Crane Co

NYSE:CR

Earnings Call Analysis

A Strong Quarter Despite Challenges

In the third quarter of 2024, Crane Company reported a robust performance with adjusted earnings per share (EPS) of $1.38, a notable increase fueled by a core sales growth of 6%. The achievements were remarkable given the company faced several external challenges, particularly from recent hurricanes impacting operations in multiple locations. Despite these hindrances, including operational downtime at the Marion, North Carolina site and interruptions in Taiwan, Crane demonstrated resilience and robust recovery capabilities.

Revenue Growth and Guidance Adjustments

Crane's management has raised its full year EPS guidance from a previous range of $4.95 to $5.15 to a new range of $5.05 to $5.20, reflecting a projected growth of approximately 19% year-over-year at the midpoint. This optimism is rooted in the strength seen across both primary business segments—Aerospace & Electronics (A&E) and Process Flow Technologies (PFT)—with a total core growth anticipated to be between 5% to 7%.

Segment Highlights: Aerospace & Electronics

The Aerospace & Electronics segment experienced impressive growth, with sales reaching $239 million, exemplified by a 15% increase year-over-year. Core growth within this segment was 10%, with contributions from the recent Vian acquisition bolstering performance. The segment's backlog remains strong, further indicating continuing demand, showing a 23% year-over-year increase, thus solidifying expectations for sustained growth moving forward.

Process Flow Technologies Show Resilience

The Process Flow Technologies segment also reported a solid performance, generating sales of $309 million, a 16% increase year-over-year. The company attributed strong core sales growth of 7% to effective pricing strategies and productivity improvements. Despite the hurricane impacts, the overall margin in this segment saw significant expansion, achieving an adjusted operating margin of 21.8%—a 260 basis points improvement from the previous year, indicating effective management of production and operational costs.

Financial Capacity and Strategic Vision

Crane Company's financial health remains solid, with total debt reported at approximately $332 million and cash on hand of $258 million. The company maintains substantial financial flexibility, with an M&A capacity of roughly $1 billion, potentially increasing to $4 billion by 2028. The management intends to prioritize capital deployment towards internal investments for growth and additional strategic acquisitions. Following a successful quarter, there’s anticipation regarding a smaller deal in the PFT space, valued at around $20 million, expected to close shortly.

Navigating Market Uncertainties

Management also provided insights into their strategic positioning amid market uncertainties, particularly the ongoing Boeing strike and its implications. While there are expectations of muted industrial activity and potential impacts on shipments, the team is proactively managing inventory and supply chain challenges to mitigate disruptions. This careful planning and flexibility are crucial, as management expressed confidence that they have a good handle on the situation, ensuring that they remain robust even in times of external stress.

Long-term Growth Potential

Looking forward, Crane maintains a long-term core sales growth rate forecast of 4% to 6%, driven largely by its resilience and strong aftermarket capabilities. The company anticipates continued strong EPS growth into 2025 and beyond, with a heavy focus on maintaining high margins through increased productivity and strategic investments in higher growth markets. Their commitment to innovation and operational efficiency supports these optimistic projections, aiming for significant future profitability.

Conclusion: A Promising Outlook

In conclusion, while facing external challenges, Crane Company has demonstrated remarkable resilience and operational efficiency. The upward revision of earnings guidance and strong performance across key segments exhibit the company's ability to navigate difficulties effectively. Investors can be optimistic about Crane's continued growth trajectory, supported by a solid financial position and a proactive management team dedicated to maximizing shareholder value through strategic investments and operational excellence.

Earnings Call Transcript 2024-Q3

[Operator]

Hello, everyone, and welcome to the Crane Company Third Quarter 2024 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Allison Poliniak, Vice President of Investor Relations.

[Allison Poliniak, executive]

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 Maue, 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 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 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.

[Max Mitchell, executive]

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 Krathon. The latter 2 were less disruptive and those locations will 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 $4.95 to $5.15. 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, and we have highlighted improvement 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 continue to execute and win in the third quarter.

Within Aerospace & Electronics, we were selected by Deutsche Aircraft to supply the proximity sensing system for its D328eco 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 scavage pump contract for ZeroAvia 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 their 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 Resistoflex line pipes and XOMOX valves have successfully been selected to be installed in this new upgrade due to their excellent corrosion resistant properties. This project consolidates our position as the main solution provider for this customer online products due to superior life.

Overall, another strong quarter for both Aerospace & Electronics and Process Flow 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 a smaller transaction still on track for year-end.

