Q3 2019 Earnings Call
Quarter 2019 earnings conference call at this time, all participants are in listen only mode.
Good question and answer session will follow the formal presentation.
If anyone today should your car operator assistance during the conference. Please press star zero from your telephone keypad.
Please note this conference is being recorded.
At this time I'll turn the conference over to Jason Feldman Director Investor Relations, Jason You May now begun.
Thank you operator, and good day, everyone welcome to our third quarter 2019 earnings release Conference call I'm, 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 senior Vice President and Chief Financial Officer will start off or call with a few prepared remarks, after which we will.
Sponsor questions. Just a reminder, that the comments we make on this call. Today 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 Dot Crane Co. Dot com and the Investor Relations section now, let me turn the call over to Max Thank you Jason.
As outlined in our press release last night, we reported cranes third quarter EPS, excluding special items of $1.40 compared to 162 with the third quarter of last year.
Sales of 772 million decreased 10% with an 8% decline in core sales of 1% impact from unfavorable foreign exchange and a slight divestiture headwind.
Operating profit excluding special items declined 14% from last year to 114 million.
Adjusted operating margins declined 70 basis points to 14.8%.
Execution was very solid in the quarter across all segments with one customer demand exception related exception all of our businesses performed in line with our expectations or better.
The revenue shortfall in the quarter was related to lower shipments to the US government a crane currency, let me explain what happened there.
Every year the federal reserve issues in annual currency print order to the bureau of engraving and printing or the BP to cover deliveries of finished printed bank notes for their fiscal year that runs from October Onest through September Thirtyth.
Typically this order is released in the July timeframe.
In late July and early August we did see a slowdown in orders from the BP, but we believed it was just a timing related slippage from the third quarter to the fourth quarter.
The currency print order was then issued later than normal and publicly release in late August .
When the print order was released the total volume of bank notes that the federal reserve ordered from the BP for the coming fiscal year was well below expectations and recent run rates. Consequently, the BP reduced their order rates for our products to match their expected run rate for the start of their fiscal 2020 .
We believe that the primary driver of the lower order was a buildup of excess inventory printed bank notes and currency substrate.
We also believe that this inventory accumulated slowly over a period of years.
Banco production is now being smoothes at a reduced level during the federal reserves fiscal 2020 to bring inventory levels back in line to normal.
We do not have a direct we do not have direct visibility to federal reserve or BP inventories of substrate or bank notes and there is only over the last month that we began to get a clearer picture of the situation. I also traveled personally with a senior management of our currency team to meet with the Federal Reserve NBP in.
Late September to get a better understanding of the situation.
To provide a little more color.
If you look at the currency print order language on the Federal Reserve website, you will see that the primary reason for the lower currency order is excess inventory. Despite strong confirmation that cash in circulation continues to grow that excess inventory built up as a result of overproduction and to a lesser extent as a result of bank.
Note destruction rates for Warren or unfit notes that have been somewhat lower in recent years the currency print order attributes the change in destruction rates in part to technology and policy changes.
The policy changes refer to cost reduction efforts by the depository institutions, which have had the net effect of keeping notes in circulation longer for example in 2016, the federal reserve increased its research inhalation fee for 10, and 20 dollar bills encouraging banks and other businesses.
To re circulate good or fit notes rather than returning them to the federal reserve for processing.
The language regarding technology changes is actually referring to cash recyclers and smart safes being used by retailers. The same recyclers that crane payment innovations cells, and where we have seen substantial retail sales growth globally over the last few years.
There are also impacts from large recyclers used by the banks and see ITC. The net result is that the bank notes are being returned to the federal reserve less frequently and they are being checked for fitness and destruction and replacement less frequently.
While we don't have enough evidence to draw a definitive conclusion that data. We do have suggested this is temporary as the volume of cash in circulation. Adjusted these new policy and technology developments, we expected demand for new bank notes will revert to their normal baseline run rates.
More specifically there has been no change in the positive cash trends in the United States by value 2018 us currency in circulation increased 6.4%.
By volume or the number of notes in circulation 2018 saw 4.3% increase.
