Q3 2024 Crane Co Earnings Call
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Speaker Change: [music]. Please standby your conference is about to begin should you require operator assistance simply press Star zero.
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Speaker Change: [music].
Hello, everyone and welcome to the Crane Company third quarter 2024 earnings Conference call. At this time, all participants have been placed in a listen only mode and the floor will be opened for your questions. Following the presentation. If you would like to ask a question at that time. Please press star and one on your telephone keypad. If at any point. Your question has been answered.
Speaker Change: Remove yourself from the queue by pressing star two.
Speaker Change: So others can hear your question clearly we ask that you pick up your handset for best quality. Lastly, if you should require operator assistance simply press Star Zero I would now like to turn the call over to Alison <unk>, Vice President of Investor Relations.
Alex <unk>: Thank you operator, and good day, everyone welcome to our third quarter 2024 earnings release Conference call I'm, Alex <unk>, Vice President of Investor Relations.
Alex <unk>: 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, along with Jason Feldman Senior Vice President Treasury tax and Investor Relations for Q&A.
Alex <unk>: I will start off our call with a few prepared remarks from Max and rich after which we'll respond to your questions.
Alex <unk>: Just a reminder, the comments we make on this call will 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.
Alex <unk>: Also during the call we will be using some non-GAAP numbers, which are reconciled to the comparable GAAP numbers and tables at the end of our press release and accompanying slide presentation, both of which are available on our website at www Dot <unk> dot com in the Investor Relations section now, let me turn the call over to Max. Thank you Alison and thanks, everyone for joining the call today.
Craig had another excellent quarter with results outperforming expectations.
Max Mitchell: Justin EPS was $1 38, driven by an impressive 6% core sales growth.
Max Mitchell: Reflecting strength across both aerospace electronics and process flow technologies.
Max Mitchell: Also had strong leading indicators with core orders up 6% and core backlog up 10% compared to last year.
Max Mitchell: And confidence in our outlook for 2024 remains high.
Max Mitchell: We've had a very solid year to date as we continue to successfully execute on our strategy.
Max Mitchell: I want to take a moment to acknowledge those that have been impacted by the recent hurricanes, which have caused widespread devastation with impact for many of our associates and customers located in the southeast.
Max Mitchell: Cranes, Marion North Carolina site was directly affected by flooding from Hurricane Helene as was the region.
Max Mitchell: And we are in the process of recovery and bringing operations back online.
Max Mitchell: While we are making great progress to date, the safety of our employees their families and the communities in which we operate remains our primary concern.
Max Mitchell: On the Crane Foundation is proud to support numerous organizations, providing relief and help locally in the aftermath of Hurricane Helene and Milton.
Max Mitchell: In addition to the Maryland facility of the quarter. We also saw numerous states of downtime from power outages at our site in South Carolina due to Helene and we lost a week of output from our aerospace electronics site in Taiwan due to typhoon <unk>.
Max Mitchell: The latter two are less disruptive and those locations will fully recover lost third quarter sales in the fourth quarter.
Max Mitchell: At Marion However, it will take a little longer to restart operations, but we expect insurance to cover all business interruption, although we may not receive the insurance recovery until early next year.
Max Mitchell: Despite these recent challenges I remain highly confident in the strength and resilience of cranes team and portfolio.
Max Mitchell: We are once again, raising and narrowing our full year earnings outlook expecting adjusted earnings per share to be in the range of $5 five.
Max Mitchell: To $5 20.
Max Mitchell: Up from our prior view of $4 95 to $5 15.
Max Mitchell: We have direct line of sight to delivering this expected 19% earnings growth.
Max Mitchell: At process flow technologies guidance continues to assume somewhat muted industrial activity.
Max Mitchell: As well as lower shipments from our <unk> facility due to hurricane Helene.
Max Mitchell: Within aerospace <unk> electronics.
Max Mitchell: <unk> remained strong across all categories of our defense and commercial business with some shipment reductions related to the Boeing strike.
Max Mitchell: And to a lesser degree continued supply chain constraints.
Max Mitchell: Related to the Boeing strike and the situation at Boeing generally.
Max Mitchell: I would say that for the sake of the aerospace industry.
Max Mitchell: Need this critically important and iconic manufacturer to continue to recover and regained its position globally.
Max Mitchell: Personally I feel that the recent leadership changes will be a very positive inflection point for the organization and through its next chapter of recovery and resurgence and Crane is doing all that we can to support.
Max Mitchell: Along those lines, we have made unilateral strategic decisions to support our customer with improved inventory buffers for outstanding continued service and delivery performance as Boeing eventually ends and recovers from the impacts of the strike.
Max Mitchell: And other operational challenges.
