Crane Co. (
Q2 2011 Earnings Call
July 26, 2011 10:00 a.m. ET
Richard Koch - Director of Investor Relations
Eric Fast - President & Chief Executive Officer
Andrew Krawitt – Principal Financial Officer
Richard Maue – Principal Accounting Officer
Deane Dray [James] – Citigroup
James Foung – Gabelli & Company
Ajay Kejriwal [Ben] – FBR Capital Markets
Mark Barbalato – Vertical Research
Ronald Epstein [Elizabeth] – BofA Merrill Lynch
Matt Summerville – KeyBanc
Robert Barry - UBS
Previous Statements by CR
» Crane Co. Q4 2009 Earnings Call Transcript
» Crane Co. Q1 2009 Earnings Call Transcript
» Crane Co. Q4 2008 Earnings Call Transcript
» Crane Co. Q3 2008 Earnings Conference Call Transcript
Good day everyone, and welcome to the Crane’s second quarter 2011 earnings conference call. Today’s call is being recorded. At this time, I would like to turn the call over to the Director of Investor Relations, Dick Koch; please go ahead, sir.
Thank you, operator, good morning everyone. Welcome to Crane’s second quarter 2011 earnings release conference call. I’m Dick Koch, Director of Investor Relations. On the call this morning, we have Eric Fast, our President and CEO, Andrew Krawitt, our Principal Financial Officer, and Richard Maue, our Principal Accounting Officer.
We will start off our call with a few prepared remarks, after which we will respond to questions. Just as a reminder, the comments we make on this call may include some forward-looking statements. We refer you to the cautionary language at the bottom of our earnings release and also in our Annual Report, 10-K and subsequent filings pertaining to forward-looking statements.
Also, during the call, we will be using some non-GAAP numbers, which are reconciled to the comparable GAAP numbers, in the table at the end of our press release, which is available on our website at
, in the Investor Relations section.
Now, let me turn the call over to Eric.
Thank you, Dick. I’m pleased with our second quarter results, as strong revenue growth, and continued solid execution are sustaining the momentum that we carried into 2011. Sales grew 16% in the quarter, driven by a core sales increase of 10%. Operating profit increased 22% in the quarter, and operating margin was 12.4%.
For Crane, overall, sales, operating margins and earnings improved both on a year-over-year and sequential basis, increasing our confidence in the company’s prospects for the balance of 2011. Accordingly, we have raised our full-year sales, EPS, and cash flow guidance, and increased our quarterly dividend by 13%.
For 2011, our sales are now expected to increase in a range of 14 to 16% compared to our prior estimate of 10 to 12%, reflecting higher core growth of 8 to 10%, favorable foreign exchange of 3%, slightly higher than our April guidance, and 3% from acquisitions, including the sales from our recently completed acquisition of W.T. Armatur. We have increased our 2011 EPS guidance from the previous range of 305 to 325, to a range of 330 to 345.
My messages today will echo the themes of my April remarks, but with added confidence in 2011 as we have another good quarter behind us and expect a strong second half of the year.
Our engineer materials and merchandising system segments are generally tracking to investor day guidance while our longer later cycle businesses of aerospace and electronics, and fluid handling are exceeding our previous guidance and providing strong sales in earnings growth.
For the full year, our aerospace group sales forecast has improved, driven by both OEM and aftermarket demand. In fluid handling, sales have now increased sequentially for five quarters, and we expect sales to further improve in the second half supported by a higher backlog. We expect a leverage higher fluid handling sales into expanded margins, and we now expect fluid handling operating margin to exceed 13% in 2011.
Our message is not just about one quarter, but about positioning ourself for growth longer term. Over the past few years, we have increased our sales in marketing effort in aerospace to do a better job covering the airlines. We have developed a sales force in fluid handling that has expanded our global coverage, including emerging markets, effectively bundling products within our portfolio to provide an enhanced value proposition to our customers.
We are investing internally in capital projects to enable growth and to assure that we don’t face constraints as we look forward into 2012.
Our new key product development efforts have continued even through the worst of the economic downturn. The maturation of the crane business system combined with solid management teams is enabling us to win in the marketplace.
All of this is adding up to core growth rates, better than we anticipated and positioning us to continue our momentum into 2012. We are tracking towards our overall Crane, 13% margin target when our core sales reached 2.6 billion, with corresponding EPS in the range of 350 to 375.
Andrew will now take you through the businesses and provide some additional financial information.
Thank you, Eric. I’ll turn now to segment comments, which compare to second quarter of 2011 to 2010.
Aerospace and Electronics segment sales increased 23% to $172 million while operating profit increased 42%, to $37 million, and operating margins increased to 21.7% in the second quarter of 2011. Backlog was $432 million at the end of the quarter as compared to $431 million at the end of 2010.
Aerospace Group sales increased $18 million, or 21% during the quarter. OEM sales increased 20% reflecting broad-basde growth across large commercial transports, regional and business jets. Aftermarket sales increased 22% reflecting significantly higher spares and repair and overhaul revenues, as well as modernization and upgrade sales, primarily for the C130 Carbon Brake control upgrade.