Hello, everyone, and welcome to the Crane Company Third Quarter 2024 Earnings Conference Call. At this time, all participants have been placed in a listen-only mode and the floor will be open for your questions following the presentation. [Operator Instructions] I would now like to turn the call over to Allison Poliniak, Vice President of Investor Relations.

Thank you, operator, and good day, everyone. Welcome to our third quarter 2024 earnings release conference call. I'm Allison Poliniak, Vice President of Investor Relations. On our call this morning, we have Max Mitchell, our Chairman, President and Chief Executive Officer; and Rich Maue, our Executive Vice President and Chief Financial Officer; along with Jason Feldman, Senior Vice President, Treasury, Tax and Investor Relations, who's on for Q&A. We will start off our call with a few prepared remarks from Max and Rich, after which we'll respond to your questions. And just a reminder, the comments we make on this call will include some forward-looking statements. We refer you to the cautionary language at the bottom of our earnings release and also in our annual report, 10-K and subsequent filings pertaining to forward-looking statements. Also during the call, we will be using some non-GAAP numbers, which are reconciled to the comparable GAAP numbers in tables at the end of our press release and accompanying slide presentation, both of which are available on our website at www.craneco.com in the Investor Relations section. Now let me turn the call over to Max.

Thank you, Allison. Thanks, everyone, for joining the call today. Crane had another excellent quarter with results outperforming expectations. Adjusted EPS was $1.38, driven by an impressive 6% core sales growth, reflecting strength across both Aerospace & Electronics and Process Flow Technologies. We also had strong leading indicators with core orders up 6% and core backlog up 10% compared to last year. And confidence in our outlook for 2024 remains high. We've had a very solid year-to-date as we continue to successfully execute on our strategy. I want to take a moment to acknowledge those that have been impacted by the recent hurricanes, which have caused widespread devastation with impact for many of our associates and customers located in the Southeast. Crane's Marion, North Carolina site was directly affected by flooding from Hurricane Helene as was the region and we are in the process of recovery and bringing operations back online. While we are making great progress to date, the safety of our employees, their families and the communities in which we operate remains our primary concern. And the Crane Foundation is proud to support numerous organizations providing relief and help locally in the aftermath of hurricanes Helene and Milton. In addition to the Marion facility in the quarter, we also saw numerous days of downtime from power outages at a site in South Carolina due to Helene, and we lost a week of output from our Aerospace & Electronics site in Taiwan due to Typhoon Krathon. The latter two were less disruptive and those locations will fully recover lost third quarter sales of the fourth quarter. At Marion, however, it will take a little longer to restart operations. But we expect insurance to cover all business interruption, although we may not receive the insurance recovery until early next year.…

Thank you, Max, and good morning, everyone. Starting with total company results. We drove 6% core sales growth in the quarter with strength across both primary businesses and adjusted operating profit increased 35%, driven by strong net price and productivity. Leading indicators were also strong with core FX-neutral backlog up 10% and core orders up 6% compared to last year, notably better than expected, particularly at Aerospace & Electronics. Another strong quarter, reflecting our focus on accelerating core growth along with our consistently differentiated execution. In the third quarter, adjusted free cash flow was $75 million, roughly in line with last year. For the full year, we now expect free cash flow to fall at the lower end of our $255 million to $275 million range, given ongoing working capital headwinds at Aerospace & Electronics and the timing of insurance recoveries in Marion related to Hurricane Helene. Total debt at the end of the first quarter was approximately $332 million with $258 million of cash on hand. We continue to have substantial financial flexibility with roughly $1 billion in M&A capacity today and reaching as much as $4 billion by 2028. As a reminder, we will deploy our capital with the same strict financial and strategic discipline that we always have employed, prioritizing internal investments for growth, followed by M&A and returns to shareholders. As Max noted, our M&A pipeline remains active. We continue to expect to complete another small deal by year-end and expect further transactions as we turn the calendar to 2025. Now turning to our 2024 guidance. We are once again raising our full year adjusted EPS guidance by $0.075 at the midpoint and narrowing the range for EPS to be within $5.05 to $5.20, reflecting 19% year-over-year growth at the midpoint. Guidance assumes total core growth…

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

Good morning.

