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Crane's (CR) CEO Max Mitchell on Q1 2016 Results - Earnings Call Transcript

Crane, Co. (NYSE:CR)

Q1 2016 Earnings Conference Call

April 26, 2016, 10:00 ET

Executives

Jason Feldman - Director, IR

Max Mitchell - President & CEO

Rich Maue - CFO

Analysts

Matt McConnell - RBC Capital Markets

Brian Konigsberg - Vertical Research Partners

Nathan Jones - Stifel

Chase Jacobson - William Blair & Company

Ryan Connor - Boenning & Scattergood

Ken Herbert - Canaccord Genuity

Jim Foung - Gabelli & Co.

Christine Lewin - Bank of America Merrill Lynch

Operator

Welcome to the Crane Co.'s First Quarter 2016 Earnings Conference Call. [Operator Instructions]. I would now like to introduce your host for today's conference, Mr. Jason Feldman, Director, Investor Relations. Mr. Feldman, you may begin.

Jason Feldman

Thank you, operator and good morning everyone. Welcome to our first quarter 2016 earnings release conference call. I am Jason Feldman, Director of Investor Relations. On our call this morning we have Max Mitchell, our President and Chief Executive Officer and Rich Maue, our Chief Financial 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 and tables at the end of our press release and accompanying slide presentation, both of which are available on our website at www.craneco.com in the Investor Relations section.

Now let me turn the call over to Max.

Max Mitchell

Thank you, Jason. As outlined in our press release last night I'm pleased to report that Crane's first quarter EPS was $0.93, up 2% compared to adjusted earnings in the first quarter of last year. Sales of $660 million decreased 3%, driven primarily by 2% of unfavorable foreign exchange and less than a 1% core sales decline. Operating margins, excluding special items in 2015, declined 30 basis points from last year to 13% primarily as a result of lower volumes and higher corporate expense. Despite continued but expected challenges in our Fluid Handling end markets, first quarter operational results were in line with our expectations and we believe that we're on track to achieve our full year guidance.

At Fluid Handling, last quarter we told you that activity dropped off towards the end of 2015 and our guidance set for 2016 was consistent with the fourth quarter run rate. We haven't seen a rebound, but market conditions have not deteriorated further and we're seeing some stabilization in order rates. Overall, we continue to believe that 2016 is the trough for Fluid Handling end markets, like we discussed in February. There is still market uncertainty, but with a full quarter behind us, we have modestly higher conviction in our full year guidance for this segment. We don't expect a material improvement in organic growth rates over the next few quarters but we do expect margin improvement driven by more favorable mix and ongoing productivity initiatives.

The Fluid Handling core growth decline of 6.5% is consistent with our full year organic growth guidance and backlog was flat compared to last quarter on an FX neutral basis. At Payment and Merchandising Technologies we had another strong quarter with 2% core growth despite tough year-over-year comparisons. Operating margins of 16.3% increased 300 basis points compared to adjusted margins last year. On last quarter's call, Rich explained that the payment business typically has uneven project timing and we expected the first quarter to be somewhat softer than usual. We did see this impact and we expect improving core growth later this year as project activity picks up and it's year-over-year comparisons become easier. We remain on track to realize $33 million of MEI related synergy savings by the end of this year and we remain optimistic about the prospects for growth of both sales and margins in this segment. This year and well into the future.