Q3 2022 Crane Holdings Co Earnings Call
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Greetings and welcome to the Crown Holdings Company third quarter 2022 earnings call. At this time, all participants are in a listen only mode.
<unk> and answer session will follow the formal presentation.
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I'd now like to turn the call over to Jason Feldman, Vice President of Investor Relations. Thank you you may begin.
Okay. So thank you.
Greater and good day everyone.
We've been having some technical issues with the provider if anyone has any issues. Please email me directly and we'll sort them as soon as we can welcome to our third quarter 2022 earnings release Conference call I'm, Jason Feldman, Vice President 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.
We will start our call. This morning with a few prepared remarks, after which we will respond to questions. Just a reminder, that the comments we make on this call 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'll be using some non-GAAP numbers, which are reconciled to.
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 <unk> dot com in the Investor Relations section now, let me turn the call over to Mark. So let me just verify here Jason first we've had a provider had some technical issues that apparently we Daryl if you're still there the webcast is not being.
A quick reminder, I am here I could hear coming through the webcast I do apologize.
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We appreciate your patience.
Thank you Jason Good morning, everyone. Thanks for joining the call today.
Hey, I want to lead off with just a thanks to our global Crane team for another strong quarter with solid results across the board.
Third quarter, adjusted EPS was $1 86, consistent with our expectations and our prior guidance commentary.
Adjusted EPS declined 12% 12 cents compared to last year, but operationally, we had a very strong quarter as the EPS decline was due to the known 16 cent impact from the May divestiture of Crane supply.
And in 19 cent impact from comparison against an unusually low tax rate last year adjusting for those items adjusted EPS increased 14% compared to last year.
Core sales growth of 2% was impacted both by supply chain constraints and the extremely challenging comparisons for the payment and merchandising technology segment remember that the third quarter of last year was an all time record for sales at payment and merchandising.
Notably general demand indicators remain very strong core year over year orders increased 10% and core year over year backlog increased 26%.
Demand remained strong and nearly all of our core markets with continuing strong trends even in these uncertain global macroeconomic times.
The overall message both regarding operations and the market environment is really unchanged from last quarter.
Clearly continued momentum with yet another quarter of strong results continued differentiated execution in a challenging environment and continued success driving accelerating growth despite supply chain constraints.
The environment is similar to what we saw three months ago with continued robust demand across our end markets.
As always we continue to carefully watch for any signs of softening.
But the order rates and backlog I cited earlier point to continued strength without any notable signs of slowing from our industrial customers and suppliers.
The supply chain, including material and component availability remain most challenging, but stabilizing and our aerospace and electronics segment with general signs of modest improvement in all other segments, but still consistent with the outlook. We provided since the start of the year.
From a cost inflation perspective.
As you can see from our continued margin strength, we've been appropriately assertive with pricing actions across all of our businesses and we continue to fully offset the impact of inflation on both a dollar and margin basis.
Overall, we planned appropriately when we entered 2022 and we are confident in our narrowed guidance range.
In addition to excellent execution in 2022.
We remain intensely focused on all of our strategic initiatives driving growth advancing technology to position our businesses for the future and.
In preparing for the separation into Crane company and Crane NXT.
Regarding the separation everything is on track and progressing towards our targeted early April 2023 separation date and.
And we continue to firmly believe that the separation will unlock shareholder value.
And permit each post separation company to optimize investment and capital allocation and further accelerate growth.
Notable progress has been made on several fronts. We have already responded to the first round of comments from the SEC on our initial form 10 submission.
We expect that the form 10 should be publicly available for the first time in December .
We are making significant progress on the mechanics of the separation.
Our organizational design for both companies and filling key roles.
We are continuing to work on our capital structure plans now.
Now substantially simplified following the elimination of our specialist liability.
Both companies will have significant financial flexibility after the separation with more than $1 billion of M&A capacity at each crane NXT and Crane company from day one.
And I'm sure you all saw our announcement last week about the selection of Aaron's sake, as the president and CEO of Crane NXT.
I am extremely excited about Aaron's appointment and highly confident that he is the right leader to embrace the best of <unk> culture, and the Crane business system, while moving NXT strategically in new directions.
Aaron brings an impressive pedigree of educational and professional experiences along with a proven track record of driving innovation to accelerate long term growth and delivering strong operational results as.
His experience and fostering a high performance teams.
