Earnings Call Transcript
Crane Co (CR)
Earnings Call Transcript - CR Q1 2025
Operator, Operator
Welcome to the Crane Company First Quarter 2025 Earnings Conference Call. All participants are currently in a listen-only mode, and we will open the floor for questions after the presentation. I would now like to hand the conference over to Allison Poliniak, Vice President of Investor Relations.
Allison Poliniak, Vice President of Investor Relations
Thank you, operator, and good day, everyone. Welcome to our first quarter 2025 earnings release conference call. I am 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. 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 slides of 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 CEO
Thank you, Allison, and thanks, everyone for joining the call today. May you live in interesting times. The origins of the phrase are unknown, but we've all heard it used as a sarcastic euphemism for times of challenge and uncertainty; some think it's intended more as a curse. But either way, it's times like these that we prepare for at Crane. As a leader of the global diversified manufacturer and for my entire team, what a fantastic time for us to continue to hone our strategic thinking, processes for reacting to fast changing events, and our ability to execute in an environment that's in constant flux. An experience the whole team embraces and relishes in this environment as we continue to have the opportunity to grow through adversity. There are many potential scenarios for how the current dislocation progresses over the course of 2025 and beyond. What's common across those scenarios is my strong belief that Crane will emerge in an even stronger competitive position than when we entered this year. We're off to a very strong start to 2025. Adjusted EPS was $1.39, driven by an impressive 7.5% core sales growth, reflecting strength across both Aerospace & Electronics and Process Flow Technologies. Core orders were also solid, up 16% in the quarter, driven primarily by the ongoing strength in our Aerospace & Electronics business and with Process Flow Technologies also ahead of our expectations. As we exited 2024, we had a very positive outlook for 2025 given the expectation of executing successfully on our strategy and growth initiatives, along with a favorable macroeconomic outlook. As the quarter progressed, we gained confidence in our path to exceed the guidance we provided in January. However, given recent economic developments and policy decisions outside of our control, the balance of the year is likely to unfold differently than we had anticipated. Despite that uncertainty, based on the current inflationary pressures and demand and supply chain environment that we see today, along with our best analysis of the risks and opportunities ahead for the year, we are comfortable reaffirming our full year 2025 adjusted EPS outlook in the range of $5.30 to $5.60. Our outlook reflects our views based on current economic conditions, and we will, of course, adjust that outlook if needed, based on any updates or changes to trade policy or any incremental changes in the demand environment. The assumptions underlying this guidance range are based on the current conditions known and faced today, including tariffs continuing throughout the balance of the year. If you believe the situation will improve faster, there is upside to the midpoint of our range. At this point, based on what we know, we believe that we can still achieve the low end of our guidance range with a modest deterioration in demand or slight worsening of the trade environment. While factors outside our control are dynamic, Crane remains extremely well positioned to outgrow our markets and deliver above market returns in the long run, and we are confident in our strategic direction and our execution capabilities. We last met with many of you in early March for an off-site Investor Day at our Fort Walton Beach, Florida, Defense Power facility. That site delivers the most advanced high power conversion technologies with industry leading size, weight and performance capabilities for defense applications, including ground-based AESA radars and more electric tactical military vehicles among other applications. That business is winning every day with an 11% sales CAGR expected for the decade from 2021 through 2030. During that visit, you heard and saw the power of the machine that Crane has built into our holistic business system focused on strategic execution and innovation to support our customers, along with a rigorous cadence and discipline of delivering on results that touches every aspect of the business, from our intellectual capital processes to commercial excellence and operational continuous improvement, which you all saw firsthand. And our results in the quarter reflect what we conveyed. In addition, we described in detail a deeper understanding of our business system in the context of new acquisitions and how we add value to businesses we acquire and our very active and detailed integration process, and we are actively working opportunities today. We have not slowed down in any way in the present environment. The strength of our underlying business, our strategy and our capabilities in both operational execution and commercial excellence, coupled with an extremely strong balance sheet, positions us extremely well to continue driving above market growth, both organically and through acquisitions. I want to thank all of you for going out of your way to visit us with us in Florida and our team enjoyed welcoming you to the machine of being Crane and hopefully encouraged some of you to listen to some classic Pink Floyd. Now let me pass it over to our Chief Operating Officer, Mr. Alex Alcala to provide some color on the current environment.
