Crane Co. reported third quarter 2014 earnings of $0.47 per diluted share, compared to $0.97 per share in the third quarter of 2013. Third quarter 2014 results included Special Items of $38.7 million in after-tax charges, or $0.65 per share. Third quarter 2013 results included Special Items of $4.1 million in after-tax charges, or $0.07 per share.
Excluding these Special Items in both years, third quarter 2014 earnings per diluted share increased 8% to $1.12, compared to $1.04 in the third quarter of 2013.
Special Items in the third quarter of 2014 consisted of the following after-tax charges: $36.3 million, or $0.61 per share, reflecting an update to projected remediation costs for certain legacy environmental liabilities; $2.3 million, or $0.04 per share, related to previously disclosed repositioning activities; and $0.8 million, or $0.01 per share, related to the December 2013 acquisition of MEI. Special Items in the third quarter of 2014 also included a $0.7 million gain on a real estate divestiture, or $0.01 per share. Special Items in the third quarter of 2013 included transaction-related costs of $4.1 million, or $0.07 per share, related to the acquisition of MEI.
The Special Item related to environmental updates was comprised of two components. The Company extended its liability at its legacy Superfund Site in Goodyear, Arizona for certain site remediation and accrued costs through 2022, resulting in an increase of $31.9 million, after tax. In addition, the Company recorded a $4.4 million after tax charge related to its legacy site in Roseland, New Jersey, covering expected remediation costs through 2017.
Third quarter 2014 sales of $727.4 million increased $89.9 million, or 14.1%, compared to $637.5 million in the third quarter of 2013, resulting from a core sales increase of $1.6 million, or 0.3%; sales from acquisitions, net of divestitures, of $86.2 million, or 13.5%; and favorable foreign exchange of $2.1 million, or 0.3%.
Operating profit in the third quarter decreased 46.4% to $47.7 million, compared to $89.0 million in the third quarter of 2013. The decline in operating profit was a result of Special Items. Excluding Special Items, third quarter operating profit increased 17.6% to $108.0 million, compared to $91.9 million in the third quarter of 2013.
"While overall margins were strong, third quarter results fell short of our expectations primarily as a result of lower core sales in our Fluid Handling business," said Max Mitchell, Crane Co. President and Chief Executive Officer. "We were disappointed by lower sales of process valves following solid order momentum in the second quarter. At Aerospace & Electronics, margins were expected to be lower this year as a result of incremental investment spending related to new program wins. However, margins were also impacted in the quarter by lower defense related sales, as well as a product launch that incurred temporarily higher costs which are now largely behind us. These headwinds were partially offset by a strong quarter at Payment & Merchandising Technologies where higher sales, synergy realization, and productivity initiatives contributed to results. As a result of these factors, along with increasing global economic uncertainty, we are reducing our guidance range, excluding Special Items, to a range of $4.40-$4.50, from the prior range of $4.55-$4.75."
The Company also revised its 2014 earnings guidance on a GAAP basis to a range of $3.43-$3.53 per diluted share, from a range of $4.18-$4.38 per diluted share. The revision reflects the change to non-GAAP earnings guidance, as well as $0.61 per diluted share related to the environmental provision recorded during the third quarter.
Cash Flow and Other Financial Metrics
Cash provided by operating activities for the third quarter of 2014 was $68.2 million, compared to $80.5 million in the third quarter of 2013. Cash provided by operating activities for the nine months ended September 30, 2014 was $113.4 million, compared to $91.0 million in the nine months ended September 30, 2013. Capital expenditures in the third quarter of 2014 were $11.5 million, compared to $7.0 million in the third quarter of 2013. The Company s cash position was $301.7 million at September 30, 2014, compared to $270.6 million at December 31, 2013. Total debt was $864.0 million at September 30, 2014, compared to $875.0 million at December 31, 2013.
All comparisons detailed in this section refer to operating results for the third quarter 2014 versus the third quarter 2013, excluding Special Items
Third quarter 2014 sales decreased $7.7 million, or -2.4%, which included a core sales decline of $6.3 million, or -2.0%, and a $2.5 million, or -0.8%, impact from the second quarter divestiture of Crane Water. These headwinds were partially offset by favorable foreign exchange of $1.1 million, or 0.3%. The core sales decline was driven primarily by lower sales of process valves. Operating margin rose to 15.7%, up 120 basis points from last year, as continued productivity gains and lower pension expense offset lower volumes and unfavorable mix. Fluid Handling order backlog was $349.6 million at September 30, 2014; after adjusting for the impact of the divestiture, comparable backlog was $328.4 million at December 31, 2013 and $351.1 million at September 30, 2013.
Payment & Merchandising Technologies
Segment sales of $181.1 million increased $97.4 million, or 116.5%, driven primarily by $88.6 million of sales related to the MEI transaction, core sales growth of $7.9 million, or 9.4%, and favorable foreign exchange of $0.9 million, or 1.1%. Operating profit increased to $27.1 million in the quarter, primarily reflecting the impact of the MEI acquisition.
Aerospace & Electronics
Third quarter 2014 sales decreased $2.6 million, or -1.5%, reflecting a sales increase of $3.5 million, or 3.3%, in the Aerospace Group, and a sales decline of $6.2 million, or -9.8%, in the Electronics Group. Operating profit decreased $6.0 million, reflecting higher levels of engineering spending and other program investments supporting new product development activities, the impact of the lower sales in Electronics, and higher costs related to a product launch. Aerospace & Electronics order backlog was $404.8 million at September 30, 2014, compared to $361.3 million at December 31, 2013, and $381.8 million at September 30, 2013.
Sales of $64.7 million were 4.5% higher than the third quarter of 2013, driven primarily by higher sales to recreational vehicle equipment manufacturers. Operating profit decreased 16.3% to $9.0 million, reflecting negative product mix and higher material costs.