Earnings Call Transcript
Crane Co (CR)
Earnings Call Transcript - CR Q1 2024
Operator, Operator
Welcome to the Crane Company First Quarter 2024 Earnings Conference Call. I'd now like to turn the call over to Jason Feldman, Senior Vice President of Investor Relations, Treasury, and Tax. Please go ahead.
Jason Feldman, Senior Vice President of Investor Relations, Treasury and Tax
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. 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. We refer you to the cautionary language at the bottom of our earnings release and also in our annual report, 10-K, and subsequent filings pertaining to forward-looking statements. Also during the call, we'll be using some non-GAAP numbers, which are reconciled to 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.
Max Mitchell, Chairman, President and Chief Executive Officer
Thank you, Jason, and good morning, everyone. Thanks for joining the call today. We had another impressive quarter with results outperforming expectations. Adjusted EPS was $1.22, driven by 5% core sales growth, along with strong leading indicators, core orders, and backlog both up 11% compared to last year. We are off to a great start in 2024. Based on that strength, we are raising our full-year guidance by $0.20 to a range of $4.75 to $5.05, which reflects 14% EPS growth at the midpoint. That's high-confidence guidance that we have direct line of sight to delivering, assuming somewhat muted industrial activity and continued gradual improvement in the aerospace and 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, 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 and based in Jurupa Valley, California, CryoWorks is a leading supplier of vacuum-insulated pipe systems for hydrogen and cryogenic applications. This acquisition is highly synergistic with the ongoing organic development of our CRYOFLO brand. CryoWorks has annual sales of approximately $28 million, with approximately $5 million of adjusted EBITDA. 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. It 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 various electronics, semiconductor, and manufacturing testing applications, as well as transportation and transfer solutions for cryogenic alternative fuels. Furthermore, we will leverage this team's design expertise to accelerate the development of our CRYOFLO solutions, targeting traditional cryogenic applications and new mobility and transportation applications. We expect this acquisition to exceed 10% ROIC with approximately 10% of EPS accretion, excluding intangible amortization by year five, making another acquisition that is an excellent fit, strengthening our existing business and fully aligned with our strategy. I want to personally thank Donna, 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. We look forward to working closely and further investing in driving growth with the entire CryoWorks team. It was 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 various transactions at the moment, we see more opportunities at the end of '24 than we do in the next several months, considering the expected timeline for known processes. 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 in 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 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. With virtually no net debt, the capital deployment opportunity is significant. Without taking too much away from Investor Day, both Alex and Jay will provide more insights on recent wins, but I would like to highlight a couple. Starting with aerospace electronics, 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 in that program, assuming it transitions 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, an area where, historically, we had no position prior to several years ago. Additionally, we are 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 previously discussed our product position for the XM30 optionally manned fighting vehicle, and we are now seeing progress with the common tactical truck program as well. Another market where we've not historically had content 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-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. This product family is being created on a single development platform to serve many different markets, end-user applications, and voltage ranges. The full xMOR launch will be completed 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 have made with our high-efficiency motor platform in the U.S. municipal water business. As we continue to expand our portfolio, we've had particular success with this motor platform, and most recently with the largest frame size in the 75 horsepower to 120 horsepower range used in wastewater treatment plants. Based on our success in the quarter, we are on track to double 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. Our value proposition continues to resonate with our customers, and we secured another significant pharmaceutical project for a next-generation cancer drug where production requires temperature ranges that our products are differentiated and well-suited for. We also continue to gain traction with the commercialization of many new key products we have discussed over the last few years. One example is our success with the FK-TrieX, a proprietary, innovative, triple offset valve with a breakthrough design that eliminates the traditional trade-off between flow rate and sealing capabilities. Since its introduction just two years ago in 2022, we're on track for significant order growth, with orders expected to exceed $20 million annually by 2026. I am very proud of our team 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, Mr. Richard A. Maue, for more specifics on the quarter and some details on his guidance.
