Crane Co. — Q3 2021 Form 10-Q Summary
Reporting period: Three and nine months ended September 30, 2021. The filing registrant is Crane Co.; the provided metadata identifies Crane NXT, Co. Results are presented primarily on a continuing-operations basis.
Business Context
Crane reported three continuing segments: Aerospace & Electronics, Process Flow Technologies, and Payment & Merchandising Technologies. Engineered Materials was classified as discontinued operations after Crane agreed to sell the segment for $360 million, subject to customary closing conditions and regulatory approvals.
Key Financial Metrics
| Metric | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 |
|---|---|---|---|---|
| Net sales | $833.5 million | $686.5 million | $2,409.5 million | $2,077.6 million |
| Operating profit | $138.2 million | $75.9 million | $415.1 million | $186.3 million |
| Operating margin | 16.6% | 11.1% | 17.2% | 9.0% |
| Net income from continuing operations | $111.4 million | $49.4 million | $325.5 million | $120.3 million |
| Net income attributable to common shareholders | $116.6 million | $56.6 million | $363.3 million | $134.2 million |
| Diluted EPS | $1.96 | $0.97 | $6.14 | $2.28 |
- Q3 sales increased 21.4%; nine-month sales increased 16.0%. Nine-month growth comprised 12.4% core growth, 3.4% favorable foreign exchange, and 0.2% from the I&S acquisition.
- Q3 operating profit increased 82.1%; nine-month operating profit increased 122.8%. Higher volume, productivity, favorable mix, restructuring savings, and the absence of prior-year acquisition and restructuring charges supported the improvement.
- Q3 effective tax rate was 15.0%, versus 25.7% in the prior-year quarter; the nine-month rate was 18.1%, versus 23.3%.
- Net cash provided by operating activities from continuing operations was $311.7 million for the first nine months, compared with $197.0 million in 2020.
- Total cash and cash equivalents were $450.8 million at September 30, 2021, down from $551.0 million at December 31, 2020.
- Capital expenditures were $25.3 million through nine months; management expected approximately $60 million for full-year 2021.
- Dividends paid were $75.5 million through nine months, or $1.29 per share declared during the period.
Segment Performance
| Segment | Q3 Sales Growth | Q3 Operating Margin | 9M Sales Growth | 9M Operating Profit |
|---|---|---|---|---|
| Aerospace & Electronics | 7.4% | 19.3% | (5.3%) | $89.3 million |
| Process Flow Technologies | 18.5% | 14.8% | 20.0% | $140.9 million |
| Payment & Merchandising Technologies | 32.0% | 22.9% | 25.5% | $247.4 million |
Total backlog was $1,217.8 million at September 30, 2021. Management expected approximately 52% of remaining performance obligations to be recognized in 2021 and 44% in 2022.
Liquidity, Debt, and Balance Sheet
- Long-term debt was $842.2 million, consisting principally of notes due in 2023, 2036, and 2048. Short-term borrowings were zero, compared with $375.7 million at December 31, 2020.
- Crane repaid the $348.1 million outstanding balance under its 364-day credit facility in April 2021.
- In July 2021, Crane replaced its prior revolving facility with a $650 million five-year revolving credit agreement and increased its commercial paper program to $650 million.
- Financing activities used $440.8 million during the first nine months, primarily due to debt repayment and dividends. The company made no open-market share repurchases during the quarter.
- Management stated that cash, expected operating cash flow, available commercial paper capacity, and the revolving facility should be sufficient for planned capital requirements, pension contributions, and asbestos and environmental payments.
Material Changes Versus Prior Comparable Period
- Profitability improved substantially as demand recovered from COVID-19-related weakness, particularly in Payment & Merchandising Technologies and Process Flow Technologies.
- Prior-year acquisition and integration charges of $2.7 million in Q3 and $10.3 million year-to-date did not recur.
- Prior-year restructuring charges of $22.0 million year-to-date were replaced by a $14.3 million net restructuring gain in 2021, including a real-estate-related gain.
- Interest expense declined due to repayment of the 364-day credit facility.
- Foreign currency translation reduced comprehensive income by $52.1 million year-to-date, compared with a $13.2 million gain in 2020.
- Accounts receivable increased to $512.7 million from $423.9 million at year-end, while cash declined by $100.2 million.
Guidance, Outlook, and Management Commentary
- For 2021, management expected total sales growth of approximately 14%, including low-double-digit core growth, an approximately 2.5% foreign-exchange benefit, and a slight acquisition benefit.
- Management expected full-year operating profit to nearly double from 2020, supported by volume leverage, productivity, favorable mix, restructuring savings, and the absence of prior-year charges.
- Aerospace remained exposed to lower aircraft build rates and recovering commercial air travel. Process Flow Technologies benefited from improving industrial and construction demand. Payment & Merchandising Technologies benefited from recovery in gaming, vending, transportation, retail, and banknote markets.
- Management expected approximately $45 million of net asbestos settlement and defense payments in 2021.
Risks, Contingencies, and Unusual Items
- Asbestos liabilities totaled $630 million at September 30, 2021, partially offset by $77 million of estimated insurance recoveries. The company had 29,926 pending claims and recorded $29.6 million of net asbestos cash payments during the first nine months.
- Asbestos estimates extend through 2059 and are subject to changes in claim volume, settlement costs, defense costs, litigation outcomes, legislation, and insurance recoveries.
- Environmental remediation liability for the Goodyear site was $33.5 million, with $7.3 million of expected government reimbursements. Additional obligations at the Crab Orchard site could not be reasonably estimated.
- Key operating risks include COVID-19 effects, inflation and raw-material costs, supply-chain disruption, labor and vaccine-mandate issues, foreign-exchange volatility, cyclical end markets, defense and banknote contract timing, and the ability to pass cost increases to customers.
- The Engineered Materials divestiture remained subject to regulatory approvals and other closing conditions. The nine-month discontinued-operations result included a $21.5 million deferred tax benefit related to the pending sale.
Investor Verification Checklist
- Confirm the registrant transition or corporate-name relationship between Crane Co. in the filing and Crane NXT, Co. in the request metadata.
- Verify completion, proceeds, tax consequences, and use of proceeds from the Engineered Materials divestiture.
- Assess whether backlog conversion and the 2021 sales and operating-profit outlook were achieved.
- Monitor asbestos claim activity, settlement costs, insurance reimbursements, and revisions to the long-term liability estimate.
- Evaluate working-capital use, foreign-exchange effects, supply-chain and inflationary pressures, and segment margin sustainability.
- Review debt maturities, revolving-credit and commercial-paper availability, and compliance with the 0.65-to-1.00 debt-to-capitalization covenant.