Q4 2019 Earnings Call
Great.
Welcome to the Crane fourth quarter 2019 earnings conference call at this probably more participants really listen only mode.
A question answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star Zero Wonder telephone keypad.
As a reminder, this conference is being recorded it's now my pleasure to introduce your host Jason Feldman. Please go ahead Sir.
Thank you operator, and good day, everyone welcome to our fourth 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, who will start up our call with a few prepared remarks, after which we will receive.
On to questions. Just a reminder, the comments we make on this call may include some forward looking statements. We refer you to the cautionary language at the bottom up our earnings release and also in our annual report Form 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 the comparable GAAP numbers and tables at the end.
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. Please also mark your calendars for our February 27th Investor Day event in New York City. Please contact me directly if he would like to attend now let me turn the call over to Max. Thank you, Jason It was an eventful quarter.
With the and year with a lot of moving pieces and rich and I have quite a bit to cover before we get to QNX. So let me, let me get right into it.
We had a very strong close to the year, particularly from a free cash flow perspective. The 2019 was another year of record financial results, though somewhat lower than we originally expected when the year started.
As outlined in our press released last night, we reported record full year adjusted EPS of $6 in two cents up slightly from 2018.
Sales of 3.3 billion decreased 2% compared to 2018, but we delivered a record 325 million a free cash flow up 7% compared to last year.
Operating margin excluding special items also reached a record 15% 50 basis point improvement from last year.
Fourth quarter EPS, excluding special items was $1.58 cents per share compared to $1.64 cents in the fourth quarter of last year.
In addition during the quarter.
We use part of our record free cash flow to repurchase 80 million of our shares in the fourth quarter.
We announced a 10% dividend increase yesterday, reflecting confidence in our long term outlook and solidly within our targeted payout range of 25% to 30%.
We initiated a new round of repositioning and our fluid handling business, which will generate 10 million of savings in 2022 incremental to the repositioning actions. We began at the end of 2017.
And after making the decision to pursue CIRCOR last spring and that process concluding unsuccessfully by August we were subsequently invited by CIRCOR to participate in the process for the sale of their instrumentation and sampling business.
We signed a definitive agreement to acquire this fluid handling business in late December and we expected to close within the next week.
We also announced today that we acquired Cummins Allison in our payment business, which closed on December 30, Onest of 2019.
And even after all the activity over the last quarter, our balance sheet remains strong and we retain substantial flexibility for further capital deployment.
Looking ahead, we have a lot of exciting opportunities in 2020, but also a few near term demand challenges.
Based on our current outlook, we expect 2020, adjusted EPS of $6 in 20 cents to $6.50 with free cash flow of 330 million to $360 million.
This guidance includes the impact of Boeings 737, Max production pause as well as the previously discussed impact of the us governments currency Destocking I.
Assuming both of these items resolve themselves in 2020 as we currently do we would expect still expect to achieve our 2021 adjusted EPS target.
We have 750 to $8 barring any macroeconomic surprises.
Before I turn it over to rich for some additional financial details. Let me discuss some added highlights of 2019, our recent acquisition activity and our 2020 outlook, starting with the 2019 environment and our operational performance, we executed extremely well in a challenging period, we adjusted quickly and effectively to unexpected changes in demand both ends.
Year materials and a crane currency. We also continued to aggressively invest for organic growth, while continuing to drive efficiency and productivity throughout our businesses.
We will discuss more at Investor day, but a lot of exciting act activity across our businesses on growth initiatives continued execution on technology roadmaps across aerospace electronics, new retail solutions, a crane payment innovations new technology advancements and continued wins at currency and new product introductions across fluid handling.
Our earnings last year were impacted by two market related issues as we discussed last quarter. The U.S. government demand for crane currency substrate was impacted during the third and fourth quarter due to customer excess inventory.
We provided a lot of detail on this topic during our last earnings call and there isn't much new to report we believe that the Destocking process is well underway and we continue to expect a reversion to a more normal demand levels in the US governments next fiscal year, which starts October Onest 2020.
The rest of crane currency, and our crane payment innovations business, both had very good years.
We also saw a weaker than expected demanded engineered materials related to recreational vehicles with dealers, reducing their inventory levels over the last year or so.
We believe this process is close to complete we expect volumes to decline only slightly next year.
