Earnings Call Transcript - CR Q3 2025

Operator, Operator

Welcome to the Crane Company Third Quarter 2025 Earnings Conference Call. I would now like to turn the call over to Allison Poliniak, Vice President of Investor Relations.

Allison Ann Poliniak-Cusic, Vice President of Investor Relations

Thank you, operator, and good day, everyone. Welcome to our third quarter 2025 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; Alex Alcala, Executive Vice President and Chief Operating 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 is on for Q&A. We will start off our call with a few prepared remarks from Max, Alex and Rich, after which, we will respond to your questions. Just a reminder, the comments we make on this call will include some forward-looking statements. We refer you towards 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.

Max Mitchell, Chairman, President and Chief Executive Officer

Thank you, Allison, and thanks, everyone, for joining the call today. We are proud to report another strong quarter with results coming in ahead of our expectations. Adjusted EPS was $1.64, driven by an impressive 5.6% core sales growth, primarily reflecting broad-based strength at Aerospace & Electronics and continued strong execution at Process Flow Technologies. This quarter's results yet again underscore our differentiated technologies and operational discipline. In addition to our continued long-term investments in new technology and solutions, the Crane Business System, the machine that we described in great detail at our March Investor Day, combined with our unique culture, enables our teams to adapt to the many unforeseen events that we're all facing every day and deliver on the results. Our pending acquisition of Precision Sensors & Instrumentation from Baker Hughes remains on track to close at year-end, and our strategic outlook for these businesses has only improved over the last 3 months. Many work streams are already well underway to ensure a seamless integration and create shareholder value starting day 1. Our balance sheet remains very strong. Our pipeline of acquisitions remains robust, and we remain very active on the M&A front. And there's a tremendous amount of momentum and continued innovation happening at Crane that Alex will cover off. As we exit 2025, we are once again raising, but also narrowing our full year adjusted earnings outlook to a range of $5.75 to $5.95 from our prior view of $5.50 to $5.80, given our backlog, consistent execution and year-to-date performance. That reflects 20% adjusted EPS growth at the midpoint compared to 2024. Another outstanding year for Crane and our shareholders. And as we look to 2026, our consistent investment thesis remains firm. The strength of our underlying business, our strategy and our capabilities, in both operational execution and commercial excellence, support our 4% to 6% organic growth assumptions, leveraging on average of 35% into next year. We will provide greater detail on 2026 expectations as well as PSI in early January, once we officially close on the acquisition. Now let me pass it over to our Chief Operating Officer, Mr. Alex Alcala to provide some color on the current environment and segment performance.

