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Crane Company (CR) Q4 2014 Earnings Report, Transcript and Summary

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Crane Company (CR)

Q4 2014 Earnings Call· Tue, Jan 27, 2015

$176.91

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Crane Company Q4 2014 Earnings Call Key Takeaways

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Crane Company Q4 2014 Earnings Call Transcript

Operator

Operator

Good day, ladies and gentlemen, and welcome to the Crane fourth quarter 2014 earnings conference call. [Operator Instructions] I will now turn the call over to your host, Jason Feldman, Director of Investor Relations. Please go ahead.

Jason Feldman

Analyst

Thank you, operator, and good morning, everyone. Welcome to our fourth quarter 2014 earnings release conference call. I am Jason Feldman, Director of Investor Relations. On our call this morning, we have Max Mitchell, our President and Chief Executive Officer; and Rich Maue, our Chief Financial Officer. We will start off our call with a few prepared remarks, after which we will respond to questions. Just a reminder, 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 on 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. I would also like to invite you to attend our Annual Investor Day event on the morning of February 26, please contact me directly, if you would like to reserve a place at the conference. Now, let me turn this call over to Max.

Max Mitchell

Analyst · KeyBanc

Thank you, Jason. As outlined in our press release last night, excluding special items, Crane's fourth quarter EPS was $1.13, up 9% compared to the fourth quarter of 2013 and in line with the revised guidance we provided last quarter. Sales of $731 million increased 7.2%, driven primarily by the acquisition of MEI, with slightly positive core growth partially offset by a 2.8% negative impact from foreign exchange. Operating margins, excluding special items, improved 30 basis points from last year to 14.7%. On a full year basis, 2014 EPS, excluding special items, was $4.45, up 7% compared to 2013. Total sales increased to 12.7% to $2.9 billion, driven primarily by the acquisition of MEI, accompanied by core growth of 0.3% and a modest negative impact from foreign exchange. Operating margins, excluding special items, improved 10 basis points to 14.6%. The fourth quarter unfolded largely as expected. As we explained on last quarter's conference call, there were two primary factors that drove our revised guidance for the year, a change in Fluid Handling organic growth rates and lower margins in Aerospace & Electronics. I will provide an update regarding those two matters, before commenting on our outlook for 2015. First, specific to Aerospace & Electronics. Margins rebounded as expected with fourth quarter performance at the highest level of the year and 300 basis points above third quarter results. The primary issue in the third quarter related to incremental one-time costs associated with an accelerated product launch in our cabin business. This is now resolved. Segment margins well above 22% in the fourth quarter remain impacted by planned and encouraged incremental investment spending that we have communicated all year. We remain excited about the long-term prospects for this business, given the pace of new program wins and a number of new opportunities…

Richard Maue

Analyst · KeyBanc

Thank you, Max. I'll turn now to segment comments, which compare the fourth quarter of 2014 to 2013, excluding special items, as outlined in our press release, slide presentation and the accompanying non-GAAP tables. After the segment comments, I will provide some addition detail on our 2015 outlook. In the fourth quarter Fluid Handling sales of $314 million declined 1.8%, reflecting a core sales increase of 2.8%, that was more than offset by unfavorable foreign exchange and the impact of the second quarter divestiture of Crane Water. Fluid Handling operating profit declined 2% to $47 million. Operating margins remain generally strong at 15%, but declined 10 basis points compared to last year, reflecting unfavorable foreign exchange and product mix, which was largely offset by productivity, higher core volume and lower pension expense. Fluid Handling backlog was $311 million at the end of December. After adjusting for the divesture of Crane Water our backlog is down 5.3% versus the end of 2013 and down 11% to last quarter. Further adjusting for currency, backlog is flat compared to the end of 2013 and down 8.9% sequentially. Max discussed our process valve business, where weakness was generally broad based in the second half. We expect softness to continue into the first half of 2015, with orders picking up in Q3, in particular in China and the U.S. Again, at this time, we are not seeing deterioration and project funnels or major cancellations. Rather, continued uncertainty on how fast projects will move forward. Engineering and labor constraints in the U.S. combined with the lower oil prices contribute to the uncertainty. We expect the impact from project delays and continued potential reduced spending to result in a mid-single digit core revenue decline in 2015, specific to process valves. The remaining portions of Fluid Handling are…

Jason Feldman

Analyst

Thank you, Max and Rich. This marks the end of our prepared comments. Operator, we're now ready to take questions.

