Crane reports third quarter 2005 net income increased to $40.0 million, or $0.66 per share, compared with net income of $33.2 million, or $0.56 per share in the third quarter of 2004 before a net charge of $238.4 million for certain asbestos and environmental matters.
Including the charge, Crane reported a net loss of $205.2 million, or a loss of $3.48 per share, in the third quarter of 2004.
Third quarter 2005 sales increased $44.9 million, or 9%, including core business growth of $41.0 million (8%) and favorable foreign currency translation of $3.9 million (1%). Operating profit of $61.8 million rose 22% as compared with $50.6 million in the prior year quarter before the charge. Including the charge, Crane reported an operating loss of $311.2 million in the third quarter of 2004.
Order backlog at September 30, 2005 totaled $605 million, compared with backlog of $613 million at June 30, 2005 and $572 million at September 30, 2004.
"Our third quarter earnings of $0.66 per share exceeded our guidance of $0.56 to $0.64 per share," said Crane Co. president and chief executive officer, Eric C. Fast. "Our operating profit margin of 11.8% was our highest quarterly operating margin of the year, and was improved over the second quarter by 140 basis points, reflecting the strong recovery in margins in the Electronic Group and continued progress in margin growth in Fluid Handling. Importantly, cash flow provided by operations of $104 million for the first nine months of 2005 was 62% ($40 million) higher than the same period last year."
Cash Flow and Financial Position
During the third quarter of 2005, before asbestos-related payments the Company generated cash flow from operating activities of $72.5 million compared with $40.8 million generated in the third quarter of 2004. Asbestos-related fees and costs, net of insurance recoveries, decreased to $5.3 million in the third quarter of 2005 from $6.7 million in the third quarter of 2004. Capital expenditures were $6.3 million in the third quarter of 2005, compared with $4.7 million in the prior year period. Free cash flow (after asbestos payments and capital expenditures) was $60.9 million in the third quarter of 2005 compared with $29.3 million in the third quarter of 2004.
In the third quarter of 2005, the dividend was increased by 25%, and as a result the Company paid $7.5 million in dividends to shareholders, compared with $5.9 million in the third quarter of 2004. In the third quarter of 2005, the Company paid $7.2 million to acquire the PSI division of Edlon, Inc. (Please also see the attached Condensed Statement of Cash Flows and Non-GAAP Financial Measures.) Net debt to capital was 19.9% at September 30, 2005, compared with 27.1% at December 31, 2004 and 34.5% at September 30, 2004.
The third quarter sales increase of $26.3 million, or 12%, included $21.5 million (10%) from core businesses, $0.8 million from an acquisition in late August 2005, and $4.0 million (2%) from favorable foreign currency translation. Operating profit increased 34%, and margin continued to improve, both versus the second quarter of 2005 and prior year's third quarter, due to strengthening market demand, productivity improvements and customer price increases which are now largely offsetting higher raw material costs.
Valve Group sales of $124.9 million increased $14.3 million, or 13%, from the prior year. Excluding favorable foreign currency translation of $0.9 million, sales increased $13.4 million (12%) from increased market demand for industrial valves and strengthening pricing across all the valve product businesses. Operating profit increased 117% versus the prior year, reflecting higher sales, improved operating costs and favorable foreign currency impacts. Operating profit margin of approximately 6% improved from approximately 3% in the prior year.
Crane Ltd. sales of $35.2 million increased $2.3 million, or 7%, with core business growth partially offset by unfavorable foreign currency translation and the sale of the Victaulic business in December 2004. Operating profit margin improved to approximately 12% from approximately 4% in the prior year period, primarily due to increased sales volume, improved manufacturing efficiencies and benefits of availability of product sourced from low cost countries.
Crane Pumps & Systems sales of $27.6 million increased $2.1 million, or 8%, over the third quarter of 2004. Operating profit margin of approximately 7% was down from approximately 12% in the prior year as production disruptions more than offset the favorable volume impact.
Crane Supply sales of $43.4 million increased $7.4 million, or 20%, of which 10% was from core business growth and 10% was from favorable foreign currency translation. Operating profit margin was approximately 12%, essentially equal to the prior year, as price increases fully offset higher material costs.
Resistoflex-Industrial sales of $11.6 million increased $0.7 million, or 6%, reflecting the acquisition of Edlon PSI. Operating profit margin was approximately 14%, compared with approximately 12% in the prior year.
The Fluid Handling Segment backlog was $194 million at September 30, 2005, compared with $202 million at June 30, 2005 and $177 million at September 30, 2004.
Fourth Quarter and 2005 Guidance
Management expects earnings in the fourth quarter 2005 to be in the range of $0.53 to $0.58 per share, compared to $0.52 per share in the fourth quarter 2004 which excludes a $0.11 per share gain on the Victaulic divestiture and a $0.15 gain from the reduction in asbestos liability. Fourth quarter 2004 reported earnings per share were $0.78. (Please see the attached Non-GAAP Financial Measures.) On a full year basis, management is increasing the lower end of its 2005 earnings per share guidance from $2.15 to $2.20 with the high end of the range remaining $2.25 per share.
Management is maintaining its guidance on cash provided from operations before net asbestos payments and capital expenditures of $175 million with capital expenditures approximating $25 million. Net asbestos payments (including insurance reimbursements but excluding a one-time refund of $10 million) are projected at $40-$50 million. Cash from operating activities including net asbestos-related payments is expected to be $135 million to $145 million.