Alex Alcala, Executive Vice President and Chief Operating Officer
Thanks, Max. Yes. Our teams are having great fun. I must admit, I wish we could enjoy a few moments of boring and repetitive. Before I get into the segments, let me provide some insights into our tariff exposure. Overall, about 7% to 8% of our cost of goods sold consists of materials and components that are directly imported into the United States; another 3% to 4% of cost of goods sold are intercompany sales into the United States, a portion of which is exempt from tariffs. Our direct imports into the United States are skewed somewhat towards Process Flow Technologies, with Aerospace & Electronics relying more heavily on a U.S. supply base. For Process Flow Technologies, the largest exposure is China, where we procure bio valves, pumps, castings and motors. However, our total China exposure is well below 3% of Crane's total cost of goods. The other notable exposures for PFT are India, primarily related to castings, and Thailand, primarily for machine parts. Neither of those exposures reaches 1% of Crane's total cost of sales. At Aerospace & Electronics, the primary source of import is Malaysia, largely related to printed circuit boards and only 1% to 2% of total cost of sales for Crane overall. While much smaller, A&E does also import wire harnesses, machine parts and power sources from a number of countries, none of which is particularly material. We expect to offset the majority of the potential tariff impact through price and productivity. We have demonstrated consistently differentiated execution through cycles with this leadership team. The cadence and discipline of the Crane business system, our machine, along with our performance-based culture are even more valuable in times like these as they enable us to make data-driven decisions quickly with flexibility to adapt as conditions change and with accountability. We will manage through this dislocation and expect to emerge even stronger. Now some thoughts on the segments. Starting with Aerospace & Electronics. There is no material change in end market conditions relative to our prior expectations. Aerospace remains a very strong demand environment. On the commercial side of the business, activity remains healthy with Boeing continuing to ramp up production and aftermarket activity continuing 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 uncertainties today. Looking ahead to the balance of 2025, we continue to anticipate core sales growth for the year to be up mid to high single digits, with that growth leveraging that 35% to 40%. That guidance assumes continued strong sales with the ramp-up of Boeing, offset by decelerating year-over-year growth rate in commercial aftermarket that we have previously highlighted. As the comparisons become more challenging, pointing out that this is our 16th quarter of double-digit commercial aftermarket growth, that, as we talked about when we last reported, will naturally moderate over time. We continue to see above cycle growth for this segment for the remainder of this decade. We also continue to pursue new opportunities and win new business across the segment. For example, in the quarter, we won additional new content on the XM30 optionally manned fighting vehicle demonstrator programs with our defense power solution. As we have discussed in the past, we are very well positioned regardless of which of the defense firms is awarded the program, and we are further improving our position. In our Sensing and Power Systems business, we were recently awarded contracts and funded engineering development work on the Bell V-280, the C328 Echo and an unmanned aviation platform, all great programs where we see significant growth over the next decade. While still early in the development process, we remain actively engaged with engineering teams at our key customers on the technical architecture for the next-generation single aisle aircraft to ensure that our technology road maps and development plans are aligned with our customer needs. And really impressive performance by our landing solution team that completed flight tests hardware for a leading unmanned fighter aircraft program in a record six month timeframe. It's unprecedented for an anti-skid brake system to be developed that quickly, positioning us well for future opportunities. A perfect example of the machine at work in engineering. Outstanding work by our team. Very confident for yet another outstanding year at Aerospace & Electronics. At Process Flow Technologies, we remain well positioned to outgrow our markets across cycles. We have systematically repositioned our portfolio around our core end markets, including chemical, pharmaceuticals, water and wastewater, cryogenics and industrial automation. These are higher growth end markets, and these are the markets where we have the strongest competitive position and the most differentiation, enabling sustainable market outlook. We remain focused on investing for growth over the long term with continued execution against our multi-year technology and new product development roadmap, as well as commercial excellence initiatives, all enabled by consistent operational execution. Tactically, we are proving our ability to react to any changes in demand quickly and we will remain nimble during this period, taking any necessary and appropriate price cost measures. However, our strategy is unchanged, and