Elsewhere across our portfolio the year unfolded much as expected with fluid handling volumes approximately in line with expectations.
And fluid handling we over delivered on productivity and repositioning initiatives with margins better than expected.
At Aerospace electronics demand was stronger than expected in 2019, particularly for the aftermarket Consequently, both sales and margins exceeded our expectations.
Moving to our recent acquisition activity.
We signed a definitive agreement to buy Circors instrumentation, and sampling business for $172 million and the transaction should close in the next week.
For 2020.
We expect that this business will have sales of approximately $70 million with solid margins that will be modestly dilutive to the fluid handling segment in the near term due to our current estimate of intangible amortization.
This business designs engineers and manufactures a broad range of critical fluid control instrumentation and sampling solutions with strong brands known for quality performance and reliability.
Products are primarily used in severe service environments with a substantial portion of sales driven by recurring replacement demand.
Instrumentation and sampling is broadly diversified geographically and by end market with nearly 60% of sales in chemical refining and petrochemical applications and less than 25% related to upstream oil and gas.
We will be integrating this business into our process valve business, where we have a.
Extremely strong management team, that's experienced with acquisition integration.
We also acquired Cummins Allison for $160 million.
Cummins Allison has approximately $190 million in sales and including intangible amortization. Currently has mid single digit operating margins, where we see substantial opportunity for improvement over the next few years.
Cummins Allison is a leading provider of high speed cashing coin counting assorting machines retail cash offer solutions, along with a nationwide service network.
About half their sales are generated from recurring revenue derived from service contracts.
Their end markets are aligned with our existing crane payment innovations end markets, primarily focused on retail financial services and gaming.
However, where our payment business focuses on consumer facing applications Cummins Allison sells products, primarily used and back office applications.
Commons Allison and Cpis products are based on similar core technologies related to cash in coin sorting counting and validation and we expect sharing of technology and R&D across the two businesses.
We see substantial synergies, most notably with material cost and supply chain manufacturing productivity and R&D.
Together these acquisition should be accretive to adjusted EPS by approximately 15 cents in 2020 with accretion increasing to 25 cents by 2022.
Both acquisitions meet our strict acquisition related financial criteria.
Our integration process is underway at Cummins Allison and we have a detailed plan ready for when we closed on instrumentation and sampling.
Given our balance sheet strength, our acquisition activity does not prevent us from consistently returning cash to shareholders. As I mentioned, we increased our dividend dividend, 10% yesterday, and repurchased 80 million of shares last quarter.
We have ample flexibility remaining to continue to deploy capital to grow the business, while also providing additional cash returns to our shareholders.
At this point I'll turn it over to risk for some additional financial commentary. Thank.
Thank you Max and good morning, everyone as usual I'll be providing segment comments that will compare the fourth quarter of 2019% 2018, excluding special items as outlined in our press release in slide presentation.
Starting with fluid handling sales of 277 million declined 1% driven by a slight core decline and unfavorable foreign exchange.
I would handling operating profit increased 9% to 37 million with operating margins of 13.5%.
120 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 267 million at the end of December compared to $280 million at the end of 2018 down 5% year over year on an FX neutral basis orders also adjusted for foreign exchange declined 5% sequentially, but increased 1% in year over year.
On our end sales activity in the quarter was approximately in line with our expectations on a full year basis core growth was almost exactly in line with our original guidance.
But we did outperform on margins, partly from certain repositioning actions being completed earlier than expected.
Looking ahead to 2020, while we expect a modest decline in our end markets we.
We are guiding to a flat core growth as we continue to deliver on our new product development and share gain initiatives, we expect margins to expand to approximately 14% consistent with the framework. We have provided at Investor day over the last few years and reflecting slight margin dilution from the instrumentation and sampling acquisition given our current estimate of.
Intangible amortization.
At payment <unk> merchandising technologies sales of 315 million on the quarter increased 1% compared to the prior year driven by 1.5% of core growth, partially offset by unfavorable foreign exchange.
Segment operating profit of 55 million decreased 2% from last year with operating margins of 17.6% compared to 18.1% last year.
Notably, however margins did improve more than 300 basis points sequentially, reflecting higher sales volumes and cost control actions. Following the temporary reduction in U.S. government currency demand.
