Crane Holdings Co. (CR) on Q2 2021 Results - Earnings Call Transcript

Operator: Greetings and welcome to the Crane Co. Second Quarter 2021 Earnings Conference Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jason Feldman, Vice President of Investor Relations. Thank you. Sir, you may begin. Jason Feldman: Thank you, operator and good day everyone. Welcome to our second quarter 2021 earnings release conference call. I am Jason Feldman, Vice President of Investor Relations. On our call this morning, we have Max Mitchell, our President and Chief Executive Officer and Rich Maue, our Senior Vice President and Chief Financial Officer. We will start off our call with a few prepared remarks. After which, we will respond to questions. Max Mitchell: Thank you, Jason and good morning everyone. Thanks for joining the call today, another exceptional quarter really with solid results across the board. We finished the second quarter with record adjusted EPS from continuing operations of $1.83, up 205% compared to last year and record adjusted operating margins of 17.6%. We delivered core sales growth of 19% with a number of strong leading indicators reflected in core order growth of 45% and core backlog growth of 7% compared to last year. Based on this performance, we are raising our adjusted EPS from continuing operations guidance by $0.30 to a range of $5.95 to $6.15, which is effectively our fourth guidance increase so far this year. Please allow me to take a moment to put this in perspective. The midpoint of the updated guidance at $6.05 is above our prior peak pre-COVID adjusted EPS of $6.02 in 2019. While we expect to exceed that $6.02 prior peak this year, there are some notable differences this year compared to 2019. In particular, the $6.02 in 2019 included earnings from Engineered Materials, which is now classified as discontinued operations and excluded from our 2021 guidance. As we have mentioned previously, this is about $0.44 of EPS now excluded in discontinued ops. Further, most of our end markets are still in the very early stages of recovery and remained well below their pre-COVID peak levels. The only real exceptions to this are Crane Currency and our defense business. And thinking about 2022 and beyond, it is worth noting that the commercial side of our Aerospace & Electronics business will still be almost $200 million below 2019 levels this year and a recovery to pre-COVID levels in this business alone would add more than $1 per share to EPS. At Payment & Merchandising Technologies, the core non-currency business will be slightly more than $200 million below pre-COVID levels, with more than half of that amount in our very high margin core Payment Solutions business. Throughout the recovery and beyond, this business will continue to benefit from very favorable long-term macro drivers, helping our customers drive productivity and security by automating the payment and transaction process, with many of those trends strengthening with ongoing labor shortages and wage inflation. And in Process Flow Technologies, we are just beginning to see an inflection to positive core growth on the process side of the business over the last month or two. And while sales growth has just barely inflected positive, we haven’t had a backlog in our process valve business this high since 2014 and sales will certainly follow. Rich Maue: Thank you, Max and good morning everyone. As usual, I will be providing segment comments that will compare the second quarter of 2021 to 2020, excluding special items, as outlined in our press release and slide presentation. At Aerospace & Electronics, sales of $158 million were flat with the prior year. Adjusted segment margins, however, improved 420 basis points to 19.6%. In the quarter, total aftermarket sales turned positive, growing 3% after a 29% decline in aftermarket sales last quarter. Commercial OE sales increased 4% in the quarter after a 32% decline last quarter. Defense OE sales declined 4% in the quarter and are flat on a year-to-date basis. We continue to believe that the fourth quarter of last year marked the trough for both sales and margins at Aerospace & Electronics. We expect sales to continue to improve slightly on a sequential basis throughout the rest of this year as the pace of the recovery continues to improve and our expected timing of a recovery to pre-COVID levels continues to get pulled forward. More specifically, we are seeing North American airlines bring a substantial number of aircraft back into service to meet expected domestic demand levels, with the in-service fleet now at about 90% of mid-2019 levels. On the international side, traffic continues to improve, albeit a little more slowly, with substantial room for recovery – further recovery as global ASKs are now a little better than 50% of 2019 levels. In general, pent-up demand will drive recovery faster than expected as COVID restrictions continue to ease. And our confidence in our outlook for this business is about more than just a market recovery. We are seeing accelerating growth resulting from consistent and continued investment in technology. Our growth investments over the last decade have not wavered and we are seeing the benefits of those investments today. These investments also continue to expand our addressable market and align our business with accelerating secular trends, most notably electrification. And we are delivering on truly breakthrough innovations that are critical enablers to our customers’ growth strategies and that are transforming the growth trajectory of our business, really exciting opportunities in our power conversion business, sensing and fluid and thermal management. Taken together, and as we explained at our Aerospace Investor Day in May, we expect a long-term overall compound annual growth rate of 7% to 9% through 2030. Operator: Thank you. Our first question comes from the line of Nathan Jones with Stifel. Please proceed with your question. Nathan Jones: Good morning, everyone. Max Mitchell: Good morning, Nathan. Rich Maue: Good morning, Nathan. Nathan Jones: I am going to start off in Process Flow. It’s a good revenue number, very strong backlog growth, which implies very good order rates. Can you give us a bit more color on what’s driving those order rates between the various businesses? And then within the actual process side of that, what markets, geographies, products, etcetera, are driving that strong order growth here at the moment and whether you think this is sustainable? Rich Maue: Yes. Okay. Thanks, Nathan. Yes. I would say that what we have been seeing on a year-to-date basis, a combination – or largely from a year-to-date basis, the commercial side came back faster ahead of the process markets, but now process continuing to inflect, which is great and it’s what we expected and what we felt in our early guidance and the revisions on guidance. What I would say is that on that side, that’s where frankly the tailwinds will continue into 2022, 2023. And we are in the early stages of that cycle, in particular in chemical. 