Alejandro Alcala, Executive Vice President and Chief Operating Officer

Thanks, Max. First, let me comment on the pending acquisition of PSI. As Max said, the acquisition remains on track to close January 1, and the integration planning is well underway and progressing smoothly with the existing Baker Hughes and Crane teams. As you would expect, my team and I, as well as the PSI leadership have been intimate with all closing details and integration planning to accelerate strategic execution in 2026. As we discussed last quarter, each brand will contribute a robust and complementary technology, further strengthening the Crane portfolio. Combined with the power of the Crane Business System, PSI will be accretive to our financial profile, both margins and growth, within the next few years, and our confidence in what we'll deliver has only increased as we work closely with the PSI team on a daily basis planning for day 1. In terms of further M&A, our funnel of opportunities remains full. The deals we are working on today include opportunities in both Aerospace & Electronics as well as Process Flow Technologies. And most range in deal-size purchase price from $100 million to $500 million. Now some thoughts on the segments in the quarter. Starting with Aerospace & Electronics. Aerospace and defense markets remain very strong. The backlog we built and new programs and opportunities our teams have won provide strong visibility into 2026 and beyond. On the commercial side of the business, activity remains healthy with Boeing and Airbus continuing to ramp up production and aftermarket activity continued at elevated levels. 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. Looking ahead to the balance of 2025, we now anticipate core sales growth for the year to be up low double digits compared to our prior view for core growth to be up single digits to low double digits. And that growth will be leveraged at 35% to 40% for the full year. Our guidance assumes growing year-over-year OE sales, partially offset by decelerating year-over-year growth rates in the commercial aftermarket in Q4 that we previously highlighted. Overall, a really outstanding year. We also continue to win new business and pursue new opportunities across the segment. That gives us confidence that we will continue to see above-market growth for the remainder of this decade. Let me highlight a few examples. First, Crane continues to win funded next-generation military demonstrator programs for our brake control systems for both fixed and rotary wing platforms. Second, we continue to advance our vehicle electrification solutions. Heightened by the launch of our new 200-kilowatt traction motor inverter generator controller product at the Association of the United States Army or AUSA trade show in October. We remain actively engaged with defense vehicle OEMs regarding collaboration on the Common Tactical Truck and new combat vehicle programs. Related to this, I would comment that over the past 2 years, customer vehicle development efforts were fragmented with numerous concepts in play and uncertainty around government funding. This year at AUSA, however, the landscape was noticeably different. The focus was clear, industry attention is now centered on competing for the XM30 and the CTT. This shift aligns precisely with the strategic direction we've defined for our defense power business. With government funding priorities now well established, vehicle primes are concentrating their efforts almost exclusively on winning these programs. Very exciting for us. And last, activity around air defense systems remains very robust. Golden Dome is still being defined by the DoD. However, we strongly believe we will benefit directly through existing positions held today on systems like LTAMDS radar system and Patriot missile programs, among others that will certainly be part of Golden Dome solution, let alone pure increased demand drivers. We also anticipate additional growth from new emerging opportunities that our technology is well suited for. Specifically in the scaling and upgrades of radar, counter unmanned aerial systems, high-power energy and space-based assets for Golden Dome. With a record backlog and pipeline of opportunities, Aerospace & Electronics remains poised to well outperform its markets over the next decade. Very proud of our team. Our Process Flow Technologies, similar to Q2, end markets are stable, and we remain well positioned to outgrow across the cycle. We continue to see strength in segments such as wastewater, pharmaceuticals, cryogenics and also power, while chemical markets remain soft, yet stable. As a reminder, we have systematically repositioned our portfolio over the past decade around our core end markets where we have the strongest competitive position and the most differentiation, enabling sustainable market outgrowth. Tactically, we have proven our ability to react to any changes in demand quickly, and we will remain nimble, taking any necessary and appropriate price and productivity measures required. Our focus and discipline enabled us to continue to win in this segment despite the slower growth environment, and that was reflected in Q3. For example, our municipal wastewater pump business is on track for double-digit growth driven by strong momentum in new product adoption. At WEFTEC this year, we introduced the high efficiency SyFlo wastewater pump, featuring advanced non-clog technology with leading efficiency metrics. Shipments began in Q3. And as we head into 2026, a robust sales funnel gives us confidence in delivering another year of strong growth for this business. Also, our cryogenic business continues to execute commercially with a number of orders across aerospace and defense, space launch, satellite production and semiconductor investments. Overall, we secured double-digit growth in new orders in the quarter within cryogenics, reflective of our front-end engineering support and manufacturing capability as a differentiator in the market. Additionally, we won several large pharmaceutical orders supporting capacity expansion to manufacture GLP-1 drugs. Our ability to deliver high-performance solutions for critical pharmaceutical applications continues to differentiate us in a competitive market and positions us well for future growth in this space. And lastly, despite the headwinds facing the chemical industry, our teams continue to secure targeted opportunities largely tied to preventative maintenance and technology upgrades. Looking ahead to the balance of 2025, given our line of sight today, we maintain our view for core growth to fall at the lower end of our low to mid-single-digit growth range that we guided to last quarter, but with greater margin expansion as core volumes will leverage at the higher end of our targeted range for the full year despite tariff headwinds. Overall, both our businesses remain well positioned to continue to deliver outstanding results into 2026. Now let me turn the call over to our CFO, Mr. Rich Maue for more specifics on the quarter.