Margins were just slightly below our expectations in the quarter largely as a result of product mix, where we had some incremental sales of international currency substrate in the quarter, which helped sales growth and operating profit, but at the expense of margins.
For 2020, we expect approximately 1% of core growth for this segment and approximately 16% of sales growth from the Commons Allison acquisition, partially offset by approximately 1% of unfavorable foreign exchange.
We expect 2020 adjusted segment margins of roughly 16%.
Excluding the impact of the Cummins Allison acquisition segment margins would be approximately 18%.
Over the next few years, we expect to get Cummins Allison margins in line with the overall segment average. So there is no change to our long term margin outlook for this segment of 18% to 22%.
At Aerospace electronics, we had a strong finish that capped off a great year end 2019.
In the fourth quarter sales increased 3% to 203 million with segment margins of 23.8% up 100 basis points compared to last year.
On a full year basis core growth was 7.5% with segment margins of 24.1%.
In the quarter total aftermarket sales increased 4% driven heavily by military spares with commercial aftermarket down slightly on lower modernization and upgrade sales.
Full year aftermarket sales were up 10% with strength across both military and commercial.
Oh East sales increased 3% in the quarter with similar growth rates on both military and commercial size of the business.
Aerospace and electronics backlog was 567 million at the end of 2019 compared to 447 million at the end of last year. This backlog as an all time record for Crane Aerospace and electronics. This business continues to perform extremely well with repositioning actions complete and executing daily driving technique.
LNG readiness and winning new business across all our solutions.
For 2020, we expect continued strong underlying performance, but with the headwinds from the recent 737 Max production pause.
Based on best current production forecast from Boeing we expect an EPS impact of approximately 25 cents per share in 2020.
Until Boeing publicly communicates their build expectations, we are not going to provide any additional details on this topic.
We believe this earnings impact is temporary and will disproportionately impact the first half of 2020.
And it reflects absorption impacts, resulting from the speed and magnitude of the change in production volumes.
For the segment overall in 2020, we expect a 3% decline in core sales with segment margins of approximately 23.5%.
Engineered materials sales decreased 14% to 43 million driven by a decline in sales to RV customers.
Operating margins declined to 9.4% due to the lower volumes and reflecting normal seasonality in the fourth quarter.
Solid performance by the team during a challenging period in 2020, we expect a 1% decline of core sales as the RV market stabilizes. During the next few months with segment margins of 13.5%.
Turning now to more detail on our total company results and guidance.
Our fourth quarter tax rate was 20.5% compared to 15.9% in the fourth quarter of 2018.
In the quarter free cash flow was 205 million compared to 158 million in the fourth quarter of last year for the full year, we delivered record free cash flow of 325 million compared to 305 million last year.
We're very comfortable with the strength of our balance sheet and we have substantial flexibility for capital deployment as Mike highlighted.
Both acquisitions and return of cash to shareholders in 2020.
In the quarter, we also trued up our specialists liability estimate.
This is a noncash update that reflects trends in average settlement values since our last assessed this liability update on December 30, Onest of 2016.
The liability estimate continues to cover all pending and future claims projected to be filed against us through the generally accepted endpoint of 2059.
I would remind investors that the December 2016 liability estimate update was completed shortly after the New York State Court of Appeals issued its opinion intimate versus crane co.
And that update reflected our best estimate of the impact that dumb. It would have honest as claims in New York.
Based on our experience in the postponement litigation environment over the last three years, we are now able to further refine our estimates of settlement and indemnity payments in defense costs, resulting in an additional noncash Tac after tax net asbestos provision of 181 million.
Remember that this is an undiscounted number of covering payments that we'll spend more than 40 years.
Despite this update there is no change in our near term to medium term outlook for annual average cash outflow. We continue to expect a specialist related to annual after insurance and tax cash outflow of approximately 40 to 50 40 million in 2020, consistent with the average cash outflow in recent years and.
Annual cash outflow stable to gradually declining in the years ahead.
While this is a lifetime estimate due to uncertainties in this especially this litigation environment as well as uncertainties inherent in the estimation process future is future reviews may result in additional adjustments to our total assessments related liability.
It's also important to remember that in addition to aggressively managing our specced. This liability case by case.
Also pursued a strategy to outgrow our specialists liability for many years.
And we have delivered strong free cash flow growth over the last decade as our status related cash outflow has declined.
