Q1 2024 Crane Co Earnings Call
Hi.
[music].
Great.
Okay.
Speaker Change: Welcome to the Crane Company first quarter 2024 earnings conference call. At this time, all participants are in a listen only mode.
Speaker Change: If you would like to ask a question at that time. Please press star one on your telephone keypad.
Speaker Change: At any point. Your question has been answered you may remove yourself from the queue by pressing star two.
Speaker Change: Others can hear your questions clearly we ask that you. Please pick up your handset for best sound quality.
Speaker Change: Lastly, if you should require operator assistance. Please press star Zero I would now like to turn the call over to Jason Feldman Senior Vice President of Investor Relations Treasury and tax. Please go ahead.
Jason D. Feldman: Thank you operator, and good day, everyone welcome to our first quarter 2024 earnings release conference call on our call. This morning, we have Max Mitchell, our chairman, President and Chief Executive Officer, and Rich Maue, Our executive Vice President and Chief Financial Officer, who will start off our call with a few prepared remarks, after which we will respond to questions. Just a reminder, that the comments we make on this.
Jason D. Feldman: 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 will be using some non-GAAP numbers, which are reconciled the comparable GAAP numbers and tables at the end of our press release and accompanying slide presentation, both of which are available on.
Our web site at Www Dot <unk> dot com in the Investor Relations section now, let me turn the call over to Max. Thank you, Jason and good morning, everyone. Thanks for joining the call today.
Max H. Mitchell: You had another impressive quarter with results outperforming expectations adjusted EPS was $1 22, driven by 5% core sales growth.
Max H. Mitchell: Along with strong leading indicators for orders and backlog, both up 11% compared to last year, we're off to a great start in 2024.
Max H. Mitchell: Based on that strength, we are raising our full year guidance by <unk> 20.
Max H. Mitchell: To a range of $4 75.
Max H. Mitchell: To five five which reflects 14% EPS growth at the midpoint.
Max H. Mitchell: That's a high confidence guidance that we have direct line of sight to delivery, assuming somewhat muted industrial activity and continued but gradual improvement in the aerospace <unk> electronics supply chain.
While this is our best thinking today, we believe there may be upside as the year progresses, if those two assumptions prove conservative if so.
Max H. Mitchell: We are structured to meet any unexpected changes in upside demand.
Max H. Mitchell: There's also a potential upside to guidance from capital deployment. If we are successful with further M&A in the quarters ahead.
Max H. Mitchell: On that front. In addition to our strong first quarter results I am pleased to announce that we signed an agreement to acquire prior works as a strategic bolt on in our process flow technologies segment found.
Max H. Mitchell: Founded in 2009 based in <unk> Valley, California.
Max H. Mitchell: <unk> is a leading supplier of vacuum insulated pipe systems for hydrogen and cryogenic applications, which is highly synergistic with the ongoing organic development of our cryo flow brand.
Max H. Mitchell: Cryo works has an annual sales of approximately $28 million with approximately 5 million of adjusted EBITDA.
Max H. Mitchell: With a purchase price of $61 million before tax step up benefits with a net present value of approximately $11 million we.
Max H. Mitchell: We expect that transaction to close at the end of this month.
Max H. Mitchell: <unk> significantly and immediately expands our portfolio of cryogenic products with solutions that will help us access to a number of high growth markets, including complex insulated piping for space launch applications insulated piping and balance required genetic applications in a number of electronics semiconductor and manufacturing testing.
Max H. Mitchell: Patients as well as transportation and transfer solutions for cryogenic alternative fuels.
unknown: Co. Co. Co. [inaudible]
Operator: Welcome to the Crane Company first quarter 2024 earnings conference call. At this time, all participants are in a listen only mode. If you would like to ask a question at that time, please press star one on your telephone keypad. If at any point your question has been answered, you may remove yourself from the queue by pressing star two. So that others can hear your questions clearly, we ask that you please pick up your handset for best sound quality. Lastly, if you should require operator assistance, please press star zero. I would now like to turn the call over to Jason Feldman, Senior Vice President of Investor Relations, Treasury, and Tax. Please go ahead.
Max H. Mitchell: Moreover, we will utilize this team's design expertise to accelerate development of our cryo flow solutions targeting traditional cryogenic applications and new mobility and transportation applications. We expect this acquisition to exceed 10% ROIC.
Max H. Mitchell: With approximately 10% of EPS accretion, excluding intangible amortization by year five.
Another acquisition that is an excellent fit strengthening our existing business and fully aligned with our strategy.
Jason D. Feldman: Thank you, operator, and good day, everyone. Welcome to our first quarter 2024 earnings release conference call. On our call this morning, we have Max Mitchell, our Chairman, President, and Chief Executive Officer, and Rich Maui, our Executive Vice President and Chief Financial Officer. We'll start off our call 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.
Max H. Mitchell: Personal thanks to Donna and Tim mast and Tim mast junior for their help and assistance throughout the diligence process and entrusting their outstanding organization to Crane moving forward.
Max H. Mitchell: And we look forward to working closely to further investing and driving growth with the entire cryo works team.
Max H. Mitchell: Strong start to the year, both in terms of results and with two acquisitions in the first four months with.
Max H. Mitchell: With continued progress on our existing M&A funnel and we expect additional opportunities to become actionable over the next year, primarily smaller and mid sized transactions.
Max H. Mitchell: While we are working on a number of transactions at the moment, we see more opportunities at the end of 'twenty four than we do in the next several months given the expected timeline for known processes.
Jason D. Feldman: 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.craneco.com in the investor Now, let me turn the call over to Max. Thank you, Jason. Good morning.
Max H. Mitchell: Thank you, Jason. Good morning, everyone.
Max H. Mitchell: Our annual Investor Day event is scheduled for May 14th at 830, a M. In New York City, and we look forward to updating you on our progress delivering on the strategy and vision, we laid out at last year's Investor Day, specifically, we remain firmly confident in a 4% to 6% long term core sales growth rate from the resilient and durable businesses with solid aftermarket.
Max H. Mitchell: Thanks for joining the call today. Yet another impressive quarter with results outperforming expectations. Adjusted EPS was $1.22, driven by 5% core sales growth, along with strong leading indicators, court orders, and backlog both up 11% compared to last year. We're off to a great start in 2024.
Max H. Mitchell: Substantial operating leverage on top of already solid margins today that should lead to double digit average annual core profit growth with potential upside from capital deployment.
Max H. Mitchell: Based on that strength, we are raising our full-year guidance by 20 cents to a range of $4.75 to 505, which reflects 14% EPS growth at the mid. That's a high-confidence range that we have a direct line of sight to delivering, assuming somewhat muted industrial activity and continued but gradual improvement in the aerospace electronic supply chain. Well, this is our best thinking today.
Max H. Mitchell: And with virtually no debt no net debt and the capital deployment opportunity is significant.
Speaker Change: Hey, without taking too much away from Investor day, where both Alex and Jay will provide more insights on recent wins I would like to call out a couple of in the quarter, starting with aerospace <unk> electronics.
Max H. Mitchell: We believe there may be upside as the year progresses if those two assumptions prove conservative. If so, we are structured to meet any unexpected changes in upside demand. There's also potential upside to guidance from capital deployment if we are successful with further M&A in the quarters ahead. On that front, in addition to our strong first-quarter results, I'm pleased to announce that we signed an agreement to acquire CryoWorks as a strategic bolt-on in our process flow technology segment. Founded in 2009 in Chirupa Valley, California, CryoWorks is a leading supplier of vacuum insulated pipe systems for hydrogen and cryogenic applications, which is highly synergistic with the ongoing organic development of our CryoFlow brand.
Speaker Change: Particularly excited that one of our key defense customers has secured an initial contract for a large base of radar program.
Speaker Change: Given our positioning on that program, assuming it moves to full rate production as expected we estimate that our lifetime sales for this new program will exceed $100 million.
Speaker Change: This also continues our winning streak in the space, where our high power converters have been selected for nearly every new ground based <unk> radar system developed in the last five years.
Max H. Mitchell: CryoWorks has annual sales of approximately $28 million with approximately $5 million of adjusted EBITDA, and with a purchase price of 61 million before tax step-up benefits with a net present value of approximately 11 million. We expect that transaction to close at the end of this month. Cryoworks significantly and immediately expands our portfolio of cryogenic products and solutions and will help us access a number of high-growth markets, including complex insulated piping for space launch applications, insulated piping and valves for cryogenic applications, and a number of electronics, semiconductor, and manufacturing testing applications, as well as transportation and transfer solutions for cryogenic alternative fuels.
Speaker Change: To date our awards in this application represent approximately $800 million in program lifetime sales and an area where historically prior to several years ago, we had no position.