Max Mitchell: A key tenant and strength of the Crane business system, and we have highlighted improving time after time over years is the flexibility and speed to react to issues outside our control.
Max Mitchell: Our third quarter performance and fourth quarter guidance are further great. Examples of our exceptional performance even in the face of adversity.
Max Mitchell: And our teams continued to execute and win in the third quarter.
Max Mitchell: Within aerospace <unk> electronics, we were selected by Deutsche aircrafts to supply the proximity sensing system for its <unk> hundred 28 Eco platform. Following the prior award for the anti Skid brake control system on this aircraft.
Max Mitchell: This is a great platform with the lowest fuel consumption and <unk> emissions for its size category in the market today, and we are well positioned to support all of our OE customers as they continue to develop more fuel efficient and environmentally friendly solutions.
Max Mitchell: We're also awarded a lube and scavenge pump contract for zero Avia and.
Max Mitchell: And other significant negotiations continue for additional collaborative combat aircraft programs.
Max Mitchell: Within process flow technologies, one of the largest gas majors has approved <unk> for use in their cryogenics applications opening up 35% of our liquid hydrogen valve market for our growing cryogenics business where.
Max Mitchell: We also received a $5 million order for a major chemical facility upgrading to newer cell membrane technology for Chlor alkali production.
Max Mitchell: Our resistor flex line pipes, and <unk> valves have successfully been selected to be installed on this new upgrade due to their excellent corrosion resistant properties.
This project consolidates, our position as the main solution provider for this customer online products due to superior life.
Max Mitchell: Overall, another strong quarter for both aerospace and electronics and process flow technologies.
Max Mitchell: Both in reported results.
Max Mitchell: As well as in our execution supporting current and future growth.
Max Mitchell: And with continued progress on our existing M&A funnel and we expect additional opportunities to become actionable over the next few quarters. While we are working on a number of transactions at the moment.
Max Mitchell: We see the opportunities weighted towards 2025, given the expected timeline for known processes with a smaller transactions still on track for year end.
Max Mitchell: And as we reiterated during our annual Investor day earlier in the year, we remain confident in our 4% to 6% long term core sales growth rate from resilient and durable businesses with solid aftermarket.
Max Mitchell: And 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 Mitchell: And with virtually no net debt the capital deployment opportunity is significant.
Speaker Change: Hey, with the future in mind, we're excited to announce that we will be hosting an investor meeting at our aerospace <unk> electronics site in Fort Walton Beach, Florida on March six 2025.
Speaker Change: We will be sharing more information about the details of the event over the next few weeks, but please save the date on your calendars.
Speaker Change: Our Fort Walton Beach site as the production site for our defense power business, which houses production of our wide range of power conversion devices for use in Nextgen military radars as an example with growing capability.
Speaker Change: High power for emerging ground vehicles.
Speaker Change: Now, let me turn the call over to our CFO rich maue for more specifics on the quarter and some more details on our guidance.
Rich Maue: Thank you Max and good morning, everyone, starting with total company results.
Rich Maue: We drove 6% core sales growth in the quarter with strength across both primary businesses and adjusted operating profit increased 35% driven by strong net price and productivity.
Rich Maue: Leading indicators were also strong with core FX neutral backlog up 10% and core orders up 6% compared to last year, notably better than expected, particularly at aerospace and electronics, another strong quarter, reflecting our focus on accelerating core growth along with our consistently differentiated execution.
Rich Maue: In the third quarter adjusted free cash flow was $75 million roughly in line with last year for the full year. We now expect free cash flow to fall at the lower end of our $255 million to $275 million range, given ongoing working capital headwinds at aerospace and electronics and the timing of insurance recoveries in Marion related to Hurricane Aleem.
Rich Maue: Total debt at the end of the first quarter was approximately $332 million with $258 million of cash on hand, we continue to have substantial financial flexibility with roughly a $1 billion in M&A capacity today, and reaching as much as $4 billion by 2028.
Rich Maue: As a reminder, 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.
Speaker Change: As Max noted our M&A pipeline remains active we continue to expect to complete another small deal by year end and expect further transactions as we turn the calendar to 2025.
Speaker Change: Now turning to our 2024 guidance, we are once again, raising our full year adjusted EPS guidance by $7.05 at the midpoint and narrowing the range for EPS to be within $5 <unk> to $5 20.
Speaker Change: Reflecting 19% year over year growth at the midpoint.
Speaker Change: Guidance assumes total core growth of 5% to 7%, but now towards the higher end of that range due primarily to the outperformance of aerospace and electronics at 5% to 7% core growth will drive approximately 19% growth.
Speaker Change: And adjusted segment operating profit.
Speaker Change: We also continue to expect a 5% benefit from acquisitions.
Speaker Change: Overall, another very strong quarter with excellent momentum.