we will manage through any potential demand fluctuations without losing focus on our longer-term goals and objectives. Looking ahead to the balance of 2025, given our line of sight today, we still anticipate positive core growth sales for the year. A few notable wins in the quarter included significant customer approval for one of our new Saunders pharmaceutical valves with a key target customer. This approval was a critical step for the business and we continue to drive share gains with new product development, and we are seeing great progress. We were awarded a $5.7 million project for line pipes and line valves for a Saudi Arabian mining company, which is working to develop a third complex in Saudi Arabia for fertilizer production capacity. Our localized site was key to secure this order. We continue to build out our capabilities in cryogenic space including both the CryoWorks and Technifab acquisition from last year, which are now working closely with our organic initiatives to expand our portfolio of cryogenic valves and vacuum-jacketed pipes. Our combined platform is continuing to grow at a strong pace. And in the quarter, we had some significant wins, particularly with space launch customers. So our businesses remain well positioned to continue to deliver great results. We still expect to significantly add to those results with acquisitions. We have a very strong balance sheet today with at least $1.5 billion of M&A capacity. We also have a robust pipeline of potential acquisitions. M&A activity has not slowed down at all. The deals we are working on today include a number of opportunities in both aerospace and electronics as well as process flow technologies. And they range from the small sub-$100 million deals like those we completed last year to many times that size. We mentioned our rigorous process, the machine for acquisition integration and creating value from any business. We have just as robust a process for M&A opportunity identification and due diligence and I'm optimistic about our prospects of deploying capital this year on some great opportunities. I also wanted to share some takeaways from our recent annual Senior Leadership Conference. About 200 of Crane's most senior associates spent three days at GE’s Old Crotonville training facility to share best practices and to keep our global teams around the world connected. Three days to focus on reinforcing the machine that delivers results at Crane. I remember my first senior leadership meeting shortly after I joined Crane in 2013. A great three days, but heavily focused on operational execution only, which was needed and the focus in those days. We were very good then, but so much better today. Last month, however, the focus was on everything we are doing to drive growth and commercial execution, sharing the best past examples across Crane, our long-term technology and product road maps, commercial excellence tools, simplification initiatives and strategic pricing. It was followed by training on new enhancements to our process for strategy development led by Shangaza Dasent, who joined Crane last year to lead our Process Flow Technologies segment. A powerful few days, and I'm incredibly proud of our teams around the world who have made so much progress and have the momentum to continue to do so. Taking all this together, just a lot of really exciting initiatives at Crane. It all reinforces our confidence that regardless of the current environment, over the long term, we will deliver a 4% to 6% long-term core sales growth rate through cycles from resilient and durable businesses with solid aftermarket. Substantial operating leverage on top of our already solid margins today, that should lead to double-digit average annual core profit growth with potential upside from capital deployment. And with virtually no net debt, the capital deployment opportunity is significant. Now let me turn the call over to our CFO, Mr. Rich Maue for more specifics on the quarter.
Rich Maue, Executive Vice President and Chief Financial Officer
Thank you, Alex, and good morning, everyone. Starting off with total company results. We drove 7.5% core sales growth in the quarter with strength across both segments. Adjusted operating profit increased 18%, driven by volumes, solid net price and productivity. In the quarter, core FX neutral backlog was up 12% compared to last year, driven by outsized strength at Aerospace & Electronics and core orders were up 16% compared to last year as well, also driven by Aerospace & Electronics, but also modest growth in Process Flow Technologies that was a bit ahead of our expectations. Further, we are in a net cash position and have more than $1.5 billion in debt capacity today for M&A. A few more details on the segments in the quarter starting with Aerospace & Electronics. Sales of $249 million increased 10% in the quarter, with all of that growth organic. And even with the continued high level of sales growth, notably our record backlog of $960 million increased even further, up 21% year-over-year and up 11% sequentially. Total aftermarket sales increased 20%, with commercial aftermarket sales up 19% and military aftermarket up 24%, and OEM sales increased 6% in the quarter with 10% growth in commercial and up 1% in military. Adjusted segment margin of 26%, a record high for the segment, increased 360 basis points from 22.4% last year, primarily reflecting higher volumes, price net