Richard Maue, Executive Vice President and Chief Financial Officer

Thank you, Alex, and good morning, everyone. As we prepared for our Q3 earnings release last month and reflected on the consistency of our execution and results, a movie quote came to mind that one of our investors mentioned at a recent conference. Ryan Reynolds, portraying Michael Bryce in the film The Hitman's Bodyguard, said, "Boring is always best." I appreciate all the movie quote suggestions I've received over the past year, and I encourage you to continue sharing your thoughts on quotes that relate to Crane. If a quote we use during the call comes from your suggestion, you will receive a free autographed Crane coffee mug. In all seriousness, while the environment isn't boring, our story remains consistent, and our teams are executing well, achieving results above expectations in the most reliable manner despite the known challenges we face. Now, let's discuss total company results. We achieved a 5.6% core sales growth in the quarter, mainly due to strong performance in Aerospace & Electronics. Adjusted operating profit rose 19%, fueled by solid net pricing and productivity. Our core FX-neutral backlog increased by 16% compared to last year, reflecting ongoing strength in Aerospace & Electronics, while core FX-neutral orders rose by 2%. From a balance sheet standpoint, we maintain a net positive cash position. At the quarter's end, we completed financing with our bank partners for the upcoming acquisition of PSI, entering into a credit agreement for a $900 million delayed draw term loan and a $900 million revolving credit facility, both maturing on September 30, 2030. We plan to finance PSI primarily through the term loan and available cash, reserving the revolving credit for further M&A and routine working capital management. Following the PSI transaction, our net leverage will exceed just over 1x, remaining well below our 2x to 3x target, positioning us favorably for additional M&A. Regarding tariffs, we still anticipate a gross cost increase of around $30 million for the year, including the impact of the Section 232 tariffs. As stated last quarter, we expect to offset the tariff impacts through pricing and productivity, and our teams are ready to respond to any future changes in this area. Now, let's look at the segments for the quarter. In the Aerospace & Electronics segment, sales reached $270 million, a 13% increase, mostly from organic growth. Despite the ongoing high core sales growth, our record backlog of over $1 billion, up 27% year-over-year, saw a slight sequential increase. Core orders rose by 5%, consistent with our expectations as some anticipated orders were received earlier than planned. Overall, demand remains strong. Total aftermarket sales grew by 20%, comprising a 23% increase in commercial aftermarket and a 12% rise in military aftermarket. OEM sales also rose by 10% in the quarter, with both commercial and military segments up by 10%. The adjusted segment margin was 25.1%, an expansion of 160 basis points from 23.5% last year, mainly due to strong net pricing, productivity, and increased volumes. We expect a modest decline in operating margin for Q4 due to typical seasonality and less favorable mix between commercial OE and aftermarket. In the Process Flow Technologies segment, Q3 sales totaled $319 million, a 3% increase, with flat core performance. It included a 1.6% contribution from the Technifab acquisition and a 1.5-point foreign exchange benefit. Compared to the previous year, our core FX-neutral backlog declined by 5%, and core FX-neutral orders decreased slightly as anticipated. The adjusted operating margin of 22.4% expanded by 60 basis points compared to last year, driven by strong productivity, mix, and net pricing despite tariff impacts. Regarding guidance, we made a couple of nonoperational adjustments below the segments. We now project corporate expenses at $85 million, slightly above the previous estimate of $80 million due to M&A activity. We also expect net nonoperating income to be closer to $7 million, up from $4 million because of higher investment income on our cash balances. This income includes about $9 million from business interruption insurance recovery related to Hurricane Helene, with around $6.7 million recognized year-to-date and $2.7 million in the quarter. Lastly, we have revised our full-year tax rate estimate slightly lower to 23% from the prior estimate of 23.5%. These three nonoperational items result in a slight benefit of approximately $0.01, with the remaining $0.19 of the guidance increase at the midpoint coming from the segments. Operationally, we are maintaining our full-year core growth guidance range of 4% to 6%, but we expect to be in the upper half of that range due to the strength in Aerospace & Electronics, which should leverage our normal rates on a full-year basis. Given our excellent results thus far and our assessment for Q4, we are increasing our adjusted EPS guidance by $0.20 at the midpoint and narrowing the range to $5.75 to $5.95, again reflecting a 20% growth year-over-year at the midpoint. Overall, we have had another outstanding quarter and year amidst a dynamic macro environment. Now, operator, we are ready to take our first question.

Operator, Operator

Our first question is from Matt Summerville with D.A. Davidson.