Speaker Change: Now for more details on the segments.
Speaker Change: Starting with aerospace and electronics, despite the headlines no material change in end market conditions relative to our expectations.
Speaker Change: On the commercial side of the business aircraft retirements remained very low due to high demand and limitations on aircraft deliveries, resulting from an aging fleet that requires more aftermarket parts and service.
On the defense side, we continue to see solid procurement spending and a continued focus on reinforcing the broader defense industrial base, given heightened global uncertainty today.
Speaker Change: Overall, it just continues to be a very strong demand environment.
Speaker Change: That demand was reflected in our third quarter growth rates with sales of $239 million, increasing 15% compared to last year with 10% core growth and a 5% benefit from the <unk> acquisition.
Despite the continued high level of sales growth our record backlog of $833 million increased even further up 23% year over year, including 14% core growth and a 9% contribution from the <unk> acquisition.
Speaker Change: In the quarter total aftermarket sales increased 17% with commercial aftermarket sales up 12% and military aftermarket up 31% OEM.
Speaker Change: OEM sales increased 15% in the quarter with 19% growth in commercial and up 9% and military.
Speaker Change: Adjusted segment margin of 23, 5% increased 410 basis points from 19, 4% last year, primarily reflecting higher volumes price net of inflation and productivity.
Speaker Change: As we close 2024, we anticipate core sales growth for the year to be slightly better than our prior 12% expectation.
Speaker Change: And we are also tracking ahead of the four 5% revenue contribution from the <unk> acquisition. We previously cited.
Speaker Change: This guidance assumes continued strong sales and consistent with prior commentary with decelerating year over year growth rates as the comparisons continue to be more challenging and with some impact from the Boeing strike.
Speaker Change: While comparisons can create some noise on quarterly growth rates as we have outlined previously we expect this year's core sales growth rate to be followed by continued strong core growth in 2025 and for the remainder of this decade.
Speaker Change: Additionally, we anticipate full year margins to be above our prior 22, 2% guide and represent more than 250 basis points of expansion compared to last year.
Speaker Change: All in on track for yet another outstanding year.
Moving to process flow technologies, we remain well positioned to continue outgrowing our markets.
Speaker Change: As Max noted we had two sites impacted by Hurricane Helene of the two sites one was fully operational by the end of the first week in October as power was restored.
Speaker Change: Our second site in Marion North Carolina was impacted more significantly.
Speaker Change: But is expected to be fully operational by the end of the year.
Speaker Change: For the quarter our results included about <unk> <unk> of.
Speaker Change: Of EPS impact for both those sites and our raised outlook includes an estimated <unk> <unk> impact from production downtime in Q4.
Speaker Change: Overall, the financial impact from the hurricane will be fully offset by insurance recoveries.
Speaker Change: However, the timing of receiving all insurance proceeds will extend into 2025.
Speaker Change: Demand trends in order rate order rates remain in line with our expectations discussed last quarter.
Speaker Change: Given the strong performance of the business offset by the Hurricane impacts, we expect our sales and margin in this segment to be relatively consistent with our prior guidance for the year.
Speaker Change: In the quarter itself, we delivered sales of $309 million up 16% driven by core strong core sales growth of 7% in the quarter.
Speaker Change: Along with a 9% benefit from the Baum and <unk> acquisitions.
Speaker Change: Compared to the prior year core FX neutral backlog increased 3% and core FX neutral orders were relatively flat.
Speaker Change: Adjusted operating margin of 21, 8% expanded 260 basis points better than we expected with strong strong core operating leverage in the quarter driven by productivity strong net price and higher volumes.
Speaker Change: For context remember that in 2019, just before Covid margins were 13, 6% as we noted before this is a significant step function change in margins, which is reflective of our efforts to structurally shift the business towards higher growth and higher margin end markets.
Speaker Change: We continue to see opportunity on this journey through the contribution from accretive new product introductions pricing that is both disciplined and appropriately assertive. Our continued investments in technology, driven product differentiation and continued productivity.
Speaker Change: In engineered materials sales of $49 million decreased 13% compared to the prior year adjusted operating profit decreased 80 basis points to 12, 9% on a lower volumes.
Speaker Change: For the full year, we expect both sales and margins to fall below our prior view for flat, but with recent and projected cuts in interest rates. We believe we are at bottom today.
Before moving to questions overall again, an outstanding performance in Q3 and outlook for the balance of the year.
Speaker Change: We raised guidance for the third consecutive quarter full year sales growth up 11% with segment margins, expanding 140 basis points to 21%.
Speaker Change: And EPS growth of 19%.
Speaker Change: Our teams continue to execute operationally and commercially better than ever even in the face of unique.
