Crane's CEO Discusses Q3 2011 Results - Earnings Call Transcript

Crane Co. ( CR)

Q3 2011 Earnings Call

October 25, 2011 10:00 am ET

Executives

Richard E. Koch – Director of Investor Relations and Corporate Communications

Eric C. Fast – President and Chief Executive Officer

Andrew L. Krawitt – Principal Financial Officer, Vice President and Treasurer

Richard A. Maue – Principal Accounting Officer, Vice President and Controller

Analysts

Ajay Kejriwal – FBR Capital Markets & Co.

Robert Barry – UBS AG

Matt Summerville – Key Banc Capital Mkts./McDonald

Bill Warmington – Raymond James & Associates

Wendy B. Caplan – Sun Trust Robinson Humphrey

Presentation

Operator

Thank you for standing by, and welcome to the Crane Company Third Quarter 2011 Earnings Release Teleconference. At this time, all participants are in a listen-only mode. There will be a presentation followed by question-and-answer session. (Operator Instructions) Please be advised that this conference is being recorded today October 25, 2011.

I’d now like to hand the conference over to our speaker for today, Mr. Koch. Please go ahead, sir.

Richard E. Koch

Thank you, operator. Good morning, everyone. Welcome to Crane’s third quarter 2011 earnings release conference call. I’m Dick Koch, Director of Investor Relations. On our 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 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’ll be using some non-GAAP numbers, which are reconciled to comparable GAAP numbers at the end of the table at the end of our press release, which is available on our website, www.craneco.com, in the Investor Relations section. Before turning the microphone to Eric, I’d like to invite you to attend our Annual Investor Day Conference on Thursday, February 16, in New York City. Please mark you calendars.

Now, let me turn the call over to Eric.

Eric C. Fast

Thank you, Dick. I’m pleased with our third quarter as we continue to show a significantly improved result. Sales grew 18% in the quarter, led by core sales increase of 11%. We’ve registered double digit core growth in each quarter thus far in 2011, driven by recovering end markets and solid execution. Operating profit increased 31% in the quarter, and operating margin was 12.5%, continuing the journey to the 13% margin we have said, we could achieve when core sales return to $2.6 billion.

Our earnings per share increased 27% versus the third quarter of 2010. Sales, operating margins and earnings for the quarter improved both on a year-over-year and sequential basis. We continue to have a successful year in 2011, and results have been encouraging. In April, we raised our full year earnings guidance based on higher core growth expectations. We again raised earnings guidance in July based on better than expected results, and reflecting our confidence in the company’s future, we also announced a 13% increase in the quarterly dividend.

We are raising the lower end of our 2011 EPS guidance by a nickel to a range of $3.35 to $3.45. Sales in 2011 are expected to increase in a range of 15% to 16%, the higher end of our guidance, reflecting a 9% to 10% core growth, 3% from favorable foreign exchange translation, and 3% from acquisitions.

Our free cash flow guidance remains a range of $140 million to $160 million. Although, our current business trends are not signaling a severe downturn, we recognize that there are clear indications of slower global economic growth in 2012. It is important to understand that Crane Co. is positioned better than it was when the world changed in late 2008. Similar to the end of 2008, we have ample liquidity, a strategy of maintaining our customer facing activities and the ability to execute acquisitions.

Over the past three years, our actions and accomplishments have made us an even stronger company, including a business portfolio strengthened through acquisitions, significant reductions in our cost base and a broader geographic reach, particularly in emerging markets.

In Aerospace and Electronics, we have completed several very large development programs including the brake control system for the 787, reducing our risk and positioning us to benefit from increased revenues associated with the new platforms.

In Fluid Handling, we have effectively executed internal mergers, rationalized costs and dramatically changed how we approach the market. We now have an expanded global sales force focused on key verticals in selling bundled solutions to customers worldwide. In our shorter cycle businesses of engineer materials and merchandising systems, we have substantially reduced our fixed cost base through plant consolidation. Since 2008, we have closed 3 engineer materials facilities reducing the number of manufacturing sites from 8 to 5; and consolidated two large North American vending operations into a single location.

Our later, long cycle businesses, in aerospace, electronics and fluid handling continue to provide strong sales and earnings growth and are on track to deliver significantly improved results over what we anticipated at the beginning of this year. We remain optimistic about the prospects for commercial aerospace, given large OEM backlogs. They help your airline industry in more moderate oil prices.

Fluid handling backlog again increased sequentially, and we feel that both of these segments are well positioned going into the fourth quarter, and into 2012. We now expect the Aerospace Group sales to be above $400 million in 2011, and we continue to expect Fluid Handling operating margins to exceed 13% for the year.

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