Operator

Operator

[Operator Instructions] Our first question comes from Joe Radigan with KeyBanc.

Joe Radigan

Analyst · KeyBanc

Let me start with Payment and Merchandising. What type of growth rate does your guidance assume for this segment in '15? And then what gives you confidence that MEI can return to growth? Because when you announced that deal in 2012, MEI had $400 million of -- it was a $400 million business. It was growing at a double-digit CAGR. It doesn't look like it's had any topline growth in the last two years. So what gives you confidence that business will return to growth? And has anything changed in the growth profile there? Has the competitive dynamic changed at all or is it more primarily end-market driven?

Max Mitchell

Analyst · KeyBanc

So most of the end-markets, as I reflect back on 2014, I think behaved largely as expected, with the exception of casino gaming. We also faced some headwinds with respect to some exposures in Russia. We are going to review in detail our segment level guidance, when we host our Investor Day in February. We do expect certainly an improvement in the segments growth rate in '15. Other items, with respect to last year included some unusual comparisons, and again, as well as the challenges that we saw in the gaming end-markets. We do continue to expect to see a mid-term growth rate in this business as we look forward. Some of the headwinds that we did start to experience in '14 that we hope will abate as we move into '15 include macro conditions that we started to see in Europe, Russia, in China as well. But overall, I would characterize '15 as a period where we'll start to see that momentum moving forward and seeing that low-to-mid single digit growth rate that we expected.

Joe Radigan

Analyst · KeyBanc

Are you assuming any revenue synergies in that incremental $9 million in '15 and the incremental $14 million in '16 or is it all coming on the cost side?

Max Mitchell

Analyst · KeyBanc

It's all on the cost side.

Joe Radigan

Analyst · KeyBanc

And then Fluid Handling, the detail you gave there is actually very helpful, Rich. How much of your business is project related versus sort of the ongoing maintenance refinery turnaround type business? And do you expect there to be pent-up demand given that, because you can only defer that maintenance for so long. So would you expect there to be pent-up demand that would eventually result in an accelerated growth rate or it would just resume kind of at the normal run rate?

Richard Maue

Analyst · KeyBanc

Yes. So we look at it as 50-50 roughly between projects and MRO. And your question is right on, in particular with respect to refining. We have seen a slowdown in refining in particular in the U.S. with utilization rates being up at this, call it, 93% to 95%. And so one of the comments that I did make in the prepared remarks was that we would expect, as we look through 2015 to see in particular in the U.S., demands start to come back a bit. And that one of those areas is in fact refining where that pent-up demand does in fact exist in our opinion.

Max Mitchell

Analyst · KeyBanc

And Joe also what we define as project is not just a greenfield site or an extremely large new project aimed at additional capacity. In some cases, as we define projects, it can be for turnaround activity that is large, requires a quote, go through the same formal process. And to Richard's point, we would expect that turnaround work to pick back up at a slightly accelerated level.

Joe Radigan

Analyst · KeyBanc

And then just maybe lastly on Fluid Handling for me. How is the pricing environment and how is the margin profile of orders that are going in the backlog today kind of given this macro slowing? Are you seeing increased pricing pressure? And is there any risk that orders that are already in backlog get repriced lower considering this environment?

Max Mitchell

Analyst · KeyBanc

I think there is very little risk of repricing lower what's in backlog. And we get asked this question on every quarter and I have always said that the competitive dynamics have always been one that's challenging and we always step up the value prop. I would say that we are seeing a more competitive environment for sure. And I think we are doing a fantastic job holding price and making sure that we don't make any silly moves, but it has become more competitive for sure. I don't know, Rich, if you have anything else?

Richard Maue

Analyst · KeyBanc

Yes. Just considering the environment that we're in here with slowness and things moving to the right and it does just encourage a little bit more in the way of price competitiveness, but as Max points out, I think our discipline is really strong here, that's evidenced through the margin profile that we've been able to maintain over the last few quarters.

Operator

Operator

Our next question comes from Brian Konigsberg with Vertical Research Partners.

Brian Konigsberg

Analyst · Vertical Research Partners

So to actually just maybe following on the pricing question in Fluid Handling, maybe just the other side of things. We've seen commodity prices come up quite a bit. And I assume you guys are using quite a bit of steel and metal and copper and other things. Are you going to be able to, I guess capture some of that benefit if you are able to keep the price fairly steady?

