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 open for your questions following the presentation. I would now like to turn the call over to Allison Poliniak, Vice President of Investor Relations.

Thank you, operator, and good day, everyone. Welcome to our third quarter 2024 earnings release conference call. I'm Allison Poliniak, Vice President of Investor Relations. 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; along with Jason Feldman, Senior Vice President, Treasury, Tax and Investor Relations, who's on for Q&A. We will start off our call with a few prepared remarks from Max and Rich, after which we'll respond to your questions. And 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. Also during the call, we will be using some non-GAAP numbers, which are reconciled to the comparable GAAP numbers in 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 Relations section. Now let me turn the call over to Max.

Thank you, Allison. Thanks, everyone, for joining the call today. Crane had another excellent quarter with results outperforming expectations. Adjusted EPS was $1.38, driven by an impressive 6% core sales growth, reflecting strength across both Aerospace & Electronics and Process Flow Technologies. We also had strong leading indicators with core orders up 6% and core backlog up 10% compared to last year. And confidence in our outlook for 2024 remains high. We've had a very solid year-to-date as we continue to successfully execute on our strategy. 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. Crane's Marion, North Carolina site was directly affected by flooding from Hurricane Helene as was the region and we are in the process of recovery and bringing operations back online. 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. And the Crane Foundation is proud to support numerous organizations providing relief and help locally in the aftermath of hurricanes Helene and Milton. In addition to the Marion facility in the quarter, we also saw numerous days of downtime from power outages at a site in South Carolina due to Helene, and we lost a week of output from our Aerospace & Electronics site in Taiwan due to Typhoon Krathon. The latter two were less disruptive and those locations will fully recover lost third quarter sales of the fourth quarter. 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. Despite these recent challenges, I remain highly confident in the strength and resilience of Crane's team and portfolio and we are once again raising and narrowing our full year earnings outlook, expecting adjusted earnings per share to be in the range of $5.05 to $5.20, up from our prior view of $4.95 to $5.15. We have direct line of sight to delivering this expected 19% earnings growth... Overall, another strong quarter for both Aerospace & Electronics and Process Flow Technologies, both in reported results as well as in our execution supporting current and future growth. And with continued progress on our existing M&A funnel, we expect additional opportunities to become actionable over the next few quarters. While we are working on a number of transactions at the moment, we see the opportunities weighted towards 2025 given the expected timeline for known processes with the smaller transactions still on track for year-end.

Thank you, Max, and good morning, everyone. Starting with total company results. 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. 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 & Electronics. 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 & Electronics and the timing of insurance recoveries in Marion related to Hurricane Helene. 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 $1 billion in M&A capacity today and reaching as much as $4 billion by 2028. 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.

...We were also awarded a lube and scavenge pump contract for ZeroAvia and other significant negotiations continue for additional collaborative combat aircraft programs. Within Process Flow Technologies, one of the largest gas majors has approved crane valves for use in their cryogenic applications, opening up 35% of the liquid hydrogen valve market for our growing cryogenics business. We also received a $5 million order for a major chemical facility upgrading to newer cell membrane technology for chlor-alkali production....

...Turning to our 2024 guidance. We are once again raising our full year adjusted EPS guidance by $0.075 at the midpoint and narrowing the range for EPS to be within $5.05 to $5.20, reflecting 19% year-over-year growth at the midpoint. Overall, another very strong quarter with excellent momentum. Now for more details on the segments starting with Aerospace & Electronics, despite the headlines, no material change in end market conditions relative to our expectations...

And we will take our first question today from the line of Matt Summerville at D.A. Davidson.

Good morning.

Good morning.

You did a great job quantifying the impact of the hurricanes. Could you provide more specific details on what you experienced in Q3, if there were any significant effects from the Boeing strike, and how that is reflected in your guidance for Q4? I have a follow-up as well.

...So in Q3, I would say not material, Matt. The more material impact as we quantified was the hurricane at $0.03 roughly. In Q4, I would say that we were continuing to make sure that we're protecting Boeing. So our estimate there, 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.

...That ballpark is $5 million of sales a month for the effective programs at below segment average margins...

...And keep in mind, too, Matt, commercial OE grew actually 19% for us in the quarter. So pretty strong despite what was going on.

...For sure. Agreed. And then maybe on PFT, if you could maybe do a little bit more of a deeper dive on what you're seeing across your major end markets and geographies, both with respect to projects and MRO? Thank you.

...Overall, the message would be that very consistent with what we discussed and shared in July following the second quarter earnings call, fairly consistent on a year-to-date basis compared to coming into the year, doing better with the positive surprises being largely around projects as we were entering the quarter, primarily in the Americas but also in the Middle East, Asia and primarily in chemicals and pharmaceuticals...

...Got it. Thank you guys.

...Hey, good morning.

...Good morning.

...You mentioned a bit on M&A and maybe bigger into 2025, just in the smaller one that we could see before the end of the year. Can you give any color on whether that's on the PFT or the A&E side?

You'll likely see that it's in the $20 million range with solid EBITDA margins in the cryogenic space again. It's a really nice fit and we are on track to close on Friday. We'll probably issue a press release when that happens.

