Crane Co. Form 10-Q Summary
Reporting period: Three and six months ended June 30, 2021. The filing is for Crane Co., the predecessor company to Crane NXT. Results exclude the Engineered Materials segment from continuing operations after its classification as held for sale.
Business Context and Reporting Period
Crane operates through Aerospace & Electronics, Process Flow Technologies, and Payment & Merchandising Technologies. On May 16, 2021, the company agreed to sell Engineered Materials to Grupo Verzatec for $360 million, subject to customary closing conditions and regulatory approvals. The segment’s historical results are presented as discontinued operations.
Financial Performance and Position
| Metric | Q2 2021 | Q2 2020 | Six Months 2021 | Six Months 2020 |
|---|---|---|---|---|
| Net sales | $796.4 million | $644.3 million | $1,575.9 million | $1,391.1 million |
| Operating profit | $136.9 million | $28.7 million | $276.9 million | $110.4 million |
| Operating margin | 17.2% | 4.5% | 17.6% | 7.9% |
| Continuing-operations net income | $110.7 million | $13.4 million | $214.1 million | $71.1 million |
| Diluted EPS from continuing operations | $1.87 | $0.23 | $3.62 | $1.20 |
| Total diluted EPS, including discontinued operations | $2.33 | $0.25 | $4.17 | $1.31 |
- Q2 sales increased 23.6%, consisting of 18.7% core growth and a 4.9% favorable foreign-currency effect. Six-month sales increased 13.3%, including 8.8% core growth, 4.1% currency benefit, and 0.4% from the I&S acquisition.
- Q2 operating profit increased 377.0%; six-month operating profit increased 150.8%. Improvements reflected higher volumes, restructuring savings, and the absence of substantial 2020 restructuring and acquisition-related charges.
- Segment Q2 sales and operating profit were: Aerospace & Electronics $157.5 million and $30.8 million; Process Flow Technologies $310.7 million and $46.5 million; and Payment & Merchandising Technologies $328.2 million and $77.9 million.
- At June 30, 2021, cash and cash equivalents were $386.7 million versus $551.0 million at December 31, 2020. Total debt was approximately $858.4 million, consisting of $15.0 million of short-term borrowings and $843.4 million of long-term debt.
- Net cash provided by operating activities from continuing operations was $197.5 million for the first six months, compared with $75.6 million in 2020. Capital expenditures were $13.9 million, and management expected approximately $70.0 million of capital expenditures for full-year 2021.
- Cash used in financing activities was $405.2 million, primarily reflecting repayment of the $348.1 million 364-day credit facility, dividends of $50.2 million, and net commercial-paper repayments. No open-market share repurchases occurred during the quarter.
- The quarterly dividend was $0.43 per share. Total dividends paid during the first six months were $50.2 million.
- Total backlog was $1,191.7 million at June 30, 2021; management expected to recognize approximately 77% in 2021 and 21% in 2022.
Material Changes Versus the Prior Comparable Period
- Process Flow Technologies Q2 sales rose 29.8% and operating profit rose 130.2%, driven by higher volumes, stronger commercial-valve demand, and favorable currency translation.
- Payment & Merchandising Technologies Q2 sales rose 32.6% and operating profit increased to $77.9 million from $2.0 million, supported by gaming, retail, vending, and banknote demand, favorable mix, and the non-recurrence of 2020 restructuring charges.
- Aerospace & Electronics Q2 sales were essentially flat, but operating profit rose 57.9% due primarily to restructuring savings and the absence of prior-year charges. For the six-month period, sales declined 11.1% because of lower commercial aircraft production and aftermarket activity.
- Q2 restructuring and related charges declined to $2.2 million from $24.5 million, and acquisition-related charges declined to zero from $2.3 million. Six-month results included a net restructuring gain of $9.5 million versus $24.6 million of charges in 2020.
- Discontinued operations contributed $27.6 million of after-tax income in Q2 and $32.6 million for the first six months, including a $21.5 million deferred tax benefit related to the pending Engineered Materials sale.
- The company repaid the 364-day credit facility on April 15, 2021, reducing short-term borrowings materially from year-end.
Guidance, Outlook, Risks, and Unusual Items
- Management expected full-year 2021 sales from continuing operations to increase approximately 12%, driven by high-single-digit core growth, a roughly 3.5% foreign-exchange benefit, and a slight acquisition benefit.
- Management expected operating profit to improve by approximately two times versus 2020, supported by volume leverage, savings from repositioning actions, and the absence of prior-year restructuring and acquisition-related charges.
- Management expected Aerospace & Electronics core sales to decline low- to mid-single digits, while Process Flow Technologies sales were expected to rise in the mid-teens and Payment & Merchandising Technologies sales in the mid- to high-teens.
- Management expected approximately $45 million of 2021 net asbestos settlement and defense payments and approximately $70 million of capital expenditures.
- Asbestos liabilities totaled $643 million at June 30, 2021, with related insurance receivables of $80 million. The company had 29,788 pending asbestos claims and cautioned that changes in claim volumes, settlement costs, litigation, insurance recoveries, or applicable law could materially affect future results.
- Environmental liabilities at the Goodyear Site were estimated at $35.5 million gross, with a $7.3 million receivable for expected U.S. government reimbursements. The company retained remediation obligations after selling substantially all of the related property for $8.7 million.
- The filing identifies COVID-19 effects, cyclical end markets, raw-material costs, supply and customer conditions, foreign exchange, aerospace recovery, defense spending, banknote contract timing, acquisitions and divestitures, pension funding, asbestos litigation, and environmental remediation as significant risks.
- On July 28, 2021, after quarter-end, the company entered into a new $650 million five-year revolving credit facility and increased its commercial-paper program limit to $650 million from $550 million.
Important Facts for Investors to Verify
- Confirm completion timing, regulatory approvals, proceeds, and final accounting for the Engineered Materials divestiture.
- Assess how much of the reported earnings improvement reflects recurring operating performance versus discontinued-operations tax benefits, restructuring gains, property-sale gains, and favorable currency translation.
- Monitor aerospace recovery, commercial aftermarket activity, defense and banknote order timing, and the sustainability of Payment & Merchandising Technologies’ elevated margins.
- Reconcile cash proceeds and debt reduction after the divestiture against asbestos, environmental, pension, capital-expenditure, dividend, and other liquidity requirements.
- Track asbestos claims, settlement costs, insurance recoveries, and actuarial assumptions, which may produce material future charges or income changes.
- Compare full-year performance with management’s approximately 12% sales-growth and approximately two-times operating-profit outlook.