of inflation, and productivity. At Process Flow Technologies, in the quarter, we delivered sales of $309 million, up 9%, driven by solid core sales growth of 5% in the quarter, along with a 5% benefit from the CryoWorks and Technifab acquisitions, offset by a point of unfavorable foreign exchange. Compared to the prior year, core FX-neutral backlog decreased 6% and core FX neutral orders were up 2%, both impacted by project timing. You might recall the notable project wins we highlighted in Q1 of last year. And on a sequential basis, core FX neutral orders were up 10% compared to the fourth quarter. Adjusted operating margin up 20.9% expanded 10 basis points. Importantly, core operating leverage was 35% at the high end of our 30% to 35% targeted range. As you all know, leverage is always impacted, in particular, in the first year of an acquisition, which was the case in this quarter. The strong overall performance was driven by productivity, strong net price and the higher volumes. Below the segments, some of you may have also noticed that adjusted corporate expense was about $25 million in the quarter, which is higher than the quarterly average you would expect. This is related to accounting rules that require accelerated amortization of stock compensation expense for associates that are retirement eligible, so stock compensation expense will be much higher in the first half and lower in the second half. We still expect $80 million of corporate costs for the full year. Hey, all of the comments on today's call regarding the uncertain environment ahead reminded me of a quote from the classic and timeless romantic drama, Dodgeball, when a great character Patches O'Houlihan, played by the late Rip Torn, was preparing the team in practice and said, if you can dodge a wrench, you can dodge a ball. There have certainly been a few wrenches thrown around at the start of the year, and our team is doing an outstanding job dodging them so far. I personally only had a couple of ones. And with that, operator, we are now ready to take our first question.
Operator, Operator
Thank you. We are now ready to take questions. Our first question will come from Damian Karas with UBS. Your line is open.
Max Mitchell, Chairman, President and CEO
Hey, Damian.
Damian Karas, Analyst
Hey, good morning, Max. Hey, Rich. Hope you can dodge these wrenches about to come your way.
Alex Alcala, Executive Vice President and Chief Operating Officer
Thanks, Damian.
Damian Karas, Analyst
Yes. No, I appreciate all the details around your main tariff exposures. Maybe you could just get a little bit more clarity on the updated guidance. To what extent is price contributing to your sales guide at this point? And just kind of considering the strength of the first quarter orders and that uptick in backlog, is it fair to assume that, that's longer lead time backlog that's really more 2026 and beyond?
Rich Maue, Executive Vice President and Chief Financial Officer
Yeah. So Damian, just to maybe hit your first question first on price. Yeah. We would expect to see somewhere in the vicinity of about 3% overall, more heavily weighted to PFT for sure, perhaps a little bit higher in the PFT segment, a little lower in A&E. So just overall, that's what we would expect for us to offset the majority or most of the tariff impact. As it relates to backlog, maybe just a little bit of color to provide there. Certainly, Aerospace & Electronics was significant overall in the quarter and the growth in the backlog was fairly broad-based. Maybe some color, aftermarket continues to be fairly strong as you saw. Alex mentioned also the comps in the latter part of the year, but the aged fleet continues to be a dynamic or signature in the market space. Retirement is not happening at the levels that would cause you to believe a significant decline in aftermarket. So we feel good about the build that's happened in aftermarket. And then on OE, it was really a combination of both commercial and defense from an orders point of view. On commercial, obviously, the build rates are continuing and widespread there as well, right, between Boeing, Airbus and Comet, frankly, in the quarter. Defense, to your point, a little bit, there's some multiyear orders in there too, so it gives us even further confidence in 2026 already. So a few multiyear orders that contributed to the strength in the quarter.
Max Mitchell, Chairman, President and CEO
But in terms of the guide, in relation to the guide and the strength of the backlog, yes, it's related to the length of those orders that's reading through beyond '25. Right, Rich?
Rich Maue, Executive Vice President and Chief Financial Officer
Yeah.
Damian Karas, Analyst
Okay. Got it. That makes total sense. And then a follow-up to some of those comments on defense. I mean, within A&E, if you look at some of the details of the $150 billion defense package that's in reconciliation, are there any items that kind of stand out to you as Crane programs or growth drivers in the future?
Rich Maue, Executive Vice President and Chief Financial Officer
Overall, we have extensive exposure across various defense platforms, including fixed wing and rotary. In fact, we experienced strong aftermarket demand for the CH-47 in the last quarter. From a spending perspective, whether it's for munitions, aircraft, or radar applications, we are optimistic about the approvals and the allocation of funds as we look ahead to 2026.