Passion for driving breakthrough innovation make him a perfect fit for this role and an excellent steward of cranes culture.
The Crane Board search committee met with many top candidates in an extremely competitive process and we are confident that Aaron has the perfect background and experience to help create NXT continued executing on its extremely strong and profitable core business.
I'll concurrently pursuing new growth opportunities.
I look forward to seeing him successfully leverages experiences from two prior spinoff transactions in prior success, diversifying and expanding portfolios into adjacent high growth markets with Crane NXT.
Aaron is working at transition was present organization and will join US on November 28th.
Onboarding processes have already begun as well as strategic review deep dives moving forward.
Aaron will join US on our January 24th earnings call to present, an update on Crane NXT and answer questions. Moreover, Aaron will be helping me in preparing for our March Investor Day, and Roadshow stay tuned for more on those specific dates.
So in summary, excellent execution all efforts on track.
At this point I'll turn it over to rich for some additional financial commentary.
Thank you Max and good morning, everyone. My thanks, as well to our teams in all of our associates globally for delivering another quarter of strong results.
I will start off with segment comments that will compare the third quarter of 2022 to 2021, excluding special items as outlined in our press release and slide presentation.
At Aerospace <unk> electronics sales of $167 million decreased 1% compared to last year.
Segment margins of 16, 9% were lower compared to 19, 3% last year, primarily reflecting less favorable mix and lower absorption on reduced volumes, partially offset by strong productivity.
Pricing offset fully the impact of inflation in the quarter.
Core orders increased an impressive 30% compared to last year end backlog increased 24%, but sales remain constrained by material availability consistent with conditions across the aerospace industry and supply chain.
Sales improved sequentially from last quarter by 4% and we expect further sequential improvement in the fourth quarter as the supply chain constraints slowly improve and we expect continued but gradual improvement throughout 2023.
In the quarter total aftermarket sales declined 3%.
Commercial aftermarket sales increased 16% led by growth in spares and repair and overhaul <unk>.
Commercial aftermarket demand is very strong reflecting continued improvement in flight hours and high utilization of age of an aging fleet as new aircraft deliveries are not ramping up as quickly as the demand due to the supply chain environment.
Military aftermarket declined due largely to timing and supply chain constraints, although orders for military spares were very strong in the quarter.
<unk> sales were flat year over year with 2% commercial growth offset by a slight decline in military OE sales.
While sales were flat demand is very strong and will be a tailwind as the supply chain eases throughout 2023.
Looking ahead, we expect a sequential increase in both sales and margins for the fourth quarter.
To put the present supply chain constraints relative to demand in perspective and.
In an unconstrained environment, there is demand at our current backlog and order parent patterns to support mid to high teens sales growth in 2023.
Based on the incremental content, we have one on current and new platforms that type of growth in 2023 would be followed by high single digit growth for the remainder of the decade.
We are also confident that our cost base is properly aligned with demand and that we can return to the 21% to 24% margin range on sales comparable to 2019 levels of about $800 million with incremental sales beyond that leveraging in the high 30% range.
While the situation evolves daily we do expect the supply chain constraints to ease progressively over the course of next year, but we don't expect to be in a fully unconstrained environment until at least 2024.
We will have a better handle on 2023 growth rates after our normal plan process and the final months of this year and will communicate segment guidance in January .
Regardless of the present macroeconomic concerns globally, we see continued strong commercial aerospace demand heading into 2023.
Moving to process flow technologies sales of $250 million decreased 16%, but driven by a 20% impact from the may divestiture of crane supply and a 5% impact from unfavorable foreign exchange.
Core growth for process flow technologies was very strong at 9%.
Adjusting operating margins adjusted operating margins of 16, 8% were an impressive new record for the segment up 130 basis points from last year.
The margin expansion, primarily reflected strong productivity and pricing.
And pricing continues to fully offset inflation.
Compared to the prior year core FX neutral orders increased 13% and core FX neutral backlog increased 16%.
Sequentially compared to the second quarter core FX neutral backlog increased 5% with core FX neutral orders increasing 1%.
Leading indicators suggest that we will see strong continued growth throughout 2022 led by strength in chemical pharmaceutical and general industrial end markets.
From a market and geographic perspective.
America's MRO and distribution remained stable without any signs of slowdown.