Matt Summerville, Analyst

I have a couple of questions. First, regarding PFT, can you discuss whether the expectation is that the business will grow organically by low single digits for the year? Specifically, how does the nonchemical portion of PFT compare to that low single-digit expectation? Additionally, what are your expectations for the chemical side of the business in that end market this year? Can you also elaborate on your outlook for that exposure, which is relatively significant for the segment, perhaps using an 80-20 framework? I also have a follow-up question.

Alejandro Alcala, Executive Vice President and Chief Operating Officer

Yes, Matt, thank you. This is Alex. To provide context on the markets and respond to your question, the conditions vary regionally and between markets. Importantly, we are primarily focused on the Americas, which represents a little over half of our business in PFT, which is advantageous in the current environment. Regarding the nonchemical markets, particularly in North America, we're observing double-digit growth in wastewater, driven by investments in aging infrastructure and environmental concerns. We anticipate this trend to persist into next year. In cryogenics, thanks to our recent acquisitions, we are experiencing strong growth across various applications, including semiconductors, electronics, and space launch, fueled by the commercial aerospace market. We've gained significant market share, and our team recently showcased their commercial excellence, with new tools that enhance project sketching and reduce lead times for our customers. Moreover, in pharmaceuticals, we are seeing strong growth in North America, spurred by reshoring activities. A significant project we secured involves a key customer expanding production related to the GLP-1 drug in the U.S., and we expect more investments to follow. In the power sector, driven by the demand for AI and data centers, North America is seeing positive trends as well. On the chemical side, conditions differ by region. North America has seen several positive projects this year, with healthy activity in expansions and productivity. The Americas benefit from cost advantages in feedstock, encouraging customers to invest in expansion and increase output in the U.S. The Middle East also shows positive trends, while Europe and China have been weaker. In terms of our focus in the chemical market, we see potential in critical applications that allow us to differentiate and add value for customers. While the cyclic nature of the market presents challenges, we have been actively reshaping our portfolio over the past decade, investing in cryogenics, wastewater, and other growth areas. Our recent acquisition of PSI adds to our capabilities in sectors like nuclear and aerospace. We will continue to invest in high-growth markets while maintaining our presence in the chemical sector and enhancing overall growth in our PFT segment.

Matt Summerville, Analyst

And then just another one on PFT, the margin upside you saw in the quarter, can you maybe help parse out what the key drivers of that upside may have been, whether it be price, cost, mix or just cost out and then how we should be thinking about those various levers at a high level as we think about next year?

Alejandro Alcala, Executive Vice President and Chief Operating Officer

Yes. So as we think about PFT, the journey we've been on, right, for the last decade, growing and delivering more than 100 basis points, or close to 100 basis points on average, really is driven by several factors. One is our continued innovation, new product launches that we've highlighted in the past, our new product sales keeps growing as a percent of our portfolio. The new products are in these target markets more differentiated and we're able to have higher margin because of that. And then we're driving commercial excellence, value pricing, standing up for the technology and the problems we're solving for our customers. And third, this traditional relentless focus on operational excellence and waste elimination, which is core. So I think I would highlight those three elements. I think what's different in this environment is this tariff dynamic, which I've been very, very pleased with how the teams have been able to manage that through both price and supply chain, which I think is a real differentiator for us to be able to do that and not only maintain, but expand our margins even in this environment, just speaks to the quality of our portfolio and the quality of execution from our teams.

Operator, Operator

Our next question comes from Justin Ages with CJS Securities.

Justin Ages, Analyst

I was hoping you could comment on the softness in chemicals that you mentioned in PFT. Are you seeing signs of ongoing stabilization or a return to growth? I'm trying to understand when that might happen.

Alejandro Alcala, Executive Vice President and Chief Operating Officer

Yes. So we're definitely seeing it stable, right, throughout the year. In the first half, we hit some big projects, projects continue to move more so in Middle East and North America. MRO globally has been stable throughout the year. So that's been a big part of our success. So definitely no signs of deterioration, stability. And it's just a matter of when this will start recovering at some point, we expect next year for chemicals. But no clear inflection yet, but stable and expected to improve next year.