Max Mitchell, Chairman, President and CEO
Some of those themes, as Rich was just mentioning, I would call out, munitions replenishment, unfortunately, in this global environment. Aging military upgrades, that's a key theme. I would say electrification is another key theme for the future, which we highlighted at Investor Day also. So those are some of the major thematic drivers that we continue to see strength through the decade.
Damian Karas, Analyst
Understood. Thanks, again. Good luck out there. I’ll pass it along.
Max Mitchell, Chairman, President and CEO
Thanks, Damian.
Rich Maue, Executive Vice President and Chief Financial Officer
Thanks, Damian.
Operator, Operator
Thank you. Our next question will come from Scott Deuschle with Deutsche Bank. Your line is open.
Scott Deuschle, Analyst
Hey, good morning.
Max Mitchell, Chairman, President and CEO
Good morning, Scott.
Scott Deuschle, Analyst
Rich, can you characterize the growth split between volume and price that you saw at A&E this quarter?
Rich Maue, Executive Vice President and Chief Financial Officer
It was roughly 50-50, almost right down the middle.
Scott Deuschle, Analyst
Okay. And was commercial OE contributing very materially to the pricing gains that the segment experienced?
Rich Maue, Executive Vice President and Chief Financial Officer
Yeah. I don't have the full breakout of that, but certainly, we've been making nice progress on certain areas in commercial OE, but clearly, there has been, whether it's from existing contracts with indexed increases or changes that we might have made in response to contracts that needed to be addressed. But I don't have the specific breakout. That was pretty healthy, I would say, across both aftermarket and commercial.
Scott Deuschle, Analyst
Okay. Just to clarify, do any major commercial OE LTAs reprice this quarter that you didn't have repriced last quarter? I'm just trying to understand the sequential EBIT growth at A&E.
Rich Maue, Executive Vice President and Chief Financial Officer
No.
Scott Deuschle, Analyst
Okay. Rich, the consensus is predicting a decline in EBIT dollars at A&E for the rest of the year compared to what you reported this quarter. I understand that we are in an uncertain environment, but is there any specific reason you believe EBIT dollars would drop from these levels?
Rich Maue, Executive Vice President and Chief Financial Officer
Yeah. So what I would say is that in the quarter, we had a very strong quarter overall, as you saw with the leverage of 60% in A&E. We had decent mix. We had strong engineering sales, completing a few, I think, major development programs that had some nice margin to them. So a few things, is what I would say, added up overall in the quarter that contributed to that 60%. Alex mentioned in his prepared remarks that the comps will start to kind of move down. But overall, there's nothing that would suggest any sort of overall weakening to any significant degree. There was perhaps just a few items in the quarter that we benefited from.
Scott Deuschle, Analyst
Okay. And is COMAC still taking delivery of the parts you make for the C919, even with retaliatory tariffs they have?
Alex Alcala, Executive Vice President and Chief Operating Officer
Yeah. Thanks for the question. This is Alex. We actually met with COMAC a couple of weeks ago to look at the ramp-up and everything has moved forward very smoothly. They have a big ramp-up projected this year and they're on track. They're still taking deliveries to emphasize the importance of staying on track. The aftermarket as well. So everything progressing quite well. As you know, we have a really strong position with that 919 platform. And they're also in the development of the 929, the wide-body, which we expect to also have a great position. Our team is doing a great job. A lot of our key members were in China last week and all looks positive from that regard.
Scott Deuschle, Analyst
Okay. Thank you. I’ll pass it on.
Alex Alcala, Executive Vice President and Chief Operating Officer
Thanks, Scott.
Max Mitchell, Chairman, President and CEO
Thanks, Scott.
Operator, Operator
Thank you. Our next question will come from Jeff Sprague with Vertical Research Partners. Your line is open.
Jeffrey Sprague, Analyst
Hey. Thank you. Good morning. Hey, good morning, Max. A high-level one for you first and then a couple of detailed questions. In your opening commentary, just talking about emerging stronger and the like, was that just kind of an overarching view that kind of sweating the organization, exercising the muscle, trial by fire makes you better or do you actually see some places maybe where you have competitive footprint advantage or other advantages versus competitors that you might be able to leverage here?