Good morning.

You quantified -- you did a good job quantifying the impact associated with the hurricanes. I was wondering if you could be a bit more precise as to exactly what you felt in Q3, if anything, material from the Boeing strike and what's baked into your guidance associated with that strike for Q4? And then I have a follow-up.

Yeah. So in Q3, I would say not material, Matt. The more material impact as we quantified was the hurricane at $0.03 roughly. In Q4, I would say that we were continuing to make sure that we're protecting Boeing. So our estimate there, perhaps a little bit muted from a volume perspective, but there is some impact but I would again say not material and not affecting our overall guide for the quarter.

That ballpark is $5 million of sales a month for the effective programs at below segment average margins. I don't know that we're going to be more specific about what typically is in the fourth quarter assumption. But that's kind of the way to think about it.

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

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

Yeah, sure. I'll give a little bit of color, Matt. Overall, the message would be that very consistent with what we discussed and shared in July following the second quarter earnings call, fairly consistent on a year-to-date basis compared to coming into the year, doing better with the positive surprises being largely around projects as we were entering the quarter, primarily in the Americas but also in the Middle East, Asia and primarily in chemicals and pharmaceuticals. We do think the backlog as it currently stands is setting us up, I think, well as we're looking to the fourth quarter end to 2025. European chemical is still slow. No real change there, both projects and MRO. If anything, MRO stabilizing is the way to think about it, but we're not expecting a big recovery at all here as we exit Q3 and finish up Q4. China and Europe, I would say, just overall, the most challenged end markets there. A handful of project pushouts, not inconsistent with what we were seeing coming into the year and through the first nine months. So that's a very similar trend as well. And again, the strength coming from a project point of view in pharmaceuticals and in chemical. Outside of the process side of the business on the more commercial areas of what we have in PFT, North American water, wastewater just continues to win, frankly, and taking share. So excited about what we continue to see there. And then UK non-res, I would say, a decent double-digit core order rate that we saw here in the quarter, so also recovering.

Got it. Thank you guys.

Next, we'll hear from Justin Ages at CJS Securities.

Hey, good morning.

Good morning.

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

PFT. And it's -- we'll probably -- you'll probably see this. It's in the $20 million range of solid EBITDA margins in the cryogenic space again. So it's a really nice fit and we are on schedule to close Friday. So we'll probably put a press release out when that occurs.

All right. That's very helpful. Thank you. And then one more, if I could. Without getting too political or anything, can you tell us what -- if you're favoring one political kind of climate for the business over the other or how you're approaching the November election?

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

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

Thanks, Justin.

Our next question will come from, and I do apologize if I mispronounce your last name, from Scott Deuschle at Deutsche Bank. Please go ahead. Your line is open, sir.

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

Yeah. Commercial OE was up 17%. Military OE up 13%. Commercial aftermarket, up 39%. Military after -- sorry, I'm reading the wrong column. I apologize. Forget all of those. On a core basis, excluding the acquisition, commercial OE was up 7%, military OE up 7%, commercial aftermarket up 12%, military aftermarket up 30%.

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

Yeah. We haven't disclosed the shipset content on. Yeah, a couple of million. It's not that significant where we're positioned with the valves, Scott. But we are chasing -- we are specified. As the AT1000 gets built, we will have that content. Our team is actively bidding and working with all the small modular nuclear reactor builders on new design getting specified in. So it's clearly a strategic focus for us. That's our smaller $70 million nuclear services business that does turnaround work, wonderfully positioned test equipment on turnarounds, provides those services and also manufacturing bespoke valves for those solutions just for those that don't remember that history also.

Okay. And Max, this is kind of a tough question, but you had downtime in South Carolina, you had downtime in North Carolina. You had this Taiwan impact, and you had a strike at Boeing, and you still beat on the quarter and raised the guide on EPS. So just maybe curious if you could rip a bit about what's in the water at Crane that enables you all to perform like this in these circumstances? Thanks.