These rates are consistent with what with what we've seen for years. Numerous studies also show that the public continues to use us currency as the primary payment method for low value transactions and cash continues to be one of the top three payment instruments for all transaction values across all demographics.
Importantly, we have seen these inventory corrections the BP in Federal Reserve several times, most recently 2013 and they have always been short lived within return to normalized volumes in the following fiscal year.
As a result of lower than expected shipments to the US government in the second half of this year, we're reducing our 2019 EPS guidance, excluding special items to a range of 590 to 610 from our prior range of 625 to 645 rich will provide some additional guidance details in a few minutes.
While it's still too early to provide comprehensive guidance for 2020, I will provide a framework to think about payment <unk> merchandising technology segment this year and next.
We expect segment sales this year of approximately 1.14 billion with positive core sales growth in 2020 for the currency business as well as for the overall segment.
We also now expect adjusted segment margins of approximately 16.5% in 2019, and then back into our long term target range for the segment of 18% to 22% in 2020.
As for the longer term our view of crank currency is unchanged. This is a growth business growth that will be lumpy at times, but we see many sustained opportunities over time.
We're also on track with our initial plans to improve the cost position of this business to a point, where it should be able to generate $1 per share of EPS accretion on normal volume levels by 2021.
We don't know whether volume will be at that necessary level for this go in 2021, but given the normal volatility in any given year volume and accretion might be somewhat more or less than the targeted amount with an average of approximately $1 per share of EPS accretion.
Like all Crane business as we continued to invest in technology.
And new solutions that are global customers demand and we continue to pursue exciting opportunities.
I will share more about.
I will share more about the future as well as continued success working with the BPM early preparatory work for the new Us series.
We anticipate quite a few questions in queue in eight and look forward to coming back to that subject, but let me move onto.
Fluid handling and some of the other segment comments fluid handling delivered another good quarter with year to date core growth slightly over 5%.
And year to date adjusted margins ahead of our original guidance of 13.6%.
While market activity has become somewhat spotty has the broader industrial economy has slowed I'm actually a little surprised at how well our order activity has held up particularly in the United States on the project side of the business.
Fluid handling continues to outperform its end markets gaining shares driving growth through new product development initiatives. One example, I would highlight is the large diameter polypropylene line pipe initiative and Mary in North Carolina that Brad Ellis discussed at our February Investor Day.
This is a 300 million us market opportunity for our alternative lining solution.
In large diameter pipes.
Our polypropylene line pipe will provide a service by five to six times longer than the existing solutions with a 15% to 20% lower cost and with better chemical and abrasion resistance.
We freed up space in our Merian, North Carolina site to Kaizen, we invested 4 million a new equipment.
A few months after launch we have 3 million in from orders, including a large $2 million order from a key customer total close to date exceed $15 million.
Aerospace electronics has had an incredible year with year to date core sales growth, 9% year to date adjusted margins of 24.3%.
This business is executing very well and making substantial progress on its 15 year technology development roadmap.
Focusing on this long term roadmap is working last quarter, we mentioned new brake control wins on Boeing's train wrecks and M Q2 5 platforms.
In mid October we announced a new contract win for our sensing solutions, where we will provide our smart stem tire pressure sensing system for installation on the US Air Force's C. M fleet of 52 aircraft.
While smart stem is widely used on numerous commercial aircraft platforms. This is the first time it has been used by military customer.
Today I'm also pleased to announce that our power business has been awarded a contract with content on Raytheon's, L. Tams program or lower tier air and missile defense sensor radar.
While we are not authorized to disclose the potential lifetime value of this award over its lifetime its value should be comparable to a mid sized aircraft platform.
This radar will eventually to replace the current US Army Patriot missile radars and will operate on the Army's integrated Air and missile Defense network.
I already discussed results of payment <unk> merchandising technologies, but the short term customer related issue shouldn't to detract from where we are making substantial progress in this business.
The crane currency, we continue to have the industry's best in class technology offerings. We are working on a number of very large long term opportunities that this business.
A few examples in our international security business, we expect there to be 28, new denominations issues. This year with our new micro optics technology better than crane currencies. Prior record of 15, new demand nominations in 2016.