Max Mitchell, Chairman, President and CEO
Both, Jeff, both. I think any time that you exercise like this, it sharpens the sword. The other is, we're seeing some opportunities where our competitors, their position, some decisions that they're making that we think we have some openings.
Jeffrey Sprague, Analyst
Interesting. Okay. Great. And then, just on the tariffs, again. So I think the 7% to 8% of COGS, call it, $100 million or so run rate. I didn't follow quite what Alex was getting at with the additional 3% to 4% intercompany. Was that kind of a USMCA comment and not a cost headwind or maybe you could just elaborate on what that meant and whether I'm right on the roughly $100 million?
Max Mitchell, Chairman, President and CEO
Yes, go ahead.
Alex Alcala, Executive Vice President and Chief Operating Officer
Thank you for the question. The $100 million pertains to direct imports from external suppliers, while an additional 3% to 4% is related to inter-unit transactions. Some of this is a Total Addressable Market consideration due to USMCA affecting inter-unit shipments. However, these figures represent imports and do not reflect the anticipated tariff impact in our profit and loss statements. Overall, the tariff impact we expect this year is closer to $60 million, taking into account various factors, including the indirect effects on suppliers, primarily impacting our PFT segment, as our aerospace business is largely sourced domestically.
Jeffrey Sprague, Analyst
Right. So we'll call it $100 million or so direct annualized; $60 million on an in-year basis. And then just maybe one other one for you, Alex. Just where you might see some demand risk in your business? I'm kind of thinking Chem, right? Those guys are cutting CapEx and chem prices are declining. Is that where you've hedged your guide from an end demand standpoint and maybe if there's other verticals within PFT that you'd want to address?
Alex Alcala, Executive Vice President and Chief Operating Officer
Yeah, Jeff. So in PFT, when we think about the MRO side and the project side, across all verticals, I think the MRO side, usually, when there's softness remains somewhat consistent, and that's all about the project activity and shifting to the right. So on the chemical side, what we've seen last year and this year, different dynamics by region. The U.S. continued to move. The Middle East continued to move forward. Europe is softening. We did start hearing customers thinking about delaying decisions, trying to see how this tariff points out. So we did make assumptions on projects shifting to the right in particular, in the chemical industry in the United States, but also in other regions. Our guidance.
Jeffrey Sprague, Analyst
Great. And then one quick one for Rich. FX is still guiding minus 1. It seems like you're gaining a little extra there. Could you clarify if that's based on 330 rates or perhaps provide an update on that?
Rich Maue, Executive Vice President and Chief Financial Officer
Yes, that's correct. We are not making any changes to the situation, so we are sticking with the 330 rates. There's been some positive movement here, and we’ll see if it lasts, but you are right; that adds a couple of pennies to my earnings.
Operator, Operator
Thank you. Our next question comes from Nathan Jones with Stifel. Your line is open.
Rich Maue, Executive Vice President and Chief Financial Officer
Good morning, Nathan.
Nathan Jones, Analyst
Good morning, everyone.
Max Mitchell, Chairman, President and CEO
Good morning.
Nathan Jones, Analyst
In the spirit of jokes, I won't say that I wish I was there, but I do wish you were here.
Max Mitchell, Chairman, President and CEO
Good. I like it. Might you ask.
Nathan Jones, Analyst
My first question is about the supply chain. During COVID, there were significant disruptions, and your company relies on components that are part of other systems. I'm less worried about your ability to manage your supply chain and more concerned about the suppliers involved in those same projects and their capacity to manage their own supply chains. Do you foresee any risks to parts of your business that could emerge from issues affecting other suppliers' supply chains, potentially impacting either your ability or your customers' ability to complete projects and receive products, similar to the challenges experienced during COVID?
Alex Alcala, Executive Vice President and Chief Operating Officer
Thank you for your question, Nathan. This is Alex. It's important to consider the PFT and A&E perspectives separately. From the PFT standpoint, I don’t anticipate any significant issues; the supply chain has returned to normal rates since last year and remains quite stable. While there are some delays in shipment lanes from Asia, I don't foresee major changes in our ability to deliver on that side. Regarding the A&E side, we've noticed stability with slight improvements in the first month. Although there have been news reports about the SBS Fastener facility and the Chicago Magnesium Foundry, these events haven’t directly affected us. However, some companies may be trying to adjust their supply chains, and tariffs won’t assist in that. We do expect some lead time extensions as companies shift away from certain regions to others, and some suppliers are facing capacity constraints due to these supply chain adjustments. Still, we aren't observing major disruptions from this situation, and we’re preparing for lead times to be extended in some areas, which we've taken into account.