Richard Maue, Executive Vice President and Chief Financial Officer
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. I have many leather-bound books, and my apartment smells of rich mahogany. For those who do not know me, I am kidding, but I am embarrassed to say that I do enjoy that movie, 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 in 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. First, acquired sales always leverage mathematically at their operating profit margin level in the first year. Second, we have a very challenging comparison at 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. From a quarterly perspective, as I just mentioned, there are also a number of timing differences comparing 2024 to 2023 that impacted 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 in orders both up 11% compared to last year, and as Max explained, notably better than expected at 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, and then I will comment on our 2024 outlook for each segment and for our overall P&L. Starting with aerospace and electronics, 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. This results in an aging fleet that requires more aftermarket parts and service, 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 Vian acquisition. 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 Vian acquisition. Sequentially, core FX neutral backlog increased 5%. By category and excluding the Vian acquisition, in the quarter, total aftermarket sales increased 39%, with commercial 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. 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, including both availability and turnover. 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. 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. We still expect a full year, 4.5% favorable benefit from the Vian acquisition. 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. 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 Vian, of approximately 37%, slightly higher than prior guidance overall on track for another outstanding year. 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 bit more positive than it was over 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 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 U.S. and localization projects in China, both directly and indirectly, success from our share gain initiatives, and a somewhat unique cyclical recovery in the post-COVID global macro environment. While we are still somewhat 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 Vian acquisition, and favorable foreign exchange, with core sales down 2% as expected. Compared to the prior year, 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%. 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. 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 including both Vian and CryoWorks, will add about six points to our full-year growth rate. When excluding acquisitions, we now expect core sales growth of approximately 1%, up 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 what we delivered in the first quarter, reflecting modest temporary dilution from the CryoWorks acquisition, as well as slightly less favorable mix. For context, in 2019, just before COVID, margins were at 13.6%. The significant step-function change in margins reflects deep structural shifts in the business to higher growth in higher margin end markets, contributions from accretive new product introductions, disciplined pricing to address inflationary pressures, continued investments in technology-driven product differentiation, and ongoing cost repositioning and productivity. From a cadence or timing perspective, we expect 2024 to be far more level-loaded than 2023. At Engineered 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. 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 being 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 million to $275 million, up $10 million from prior guidance, 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, we do expect to draw on our revolver to help finance the $61 million purchase price for the CryoWorks acquisition. We continue to have substantial financial flexibility with more than $1 billion in M&A capacity today, reaching as much as $4 billion by 2028. This is 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, 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 $4.75 to $5.05, from our prior range of $4.55 to $4.85, 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. That 4% to 6% 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 expense associated with the CryoWorks acquisition. Overall, just a great start to the year with incredible momentum. Operator, we are now ready to take our first question.
Operator, Operator
Our first question will come from Matt Summerville with D.A. Davidson. Please go ahead.
Matt Summerville, Analyst
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 and China seeing some healthy project activity. Could you maybe put a little end market color around that and then touch on more broadly speaking what you're seeing in the MRO side of PFT, and then I have a follow-up. Thank you.
Richard Maue, Executive Vice President and Chief Financial Officer
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.
Max Mitchell, Chairman, President and Chief Executive Officer
On North America and the health of project activity, Matt, look, as we told you historically, we predicted that orders were going to go negative in Q3, inflect at that point, and then continue to recover from there. We believed it was just moving to the right. I think what we are realizing, and we're still seeing this play out, certainly it's been stronger than we anticipated, not quite as bad as we had forecast based on previous cycles. I think it's unique for this post-COVID environment, 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. Right now, with the revised guidance, we're looking at not inflecting as negative as we had anticipated and recovering from here. In terms of project and MRO strength, there's a broad-based improvement in projects overall. North America, in particular, and China to a lesser degree are stronger than anticipated. Europe hasn't changed significantly. Some of the reasons are expansions, debottlenecking, and reliability improvements. We're even seeing some pull-through in semiconductor-related projects, with applications using erosive, corrosive chemicals in semiconductor that are showing general strength as well. Generally, it's coming in a little stronger than we anticipated, and I think we're feeling a little more bullish.
Richard Maue, Executive Vice President and Chief Financial Officer
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 map. So, to give you an example about a pharmaceutical win, things like that continue to show good progress.
Matt Summerville, Analyst
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% to 25% to 10% to 15%. How does that, if at all, impact your outlook for your A&E business? And how closely does your business correlate to that sort of growth rate?
Max Mitchell, Chairman, President and Chief Executive Officer
Yeah, 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, if there are slight changes, it may have some impact, but for 2024, we would not expect any, just given the demand environment that we're in today.
Matt Summerville, Analyst
Understood.
Operator, Operator
Our next question will come from Scott Deuschle with Deutsche Bank. Please go ahead.
Scott Deuschle, Analyst
Rich, I think hearing you quote Ron Burgundy might end up being the highlight of the call this season.
Max Mitchell, Chairman, President and Chief Executive Officer
I'm hoping our earnings are an even better highlight.
Scott Deuschle, Analyst
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 PFT separately?
Richard Maue, Executive Vice President and Chief Financial Officer
Sure, sure. So on PFT, I would just reiterate that we are seeing mid-single-digit price increases. Overall, in A&E, roughly a third of the core growth we saw in the quarter came through price, with the balance being volumes. Hope that helps.