Projects, particularly those for productivity enhancements debottlenecking and large maintenance programs have been very strong.
Greenfield activity, However remains limited.
And our municipal business in the United States is also very strong.
Trends in China are also strong and there seems to be some catch up from demand from a slower second quarter, which was impacted by Covid shutdowns.
Borrow activity is stable and we are seeing accelerating investments in projects, both greenfield and brownfield expansions, particularly for applications such as PVC bcm in MDI.
Europe has weakened a little sequentially on concerns over energy input costs and customer decisions related to global operating schedules, but year over year growth.
Growth rates have been fairly stable, we are beginning to see a few smaller sized and mid sized projects get traction largely expansion and debottlenecking, but no major projects or greenfield activity the.
The software project activity in Europe May result, in a shift to higher investment in other regions. For example, North America, and China, where energy and input costs are lower.
In this business, we do continue to see progressive improvement in the supply chain with material availability and lead times improving.
We expect a modest sequential decline in sales next quarter consistent with normal seasonality and some moderation in margins, but we continue to expect full year record margins of approximately 16%.
Moving to payment and merchandising technologies sales of $335 million in the quarter decreased 8% driven by a 3% decrease in core sales and a 6% impact from unfavorable foreign exchange.
Demand remains solid but comparisons were difficult against the record third quarter of last year, and we continue to expect solid mid single digit core growth for the full year.
Operating margins improved 330 basis points to a record 25, 9%, reflecting strong pricing and productivity, partially offset by the lower volumes.
And remember there is nearly 600 basis points of depreciation and amortization in this segment really very impressive performance from our team.
Forward looking demand indicators also remained very strong with 4% core order growth and 40% core backlog growth 40% of <unk>.
<unk> business is still supply chain constrained, mostly around the availability of certain electronic components.
But we are now beginning to see some improvement again in both availability and lead times.
Currency markets are behaving as anticipated and previously communicated.
Remember currency hit New records in both U S and international sales in the third quarter last year. So the full year 2022 will declined modestly as expected.
At CPI broad based strength continues with mid teens core growth. Our gaming business has been very strong vending continues to improve and the level of activity in the retail markets remains very positive.
We continue to see a proliferation of different solutions across the retail space, but the common theme is the need for productivity in an inflationary environment with labor shortages.
For the segment, we expect sales to increase slightly on a sequential basis from Q3 to Q4.
From a margin perspective, we do expect margins to moderate in the fourth quarter due to anticipated mix, but full year margins should be 24% or above exceeding last year's record levels.
And then engineered materials sales of $63 million increased 4% compared to the prior year operating profit margins decreased 10 basis points to 10, 8%.
Both was led by building products and transportation with RV related sales down in line with industry production rates.
Sales will decline sequentially in the fourth quarter, consistent with normal seasonality and.
And with margins down sequentially, along with the lower volumes.
Yeah.
Moving on to total company results.
Free cash flow was negative $439 million in the quarter as accounting rules require the onetime contribution for the August divestiture of asbestos liabilities as an operating cash outflow and we had additional onetime costs related to both the asbestos transaction on the separation.
Excluding those items third quarter free cash flow increased to $137 million from $108 million last year.
We believe that we are on track to achieve our full year adjusted free cash flow guidance of $350 million to $390 million after adjusting for onetime cash outflows related to our portfolio actions and the asbestos <unk>.
As I noted last quarter, it will be more backend loaded with.
Normal.
The normal given higher working capital related to the market recovering most notably some improving inventory and in many cases, we are making very conscious deliberate decisions to add inventory in the near term to best protect our customers.
Our balance sheet is in extremely good shape by the end of the year, we expect adjusted gross leverage towards the bottom of the two to three times Moody's gross debt to EBITDA target range for our current credit rating.
Turning to earnings guidance, we are maintaining the midpoint, but narrowing to a 14 <unk> range of $7 58.
To $7 72 for the full year, which implies fourth quarter adjusted EPS of $1 90 at the midpoint.
That's a significant narrowing reflecting our high confidence in the midpoint.
It also reflects the fact that there are only two months left in the year with supply chain limiting too much upside in that short a period.
That said any unsatisfied demand in 2022 will just roll into 2023 prolong the cycle.
Given where we are in the year to hit the high end of guidance, which we don't have visibility into at this time would require a significant improvement in the supply chain very soon given transit and manufacturing lead times.