And excluding excluding Venezuela, our international paper and banknote printing business has grown 26% year to date.
At Crane payment innovations the retail segment continues to to perform exceptionally well just like in aerospace. We are working on next generation products products that will ensure that we remain the industry leader in customer facing cash payment systems.
We are also deep into the commercialization phases of the new to the industry solutions. In addition to pay pod for Europe . We're also gaining traction in Japan, with our pay tower, and smart safe products, which improve efficiency and productivity and retail stores.
We have field trials ongoing for a full suite of both smart safe and pay tower solutions, including both hardware and software.
Given our market position and understanding of the local market, we have actually entered the Japanese market as a smart safe OEM, rather than our more traditional position as a component supplier in other markets and the pay tower solution. While it has some similar similarities to pay pot is fully customized for the needs of the Japanese retail market.
And engineer materials has performed well in tough markets with year to date adjusted margins of 13.8%. Despite a 14% core sales decline driven by continued weakness in the RV and market.
Clearly we are not pleased with the surprise of our results. However, given that this market adjustment was outside of our control I'm very proud of how our readers of our results overall and I continue to be proud of crane team and how well we are executing.
Rich, let me turn it over to you for some additional financial commentary. Thank you Max and good morning, everyone as usual I'll be providing segment comments that will compare the third quarter of 2019% 2018, excluding special items as outlined in our press release in slide presentation.
Fluid handling sales of 276 million declined 1% with 2% core sales growth offset by slightly more than 2% of unfavorable foreign exchange in a small divestiture impact.
I would hailing operating profit increased 6% to 38 million with operating margins of 13.8% 90 basis points higher than last year, reflecting productivity and repositioning benefits.
This was a very strong performance by the team in the quarter again, driving very strong operating leverage while continuing to execute on repositioning actions as well as growth initiatives.
Fluid handling order backlog was 272 million at the end of September compared to 280 million at the end of 2018 and 298 million at the end of September of last year.
After adjusting for foreign exchange, the backlog increased 1% sequentially and fell 6% year over year.
Orders also adjusted for foreign exchange were flat compared to both last quarter and last year.
Order activity in the quarter. It was approximately in line with our expectations and still consistent with the demand levels necessary for us to achieve our full year guidance.
We expect to end the year with sales consistent with our original guidance and margins modestly better than our original guidance.
From a market and geographic perspective, the commercial valve business continues to be stronger than process valves, particularly with strength from our Canadian distribution business in our process valve business, we are seeing decent activity in United States with projects moving along at a good pace across our verticals.
In Europe conditions remained stable at subdued levels and we are seeing continued positive activity in China, particularly for from chemical the chemical markets.
At payment <unk> merchandising technology sales of 249 million declined 24% compared to the prior year driven by a 22% core declined 2% of unfavorable foreign exchange and a small divestiture impact.
The lower core sales were a result of the absence of revenues from Venezuela, This year and lower crane currency sales to the U.S. government as Max discussed.
The payment portion of the business continues to prove to perform well with solid growth in the quarter again, driven primarily by the retail vertical.
Segment operating profit of 36 million decreased 40% from last year with operating margins of 14.5% compared to 18.5% last year.
Given the magnitude of the sales declined the moderate deleverage rate reflects solid execution by the team.
Aerospace and electronics end markets remain very robust and sales increased 4% to 197 million accompanied by solid operating leverage.
Total aftermarket sales increased 6% driven heavily by commercial spares, although the military aftermarket grew modestly as well.
There were no surprises on the OE side of the business, which grew 3% in the quarter with continued growth at commercial and particularly strong growth at military driven by a handful of different programs, including the F 35.
Aerospace and electronics backlog was 564 million at the end of September compared to 447 million at the end of 2018 and 445 million at the end of September of last year.
As Max discussed the aerospace and electronics team is performing really well across all fronts from completing repositioning actions.
Here in October and the related facility consolidation to new wins in landing sensing and power.
Two continued strong execution on our technology Roadmaps to drive long term growth.
Engineered materials sales decreased 17% to 50 million driven by a decline in sales to the recreational vehicle customers operating margins declined to 11.8% primarily as a result of lower volumes continued strong performance by the team during a challenging period.