Scott Deuschle, Analyst
Yeah, that's very helpful. And then Max, I was wondering if you might characterize the kind of broader competitive intensity at PFT right now, particularly relative to Ni Wei in China. Mainly just curious, I don't know much about that; 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?
Max Mitchell, Chairman, President and Chief Executive Officer
In Ni Wei in particular, I don't like to talk about the competitors too much. I would literally 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. market globally, we haven't seen that kind of traction take place. I think we're well positioned. Even within China, there's still a place for global manufacturers versus localized spending, and that customer base values the technology, quality, delivery, and stability that we provide. We continue to differentiate ourselves on that front, and we have not seen any dramatic shifts within the competitive landscape in the last year or couple of years, honestly.
Scott Deuschle, Analyst
Okay, great. And then Max's last question, which is, did the mid-sized deals in the pipeline skew more toward A&E or more toward PFT, or is it relatively balanced on mid-sized deals?
Max Mitchell, Chairman, President and Chief Executive Officer
It's balanced right now, Scott.
Operator, Operator
Our next question will come from Nathan Jones with Stifel. Please go ahead.
Nathan Jones, Analyst
I just thought with a bit of a longer-term question on A&E, you guys have had a high single-digit organic growth target out there over the next several years. I'm sure that had a number of these projects, like the radar one you mentioned this morning, factored in with their probability of success. Maybe you could just discuss how things have gone relative to what you expected in that algorithm over the last two or three years and whether your outlook has changed for the potential on some of those key wins that drive that long-term organic growth rate.
Richard Maue, Executive Vice President and Chief Financial Officer
Good question, Nathan. When we set that 7% to 9% target a few years ago, there were clearly assumptions. We anticipated project wins in defense, how commercial sorting would roll out, more EV wins, high-power defense, and so forth. Since then, we have clearly won a bit more than we anticipated in that 7% to 9%. I think in A&E, we have a platform that has been continuously available for bidding and quoting, and we believe we've won virtually all of them. Momentum in project wins has been stronger than we expected. Additionally, we see further opportunity in pricing compared to when we first set the 7% to 9% growth rate.
Max Mitchell, Chairman, President and Chief Executive Officer
We'll provide an update on the longer-term vision at Investor Day as well, Nathan.
Nathan Jones, Analyst
I wasn't going to actually ask you to go to 8% to 10% or 9% to 11% today. I figured we might get that in May or something. While we're all making jokes today, I have a question on PFT. Clearly, things have turned a little bit there. Some of the leading macro indicators we all track are improving and the outlook seems fundamentally better. You guys are taking it up a little bit while remaining cautious. Could you discuss the factors that keep you cautious on the PFT outlook, what risks you see that may hinder growth, or could lead it to be below current projections?
Max Mitchell, Chairman, President and Chief Executive Officer
Oh my goodness, the uncertainty remains what is outside of our control, quite honestly. You have a highly charged political environment, ongoing wars, and unknown inflationary pressures and Fed actions. There's just a lot of global uncertainty that I think justifies caution and prepares us for anything. Having said that, what's within our control and what we see immediately feels high confidence. If this trend continues, I see some downside risk with upside potential opportunities. What could influence that potentially? Europe coming back a little stronger is one scenario I'm considering.
Richard Maue, Executive Vice President and Chief Financial Officer
I would echo that. It's probably more of an inverse of the question—when do we see things improve? If European chemicals improve faster, we would see upside to what we've shared today at the midpoint.
Operator, Operator
Our next question will come from Damian Karas at UBS. Please go ahead.
Damian Karas, Analyst
First, I just wanted to congratulate Jason on your recent promotion. From my perspective, very, very much deserved.
Jason Feldman, Senior Vice President of Investor Relations, Treasury and Tax
Thanks for the comment. Agreed.
Damian Karas, Analyst
No, absolutely. And Rich, maybe it doesn't have to be now, but you could explain the history of San Diego sometime. So, let me ask you something about aerospace. Sorry if I missed this, but you've discussed unmet demand in the past, and I know you're still facing some supply chain bottlenecks. Could you remind us where you think that unmet demand stands, what it represents, and what it would take to alleviate some of those constraints?
Max Mitchell, Chairman, President and Chief Executive Officer
Yes, thank you, Damian. It's still in that $50 million to $60 million range. It's a rough estimate. Remember, this supply chain has moved from true supply chain post-COVID supplier shortages ramping up. We've seen improvements in broad terms regarding on-time delivery issues, but it has shifted to more general supply chain challenges including capacity issues and turnover in our supply base. I wouldn't call out any specific commodity or supplier. Castings can continue to be problematic over time, but everything appears stable. We're not negatively affecting customer deliveries. Instead, we're seeing modest improvements, which are reflected in our guidance. If conditions continue to improve, we would expect to alleviate some constraints sooner. If not, I feel confident in how we've planned and guided so far.