18 to 24 months is what we would expect and we are very early on there. In chemical, in particular, orders up 44% compared to last year on a 312 basis really across all regions. Orders are now close to 2019 levels midway through that year, so really strong. North America, chemical producers are rushing to expand capacity, debottlenecking etcetera. So – and again, I am focused on process, Nathan. And Europe also starting to pickup on projects, like I mentioned in the prepared remarks, not really that large in Europe yet, more maintenance, but we do believe that debottlenecking is coming in Europe. Not really large projects in 2021 in Europe. And then in Asia, also I would say there is a particular large expansion from one of our end customers in Singapore, which is a nice win that we had. So, I would say it’s pretty broad based in chemical, largely North America and China is what I would offer there on the chemical and the process side in particular. Nathan Jones: Okay. And my follow-up question is also going to be on Process Flow, interesting renaming of the segment. There is certainly business, at least one business and maybe more than one business within that segment that don’t really fit into the new definition of what you are looking for there. Are you guys considering opportunities to continue to simplify the portfolio here? As you mentioned, multiples are pretty high at the moment, so it’s probably not a bad time to be a seller. Any commentary you can give on simplifying the portfolio in Process Flow or anywhere else that you might be considering? Max Mitchell: The rename is a recognition of the great work that this team has done over many, many years to continue to drive our technology solutions. I think in every portfolio, there is going to be some pieces of a business that may not completely align with that exact naming. It also – the fluid handling designation was just an old, outdated, in my opinion, reference. It didn’t make sense anymore for us internally and for investors to truly understand who we are and how we move forward. So, it’s an exciting designation, because even internally, it helps us really think about the opportunities that we continue to chase, the M&A opportunities that we continue to explore, the adjacencies. And we look forward to continuing to execute on that. We have consistently looked at the portfolio. We continue to strategically look at the portfolio, and we will as we move forward. Nathan, I would just say that as of right now, we have no plans to do anything different. Nathan Jones: Okay. Thanks for taking my questions. Max Mitchell: Thanks Nathan. Operator: Your next question comes from the line of Matt Summerville with D.A. Davidson. Please proceed with your question. Matt Summerville: Thanks. A couple of questions. Can you just give a little bit more color in terms of the first half, second half sort of cadence, the step downs? We are obviously being implied even at the – particularly even at the high end of the range on a sequential basis. Are there inflation versus price considerations we need to think about? Sounds like in payment, the margins are maybe going to come in a little bit just due to mix, but can you talk about the three or four biggest factors driving kind of the first half, second half cadence here? Thank you. Rich Maue: Yes. Matt, just to – this is – what I would say is that our guidance is consistent with what we have said since the beginning of the year, meaning our first half being stronger. Mix elements being a large component, timing. Mainly in the Payment space, we had a very, very strong first quarter and subsequently the second quarter also in Payment. But notably, in Currency, I would say that the expectations for the balance of the year is really not all that different from how the cadence of earnings was outlined earlier in the year. So, we have a bit of a step down in currency, but it’s just project timing, and it’s what we expect. So, that would be the largest component. When you look at some of the other pieces, in Fluid Handling, for example – sorry, Process Flow Technologies, for example, we have had some exceptional margin performance here in the quarter. We were ahead on price cost, frankly, and we started that real early. Highly disciplined in our approach, and we were a little ahead. So, we will see some of the costs coming in the second half, but our margin profile there is going to be solid. So, I would say, just high level, a little bit of incremental cost. We were ahead on price. And then mix elements, largely in the Payment space, to answer your question. Yes. Sorry, go ahead. Matt Summerville: I was just going to say, as a follow-up with respect to Crane Currency, if you gave it, I missed it because – so would you mind providing the organic performance there in the quarter similar to what you did for CPI? And then as we think about the government print order for fiscal ‘22, I am curious, in the last couple of months, has your thought around what that will likely look like evolved at all? Thanks. Max Mitchell: On the print order, Matt, I would say we are waiting the revised ICO should be out shortly. Reminder, the Fed annual cycle ends September and starts October. Usually, it comes out 60 days before. Reminder, the last year was the first time – there was a range published, $7.6 billion to $9.6 billion. And now the BEP, from what we hear, just like all manufacturers, have had issues through COVID and – constraints and challenges and so forth. And the print