Max Mitchell

Analyst · Vertical Research Partners

Yes. So your comment is specific to steel, copper, in those areas that has been areas where we've seen pressure, right. Where we're seeing some input costs coming down are more on the resin-based or oil-based side. But in terms of our responsiveness to price either way, in particular when it's raising here, we are very disciplined in terms of our approach in capturing that, in particular on the MRO side, frankly.

Brian Konigsberg

Analyst · Vertical Research Partners

Do you expect that to translate into improved margins or do you expect that --

Max Mitchell

Analyst · Vertical Research Partners

No. I would say it's to sustain.

Brian Konigsberg

Analyst · Vertical Research Partners

Just curious on the guidance provided, I see there's a note saying you guys marked FX rates as of December 31. We've had more strengthening of the dollar since then. Can you just give us maybe an updated view of where you stand now? What the incremental pressure might be on the earnings outlook if you marked it as of today?

Richard Maue

Analyst · Vertical Research Partners

Yes. So if you went down -- so our process is the same, right. So we use yearend rates to forecast or to establish our plan and our guidance for the succeeding year. Rates have moved considerably, as everybody knows, and pretty much a moving target frankly. In terms of the exposure as we look at it compared to what is in our guidance, it's probably in around of maybe $0.05 to $0.10 something like that. But we are not prepared to say that that's a full year exposure that we have at this point. We feel like its set correctly and we'll monitor the changes as we move forward. And if we need to recast the guidance at some point depending on where the rates move, we'll go ahead do that and be responsive.

Max Mitchell

Analyst · Vertical Research Partners

Given the volatility in FX rates, we did feel they need to call that out Brian.

Brian Konigsberg

Analyst · Vertical Research Partners

But just to be clear, if you were to market as of today and carried it through the remainder of the year, that's an additional $0.05 to $0.10 versus what you've guided today?

Richard Maue

Analyst · Vertical Research Partners

Yes, I would say that's true. Yes.

Brian Konigsberg

Analyst · Vertical Research Partners

Going to Aerospace & Electronics, obviously the orders and backlog were very, very good. You mentioned the radar system order in the quarter. Maybe can you size that for us? I'm just kind of curious what the, x that large order, what the backlog has been. And if that's the case, I'm just trying to gauge what the core growth profile actually should be for that business. It seems like it should be fairly good.

Richard Maue

Analyst · Vertical Research Partners

Yes. I think we are going to try to put a little bit more color around this during Investor Day. The project, I would comment, includes technologies that are in both of our microwave and power businesses. We typically try not to, so that we can't, in fact comment on specific projects for various reasons with our customers. I would point out that our Electronics business is a little bit more, they have lower margins in our Aerospace group and with the size of project it's competitively bid. So from a margin perspective overall, I wouldn't see this as being overly accretive, but it's an excellent win for the business. It's an endorsement of the technologies that we have to help us grow in other areas where we're pursing new business again using these technologies. And I think we have disclosed previously as well that these tend to come in chunk some times, they're a little bit lumpy, in particular in the defense space. So a little bit of an aberration here in the quarter, but again it does also spread over the next couple of years.

Brian Konigsberg

Analyst · Vertical Research Partners

If I could just sneak one last one in. So cash conversion, I think it's probably a little bit less than I was thinking, and I think maybe some others. I did notice the CapEx is going higher in 2015. I think previously you indicated that would be kind of grinding lower after some, I guess, discrete MEI spending was taking place in '14. Maybe just can you talk to why that's moving higher and where the spending is occurring?

Max Mitchell

Analyst · Vertical Research Partners

Sure. So when we moved up, I'll just start with 2014. I mean the primary increases that we saw in 2014 were related primarily to the acquisition of MEI, because we bring in a pretty big new business there that contributed what you would expect from a business that size in the way of CapEx, as well as incremental investments for new product development, in particular in our Aerospace Group and Fluid Handling. As we looked at 2015 and completed our plans this year, and considering in particular couple of very attractive new programs that we'll share more with you again on the Investor Day, there are some incremental CapEx associated with those. And again, that's specific to our Aerospace business. But overall, I would also point out that when I look at CapEx, we are going from $45 million to $50 million, right at the mid point. So I'm really only going up $5 million. But that said, we do have some incremental investments that build to that $5 million and we'll go through that with you at Investor Day. These are exciting programs, and I think, it will all come together for you when we talk. The other element I would point out is excluding asbestos. We have asbestos payments that we need to make, but excluding that, we are at this 99% free cash flow conversion, which is from my point of view a fairly strong performance. And I think worth pointing out that that includes payments associated with repositioning actions that we announced here in the fourth quarter. So when you look at the fourth quarter amounts that we had booked, which is largely around elements that will be paid in '15, together with incremental costs with executing on those repositions in '15 that are not yet recorded, because we haven't incurred the costs. And you back those items out. Again you're then hovering around probably a 105% of free cash flow conversion, excluding asbestos and probably like 92% or 93% on an as reported basis.

