Crane Company

Welcome to CraneCo Third Quarter 2021 Earnings Call. At this time, all participants are in a listen-only mode. A 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. Please note this conference is being recorded. I will now turn the conference over to Jason Feldman, Vice President of Investor Relations. Thank you. You may begin.

Thank you, operator, and good day, everyone. Welcome to our third 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 the 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 will be using some non-GAAP numbers that 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 with solid results across the board. Even in this environment of persistent inflationary pressures, random supply and logistics issues, and continued various COVID recovery conditions globally. We finished the third quarter with record adjusted EPS from continuing operations of $1.89, up 103% compared to last year, along with extremely strong adjusted operating margins of 16.8%. We delivered adjusted core sales growth of 19%, with a number of strong leading indicators reflected in core order growth, 31% and core backlog growth of 13% compared to last year. Based on this performance, we are raising our adjusted EPS from continuing operations guidance by 35 cents to a range of $6.35 to $6.45, which is effectively our fifth guidance increase this year. Remember that our original guidance for 2021 was 490 to 510. and that guidance included 44 cents of earnings contribution from engineered materials. That means we have effectively raised guidance more than $1.80 on a comparable basis since January. Compared to 2020, on a like-for-like basis, excluding engineered materials in both periods, our current guidance midpoint of 640 compares to 2020 EPS of approximately 352. reflecting more than 80% year-over-year EPS growth. Absolutely stellar performance by any measure. While uncertainty will continue related to COVID variants, sporadic supply chain constraints, inflation, and overall global resource challenges, we have a high level of confidence in our revised guidance based on our team's outstanding performance, driving customer satisfaction and proactively and effectively managing inflation and the supply chain. For context, we were approximately price-cost neutral in the third quarter. Let me put our performance in perspective another way. The midpoint of the updated guidance at 640 is well above our prior peak pre-COVID adjusted EPS of 602 in 2019, but with some notable differences this year compared to 2019. again, the 602 in 2019, included earnings contribution from engineered materials, which is now classified as discontinued operations and excluded from our 21 guidance. Second, many of our end markets are also still in the early stages of recovery and still remain well below the pre-COVID peak levels with the exception of crane currency and our defense business. In thinking about 22, 2022 and beyond, it is worth noting that the commercial side of our aerospace electronics business in 2021 will still be approximately 150 million in sales and approximately 80 million in operating profit below 2019 levels this year. And the recovery to pre-COVID levels in this business alone will add about $1 per share to EPS. At Payment and Merchandising Technologies, Crane Payment Innovations will be $200 million below pre-COVID levels in 2021, with more than half of that amount in our very high-margin payment solutions business. This business continues to benefit from very favorable long-term macro drivers that are accelerating given global human resourcing constraints, labor shortages, and wage inflation, helping our customers drive productivity and security by automating their payment and transaction processes. And at Process Flow Technologies, we saw the inflection to positive core growth in the second quarter on the process side of the business with sustainable and improving demand across our strongest end markets, including chemical. So let me reiterate the message that we have been consistently communicating. We are innovating and developing new products and solutions to provide value for our customers. We are executing on numerous growth initiatives across our businesses, and we operate with a consistent cadence and discipline of the crane business system to drive growth, productivity, and cost savings. We have demonstrated an ability to balance those objectives extremely well, delivering on margins and free cash flow, while maintaining 100% of our investments in strategic growth initiatives throughout the entirety of the pandemic. We are and we will continue to drive above market growth, paired with the market recovery and our consistent execution We're very excited about our growth prospects, strong top-line growth and 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 and electronics investor event, we showed you numerous examples of how we continue to effectively drive above market growth and our expectation of a seven to 9% sales compound average growth rate over the next 10 years. Also in May, we announced the sale of engineered materials as part of our strategic portfolio management process to improve 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 orders and backlog. Consistently executing on our investor thesis, that being 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, Cummins Allison, and instrumentation and sampling. And flexion. We have clear momentum with increasing traction from our growth initiatives. We will continue to generate substantial and sustainable value for all of our stakeholders. Despite our impressive track record of the results, we believe There is unrecognized value in our stock and the strength of our medium and long-term outlook, and that was one of the key factors behind our newly announced $300 million share repurchase authorization. You should view this as both a return of cash to shareholders following consistently outstanding operational performance and strong free cash generation, as well as a sign of management and the Board's conviction that we have a lot of runway for growth ahead of us. At this point, I'll turn it over to Rich for some additional financial commentary.