is on the low end of that spectrum. Maybe even it’s slightly under the 7.6 range. We have no official word yet. So, I am not speaking for the customer. I would just say my best guess would be, because of this range and this demand that’s required, that would ideally be filled is getting smoothed out over a number of years. I think we can expect a very similar order as what’s actually being produced this year. So probably, I don’t know, maybe the 7.2 to 7.6 range something like that, but it’s going to be very consistent on a year-over-year basis. I will let Rich answer the organic. Rich Maue: Yes. On the Currency side in the quarter, about – in the mid-teens, Matt, was the growth there. On the Payment side, was about 35% on the Payment Innovations business. And I think what’s exciting – just to follow on that, right. Again, as Max alluded to or mentioned in his prepared remarks we are still a couple of hundred million below pre-COVID levels on that part of the business, so, an exciting tailwind following the end of this year here and to next year in 2023. Matt Summerville: Great. Thank you, guys. Operator: Our next question comes from the line of Damian Karas with UBS. Please proceed with your question. Damian Karas: Hi, good morning everyone and congrats on the quarter. Max Mitchell: Thank you. Rich Maue: Thank you. Damian Karas: So, a couple of follow-up questions. On Currency, you mentioned that you are going to be above the $1 EPS target that you had put in place for this year when you made the acquisition. I am presuming that the U.S. portion of that is higher than what you had expected at the outset. Just curious how the international side is faring relative to your – that target you put in place a few years ago. And Max, you had mentioned that on the U.S. Fed orders, possibly kind of being sort of flattish for fiscal ‘22 coming up here. Can that Currency business still grow in that sort of orders construct for the U.S.? Max Mitchell: Excellent questions. I love all those questions. So – because it’s all positive. So, just to clarify, U.S. was – didn’t come in higher than what we expected. I mean, that range, we probably expected it to come in even higher because of just capacity constraints with BEP. It’s been tampered somewhat. So, what we have really seen is significant continued strength with international. The team is doing a phenomenal job. MicroOptics thread winning new orders, both selling the thread security features as well as printing as well as paper. So, it’s just – I think the team is doing an incredible job all in. On U.S., for the future, as we think about growth, Damian, it’s far beyond just the annual order. We are working closely with our important customer in the U.S. on next series. And you have seen this in the press in terms of potential redesigns in the future, everything from Harriet Tubman Note. So, there will be new series. On those new series, there will be enhanced security features. We are very optimistic that we will have significant content. So, even on the existing demand profile for the foreseeable future, this is out ‘24/25 as we think about this on new series, but there is already work being done, prototypes, trial runs, preparation. We will have added content on the existing Currency in the U.S. that will drive enhanced revenue margin. Do you want to add anything else? Rich Maue: No. Max Mitchell: I think did that cover everything…? Rich Maue: Yes. Max Mitchell: Did I miss anything, Damian? Damian Karas: No. That’s really helpful. Thanks Max. And then I guess just switching to A&E. We have seen flight hours and airline bookings really picked up in recent months. I don’t get the sense that you have altered your guidance much for A&E. Could you just maybe walk through what your commercial aero expectations are through the year-end? And I guess kind of more medium-term, is the thinking still ‘24, ‘25-ish for kind of the full recovery or has some recent activity changed your thinking there? Rich Maue: Yes. Just to pick that off in order. On your first question, I would say, yes, largely the same. I would expect margins to actually pick up versus our guidance that we provided back in the first quarter. I think we had said we would do modestly better than 15%. We are going to be stronger than that, for sure, maybe as much as 150 basis points on the year. So – and that’s driven in large part to what we are seeing on the mix of product sales. We have a little bit faster recovery in aftermarket. All the commentary that we provided was effectively what you are speaking to and asking about, which is the recovery is coming a bit faster. So from our perspective, we initially thought 2024, and we think it’s at least coming in by about a year. Damian Karas: Great, it’s really helpful. Thanks. I will pass it on. Max Mitchell: Thanks, Damian. Operator: We have no further questions at this time. Mr. Mitchell, I would like to turn the floor back over to you for closing comments. Max Mitchell: Thank you, Christine. Another excellent quarter in delivering on our message of inflection and momentum, continued consistency of execution and supporting the investor thesis we delivered in February. We are in the very early stages of a strong market recovery. We have invested heavily in our organic growth initiatives, and results are reading through in consistent above-market sales growth. We have growing opportunities for acquisitions in Process Flow Technologies and Aerospace & Electronics, building on our core competencies. And we have an incredibly strong foundation to build upon grounded in the Crane business system, driving consistent execution along with a culture of ethics and integrity. As the late great racing legend Bobby Answer once said, “success is where preparation and opportunity meet.” At Crane, we are well prepared to fully capitalize on every opportunity that presents itself. The tank is full. The tire is fresh. We are in the pole position, and the track is clear ahead of us. Thank you all for your interest in Crane, and have a great day. Operator: Ladies and gentlemen, this does conclude today’s teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.
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Crane Company (NYSE:CR) Shows Promising Growth and Analyst Optimism