Turning now to more detailing our total company results and guidance, our third quarter tax rate was 20% compared to 22% in the third quarter of last year. We continue to expect the full year tax rate of approximately 21% consistent with our original guidance.
In the quarter free cash flow was $104 million compared to 59 million in the third quarter of last year.
We're very comfortable with the strength of our balance sheet and we are actively working on our pipeline of opportunities given our current and growing M&A capacity over the next few years.
As Max mentioned, reflecting our revised outlook for crank currency, we are reducing our EPS guidance, excluding special items to a range of $5.90 to $6.10 from our prior range of $6.25 to $6.45.
We are also reducing our free cash flow guidance to a range of 285 million to 315 million compared to our prior range of 335 million to 365 million.
Operator, we're now ready to take our first question.
Thank you.
First question is coming from the line of Kristine Liwag with Bank of America. Please proceed with your question.
Hi, good morning, guys.
Good morning.
Max is this fiscal year 20 volume from the U.S. government is within your normal and the U.S. Government Institute smart policies to keep notes in circulation longer how should we think about volumes.
Going forward after fiscal year 20, and how should we think about year, one dollar accretion target in 2020 line from the Crane currency deal.
Yeah, Thanks, Christine so.
It's not to do normal it as a.
Inventory adjustment level and so we've done.
Part of this time for us to really dig in and.
Gives must data and facts as we can and map. This ourselves. This is this is not our customer data. This is our extrapolation.
If you look at the revised run rate.
We expect I've I fully expect on the next currency print order that after inventory as adjusted.
The next year's order im anticipating to be up at least 20% year over year, so that theres going to be a reversion back to a mean run rate.
Once the inventory is correct. It thats, what I firmly believe as it relates to the one dollar of accretion. We are we are executing well to achieve the cost position is going to allow us to do that volume from us currency is clearly going to come back.
Based on everything that we know today, we're still holding again is broader macroeconomic uncertainty, but given what we know today in our.
Multiyear earnings profile of achieving $750 by 2021, one dollar of accretion from currency being a key part of that we're still on track.
That's helpful.
And then crane currency was the largest acquisition you've done in a few years and it's clear that this lower order take you by surprise.
How are you thinking about your due diligence process now for other M&A candidates and at what point would you consider pausing M&A envy directing capital to buyback stock.
So we always.
Have a balanced approach to our capital allocation Christine we're if we if we don't deploy effectively we're going to look at returning to our shareholders.
So that will be an ongoing process.
I don't think that.
Theres any change in our policy to date, we have a number of opportunities that we continue to look at in terms of our due diligence process remember we've called out but we have a number of law our crane businesses have.
Any one of our businesses have very large customers that.
Can have swings and some surprises and we've seen those over the years, but I think you've seen us continued to manage for the long term not the quarter, we continued to execute well.
Leverage.
Beyond expectations in terms of while I'm pretty proud of our execution.
Investing and reinvesting in the businesses positioning ourselves for the future. So we even at Investor Day. We described we have lumpiness, we understand that we manage it well we're going to continue to manage well for the long term.
Great and one last follow up.
If you can't find any targets by year end and meager slated to generate free cash flow.
Roughly around $300 million would you then consider doing and accelerated accelerated share repurchase about similar amount that you could do or maybe a regular share repurchase.
And as usual Christine we don't Preannounce, where we will continue to.
Evaluate all options the.
I don't have much more to say.
Great. Thank you.
Thanks Christine.
Your next questions from the line of Nathan Jones with Stifel. Please proceed with your questions.
Good morning, everyone.
How are your Canadian.
Not surprisingly I'll follow up on on the currency stuff here.
Max can you confirm that the 35 cent reduction in your EPS guidance is solely related to do this lower order from the fed.
Yes.
That's about 25 million 25 million of operating profit this year.
How are you able to disclose what they're the does lower revenue number is in the second half of the year relative to what your prior expectations worries that getting to date.
Yes, it's getting a little bit too deep Nathan were a little concerned just this is an important customer of ours and we're trying to be cautious insensitive to.
