Will Clarcor Earnings Keep Shares Soaring?

Clarcor (CLC +0.00%) will release its quarterly report on Wednesday, and the filtration specialist has seen extremely strong share-price performance lately, sending its stock to record highs. With fairly high expectations for Clarcor's earnings growth, the company will need to work hard to satisfy increasingly optimistic investors who want to see big things from the small but growing industrial niche player.

Clarcor has focused its efforts on filtering and cleaning systems designed to help equipment function more efficiently. In addition to air cleaners and water filters, Clarcor makes more sophisticated filtration equipment for use within engines and in industrial machinery. Those systems have become more important as their use in fast-growing areas like the energy sector has prompted greater demand, but how much can Clarcor cash in? Let's take an early look at what's been happening with Clarcor over the past quarter, and what we're likely to see in its report.

Stats on Clarcor

Source: Yahoo! Finance.

Can Clarcor earnings clean up this quarter?
Analysts have reduced their views on Clarcor earnings somewhat in recent months, with a $0.02-per-share cut in August-quarter estimates, and double that reduction for the full fiscal year. The stock has still moved modestly higher, though, with about a 5% rise since mid-June.

Initially, Clarcor investors had to deal with a disappointing earnings report from the previous quarter, which sent the stock down more than 5%. Despite reporting record earnings per share, the company's revenue and net income both rose less than 1%, as poor sales from its packaging segment offset strength in its engine and industrial/environment filtration businesses. Clarcor blamed the European recession, sluggish growth in the U.S., and uncertain conditions in China for holding back overall results.

That's consistent with the results rival Donaldson (DCI +2.31%) posted in its July quarter, where its net jump of 2% in earnings was enough to set a record, even though sales fell 4%. Donaldson relied on cost cutting to improve operating margins and keep net income up even as revenue declined.

The key area of strength for Clarcor has been energy-related sales. Strong order backlogs and an 8% jump in oil and gas filtration sales reflect the vast amounts of energy exploration and production activity going on around the world. That focus gives Clarcor a significant advantage over Pall (NYSE: PLL), which has seen sales drop in its industrial segment because of Pall's focus on aerospace, microelectronics, and broader-scale systems. Pall saw greater growth in its Life Sciences segment, an area that Clarcor hasn't stressed, and which has helped the two stocks produce similar returns over the past year.

One outstanding question remains: the extent to which larger competitors will start eating into Clarcor's business. 3M's (MMM +2.66%) Ceradyne division has the potential to become a much larger player in the energy space, with its PetroCeram sand-screen ceramic filters offering advantages over metals-based filtration systems. Meanwhile, General Electric (GE +1.96%) announced an Arizona project in July to provide the treatment technology for a drinking-water plant, winning a local award and showing the extent to which cleaning and filtration remain essential parts of functioning infrastructure. Clarcor has growth opportunities in those areas, but it needs to stand up to bigger players and assert its strength in the niche.

In the Clarcor earnings report, look to see how well the company can do at trying to boost revenue even under tough conditions. The better Clarcor can do -- even in a challenging environment -- the more promising its prospects will be once global economic growth gets back on firmer footing.

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