For context are asked our specced us related cash outflow net of insurance peaked in 2011 at 79 million and in that year, we generated 115 million of free cash flow. In 2019 is specialists related cash outflow net of insurance was 41.5 million and we generated a record 325 million in free.
Cash flow.
For additional information please see the company's form 8-K filed with the SEC today.
Looking ahead to 2020 as Max mentioned, our EPS guidance, excluding special items in a range of $6 in 20 cents to $6 in 50 cents.
I also expect free cash flow in 2020 of 330 million to 360 million.
There are some additional details in the slide presentation is available on our website, but other key assumptions in our guidance our tax rate of 21.5% corporate expense of 67 million diluted share count of 60 million and capital expenditures of 75 million.
Net non operating expense is expected to be approximately 39 million inclusive of 47 million of net interest expense.
Just submitted color regarding the cadence of earnings throughout the year earnings will be weighted towards the second half of 2020, primarily driven by three factors.
A second half returned to more normal production rates in our us currency business.
A resumption of 737, Max production and ramp up later in the year.
And acquisition accretion, which will build incrementally as the year progresses.
For the first quarter, specifically, we do expect the decline in EPS compared to the first quarter of 2019.
With first quarter EPS at approximately 20% of our expected full year EPS.
While this is a smaller first quarter earnings contribution that we typically see the year over year first quarter decline is driven primarily again by the 737, Max and the us currency comparison.
Let me turn turn it back over to Max for some additional comments before kuna. Thanks, Rich I look forward to seeing many of you at our February 27th the Investor Day.
In addition to reviewing our core businesses, we will provide an update on our multiyear earnings growth outlook. The highlights are similar to what we have discussed in the past, we continue to execute extremely well and mix markets.
We continue to accelerate growth investments across crane with increasing evidence of substantial traction.
We will continue to prudently return cash to shareholders and we are taking a more assertive approach to acquisitions, while maintaining our strict capital discipline on inorganic growth.
We're also going to highlight how we think about our businesses in portfolio with crane with added insight into describing what we own and how we operate our assets. While also providing further examples of how we how we continue to use CBS as a differentiator running our core business and how it will continue to drive M&A opportunities overall to compelling.
Story, and we look forward to sharing more with you next month.
Operator, we're now ready to take our first question.
Thank you will now the key ducking your question and answer session, if you'd like to be placing the question Q. Please press star 100 telephone keypad.
Confirmation told we indicated lines in the question Q.
You mean prostar too.
To meet the question from the Q.
Participants using speaker equipment, maybe necessary to pitch comprehensive before pressing star one one moment please poll for questions.
First question today is coming from Ken Herbert from Canaccord. Your line is our lives.
Hi, good morning.
Yes, and rich and Jason.
Monika good morning.
Hey, Max I, just wanted to start off in in fluid handling I mean, you're guiding to.
Basically flat core growth in 2020 can you just unpack that a little bit for us in terms of expectations of share gains versus some of the expectations and some of the core end markets. Obviously I know you've got the acquisition that that's going to help there, but how should we think about the fluid handling core growth and some of the keep moving pieces there.
Yes, we can just opt outs ticked up I'll take some of this.
I would say overall just to just to sort of recap a little bit. We finished we finished 19 sort of right in line with what we thought right overall from up from a core growth perspective.
As we exited the year.
Overall, when you look when you break it up and you look at process versus commercial on the process side of the business.
Again, a solid year last year now cascading into 2020.
We do see.
A market thats going to continue to be down we've been very successful throughout 2019 on on core growth initiatives that helped offset what was also a challenging and market, but we do expect end markets to be down.
In in the process side in 2020, we are overcoming some of that down market with continued share gains with new product development and so forth.
If I look at the commercial side of the business, we had a very strong year last year as well.
As part of.
That 4% Quad core growth that we delivered and we see that just abating a bit.
So that puts a little bit of added pressure when you compared to 2019, so although we still see core growth across commercial not as great as we did in in 2019.
Okay. That's helpful. Thanks, Rich and if I could just.
Quickly on the Max can I have 737, Max can I assume from your comments that youre.
You are effectively maintaining your your cost structure in your head counts and everything else in anticipation of a production ramp in the second half of the year or are you looking at any cost actions now to maybe help with some of the near term mitigation.