To them.
Okay understandable.
A fair amount of this inventory correction looks like it did happen in this quarter.
I think Max year, you're talking 1.41.
1.1 fall.
Billion of total revenue implies down only about 5% in the fourth quarter.
As most of the basic tied in Threeq more of it. It has in Fourq, you and kind of the inventory correction is done then or does this spread out into 2020.
2020 or so.
The inventory correction will be balanced over once that.
Annual purchase order came out the it's balanced over the course of the year, so you'll you'll see that reduce.
Volume level play out what we saw in the third quarter in.
Almost of.
I can't speak directly for our customers, but as it almost felt like there was a bit of a surprise.
Even within our customer side. So we saw an immediate slowdown while we were waiting for the order.
A various information in terms of.
That we couldn't quite get our arms around which is why we had two.
Yeah.
Well take our time to really understand this confirm it go and meet with the fed in the BP BP, but it's going to be normalize and smooth throughout the course of the of the year.
Okay, maybe to admit sorry.
Yes, I was just going to say in terms of.
As smoothing as it relates to the order that we receive.
But in terms of our guidance here for the balance of the are going to see more more of the impact to us in the fourth quarter.
Than we saw here in Q3.
More on the revenue line or are they operating profit line.
Overall impact operating profit line.
Okay can you then start to smooth out the impact that this has to margins by taking appropriate cost actions. It's obviously going to be very difficult for you to do anything about that the cost side of this equation in threeq when I took you off God.
Maybe it takes a little bit longer in full cubic should we see the debt margin impact from this kind of.
Start to decrease as we go forward.
Yes, I mean, that's so so as we roll as it looked as we look at and we've already taken actions as you might expect adjust for the demand level change.
We would expect margins to improve overall for the segment in the fourth quarter.
Okay. Thanks ill pass it on.
Thanks Nathan.
Next question is from the line of Brett Linzey with vertical research. Please proceed with your question.
Hi, good morning on.
Hey, just back to Kirk good morning, just back to currency just wanted to clarify comment you said did you say that year to date sales sales were up 26% in currency ex the U. S and X Venezuela.
Yes.
Okay, and then I guess as we look into next year I mean are there any larger contracts with specific countries that.
Run the risk that you are kind of in a similar situation, where you have another tough comp and then specific to Venezuela does that continue to create another comp issue as we get into 2020.
No not for 2020 and in terms of other for Venezuela to in terms of other similar situations. None none that we're aware of right now.
And then what are the assumptions that underpin the the treasury snap back next year that you think that does come back up 20% from an order perspective, just trying to get comfortable with some of the drivers there.
So I think I mean, if you look at the at the the historic run rates by currency, it's all on the.
Of fed web site.
This is our own.
Extrapolation of a run rate of 7 billion notes for the past few years adjusting down to 5.2 billion.
Extrapolating each individual currency I believe is going to come back at least six five to six 8 billion notes.
Okay, and then maybe just one follow up on fluid handling orders flat, which is improvement versus Q2.
Good to maybe just unbundle was the OE or project side did versus MRO and aftermarket both on a sales and order basis. Please.
From a just so you are in the process side of the business then Brett so on that side I would say that.
We're seeing.
Similar levels to what we saw.
In Q3 coming into Q3, maybe a little bit better actually on the project side.
And MRO I would say steady.
As it relates again to the process side of the business.
And is that a sequential current rich.
Yes.
Okay, Alright, great. Thanks, I'll pass or.
Brett.
The next question's from the line of Damian carriers with DBS. Please proceed with your questions.
Hey, good morning, guys.
Wednesday morning.
Hey, Rich maybe you could just take the.
Financial impact of the currency situation one step further.
I understand that that's what's driving the guidance reduction for this year, but could you just.
I will help us take one step further and understand kind of what is the full year trial run rate financial impact you're expecting as a result of that 8% 18%.
Order decline for the U.S Federal government and I guess based on what.
Max had been saying you would expect that basically fully offset.
Beginning late 2020 through 2021.
Yeah, So just to make sure I understand that so the impact of this year as Max mentioned is.