Max Mitchell, Chairman, President and Chief Executive Officer

Justin, when I consider the global situation, it's clear that we've had to respond to shifts in tariffs and daily developments. I'm pleased with how agile we remain in our responses. I'm particularly proud of what we can control. Looking at the broader market, I feel optimistic because despite the current challenges, I believe things will stabilize toward the end of this year and into the next. This is just my interpretation of the circumstances and the administration's actions, and I’m planning with a positive outlook for our teams. Although it’s still early, we have plan meetings in November to finalize our strategy for 2026. Overall, I'm hopeful about how things will unfold and the implications for the global economy. However, my opinion is just that—one perspective among many.

Justin Ages, Analyst

Yes. It's worth a lot. I appreciate the answers. And then switching to the PSI, just back of the envelope, the margins a little bit under Crane. So can you just talk about applying the Crane Business System or the machine to PSI and what you're expecting to see in margin improvements once you've integrated them?

Alejandro Alcala, Executive Vice President and Chief Operating Officer

Yes, Justin, this is Alex. We haven't finalized the business deal yet, and we expect to do so on January 1. We will provide more details afterward. Generally speaking, these businesses possess exceptional technology and a strong aftermarket. We anticipate that they will rank among our top businesses within Crane in terms of margin and growth. The improvements we will implement are similar to what we've achieved, especially on the PFT side, by enhancing the overall CBS. These will contribute positively to our profile in the coming years. They have all the necessary fundamentals, and I will discuss in more detail how the various elements will unfold in the next year. I am very confident that we will succeed with this acquisition. I am very pleased with what I see and our readiness to execute.

Operator, Operator

We will move next with Damian Karas with UBS.

Damian Karas, Analyst

Congratulations on the progress. I wanted to ask a follow-up question regarding margins, specifically your guidance for the year. It seems like you are anticipating a decrease in fourth quarter margins, which is quite a departure from the strength demonstrated in the first three quarters. Additionally, on a year-over-year basis, the incremental margin appears to be significantly below the 35% to 40% range that you aim for. Could you provide some clarification on your margin expectations for the fourth quarter? Are there any factors influencing this?

Richard Maue, Executive Vice President and Chief Financial Officer

Yes, sure. Damian, this is Rich. The primary area would be similar to what we talked about the last couple of quarters with respect to the year-over-year headwinds that we're going to see in commercial aftermarket. Now I would admittedly say that we actually had a little bit of a better quarter here in Q3, and so we didn't see as much of that headwind. We do expect that in the fourth quarter. A couple of items that I would point to is that we did see a few initial provisioning orders that we benefited from in Q3. We saw a decent claim recovery. So we did see a few things that did benefit us here in the quarter. And then what I would also say is two other things. One, we're continuing to see the OE build rates continue. And so that's a natural mix, unfavorable mix element, although we are excited about it. And then the second item would be when you look at the fourth quarter, we tend to have lower production hours. So there's a little bit of seasonality in what we would typically exhibit in the fourth quarter at A&E. Now all that said, I would tell you that on a full year basis, we're going to probably be at the higher end of our targeted leverage range for A&E and will exceed at PFT. So yes, we had a great 9 months. We still expect a great fourth quarter, but it will be a little bit more muted for those reasons.

Damian Karas, Analyst

Understood. That's really helpful. And sorry if I missed any comments related to this earlier, kind of hopping around a bunch of calls today, but would you guys give us your thoughts on the U.S. government shutdown? Are you seeing or expecting any impact from that? And just kind of thinking about that, should this continue into the extended future?

Richard Maue, Executive Vice President and Chief Financial Officer

Yes. Right now, it’s not affecting us. We are focused on managing expenses and have seen no indications of any issues in that area. So far, everything looks good for Crane, and we don’t foresee any potential impacts as we move into the first quarter.

Operator, Operator

Our next question comes from Scott Deuschle with Deutsche Bank.

Scott Deuschle, Analyst

Alex, you mentioned power and data center demand as being a supportive market for PFT in response to Matt's question, I think. I guess, can you share a bit more detail there on what you're seeing in that market and how it's benefiting Crane?

Alejandro Alcala, Executive Vice President and Chief Operating Officer

Yes, definitely. Our focus is primarily on the U.S. market, where less than 10% of our portfolio is in PFT. We have a long history in this business, particularly with our valve portfolio. We are observing well-documented power demand and significant investments in combined cycle natural gas plants across the country. This year alone, nearly 30 power plants are advancing. We believe this presents a strong opportunity for us. Combined cycle plants remain an economical and reliable method for electricity generation, especially given the abundance of natural gas in the United States. Our valve portfolio will continue to play a role in this sector, and we expect this trend to persist into next year.

