Crane Company 2026 Q3 Earnings Call

Please go ahead. Thank you, Stephanie, and good day, everyone.

Welcome to our third quarter 2026 earnings release conference call. I am Allison Poliniak, Vice President of Investor Relations. On our call this morning, we have Alex Alcala, President and Chief Executive Officer, and Rich Maue, our Executive Vice President and Chief Financial Officer, along with Jason Feldman, Senior Vice President, Treasury and Tax, who is on for Q&A. We will start off our call with a few prepared remarks from Alex and Rich, after which we will respond to questions. 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 and tables at the end of our press release and accompany slides presentation, both of which are available on our website at craneco.com in the investor relations section. Now let me turn the call over to Alex.

Thank you, Allison, and good morning, everyone. Crane delivered another quarter of record performance, reflecting the strength of our portfolio, broad-based demand across our end markets, exceptional execution throughout the company, and the continued success of our acquisition strategy. Demand remains very strong across Aerospace & Advanced Technologies. Momentum continues to build within Process Flow Technologies, and our recent acquisitions are performing well ahead of expectations. Together, these drivers resulted in 8% core sales growth, strong operating leverage, record margins, record earnings, and a record backlog while reinforcing our confidence in the outlook for both 2026 and 2027. Of note, order activity was particularly strong in Process Flow Technologies, where core orders increased 20% year-over-year and 8% sequentially.

This, combined with exceptional strength and resilience across the Aerospace & Advanced Technologies, total company backlog increased 9% year-over-year, providing strong visibility as we close out the year and enter 2027. Execution continues to be a key differentiator. Adjusted operating margin expanded 130 basis points to a record 22.5%, despite the temporary dilutive impact of our recent acquisitions. These results demonstrate our ability to translate growth into meaningful earnings expansion while continuing to invest for the future. Our acquisitions continue to significantly exceed expectations. Revenue growth, margin expansion, and earnings contribution are all ahead of plan, and we now expect to achieve our 10% ROIC hurdle approximately 18 months earlier than originally anticipated. We expect these acquisitions to contribute approximately $0.30 per share to 2026 earnings, up from our previous expectation of $0.20 per share, with operating margins expanding more than 500 basis points this year.

These incredible results reinforce our confidence in the Crane Business System and our ability to create substantial shareholder value through disciplined capital deployment. We are equally excited about the opportunities ahead, including the pending acquisition of Trillium Pumps. Given our strong year-to-date performance, record backlog levels, and confidence in both our core and acquired businesses, we are raising our full-year adjusted EPS outlook by $0.35 at the midpoint to a range of $7.23-$7.38 per share. Turning to Aerospace & Advanced Technologies, this segment continues to perform exceptionally well. Demand remains robust across commercial aerospace, defense, and space, supported by a record backlog and a growing pipeline of opportunities. Commercial aerospace remains healthy, with solid OE demand and continued strength in aftermarket.

On the defense side, investment remains very strong as customers continue to prioritize missile defense, radar, advanced power conversion, and space-based capabilities, all areas where we continue to invest and win. Strong execution and continued program wins are providing increasing visibility into the future growth. As a result, we continue to expect 2026 core growth modestly above the high end of our long-term 7%-9% growth framework, while leveraging that growth between 35% and 40%. The team continues to execute at a very high level, and we remain highly confident in the long-term growth opportunities across the segment. Process Flow Technologies also delivered an outstanding quarter. The business returned to core growth while delivering record profitability. Core sales increased 6%, orders grew 20%, and adjusted operating margins expanded despite the dilutive impact of recent acquisitions. More importantly, the transformation of the portfolio continues to gain momentum.

Growth was broad-based across cryogenics, power, wastewater, nuclear, and general industrial markets. We secured additional wins in cryogenics, supporting the growing space launch market, new pharmaceutical orders related to GLP-1 capacity expansion, and further wins in wastewater and power. For the full year, our outlook has improved, driven by solid core growth in the second half. We now expect low single-digit core growth full year and continued margin expansion. We also continue to enhance the quality of the portfolio through disciplined capital allocation. The announced acquisition of Trillium Pumps strengthens our position in the attractive water and wastewater market, while the announced divestiture of our Building Services & Utilities business further sharpens the strategic focus of the segment. Before moving on, I want to recognize and thank the outstanding BS&U team.

For nearly 120 years, this business has been an important part of Crane, built by incredibly talented people who consistently deliver results the right way. We are grateful for their many contributions and proud of what they have accomplished. As they begin this next chapter, I'm confident they have a bright future ahead. Together, these actions continue to reposition PFT around highly engineered mission-critical technologies, serving attractive growth markets including pharmaceuticals, water and wastewater, power, cryogenics, and nuclear. Importantly, we are not finished. We continue to see attractive opportunities to further strengthen the portfolio and remain confident in our ability to outperform the markets we serve over the long term. To summarize, Crane is performing at a very high level. Our businesses are executing exceptionally well. Our end markets remain attractive. Our acquisitions are exceeding expectations. Our portfolio continues to become stronger and more resilient.

We will enter 2027 with record backlog, strong momentum across both segments, increasing earnings power, and significant strategic flexibility. As we look toward 2027, our confidence continues to grow. Over the summer, we completed strategy reviews across all our businesses, and those reviews reinforce our long-term growth framework. In particular, four themes stand out. First, Aerospace & Advanced Technologies remains exceptionally well-positioned. Strong aerospace and defense demand, combined with the benefits of years of investment in differentiated technologies, creating a resilient portfolio, gives us confidence in the segment's ability to deliver attractive growth for many years to come. Second, the transformation of the Process Flow Technologies portfolio is gaining momentum. While the benefits are increasingly visible in our results today, we believe we're still in the early innings of that value creation journey as we continue to reshape the portfolio around higher growth, higher margin, and less cyclical markets.

Third, our acquisition strategy continues to create meaningful value. We have significant capacity to deploy capital, a robust pipeline of opportunities, and a proven ability to integrate businesses and accelerate earnings, margins, and returns. Last, but most important, we have an incredible intangible asset, the Crane Business System. The combination of world-class processes and a high-performance culture built on focus, intensity, and accountability continues to differentiate Crane and drive sustainable value creation. Simply put, our businesses are performing very well. Our portfolio is stronger than it has ever been, and we continue to see significant opportunities to create value through both organic and inorganic growth. Before turning it over to Rich, I'm pleased to announce that we'll host our next Investor Day on February 9th in New York City. We look forward to sharing more about our strategy, growth opportunities, and long-term outlook at that event.

With that, turn the call over to Rich.

Thank you, Alex. Another outstanding quarter with certainly more to come. Alex, as you just said, the Crane Business System, this machine that we have, and this unique culture, it's what enables us to consistently deliver the results that we do quarter after quarter. It reminded me of the Academy Award-winning movie Fletch, during an iconic scene where Chevy Chase was impersonating Gordon Liddy, an airplane mechanic supervisor. During that scene, I was reflecting on our well-oiled machine, and I thought about all our coaching to our leadership teams and even how we talk with our investors. When Fletch proclaims, "It's so simple. Maybe you need a refresher course. It's all ball bearings nowadays, guys." Now you just prepare that Fetzer valve with that 3-IN-ONE oil and some gauze pads, and I'm going to need about 10 quarts of antifreeze, preferably Prestone.