Speaker Change: Unexpected challenges.
Speaker Change: Special Thanks to our Marion North Carolina Associates, as well as to those assisting and recovery efforts to bring that size back even stronger than before.
Speaker Change: As Rocky Balboa, So passionately coach his son and the sixth installment of the legendary Academy Award winning Rocky franchise.
Speaker Change: It's not how hard you can hit.
Rocky Balboa: It's how hard you can get hit and keep moving forward how much you can take and keep moving forward. That's how winning is done.
Speaker Change: Operator, we are now ready to take our first question.
Speaker Change: The floor is now open for questions, ladies and gentlemen at this time, if you have a question or comment.
Speaker Change: Star and one on your telephone keypad if at any point. Your question is answered you may remove yourself from the queue by pressing star and <unk>.
Speaker Change: Once again, we ask that you pick up your handset when posing your question to provide optimal sound quality. Thank you.
Speaker Change: Once again, ladies and gentlemen that is star in one and we will take our first question today from the line of Matt Summerville at da Davidson.
Speaker Change: Thanks.
Speaker Change: Morning.
Speaker Change: Good morning, Matt.
Speaker Change: You quantified you did a good job quantifying the impact associated with.
Speaker Change: The hurricane So I was wondering if you could be a bit more precise as to exactly what you felt in Q3, if anything material from the Boeing strike and what's baked into your guidance associated with that strike for Q4, and then I have a follow up.
Speaker Change: Yeah. So in Q3, I would say not material Matt.
Speaker Change: The more material impacts as we quantified was the hurricane at <unk> roughly.
Speaker Change: In Q4, I would say that.
Speaker Change: We're continuing to make sure that we're protecting Boeing.
Speaker Change: So our estimate there.
Speaker Change: Perhaps a little bit muted from a volume perspective, but there is some impact, but I would again say not material and not affecting our overall guide for the quarter.
Speaker Change: Matt ballpark is $5 billion of sales.
The effective programs at below segment average margins.
Speaker Change: I don't think were going to be more specific about what typically is in the fourth quarter assumption.
Speaker Change: But but that's kind of the way to think about it and keep in mind, Matt in our commercial of our ego actually 19% priced in a corner so pretty strong despite what was going on.
Speaker Change: For sure Great and then maybe on <unk>, if you could maybe do a little bit more of a deeper dive on what youre seeing across your major end markets and geographies, both with respect to projects and MRO.
Speaker Change: Yeah, sure I'll give a little bit of color Matt.
Speaker Change: Overall, the message would be that very very consistent with what we discussed and shared in July following the second quarter earnings call fairly consistent.
Speaker Change: On a year to date basis compared to coming into the year doing better.
With the positive surprise as being largely around projects as we were entering the quarter.
Speaker Change: Primarily in the Americas.
Speaker Change: But also in the Middle East Asia, and primarily in chemicals and pharmaceuticals.
Speaker Change: We do think the backlog as it currently stands is setting us up well as we are looking to the fourth quarter and 2025.
Speaker Change: European Chemical is still slow no no real change there both projects and MRO.
Speaker Change: If anything MRO stabilizing as the way to think about it but we're not expecting a big recovery at all here as we exit Q3 and finish up Q4.
Speaker Change: At China, and Europe, I would say just overall the most challenged end markets there.
Speaker Change: Handful of project push outs not inconsistent with what we were seeing coming into the year and through the first nine months.
Speaker Change: So thats very similar very similar trend as well.
Speaker Change: And again the strength coming from a project point of view in pharmaceuticals and in chemical.
Speaker Change: Outside of outside of the process side of the business on the more commercial areas of what we Havent CFT North American water wastewater just continues to win frankly and taking share. So excited about what we continue to see there and then UK non res I would say a decent.
Speaker Change: Double digit core order rate that we saw here in the quarter. So also recovering.
Speaker Change: Got it thank you guys.
Speaker Change: Yes.
Next we'll hear from Justin Ages at CJS Securities.
Yes.
Speaker Change: Hey, good morning, I'll just.
Speaker Change: Good morning.
Justin Ages: You mentioned a bit on M&A and maybe bigger into 2025, just in a smaller one that we could see.
Justin Ages: Before the end of the year can you give any color on whether that's on the PFT or the A&D side.
Justin Ages: Our PFT because.
Okay.
Justin Ages: We'll probably youll, probably see the seats.
On the $20 million range solid EBIT margins in the cryogenic space again, so it's really nice to fit.
Justin Ages: <unk> scheduled to close Friday.
Justin Ages: We'll put a press release out one when that occurs.
Speaker Change: Alright, that's very helpful. Thank you.
Speaker Change: And then one more if I could.
Speaker Change: Yes.
Speaker Change: Without getting.
