 31, 2023; management expected approximately 84% to be recognized as revenue in 2023 and 14% in 2024.
Guidance, outlook, risks and unusual items
The filing does not provide clear numerical earnings or revenue guidance. Management cited improving commercial aerospace demand, strong defense and space demand, pricing, productivity and higher core sales, but also identified material availability constraints, inflation, unfavorable product mix, foreign-exchange exposure and variable demand.
Key risks include supply-chain disruption, raw-material and labor-cost inflation, macroeconomic and geopolitical conditions, cybersecurity and information-system failures, regulatory and environmental liabilities, tax exposures, competition, product liability, acquisition and integration risk, and the ability to realize expected benefits from the separation. The new credit agreement requires a maximum total net leverage ratio of 3.50 to 1.00, with a potential temporary increase to 4.00 to 1.00 after specified acquisitions, and a minimum interest-coverage ratio of 3.00 to 1.00.
Subsequent events were significant: Crane Company paid a $275.0 million dividend to Crane NXT before the separation, and Crane NXT redeemed its $300.0 million of 4.45% senior notes due 2023 on April 4, 2023. Environmental remediation liabilities at the Goodyear Site were estimated at $23.7 million gross, with $4.7 million of expected government reimbursements. The company stated that the ultimate Crab Orchard Site remediation obligation cannot currently be reasonably estimated. No asbestos costs were incurred in Q1 2023, compared with $13.0 million in the prior-year quarter.
Investor verification points
- Confirm the post-separation financial profile of Crane NXT, including the retained Payment & Merchandising Technologies business and allocation of debt, assets, liabilities and corporate costs.
- Monitor working-capital conversion, inventory levels and the effect of backlog conversion on operating cash flow.
- Review leverage, interest expense and compliance with the new credit agreement’s leverage and interest-coverage covenants after the $300.0 million note redemption.
- Assess whether pricing and productivity can offset inflation, unfavorable mix, currency movements and demand variability.
- Evaluate environmental, tax and separation-related indemnification obligations, including matters whose ultimate costs are not currently estimable.