Crane Company

Greetings, and welcome to the CraneCo second quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jason Feldman, Vice President of Investor Relations. Thank you, sir. You may begin.

Thank you, operator, and good day, everyone. Welcome to our second quarter 2021 earnings release conference call. I'm Jason Feldman, Vice President of Investor Relations. On our call this morning, we have Max Mitchell, our President and Chief Executive Officer, and Rich Maui, our Senior Vice President and Chief Financial Officer. We'll start off our call with a few prepared remarks, after which we will respond to questions. Just a reminder that the comments we make on this call may include some forward-looking statements, We refer you to the cautionary language at the bottom of our earnings release and also in our annual report, 10-K, and subsequent filings pertaining to forward-looking statements. Also during the call, we'll be using some non-GAAP numbers, which are reconciled to the comparable GAAP numbers, and 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, Jason, and good morning, everyone. Thanks for joining the call today. Another exceptional quarter, really, with solid results across the board. We finished the second quarter with record-adjusted EPS from continuing operations of $1.83, up 205% compared to last year, and record-adjusted operating margins of 17.6%. We delivered core sales growth of 19%, with a number of strong leading indicators reflected in core order growth of 45%, and core backlog growth of 7% compared to last year. Based on this performance, we are raising our adjusted EPS from continuing operations guidance by 30 cents to a range of $5.95 to $6.15, which is effectively our fourth guidance increase so far this year. Please allow me to take a moment to put this in perspective. The midpoint of the updated guidance at 6.05 is above our prior peak pre-COVID adjusted EPS of $6.02 in 2019. While we expect to exceed that $6.02 prior peak this year, there are some notable differences this year compared to 2019. In particular, the $6.02 in 2019 included earnings from engineered materials, which is now classified, as discontinued operations and excluded from our 2021 guidance. As we have mentioned previously, this is about 44 cents of EPS now excluded in discontinued ops. Further, most of our end markets are still in the very early stages of recovery and remain well below their pre-COVID peak levels. The only real exceptions to this are Crane Currency and our defense business. And thinking about 2022 and beyond, it's worth noting that the commercial side of our aerospace and electronics business will still be almost $200 million below 2019 levels this year. And a recovery to pre-COVID levels in this business alone would add more than $1 per share to EPS. At Payment and Merchandising Technologies, the core non-currency business will be slightly more than $200 million below pre-COVID levels, with more than half of that amount in our very high margin core payment solutions business. Throughout the recovery and beyond, this business will continue to benefit from very favorable long-term macro drivers, helping our customers drive productivity and security by automating the payment and transaction process. with many of those trends strengthening with ongoing labor shortages and wage inflation. And at Process Flow Technologies, we are just beginning to see an inflection to positive core growth on the process side of the business over the last month or two. And while sales growth has just barely inflected positive, we haven't had a backlog in our process valve business this high since 2014, and sales will certainly follow. So how are we driving earnings above 2019 levels without a full market recovery yet? Message is the same. Execution on our growth initiatives together with the consistent cadence and discipline of the crane business system to drive growth, productivity, and cost savings. And as mentioned many times before, we have delivered on margins and free cash flow while maintaining 100% of our investments in strategic growth initiatives throughout the entirety of the pandemic. because of their importance in our ability to sustainably drive long-term profitable growth. These initiatives will continue to drive above-market growth. Paired with the market recovery and our consistent execution, we are very excited about our growth prospects, strong top-line growth, solid operating leverage driving substantial growth and free cash flow. Credibly delivering on expectations. I discussed at our February Investor Day event how Crane was at an inflection point for accelerating growth after years of organic investments and consistently excellent execution. In the first quarter, you saw substantial evidence of that inflection and the related themes from Investor Day reading through. At our May Aerospace Electronics Investor event, we showed you numerous examples of how we continue to effectively drive above-market growth, expecting 7% to 9% compound average growth over the next 10 years. Also in May, we announced the sale of engineered materials as part of our strategic portfolio management process to increase our overall growth profile while continuing our simplification journey. And today, you can see even more evidence of that inflection in our core sales growth. as well as in our leading indicators, including orders and backlog. Consistently executing on our investor thesis, that is, we are well positioned for accelerating organic growth as our end markets continue to recover. We are outgrowing our end markets because of our consistent and ongoing investment in technology, new product development, and commercial excellence. Solid execution continues to leverage that growth into earnings and strong free cash generation, which creates substantial flexibility for capital deployment, and continued evidence of the value we create through acquisitions with stellar performance at Crane Currency, Commons Allison, and INS. In flexion, we have clear momentum with increasing traction from our growth initiatives. We will continue to generate substantial and sustainable value for all our stakeholders. At this point, I'll turn it over to Rich for some additional financial commentary.