And as we reiterated during our Annual Investor Day earlier in the year, we remain confident in the 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 & 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 power conversion devices for use in next-gen military radars, as an example, with growing capability in high power for emerging ground vehicles.

Now let me turn the call over to our CFO, Rich Maue for more specifics of the quarter and some more details on our guidance.

[Richard Maue, executive]

Thank you, Max, and good morning, everyone. Starting with total company results. We drove 6% core sales growth in the quarter with strength across both primary businesses and adjusted operating profit increased 35%, driven by strong net price and productivity. Leading indicators were also strong with core FX-neutral backlog up 10% and core orders up 6% compared to last year, notably better than expected, particularly at Aerospace & Electronics. Another strong quarter reflecting our focus on accelerating core growth along with our consistently differentiated execution.

In the third quarter, adjusted free cash flow was $75 million, roughly in line with last year. For the full year, we now expect free cash flow to fall at the lower end of our $255 million to $275 million range given ongoing working capital headwinds in Aerospace & Electronics and the timing of insurance recoveries in Marion related to Hurricane Helene.

Total debt at the end of the first quarter was approximately $332 million, with $258 million of cash on hand. We continue to have substantial financial flexibility with roughly $1 billion in M&A capacity today and reaching as much as $4 billion by 2028. As a reminder, we will deploy our capital with the same strict financial and strategic discipline that we always have employed, prioritizing internal investments for growth followed by M&A and returns to shareholders.

As Max noted, our M&A pipeline remains active. We continue to expect to complete another small deal by year-end and expect further transactions as we turn the calendar to 2025.

Now turning to our 2024 guidance. We are once again raising our full year adjusted EPS guidance by $0.075 at the midpoint and narrowing the range for EPS to be within $5.05 to $5.20 reflecting 19% year-over-year growth at the midpoint. Guidance assumes total core growth of 5% to 7%, but now towards the higher end of that range due primarily to the [ outperformance ] of Aerospace & Electronics, that 5% to 7% core growth will drive approximately 19% growth in adjusted segment operating profit. We also continue to expect a 5% benefit from acquisitions. Overall, another very strong quarter with excellent momentum.

Now for more details on the segments and starting with Aerospace & Electronics, despite the headlines, no material change in end market conditions relative to our expectations. On the commercial side of the business, aircraft retirements remain very low due to high demand and limitations on aircraft deliveries, resulting from an aging fleet [ requires ] more aftermarket parts and service. On the defense side, we continue to see solid procurement spending and a continued focus on reinforcing the broader defense industrial base given heightened global uncertainty today.

Overall, it just continues to be a very strong demand environment. And that demand was reflected in our third quarter growth rates with sales of $239 million, increasing 15% compared to last year, with 10% core growth and a 5% benefit from the Vian acquisition.

Despite the continued high level of sales growth, our record backlog of $833 million increased even further, up 23% year-over-year including 14% core growth and a 9% contribution from the Vian acquisition. In the quarter, total aftermarket sales increased 17%, with commercial aftermarket sales up 12% and military aftermarket up 31%. OEM sales increased 15% in the quarter with 19% growth in commercial and up 9% in military.

Adjusted segment margin of 23.5% increased 410 basis points from 19.4% last year, primarily reflecting higher volumes, price net of inflation and productivity. As we close 2024, we anticipate core sales growth for the year to be slightly better than our prior 12% expectation, and we are also tracking ahead of the 4.5% revenue contribution from the Vian acquisition we previously cited.

This guidance assumes continued strong sales and consistent with prior commentary was decelerating year-over-year growth rates as the comparisons continue to be more challenging and with some impact from the Boeing strike. While comparisons can create some noise on quarterly growth rates, as we have outlined previously, we expect this year's core sales growth rate to be followed by continued strong core growth in 2025 and for the remainder of this decade. Additionally, we anticipate full year margins to be above our prior 22.2% guide and represent [ close to ] within 250 basis points of expansion compared to last year, all in on track for yet another outstanding year.

Moving to Process Flow Technologies. We remain well positioned to continue outgrowing our markets. As Max noted, we had 2 sites impacted by Hurricane Helene. Of the 2 sites, one was fully operational by the end of the first week in October as power was restored, our second site in Marion, North Carolina was impacted more significantly, but is expected to be fully operational by the end of the year.

For the quarter, our results included about $0.03 of EPS impact for both those sites, and our raised outlook includes an estimated $0.05 to $0.10 impact from production downtime in Q4. Overall, the financial impact from the hurricane will be fully offset by insurance recoveries, however, the timing of receiving all insurance proceeds will extend into 2025.