That's very helpful, thank you. I have one more question. Without getting too political, could you share your perspective on whether you prefer one political climate for the business over another or how you are preparing for the November election?

...No, I think, look, no matter what, we are ready to react to any administration, any occurrence, flexibility and being able to respond is a hallmark of Crane and what we've executed over any administration historically and how I view it as we move forward.

...All right. Thanks. I appreciate you taking the questions.

...Thanks, Justin.

...Hey, guys. Rich, sorry if I missed it, but do you happen to have the growth splits at A&E handy between commercial OE, commercial aftermarket, defense OE and defense aftermarket? Thanks.

...Commercial OE was up 17%. Military OE up 13%. Commercial aftermarket, up 39%. Military aftermarket up 30%. On a core basis, excluding the acquisition, commercial OE was up 7%, military OE up 7%, commercial aftermarket up 12%, military aftermarket up 30%...

...Okay. Great. Thanks. And then Max, what is Crane's dollar shipset content on a new AT1000 nuclear reactor?

We haven't disclosed the shipset content on the AT1000 nuclear reactor. It's a couple of million, which isn’t significant in relation to our position with the valves. However, we are focused on this area as we are specified. As the AT1000 is built, we will have that content. Our team is actively bidding and collaborating with small modular nuclear reactor builders on new designs being specified. This is clearly a strategic focus for us.

...Okay. And Max, this 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, and you still beat on the quarter and raised the guide on EPS. So just maybe curious if you could rip a bit about what's in the water at Crane that enables you all to perform like this in these circumstances? Thanks.

...Well, thanks, Scott. I appreciate that question to brag about the team and our processes. Well, we've always described this. Look, some investors' eyes glaze over. Everybody speaks to their own business system. Everybody speaks the same mantra 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 mean. I would argue that we do for those investors that have visited our facilities, I think we've shown that in practice what that means, what the Crane Business System means. It starts with our strategy and execution, a very disciplined process around that cadence and execution. It's not easy pace for Crane associates. I mean that's something that is regularly talked about but also with some pride in terms of what it means to be part of Crane and driving that cadence and execution, focused on growth and our approach at driving customer satisfaction. I think we've got an operational prowess around Lean and Six Sigma that is, again, we can always improve and we always make it ugly and be very transparent with ourselves, but we're really quite good at just maniacal focus on waste variation overburden on our associates and how we strip out that waste year after year, month after month, day after day. Everything from strategic sourcing to newer holistic tools and processes and focus that we just execute really well. So yeah, I think it's a phenomenal culture that starts with ethics and integrity and that puts this Crane Business System at its forefront, and I think we differentiate. And I think, hopefully, investors see that reading through the results, but thank you for the question.

...Thank you.

...Hey, good morning, everyone.

...Good morning.

...I wanted to ask you a follow-up question on process flow. I know that power is less relevant to the business nowadays 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 you're seeing any activity from some of the recent capacity that's coming back online?

Power overall is stable. I haven't observed any significant shifts based on the data. Regarding nuclear, the resurgence is certainly exciting, and we're looking forward to those announcements. There is going to be considerable investment in that area, and I believe it will be a longer-term cycle for sure.

...That's great. Very helpful. And then I wanted to ask you on Aero. Just curious if there's any contract discussions or negotiations happening with any of your major aerospace customers. And Max, you expressed kind of confidence in the rest of this year. Just any risks in Aero, you could possibly see a little bit of a disruption in 2025 versus the 7% to 9% long-term target you have? Or you still feel pretty confident looking at 2025?

...Well, on the contract question first, I mean, we're always in negotiations on various contracts when they come up, when they're due. So that's just ongoing. I would say that the pace and 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 me the most is those things that are outside of our control. It's 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 high confidence as we exit the year and head into 2025.

...Terrific. Thanks a lot guys. I’ll pass it along.

...Thanks, Damian.

...Hey, good morning, guys.

...Hi, Ron. Good morning.

How long would the Boeing strike need to continue before it becomes truly problematic? It seems that if it lasts three months, that could be a point where some of your smaller suppliers might start to face serious issues. I'm curious if you have any insight on this. Clearly, resolving the situation sooner is much better, but if it drags on, where would you draw that line?

For us, you need to look specifically at Crane. We're not involved in interiors like some others that may face greater challenges due to the delay. Currently, with the aftermarket, even if the strike continues and new aircraft aren't being delivered while older ones keep flying, our aftermarket remains strong. We believe that even in a worst-case scenario with the strike, we will be fine. We are protecting some of our volumes and adjusting some of our forecast rates. We are ensuring we have the right amount of inventory for a start-up, not excessive but appropriate, and managing our supply chain without any hasty reactions. Overall, I think we are managing it very well, and I do not see any major concerns.

...Right. Got it. Thank you.

...Thanks, Ron.

...Thanks, good morning. This is Adam Farley on for Nathan. I wanted to start in PFT. Again, really strong margin performance there. Can you talk about maybe the primary drivers, including price/cost, operating leverage, 80/20 mix? Is there anything else maybe contributing to the improved margins?