Speaker Change: <unk> political or anything can you tell us what if you're favoring one political climate for the business over the other or how you are approaching the November election.
Speaker Change: No I think.
Speaker Change: No matter, what we are ready to react to any administration any any occurrence.
Speaker Change: The flexibility and being able to respond as a homework of.
Speaker Change: Crane and what we've executed over.
Speaker Change: Any administration, historically and how I view it as we move forward.
Speaker Change: Alright, I appreciate you taking the questions.
Justin Ages: Thanks, Justin.
Speaker Change: Our next question will come from and I do apologize if I Mispronounce. Your last name from Scott Industrial at Deutsche Bank. Please go ahead. Your line is open Sir.
Speaker Change: I like that.
Hey, guys.
Speaker Change: Sorry.
Sorry, if I missed it but do you happen to have the gross splits at AAD handy between commercial OE commercial aftermarket and defense OEM and defense aftermarket. Thanks.
Speaker Change: Commercial OE was up 17.
Speaker Change: Military OE up 13.
Commercial aftermarket up 39 mill.
Speaker Change: Military aftermarket sorry, I'm reading the wrong column I apologize forget all of this.
Speaker Change: Ed.
Speaker Change: Yes.
Speaker Change: On a core basis, excluding the acquisition.
Speaker Change: <unk> was up seven military OE up seven commercial aftermarket up 12 military aftermarket up 30.
Speaker Change: Okay, great. Thanks, and then Matt.
Speaker Change: Right.
Speaker Change: Max what is cranes dollar ship set content on a new AP 1000 nuclear reactor.
Max Mitchell: Yes, we haven't disclosed the ship set content on.
Max Mitchell: Yeah.
Speaker Change: A couple of million dollars, it's not it's not that.
Speaker Change: Significant where we're positioned with the valves Scott Okay, but we are chasing we are.
Speaker Change: We are specified.
Speaker Change: As the AP 1000 gets built we will have that content our team is actively.
Bidding.
Speaker Change: Working with all the small modular nuclear reactor builders on new designs getting specified in.
Speaker Change: So it's clearly a strategic focus for us that's our smaller $70 million nuclear services business.
Speaker Change: That does turnaround work wonderfully positioned test equipment on turnarounds.
It provides those services and also manufacturing.
Speaker Change: Bespoke valves for those solutions just for those that don't remember that history also.
Speaker Change: Okay, and Max is kind of a tough question, but you had downtime in South Carolina, you had downtime in North Carolina, you had this Taiwan impact and you had a strike at Boeing.
Speaker Change: And you still beat on the quarter and raise the guide on EPS.
Speaker Change: So maybe curious if you could retrofit about whats in the water at Crane that enables <unk> to perform like this in these circumstances.
Well, Thanks, Scott I appreciate that question to brag about the team.
Speaker Change: Our processes, where we've always described this.
Speaker Change: Some investors eyes glaze over everybody speaks to their own business system everybody speaks the same.
Speaker Change: <unk> and language I would argue that very few.
Differentiated themselves in terms of truly being able to execute on what the essence of those systems to me and I would argue that we do for those investors that.
Speaker Change: Having visited our facilities I think we've we've shown that in practice what that means with the crane business system means that starts with our strategy and execution of a very disciplined process.
Speaker Change: Around.
Speaker Change: The cadence and execution, it's not.
Speaker Change: Easy.
Speaker Change: On a pace for Crane associates, I mean, that's something that is.
Speaker Change: Regularly talked about but also with some pride in terms of what it means to be part of creating and driving that cadence and execution focused on growth.
Speaker Change: <unk>.
Speaker Change: Our approach of driving customer satisfaction, I think we've got an operational prowess around lean and six Sigma that is.
Speaker Change: Again.
Speaker Change: We can always improve and we always make it ugly and be very transparent with ourselves, but we are really quite good at just maniacal focus on waste variation overburden, when our associates and how we we strip out that waste.
Speaker Change: Year after year month after month day after day.
Speaker Change: Everything from strategic sourcing too.
Speaker Change: Newer holistic tools.
Speaker Change: Processes and focus that we just execute really well.
Speaker Change: Yeah, I think it's a phenomenal culture.
Speaker Change: The stores with ethics, and integrity and puts the screen business system.
Speaker Change: At its forefront and I think we are.
Speaker Change: Differentiate and I think hopefully investors see that reading through in our results, but thank you for the question.
Speaker Change: Thank you.
Speaker Change: Damian Caris that UBS. Your line is open we have you have our next question.
Damian Caris: Damian Hey, good morning, everyone.
Speaker Change: Good morning.
Speaker Change: Okay.
Damian Caris: I wanted to ask you a follow up question on process flow.