Max Mitchell, Chairman, President and Chief Executive Officer

Funnel has been increasing, projects are up.

Scott Deuschle, Analyst

And do you have any content on smaller reciprocating engines like those that Caterpillar makes?

Alejandro Alcala, Executive Vice President and Chief Operating Officer

No. No, we don't have content in that.

Scott Deuschle, Analyst

Okay. And then, Max, are you investing organically at PFT to increase your shipset content on AP1000? Obviously, some big news out this morning. So I was curious if that can maybe be a bigger driver for you all than your historical content suggested?

Max Mitchell, Chairman, President and Chief Executive Officer

Thank you, Scott. You could say that Reuter-Stokes is focused on enhancing our content related to the AP1000 in the long term. The team has already begun technology investments to enter the pressurized water reactor market, alongside the boiling water reactor sector. Long term, we are indeed seeing great efforts from the current team, much like when we initially secured AP1000 content many years ago, which accounted for about $10 million per shipset. We are now in the process of identifying a 30% increase in content that we are bidding on to gain additional market share. We are pursuing both organic and inorganic growth as we progress. Additionally, there was an exciting announcement today regarding an $80 billion government investment, which I believe signifies a shift that will support the continued integration of nuclear power as part of a broader global solution for clean and efficient energy, positively impacting our position moving forward.

Operator, Operator

Our next question comes from Nathan Jones with Stifel.

Nathan Jones, Analyst

I'm finding it a bit hard to concentrate with the promise of a signed Rich Maue Crane coffee mug. I have another question regarding the PSI businesses. Max, you mentioned that from a strategic perspective, you are more optimistic about that business than you were three months ago. Could you elaborate on what you've learned in the past three months that has made you more positive about the outlook for that business?

Max Mitchell, Chairman, President and Chief Executive Officer

Well, I'll let Alex chime in as well. But it starts with the team itself. And I think we just continue to be impressed with the caliber of the talent that's going to be joining Crane. I just love the openness and transparency that we've been met with to date. So that feels really good in terms of integration, integration planning, working well together. It's what I know is taking place already. This is not a team that has stood still. They've been investing for growth, and we're going to get quickly get aligned strategically as we're moving forward. It just all feels very, very positive from that standpoint. Sharing of data, kind of getting clarity strategically on what we're going to be working on together from day 1. It's been a fantastic relationship. What else would you highlight, Alex?

Alejandro Alcala, Executive Vice President and Chief Operating Officer

Yes, over these months, Nathan, we've gained more clarity on how we'll collaborate and work together. We have detailed plans and opportunities, with a clear understanding of the gains, starting with aerospace in Druck and nuclear, along with Panametrics. The level of detail we've achieved in our plans and priorities, along with where we can quickly achieve gains, gives us greater confidence than we had three months ago. This confidence continues to grow as our plans become more defined and detailed.

Nathan Jones, Analyst

I'm curious about your outlook for 2026. You've been transparent in the past, so given that you're likely to reach the upper end of your 4% to 6% growth target this year and have experienced some organic growth slowdown, do you anticipate staying within the 4% to 6% range next year? Perhaps more towards the middle of that range? Any insights on how the growth outlook might develop for the coming year would be appreciated.

Max Mitchell, Chairman, President and Chief Executive Officer

Well, it's still early days. We've got our plan meetings coming up. There's a lot to monitor here in the fourth quarter. Having said all that, based on what I know today, based on what we feel today based on thinking through the end markets and how that will continue to play out, it still feels like our investment thesis holds into next year, Nathan, from that standpoint.

Operator, Operator

Our next question comes from Jordan Lyonnais with Bank of America.

Jordan Lyonnais, Analyst

On defense and aero, how should we think about the opportunity for you guys if we start to see announcements for F/A-XX CCA downselection and some of the larger Group 4, 5 drones have been kind of previewed?