Nathan Jones, Analyst
Thanks for that. I guess my second question, you talked about PFT orders being a bit stronger than you anticipated in the first quarter. I guess the question there is, do you think customers were prepositioning ahead of tariff-related price increases? And then did you guys preposition some inventory in front of tariffs during the first quarter yourselves?
Alex Alcala, Executive Vice President and Chief Operating Officer
Good question. Regarding inventory, we didn't preposition any. We have experience with managing tariffs. Being engineered to order, it's never the right strategy to play games with inventory. We did hear some distributors were stocking a bit more in anticipation of demand, but it wasn't significant or material. The better-than-expected performance can be attributed to some projects that have been in motion since last year and materialized in this quarter, so while there was a bit of pre-buy, it wasn't major.
Nathan Jones, Analyst
Great. Thanks very much for taking my questions and I’ll see you in the dark side of the moon.
Alex Alcala, Executive Vice President and Chief Operating Officer
Thanks, Nathan. Well done.
Operator, Operator
Thank you. Our next question will come from Ronald Epstein with Bank of America. Your line is open.
Jordan Lyonnais, Analyst
Hey, good morning. This is Jordan on for Ron.
Max Mitchell, Chairman, President and CEO
Excellent.
Alex Alcala, Executive Vice President and Chief Operating Officer
Hi, Jordan.
Jordan Lyonnais, Analyst
A couple of questions. First one for M&A, have you guys seen any slowdown in deals or positives happening just because of the macro?
Max Mitchell, Chairman, President and CEO
No, we haven't. We haven't seen any slowdown. It's very, very active for us.
Jordan Lyonnais, Analyst
Okay. And then on Boeing's call, they made a comment about their buffer stock having been high to stabilize the supply chain and that it would go back down to normalized levels. You guys have been very good about controlling the inventory that you guys have in the channel. Are you concerned that although for other suppliers that you might be feeding into that would be getting de-stocked?
Alex Alcala, Executive Vice President and Chief Operating Officer
I mean I think Boeing has done a great job being transparent on their inventory position with us. I imagine with other suppliers as well. So we are very well aligned to what they need and are expecting, and we're planning to support that. So our factories are well in tune and efficient to support that ramp-up. So my understanding is that it is the same with many other suppliers that are well in tune with Boeing's inventory position and planning appropriately.
Jordan Lyonnais, Analyst
Okay. Got it. Thank you guys so much.
Alex Alcala, Executive Vice President and Chief Operating Officer
Thanks, Jordan.
Max Mitchell, Chairman, President and CEO
Thanks, Jordan.
Operator, Operator
Thank you. Our next question will come from Matt Summerville with D.A. Davidson. Your line is open.
Max Mitchell, Chairman, President and CEO
Good morning, Matt.
Matt Summerville, Analyst
Thanks. Good morning. Just a couple of follow-ups. That $60 million, I just want to clarify, is that the unmitigated number, meaning that is the magnitude by which your COGS are going higher, all else equal as a result of the tariffs? I just want to be clear on that.
Rich Maue, Executive Vice President and Chief Financial Officer
Yeah. That would be the gross number, right, that we will substantially mitigate.
Max Mitchell, Chairman, President and CEO
Assuming these tariffs exist through the entire balance of the year, no change, up or down.
Matt Summerville, Analyst
Got it. Thank you for that clarification. And then you talked just very briefly on the chemical market with respect to PFT. Can you maybe do a little bit more of a deeper dive in terms of what you're seeing across both the MRO and project side of the business, geographic color around the major end market buckets and product lines that you guys typically refer to in that business?