Damian Caris: No that power is less relevant to the business nowadays.
Speaker Change: Versus the past when it was kind of a larger proportion of the mix, but you do still have a strong position in nuclear in North America. In particular, just curious if youre seeing any activity from some of the recent capacity that's coming back online.
Speaker Change: And maybe any thoughts on.
Speaker Change: Yes, how youre thinking about some of the announcements from Google and these other tech companies on planning on some on nuclear projects.
Speaker Change: Power overall, I think it's stabilized we havent seen nothing I can see it in the data.
Speaker Change: Any major shifts.
Speaker Change: From that standpoint, and the nuclear.
Speaker Change: It's exciting news the nuclear resurgence is certainly exciting we are excited about those announcements as well there's going to be a lot of money in investments in there I think it's going to be a longer term cycle for sure.
Speaker Change: But on a smaller scale our nuclear team is investing for growth one of our strategic initiatives as a brand new testing capabilities.
Speaker Change: Allows for remote testing for the annual.
Speaker Change: Our process of certifying.
Speaker Change: The valves and so we're excited about that investing for growth, but it's positive.
Speaker Change: This to be something that will be certainly looking at also from an M&A strategy also if and when it makes sense on assets that come up.
Speaker Change: That's great very helpful.
Speaker Change: And then I wanted to ask you on Aero just curious if there's any.
Speaker Change: Contract discussions or negotiations.
Speaker Change: <unk> happening with.
Speaker Change: Any of your major.
Speaker Change: Aerospace customers.
Max Mitchell: Max you expect that kind of call.
Max Mitchell: And the rest of this year, just any any risks and <unk>.
Max Mitchell: Possibly see a little bit of a disruption.
Max Mitchell: In 2025 versus that 7% to 9%.
Max Mitchell: Long term targets you have or do you still feel pretty confident looking at 'twenty 'twenty thought.
Max Mitchell: Well.
Speaker Change: The contract question first I mean, we're always in negotiations on various contracts when they come up when they are due.
Speaker Change: Thats just ongoing I would say that the pace.
Speaker Change: And.
Speaker Change: Sure.
Scope of contract discussions continue nothing unusual so that's all positive I would say that.
Look I mean anything outside of our control. We've always said what worries you. The most of the things that are outside of our control.
Speaker Change: Some economic shock it's war, it's another virus, it's those types of things could that happen sure I guess, so based on what we have clear line of sight to based on everything we're triangulating on we have a high confidence as we exit the year and head into 2025.
Speaker Change: Terrific. Thanks, a lot guys I'll pass it along.
Speaker Change: Thanks, David.
Ron Epstein at Bank of America. Please go ahead your line is open.
Ron Epstein: Hey, good morning, guys.
Good morning.
Ron Epstein: How long does this strike at Boeing have to go.
Ron Epstein: Go for it to be really problematic, meaning.
Ron Epstein: It seems like the last three months that <unk>.
Speaker Change: Three months kind of a line in the sand.
Speaker Change: Maybe some of your smaller suppliers can really starting to have trouble. So I was just curious if you have a sense on.
Speaker Change: Obviously, you are getting are resolved sooner than later far better, but if it were to go on for a while.
Speaker Change: Does that line in the sand.
Speaker Change: For US look I think if we look specifically for crane.
Speaker Change: We're not interiors were not some of the others that might have some clear.
Clear great greater challenges with the delay right now with the aftermarket.
Speaker Change: Okay.
Speaker Change: If the strike continues.
Speaker Change: Unfortunately, new aircrafts are not being delivered older aircrafts continue to fly our aftermarket continues to remain remains strong so we feel that.
Speaker Change: And even in the worst case scenario with the strike, where we're going to be okay.
Speaker Change: We are protecting some of the volumes I mean, we're adjusting.
Speaker Change: Some of the forecast rates of course, but in terms of.
Speaker Change: Making sure that we have the appropriate inventory for startup not excessive but the appropriate level of inventory.
Speaker Change: Managing our supply chain no knee jerk reactions into our supply chain. So I think we're managing it really really well and I don't I don't see a red line I really don't.
Speaker Change: Private.
Speaker Change: Got it got it got it alright, alright. Thank you.
Thanks, Ron.
Speaker Change: Nathan Jones at Stifel. Your line is open for our next question.
Speaker Change: Yeah. Thanks. Good morning, this is Adam Farley on for Nathan.
Adam Farley: I wanted to start in PSC.
It did really strong margin performance there.
Adam Farley: Could you talk about maybe the primary drivers included price cost operating leverage 80 20 mix.
Adam Farley: Anything else, maybe contributing to the improved margins.
Speaker Change: No. It's all of the above honestly I mean, we had a very solid performance price price cost.