Alejandro Alcala, Executive Vice President and Chief Operating Officer

Yes, Jordan, this is Alex. We are very well positioned with the F-XX and NGAD platforms, particularly on all the demonstrators. We've successfully engaged in multiple initiatives, which will yield significant benefits. Regarding our CCA activity, we've secured a position with a leading emerging player in this field, and we expect that to ramp up in the coming years. In the area of drones, we are actively involved across the board. There is a wide range of drones available, from small battery-powered models to larger ones like Switchblade or Phoenix, but we do not engage in the smaller market. Our focus is on medium and larger drones related to CCA, such as Fury, Global Hawk, and Predator. We are well positioned with various solutions and anticipate benefiting as the market continues to expand.

Jordan Lyonnais, Analyst

Got it. Can you tell us how strong the demand has been in Aerospace & Electronics and how you are assessing your current capacity to meet that demand?

Alejandro Alcala, Executive Vice President and Chief Operating Officer

We are well prepared to meet the demand and the ramp-up rates of the OEMs, both Airbus and Boeing. The teams have done a great job in preparing, including establishing inventory buffers to operate effectively in support of those ramp rates. I am quite confident in our ability to support.

Operator, Operator

We have a follow-up from Scott Deuschle with Deutsche Bank. As far as capacity, we're well prepared to meet the demand and the ramp-up rates of the OEMs, both Airbus and Boeing. I think teams have done a really nice job preparing for that, even taking advantage of preparing inventory buffers to execute at a very high level to support those ramp rates. So quite confident in our ability to support.

Scott Deuschle, Analyst

I'm going to be beat up on Rich with a few follow-ups. First is the F-16 brake retrofit program still on track to hit that $30 million revenue target for 2026?

Richard Maue, Executive Vice President and Chief Financial Officer

Yes, it is.

Scott Deuschle, Analyst

Okay. And then for 2025, there's essentially nothing in the base, right?

Richard Maue, Executive Vice President and Chief Financial Officer

Correct.

Scott Deuschle, Analyst

Okay. And then Rich, is it fair to think that A&E organic growth accelerates next year, given what seems to be a story of acceleration across commercial OE, military OE and military aftermarket?

Richard Maue, Executive Vice President and Chief Financial Officer

I would say that when you think about how our external guidance over the long term has been 7% to 9%, I think it's safe to say we'll be at the high end of that range at this point, Scott.

Max Mitchell, Chairman, President and Chief Executive Officer

Commercial OE remains positive. We will be meeting with our teams to discuss the aftermarket, which has been stronger than we expected at the start of this year. The uncertainty lies in whether that year-over-year growth continues and what the mix will look like. Is that reasonable?

Richard Maue, Executive Vice President and Chief Financial Officer

Yes, I do think that's fair. I think our algorithm there still holds. But what elements would be OE versus aftermarket is going to be something that we'll be teasing out over the next couple of months. But as you're thinking about it, Scott, I would look at that long-term algorithm in the way I positioned it where we think we're going to fall.

Scott Deuschle, Analyst

Is the $85 million level of corporate costs something you believe you can maintain for next year, or do you expect it to increase with PSI and other factors coming into play?

Richard Maue, Executive Vice President and Chief Financial Officer

Yes. No, we don't see it growing next year, to be frank with you. You look at what our rate is today, it's like, I don't know, 3.8%. I would expect that to go down and we're going to leverage the growth, and you'll see it closer to 3% next year, all up, all in.

Operator, Operator

And this concludes the Q&A portion of today's call. I would now like to turn the call over to Max Mitchell for closing remarks.

Max Mitchell, Chairman, President and Chief Executive Officer

Thank you all for joining us today. We often talk about the Crane Business System that is our foundational and holistic operating system. Many companies claim to have some form of an operating system, and I often get the question from investors as to what makes ours unique. We believe it is the intensity of the culture, people and processes and how we apply the principles to our processes down to the smallest details, which makes the Crane Business System unique. Results are celebrated, but never good enough. And every detail is important to us moving forward. As the late great Giorgio Armani said, to create something exceptional, your mindset must be relentlessly focused on the smallest detail. At Crane, our teams are relentless with the details, building a stronger and more exceptional Crane. Thank you all for your interest in Crane and your time and attention this morning. Have a great day.

Operator, Operator

Thank you. This concludes today's Crane Company Third Quarter 2025 Earnings Conference Call. Please disconnect your line at this time, and have a wonderful day.