No we're not planning any cost reduction initiatives can so we're assuming this is temporary.
And we're going to continue to invest in the business.
Okay excellent aspect there thanks rich.
Yep.
Thank you for next question is coming from Kristine Liwag from Bank of America. Your line is now live.
Hey, good morning, guys.
Clinically.
For your 2021, EPS outlook of 750 to $8.
Can you clarify how much incremental M&A is embedded in this outlook if there is any.
So thats a good.
So for 28.
The overall $758.
As we framed up initially.
And continue to today there isn't.
Any expected further M&A accretion included in that number so when you look at our guidance here of 635 at the at the midpoint.
And you assume as we are that Theres the impact of the return of the 737, Max as well as a return of demand in our you SG business for currency.
That's going to contribute somewhere around 60 cents a share. So from there you do the quick math on that Christine and assume that our underlying business would grow somewhere between I don't know, 7% to 9% from an EPS perspective, you can quickly get to that 750.
So while maybe perhaps a bit of a bias towards the 750, we feel pretty confident and as other measures as you suggest to get us well beyond that number for 2021.
I see I guess I would've expected that with the two acquisitions, you've announced and you are expected accretion from coming then is ins that there could be upside.
Upside pressure to that range.
Is it correct and that wind.
No thats thats, essentially that you're correct I'm not including the 25 cents.
The incremental increase the incremental accretion coming from common thousand our store CIRCOR in future years.
We are not included in my in my number so to your point other M&A accretion that might occur post the 635 further M&A repurchase activity. Other capital deployment is not included in that 750.
That's helpful and following up on the 77 Max.
Thank you to access this morning, right, we'll have a 90 day production pause and then we'll go to a 21 per month rate for the rest of the year.
Is that similar to what you are assuming in your Max impact for the year.
Yeah, we're seeing so we're not going to comment on specifics with respect to production rates and timing at this at this point.
Potentially we'll do that at Investor day take to the extent that.
We get further public clarity from from Boeing that we expect hopefully this week.
Thank you very much.
You're welcome.
Thank you. Our next question is coming from Matt Summerville from D.A. Davidson. Your line is that lies.
Thanks color.
First on the on the payment business, specifically to come in Dallas and can you talk about what the profit differential may look like between the service side of the business in the hardware side and what would be the average duration on the service contracts for that company.
On the on the service life for the services so.
Almost 75% of the installed base.
As an annual service agreement so it's an evergreen kind of renew renewable service agreement.
We're pretty excited Matt was one of the strategic reasons.
For the deal, but 50% both.
Revenue is this recurring revenue in service.
Coming with the deal is about 43 branches in over 400 really talented associates in the field that we see some opportunity on not only the existing service business, but in how we're going to leverage that not only with other existing crane product, but also servicing some third party.
Opportunities that we already have identified.
So it's.
It's a great piece of this business that we see.
Synergies with the combined organization terms the margin profile.
In the margin profile on the on the equipment is solid I would say right sort of what you'd expect from a component type manufacturer.
With the Sir on the services side.
Yes.
I would say.
Modestly higher than what we're seeing.
On the equipment with opportunity in our view from a pricing perspective, as we look out.
Is that the main structural issue I guess, some surprise with 50% of that business being annuity like service at the operating margins are only 5% or mid single digit I think employees and so I want to clarify that so if it is mid single digit as that mid single digit number pre the incremental intangibles amortization or is that.
We absorbed for that just to be clear no. That's fully that includes the intent intangible amortization.
So from our point of view and with the prepared comments regarding our target margin range and the opportunity that we see to bring that business. There. This is what's exciting to us frankly about about the business we see.
A significant amount of potential.
To improve the margin profile, but this was a.
Well run.
Absolutely respected family run.
Our business.
For many many years that.
Had different motivations and drivers I think it's just been incredibly well run organization with with fantastic people and.
We're going to be very careful methodical and how we continue to grow and execute but theres a lot of opportunities in the combined strengths of payment <unk> merchandising technologies.
If I can just sneak one more in sticking with the payment segment, specifically to Cpis can you sort of talk about what the market overview as their end market overview as for that business, what youre seeing in retail transportation gaming et cetera, and how that sort of calibrates to the segments organic guidance for the year. Thank you.
Sure. So just the overall in the segment guidance I think were plus 1% for for next year.
We have a.
