Crane Company

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. If you would like to ask a question at that time, please press star and 1 on your telephone keypad. If at any point your question has been answered, you may remove yourself from the queue by pressing star and 2. So others can hear your question clearly, we ask that you pick up your handset for best quality. Lastly, if you should require operator assistance, simply press star and zero. 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 Maui, 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 up 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 slides 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 electronic site in Taiwan due to Typhoon Craython. The latter two were less disruptive, and those locations will fully recover lost third quarter sales in 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. Despite these recent challenges, I remain highly confident in the strength and resilience of Crane's team and portfolio. And we are once again raising and narrowing our full year earnings outlook, expecting adjusted earnings per share to be in the range of $5.05 to $5.20. up from our prior view of 495 to 515. We have direct line of sight to delivering this expected 19% earnings growth. At Process Flow Technologies, guidance continues to assume somewhat muted industrial activity, as well as lower shipments from our Marion facility due to Hurricane Helene. Within Aerospace Electronics, Demand remains strong across all categories of our defense and commercial business, with some shipment reductions related to the Boeing strike and to a lesser degree continued supply chain constraints. Related to the Boeing strike and the situation at Boeing generally, I would say that for the sake of the aerospace industry, we need this critically important and iconic manufacturer to continue to recover and regain its position globally. Personally, I feel that the recent leadership changes will be a very positive inflection point for the organization and through its next chapter of recovery and resurgence, and Crane is doing all that we can to support. Along those lines, we have made unilateral strategic decisions to support our customer with improved inventory buffers for outstanding continued service and delivery performance as Boeing eventually ends and recovers from the impacts of the strike and other operational challenges. A key tenet and strength of the crane business system that we have highlighted and proven time after time over years is the flexibility and speed to react to issues outside our control. Our third quarter performance and fourth quarter guidance are further great examples of our exceptional performance even in the face of adversity. And our teams continued to execute and win in the third quarter. Within Aerospace Electronics, we were selected by Deutsche Airkraft to supply the proximity sensing system for its D328 Eco platform, following the prior award for the anti-skid brake control system on this aircraft. This is a great platform with the lowest fuel consumption and CO2 emissions for its size category in the market today. and we are well-positioned to support all of our OE customers as they continue to develop more fuel-efficient and environmentally-friendly solutions. We're also awarded a lube and scavenge pump contract for Zero Avia, and other significant negotiations continue for additional collaborative combat aircraft programs. Within process flow technologies, one of the largest gas majors has approved crane valves for use in the cryogenics applications, opening up 35% of the liquid hydrogen valve market for our growing cryogenics business. We also received a $5 million order for a major chemical facility, upgrading to newer cell membrane technology for chloralkali production. Our Resistaflex line pipes and Zomox valves have successfully been selected to be installed on this new upgrade due to their excellent corrosion resistant properties. This project consolidates our position as the main solution provider for this customer on line products due to superior life. Overall, another strong quarter for both aerospace and electronics and process photo technologies, both in reported results as well as in our execution supporting current and future growth. And with continued progress on our existing M&A funnel, we expect additional opportunities to become actionable over the next few quarters. While we are working on a number of transactions at the moment, we see the opportunities weighted towards 2025, given the expected timeline for known processes, with the smaller transactions still on track for year end. And as we reiterated during our annual investor day earlier in the year, we remain confident in a 4% to 6% long-term core sales growth rate from resilient and durable businesses with solid aftermarket. and substantial operating leverage on top of 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. Hey, with the future in mind, we're excited to announce that we will be hosting an investor meeting at our aerospace and electronics site in Fort Walton Beach, Florida, on March 6, 2025. We will be sharing more information about the details of the event over the next few weeks, but please save the date on your calendars. Our Fort Walton Beach site is the production site for our defense power business, which houses production of our wide range of power conversion devices for use in next-gen military radars, as an example, with growing capability and high power for emerging ground vehicles. Now let me turn the call over to our CFO, Rich Maui, for more specifics on the quarter. and some more details on our guidance.