Brian Konigsberg

Analyst · Vertical Research Partners

And just previously, I think you mentioned maybe $35 million or $40 million is kind of where you'd expect to be at the run rate CapEx spend? Is that still the level or do you anticipate kind of a normalized run rate would be higher than that at this point?

Max Mitchell

Analyst · Vertical Research Partners

Yes, I think, $50 million is not an unfair number, I would say. I think we're going to be at, if that $50 million, we're at like 1.5% of total sales, so it's still at a fairly good ratio. Certainly, we don't look at our ratios and say that's where we need to be. It's about how we manage CapEx and where we're investing and getting the most out of our assets and leveraging the Crane business system. So I don't see it being unforeseeable that we would be down in that $40 million range at some point. But just right now, we do have a couple of critical programs that we're executing against in our Aerospace Group in particular.

Operator

Operator

Our next question comes from Ken Herbert with Canaccord.

Ken Herbert

Analyst · Canaccord

Max and Rich, I just first wanted to start again back on Fluid Handling. It sounds like for '15, and I know we'll get more detail in the end of February, but it sounds like you've got certainly a step up from first half to second half. Is there anything you can specifically point to maybe that you are seeing today to help give us more confidence that that step-up will in fact happen? I understand the commentary around pent-up demand, and I certainly agree that the outlook is there, but timing clearly are going to be questions heading through this year. Anything else you can say to specifically address timing of that step up and maybe things we should be looking for here as we go through the first half of '15?

Max Mitchell

Analyst · Canaccord

Ken, we track all of our projects in every stage, from feed all the way through to our quote process. And the funnel is up significantly. So we see the activity. We see the projects. The trend that we continue to see is as we've described, as Rich described in this environment of uncertainty, CapEx being carefully scrutinized, decisions being put-off pushed, recalculation of some certain projects. We're not seeing any major cancellations. We're seeing a solid backlog that would bode well for '16 and '17 and being released to the end of '15. So we've really taking a careful look at this. And those are the trends that underlie our assumptions.

Ken Herbert

Analyst · Canaccord

So you're clearly starting to see some commentary and some maybe activity from your customers that underline some of that optimism, at least heading into the back half of '15 and certainly into '16 and '17, it sounds like.

Max Mitchell

Analyst · Canaccord

Correct. Yes.

Ken Herbert

Analyst · Canaccord

And then if I could on Aerospace & Electronics, can you specifically, I mean, really nice sequential step up again in the margin from the third to the fourth quarter as those sort of one-time issues got addressed, what was the commercial aftermarket growth? I know you gave the spares number, your total commercial aftermarket growth number in the fourth quarter, and maybe the outlook there into '15 as I view that as certainly a key part of the margin story.

Max Mitchell

Analyst · Canaccord

So when I look at coming off of Q3, if I look at total commercial aftermarket, which your question right not spares?

Ken Herbert

Analyst · Canaccord

Exactly. Total commercial, exactly.

Max Mitchell

Analyst · Canaccord

If I look at total commercial aftermarket coming from Q3 to Q4, it was about a 6% increase to Q4 roughly in order of magnitude. And a lot of that it was largely driven frankly by commercial spares.

Ken Herbert

Analyst · Canaccord

By the spares growth. And year over year, maybe up low-single digits?

Max Mitchell

Analyst · Canaccord

No. Year-over-year in Q4 is actually a little bit down and that's because in the fourth quarter of last year we had a really strong performance in spares in particular. So when I look at the projection, you look at the trajectory of what happened this year in the aftermarket space, in particular in spares, even if I start with Q4 of last year, Q4 was at the high point, Q1 came down just a little bit and then down a little bit more Q2, and then it picked up from Q2 to Q3 to Q4 here. We are starting to see some momentum here. Frankly, we feel cautiously optimistic about the momentum that we're seeing in commercial spares, mainly around replenishment. When you look at the initial provisioning components, we see some puts and takes frankly with 787 coming down or going up and being offset by 747-8 and things like that. But it's really being driven by replenishment as we look out into 2015.