Vps reduction is the impact at all at all is.
Correlated to the to the reduction in demand that we saw with U.S. government.
As it relates to next year and our thoughts that the the yearly currency order that we received from the VP that new water comes.
In sort of that late July timeframe that we would expect for the succeeding full year fiscal year for the U.S. government.
Where we would start to see that pickup start to happen.
So we'll see a continued headwind as we think about the first nine months of 2020.
If that helps.
Okay, Yeah, I can follow up.
I guess.
Given that.
Youre caught a little bit off guard by this.
And next you did mention that you don't have any direct visibility into the BP inventory I'm. Just curious if there is anything that you guys think did you can do.
Okay increase visibility into your customer inventory.
Or perhaps getting earlier read into their buying intentions going forward.
We have.
We are customers very sensitive to this we asked Damon.
Yes to participate even suggesting facilitated kaizen type event partnering more closely.
Itself for discussion but.
For various reasons.
Bob.
Theres a precedent of not sharing this type of information.
And my expectation is probably thats going to continue the.
Closely closely guarded.
For various other reasons as well.
Got it that that makes sense. Thanks.
And one last one just on fluid handling I mean, the but the business seems to be holding up fairly well considering lot of the short cycle and macroeconomic pressures out there.
Just wondering if you've seen any indications from customers that some projects could could possibly be deferred a refund canceled as we kind of exit the year and Ms. In 2020.
Yes, the how rich can offer some comes as well, but the project.
Arms.
Im surprised that the strength of the releases. So these are projects that we're we've been tracking had not seen an increase in any kind of cancellations and we're really not seeing an increase in moving to the right. We're seeing a steady release of those that had moved to the right.
Chemicals in the US has been particularly strong some acetic acid plants pharmaceutical and.
Then a whole host of refining income petrochem.
Turnaround and.
MRO type work you Europe has been.
Detroit quite stable, there's been a chemical investment there on the polymer plant large project.
So it's been stable.
At its current rates as we had described on a rich if you.
No I would that be off from I would I would echo those same same comments I don't think there's too much more to add.
We're seeing some good strength across parts of the rest of the fluid handling business as well.
As we highlighted I think I highlighted on the prepared remarks, what we're seeing from municipal water here domestically in the us Canadian Nonres and even the UK the non nonresi portion of.
Fluid in the UK also doing well even in the face of sort of the Brexit noise that's true good.
Good comment.
Okay, great. Thanks for all the helpful color guys.
Yes, David.
Our next question is from Atlanta for offer Barry with Buckingham Research. Please proceed with your questions.
Hey, guys good morning.
Morning.
So lots of puts and takes in payment, but just in terms of this lower fed order in particular is the decline kind of ratably spread in dollar terms over the next four quarters.
Great Q plus the next three quarters.
Did you say evenly spread evenly yeah like the amount of revenue that's kind of coming out.
Yes order was down it's kind of evenly allocated over the next through call. It two generally yes, there's some minor mix month to month quarter to quarter, but generally yes.
Got it and the Decrementals on this business or like in the low to mid Thirtys is that fair.
No no it's as it relates to this particular.
Customer, it's it's a little bit more it's more significant even relative to other portions and.
In crane, given the fixed cost structure that we have here with with facilities dedicated to the U.S. government. So our deleverage rate tends to be much higher here and.
Correspondingly when demand comes back it comes back with much more operating profit contribution.
Got it so it sounds like.
I would say just.
I would offer often in the quarter year over year, you almost don't see that read through so much in this quarter just given the performance in the rest of the business within payment, we really had an exceptional performance outside of currency. So.
You know, what the deleverage rate and I think low thirtys.
Year over year.
Thats pretty pretty healthy notwithstanding this kind of a decline that we experienced with the U.S. government right.
And that exceptional performance is that something that is.
I got a handful of just large orders that hit or is there something more kind of run rate, that's just accelerating and causing that I guess I'm trying to get at sustainability here.
That kind of momentum that's offsetting momentum.
I think I think the way to think about it is that we feel pretty good about the momentum in particular in the payment business that we have right.
That coupled with the actions that we're taking with respect to the currency business in response to the demand decline.