Speaker Change: In addition, we are also confident we will soon secured multiple unit directional and bidirectional high power conversion wins on leading military land vehicles demonstrators with significant positions expected with all of the primes competing for major programs.
Speaker Change: We've talked previously about our product position for the XM 30, optionally manned fighting vehicle.
Speaker Change: Now seeing progress with the common tactical truck program as well.
There is another market, where we have not historically had content, but given our technology investments.
Speaker Change: Path and potential for roughly $700 million program lifetime sales.
Speaker Change: And our modular power business, we just launched the first phase of our new family of DC to DC converters cortex MLR.
Speaker Change: The new range of products has a wide input voltage range for high rise high reliability aerospace and military grade applications as well as radiation tolerant and radiation hardened versions for space applications.
Max H. Mitchell: Moreover, we will utilize this team's design expertise to accelerate the development of our cryo flow solutions targeting traditional cryogenic applications and new mobility and transportation. We expect this acquisition to exceed 10% ROIC, with approximately 10% of EPS decrement, excluding intangible amortization, by year five. Another acquisition that is an excellent fit, strengthening our existing business and fully aligned with our strategy. My personal thanks to Donna and Tim Mast and Tim Mast, Jr. for their help and assistance throughout the diligence process and for entrusting their outstanding organization to crane moving forward.
Speaker Change: This product family is being created on a single development platform that can be configured to serve many different markets and end user applications and voltage ranges.
Speaker Change: The full <unk> launch will be complete by the end of this year and will be followed by the launch of both medium and low power products called <unk> in late 2025.
Speaker Change: Moving to process flow technologies, a few highlights from the quarter include the great progress we've made with our high efficiency motor platform in the U S municipal water business as we continue to expand the range of our portfolio. We've had particular success with this motor platform and most recently with the largest frame size 75 to 120 horsepower range.
Max H. Mitchell: And we look forward to working closely to further investing and driving growth with the entire cryo works team. A strong start to the year, both in terms of results and with two acquisitions in the first four months. With continued progress on our existing M&A funnel, we expect additional opportunities to become actionable over the next year, primarily smaller and mid-sized transactions. While we are working on a number of transactions at the moment, we see more opportunities at the end of 24 than we do in the next several months, given the expected timeline for known processes.
Speaker Change: Houston wastewater treatment plants.
Speaker Change: Based on our success in the quarter, we are on track to doubling our sales from last year and this product segment.
Speaker Change: You may recall that last quarter I discussed a $5 million pharmaceutical order, we won with a new customer due to advances with our E X diaphragm technology.
Speaker Change: Of course, a higher temperature range and longer product life than the entrenched incumbent provider was able to meet.
Speaker Change: Our value proposition continues to resonate with our customers and we want another significant pharmaceutical project for a next generation cancer drug where the production process requires temperature ranges, where our products are differentiated and well suited.
Max H. Mitchell: Our annual Investor Day event is scheduled for May 14th at 8.30 a.m. in New York City, and we look forward to updating you on our progress and delivering on the strategy and vision we laid out at last year's Investor Day.
Speaker Change: We also continue to gain traction with commercialization of many new key products that we've discussed over the last few years. One example is the success we've had with the FTA Tri X a proprietary innovative triple offset valve with a breakthrough design that eliminates the traditional trade off between flow rate in sealing capabilities.
Max H. Mitchell: Specifically, we remain firmly confident in a 4 to 6 percent long-term core sales growth rate from resilient and durable businesses with solid aftermarket, substantial operating leverage on top of already solid margins today that should lead to double-digit average annual core profit growth with potential upside from capital deployment. And with virtually no debt, and no net debt, the capital deployment opportunity is significant. And without taking too much away from yesterday, where both Alex and Jay will provide more insights on recent wins, I would like to call out a couple in the corner, starting with aerospace electronics.
Speaker Change: So its introduction this valve has gained increasing acceptance, particularly in chlor alkali organics Olson and fertilizer applications.
Speaker Change: Introduced just two years ago in 2022, we're on track for significant order growth this year with orders on track to exceed $20 million annually by 2026.
Speaker Change: Very proud of our team and globally as we continue to drive our strategic vision with excellent execution.
Max H. Mitchell: I'm particularly excited that one of our key defense customers has secured an initial contract for a large AESA radar program. Given our positioning on that program, assuming it moves to full rate production as expected, we estimate that our lifetime sales for this new program will exceed $100 million. This also continues our winning streak in the space, where our high-power converters have been selected for nearly every new ground-based AESA radar system developed in the last five years. To date, our awards in this application represent approximately $800 million in program lifetime sales in an area where, historically, prior to several years ago, we had no position.
Speaker Change: Now, let me turn the call over to one of the most dynamic and exciting cfos in the industry with a passion for profitable growth and who puts the find back into finance, Mr. Richard Maue through more specifics on a quarter.
Richard A. Maue: More details on our guidance.
Thank you Max but I must say that I think you undersold, my excitement and passion and the words of Ron Burgundy, and the movie Anchorman Don't Act like Youre not impressed on kind of a big deal people know me I.
Richard A. Maue: I have many leather bound books in my apartment smells of rich mahogany, While center Wilson for those who do not know me I'm kidding, but I am embarrassed to say that I do enjoy that movie and good morning, everybody.
Max H. Mitchell: In addition, we are also confident we will soon secure multiple unidirectional and bidirectional high-power conversion wins on leading military land vehicle demonstrators, with significant positions expected with all of the primes competing for major programs. We've talked previously about our product position for the XM-30 optionally manned fighting vehicle, and we're now seeing progress with the common tactical truck program as well. There's another market where we've not historically had content.
Richard A. Maue: Another strong quarter, demonstrating accelerating core growth results with continued excellent performance across all businesses. Despite some persistent supply chain challenges that continue to impact the broader aerospace and defense industry.
Richard A. Maue: Core sales growth of 5% reflects continued strong demand and great execution in aerospace and electronics.
Max H. Mitchell: But given our technology investments, we see a path and potential for roughly 700 million in program lifetime sales. In our modular power business, we just launched the first phase of our new family of DC to DC converters called XMOR. This new range of products has a wide input voltage range for high reliability aerospace and military grade applications, as well as radiation tolerant and radiation hardened versions for space applications.
Richard A. Maue: Adjusted operating profit increased 6%, while that reflects leverage more muted than we typically see in our businesses. It was known and due to expected factors that we've previously discussed.
Richard A. Maue: First acquired sales always leverage mathematically at their operating profit margin level in the first year.
Richard A. Maue: Second we have a very challenging comparison, a process flow technologies to last year's record 23, 4% adjusted operating margins, which I'll discuss more in a minute.
Max H. Mitchell: This product family is being created on a single development platform that can be configured to serve many different markets and end user applications and voltage ranges. The full XMOR launch will be complete by the end of this year and will be followed by the launch of both medium and low power products called XMRT in late 2025. Moving to process flow technologies, a few highlights from the quarter include the great progress we've made with our high efficiency motor platform in the U.S. municipal water business.
Richard A. Maue: Adjusted EPS also beat our expectations and remember that comparing EPS to the prior year is challenging as our capital structure and related interest expense changed materially after the last after last year's separation transaction.
Richard A. Maue: From a quarterly perspective as I just mentioned there are also a number of timing differences comparing 2024 to 2023.
Richard A. Maue: That flatter in the first quarter of last year and created difficult comparisons and looking at our results in other way, our first quarter EPS run rate compared to full year 2023 reflects 14% adjusted EPS growth.
Max H. Mitchell: As we continue to expand the range of our portfolio, we've had particular success with this motor platform, and most recently with the largest frame size in the 75 to 120 horsepower range used in wastewater treatment plants. Based on our success in the quarter, we are on track to doubling our sales from last year in this product segment. You may recall that last quarter I discussed a $5 million pharmaceutical order we won with a new customer due to advances with our EX diaphragm technology that supports a higher temperature range and longer product life than the entrenched incumbent provider was able to meet.
Richard A. Maue: Importantly, leading indicators were also strong with core FX neutral backlog and orders, both up 11% compared to last year and as Max explained, notably better than expected our process flow technologies.
Getting into the details I'll start off with segment comments that will compare the first quarter of 2024 to 2023, excluding special items as outlined in our press release and slide presentation.
Richard A. Maue: Then I will comment that our 2020 for outlook for each segment and for our overall P&L.
Richard A. Maue: Starting with aerospace and electronics no change in end market conditions, which remain very strong on.
