Crane Co. — First Quarter 2013 Form 10-Q Summary
Reporting period: Three months ended March 31, 2013. The filing is by Crane Co.; the supplied metadata identifies Crane NXT, Co. The financial statements are unaudited and compare the quarter with March 31, 2012. Crane reported four segments: Aerospace & Electronics, Engineered Materials, Merchandising Systems, and Fluid Handling.
Financial performance and position
| Metric | Q1 2013 | Q1 2012 | Change |
|---|---|---|---|
| Net sales | $627.6 million | $645.6 million | Down 2.8% |
| Operating profit | $86.9 million | $78.3 million | Up 11.0% |
| Operating margin | 13.8% | 12.1% | Up 170 basis points |
| Income from continuing operations | $57.9 million | $51.0 million | Up 13.8% |
| Net income attributable to common shareholders | $57.8 million | $51.7 million | Up 11.9% |
| Diluted EPS | $0.99 | $0.88 | Up $0.11 |
| Effective tax rate | 28.3% | 28.9% | Down 60 basis points |
- Sales declined primarily from lower core sales and unfavorable currency translation. Non-U.S. sales represented 40.7% of total sales versus 40.9% in the prior-year quarter.
- Operating profit improved across all four segments. Merchandising Systems produced the largest percentage gain, while productivity, cost management, and restructuring savings supported margins.
- Cash used in operating activities was $20.4 million, improving from $42.8 million used in Q1 2012. Working capital consumed $98.5 million, partly offset by higher earnings and lower asbestos-related payments.
- Capital expenditures were $5.5 million versus $7.2 million in the prior-year quarter. Dividends paid were $16.1 million, or $0.28 per share.
- Cash and cash equivalents were $384.6 million at March 31, 2013, down from $423.9 million at December 31, 2012. Total current assets were $1.19 billion and current liabilities were $458.7 million.
- Debt consisted primarily of $399.1 million of long-term notes and $1.1 million of short-term borrowings. The $200 million of 5.50% notes due September 2013 was classified as long-term because management intended and expected to refinance it.
- Shareholders’ equity was $964.1 million; total equity, including noncontrolling interests, was $973.3 million. Accumulated other comprehensive loss increased to $145.9 million, primarily from a $19.9 million currency translation loss.
Segment results
| Segment | Q1 2013 sales | Sales change | Operating profit | Operating margin |
|---|---|---|---|---|
| Aerospace & Electronics | $164.9 million | Down 5.9% | $40.1 million | 24.3% |
| Engineered Materials | $60.2 million | Up 3.6% | $8.6 million | 14.2% |
| Merchandising Systems | $89.5 million | Up 2.0% | $10.2 million | 11.4% |
| Fluid Handling | $313.0 million | Down 3.6% | $45.9 million | 14.7% |
Beginning in 2013, the Controls businesses were included in Fluid Handling; prior-period segment information was reclassified for comparability. Segment backlogs at March 31, 2013 were $398 million for Aerospace & Electronics, $16 million for Engineered Materials, $21 million for Merchandising Systems, and $365 million for Fluid Handling.
Material changes and unusual items
- Operating profit included $2.9 million of transaction costs related to the pending $820 million acquisition of MEI Conlux Holdings.
- Crane expected to use approximately $250 million of cash to fund the balance of the MEI purchase price, subject to regulatory approvals and customary closing conditions. MEI reported approximately $400 million of 2012 sales and was expected to join the Merchandising Systems segment.
- Operations divested in 2012 generated $0.8 million of after-tax income in Q1 2012 and no income in Q1 2013. Accordingly, Q1 2013 results contain no discontinued-operations earnings.
- The company completed or was executing 2012 restructuring actions, including European plant closures, manufacturing transfers, and workforce reductions. Approximately $12 million of repositioning savings were expected in 2013; the remaining restructuring accrual was $4.0 million at March 31, 2013.
- Pension and postretirement expense decreased materially, with net periodic pension cost of $0.9 million versus $4.9 million in Q1 2012. The company expected approximately $15 million of defined-benefit contributions and $1 million of other postretirement contributions during 2013.
Guidance, outlook, risks, and contingencies
- Management forecast 2013 sales growth of 1% to 3% and operating-profit growth of 10% to 14%, supported by repositioning savings, cost management, productivity, and market-share gains.
- Management expected generally positive aerospace conditions, modest growth in Engineered Materials, modest improvement in Merchandising Systems, and modest Fluid Handling growth. Risks included weak European and global economic conditions, defense-spending reductions, soft chemical demand in North America, project delays, currency movements, inflation, commodity costs, and cyclical end markets.
- Asbestos liabilities totaled $773 million at March 31, 2013, including $91.7 million current, with corresponding asbestos insurance receivables of $193.4 million. Management continued to estimate liabilities for claims through 2021 but stated that costs beyond 2021 could not reasonably be estimated.
- There were 56,208 pending asbestos claims at March 31, 2013. Gross settlement and defense costs incurred in Q1 2013 were $20.5 million, while net cash payments after insurance recoveries were $10.5 million. A $35 million jury verdict in the Ivo Peraica claim and other asbestos matters remained subject to post-trial proceedings and potential appeals.
- The estimated gross environmental liability for the Goodyear, Arizona site was $46.3 million, partly offset by a $10.9 million receivable for expected U.S. Government reimbursements. A separate Crab Orchard environmental matter was probable but not reasonably estimable.
- Liquidity was expected to be sufficient for operating needs, debt refinancing, the MEI acquisition, asbestos and environmental payments, restructuring, and pension contributions. The company had no borrowings under its $500 million revolving facility or its $400 million 364-day facility at quarter-end.
- Management stated that disclosure controls were effective and that there were no material changes in internal control over financial reporting.
Investor verification points
- Verify the registrant identity and transaction history because the filing names Crane Co., while the request metadata names Crane NXT, Co.
- Confirm completion, financing, purchase accounting, and integration results for the pending $820 million MEI acquisition.
- Monitor refinancing of the $200 million notes due September 2013 and the company’s post-acquisition leverage and liquidity.
- Reconcile cash generation with working-capital needs, asbestos payments, environmental spending, pension contributions, dividends, and MEI funding.
- Track asbestos claim volumes, verdicts, appeals, insurance recoveries, and changes to the liability estimate, particularly beyond the forecast period through 2021.
- Assess whether the projected 2013 sales and operating-profit guidance was supported by segment backlogs, end-market demand, restructuring savings, and currency trends.