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

Thank you.

Damian Karas at UBS. Your line is open. You have our next question.

Good morning, Damian.

Hey, good morning, everyone.

Good morning.

I wanted to ask you a follow-up question on process flow. I know that power is less relevant to the business nowadays versus the past when it was kind of a larger proportion of the mix. But you do still have a strong position in nuclear in North America, in particular. Just curious if you're seeing any activity from some of the recent capacity that's coming back online? And maybe any thoughts on how you're thinking about some of the announcements from Google and these other tech companies on planning of some nuclear projects?

Power overall, I think it just -- it's stable. We haven't seen -- nothing I can see in the data, any major shifts from that standpoint. And the nuclear -- hey, look, it's exciting news. The nuclear resurgence is certainly exciting. We're excited about those announcements as well. There's going to be a lot of money and investment in there. I think it's going to be a longer-term cycle for sure. But on a smaller scale, our nuclear team is investing for growth. One of our strategic initiatives is a brand-new testing capability that allows for remote testing for the annual process of certifying the valves. And so we're excited about that, investing for growth, but it's a positive place to be and something that we'll be certainly looking at also from an M&A strategy also if and when it makes sense on assets that come up.

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

Well, on the contract question first, I mean, we're always in negotiations on various contracts when they come up, when they're due. So that's just ongoing. I would say that the pace and scope of contract discussions continue, nothing unusual. So that's all positive. I would say that, look, I mean, anything outside of our control, we've always said what worries me the most is those things that are outside of our control. It's some economic shock, it's war, it's another virus, it's those types of things. Could that happen? Sure, I guess so. Based on what we have clear line of sight to, based on everything we're triangulating on, we have high confidence as we exit the year and head into 2025.

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

Thanks, Damian.

Ron Epstein at Bank of America. Please go ahead. Your line is open.

Hey, good morning, guys.

Hi, Ron. Good morning.

How long does the strike of Boeing have to go for it to be kind of really problematic, meaning it seems like if it were to last three months, that three months kind of line in the sand is when maybe some of your smaller suppliers could really start getting into trouble. So I'm just curious if you have a sense on -- obviously, getting it resolved sooner than later is far better. But if it were to go on for a while, where is that line in the sand?

For us, look, I think you have to look specifically for Crane. And we're not interiors. We're not -- some of the others that might have some clear greater challenges with the delay. Right now, with the aftermarket, if the strike continues -- I mean, unfortunately, new aircraft are not being delivered, older aircraft continue to fly. Our aftermarket continues to remain strong. So we feel that even in any worst-case scenario with the strike, we're going to be okay. We're protecting some of the volumes. I mean we're adjusting some of the forecast rates, of course. But in terms of making sure that we have the appropriate inventory for a start-up, not excessive, but the appropriate level of inventory, managing our supply chain, no knee-jerk reactions into our supply chain. So I think we're managing it really, really well. And I don't see a red line. I really don't.

Right. Got it. Thank you.

Thanks, Ron.

Nathan Jones at Stifel. Your line is open for our next question.

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

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

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

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

Adam, what I'd highlight again is our approach is a much more -- it's a balanced approach. We don't follow the herd. We don't just run with some new shiny thing. 80-20 truly is a holistic improvement philosophy and approach that is not just about price, it's pricing for value. It's about really good product management, too, and simplifying the portfolio for those things that you really should not be continuing to try to produce it has that bears the brunt of your cost and you're really not making the kind of margins that you think. So you simplify the business over time. You're taking cost out. So it's not just a price up, it's a cost out. And then it's a focus on overserving your core customers and redirecting your assets and making sure that those core customers are getting super served. So it's about a growth strategy. So when you put it in that context, I think it's a wonderful fit with our overall CBS philosophy approach, tools, it's been a phenomenal addition. I would say that it's still -- when we talk about early innings of the approach, it's really around the simplification, continue to see opportunities. Now we've always been aggressive at stripping out costs, closing facilities. So this is, again, just a natural extension for us from a Crane Business System standpoint. But this extension of simplification, cost out, overserving customers, still early innings in its purity of the approach, which I'm really, really excited about. A reminder for investors, coming out of COVID in an inflationary environment, we were maniacal of making sure early and fast that we stood up for our value prop and passed on inflation very fast, very quickly. I would not say that was 80-20. That was just, in many cases, a brute force driving it through the business. Since then, of course, it's become much more sophisticated, strategic. We continue with the momentum. But I still think it's early innings for us and we're really approaching this the right way and in a balanced way that will have longevity for, I mean, many, many years ahead. Rich you frame it up any differently?

