Is Clarcor Ready for the Big League? Yes.

Filtration products and services company Clarcor (NYSE: CLC  ) recently gave investors a reason to cheer by posting strong second-quarter earnings. A 37% jump in earnings from the year-ago quarter and a record high EPS of $0.64 encouraged Clarcor to boost its yearly guidance.

The numbers
Clarcor's revenues for the quarter grew by 12%, to $288.5 million, primarily boosted by strong engine filter sales in China, a region where the company's efforts are gaining traction. Sales in China grew a robust 43% this quarter, and helped send the company's engine/mobile filtration segment sales up $17.9 million, or 16%, from a year ago.

Strong international growth persisted in Clarcor's industrial/environmental filtration segment, too. New products and incremental sales from Transweb, a filtration supplier Clarcor had acquired early this year, boosted the segment's operating profits by 56% over the year-ago quarter.

Clarcor's cash position remains comfortable, with the company maintaining a stable dividend payout ratio of slightly above 15% for the past few quarters. The filter maker is also expecting capital expenditures of $25 million to $35 million this year. With little debt on its books and more than $120 million in cash, Clarcor looks to be in a good overall position.

Looking ahead
The huge jump in sales from China is especially good news for Clarcor. The company's upcoming launch of a new filtration manufacturing facility in China shows its focus on expanding in growing markets.

China's increasing demand is also evident in other industry players' books. Donaldson (NYSE: DCI  ) reported rapid growth in demand for filters in China in its third-quarter results last month. Emerging markets also contributed to Pall's (NYSE: PLL  ) sales growth last quarter.

Clarcor also plans to strengthen its base in South America. After entering the Brazilian oil and gas market in the first quarter, it plans to introduce additional products and even look at a probable acquisition in Brazil for deeper penetration.

From a financial standpoint, this should not be very difficult for Clarcor, since its total debt/equity ratio is a mere 2.1%, leaving room for more debt-enhanced initiatives. Moreover, with healthy operating incomes, increasing cash on its balance sheet, and an interest coverage ratio of 289 times, the company can easily service additional debt that it assumes.

Trends are pointing toward good days for the trucking industry as well. Cummins' (NYSE: CMI  ) latest quarter was good largely because of an increase in truck engine shipments. Add stringent emission standards and increasing demand for emission control products, and Clarcor has enough reasons to stay firm in its particular area of specialization.

The Foolish bottom line
The company is confident about a good second half. It has increased its yearly earnings-per-share guidance by $0.05, to a range of $2.25 to $2.40. With a strong balance sheet and robust numbers, Clarcor is a good stock for Foolish investors' watchlist.

Neha Chamaria does not own shares of any of the companies mentioned in this article. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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