Crane detects an upturn in the pipeline

THE building and industrial products supplier Crane Group reported a fall in net profit yesterday and slashed its dividends for a second year. But it signalled the worst was over by providing an upbeat earnings outlook.

By InvestSMART · 3 Aug 2010

By InvestSMART ·
3 Aug 2010

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Crane posted net profit of $31.9 million - a 27 per cent fall - for the year ended June 30.

Earnings from Crane's plastic pipelines division, which includes Iplex, were halved due to weaker demand from civil construction and mining customers.

Sales declined 12 per cent to $1.8 billion. Crane declared a final fully-franked dividend of 22?, bringing its full-year dividend to 40?, down from 63? last year.

Crane's managing director, Greg Sedgwick, said that after two years of tough trading conditions, things were looking up as demand from mining, construction and rural customers improved.

"The market's been tough for the last couple of years but we've got through the worst of it," he said. "We're certainly seeing good growth in the mining area with orders coming across, [and] we expect to see a gradual recovery in civil construction."

Mr Sedgwick said he expected earnings to increase across all three of Crane's business units - pipelines, trade distribution (which includes Tradelink) and industrial products - in 2010-11.

Despite the company's profit being the lowest since 2004, investors were encouraged by the positive sentiment and sent the company's shares 41?, or 4.9 per cent, higher to $8.79 yesterday.

Having spent $750 million in the past five years on acquisitions, but none in the past year, Mr Sedgwick said he was again on the lookout and hoped to deliver "one or two" purchases in the next year.

"We haven't made an acquisition in the last 12 months, our gearing is very low, and our focus is on bolt-on acquisitions in [Crane's existing] three divisions, or [a fourth] division of a decent size in the building and industrial products area," he said.

He said he was not close to confirming any deals, but that an ideal building materials acquisition would have Australian-only operations with sales over $100 million.

A Moelis & Company analyst, Todd Guyot, said finding a building products acquisition of that size could prove challenging.

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Frequently Asked Questions about this Article…

What were Crane Group’s latest annual net profit and sales figures?

Crane Group reported a net profit of $31.9 million for the year ended June 30, a 27% fall year‑on‑year. Sales declined about 12% to $1.8 billion over the same period.

Why did earnings from Crane’s plastic pipelines division (including Iplex) fall?

Earnings from the plastic pipelines division, which includes Iplex, were halved because of weaker demand from civil construction and mining customers, according to the company.

How did Crane change its dividends this year?

Crane declared a final fully‑franked dividend of 22 (as reported in the article), bringing its full‑year dividend to 40, down from 63 in the prior year.

What is Crane’s earnings outlook and which business units are expected to improve?

Crane’s managing director Greg Sedgwick said the worst is over and he expects earnings to increase in 2010–11 across all three business units: pipelines, trade distribution (including Tradelink) and industrial products, driven by improving demand from mining, construction and rural customers.

How did the market react to Crane’s results?

Investors responded positively to the upbeat outlook despite the profit drop: Crane’s shares rose 4.9% to $8.79 on the day the results were announced.

Is Crane planning acquisitions and what kind of deals is it looking for?

Crane has spent about $750 million on acquisitions over the past five years but made none in the past 12 months. Management says gearing is very low and it is looking for one or two bolt‑on purchases in its existing divisions or a fourth division of decent size, ideally Australian‑only businesses with sales over $100 million, though no deals were close to confirmation.

How significant was this year’s profit decline in historical terms?

The company’s reported profit was its lowest since 2004, reflecting two years of tough trading conditions before the company signalled an improving outlook.

What key factors should everyday investors watch in Crane’s recovery?

Everyday investors should watch demand trends in mining, civil construction and rural markets (which hit pipelines earnings), progress on the expected recovery in civil construction, performance across Crane’s three divisions (pipelines, trade distribution/Tradelink, industrial products), and any acquisition activity that could drive future growth. Note that analysts warned finding large Australian building‑products deals could be challenging.