Ken Herbert

Analyst · Canaccord

And then if I could just finally, I appreciate that you've definitely stepped up some of the repositioning activities here in the fourth quarter in response to some of the changing market dynamics. As you look into '15, are there more sort of opportunities and leverage you have at your disposal there? Is there maybe more sort of upside as we go through the year from repositioning or how would you characterize the thought process around those activities?

Max Mitchell

Analyst · Canaccord

I think for '15, Ken, we have nothing else identified. We don't think we need anything else identified. There was nothing planned. Having said that, I think that given the conditions, we will react accordingly as we have in the past, although we don't anticipate that requirement.

Operator

Operator

Our next question comes from Robert Barry with Susquehanna.

Robert Barry

Analyst · Susquehanna

I will echo the comments earlier thanking you for all the color on the energy end-markets. It's very much appreciated. And don't envy the position you're in trying to provide an outlook, it sounds like there's still a lot of moving pieces in trying to assemble that outlook.

Max Mitchell

Analyst · Susquehanna

Yes. We agree.

Robert Barry

Analyst · Susquehanna

Just to begin, a quick housekeeping. You referred to process valves. I assume that's the 44% of revenues that you touched on, the oil and gas $12 million, the chemical $21 million and the power $11 million?

Max Mitchell

Analyst · Susquehanna

Can you just repeat that, the housekeeping on?

Robert Barry

Analyst · Susquehanna

Yes, just to clarify, you've been referring to within fluid the pressure being kind of concentrated in the process valves part of the business, which I think is about 45% of fluid. Is that right? Is it the oil and gas, chemical and power that you ran through in your prepared remarks?

Max Mitchell

Analyst · Susquehanna

That's correct. So it's about yes, 42% to 44% something like that.

Robert Barry

Analyst · Susquehanna

And you mentioned that the rest of it or a good chunk of the rest of it I guess is Crane Supply and the Building Services or non-res component of the business largely in Canada. I think you mentioned you'd see some improvement there in 2015. I was curious what might be driving that?

Max Mitchell

Analyst · Susquehanna

Yes. The other components we have, pumps. We have other parts of the business, general industrial, for example is another component. And then so just to reconcile back as we look at total chem, pharma, energy, there are other components that we speak to in this regard. I'm sorry, Rob, the second half of your question there was?

Robert Barry

Analyst · Susquehanna

I guess specifically there was, I thought, some mention of Canadian non-res looking a little better in 2015.

Max Mitchell

Analyst · Susquehanna

Yes.

Robert Barry

Analyst · Susquehanna

And just given oil in that country, natural resource dependency, I was a little surprised about that expectation.

Max Mitchell

Analyst · Susquehanna

Yes. I think when we think of, I mean the direct oil and gas exposure for our Crane Supply business is limited. It's less than $10 million. It could be even as close to $5 million of direct exposure. Certainly to the extent that in certain regions like for example, in Alberta, if there is a slowdown in ICI starts, it's possible, and as a result of what we're seeing in the way of oil prices. But right now, we just haven't seen that. We haven't seen that coming out of Q3 into Q4, and where we're thinking the first half of this year is going to be at this point. But it is a risk, as you pointed out, that the energy exposure or the energy nature of Canada could have an exposure, but we see it is minimal at this point.

Robert Barry

Analyst · Susquehanna

And that the non-res end-market in Canada, it actually seems okay?

Max Mitchell

Analyst · Susquehanna

So far, yes.

Robert Barry

Analyst · Susquehanna

And then as much color as you did provide on the energy end-markets, I'm going to ask you perhaps for a little bit more. Just specifically about the downstream exposure and the refining, because I think there is a view that generally if you've got upstream exposure, you're in trouble; and if you are mid-downstream, it's a more benign impact. So a little more color perhaps there on the refining? I understand the utilization being high. There was also some commentary about project delays in refining or caution in refining. I just wanted to clarify that.