  • The consensus price target for Crane Company (NYSE:CR) has increased by approximately $10.25, indicating analyst optimism.
  • Crane reported a 7% growth in sales and a 12% increase in its annual dividend, highlighting its strong financial performance.
  • Despite a lower price target from UBS, Crane's strategic focus and expected earnings growth of over 14% annually through 2027 suggest significant growth potential.

Crane Company (NYSE:CR) is a diversified industrial company operating in sectors such as Aerospace & Electronics, Process Flow Technologies, Payment & Merchandising Technologies, and Engineered Materials. This diversification allows Crane to serve a wide range of industries globally, contributing to the positive sentiment among analysts. The consensus price target for Crane has shown an upward trend, reflecting increased optimism about its future growth and profitability.

Over the past year, the average price target for Crane has increased by approximately $10.25, from $175.75 to $186. This suggests that analysts have become more optimistic about the company's performance. The stability in the price target over the last quarter and month indicates a consistent outlook among analysts, which could be a positive signal for investors.

Crane's recent financial performance supports this optimism. The company reported a 7% growth in sales for the year ending December 31, 2024, with a GAAP EPS of $3.19 and an adjusted EPS of $4.26. Additionally, Crane has announced a 12% increase in its annual dividend, following the divestiture of its Engineered Materials segment. This move is expected to streamline operations and focus on core business areas.

Despite UBS setting a lower price target of $125 for Crane, the company's strategic emphasis on Aerospace & Electronics and Process Flow Technologies, along with successful acquisitions, is expected to drive earnings growth by over 14% annually through 2027. Crane's technological differentiation and robust financial performance provide it with a competitive advantage in highly competitive markets.

Crane's management has set ambitious targets, aiming for significant revenue and EBITDA growth by 2028. The company's current valuation suggests it is fairly priced, yet it holds market-beating potential, making it an attractive option for value investors seeking growth opportunities. The upcoming earnings release on April 28, 2025, will provide further insights into Crane's financial health and future prospects.