Speaker Change: Productivity continues to be really strong team executes extraordinarily well I would reiterate that the results in the quarter also include that impact from Marion So on a.
Speaker Change: Gross basis, we did even better.
Speaker Change: I think the way to think about it is nothing unusual and as we think about next year and moving forward.
Speaker Change: 35%.
Speaker Change: 35% leverage rate that we've been speaking to is the way to think about.
Speaker Change: Our comfort and ongoing performance.
Speaker Change: Also keep in mind Adam.
Speaker Change: Okay.
Speaker Change: Yep.
Speaker Change: We have done in terms of the higher growth higher margin markets.
Speaker Change: Thanks, Bob.
Speaker Change: Okay, that's great to hear.
Speaker Change: And then shifting over to 80 20.
Speaker Change: I know, it's still very early days.
Speaker Change: But is there any one business or the other that stand to benefit more from both a gross margin perspective.
Speaker Change: Based on 2020 deployment.
Speaker Change: So Adam what I would highlight again is.
Adam Farley: Our approach is a much more balanced approach.
Speaker Change: We don't follow the herd, we don't just run with some new.
Speaker Change: Shiny thing.
Speaker Change: <unk> truly is a holistic improvement.
Philosophy and approach that is not just about price it's pricing for value.
Speaker Change: It's about.
Speaker Change: Really good product management, too and simplifying the portfolio for those things that you really should not be.
Speaker Change: Continuing to try to produce it has that bears the brunt of your cost.
Speaker Change: Youre really not making the kind of margins that you think.
Speaker Change: So you simplify the business overtime youre, taking cost out so it's not just the price up its a cost out and then it is a focus on over serving your core customers and redirecting your assets and making sure that those core customers are getting super serve so it's about our growth strategy. So when you put it in that context.
Speaker Change: I think it's a wonderful fit with our with our overall CBS philosophy approach tools.
Speaker Change: It's been a phenomenal addition.
Speaker Change: I would say that it's still when we talk about early innings of the approach.
Speaker Change: It's really around the <unk>.
Speaker Change: Simplification continue to see opportunity, but we've always been aggressive at stripping out cost closing facilities. So this is again just a natural extension for us from a crane business system standpoint, but.
Speaker Change: This extension of simplification cost out over serving customers still early innings, and it's a purity of the approach, which I'm really really.
Speaker Change: Excited about.
Speaker Change: As a reminder for investors coming out of Covid.
Speaker Change: Inflationary environment, we were maniacal of making sure early and fast that we stood up for our value prop and and passed on inflation.
Speaker Change: Inflation very fast very quickly I would not say that was 800000 that was just in many cases brute force.
Driving it through the business.
Speaker Change: Since then of course, it's become much more sophisticated strategic we continue with the momentum.
Speaker Change: But.
Speaker Change: I still think it's early innings for us and we're really approaching this the right way and in a balanced way that we'll have longevity for.
Speaker Change: Many many years ahead.
Speaker Change: Frame it up with a different I think.
Speaker Change: That's right.
Speaker Change: In the in the near term to answer your question on which.
Speaker Change: Which side as well I mean I think.
Speaker Change: PFT is naturally just given the.
Speaker Change: The lack of a long term contract environment, that's there relative to <unk>, but I would just echo everything Mark said.
Speaker Change: Awesome, Thanks for taking my questions.
Speaker Change: Adam was us was Nathan when he rather than listen to Scott versus me.
My feelings are hurt.
Speaker Change: No.
Speaker Change: Nothing nothing like that.
Speaker Change: Alright Telemark.
Speaker Change: Message.
Speaker Change: Aldo.
Speaker Change: Next we'll hear from Jeff Sprague at vertical research.
Jeff Sprague: Good morning, everyone.
Jeff Sprague: He is on a little late bouncing between some calls I had kind of three things on my mind. If you already touched on any of these feel free to pump the transcripts, but.
Jeff Sprague: We had honeywell callout kind of delays in energy related projects, obviously, you've sort of deemphasize kind of straight oil and gas, but it can rhyme into chemicals and other things. So wondering if youre seeing anything there.
Jeff Sprague: If.
Jeff Sprague: If you didn't quantify kind of storm and tax please do so and then on the.
Speaker Change: The Boeing strike I think you guys were almost exactly on right right you weren't one of the one of the problem children in terms of supply chain.
Speaker Change: As far as I can tell anyhow, which I think would make you a little bit more exposed to them needing to tap the brakes.
Speaker Change: Things drag on.
Speaker Change: Any additional color there would be great I appreciate it.
Speaker Change: On the Honeywell delays, we're just we're still not seeing any major.
Speaker Change: Significant shifts in push outs or cancellations anything along those lines.
Speaker Change: On the storm impacts you want to yes, I mean.
