Crane Company (NYSE:CR) Q4 2023 Earnings Call Transcript

In our Pharmaceutical business, we secured a $5 million order for a new oncology therapy facility, our first win with this particular customer in over a decade. We won this order due to advances with our EX diaphragm technology, that supports a higher temperature range and longer product life that the entrenched incumbent provider was unable to meet. It’s a great sign as other pharmaceutical companies are continuing to develop processes with higher and higher temperatures. In our new hydrogen CRYOFLO business, where we’ve discussed for the last few quarters, we’ve delivered initial shipments of our Bellows sealed globe valves in the quarter to two large cryogenic equipment OEMs, further evidence that our strategy in this market is working. This business also began quoting on another newly launched product line in this space vacuum jacketed piping, and we expect our first orders for this product during the first quarter.

In our Chemical business, we secured nearly $12 million in orders for a new significant project in China as large global chemical manufacturers continue to increase capacity in the region. We won a $4.5 million order for a new LNG facility in the United States. You may recall that we have talked about facility repositioning over the last few years, and this win is a direct result of our actions to position our engineered check valve business to become more competitive in the space with our new production capabilities in India. In our Water and Wastewater business, we had another excellent year driving mid-teens sales growth with strong momentum heading into 2024. During the fourth quarter, we also introduced an extension to our successful Razor Grinder pump platform focused on severe service explosion-proof applications, further expanding our addressable market.

Overall, since we launched the Razor product line in 2020, we have nearly doubled the sales of our grinder pump business. My thanks to our global teams for all of their hard work and success both with our recent acquisitions as well as on daily execution and our array of growth initiatives. Overall, 2023 was a great year and we remain confident in our ability to execute on the strategy and vision we laid out at our March 2023 Investor Day event. Namely, a 4% to 6% long-term core sales growth rate from resilient and durable businesses that drive about 40% of strategic growth platform sales from the aftermarket, with 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 debt, the capital deployment opportunity is significant. And a 5-year vision to double revenues and get to a scale with $2 billion in sales in each of our strategic growth platforms, with adjusted EBITDA margins above 20%, giving us the opportunity for future strategic portfolio decisions. We certainly finished strong, delivering on that vision in 2023. We’re off to a great start, looking forward to an equally exciting 2024. We will provide additional details on our 2024 and longer-term outlook at our next Investor Day event tentatively scheduled for May 14, 2024. Let me now turn the call over to Rich for more specifics on the quarter and some more details on our guidance. Rich?

Richard Maue: Thank you, Max, and good morning, everyone. Another strong quarter, with 5% core sales growth driving 14% adjusted operating profit growth. On a full year basis, 7% core sales growth drove a 28% increase in adjusted operating profit from continuing operations, demonstrating accelerating core growth results and consistent operating leverage on higher sales. Continued excellent performance across all businesses and despite some persistent supply chain challenges that continue to impact the broader aerospace and defense industry. Getting into the details, I will start off with segment comments that will compare the fourth quarter of 2023 to 2022, excluding special items, as outlined in our press release and slide presentation, and then I’ll comment on our 2024 outlook for each segment and for our overall P&L.

Starting with Aerospace & Electronics. No change in end market conditions, which remain very strong as reflected in both our growth rate in the quarter and for the full year 2023 and as well as our backlog position. On the commercial side of the business, aircraft retirements remained very low due to high demand and limitations on aircraft deliveries. This results in an aging fleet that requires more aftermarket parts and service and demand for new aircraft continues to exceed what the OEMs can deliver. And air traffic activity is also strong, with global air traffic now basically at pre-COVID 2019 levels. On the defense side, we continue to see solid procurement spending and a continued focus on reinforcing the broader defense industrial base given the heightened global uncertainty today.

Across both commercial and defense, we are positioned extremely well, with many of our technologies seeing the most significant interest and highest rates of growth. Overall, just a solid demand environment with no signs of slowing anytime soon. That strong demand was reflected in our fourth quarter growth rates, with sales of $213 million, increasing 17% compared to last year. Even with this high level of sales growth, backlog of $701 million increased 14% year-over-year, with a 3% increase sequentially. In the quarter, total aftermarket sales increased 34% with commercial aftermarket up 44%, and military aftermarket up 11%. OE sales increased 10% in the quarter, with 14% growth in commercial and up 6% in military. While the demand environment remains very strong, we continue to remain supply chain constrained, with gradual improvement over the last few months.

As we discussed last quarter, this is not just related to on-time deliveries from suppliers but the broader supply infrastructure, spanning from raw materials, components and labor not only in terms of availability, but also supplier employee turnover and employee experience levels. Areas of specific shortages continue to shift and evolve, although overall component availability has modestly improved. Consistent with our commentary last quarter, we have incurred some additional costs related to expediting shipments due to supply chain issues as well as costs associated with qualifying new suppliers and adding second sources where it makes sense. Adjusted segment margins of 20.2% declined slightly from 20.6% last year, primarily reflecting slightly higher engineering expense and the supply chain-related costs I mentioned, largely offset by benefits from higher volumes and productivity.