Max H. Mitchell: Our value proposition continues to resonate with our customers, and we want another significant pharmaceutical project for a next-generation cancer drug where the production process requires temperature ranges where our products are differentiated and well-suited. We also continue to gain traction with the commercialization of many new key products that we've discussed over the last few years. One example is the success we've had with the FK Tri-X, a proprietary innovative triple offset valve with a breakthrough design that eliminates the traditional trade-off between flow rate and sealing capability. Since introduction, this valve has gained increasing acceptance, particularly in chlor-alkali, organics, olefin, and fertilizer applications.
Richard A. Maue: On the commercial side of the business aircraft retirements remained very low due to high demand and limitations on aircraft deliveries.
Richard A. Maue: This resulted in an aging fleet that requires more aftermarket parts and service.
Richard A. Maue: And air traffic activity also remains strong.
Richard A. Maue: On the defense side, we continue to see solid procurement spending and a continued focus on reinforcing the broader defense industrial base, given the heightened global uncertainty today.
Richard A. Maue: Overall, just a solid demand environment with no signs of slowing anytime soon.
Richard A. Maue: That strong demand was reflected in our first quarter growth rates with sales of $226 million, increasing 25% compared to last year with.
Richard A. Maue: Introduced just two years ago in 2022, we're on track for significant order growth this year, with orders on track to exceed 20 million annually by 2026. Very proud of our team and globally as we continue to drive our strategic vision with excellent execution. Now, let me turn the call over to one of the most dynamic and exciting CFOs in the industry with a passion for profitable growth and who puts the fun back into finance, Mr. Richard A. Maue, for more specifics on the quarter and some more details on the guidance.
Richard A. Maue: It was 20% core growth and a 5% benefit from the <unk> acquisition.
Richard A. Maue: Despite continued high levels of sales growth, our record backlog of $792 million increased 23% year over year, including 15% core growth and an 8% contribution from the <unk> acquisition.
Richard A. Maue: Sequentially core FX neutral backlog increased 5%.
Richard A. Maue: By category and excluding the <unk> acquisition in the quarter total aftermarket sales increased 39% with commercial market aftermarket sales up 34% and military aftermarket up 53%.
Richard A. Maue: Thank you, Max. But I must say that I think you undersold my excitement and passion. In the words of Ron Burgundy in the movie Anchorman, don't act like you're not impressed. I'm kind of a big deal. People know me.
Richard A. Maue: OE sales increased 14% in the quarter with 16% growth in commercial and up 11%.
Richard A. Maue: I have many leather-bound books, and my apartment smells of rich mahogany. Well said. Well said. For those who do not know me, I am kidding, but I am embarrassed to say that I do enjoy that movie.
Richard A. Maue: In military.
Richard A. Maue: While the demand environment remains very strong we continue to remain somewhat supply chain constrained with steady, but gradual improvement over the last few quarters.
Richard A. Maue: And good morning, everybody. Another strong quarter demonstrating accelerating core growth results with continued excellent performance across all businesses, despite some persistent supply chain challenges that continue to impact the broader aerospace and defense industry. Core sales growth of 5% reflects continued strong demand and great execution at aerospace and electronics. Adjusted operating profit increased 6%. While that reflects leverage more muted than we typically see in our businesses, it was known and due to expected factors that we previously discussed.
Richard A. Maue: As we have discussed previously this is not just related to on time deliveries from suppliers, but the broader supply infrastructure spanning from raw materials components and labor, both availability and supplier employee turnover and employee experience levels.
Richard A. Maue: Areas of specific shortages continue to shift and evolve although overall component availability has modestly improved consistent with our commentary over the last few quarters.
Richard A. Maue: We do continue to make investments related to expediting shipments as well as projects to qualify new suppliers and add second sources, where it makes strategic sense.
Richard A. Maue: First, acquired sales always leverage mathematically at their operating profit margin level in the first year. Second, we have a very challenging comparison of process flow technologies to last year's record 23.4% adjusted operating margins, which I'll discuss more in a minute. Adjusted EPS also beat our expectations. And remember that comparing EPS to the prior year is challenging as our capital structure and related interest expense changed materially after last year's separation transaction.
Richard A. Maue: Adjusted segment margins of 22, 4% increased 150 basis points from 29% last year, primarily reflecting higher volumes productivity and favorable mix, partially offset by the supply chain related investments I just mentioned.
Richard A. Maue: Looking ahead to the remainder of 2024, we are raising our guidance to reflect the strong first quarter and our expectations for continued strength. We now expect core sales growth of 12% for the full year.
Richard A. Maue: From a quarterly perspective, as I just mentioned, there are also a number of timing differences comparing 2024 to 2023 that flattered the first quarter of last year and created difficult comparisons. Looking at our results another way, our first quarter EPS run rate compared to full year 2023 reflects 14% adjusted EPS growth. Importantly, leading indicators were also strong, with core FX neutral backlog and orders both up 11% compared to last year, and, as Max explained, notably better than expected at process flow technologies.
Richard A. Maue: Up from prior guidance of 10% core growth and we still expect our full year four 5% favorable benefit from the <unk> acquisition.
Richard A. Maue: That guidance assumes continued modest sequential growth over the next three quarters, albeit at a decelerating year over year growth rate as the comparisons become more challenging.
Richard A. Maue: We are also raising our full year margin guidance to 22% up from prior guidance of 21, 5% that does assume a slight moderation in margin rates, primarily because we don't expect the mix for the remainder of this year to be quite as favorable as the first quarter.
Richard A. Maue: Getting into the details, I will start off with segment comments that compare the first quarter of 2024 to 2023, excluding special items as outlined in our press release and slide presentation. And then I will comment on our 2024 outlook for each segment and for our overall P&L. Starting with aerospace and electronics, there was no change in end market conditions, which remain very strong. On the commercial side of the business, aircraft retirements remain very low due to high demand and limitations on aircraft deliveries.
Richard A. Maue: Margin guidance reflects core leverage excluding <unk> of approximately 37% a little higher than prior guidance overall on track for another outstanding year.
Richard A. Maue: From a cadence perspective sales rank will increase slightly sequentially across the full year with margins fairly steady over the next three quarters.
Richard A. Maue: Yeah.
Richard A. Maue: At process flow technologies, we remain very well positioned to continue outgrowing our markets and our market outlook is now a little bit more positive than it was over the last several quarters.
Richard A. Maue: This results in an aging fleet that requires more aftermarket parts and services, and air traffic activity also remains strong. On the defense side, we continue to see solid procurement spending and a continued focus on reinforcing the broader defense industrial base given the heightened global uncertainty today. Overall, just a solid demand environment with no signs of slowing anytime soon. That strong demand was reflected in our first quarter growth rates, with sales of $226 million increasing 25% compared to last year, with 20% core growth and a 5% benefit from the buy-on acquisition.
Richard A. Maue: While we continue to see softness in the European chemical nonresidential construction and general industrial markets, North America, and China projects have now been stronger than we expected for the last few quarters and we now expect this trend to continue.
Richard A. Maue: We believe part of this may be related to re shoring in the U S and localization projects in China, both directly and indirectly.
Richard A. Maue: Access from our share gain initiatives and a somewhat unique cyclical recovery in the post COVID-19 global macro macro environment.
Richard A. Maue: While we are still a little cautious in our outlook, we are raising our sales and margin guidance for the year to reflect better than expected strength in our orders and backlog year to date.
Richard A. Maue: Despite continued high levels of sales growth, our record backlog of 792 million increased 23% year over year, including 15% core growth and an 8% contribution from the Vion acquisition. Sequentially, Core FX Neutral Backlog increased 5%. By category and excluding the buy and acquisition, in the quarter, total aftermarket sales increased 39% with commercial market aftermarket sales up 34% and military aftermarket up 53%. OE sales increased 14% in the quarter, with 16% growth in commercial and up 11% in military.
Richard A. Maue: In the quarter itself, we delivered sales of $284 million up 5% driven by a 6% benefit from the <unk> acquisition and favorable foreign exchange with core sales down 2% as expected.
Richard A. Maue: Compared to the prior year.
Richard A. Maue: Our FX neutral backlog increased 7% and core FX neutral orders increased 9%.
Richard A. Maue: Both driven primarily by North American markets, followed by China and Asia Pacific.
Richard A. Maue: Sequentially compared to the fourth quarter core FX neutral backlog increased 6% with core FX neutral orders up 9%.
Richard A. Maue: While the demand environment remains very strong, we continue to remain somewhat supply chain constrained with steady but gradual improvement over the last few quarters. As we have discussed previously, this is not just related to on-time deliveries from suppliers but the broader supply infrastructure spanning from raw materials, components, and labor, both availability and supplier employee turnover and employee experience levels.
Richard A. Maue: Adjusted operating margins of 28% decreased 260 basis points better than we expected compared to our all time record margins in the first quarter of last year remember that the first quarter of 2023.