A bit of the headwinds obviously in 2020, continuing with the U.S. government. So just overall.
That being a headwind to that 1%.
The payment business continues to look pretty good across most of the verticals that we have Matt so.
I would say continuing to underlying trends in the various sectors achieve that you mentioned in particular around.
Even transport.
Retail and.
And so forth gaming some slight headwinds that we saw this year that.
We expect issue, we should recover from but overall when I look across all the solutions.
We feel pretty good about the business and we're going to we're going to see some of that continuation of.
Of core growth that we solve the last couple of years.
Thanks, guys.
Yes.
Thank you. Our next question today is coming from Nathan Jones from Stifel. Your line is allies.
Tony related.
Good morning.
Just following up on on the U.S. government destock.
Any intelligence.
Any additional information.
Yes.
Yes.
2021.
History.
Paul.
Yes.
Thanks.
Up just extrapolating as you broke up a little bit Nathan, but if I think I got to just to the question extrapolating of we still feel pretty solidly above that range of.
Normal demand.
And I think.
Look I mean verbally, we're not going to know until the absolute order.
That's not that will be the.
The new number but I can tell you that in conversations with with with the.
Those.
At the Bureau, we certainly have an indication is going to revert to a normal level, but nothing that has been definitive I can also say that anecdotally. We've been we've been tracking. This now we don't expect any change there's very little changed with the order rate once it's given and so thats going to be very very stable through the year.
But we are anecdotally hearing that the destocking is well on track and as expected.
Okay.
Yes.
Thank you.
Thanks Congrats.
Thanks.
Barry.
And probably demonstrate pretty good.
Outside of that.
Okay.
But.
On the girls.
Yeah.
Yes, the line, but yes.
So I mean, I think what I would say Nathan just as I I would agree with what you're saying it to be at plus 1% notwithstanding the headwinds with the U.S. government were seeing.
Continued momentum on the international side of the currency business would be the one thing that I would clearly 0.2, but.
But also like I just mentioned in response to.
So matts question with respect to the underlying end markets and in our payment business, we're continuing to see.
Continued traction and solid demand across those solutions so.
I would say, it's a it's a combination of those two factors.
Just one more on the acquisition.
On the Dallas getting up to.
Okay.
Profitability.
Thanks.
By the debt issue.
Great.
Good.
Cost.
Yes.
I'm wondering why.
2022.
25 total accretion.
Okay.
Thanks, Good again comes out.
Yes.
To that.
Yes.
Now that's a good question Nathan I would say that we feel out so we feel very comfortable with the 25 cents.
We'd like to see things play out a little bit but.
I would say that we're very comfortable with hitting the 25 cents per share target that we laid out today.
Okay.
Thanks very much.
Yeah. Thanks Nathan.
Thank you. Our next question is coming from Robert Barry from Buckingham Research Group. Your line is now live.
Hey, guys good morning.
So I wanted to clarify on.
737, the 25 cent impact is for some.
And to find amount of time that this pause occurs.
So so we.
Our quarter.
So we so we based we based our estimate.
Pursuant to feedback and what you'd normally expect us to be receiving from our customers. So in response to that we've laid out.
A pretty thoughtful cadence of that production pause in our 2020 operating plan and our guidance.
So there are specifics I, just we'd rather not comment on them and toll.
We all our customers to publicly disclose what their production.
Plans are but it is the rate that's been.
Publicly disclosed today.
Sorry, it's been privately disclosed today, if others are communicating that we prefer not to until we have more more confidence around that.
I think the way to think about this to Rob is.
It's on a worst case on a worst case basis.
If if if production literally went to zero for the entire year.
We would still feel feel comfortable with the low end of our range.
Got it got it okay. So the 25 cents kind of at the midpoint.
That if it if it was a worst case scenario, we just kind of bringing down to the low end.
Hi.
Thats right.
That's helpful.
And any thoughts on.
This virus and how that could impact the business I mean, maybe just from what.
You've seen in the past that stars or something like that.
It's still early but.
Big picture, how are you thinking about that there is there any contingency in the guidance for that.
There is no contingency in the guidance for the Corona virus I think this is something that everyone is.
Watching carefully I know, we are and gathering intelligence, having lived through stores as well and understanding the ramifications I think.
