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
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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