Richard A. Maue: <unk> benefited from an inventory revaluation as well as timing deferred of deferred growth investment spending.
<unk>.
Richard A. Maue: Areas of specific shortages continue to shift and evolve, although overall component availability has modestly improved, consistent with our commentary over the last few quarters. We do continue to make investments related to expediting shipments, as well as projects to qualify new suppliers and add second sources where it makes strategic sense.
Richard A. Maue: For our current volume run rates, we are very pleased with first quarter margins.
Turning to our full year guidance, we now expect 2020 for sales growth of approximately 7% up from our prior expectation of four 5% acquisitions now, including both Baum and Cryo works.
Richard A. Maue: We will add about six points to our full year growth rate.
Richard A. Maue: Adjusted segment margins of 22.4% increased 150 basis points from 20.9% last year, primarily reflecting higher volumes, productivity, and favorable mix, partially offset by the supply chain-related investments I just mentioned. Looking ahead to the remainder of 2024, we are raising our guidance to reflect the strong first quarter and our expectations for continued strength. We now expect core sales growth of 12% for the full year, up from prior guidance of 10% core growth, and we still expect a full year four and a half percent favorable benefit from the buy-on acquisition.
Richard A. Maue: And excluding acquisitions, we now expect core sales growth of approximately 1% up from prior guidance of flat and reflecting a modest acceleration in sales growth over the course of the year.
Richard A. Maue: We are also raising our margin guidance for the full year to 24% up 40 basis points from prior guidance.
Richard A. Maue: That implies slightly lower margins that we delivered in the first quarter, reflecting modest temporary dilution from the <unk> acquisition and slightly less favorable mix.
Richard A. Maue: For context.
Richard A. Maue: Remember that in 2019, just before Covid margins were 13, 6%. This significant step function change in margins reflects deep structural shifts in the business to higher growth and higher margin end markets. The.
Richard A. Maue: That guidance assumes continued monosequential growth over the next three quarters, albeit at a decelerating year-over-year growth rate as the comparisons become more challenging. We are also raising our full-year margin guidance to 22%, up from prior guidance of 21.5%. That does assume a slight moderation in margin rates, primarily because we don't expect the mix for the remainder of this year to be quite as favorable as the first quarter. Margin guidance reflects core leverage, excluding buy-in, of approximately 37 percent, a little higher than prior guidance. Overall, we are on track for another outstanding year.
Richard A. Maue: The contribution from accretive new product introductions.
Richard A. Maue: Pricing that is both disciplined and appropriately assertive given the inflationary environment.
Richard A. Maue: Our continued investments in technology driven product differentiation.
Richard A. Maue: And continued cost repositioning and productivity.
Richard A. Maue: From a cadence or timing perspective, as a reminder, we expect 2024 to be far more level loaded than 2023.
Richard A. Maue: In engineered materials sales of $55 million decreased 12% compared to the prior year as expected adjusted operating profit margin decreased 360 basis points to 14, 7% on the lower volumes for.
Richard A. Maue: From a cadence perspective, sales will increase slightly sequentially across the full year, with margins fairly steady over the next three quarters. At Process Flow Technologies, we remain very well positioned to continue outgrowing our markets, and our market outlook is now a little bit more positive than it was in the last several quarters. While we continue to see softness in the European chemical, non-residential construction, and general industrial markets, North America and China projects have now been stronger than we expected for the last few quarters, and we now expect this trend to continue. We believe part of this may be related to reshoring in the US and localization projects in China, both directly and indirectly.
Richard A. Maue: For the full year 2024, we continue to expect both sales and margins to be flat compared to 2023 as the RV market stabilizes with our normal quarterly cadence with the fourth quarter seasonally slowest.
Richard A. Maue: Moving on to total company results in the fourth.
Richard A. Maue: In the first quarter adjusted free cash flow was negative $86 million consistent with normal seasonality and better than last year's negative $101 million.
Richard A. Maue: For the full year, we are raising our adjusted free cash flow guidance to a range of $250 million to $275 million up $10 million from prior guidance.
Richard A. Maue: Success with our shared gain initiatives and a somewhat unique cyclical recovery in the post-COVID global macro environment. While we are still a little cautious in our outlook, we are raising our sales and margin guidance for the year to reflect better-than-expected strength in our orders and backlog year-to-date. In the quarter itself, we delivered sales of $284 million, up 5%, driven by a 6% benefit from the Baum acquisition and favorable foreign exchange, with core sales down 2%, as expected, compared to the prior year.
Richard A. Maue: And still reflecting better than 90% free cash flow conversion.
Richard A. Maue: Total debt at the end of the first quarter was approximately $357 million with $219 million of cash on hand at the end of this month we.
Richard A. Maue: We do expect to draw on our revolver to help finance the $61 million purchase price for the <unk> acquisition, we continue to have substantial financial flexibility with more than 1 billion in M&A capacity today, and reaching as much as $4 billion by 2028.
Richard A. Maue: Now this is a more financial flexibility than we've had historically our capital allocation strategy is unchanged, we will deploy our capital with the same strict financial and strategic discipline that we always have employed prioritizing internal investments for growth followed by M&A and returns to shareholders.
Richard A. Maue: Core FX Neutral Backlog increased 7%, and Core FX Neutral Orders increased 9%, both driven primarily by North American markets, followed by China and Asia Pacific. Sequentially, compared to the fourth quarter, core FX neutral backlog increased 6%, with core FX neutral orders up 9%.
Richard A. Maue: Turning to our 2024 guidance as Max mentioned, we raised our adjusted EPS range to $4 75 to 505 from our prior range of $4 55 to 485, reflecting 14% EPS growth.
Richard A. Maue: Adjusted operating margins of 20.8% decreased 260 basis points, better than we expected compared to our all-time record margins in the first quarter of last year. However, remember that the first quarter of 2023 benefited from an inventory revaluation as well as the timing of deferred growth investment spending. For our current volume run rates, we are very pleased with first quarter margins. Turning to our full-year guidance, we now expect 2024 sales growth of approximately 7%, up from our prior expectation of 4.5%. Acquisitions now include both Baum and Pryor.
Richard A. Maue: At the midpoint.
Richard A. Maue: Guidance assumes total core growth of 4% to 6% up a point from our prior guidance and a 5% benefit from acquisitions also up approximately a point from our prior guidance.
Richard A. Maue: At 46% core growth will drive approximately 16% growth in adjusted segment operating profit about three times core sales growth.
Richard A. Maue: Most other elements of our full year guidance are unchanged, but we did raise.
Richard A. Maue: Net operating expense by 3 million to $23 million reflect incremental interest.
Richard A. Maue: Expense associated with the <unk> acquisition.
Richard A. Maue: Overall, just a great start to the year with incredible momentum.
Richard A. Maue: We'll add about six points to our full-year growth rate, and excluding acquisitions, we now expect core sales growth of approximately 1% from prior guidance of flat, reflecting a modest acceleration in sales growth over the course of the year. We are also raising our margin guidance for the full year to 20.4%, up 40 basis points from prior guidance. That implies slightly lower margins than we delivered in the first quarter, reflecting modest temporary dilution from the CryoWorks acquisition and slightly less favorable mix.
Speaker Change: Operator, we are now ready to take our first question.
Speaker Change: Thank you and the floor is now open for questions. At this time, if you have a question or comment. Please press star one on your telephone keypad.
Speaker Change: If at any point Eric question has been answered you may remove yourself from the queue by pressing star Q again, we ask that you pick up your handset when posing your questions to provide optimal sound quality.
Speaker Change: Thank you.
Speaker Change: And our first question will come from Matt Summerville with D. A Davidson please.
Richard A. Maue: Remember that in 2019, just before COVID, margins were 13.6%. The significant step function change in margins reflects deep structural shifts in the business to higher growth and higher margin end markets. The contribution from a creative new product introduction, pricing that is both disciplined and appropriately assertive given the inflationary environment, continued investments in technology-driven product differentiation, and Continued Cost Repositioning and Productivity. From a cadence or timing perspective, as a reminder, we expect 2024 to be far more level-loaded than 2023, and Engineer Materials. Sales of $55 million decreased 12% compared to the prior year, as expected. Adjusted operating profit margins decreased 360 basis points to 14.7% on the lower volumes.
Matt J. Summerville: Please go ahead.
Matt J. Summerville: Good morning.
Matt J. Summerville: Morning, Matt maybe.
Matt J. Summerville: First if we can start with PST can you talk about how much incremental price capture you are expecting in that business in 'twenty four relative to 'twenty three and then you mentioned specifically North American China has seen some healthy project activity could you maybe put a little end market color around that and then touch on more broadly.
Matt J. Summerville: What youre seeing in the <unk>.
Speaker Change: Crow side of PFT, and then I have a follow up thank you.