Watching this play out there was it's been quiet the first week because it happened to be conducted over the Chinese new year, when things were already down when things were quite when the government was able to continue to ratchet up some some countermeasures and then we saw the.
Spread into a couple of other countries on on a minor basis I think.
We're in close contact with our Chinese our leadership in China.
That is making some calls we've extended slightly the.
Chinese new year in terms of returning that matches. The government actions I think the stuff is going to play out here real time day to day, Rob and.
Is the concern.
But it's going to impact it's something that we're all going have to face we faced with and deal with.
Shortly depending on the continued severity spread so forth I think.
As I think about this.
The risk is not so much with our.
From a materiality standpoint, it's not so much with our existing facilities and.
Okay, and then dependencies, it's more the broader supply chain, it's going to be what happens in the Chinese supply chain all in.
And.
I want to think about that some of the end segments that are a little more dependent than others would be fluid handling payment <unk> merchandising.
Net net yep.
Any very little in as you materials nothing so that's kind of how I'm I'm thinking about it.
I'm going to be a lot to learn.
Every day as we move forward then.
Im sure investors are all in.
In tune with this as well.
Got it so you don't see it as much as a aero kind of reducing travel flight hours after market impact. It's more of on terms of I was speaking specifically to supply the obvious speaking specifically the supply chain.
Demand, but in terms of impacting end markets for sure I think a transportation industry.
I think we're already seeing signs of travel reduced travel so forth that is going to play out how deep how severe early day, yes, it's just too early.
I guess, just lastly, I was wondering if you could help us on how we should think about the cadence of growth in payment.
I mean, frankly after seeing Threeq you down so much on the government contracts.
It was a little surprising to see Fourq, you kind of rebound I mean is that Youre should we model of the payment business like down in the first half and then up a lot potentially in Fourq you. If there's assumes return to normalcy in that.
That contract.
Or how you how should we think about the cadence.
Yes, Rob we'd rather it we'd rather not get too deep into this segment quarterly splits I mean, we will go down a lot of roads here with the different businesses. What we can do is make sure that we address this during investor day.
And then provide that color for you so that things become a little bit more clear.
So little bit more challenging, giving even the moving pieces within that business itself right between what's international and lets us government and so you can really wind up unpacking quite a bit there. So it's.
If thats, okay, we'd like to we'd like to update everybody.
During Investor day.
Right.
Thank you I'll pass thanks, Rob.
Thank you. Our next question is coming from Daniel Harris from UBS Your.
Your line is now live.
Hi, good morning, guys.
Good morning.
So wanted to ask you about currency thinking outside of the current destocking cycle going on.
You guys said.
But just in general.
Could you maybe give us some additional color on the trends you're seeing and.
I guess, what the project pipeline pipeline.
Look like for that business, just wondering if theres anything promising the cheese, perhaps scotts pretty good visibility on.
Whether or not it sits in your guidance for this year at this stage.
Yes, I think just generally.
International is doing very well very very well I mean, so we have the technology thread that we can sell both independently or with a finished banknote.
Technology is differentiated from all competitors. It continues to play out and that value is understood in the marketplace. So there is a rich pipeline of opportunities. Both on what we are chasing what we've bid on what we're expecting what we are winning and.
I can I can tell you that we continue to take share.
Not only in technology, but in finished banknotes so thats a bright spot the team continues to execute very well.
Okay.
And shifting over to capital allocation. So you saw completed these two acquisitions recently.
December .
And then also executed $80 million buyback.
Now how much capital do you think you have available to deploy this year and are you considering any incremental back buyback at this stage.
So damian yet so.
Post post the acquisition activity post to reap the repurchases in the fourth quarter, we still have pretty good capacity here for M&A right when I think about.
There's a difference right between.
Capacity for M&A and capacity for repurchase.
From an M&A point of view.
Call it between four and 500 million today, but it grows pretty quickly once we get towards the end of 2020 can you can you can envision actually being double that size by the end of the year.
With projected EBITDA levels and so forth so.
From a repurchase point of view, it's going to be it's going to be lower than that given you don't have any acquired EBITDA, but.
The short answer is with that kind of M&A capacity, you can envision a decent amount of repurchase to the extent we can.
Locate any any sufficient opportunities for that capital.
Okay. That's helpful and one last quick one on.
Yeah, the CIRCOR I announced acquisition here.