Path to the low end look similarly unlikely requiring either a significant worsening of exchange rates or an unexpected supply chain surprise.
I want to emphasize again that the only change to the midpoint of our earnings guidance for the full year was an increase of 45 in may when engineered materials was brought back into continuing operations.
On an operational basis, we have maintained guidance all year. Despite numerous headwinds specifically since guidance was originally issued.
We lost 25 of contribution from Crane supply, which was divested in may.
Foreign exchange has been an increasing headwind throughout the year and at current rates as of 15th headwind relative to original guidance most of it from rate moves during the third quarter.
The supply chain environment. This year has been far more challenging than most anticipated in January .
And there has been substantial inflation spanning materials freight labor and energy and other costs.
We have held our midpoint, while absorbing an offsetting all of these items are a real testament to the hard work and dedication of our teams around the world and the strength of the Crane business system and our execution continued.
Continued outstanding performance and a solid outlook and even more exciting times ahead, as we enter 2023 and complete the separation.
And a special shout out to the corporate team that is supporting numerous work streams required to enable the successful separation we.
We are all very energized with the progress that has been made to date and the opportunities that we are unlocking and pursuing every day.
Operator, we are now ready to take our first question.
Thank you we will now be conducting a question and answer session I would like to ask a question. Please press star one on your telephone keypad.
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Our first questions come from the line of Matt Summerville with D. A Davidson. Please proceed with your questions.
Thanks, Good morning, maybe.
Maybe first start with the payments segment in the backlog growth there rich I think you mentioned up 40% year on year can you parse out a little bit maybe a little bit more detail around.
How much of that's being driven by CPI versus crane currency, and obviously that backlog as well well above prior peak.
How much of that is market versus market share and then I have a follow up on that business yet.
First Matt on the split and I'll, let rich go from there.
It was somewhat more on the CPI side than the currency side, but they were both up.
Well, well well into the double digits.
Yes.
Going ahead, there as well so.
Nothing more to add to that from what Jason was saying I would say on the currency side.
We continue to see nice wins internationally.
We're making great continue to make great progress I forget the number of new denominations were going to have this year I'm sure. We'll we'll announce that in January at the end of the at the end of the year when we recap.
And on the payment side.
We're continuing to make excellent progress on all initiatives in retail.
North American gaming continues to be a nice success for us we're continuing to take share actually in that in that area as well.
As we mentioned in the prepared remarks vending is also.
We're making good traction there in terms of year over year growth in the backlog so.
It really does kind of span across all of them and.
Really in line with the theme that we've outlined on the payment side in terms of productivity and labor shortages driving a lot of demand right now in the market.
And then just as a follow up sticking with payment maybe just two quick ones, whether or not you guys. Maybe have an early read on what the federal government current order might look like for its fiscal 'twenty three seem that fiscal 'twenty three for the government has already started and then maybe if you can talk about whether or not.
You're starting to see some early successes with some of the products you've been launching in product authentication.
Yes Max.
<unk> so.
We don't have an official.
<unk> order yet from the fed but.
I think it's going to be in a similar range.
We expect to see a range.
And a lot of uncertainty the desire is for more I think it's going to be similar to this year's story, which is.
Bep somewhat constrained not only with manufacturing.
<unk>, but also ongoing trials. So there is tremendous work being done that we're helping to support.
On the next series and Thats cutting into some of the capacity as well so the best we can say right now.
Similar to <unk>.
22, probably with a range desire for more.
All good news long term, though is what I would directionally say also on successes.
Yes.
With her team is doing a great job on product authentication I think theres some.
New opportunities I look forward to chatting about that we continue to have trials approvals.
Look to double that business again next year.
Some some significant wins here coming up.
Very excited.
Great. Thank you guys.
Yes, Thanks, Matt.
Thank you. Our next question is coming from the line of Damian Paris with UBS. Please proceed with your questions.
Morning, David.
Good morning, everyone.
Good morning wanted to ask you first about.
Good morning.
The PMT segment.
I think you had implied in your prior guidance of volumes would be moderating maybe down slightly in the second half of this year.
Could you just elaborate on whether that somewhat.
To what extent, that's fairing better than you had expected and.
When you look at the 13% order growth, which is pretty strong.
Could you, possibly break that out between volumes and price.
Yes, well I guess, what I would say is we are doing a little bit better in terms of overall sales progression in the year without a doubt.