Max Mitchell

Analyst · Susquehanna

Well, I think CapEx considerations, I think what's a current -- this is what we feel as a current, Rob, is that there's just a careful cautiousness in any kind of CapEx spend, it's impacting everybody's decision making. Having said that, we are also clearly getting a sense that to take advantage of the crack spreads that utilization is intentionally being kept very, very high right now, and we expect turnaround work that maybe deferred to come back here. So it certainly would bode well. I mean oil prices overall is, if you pull back on the macroeconomic conditions depending on how you're thinking about things, clearly this is going to be a positive for the broader macroeconomic environment and how that continues to drive demand and demand into the refining, it should be positive. And what we're seeing is a immediate first quarter kind of fourth quarter first quarter trend. Does that help at all?

Richard Maue

Analyst · Susquehanna

Mainly that's the Americas, largely. Right?

Max Mitchell

Analyst · Susquehanna

Correct.

Richard Maue

Analyst · Susquehanna

Europe, we do not see the same thing with refining, everything is just sort of closing or no growth in Europe from a refining point of view.

Robert Barry

Analyst · Susquehanna

And then I just also wanted to clarify in MEI, I think you talked kind of, I think it was a general outlook for '15 of low-to-mid single-digit growth. I know you have some headwind there related to I think it was some contract revenues that are going away that you've been serving at no margins or no EBIT impact, but a revenue hit. That's probably worth a couple of points. Is that part of that outlook or is that low-single to mid-single excluding that?

Richard Maue

Analyst · Susquehanna

That includes that. That includes that outlook. It's a $15 million headwind from a revenue perspective, but that was an arrangement that we had that we manufacture that cost. So from a margin perspective, it will be a bit accretive. Not dollars, but margin rate, right, is being accretive. But from a headwind perspective on the topline, yes, you are absolutely correct, it's $15 million.

Robert Barry

Analyst · Susquehanna

So on an organic basis, I guess that would make your revenue there look a couple of points better, the growth.

Max Mitchell

Analyst · Susquehanna

Yes.

Robert Barry

Analyst · Susquehanna

And then, just finally, maybe trying to see the silver lining in the oil on the Engineered Materials business and the resins, I would think that that would be perhaps a meaningful tailwind. I don't know if you saw any of that in the quarter. It sounds like you attributed most of that margin expansion to volume leverage. But can you talk about your resin buy, the size of it and whether there might be some impact there?

Richard Maue

Analyst · Susquehanna

So in the quarter itself we really didn't see much of an impact. It was fairly late. There's a lead time associated with seeing that stuff actually read through to resin and styrene. So we didn't see much in the quarter. Even as we think about next year, I would still that there is some uncertainty, a little bit of caution with respect to price and ability to have it read through. But it's something that we're monitoring closely and we will try to manage appropriately to ensure that we get as much as we can.

Max Mitchell

Analyst · Susquehanna

Our team does a nice job correlating to or trying to correlate to market conditions. And there is not exact direct correlation to oil prices, as it relates to benzene, styrene and some of the feedstock for our unsaturated polyester resin. Having said that, we do expect some tailwinds as we move through the year, but as Rich mentioned, it's a little delayed right now, but we do anticipate some help later.

Operator

Operator

Our next question comes from Matt McConnell with RBC Capital Markets.

Matt McConnell

Analyst · RBC Capital Markets

So on capital allocation, just thinking about the share buybacks in the quarter, were those mostly opportunistic based on the stock price or should we take this as an indication that leverage is maybe back to a comfort level, now that you are a year past MEI? How should we think about that?

Richard Maue

Analyst · RBC Capital Markets

So we have not been in the market, as you know, for a little bit here, because of the acquisition of MEI. I think we have a stated policy of wanting to return to shareholders roughly 50%. I think this is in line with that. It also helps us with respect to keeping our go-forward dilutive impact of stock-based comp I think in check. So it's also consistent with respect to our other stated objective of offsetting dilution. So, yes, and I think it was important that we did that and executed here in the fourth quarter.

Max Mitchell

Analyst · RBC Capital Markets

Nothing is changed in our policy Matt, but clearly valuation had played a part in timing.

Matt McConnell

Analyst · RBC Capital Markets

And then how about on the M&A pipeline? I wonder if there is anything active or of note? And would M&A have to be limited to international targets or do you have U.S. cash available at this point?

Max Mitchell

Analyst · RBC Capital Markets

Well, as we think about it, we have capacity for both international and domestic. We are not constraining ourselves in terms of targets from that standpoint. We continue to have a rich funnel within our businesses and at corporate. The activity around acquisitions is high, but there is nothing eminent. I have to be honest and say that there is nothing close at this point due to evaluations and due to opportunities materializing.