Thank you if I heard you correctly that's.
Contribute about 70 million to sales this year and Max you talked about that mostly being a replacement business.
But I think if you if you kind of looked at.
The release that that business might have been in the low eightys a few years ago. So it seems like it's been down could you maybe just elaborate on what's going on there and what kind of.
Growth profile, you would expect for that for that business is is it similar to a fluid handling segment overall.
Yes, I think that's what you can expect similar.
To the existing end markets.
I think it's been challenged with general end market conditions to date, we've got a nice adjacent to here with critical applications same end markets and customers as our.
Process valve business and.
Focused on chemical petrochemical.
50% MRO.
Nice margins, just just a solid business.
And we think that in addition to just being a nice tuck in the right value.
As we think about what crane can bring.
Instrumentation and sampling is the global presence, we just have a slightly stronger support structure globally.
Saudi in particular, we're looking at accelerating some.
Enhanced localization that we already have well underway. So thats. Just one example of how we think we're going to bring more as a combined entity.
That makes sense thanks, guys.
Thanks, David.
Thank you. Our next question is coming from Britain Lindsay from vertical research partners. Your line is alive.
Hey, good morning, everyone.
Good morning, just wanted to come back to fluid handling into orders up 1% on a two year stack of many similar similar level of the Q3. So it doesn't appear there is this sharp erosion in the business could you just characterize the customer tone expectations for capital budgets. This a little bit more color on your market outlook for 2020 by by vertical.
So yeah I would say.
I would agree with you there's not some.
Inflection point here that overly negative by any means when we look across the opportunities the funnel the funnel of projects small and large and whatever they might be they.
Our.
I would say consistent with what we've been seeing coming out of a field during the coming out of Q3 through Q4 now as we look at our plans for 2020 so.
Chemical I would say theres some stability there the markets.
Perhaps just a little bit down, but not not in any significant way.
Our same with general industrial Wood, I would sort of pack those two together refining not a whole heck of a lot of.
Real momentum, it's I would say also consistent.
Not particularly strong I would say if I was to.
Compare that against the other two that I just mentioned the other two or perhaps a little bit stronger 19.
So I would say just overall.
No significant inflection point down is just a modest market decline that we are projecting in process and we're offsetting it with share gains we're going to give you more color Brett on in less than a month away and triggered 27th bread Ellis will give a little more detail by by vertical okay. Great and then maybe just one more in fluid handling so the 10 million of incurred.
Metal restructuring are doing how's that feather in over the next couple of years I guess, what's the what's the embedded assumption for 2020, because it looks like you're obviously still looking for some margin expansion there.
Yes, most of those savings almost almost all of it is going to be not in 2020. So that most of the act activity is going to take place to actually restructured the business next year and even into.
The following year, so it'll be all those savings are substantially outside of 2020.
Thats helpful. Okay. Thanks, a lot guys.
Thanks, Chris. Thank you as a reminder, its star one to be placed in the question Q. Our next question is coming from needs and Jones from Stifel. Your line is allies.
Hey, guys.
Yes.
On that that crane currency accretion target.
2021.
You guys are on target.
Sure.
Yes.
Yes, so I think Nathan what Weve, what we've been saying in that regard is that we'll have our cost base set up to ensure that we could hit that dollar by 2021.
No I would say.
The timing in terms of when the volumes are there for us is a little bit less clear eyes as as we've talked about as a bit of lumpiness in the business.
But without question our cost base is set up for us to achieve that dollar by 2021.
Okay. Thanks Nevertheless.
Okay. Thank you. Thank you we reached end of our question answer session I'd like to turn the floor back over to Max for any further closing comments.
Thank you all for joining the call today, we have some temporary headwinds this year, but I'm excited about our outlook and I believe crane is extremely well positioned for the future I cannot say enough about our incredible management teams across the globe and across our organizations I look forward to seeing many of you at our Investor Day event February 27th where I will share with you more about how we think about our busy.
This is in our portfolio and how we see an evolving over time and the words of late great Congressmen and civil rights advocate a likely Cummings you must have confidence in your competence.
A crane I assure you we have both extremely competent across our businesses and confident in our path in future.
Thank you for your interest in Crane have a great day.
Thank you that does conclude today's teleconference. You may disconnect. Your lines. This time and have a wonderful day, we thank you for your participation today.