Richard Maue, Executive Vice President and Chief Financial Officer
I agree. The order strength we observed in the quarter was predominantly for delivery beyond '24. So, while we see strong order activity, it does reflect demand beyond the current fiscal year.
Damian Karas, Analyst
Okay, great. That's really helpful, guys. And you provided commentary around PFT and market verticals and regions. Would you possibly provide some numbers around how much of a drag European chemicals and construction have been? What impacts do they contribute to the full-year guidance? I mean, thinking about that 1% organic growth—what headwinds are currently factored in for those areas?
Max Mitchell, Chairman, President and Chief Executive Officer
I would say we're not expecting much improvement in repair and maintenance activity in European chemicals. Our revised guidance reflects building project activity—much of it spilling over into the 2024 period, largely contributing to U.S. and Chinese opportunities. So, in terms of the overall guide revision on plus 1%, I’d say it’s stable in that maintenance part of the MRO area but increasing in North American chemicals and China. Jason, would you add anything else?
Jason Feldman, Senior Vice President of Investor Relations, Treasury and Tax
No, again, the guidance increase is attributed to project strength specifically in European chemicals. I think we've commented that we expect that sector to be down double digits this year.
Operator, Operator
And our next question will come from Mariana Perez Mora at Bank of America. Please go ahead.
Unidentified Analyst, Analyst
On aerospace and electronics, could you provide insight on how you're thinking about the rest of the year regarding the sustainability of aftermarket strength in both military and commercial markets? Additionally, are you managing to push higher pricing relative to the entire segment?
Max Mitchell, Chairman, President and Chief Executive Officer
Sure. For military, I’ll start there. We began the year with a double-digit forecast regarding military aftermarket strength, and that largely remains unchanged. We still see very strong demand in that end market, whether it involves repairs, spares, retrofits, etc. For the commercial aftermarket, we enjoyed a robust quarter in Q1, aided by favorable comparisons that assisted us. Moving forward, we project a low double-digit outlook, which aligns with our earlier commentary for the year. Consequently, year-over-year growth will appear more muted compared to Q1, but remains significant. However, our pricing potential continues to be leveraged as you would expect. We are seizing opportunities through existing indexing and other strategic price increases.
Jason Feldman, Senior Vice President of Investor Relations, Treasury and Tax
No, remember that as we move into the second half of the year, we face tougher year-over-year comparisons, particularly as we approach the last quarter, where previous-year growth was notable, 24% in Q4 of '22 and 33% last year. Comparatively, we expect performance on a dollar basis to continue favorably.
Operator, Operator
And our next question will come from Justin Ages with CJS Securities. Please go ahead.
Justin Ages, Analyst
I was hoping you could give us an update on the hydrogen business that has been called out as a growth pillar. Does the recent acquisition fit into that, or will it be a separate entity due to the end market served?
Max Mitchell, Chairman, President and Chief Executive Officer
Yeah, great question. Thank you. It absolutely fits into our current strategy. We will provide an update at Investor Day as well. We previously discussed investing in the CRYOFLO brand and creating our own vacuum-jacketed pipe, as well as valves and fittings while entering the market. We've got a line of valves; we've announced a strategic partnership with Chart on this matter. We are attaining traction with approvals from major gas producers. Our focus has been on designing and launching this business. We have a site in Conroe, Texas that serves as our core CRYOFLO vacuum-jacketed pipe production facility moving forward. CryoWorks adds immediate presence on the West Coast, and you often see regional strength with vacuum-jacketed and insulated piping systems for hydrogen and cryogenic solutions. Our strategy is to leverage existing design and sales teams to drive growth investments, while continuing to expand into the Gulf Coast and East Coast for strategic positioning. This will also fuel product development initiatives for CryoWorks in vacuum-insulated pipeline solutions, aiding our capabilities across valves, fittings, and piping. Therefore, it is very synergistic.
Justin Ages, Analyst
That's very thorough. Appreciate it. Thanks for taking the question.
Operator, Operator
And with no further questions in queue, I would like to turn the floor back to Max Mitchell for closing remarks.
Max Mitchell, Chairman, President and Chief Executive Officer
Thank you, operator. What a great start to the year! Looking ahead, we have a great event planned for May 14, 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.' Past strategic development, deployment, and execution have clearly been at the heart of our present performance. 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 for your time this morning. Have a great day.
Jason Feldman, Senior Vice President of Investor Relations, Treasury and Tax
Stay classy, Max.
Operator, Operator
Thank you. This concludes today's Crane Company first quarter 2024 earnings conference call. Please disconnect your lines at this time and have a wonderful day.