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Clarcor Registered a Healthy Cash Performance in 3Q16

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Clarcor has made good use of cash this year

Clarcor’s (CLC) cash flows have been solid this year. The company has generated $208 million in year-to-date cash flows from operations compared to $101 million last year. Around $60 million in additional cash flow resulted from the company’s inventory optimization initiatives. The cash flow from operations also includes an exceptional item of $18 million related to the 3M patent award. The diversified conglomerate (IYJ) 3M (MMM) had sued Transweb, a company acquired by Clarcor in 2010, alleging its products infringe on several 3M patents. However, in February 2016, courts ruled in favor of Transweb and penalized 3M by $26 million on charges of attempting to maintain a monopoly by asserting a fraudulently obtained patent.

The company used $90 million of its cash flows to pay off debt and repurchased $65 million worth of shares at the per unit price of $52. $32 million were returned to shareholders in the form of dividends.

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Clarcor fiscal 2016 guidance

The company has reduced the midpoint of its fiscal 2016 guidance for adjusted earnings per share by ten cents to $2.70. The reduction in guidance was primarily due to anticipated headwinds in the natural gas filtration business. Additional factors include lower fixed cost absorption in the engine filtration segment and expenses associated with the integration of Fiberio, a company acquired in May 2016. The company also expects poor margin realization on some of the first-fit gas turbine filters being sold to the industrial (XLI) company General Electric (GE).

Clarcor’s competitor Donaldson (DCI) has maintained its adjusted EPS guidance for the whole year and downgraded its GAAP EPS guidance.

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