Crane Co. — Fiscal 2021 Form 10-K Summary
Business context and reporting period
This filing covers the fiscal year ended December 31, 2021. Crane Co. was a diversified manufacturer operating through Aerospace & Electronics, Process Flow Technologies, and Payment & Merchandising Technologies. Engineered Materials was classified as a discontinued operation effective June 30, 2021, and prior-period results were presented retrospectively on a continuing-operations basis.
On May 16, 2021, Crane agreed to sell Engineered Materials to Grupo Verzatec for $360 million on a cash-free and debt-free basis, subject to customary closing conditions and regulatory approvals. The filing does not state that the sale had closed by December 31, 2021.
Key financial metrics
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Continuing-operations net sales | $3,180.0 million | $2,761.3 million | Up 15.2% |
| Operating profit | $502.3 million | $240.2 million | Up 109.1% |
| Operating margin | 15.8% | 8.7% | Up 710 bps |
| Income from continuing operations attributable to common shareholders | $394.3 million | $163.1 million | Up 141.8% |
| Net income attributable to common shareholders | $435.4 million | $181.0 million | Up 140.6% |
| Diluted EPS | $7.36 | $3.08 | Up 138.9% |
| Operating cash flow from continuing operations | $466.7 million | $284.1 million | Up $182.6 million |
Discontinued operations contributed $41.1 million of after-tax income in 2021 versus $17.9 million in 2020, including a $20.6 million deferred tax benefit associated with the pending Engineered Materials disposition.
- Segment sales: Aerospace & Electronics $638.3 million, down 1.9%; Process Flow Technologies $1,196.6 million, up 19.0%; Payment & Merchandising Technologies $1,345.1 million, up 21.8%.
- Segment operating margins: Aerospace & Electronics 17.2%, Process Flow Technologies 15.2%, and Payment & Merchandising Technologies 22.9%.
- Backlog: Total backlog was $1,255.7 million at year-end; management expected approximately 94% to convert to revenue in 2022 and an additional 5% by 2023.
- Cash and liquidity: Cash and cash equivalents were $478.6 million at year-end, compared with $551.0 million in 2020. The company generated $466.7 million of continuing-operations operating cash flow and reported $1.9 million of continuing-operations investing cash flow.
- Capital spending: Capital expenditures were $51.7 million; management expected approximately $60 million in 2022.
- Debt: Total debt was $842.4 million, down from $1,218.6 million, primarily because the company repaid $348.1 million outstanding under its 364-Day Credit Agreement. Net debt was $363.8 million, and debt-to-total-capitalization was 31.5%.
- Credit facilities: The company entered into a $650 million five-year revolving credit facility and increased its commercial paper program to $650 million. No borrowings were outstanding under either facility at year-end.
- Shareholder returns: The company paid $100.9 million in dividends and repurchased $96.3 million of common stock during 2021. A $300 million repurchase authorization announced in October 2021 had $202.1 million remaining at December 31, 2021.
Material changes versus the prior comparable period
- Sales growth reflected $343.1 million of core growth, $70.6 million of favorable foreign-exchange translation, and $5.0 million from acquisitions or dispositions.
- Operating profit benefited from stronger volumes, productivity actions, improved segment performance, and the absence of 2020 restructuring and acquisition-related charges. 2021 included a $16.9 million net restructuring gain and $8.2 million of transaction-related expenses.
- Payment & Merchandising Technologies operating profit increased 205.7%, driven by higher volumes, favorable mix, productivity benefits, and lower restructuring costs.
- Process Flow Technologies operating profit increased 86.8%, supported by higher volumes, productivity benefits, and lower restructuring and acquisition-related costs.
- Aerospace & Electronics sales declined modestly, but operating profit increased 9.2% because of repositioning savings and productivity benefits, partly offset by lower volumes.
- Corporate expense increased 66.2% to $97.7 million, primarily due to higher compensation and benefits and transaction-related expenses.
- Interest expense declined to $46.9 million from $55.3 million following repayment of the 364-Day Credit Agreement and lower commercial paper borrowings.
Guidance, outlook, risks, and unusual items
For 2022, management expected total sales growth of approximately 3% to 4%, consisting of approximately 5% core growth offset by a 1% to 2% unfavorable foreign-exchange impact. Management expected operating profit to improve, primarily through productivity and operating leverage, partly offset by unfavorable mix.
- Aerospace & Electronics: Core sales were expected to increase in the high-single-digit range, supported by higher aircraft build rates and commercial aftermarket recovery. Defense OEM sales were expected to be flat and defense aftermarket sales slightly lower.
- Process Flow Technologies: Sales were expected to increase approximately 1%, with approximately 3% core growth offset by unfavorable foreign exchange. Operating profit and margin were expected to improve.
- Payment & Merchandising Technologies: Sales were expected to increase in the low- to mid-single-digit range. CPI was expected to deliver low-double-digit core growth, while Crane Currency core sales were expected to decline in the high-single-digit range. Segment operating profit was expected to be similar to 2021.
- COVID-19 and supply chain: The company continued to experience supplier delays, freight disruption, employee absences, higher raw-material costs, and delays in customer deliveries.
- Inflation and commodities: Steel, copper, resin, electronic components, cotton, flax, and other input costs could pressure margins if price increases cannot be passed through.
- Asbestos: The company had 29,958 pending asbestos claims at year-end. The recorded asbestos liability was $612 million, including $62.3 million current and $549.8 million long term, partially offset by a $74 million insurance receivable. Management expected approximately $45 million of net asbestos payments in 2022.
- Environmental matters: The gross environmental liability was $32.3 million, substantially related to the Goodyear, Arizona site, with a $7.3 million receivable for expected government reimbursements. The company stated that total future obligations at certain other sites could not be reasonably estimated.
- Pension obligations: Pension and postretirement plans were underfunded by approximately $98.8 million in aggregate at year-end. Management expected approximately $18.9 million of pension contributions in 2022.
- Other risks: Major risks include cyclical aerospace, industrial, construction, gaming, retail, vending, and banknote markets; government contract compliance; cybersecurity; foreign-exchange exposure; acquisitions and integration; goodwill and intangible-asset impairment; litigation; tax matters; and geopolitical conditions.
The financial statements received unqualified opinions from Deloitte & Touche LLP, and management and the auditor concluded that internal control over financial reporting was effective as of December 31, 2021. The critical audit matter was the estimation of the asbestos liability.
Important facts for investors to verify
- Confirm whether and when the Engineered Materials sale closed, the final proceeds received, and any resulting gain or loss.
- Reconcile reported earnings growth to recurring operating performance versus discontinued-operations income, restructuring gains, transaction expenses, and the deferred tax benefit.
- Monitor conversion of the $1,255.7 million backlog and the timing of banknote contract awards.
- Assess the sustainability of productivity benefits, pricing actions, and margin improvement amid inflation and supply-chain disruption.
- Review asbestos claim trends, settlement costs, insurance recoveries, and the sensitivity of the $612 million liability estimate.
- Evaluate 2023 debt maturity, available revolver and commercial-paper capacity, planned capital spending, dividends, and share repurchases.
- Track aerospace recovery, defense spending, process-industry and construction demand, and CPI versus Crane Currency performance.