Crane's CEO Discusses Q4 2011 Results - Earnings Call Transcript

Crane Co. ( CR)

Q4 2011 Earnings Call

January 24, 2012; 10:00 am ET

Executives

Eric Fast - President & Chief Executive Officer

Andrew Krawitt - Principal Financial Officer

Richard Maue - Principal Accounting Officer

Richard Koch - Director of Investor Relations

Analysts

Deane Dray - Citigroup

Ajay Kejriwal - FBR Capital Markets & Co.

Robert Barry - UBS

Matt Summerville - Keybanc Capital Markets

Jeff Sprague - Vertical Research

Presentation

Operator

Good day everyone and welcome to Crane’s fourth quarter 2011 earnings conference call. Today’s call is being recorded.

At this time I would like to turn the call over to Director of Investor Relations, Mr. Richard Koch. Please go ahead sir.

Richard Koch

Thank you operator. Good morning everyone. Welcome to Crane’s fourth quarter 2011 earnings release conference call. I am Dick Koch, Director of Investor Relations. On our call this morning we have Eric Fast, our President and CEO; and 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 will be using some non-GAAP numbers, which are reconciled to the comparable GAAP numbers in the table at the end of your press release, which is available on our website at www.craneco.com in the Investor Relations section.

Before turning the microphone to Eric, I would like to invite you to attend our Annual Investor Day on Thursday, February 16, in New York City. Please let us know if you wish to attend.

Now, let me turn the call over to Eric.

Eric Fast

Thank you Dick. Last night we reported 2011 results, which we extended the time horizon of our asbestos liability from 2017 to 2021, reflecting the more stable trends we have experienced over the last several years. In addition, we increased the environmental liability for our legacy Superfund Site in Arizona.

Excluding the special item, as outlined in our press release yesterday, Crane’s full year EPS of $3.43 increased 32% from 2011 and was a record for the company, significantly exceeding the $2.80 to $3.00 EPS range that we expected a year ago.

The fourth quarter results capped off a very successful year in 2011. Sales grew 10% in the quarter with core sales up 7%. Excluding special items, operating profit increased 26% in the quarter and operating margin was 12.6%, continuing the journey to the 13% margin goal, which we now expect to achieve in 2012. Earnings per share also excluding special items increased 29% versus the fourth quarter of 2010.

We are optimistic about our 2012 prospects for our later, longer cycle businesses within the aerospace and electronics and fluid handling. These segments delivered significantly better than anticipated results in 2011 and are positioned to benefit from exposure to the late cycle end markets. We note that these segments accounted for 80% of Crane’s segment operating profit in 2011.

Our outlook is relatively stable for our short cycle engineered materials and merchandizing system segments, with the potential for some slight improvements in 2012.

Although a slower global economy is a likely scenario as we look forward, Crane is well positioned to achieve profitable growth in 2012. We invested during the 2009 economic downturn, even while we took out cost and we have maintained our customer focus strategy throughout.

As we have indicated before, the maturation of the Crane business system, combined with solid management teams is enabling us to execute well and win in the market place. We expect a combination of end market growth, gains in market share and focus on productivity to drive the improved results in 2012.

For 2012 sales are expected to increase 3% to 5%, reflecting 5% to 6% core growth and a benefit from the WTA acquisition of less than 1%, partially offset by an unfavorable foreign exchange translation of approximately 2%. We expect EPS to be in the range of $3.75 to $3.95 or a 9% to 15% increase compared to 2011, excluding the special items. Our free cash flow guidance is in the range of $160 million to $190 million.

Andrew will now take you through the businesses and provide some additional financial information.

Andrew Krawitt

Thank you Eric. I’ll turn now to segment comments, which compare the fourth quarter of 2011 to 2010, before the special items were identified in our press release last night.

Aerospace and electronic sales increased 7% to $172 million, while operating profit increased 17% to $39 million. Operating margins improved to 22.6% from 20.7% in the prior year. Sales in the aerospace group increased $13 million or 13% to $108 million. OEM revenue grew 10%, with increases to both commercial and military customers. Sales to business jet OEMs continued their recovery from depressed levels, while sales to large and regional aircraft manufacturers grew more modestly.

Aftermarket sale increased 18% reflecting higher sales revenues for both commercial and military applications, as well as higher modernization and upgrade sales, primarily for the C130 Carbon Brake Control upgrade program. Our more traditional aftermarket sales, excluding avenue increased 13% compared to the fourth quarter of 2010.

The OEM aftermarket mix was 60% to 40% in the fourth quarter of 2011, compared to a 62% to 38% mix in the fourth quarter of 2010. Operating profits in the aerospace group increased by approximately $9 million, reflecting very good leverage of the higher sales.

Read the rest of this transcript for free on seekingalpha.com

More from Stocks

Stocks Tumble as Trump Calls Off North Korea Summit

Stocks Tumble as Trump Calls Off North Korea Summit

Stocks Could Easily Crater Into Memorial Day Weekend

Stocks Could Easily Crater Into Memorial Day Weekend

Video: Here Is How Real Estate Investment Trusts Can Boost Your Portfolio

Video: Here Is How Real Estate Investment Trusts Can Boost Your Portfolio

3 Red-Hot Chip Stocks Trading at Bargain Prices

3 Red-Hot Chip Stocks Trading at Bargain Prices

Tempted by General Electric's Fat Dividend Yield? Grab Yourself a Burger Instead

Tempted by General Electric's Fat Dividend Yield? Grab Yourself a Burger Instead