Speaker Change: Yes, Matt it's just on the first question.
Speaker Change: Yes on pricing and what we expect in 'twenty four relative to 2023.
Speaker Change: We would expect full year this year to be in the mid single digit range roughly for overall PFT I would say that thats slightly lower than 2023, overall, but but still healthy.
Richard A. Maue: For the full year 2024, we continue to expect both sales and margins to be flat compared to 2023, as the RV market stabilizes with a normal quarterly cadence, with the fourth quarter seasonally slowest. Moving on to total company results, In the first quarter, adjusted free cash flow was negative 86 million, consistent with normal seasonality and better than last year's negative 101 million. For the full year, we are raising our adjusted free cash flow guidance to a range of $250 to $275 million, up $10 million from prior guidance and still reflecting better than 90% free cash flow conversion. Total debt at the end of the first quarter was approximately $357 million, with $219 million of cash on hand at the end of this month.
Speaker Change: With America.
Speaker Change: Help project health and so forth some of the end market commentary.
Speaker Change: Matt.
Speaker Change: Look as we've told you historically.
As we look at historic modeling.
Speaker Change: Of the cycles, we predicted that orders were going to go negative in Q3.
Speaker Change: Kind of inflect at that point.
Speaker Change: And continue to then recover from there then we believed it was just moving to the right.
Speaker Change: I think what we're realizing it is we're still seeing this play out I mean, certainly it's been stronger than we anticipated and not quite as bad as we had forecast based on previous cycles. I think it's unique for this post COVID-19 environment, and we probably underestimated the impact of some of the re shoring.
Richard A. Maue: We do expect to draw on a revolver to help finance the $61 million purchase price for the CryoWorks acquisition. We continue to have substantial financial flexibility with more than a billion dollars in M&A capacity today and reaching as much as $4 billion by 2028. Now, this is more financial flexibility than we've had historically. Our capital allocation strategy is unchanged.
Speaker Change: Broadly that's impacting.
Direct and indirect.
Speaker Change: Order strength in chemicals in the Gulf Coast.
Speaker Change: So right now.
With our revised guidance.
Speaker Change: Looking at not inflicting.
Speaker Change: As negative as we had anticipated and we are recovering from here.
Richard A. Maue: We will deploy our capital with the same strict financial and strategic discipline that we always have employed, prioritizing internal investments for growth, followed by M&A, and returns to shareholders. Turning to our 2024 guidance, as Max mentioned, we raised our adjusted EPS range to 475 to 505 from our prior range of 455 to 485, reflecting 14% EPS growth at the midpoint. Guidance assumes total core growth of 4 to 6%, up a point from our prior guidance, and a 5% benefit from acquisitions, also up approximately a point from prior guidance.
Speaker Change: In terms of the project and MRO strength I mean, there is.
Speaker Change: There's just a broad based improvement in projects overall.
Speaker Change: Americas in particular, China to a lesser degree, but stronger than anticipated Europe hasnt changed significantly.
Speaker Change: <unk>.
Speaker Change: Some of the some of the reasons are expansions or debottlenecking.
Speaker Change: Some reliability improvements.
Speaker Change: We're even seeing some pull through in the semiconductor and semiconductor related or chemical applications using erosive corrosive.
Richard A. Maue: That 46% core growth will drive approximately 16% growth in adjusted segment operating profit, about three times core sales growth. Most other elements of our full-year guidance are unchanged, but we did raise Net operating expense by $3 million to $23 million to reflect incremental interest and expense associated with the CryWorks acquisition. Overall, just a great start to the year with incredible momentum. Operator, we are now ready to take our first question.
Speaker Change: Chemicals and semiconductor that we're seeing some <unk>.
Speaker Change: General strength there also.
Speaker Change: Generally it's.
Speaker Change: <unk> coming in a little stronger than we had anticipated and I think we are.
Speaker Change: Feeling a little more bullish.
Speaker Change: Yes, I would say I would agree and I would say that maybe bolstering some of what Max mentioned was just our <unk>.
Speaker Change: Accessing some of the share gain initiatives that we continue to have with our new product introductions.
Operator: Thank you. The floor is now open for questions. At this time, if you have a question or comment, please press star 1 on your telephone keypad. If at any point your question has been answered, you may remove yourself from the queue by pressing star 2. Again, we ask that you pick up your handset when asking your questions to provide optimal sound quality. Thank you. And our first question will come from Matt Somerville with D.A. Davidson. Please go ahead.
Speaker Change: Across across the business Matt.
Speaker Change: Perfect.
Speaker Change: Please.
Speaker Change: About a pharmaceutical when it's things like that that we continue to make good progress on.
Matt J. Summerville: Got it.
Speaker Change: And then just as a follow up I think.
Speaker Change: Jay sort of dialed back on their conference call today, the growth outlook for the leap engine. This year from 2025% 10, 15% how does that if at all kind of impact the outlook for your <unk> business and I guess, how how closely would your.
Matt J. Summerville: Morning. Maybe first, if we can start with PFT, can you talk about how much incremental price capture you're expecting in that business in 24 relative to 23? And then you mentioned specifically North American China has seen some healthy project activity. Could you maybe give a little end market color on that, and then touch on, more broadly speaking, what you're seeing on the MRO side of PFT? And then I have a follow up. Thank you
Would your business Keller.
Speaker Change: Program kind of correlate to that to that sort of growth rate.
Speaker Change: Yes, I think what I would say is as it relates to 2024, we don't expect any change for our business relative to any change in outlook for the leap.
Speaker Change: At this point, Matt looking looking out to the extent that it changes a little bit it would have some impact but for 2024, we would not expect any.
Richard A. Maue: Yeah, Matt, just on the first question on pricing and what we expect in 24 relative to 2023. We would expect full year this year to be in the mid single digit range, roughly for overall PFT. I would say that that's slightly lower than 2023 overall, but still healthy for North America and help project health and so forth on the end market commentary.
Speaker Change: Just given the demand environment that we're in today.
Matt J. Summerville: Understood. Thanks, Rick.
Speaker Change: Got it.
Speaker Change: Our next question will come from Scott <unk> with Deutsche Bank.
Scott: These go ahead.
Hey, good morning, guys.
Scott: Scott Good morning, Ritch, I think carrying Ron Burgundy might end up being the highlight of this earning season.
Max H. Mitchell: Look, as we told you historically. As we looked at historic modeling of the cycles, we predicted that orders were going to go negative in Q3, of inflected at that point, and continued to then recover from there. Then we believed it was just moving to the right. I think what we're realizing is we're still seeing this play out. I mean, certainly, it's been stronger than we anticipated, not quite as bad as we had forecasted based on previous cycles. I think it's unique in this post-COVID environment.
Speaker Change: I'm, hoping our earnings news or better.
No yes, that's true.
Speaker Change: Rich I guess my question. My first question would be whether you can give us a sense for what the price realizations for our this quarter at <unk> and at PST separately.
Speaker Change: Sure sure I saw on PFT.
Speaker Change: I would just reiterate around mid single digit is what we're seeing in the business overall.
Yes.
Speaker Change: And at <unk>.
Speaker Change: Roughly a third of the growth that we saw in the core growth that we saw in the quarter has been through price with the balance being volumes.
Max H. Mitchell: And we probably underestimated the impact of some of the reshoring broadly that's impacting direct and indirect order strength in chemicals in the Gulf Coast. So, you know, right now, with the revised guidance, we're, you know, looking at not inflecting as negatively as we had anticipated and recovering from here. In terms of project and MRO strength, I mean, there's just a broad-based improvement in projects overall. North America, in particular, and China to a lesser degree, but stronger than anticipated. Europe hasn't changed significantly. You know, some of the reasons are expansions, de-bottlenecking, and some reliability improvements. We're even seeing some pull through in the semiconductor field, semiconductor related; there are chemical applications using erosive, and corrosive.
Speaker Change: Okay, Yes, that's very helpful. And then Max I was wondering if you might characterize the kind of broader competitive intensity at <unk> right now, particularly relative to <unk> in China mainland just curious so it's not something I know, it's very much about but I'm just curious if youre, saying that specific Chinese competitor move up to <unk>.
Speaker Change: You changed at all or if the competitive environment is pretty status quo.
Max H. Mitchell: The new way in particular, I would like to kind of talk about the competitors too much I wouldn't necessarily say that we're not seeing any dramatic change.
Max H. Mitchell: Where years ago, we may have been more concerned about Chinese manufacturers entering.
Max H. Mitchell: U S globally.
Max H. Mitchell: We haven't seen that kind of traction take place I think we're well positioned even within China. There is.
Max H. Mitchell: A place for the global manufacturer versus localized spend and those got customer base that values still.