Making the teams are making excellent progress progress, whether it's on new product development launches or pricing initiatives really it. So it really does span across across the board.
No.
I would say most most of what we're seeing right now.
Is is price at this point, but the backlog feels I think really good is we're setting ourselves up here for 2000 and for 2023 and it really spans across all areas and PFT from.
I mentioned municipal in my prepared remarks, but also chemical pharmaceutical industrial demand in.
And the process side of the business.
Okay great.
And just a follow up on the backlog discussion.
For PMT, you mentioned that 40%.
I know currency right that that's you've got pretty good visibility there, but on the on the payment side.
Just curious that is that is the area of the business. It has tended to be probably a little bit more.
Macro sensitive.
In past cycles. So.
How much confidence do you have that if we are in a recessionary scenario next year debt.
Kind of that backlog those orders that you've won on the on the payment side well, we'll hold firm or is there some possible risk of it.
Deferral or cancellation there.
Well theres always risk Damian, but the strength that we see in gaming continues to people continuing to enjoy getting back out.
Travel.
It continues on the retail side I think even in the.
Recessionary environment I think the pressures. This is very unique cycle with numerous pressures I think.
Productivity drivers wage inflation.
The difficulty of.
Finding labor is driving a productivity trends that we believe retail retailers will continue to invest them globally for the long term, including through a down cycle now it depends on how severe and significant that is but we think that trend.
Continues.
Yes, and I would just say, particularly on the retail side a lot of the exposure. There when you think about where youre seeing automation, it's not an highly discretionary areas of retail typically.
The sort of retailers that are participating right. So there's always going be some macro sensitivity but.
A lot less on the retail side and on the gaming side remember a lot of that growth has been share gain.
So.
We feel pretty good about next year.
Understood. Thanks, guys I'll get back in the queue.
Jamie Thanks.
Thank you. Our next question is come from the line of Nathan Jones with Stifel. Please proceed with your questions.
Well Nathan good morning, everyone.
Good morning on the on the A&H business.
Some uncertainty there in 'twenty, three with supply chain, but I think they.
She said there's demand for mid teens growth.
Better next year, and then high singles from from there. If we look at that maybe over a two year period, we should anticipate 20% to 25% growth slide 24 over 'twenty. Two and then did you say you anticipate high thirty's incremental on that growth.
Yes, I did yes, I think your math right.
It might be.
Tad on Thats, probably about right actually so those are the incrementals and the Incrementals is yes.
Okay.
I wanted to ask one on something that was written in the press release noted activity on a number of potential acquisitions.
Are you thinking there could be anything of scale completed before the spin and if so how would that impact the capital structures of each company.
Nothing of scale prior to the spin date that were not going to put the spin at risk at all and keep the focus on what we have in front of US I think there is a significant.
There might be some very some small strategic opportunities, but even that.
Is questionable, but the funnel is continues to be very very robust.
On both the Crane and NXT side, a lot of planning a lot of continued work and a potential scale would come after.
M&A of scale would come after separation.
Fair enough.
I guess, you're probably not going to tell us exactly what the capital structures are likely to be at this point, but I think you said.
This company is about $1 billion of M&A capacity, and they're going to be relatively close to the same kind of EBITDA. So should we be just that rule of thumb kind of thinking that both companies will have roughly the same leverage when they come out.
I think we can give a little more on the capital structure, yeah. So Nathan so maybe I'll start with just the overall net debt to EBITDA targets that we had talked about previously.
At Crane company being just under one times net debt to EBITDA and at.
Premium exceed about one five times.
So nothing has changed with respect to that.
In terms of sharing just progress on marching towards those numbers come April .
Sense is that we've got some pretty well we've got some pretty good clarity with respect to the nature of that debt. So we would wind up raising some form of a term loan.
To be determined on sort of a tenure and so forth but.
Call it $300 million in term loan on the Crane company that will enable us to dividend.
Moneys over to Crane NXT in order to satisfy our to.
Take down the 2023 bonds that are outstanding there on a near term maturity basis.
And we're also making progress with respect to.
Planned revolving credit facilities that we need to set up at both facilities at both companies.
They would also be a minor I would say.
Little bit of a smaller term loan to refinance the existing $400 million that we took out to satisfy asbestos that's going to remain on NXT.