Speaker Change: On the storm impacts Jeff It was <unk>.
Speaker Change: <unk> in the quarter in the third quarter.
PFT.
Speaker Change: And then for the quarter for the fourth quarter and PFT, We gave an estimate of five to 10.
Speaker Change: Of impact.
Speaker Change: On the Boeing right question Jeff.
Speaker Change: We don't feel that we.
Speaker Change: We have risk here with.
Speaker Change: With Boeing on any kind of adjustment moving forward, we've always been prudent in our internal planning and execution and.
Speaker Change: As a matter of fact, we've taken some proactive measures to continue to protect and Boeing as we're moving forward. So I think we've planned this really really well executing well and.
Speaker Change: We're not concerned over.
Speaker Change: <unk>.
Speaker Change: How this plays out.
Speaker Change: Alright, thanks for the color.
Speaker Change: Yes.
Speaker Change: On the on the storm impacts with those impacts holding the prior guidance that we issued for PFT in July.
Speaker Change: Got it understood I appreciate it okay, yes, thanks, Jeff.
Speaker Change: And we will hear from Tony Bancroft Gabelli funds. Please go ahead.
Speaker Change: Good morning, Tony Good morning, Hey, good morning, Matt.
Tony Bancroft: Management team great job as always.
Tony Bancroft: With your given your strong performance you've had.
Tony Bancroft: And putting out.
Tony Bancroft: Yes.
Speaker Change: Today, your sort of long term 28 outlook could you just sort of.
Speaker Change: Maybe walk us through.
Speaker Change: Any update on that longer term plan getting to are getting to the two.
Speaker Change: <unk> business is at scale.
Speaker Change: Appropriate margins.
Speaker Change: And then also an update on that.
Any potential sales engine material business I realize.
Speaker Change: Okay.
Speaker Change: Not the best time, maybe but just.
Speaker Change: Your thoughts on that would be helpful.
Yes, I would say no change on the long term targets for three to five in process seven to nine.
Speaker Change: <unk>.
Speaker Change: Aerospace and electronics.
Speaker Change: Leveraging at 30% to 35% and PFT and 35 to 40 in aerospace and electronics.
Speaker Change: So I would say that that.
Speaker Change: That equation holds is still something that we're marching forward on and continuing to look for the right opportunities to deploy capital to.
Speaker Change: To continue to support the inorganic side of things on the inorganic side I would say that the activity is up.
Speaker Change: Never been higher I mean, our our funnel is very full we're very very active so I think from that standpoint, it plays well to our goal of of.
Speaker Change: Scaling up in both <unk> and PFT strategically, we like the assets, we like where they're positioned well see what we can continue to get across the goal line here, but a lot of activity. So thats, all incredibly positive and on engineered materials.
Speaker Change: As we've stated before.
Speaker Change: We love the business Great team, great Great business, Great end markets, we don't it's not strategic for Craig we tried to sell it once.
Speaker Change: The Doj had some issues with the <unk>.
Acquirer that unfortunately, we missed that cycle, we will not miss the next cycle, so that that will.
Speaker Change: It's just a matter of time.
Speaker Change: Thanks, so much great job everyone.
Tony Bancroft: Thanks, Tony Thanks, Tony.
Tony Bancroft: Yeah.
Speaker Change: And there are no further questions in our Q4 today. This concludes the Q&A portion of the call and I am pleased to turn the floor back over to Mr. Max Mitchell for closing remarks.
Max Mitchell: Thanks, operator appreciate it.
Max Mitchell: Again, yet another very solid quarter with results outperforming expectations, even with surprises outside of our control that our teams reacted to incredibly well as the late great Wally Amos founder famous Amos cookies <unk> nothing is an obstacle unless you say it is very.
Max Mitchell: As I highlighted previously a key tenant and strength of the Crane business system is the flexibility and speed to react to issues outside of our outside of our control.
Max Mitchell: Third quarter performance and fourth quarter guidance is another great example of exceptional performance even in the face of adversity.
Max Mitchell: Our strategy is working team is executing driving improved earnings through its growth and commercial excellence initiatives. Our M&A pipeline is full and we have the balance sheet capacity to execute we look forward to closing out 2024 on a strong note and are well.
Max Mitchell: Well positioned for continued growth and delivering on expectations in 2025.
Max Mitchell: Thank you all for your interest in Crane, and your time and attention. This morning have a great day.
Speaker Change: Ladies and gentlemen, this concludes today's grain company third quarter 2024 earnings Conference call. Please disconnect. Your lines at this time and have a wonderful day.
Max Mitchell: Sure.
Yeah.
Max Mitchell: Yes.
Max Mitchell: Okay.
Max Mitchell: Hum.