Max H. Mitchell: The technology co.
Max H. Mitchell: The delivery stability that we bring and differentiate ourselves on that we continue to win not not dramatic shifts.
Max H. Mitchell: <unk> that we see the significantly within the competitive base.
Within the last year, a couple of years quite honestly.
Max H. Mitchell: Great and then Max last question, which is due to the mid sized deals in the pipeline skew at all more toward more toward PFT or is it relatively well balanced on the mid sized deal.
unknown: [inaudible] Feeling a little more bullish. I would say I would agree. And I would say that maybe bolstering some of what Max mentioned was just our success in some of the share gain initiatives that we continue to have with our new product introductions across the business, Matt. Perfect.
Max H. Mitchell: It's balanced right now Scott.
Max H. Mitchell: Okay.
Speaker Change: Thank you.
Max H. Mitchell: Thank you. Thank you.
Max H. Mitchell: Our next question will come from Nathan Jones with Stifel. Please go ahead.
Nathan Hardie Jones: Good morning, guys. Good morning, everyone.
Nathan Hardie Jones: Good morning.
Let me start with a bit of a longer term question on M&A you guys have had.
Max H. Mitchell: I got it. And then just as a follow-up, I think GE sort of dialed back on their conference call today the growth outlook for the leap engine this year from I think 20-25% to 10-15%. How does that, if at all, impact the outlook for your A&E business? And I guess how closely would your business kind of, if for that program kind of correlate to that? That's a sort of growth. Yeah, I think what I would say is that as a
Nathan Hardie Jones: High single digit kind of organic growth rate target out there.
Nathan Hardie Jones: Over the next several years into the next decade I am sure that had a number of these projects.
Nathan Hardie Jones: I'd like to write at one Youre talking about this morning in and probability weighted on the chances that you would wait amendment that they come to fruition.
Nathan Hardie Jones: Maybe you could just talk about over the last two or three years.
Nathan Hardie Jones: Have things gone better than you expected in that algorithm.
Richard A. Maue: I think what I would say is as it relates to 2024, we don't expect any change for our business relative to any change in outlook for the leap. At this point, Matt, you know, looking out to the extent that it changes a little bit, it would have some impact. But for 2024, we would not expect any, just given the demand environment that we're in today.
Nathan Hardie Jones: And with what you'd expected worse than what you would expected and has it changed has your outlook changed for the potential on some of those future wins that drives that long term organic growth rate.
Speaker Change: Yes so.
Speaker Change: Good question Nathan So when we set that 7% to 9% target a few years ago. There was clearly a set of assumptions that we had in mind and whether that was project wins in defence, how we saw things rolling out in commercial.
Speaker Change: <unk>.
Scott Deuschle: Our next question will come from Scott Deuschle with Deutsche Bank.
Speaker Change: More EV wins type wins, the high power defense and so forth. So what I would say is since then.
Scott Deuschle: Rich, I think hearing you quote Ron Burgundy might end up being the highlight of this turning season.
Speaker Change: We clearly have one a little bit more than we had anticipated in that 7% to 9%.
Speaker Change: I think every ae's a platform that's been out there available for bid and quote and win.
Richard A. Maue: I'm hoping our earnings are a better idea. Now, yeah.
Scott Deuschle: No, yeah, that's true. Very good. Rich, I guess my first question would be whether you can give us a sense of what the price realizations were this quarter at A&E and at PST separately.
Speaker Change: I think we've won all of them.
The other thing we've seen more momentum in project wins I think is the.
Speaker Change: A part of the answer or the other the other.
Richard A. Maue: Sure, sure. So on PFT, I would just reiterate around mid-single digit is what we're seeing in the business overall. You know, and at A&E, roughly a third of the growth that we saw in the core growth that we saw in the quarter was driven by price, with the balance being volumes.
Speaker Change: Part of the answer would be.
Speaker Change: Our success on and future I would say more longer term runway as it relates to price. So when do you see further opportunity there I would say relative to when we first set the 7% to 9% growth rate. So I think we will update on the longer term vision at Investor day as well Nathan.
Nathan Hardie Jones: I wasn't going to actually ask you to together eight to $10 nine to 11 today I figured grid market that is <unk>.
Unknown Speaker: Unknown Speaker Okay. Yeah, that's very helpful. Then, you know, Max, I was wondering if you might characterize the kind of broader competitive intensity at PFT right now, particularly relative to Niwei in China. Mainly, I'm just curious; not something I know very much about, but I'm just curious if you're seeing that specific Chinese competitor move up the value chain at all, or if the competitive environment is pretty status quo.
Speaker Change: And while we're all making jokes today.
Speaker Change: Just a question on <unk>.
Speaker Change: Clearly things have tightened a little bit there.
Speaker Change: Some of the leading indicators macro leading indicators that we all look at turned up and are looking better I think your outlook is fundamentally it looks a little bit better, but and you guys are taking it up a little bit the remaining pretty cautious could you talk about the things that keep giving you some caution on the outlook.
Max H. Mitchell: In a new way, in particular, I don't like to talk about the competitors too much. I would really say that we're not seeing any dramatic change. Where years ago we may have been more concerned about Chinese manufacturers entering the U.S. globally, we haven't seen that kind of traction take place. I think we're well positioned. Even within China, there's a place for the global manufacturer versus localized spend and that customer base that still values the technology, quality, delivery, stability that we bring and differentiate ourselves on. We continue to win. Not dramatic shifts, anything that we see significantly within the competitive base within the last year or couple years, quite honestly.
Speaker Change: What the risks you say.
Speaker Change: The outlook that maybe keep it where it is and it doesn't pick up throughout the year or that maybe David comes in below where you guided to.
Speaker Change: Oh my goodness the uncertainty just remains what's outside of our control quite honestly.
Speaker Change: You have one.
Speaker Change: Highly charged political environment you have wars, we have.
Unknown inflationary environment and fed action I mean, theres, just a lot of global uncertainty that.
Speaker Change: As I think the right reason to be cautious.
Speaker Change: And be prepared for anything having said that what's within our control and what we see immediately it feels.
Max H. Mitchell: Okay, great. And then, Max, last question, which is, do the midsize deals in the pipeline skew at all more toward A&E or more toward PFT, or is it relatively well-balanced on the midsize deal? Unknown Speaker,
Speaker Change: Hi, confidence I would say that.
Speaker Change: <unk>.
Speaker Change: Hi.
Speaker Change: If this trend continues little downside risk with some upside potential opportunity.
Unknown Speaker: It's balanced right now, Scott. Okay.
unknown: Thank you.
Speaker Change: What could influence that potentially Europe coming back a little stronger potentially that's how I'm thinking about it Richard.
Nathan Hardie Jones: Our next question will come from Nathan Jones with Stiefel. Please go ahead.
unknown: Good morning, everyone. Good morning.
Richard A. Maue: It's probably maybe the inverse of the question is why.
Nathan Hardie Jones: I'm gonna start with a bit of a longer-term question on A&E. You guys have had, you know, a high single-digit kind of organic growth rate target out there for the next several years in the next decade. I'm sure that they had, you know, a number of these projects, like the radar one you're talking about this morning, and probability weighted on the chances that you'd win them and that they would come to fruition.
Richard A. Maue: When do we see things what would be what would be a positive indicator for us and it really is more probably that's the way we're thinking of things that could be these things that could go wrong, but European chemical getting better faster.
Richard A. Maue: So to the extent that that happens we would see we would see upside to what we've shared today at the midpoint.
Speaker Change: Thank you very much for taking my questions I'll say next month.
Thanks, Nathan Thanks Nathan.
Speaker Change: And our next question will come from Damian Karas with UBS. Please go ahead.
Nathan Hardie Jones: Maybe you could just talk about the last, you know, two or three years. Have things gone better than you expected in that algorithm, in line with what you'd expected, worse than what you'd expected? And has it changed? Has your outlook changed for the potential and some of those future wins that drive that long-term organic growth rate?
Damian Karas: We're gaining good morning, Hey, good morning, everyone.
Damian Karas: Good morning.
Damian Karas: First of all I just wanted to congratulate Jason on your recent promotion from my perspective, very very much desire.
Damian Karas: Thank you and thank you David Thanks for your comment I agree.
Max H. Mitchell: Yeah, so good question, Nathan. So when we set that seven to nine percent target a few years ago, there was clearly a set of assumptions that we had in mind, whether that was project wins in defense, how we saw things rolling out in commercial, more EV wins, type wins, the high power defense, and so forth. So, what I would say is since then, we clearly have won a little bit more than we had anticipated, and that's 7 to 9%. I think every AESA platform that's been out there available for bid and quote, and when we have, I think we've won all of them.
Speaker Change: No absolutely.