Alex Alcala, Executive Vice President and Chief Operating Officer
Yeah. I mean for PFT, as you know, chemical has a really strong position. We have a substantial presence globally. I think we went into the year with expectations different by region, and we saw that play out in Q1. So in the Americas, we saw positive growth both on MRO and private activity where customers are expanding brown side, driving efficiency, upgrades, things of that nature. The Middle East similar, continued investment in growth. And then since last year in Europe, it's been soft, declining, and that has continued. China as well, somewhat soft and Asia-Pac kind of mixed. So kind of how we closed out last year was the first four months of the year. Now going forward, like I mentioned, we expect some of that project activity in the Americas to shift to the right, some softening demand versus what we saw in Q1, and that's what we baked into our guidance.
Matt Summerville, Analyst
Got it. And then maybe just one final one. Rich, as we look out over the balance of the year, is there anything you would want to draw our attention to in terms of kind of the remaining earnings cadence as we move through Qs 2, 3 and 4?
Rich Maue, Executive Vice President and Chief Financial Officer
Yeah. I think the high level would be, as you're looking at next quarter, just slightly down, slightly. And then I would think of the full year as more equally weighted, frankly, first half, second half overall.
Operator, Operator
Thank you. Our next question comes from Justin Ages with CJS Securities. Your line is open.
Max Mitchell, Chairman, President and CEO
Good morning, Justin.
Justin Ages, Analyst
Good morning. Question, there's been a bunch of headlines about travel being down given the political environment. Have you seen or do you expect to see that impacting your business at all?
Max Mitchell, Chairman, President and CEO
We're noticing the same news and reports, but it's not showing any impact on us. The older fleet still requires similar maintenance levels. The aftermarket remains robust, and deliveries are not yet aligned with the replacement cycle. Boeing is attempting to increase production, but we don't observe any effects, and our customers are not indicating any changes either.
Justin Ages, Analyst
All right. That's helpful. And then following up on the M&A commentary, can you give us any indication of how far along or in any processes in PFT or A&E, any deals that you guys are in?
Max Mitchell, Chairman, President and CEO
Yeah. The first two weeks of May, Alex and I will be traveling with the teams. We've got kind of nonstop due diligence across multiple acquisitions, both domestically and internationally in terms of locations. So we're very, very active in the process. Really nice fit, really nice fit, attractive. We're going to be competitive. I'm hopeful that we'll have some activity announced in 2025.
Justin Ages, Analyst
All right. Great. I appreciate you taking the questions. Thank you.
Operator, Operator
Thank you. Our next question will come from Tony Bancroft with Gabelli Funds. Your line is open.
Tony Bancroft, Analyst
Good morning.
Max Mitchell, Chairman, President and CEO
Good morning, Tony.
Tony Bancroft, Analyst
Great job on the quarter, very well done. I know you've indicated that the tariffs will likely have a minimal impact. However, regarding the aerospace sector, I've noticed comments from the China Trade Ministry about potential disruptions in commercial travel. Additionally, there are discussions in France about tariff exemptions in the aerospace and defense industry. How do you think this will all unfold? It might not be significant for you, but could you share your thoughts on this?
Max Mitchell, Chairman, President and CEO
Well, it's anybody's guess, honestly, in terms of how it moves forward. But quite honestly, I'm more optimistic, quite honestly. I think things will get resolved. I think our trading partners, while there's certainly a number of serious issues that are being addressed, our global environment is too important to one another. And I think these things will get sorted. I think when that does, it's going to be very positive for all of us as we move forward.
Tony Bancroft, Analyst
Thanks so much. Great job.
Max Mitchell, Chairman, President and CEO
Thanks, Tony.
Operator, Operator
Thank you. This concludes the Q&A portion of today's call. I would now like to turn the floor over to Max Mitchell for closing remarks.
Max Mitchell, Chairman, President and CEO
Thank you all for attending today. Our focus today is executing on everything within our control, reacting swiftly to what is outside our control, serving our customers and continuing to invest in all of our growth initiatives and technology road maps and driving profitable growth. I fully expect to emerge from this dislocation in an even stronger competitive position than when we entered the year. As the late great Gene Hackman said, challenges are what makes life interesting; overcoming them is what makes life meaningful. Our teams at Crane continue to make our lives hugely meaningful as we continue to deal successfully with life's interesting challenges. Thank you all for your interest in Crane and your time and attention this morning, and have a great day.
Operator, Operator
Thank you. This concludes today's Crane Company's first quarter 2025 earnings conference call. Please disconnect your line at this time, and have a wonderful day.