So all of it progressing I would say.
Hopefully a little bit more color there for you to understand we think we're going to the terminal commercial banking market versus.
The debt issuing debt securities at this point.
Yeah.
Just one last one on supply chain disruptions that youre seeing getting product delivered coming more from you all supply chain to you or other issues in your customers' supply chain that are inhibiting them, taking delivery of products you're producing.
Say the question one more time I, just want make sure I understand.
On the supply chains are you finding more impact coming from you all supply.
And we need to produce products all your customers' supply chains overall inhibiting their ability to take delivery products.
More much more so our supply chain.
Then the customers.
In terms of pushing off on existing orders or deliveries.
<unk> stabilized so again just in summary, Amy.
Went into it later than the rest.
Had supply chain challenges.
Come out a little later as well lagging.
Certainly seeing stabilization.
Very very extended lead times that we continue to work through.
So a very similar environment, where you have new surprises in any given quarter that your team is doing an incredible job working through and around.
Unlike anything else the rest of the industry is seeing I mean, we're triangulating across customers working closely with customers in many cases partnering trying to work through these issues together.
We are seeing clearly in any.
Stabilizing and I think it is going to slowly improve into 2023 across the rest of our environment.
Our payment and merchandising technologies on the electronics Passives actives continues to be problematic, but improving.
And in general across the board outside of any.
Lead times are coming down material availability more reliably coming in so we are seeing those those signs of improvement.
Hopefully that helps thanks very much for taking my questions.
Thanks Nathan.
Thank you as a reminder, if you would like to ask a question. Please press star one on your telephone keypad.
Our next questions come from the line of Kristine <unk> with Morgan Stanley . Please proceed with your questions.
Hey, good morning, guys.
Kristina <unk> morning.
Max you mentioned that the search for the CEO for <unk> very competitive now I know, it's a little early and Aaron Hasnt fully on boarded yet, but can you provide some color on what you and the board liked about Aaron's vision for the business.
What we like is he.
He's got an incredible educational background number one material science Phd.
Yeah.
In the.
Micro optics business alone.
It is a material science business, but the breadth of his experience as the number of.
Product solutions background been with World class organizations.
So he is incredibly.
<unk>.
It has a fantastic general back.
Background also from an operating standpoint.
With the Danaher afford a volunteer pedigree very consistent with the crane business system mindset cadence disciplined execution.
And there'll be a consistency there. In addition, I think what what we really liked about Aaron's thinking was.
Understanding.
How in this environment to drive this core business forward.
The incredible growth trajectory, we have core four.
For decades to come while also exploring adjacencies that will take crane NXT into very exciting growth vectors as we move forward and that is the focus of these next five months.
For Erin as well as the board.
To really continue to solidify that vision as we move forward I think it's incredibly exciting incredibly exciting time.
I am personally very very.
<unk> energized.
By where we are at this at this point I think everything is playing out exactly as planned.
Great. Thanks for the color Max and on the on the M&A front. You mentioned that you are actively pursuing a number of potential opportunities can you provide color on where youre seeing the strongest opportunities and in terms of timing does this mean, we could see some of these opportunities materialize before the separation and.
Is that the case for both businesses.
Now most likely not before the separation Christine will have to be smaller than.
But very strategic for us to do that we have.
Our sight set on various staying very focused on the separation, but our funnel is very full we continue to work a number of opportunities both.
Across PFT in terms of core at near Adjacencies A&D core near Adjacencies.
All sizes.
With some very large.
Opportunities that could add significant scale.
That we would potentially pursue quite.
Quite soon after separation nothing's given nothing.
There is certain in the M&A environment, but again, we're working the process hard and as I've just described on the NXT side.
We have an existing funnel that we will be continuing to in the next five months refining even further the strategy for us.
Very meaningful targeted strategic.
Strategic capital deployment as we move forward or is that entity moves forward with under Aaron's.
Leadership, Steve well.
Well, great well. Thank you very much for the color I know you answered that question I was just trying to see if there's more color.
I could get a little bit more but I really appreciate it. Thank you.
Nice try Christy nice.
Thank you Christine.
Thank you our next questions come from the line of Elizabeth Grenfell with Bank of America. Please proceed with your questions.
Hi, Good morning, Good morning, I just wanted to clarify one question on.