Speaker Change: And rich maybe it doesn't have to be now, but maybe some timing you can just explain to us the history of <unk>.
Speaker Change: Yeah.
Speaker Change: Okay.
Jeff: Let me ask Jeff.
Jeff: About aerospace.
Speaker Change: Sorry, if I missed this but you've talked in the past about unmet demand and I know you're still facing some supply chain.
Speaker Change: Bottleneck.
Jeff: You just give us an update on that.
Jeff: Where do you think that unmet demand.
Jeff: The size of it kind of what it represents.
Max H. Mitchell: The other thing, so we've seen more momentum in Project WINS, I think, is part of the answer. The other part of the answer would be... Our success and future, I would say, are more long-term and runway as it relates to price. So we do see further opportunity there, I would say, relative to when we first set the 7% to 9% growth rate. I think we'll update on the longer-term vision at Investor Day as well, Nathan.
Jeff: <unk>.
Jeff: And kind of what it would take the Navy.
Jeff: Some of those constraints.
Jeff: More.
Speaker Change: Yes, Thanks, David.
David: So it's still in that 50 to 60 million range its a rough estimate.
Speaker Change: Remember the split supply chain, we've described that it moved from <unk>.
True supply chain post COVID-19 to supply supplier shortages ramping up so forth electrical components.
Speaker Change: Improved broadly in terms of just on time delivery issues become more general supply chain challenges around everything from capacity to turnover in our supply base.
Max H. Mitchell: I wasn't going to actually ask you to go 8-10 or 9-11 today. I figured we might get that in May or something. Well, we're all making jokes today. So just a question on PFT, you know; maybe it even comes in below where you've guided us.
Speaker Change: <unk>.
Speaker Change: Our general general challenges that moves around I wouldn't call out any one commodity I wouldn't call out any one supplier castings can continue to be problematic over time.
Speaker Change: Things like that so as we think about this and it's not to say $50 million to $60 million, our customers were not impacting customer deliveries.
Speaker Change: It moves to the right, but generally it's in the same so that's good news as well so it's not worsening.
Speaker Change: It is stable and we continue to see modest improvement in that's in our guide which is just continued modest improvement so to the degree that things can continue to improve then we would expect to be able to pull some things in a little sooner.
Nathan Hardie Jones: My goodness, the uncertainty just remains what's outside of our control, quite honestly. You have a highly charged political environment. You have wars.
Speaker Change: If not I think we feel confident in and how we plan and guidance so far.
Max H. Mitchell: We have an unknown inflationary environment and Fed action. I mean, there's just a lot of global uncertainty that is, is, I think the right reason to be cautious and be prepared for anything. Having said that, what's within our control and what we see immediately, it feels high confidence. I would say that I see, if this trend continues, little downside risk with some upside potential opportunity. You know, what could influence that? Potentially, Europe coming back a little stronger. Possibly. That's how I'm thinking about it. Richard?
Speaker Change: I agree and Damian the one thing that I would add is the order strength that we saw in the quarter as well much of it was beyond 2000 and for delivery right. So where you might say well why isn't that 50 or 60 getting bigger.
Speaker Change: A good portion of what we saw in the way of strength as for delivering in 'twenty, five and 26, frankly and good point.
Damian Karas: Okay, Great that's really helpful guys.
And then you gave some.
Damian Karas: Commentary around PSC in the end market verticals in regenerate.
Damian Karas: Would you, possibly be able to adjust.
Give us some numbers around okay. So European counterparts, and construction was a drag on <unk> sale.
Richard A. Maue: Yeah, I mean, I would echo the, you know, it's probably maybe the inverse of the question is, you know, when do we see things, what would be, what would be a positive indicator for us? And it really is more, probably that's the way we're thinking of things, there could be these things that could go wrong, but European chemicals are getting better faster. So to the extent that that happens, we would see an upside to what we've shared today at the midpoint.
Damian Karas: <unk>.
Damian Karas: How much of a drag was it in.
Damian Karas: And what are you baking into the full year guy thinking about that 1%.
Damian Karas: Organic growth like how much of a headwind are you currently factoring in for European kind of looks in construction.
Speaker Change: Let me see if I can tackle that youre asking there I would say that we're not expecting a lot of repair and maintenance activity right now to improve significantly in European chemical.
unknown: Thanks very much for taking my questions. I'll see you next month.
unknown: Thanks, Nathan. Thanks, Nathan.
Damian Karas: Our next question will come from Damian Karas at PBS. Please go ahead.
Speaker Change: Our revised guidance reflects.
Speaker Change: Some project activity that's been building as you know over the last few quarters.
Damian Karas: Morning, Damian. Morning. Hey, good morning, everyone.
Damian Karas: Hey, first, I just wanted to congratulate Jason on your recent promotion. From my perspective,
Speaker Change: Some of it will spill here into the 2024 period largely in.
Jason D. Feldman: Thank you, Damian. Thanks for the comment.
Speaker Change: U S. A U S opportunity as China opportunities so.
Damian Karas: No, absolutely not. And Rich, maybe, you know, it doesn't have to be now, but maybe some time, you can just explain to us the history of San Diego.
Speaker Change: In terms of the overall guide revision on plus 1% I would say.
Speaker Change: Sure.
Speaker Change: It's stable in that maintenance area, MRO area and increasing in chemical North America China.
Damian Karas: [inaudible] Okay, so let me ask you about aerospace. Sorry if I missed this. But, you know, you've talked in the past about unmet demand, and, you know, I know you're still facing some supply chain bottlenecks. Could you just give us an update on, you know, where you think that unmet demand is, you know, the size of it, kind of what it represents, and, um, and kind of what it would take to maybe see some of those constraints removed?
Speaker Change: Jason would you add anything else no I mean.
Jason D. Feldman: Again, the guidance increase was strength of projects specifically on European Chemical I think we've commented that we expect that down double digits. This year.
Speaker Change: Okay Fantastic. Thanks Best of luck guys. Thanks, David Thank you. Thanks Damian.
Speaker Change: And our next contract.
Speaker Change: Track directly with Bank of America. Please go ahead.
Speaker Change: Hey, good morning.
Speaker Change: Good morning.
Speaker Change: Hi.
Speaker Change: Aerospace and electronics could you guys give us some color around how you're thinking about the rest of the year for how long.
Max H. Mitchell: Remember, this supply chain we've described, it moved from a true supply chain, post-COVID, supplier shortages ramping up, so forth, electrical components. It's improved broadly in terms of just on-time delivery issues to become more general supply chain challenges around everything from capacity to turnover in our supply base, general challenges that move around. I wouldn't call out any one commodity. I wouldn't call out any one supplier.
Speaker Change: Aftermarket strength can continue for both military and commercial and if youre seeing a higher pricing being able to get pushed through relative to the whole segment.
Speaker Change: Sure so.
Speaker Change: Well for military I'll start there.
Speaker Change: We entered the year with.
Speaker Change: Sort of a double a double digit guide on where we thought military aftermarket was going to be.
Speaker Change: Just given what we were saying entering the year I would say that's largely unchanged, we still see really good strength in that in that end.
Speaker Change: The end market.
Max H. Mitchell: Castings can continue to be problematic over time, things like that. So as we think about this, and it's not the same 50 or 60 million; we're not impacting customer deliveries. It moves to the right.
Speaker Change: Whether thats Arnaud spares retrofit et cetera on.
Speaker Change: On commercial aftermarket, we did have a really robust quarter this quarter in Q1.
Speaker Change: Some favorable comps helped us there as well and then as we move through the balance of the year.
Speaker Change: We still are.
Max H. Mitchell: But generally, it's the same. Now, that's good news as well. So it's not worsening. It's stable.
Speaker Change: Still arent seeing an outlook of.
Speaker Change: Basically low double digit which is what we said coming into the coming into the year. This year. So you'll see it you'll see the year over year as we move forward be a little bit more muted than what we saw here in Q1, but still pretty strong.
Richard A. Maue: And we continue to see modest improvement, and that's in our guide, which is just continued modest improvement. So to the degree that things can continue to improve, then we would expect to be able to pull some things in a little sooner. If not, I think we feel confident in how we've planned and guided so far. And Damian, the one thing that I would add is, you know, the order strength that we saw in the quarter as well, right? Much of it was beyond 24-hour delivery, right?
Speaker Change: From a pricing point of view, we're continuing to seize all those opportunities as you would expect us to.
Speaker Change: And whether thats through indexing that exists in other opportunity strategically for us to take price up Jason.
Richard A. Maue: So where you might say, well, why isn't that 50 or 60 getting bigger? A good portion of what we saw in the way of strength is for delivery, and in 25 and 26, frankly, a good point.