Positions us I think for a pretty good margin performance as we think about the fourth quarter.
So for us to hit that 16.5% full year after having a 14.5% quarter hearing in the third quarter.
You can see that sort of that run rate would suggest a pretty good performance in Q4.
Right yes.
So you mentioned for 2020 being back in the 18% to 22% range. I mean, just given this pressure is going to be with you in the first half at a high decremental I mean is it a fair to assume like we should be thinking about the low end of that range is that fair kind of number to dial in at this point.
I think Thats fair.
Yeah, I guess, just lastly from me kind of a bigger picture question, what's kind of alluded to earlier I understand you expect this particular fed ordered a snap back.
Next year, but is this.
Kind of trend of extending the useful life of notes in part as you pointed out due to some of the things that you're doing in selling.
More of a kind of a long term underlying secular trend.
You know people will keep recycling.
Cetera.
Just as we think about the midterm outlook for this business, even if currency in circulation is still growing content per node is growing but useful life of notes is also growing that that would kind of just.
Down the.
Kind of mid term growth potential.
So the question I'm not sure quite got the question.
Hi, I'm trying to rethink what are the midterm growth potential is for the currency business I understand that notes in circulation and content per node.
Right like anti counterfeit content are positive trends, but it sounds like.
Side from this one time kind of inventory correction. There's also an underlying secular trend towards extending the useful life of notes.
So we didn't say extending the useful life, that's interesting point interesting point as it is extending.
The bill to circulation its own checking for fitter unfit notes there could be an argument to say well if you're not receiving the note back in the same frequency you have what would have been classified as unfit and destroyed notes in the past are staying out in circulation longer. So the challenge is going to be how did you get those notes back or what what might you need.
To change.
From a policy standpoint to take this into consideration that there is more recycling taken place that or is wearing out the bills and extend extending there.
This life in circulation, while they have become on fit I think thats just broader question is going to be quite interesting to see play out so is that actually.
An opportunity down the road, we honestly, we don't have enough knowledge around.
That broader trend and what may take place, but I could just as easily make that case quite honestly.
Right right, Yeah, just to clarify I think what I was referring to is useful life I meant to call life in circulation. So alright, great. Thanks. Thanks for all the color guys I'll pass it on thanks rough.
Your next question from the line of Ken Herbert with Canaccord Genuity. Please proceed with your question.
Hi, Kevin Hi, good morning, IMAX enriched good morning.
Good morning.
Just just wanted to switch gears, if I could and in aerospace <unk> Electronics segment can you quantify to what extent the the I guess longer than expected grounding of 737, Max has impacted the segment.
Sales and or margin relative to expectations earlier in the year.
As we probably all assumed no sooner returned to service.
Yeah, you know I would say just given the ongoing.
Production of of what we do deliver for the 737 Max not much from that point of view, how can we might be seeing a little bit of.
Of upside in front of from aftermarket as they continue to fly on the legacy aircraft.
But really difficult to quantify what overall aggregate contribution that might be because it would be speculating frankly, so I would say nothing really on the OE side, and perhaps a little bit a tailwind on the aftermarket side.
Okay, and then if I think about that into 2020, then is it is it fair to say that maybe upside expectations, assuming the timing of the Max returned to service, maybe not a significant tailwind I mean, obviously, we'll get some volume increase but you don't expect to see a significant catch up from your standpoint, it sounds like.
Yes.
No nothing significant.
At this point.
Okay, and and obviously margins in the segment again continued to be incredibly strong sounds like aftermarket on both commercial and defense was was probably a tailwind in the quarter was there anything one time in in the quarter in the segment either I mean going a modern upgrade program or anything else there could have impacted or was it.
No doubt in terms of of margins or the mix for aerospace <unk> electronics.
Not really not on the aftermarket I mean, we saw some pretty good strength as I mentioned to cross.
Commercial and.
And even even the military so nothing that I would call out I would say lower IP spares relative to last year at this time, so mainly replenishment on the commercial.
The overall aftermarket as you know Ken has been real strong here throughout all of 22019 and.
Notwithstanding my comment earlier about.