Matt McConnell

Analyst · RBC Capital Markets

And then, just a quick detail question on Aerospace & Electronics backlog, obviously that's up quite a bit. Under what circumstances do you put something into backlog? Does that have to be within one year or two years or?

Max Mitchell

Analyst · RBC Capital Markets

The firm order.

Matt McConnell

Analyst · RBC Capital Markets

Firm order regardless of when you expect it to be delivered?

Max Mitchell

Analyst · RBC Capital Markets

Correct.

Matt McConnell

Analyst · RBC Capital Markets

And then on the currency headwind, does that have a comparable impact on earnings or do you have any revenue and cost mismatches, when you look at your currency exposures?

Max Mitchell

Analyst · RBC Capital Markets

Do I have any revenue and cost mismatches?

Matt McConnell

Analyst · RBC Capital Markets

So is there an operating margin impact?

Max Mitchell

Analyst · RBC Capital Markets

Due to any transaction foreign exchange exposures?

Matt McConnell

Analyst · RBC Capital Markets

Right.

Max Mitchell

Analyst · RBC Capital Markets

So we monitor those as well. We do have them from time-to-time depending. We understand them. In certain cases, we do hedge where we can. But that's included, I think I would say that it's included in our overall guidance that we've provided.

Operator

Operator

Our next question comes from Ajay Kejriwal with FBR Capital Markets.

Ajay Kejriwal

Analyst · FBR Capital Markets

I apologize if you already addressed this, I joined late. On MEI, good to see you're taking up the synergy goals there. So how much of that is related to additional cost that you might be taking out or is there any benefit from relaunching of some of the product lines that you had exited?

Richard Maue

Analyst · FBR Capital Markets

So this is entirely related to new projects in the efficiency or a cost structure entirely.

Max Mitchell

Analyst · FBR Capital Markets

We'll spell out more at the February Investor Conference, Ajay.

Ajay Kejriwal

Analyst · FBR Capital Markets

And, Max, on your fluid comments, obviously some of your customers are kind of pushing out projects second half '16, '17. So what's your sense, when you see this customers, how much of that comeback expectation, if you will, is based or contingent upon oil coming back? And what are those conversations, is it like, hey, we are pushing these projects away for what oil does or is it something different?

Max Mitchell

Analyst · FBR Capital Markets

I think what we're hearing today is, at these price levels of oil there are no major long-term decision changes. Shale gas and the feedstock and the competitive advantage in the U.S., I think these investments will continue. I think from a long-term planning standpoint, we don't see significant changes. But as you know, this continues to play out on a daily, weekly, monthly basis. And so we will continue to monitor closely, but we don't think it will have a significant impact on the right long-term decision that the majors have undertaken.

Ajay Kejriwal

Analyst · FBR Capital Markets

And then last one for me, on payment solutions, any update on what you're seeing in end-markets in Europe, the customers in Germany and some of the other countries, where you had issues in last couple of quarters?

Max Mitchell

Analyst · FBR Capital Markets

Actually stable in some cases, in gaining we're some upside. How would you answer?

Richard Maue

Analyst · FBR Capital Markets

No, I think when you say challenges, sometimes it's just it's timing of certain projects and things might move from one quarter to the next. I wouldn't characterize as any unique sort of customer issues that had, it's just timing of projects. I think we'll continue to see lumpiness from period-to-period, but we feel good about all of our relationships with all of our customers. We are not losing any share, that's for sure. And we feel good about our prospects, as we move into '15.

Operator

Operator

I'll now turn the call back over to Max Mitchell for closing remarks. End of Q&A

Max Mitchell

Analyst · KeyBanc

Thank you, operator. Well, 2014 was a difficult year, we were pleased to deliver our fourth consecutive year of record performance at Crane, as solid execution mitigated the impact of soft end-markets. We expect another challenging revenue year in 2015, but believe we are and our portfolio is well-positioned for growth in the long-term. And we will remain focused on our productivity and repositioning efforts. We look forward to seeing many of you next month at our February 26, Investor Day Conference in New York City. Thank you all for your interest in Crane.

Operator

Operator

Thank you, ladies and gentlemen. That does conclude today's conference. You may all disconnect. And everyone have a great day.