Speaker Change: On the more muted growth rate as we progress through the year, just remember to look at the comps right. The comparisons in the second half are a lot more challenging than the first half when you look at the fourth quarter two years in a row.
Speaker Change: 24% in the fourth quarter of 'twenty two.
unknown: Okay, great. That's really helpful, guys.
Speaker Change: 33% up last year.
Damian Karas: And then you gave some commentary around PFC and the end market verticals and regions. Would you possibly be able to just give us some numbers around? Okay, so European Chemicals and Construction was a drag on one Tuesday. You know, like, how much of a drag was it? And, and, you know, what are you baking into the full-year guy? You know, thinking about that 1% organic growth, like how much of a headwind it is. Are you currently factoring in for European chemicals and construction?
They do get a lot more challenging but the trend itself on a dollar basis continues to be quite favorable.
Speaker Change: Got it. Thank you guys so much.
Speaker Change: Thanks sure. Thanks Jordan.
Speaker Change: And once again, if you do have a question you May press star one on your telephone keypad at this time and our next question will come from Joseph <unk> with CJS Securities. Please go ahead.
Joseph: Hi, Good morning, guys how are you.
Joseph: Good morning.
Joseph: I was just hoping you could give us an update on the hydrogen business that was called out as one of the pillars of growth.
Richard A. Maue: Let me see if I can tackle what you're asking there. I would say that we're not expecting a lot of the repair and maintenance activity right now to improve significantly in the chemical sector. Our revised guidance reflects some project activity that's been building, as you know, over the last few quarters, that some of it will spill here into the 2024 period, largely in U.S. U.S. opportunities, and Chinese opportunities. So in terms of the overall guide revision on plus 1%, I would say it's stable in that maintenance area, MRO area, and increasing in chemical, North America, and China. Jason, would you add anything else? No, I mean, again, the guide...
Joseph: Yeah.
Joseph: The recent acquisition fit into that or is that going to be a separate business.
Speaker Change: As of the end markets served there yeah. Great question. Thank you so it absolutely fits into the current strategy. So.
Speaker Change: We've.
Speaker Change: And we will give an update on investor day as well, we previously talked about our investment in the cryo flow brand and creating our own vacuum jacketed pipe.
Speaker Change: As well as valves and fittings and entering into the market. We've got a line of valves we've already.
<unk> announced the.
Speaker Change: Our strategic partnership with chart.
Speaker Change: Some of that.
Speaker Change: We're getting traction right now with approvals across major gas producers. This is where the focus has been working on design.
Speaker Change: Starting this business so.
Jason D. Feldman: No, I mean, again, the guidance increases with the strength of projects, specifically on European chemicals. I think we've commented that we expect that down double digits as
Speaker Change: We have a site in conroe, Texas that is going to be was the.
Speaker Change: Our core cryo flow vacuum jacketed pipe producing facility as we move forward Cryo works brings to US immediately a presence on the west coast and you tend to see regional strength with the vacuum jacketed.
unknown: Okay, fantastic. Thanks. Best of luck, guys. Thanks, Damian. Thank you. Thank you, Damian. And our next question will come from Dorothy Nance with Bank of America. Please go ahead. Oh, good morning.
Dorothy Nance: And our next show is brought to you by Bank of America.
Speaker Change: Vacuum insulated piping systems for hydrogen and cryogenic solutions.
Speaker Change: What we are planning to do is leverage the existing teams sales growth investment and also technology to expand range expand into still keep the growth into the Texas facility for east coast, and Gulf positioning and continuing to grow and take share at.
unknown: Sure. So, uh, well, you know, for the military. I'll start there. We, uh, entered the year with [inaudible] On the commercial aftermarket, we did have a really robust quarter this quarter and Q1. Some favorable comps helped us there as well. And then as we move to the balance of the year, you know, we still aren't seeing an outlook of basically low double-digit, which is what we said coming into the year this year.
Speaker Change: At an accelerated rate so it brings immediate acceleration of our product development initiatives.
Speaker Change: As well as sales expansion for cryo works in the vacuum.
Speaker Change: Insulated piping solution.
Speaker Change: Which will then help us in terms of the full solution valves fittings and.
Speaker Change: The vacuum insulated piping, so very synergistic.
No that's very thorough I appreciate it and thanks for taking my question.
Speaker Change: Thank you. Thank you.
Speaker Change: And with no further questions in queue.
Speaker Change: It does conclude the Q&A portion of today's call I would like to turn the floor back to Max Mitchell for closing remarks. Thank you operator, well on a great start to the year and looking ahead. We've got a great event planned for may 14th them I hope to see many of you there at our Investor Day, where we will further share our growth strategy for the future and.
unknown: So you'll see the year-over-year growth as we move forward be a little bit more muted than what we saw here in Q1, but still pretty strong. From a pricing point of view, we're continuing to seize all those opportunities as you'd expect us to, whether that's through indexing that exists and other opportunities strategically.
Max H. Mitchell: In the words of the late great interior and fashion designer Iris App. So you can't go to the future. If you haven't come from the past and past strategic development deployment and execution has clearly been at the heart of our present performance and we look forward to explaining our future strategic direction XP.
unknown: Unknown Speaker, The Clark 500 Roadmap, Jeff Bezos, Unknown Speaker, Scott Deuschle, Mariana Mora, Paul Igoe, Crane Co. Unknown Speaker, Damian Karas, Scott Deuschle, Mariana Mora, Paul Igoe, Crane Co. Unknown Speaker, Damian Karas, Scott Deuschle, Mariana Mora, Paul Igoe, Crane Co. You know, 24% in the fourth quarter, 22, 33% up last year. They do get a lot more challenging, but the trend itself on a dollar basis continues to be quite favorable.
Speaker Change: <unk> and path forward for profitable growth in May. Thank you all for your interest in Crane and your time and attention. This morning have a great day stay classy Max.
Speaker Change: Thank you and this does conclude today's Crane company first quarter 2024 earnings Conference call. Please disconnect. Your lines at this time and have a wonderful day.
[music].
unknown: Thanks, Jordan. Thanks, Jordan.
Justin Ian Ages: And once again, if you do have a question, you may press star one on your telephone keypad at this time, and our next question will come from Justin Ages with CJS Securities. Please go ahead.
Speaker Change: Okay.
Speaker Change: [music].
Justin Ian Ages: Hi, good morning, guys. How are you? All right, Justin. Good morning. I was just hoping you could give us an update on the hydropower.
Justin Ian Ages: Right, Justin. Good morning.
Max H. Mitchell: I was just hoping you could give us an update on the hydrogen business that was called out as one of the pillars of growth. Does the recent acquisition fit into that, or is that going to be a separate business because of the strategy? So we've, and we'll give an update on investor day as well. We previously talked about our investment in the CryoFlow brand and creating our own vacuum jacketed pipe, as well as valves and fittings, and entering the market. We've got a line of valves.
Max H. Mitchell: We've already announced a Strategic Partnership with Chart on some of that. We're getting traction right now with approvals across major gas producers. This is where the focus has been, working on design, starting this business. So we have a site in Conroe, Texas that is gonna be, was the...
Max H. Mitchell: Core Cryoflow Vacuum Jacketed Pipe Producing Facility as we move forward. CryoWorks brings us immediately a presence on the West Coast, and you tend to see regional strength with the vacuum jacketed and vacuum insulated piping systems for hydrogen and cryogenic solutions. What we plan to do is leverage the existing team's sales, growth, investment, and also technology to expand the range, expand into, and still keep growing into the Texas facility for East Coast and Gulf positioning, and continue to grow and take share at an accelerated rate.
Max H. Mitchell: So it brings immediate acceleration of our product development initiatives, as well as sales expansion for CryoWorks in the vacuum insulated piping solution, which will then help us in terms of the full solution, valves, fittings, and vacuum insulated piping, so very synergistic.
Operator: And with no further questions in queue, this does conclude the Q&A portion of today's call. I would like to turn the floor back to Max Mitchell for closing remarks. Thank you.
Max H. Mitchell: Thank you, Operator. What a great start to the year, and looking ahead, we've got a great event planned for May 14th, and I hope to see many of you there at our Investor Day, where we will further share our growth strategy for the future. In the words of the late, great interior and fashion designer, Iris Apfel, you can't go to the future if you haven't come from the past, and past strategic development, deployment, and execution has clearly been at the heart of our present performance.
Max H. Mitchell: And we look forward to explaining our future strategic direction, expectations, and path forward for profitable growth in May. Thank you all for your interest in Crane and your time and attention this morning. Have a great day. Stay classy, Max.
Operator: Thank you, and this does conclude today's Crane Company first quarter 2024 earnings conference call. Please disconnect your lines at this time, and have a wonderful day.
unknown: [inaudible]