Aerospace piece I know you said that you expect mid to high teens growth next year ex supply chain issues, but how does that jive with supply chain challenges continuing into 2024. So what are you thinking about the net impact would be on.
On on.
On sales next year within that I.
I think we need to just clarify that.
A little bit Elizabeth I think what you meant was unconstrained, yes, so absent supply chain constraints.
When you look at our backlog you look at our order flow and what we think thats what that at mid teens.
But in terms of in terms of absent that and what should we expect given supply chain constraints. We're not we're going to definitely have some I think some nice growth next year, we're not really prepared at this point I think in January we will provide some good guidance obviously as we always do we're about ready to head in November Elizabeth to all of our businesses for our operating plan reviews and really.
<unk> thinking up with the teams to understand our expectations. So I think we're going to need.
I want to continue to just understand how supply chain progression through the balance of the year before we really dial in our expectations for 2023, but clearly.
At a high level, we do feel that's going to continue to slope slowly I mean, its only stabilized right now in <unk>. So I think it's going to slowly improve through the through the first half.
Hopefully accelerating in the second half and we believe it will be on a more normalized level by 2024, that's our best thinking right now more to come when we give our guidance in January .
Okay, Great and then when you think about the drivers of the growth in the core orders within the aerospace segment for the quarter, what what are the different driving the different pieces that contributed to the strong growth.
Yes, so the commercial recovery clearly.
One of the elements, that's driving both the core order growth of 30% in the backlog growth, but in addition to that we did see some excellent.
Continued progress I would say.
On the electrification front and strategic direction of investments, we've been making there so.
This is where we've been spending most of our time over the last five or six years in terms of technology development, we've talked about some of these really nice wins.
Our recently, particularly in the ground based radar.
Area in the quarter I would tell you that our defense power business, which is the high power business supporting that initiative had its best order growth order quarter I think ever.
We're continuing to see some nice traction there in <unk>.
All supportive of the 7% to 9% that we've been communicating for a while.
I'd also point to our lower power solution business, our modular power business that continues to frankly, just execute really really well and take share. So we saw some really nice order growth in that business in the quarter as well. So a combination of those three would be the big pieces.
Again commercial recovery and then really continued good success in empower.
Great. Thank you very much.
Thanks Elizabeth.
Thank you. Our next question is come from the line of gaming in Paris with UBS. Please proceed with your questions.
Hey, guys just two quick follow ups.
First is on.
Yes, just curious.
How much price carryover you might be expecting across the business.
Into 2023, given the actions you've already taken this year.
Yes. So we are absolutely going to have price carryover next year I think Damian.
Similar to the comment.
We just answered with respect to the next year's demand, we're going to be digging in pretty deep here in the month of November and really get that that number solidified, but we absolutely will have some carryover, but remember we did start off the year pricing right and it's just it wasn't like we started in the second half and we're going to get a full half recovery sorry overlap.
But we do absolutely think will have.
Some healthy.
Gary over impact, but it's not going to be like.
Double.
Carrying over 50% or something like that.
Okay.
And then just on corporate expense it seems like you've been running a bit higher than.
And then.
70 million $75 million guide, sorry, if I missed it but what's your expectation for corporate for the year now.
It's <unk> it's <unk>.
Let me pull up a number but it's unchanged from the prior guidance.
Right, we're trending a little bit higher fourth quarter should be a little bit better, but no change to the outlook for corporate.
Okay I appreciate it thanks guys.
Thanks, Tim.
Thank you there are no further questions at this time I would now like to turn the call back over to Max Mitchell for any closing comments Super. Thank you operator, another quarter with solid performance and further steps on our path to separation to drive further shareholder value pushing ourselves forward into the future while driving excellent results in the <unk>.
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As the late and respected Mikhail Gorbachev once said if you do not move forward sooner or later you begin to move backward. This is the essence of our culture at Crane in the Crane business system celebrating our progress to date, while constantly pushing ourselves for new growth vectors and improvement.
And what progress we've made just in the last year, simplifying and strengthening our portfolio driven by our firm commitment to shareholder value creation. It remains an exciting story and I look forward to sharing updates with all of you over the next several quarters, along with Erin as both companies continue to drive progress profitable growth and shareholder value.
Separation. Thank you for your interest in Crane have a great day.
Thank you. This does conclude today's teleconference. We appreciate your participation you may disconnect. Your lines at this time enjoy the rest of your day.