Any any sort of tailwind or headwind related to the Max.
As it relates to next year is this really a sustainable trend and thats something that we're digging into just overall from an aftermarket perspective.
Got it really.
Yes, Okay perfect I'm sure, we'll give a lot more detail early next year.
And and Max.
Obviously alluded to the 2021 sort of $758 a target you've put out.
It sounds like the issues with with payment and specifically the currency business now having said all changed your view on that and you're fairly confident that you get sort of resumption to higher normalized levels coming out of or or the midpoint of next year is there. That's fair way to think about it or is there anything else you'd highlight sort of incremental risk.
Around the 2021, if you ask target.
I think just in terms of broader macroeconomic uncertainty and we've seen continued strength so.
Taking that aside and we'll we're about ready to head out.
On our annual operating plan visits with our businesses and really provide more information for you in January .
Guidance for 2020, but I think you summed it up exactly how I'm thinking about again.
Perfect Alright, well, thank you very much.
Thank you.
Our next question, it's coming from the line of Matt Summerville with D.A. Davidson. Please proceed with your questions.
Thanks, a couple of questions and I joined the call a few minutes late so I apologize if I'm asking you to be redundant, but can you within the payment business can you drill a little bit deeper into what you're seeing across the cpis verticals. I know you mentioned a little bit on retail, but maybe just a deeper dive across that business.
Sure Matt.
Overall I would say, we're just we're continuing to see pretty solid demand, we mentioned retail in our prepared remarks really being a driving factor there.
You know with automation.
The desire for our customers to reduce costs were continuing to see that really.
Move forward and a pretty heavy way I would say across the rest of the rest of the business on a year to date basis, we continue to see pretty good momentum.
In the vending portion of that business with cashless penetration, we're seeing healthy healthy prospects and projects with transport So pretty solid there I think the one thing I would say is that on the gaming side and in casino, we highlighted this last quarter.
We are down year over year, we expected to be given the amount of.
Success, we hadn't taking share last year as well as.
Expanding our product upgrades to the connected casino so to speak so we saw a lot of that momentum last year that naturally slow down in was expected, but we're also seeing just a little bit of softness in that in that part of the business, but beyond that.
Fairly healthy I would say across across the rest of the payment group.
And then with respect to crane currency again ex Venezuela ex the U.S. government business of 26% how fast is the international market growing I would imagine it's not that fast so it looks like you're.
That does from I would assume you're getting pretty meaningful market share can you talk about what's the differentiating crane currency in the marketplace to capture that share.
Combination it is mostly share and it's.
Combination of our World class pretty facility in Malta, coupled with the technology solutions that we have on micro optics.
Offering a comprehensive suite of of paper technology print Tech.
Thread technology for insertion and counterfeit detection and were able to sell all or any of those two to a myriad of customers around the world. The CR value. In addition to world class design expertise.
Thank you guys.
Thanks, Matt.
Our next question comes from the line of Nathan Jones with Stifel. Please proceed with your questions.
Yes, hi, guys.
Just wanted to follow up on your.
Year progress on cultivating acquisitions now that we've moved on from cycle [noise].
I think you.
Talking fairly aggressively last quarter about looking to get some capital out into the market. So just any update you can give us on.
What the opportunities on what you're seeing out there in the market.
Yes.
Thanks for question.
The up the opportunities.
Continued to be quite robust right now in each of our segments. So there's opportunities so from small to mid size.
That were investigating some.
Private some.
Part of an auction process and so.
Our process continues I mean, I think we remain disciplined we can to never robust process. We identify bolt ons. We're focused on our three major platforms nothing's changed activity level I would say is above above average right now.
Okay that was it for me thank you.
Thanks Nathan.
Thank you we've reached the end of your question answer session and I will turn the call over to Max Mitchell for closing remarks.
Thank you operator, and thank you all for your time this morning.
Another quarter of solid execution and share gains, but a clear clearly a surprise in customer driven demand a crane currency as the late great author Toni Morrison, One said correct. What you can learn from what you can't.
Perfect message for how we think about.
Our situation or management Crane today. Thank you for your interest in Crane have a great day.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.