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Crane's CEO Discusses Q2 2012 Results - Earnings Call Transcript

Stocks in this article: CR

We have targeted opportunities in our energy business, primarily in our manufacturing operations at Krombach, Germany, as well as other European sites within Fluid Handling. While we have consistently delivered fluid handling margins in the 13% range, executing on these important actions will accelerate continued improvement. We expect the benefit of these actions to impact our results beginning in 2013.

Krombach is a highly engineered provider of specialized double and triple offset butterfly valve, as well as metal and soft-seated ball valves. Our manufacturing operation at Krombach in Kreuztal, Germany, with a highly skilled workforce continues to be a segment strategic platform to drive profitable growth. As we previously discussed, the integration of the Krombach operations presented challenges typically associated with a long-standing privately run business in Germany.

While we have completed a number of actions, including upgrading the information systems, consolidating product lines from another German facility to improve plant utilization and various other operational improvements, all of which have taken longer than planned, we are taking targeted actions to drive significant cost improvements as we close 2012.

Specifically we are transferring certain Krombach product lines to lower cost Crane facilities, dedicating additional Crane resources to drive both commercial and operational improvement and reducing headcount at the primary manufacturing facility. In addition to the European repositioning actions, earlier in the year we initiated an internal merger between our ChemPharma and energy groups. This merger will further streamline the organization and provide better leverage of a wider pool of resources to help drive these important actions. It is also important to recognize that excluding our energy business, we are very pleased with the balance of the Fluid Handling segment, where operating margins exceeded 15% in the second quarter.

In April we said that we expected full-year Fluid Handling margins to be at 14%, although it would be tougher to achieve given first-quarter results. Excluding special items, we have revised our full year fluid handling operating margin guidance to 3.5% as the repositioning 12.6% margin in the second quarter was slightly below our expectations, and our repositioning programs while moving forward are taking longer than anticipated to work through principally due to German labor protocols.

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