Crane Earnings: Aerospace Recovery and Strong Backlog Drive Raised Guidance

Narrow-moat-rated Crane CR posted solid second-quarter results, featuring a 30% year-over-year increase in adjusted operating profit from continuing operations, and raised its full-year outlook for the second time this year. The company delivered a 430-basis-point year-over-year adjusted operating margin expansion in the second quarter, from 12.2% to 16.5%. We’ve increased our fair value estimate to $87 from $85, which reflects our slightly more optimistic near-term revenue growth assumptions as well as time value of money.

Crane’s second-quarter core sales were up by 4.7% from the same period last year. Aerospace and electronics core sales increased by 17.1% year over year despite ongoing supply chain constraints, as the segment benefited from a continued cyclical recovery in the commercial aerospace end market as well as strong aftermarket demand driven by aging aircraft fleets. Process flow technologies core sales grew by 4.3%, though management noted slowing demand in some of the segment’s end markets (including the European chemical, non-residential construction, and industrial markets). Lastly, engineered materials core sales were down by 21.4%, primarily due to a 47% year-over-year decline in recreational vehicle sales.

Crane’s core backlog was up 15% from the prior-year period. Management raised its outlook for full-year 2023 and now anticipates core sales growth of 5%-7% (up from 4%-6%) and adjusted EPS of $3.80-$4.10 (up from $3.60-$3.90). We remain optimistic about Crane’s long-term prospects, as we believe that both of its strategic platforms are well-positioned to benefit from favorable secular trends. Furthermore, with around $1 billion in mergers and acquisitions capacity, we also think that the company has the flexibility to grow both of its core segments through acquisitions.