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

Awesome. Thanks for taking my questions.

Adam, was Nathan -- would he rather listen to Scott versus me? My feelings are hurt.

No, it was nothing like that.

All right. Tell him, I just gave him a message.

We'll hear from Jeff Sprague at Vertical Research.

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

On the Honeywell delays, we're just -- we're still not seeing any major significant shifts in pushouts or cancellations, anything along those lines. On the storm impacts, do you want to?

Yeah. I mean on the storm impacts, Jeff, it was $0.03 in the quarter -- in the third quarter in PFT. And then for the quarter -- for the fourth quarter on PFT, we gave an estimate of $0.05 to $0.10 of impact.

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

Great. Thanks for the color.

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

Got it. Now, I understood. Appreciate it.

Okay. Thanks, Jeff.

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

Good morning, Tony.

Hey, good morning, Max and team. Great job as always. Just with your -- given your strong performance you've had in putting out at the last Investor Day, your sort of long-term '28 outlook. Could you sort of maybe walk us through any update on that longer-term plan getting there, getting to the two businesses at scale at appropriate margins? And then also an update on any potential sale of the engine material business. I realize it's not the best time maybe, but just your thoughts on that would be helpful.

Yeah. I would say no change on the long-term targets, 3% to 5% in Process, 7% to 9% in Aerospace and Electronics, leveraging at 30% to 35% in PFT and 35% to 40% in Aerospace and Electronics. So I would say that, that equation holds -- is still something that we're marching forward on and continuing to look for the right opportunities to deploy capital to continue to support the inorganic side of things.

On the inorganic side, I would say that the activity has never been higher. I mean, our funnel is very full. We're very, very active. So I think from that standpoint, it plays well to our goal of scaling up in both A&E and PFT strategically. We like the assets. We like where they're positioned. We'll see what we can continue to get across the goal line here, but a lot of activity. So that's all incredibly positive. And on Engineered Materials, as we've stated before, we love the business, great team, great business, great end markets. We don't -- it's not strategic for Crane. We tried to sell it once. DOJ had some issues with the acquirer that unfortunately, we missed that cycle. We will not miss the next cycle. So that will -- it's just a matter of time.

Thanks so much. Great job, everyone.

Thanks, Tony.

Thanks, Tony.

And there are no further questions in our queue for today. This concludes the Q&A portion of the call and I am pleased to turn the floor back over to Mr. Max Mitchell for closing remarks.

Thanks, operator. Appreciate it. Again, yet another very solid quarter with results outperforming expectations even with surprises outside our control that our teams reacted to incredibly well. As the late great Wally Amos, Founder of Famous Amos Cookies once said, nothing is an obstacle unless you say it is. As I highlighted previously, a key tenet and strength of the Crane Business System is the flexibility and speed to react to issues outside our control. Third quarter performance and fourth quarter guidance is another great example of exceptional performance even in the face of adverse events. Our strategy is working. The team is executing, driving improved earnings through its growth and commercial excellence initiatives. Our M&A pipeline is full, and we have the balance sheet capacity to execute. We look forward to closing out 2024 on a strong note and are well positioned for continued growth and delivering on expectations in 2025. Thank you all for your interest in Crane and your time and attention this morning. Have a great day.

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