...No, it's all of the above, honestly. I mean we had a very solid performance, price/cost. Productivity continues to be really strong. The team executes extraordinarily well. I'd reiterate that the results in the quarter also include that impact from Marion. So on a gross basis, we did even better. I think the way to think about it is nothing unusual. And as we think about next year and moving forward, that 35% leverage rate that we've been speaking to is a way to think about our comfort and ongoing performance.

...And also keep in mind, Adam, the focus shift in that PFT business that we've done in terms of the higher growth, higher-margin end markets has certainly been beneficial as well.

...That's great to hear. And then shifting over to 80-20. I know it's still very early days but is there maybe one business or the other that stands to benefit more from both a growth and margin perspective, specifically on 80-20 deployment?

What I want to emphasize again is our balanced approach. We don't follow the crowd or chase after every new trend. The 80-20 principle is truly a comprehensive improvement philosophy that goes beyond just pricing; it focuses on value. It includes effective product management and streamlining our portfolio by eliminating products that are costly to produce and don’t yield the expected margins. This is about our growth strategy. Given this context, I believe it aligns well with our overall CBS philosophy and tools, and it has been a significant enhancement.

...No, I think that's right. In the near term, to answer your question on which side as well. I mean, I think PFT is naturally just given the lack of the long-term contract environment that's there relative to A&E. But yes, I would just echo everything Max said.

...Awesome. Thanks for taking my questions.

Adam, would Nathan prefer to listen to Scott instead of me? I'm feeling a bit hurt.

...And we'll hear from Jeff Sprague at Vertical Research.

...Good morning everyone. I was a little late bouncing between some calls. I have kind of three things on my mind. If you already touched on any of these, feel free to pump the transcript. But we had Honeywell call out kind of delays in energy-related projects. Obviously, you've sort of deemphasized kind of straight oil and gas, but it can rhyme into chemicals and other things. So wondering if you're seeing anything there. If you didn't quantify kind of storm impacts, please do so. And then on the Boeing strike, I think you guys were almost exactly on rate, right? You weren't one of the problem children in terms of supply chain as far as I could tell anyhow which I think would make you a little bit more exposed to them needing to tap the brakes if things drag on. So any additional color there would be great. Appreciate it.

On the Honeywell delays, we're still not observing any significant changes in pushouts or cancellations. Regarding the storm impacts, would you like to provide more information?

On the storm impacts, it was $0.03 in the third quarter in PFT. For the fourth quarter on PFT, we provided an estimate of $0.05 to $0.10 of impact.

...And on the Boeing rate question, Jeff, we don't feel that we have risk here with Boeing on any kind of adjustment moving forward. We've always been prudent in our internal planning and execution. And as a matter of fact, we're taking some proactive measures to continue to protect Boeing as we're moving forward. So I think we've planned this really, really well, executing well. And we're not concerned over how this plays out.

...Great. Thanks for the color.

...Yeah, Jeff, just on the storm impacts, with those impacts holding the prior guidance that we issued for PFT in July.

...And we'll hear from Tony Bancroft at Gabelli Funds.

...Good morning, Tony.

Good morning, Max and team. Great job as always. Given your strong performance at the last Investor Day and your long-term outlook for 2028, could you provide an update on that longer-term plan to scale your two businesses while maintaining appropriate margins? Additionally, any insights on the potential sale of the engine material business would be appreciated, even though I understand the timing might not be ideal.

I would say there are no changes to our long-term targets, which remain at 3% to 5% in Process and 7% to 9% in Aerospace and Electronics, with leverage expectations of 30% to 35% in PFT and 35% to 40% in Aerospace and Electronics. This equation remains solid as we continue to move forward and look for the right opportunities to invest capital in order to support our inorganic strategies.

On the inorganic side, I would say that the activity has never been higher. Our funnel is very full, and we're very active. This aligns well with our goal of strategically scaling up in both Aerospace and Electronics and Power and Fluid Technologies. We like the assets and their positioning, and we will see what we can achieve, but there's a lot of activity, which is incredibly positive. Regarding Engineered Materials, as we've mentioned before, we love the business, the team is great, and it serves great end markets. However, it's not strategic for Crane. We attempted to sell it once, but the Department of Justice had some concerns with the acquirer, and we missed that opportunity. We will not miss the next one; it's just a matter of time.

...Thanks so much. Great job, everyone.

...Thanks, operator. Appreciate it. Again, yet another very solid quarter with results outperforming expectations even with surprises outside our control that our teams reacted to incredibly well. As the late great Wally Amos, Founder of Famous Amos Cookies once said, nothing is an obstacle unless you say it is. As I highlighted previously, a key tenet and strength of the Crane Business System is the flexibility and speed to react to issues outside our control. Our strategy is working. The 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 positioned for continued growth and delivering on expectations in 2025. Thank you all for your interest in Crane and your time and attention this morning. Have a great day.

Ladies and gentlemen, this concludes today's Crane Company third quarter 2024 earnings conference call. Please disconnect your line at this time and have a wonderful day.