Demand trends and order rates remain in line with our expectations discussed last quarter. Given the strong performance of the business, offset by the hurricane impacts, we expect our sales and margin in the segment to be relatively consistent with our prior guidance for the year. In the quarter itself, we delivered sales of $309 million, up 16%, driven by strong core sales growth of 7% in the quarter, along with a 9% benefit from the Baum and CryoWorks acquisitions.

Compared to the prior year, core FX-neutral backlog increased 3% and core FX-neutral orders were relatively flat. Adjusted operating margin of 21.8% expanded 260 basis points better than we expected with strong core operating leverage in the quarter, driven by productivity, strong net price and higher volumes.

For context, remember that in 2019, just before COVID, margins were 13.6%. As we noted before, this is a significant step function change in margins which is reflective of our efforts to structurally shift the business towards higher growth and higher-margin end markets. We continue to see opportunity on this [ journey ] through the contribution from accretive new product introductions, pricing that is both disciplined and appropriately assertive, our continued investments in technology-driven product differentiation and continued productivity.

In Engineered Materials, sales of $49 million decreased 13% compared to the prior year. Adjusted operating profit decreased 80 basis points to 12.9% on the lower volumes. For the full year, we expect both sales and margins to fall below our [ prior ] view for flat, but with recent and projected cuts in interest rates, we believe we are at bottom today.

Before moving to questions, overall, again, an outstanding performance in Q3 and outlook for the balance of the year. We raised guidance for the third consecutive quarter. Full year sales growth up 11% and with segment margins expanding 140 basis points to 21% and EPS growth of 19%. Our teams continue to execute operationally and commercially better than ever, even in the face of unique, unexpected challenges. Special thanks to our Marion, North Carolina associates as well as to those assisting in recovery efforts to bring that site back even stronger than before.

As Rocky Balboa so passionately coached his son in the sixth installment of the legendary Academy Award-winning Rocky franchise, "It's not how hard you can hit, it's how hard you can get it and keep moving forward, how much you can take and keep moving forward. That's how winning is done."

Operator, we are now ready to take our first question.

[Operator]

[Operator Instructions] And we will take our first question today from the line of Matt Summerville at D.A. Davidson.

[Matt Summerville, analyst]

You quantified -- you did a good job quantifying the impact associated with the hurricanes. I was wondering if you could be a bit more precise as to exactly what you felt in Q3, if anything material from the Boeing strike and what's baked into your guidance associated with that strike for Q4? And then I have a follow-up.

[Richard Maue, executive]

Yes. So in Q3, I would say not material, Matt. The more material impact as we quantified was the hurricane at $0.03 roughly. In Q4, I would say that we're continuing to make sure that we're protecting Boeing. So our estimate there perhaps a little bit muted from a volume perspective, but there is some impact, but I would, again, say not material and not affecting our overall guide for the quarter.

[Jason Feldman, executive]

Matt, ballpark is $5 million of sales a month for the effective programs at below [ second ] average margins. I don't think we're going to be more specific about what typically is in the fourth quarter assumption. But that's kind of the way to think about it..

[Allison Poliniak, executive]

And just to remind you, Matt, commercial OE were actually 19% for us in the quarter. So pretty strong despite what was going on.

[Matt Summerville, analyst]

For sure. Agreed. And then maybe on PFT, if you could maybe do a little bit more of a deeper dive on what you're seeing across your major end markets and geographies, both with respect to projects and MRO?

[Richard Maue, executive]

Yes, sure. I'll give a little bit of color, Matt. Overall, the message would be that very consistent with what we discussed and shared in July following the second quarter earnings call, fairly consistent on a year-to-date basis compared to coming into the year, doing better with the positive surprises being largely around projects as we were entering the quarter primarily in the Americas, but also in the Middle East, Asia and primarily in chemicals and pharmaceuticals.

We do think the backlog as it currently stands, is setting us up, I think, well as we're looking to the fourth quarter and to 2025. European chemical is still slow. No real change there, both projects and MRO, if anything, MRO is stabilizing is the way to think about it, but we're not expecting a big recovery at all here as we exit Q3 and finish up Q4. China and Europe, I would say, just overall, the most challenged end markets there. A handful of project pushouts, not inconsistent with what we were seeing coming into the year and through the first 9 months, so that's a very similar trend as well. And again, the strength coming from a project point of view in pharmaceuticals and in chemical.

Outside of the Process side of the business, on the more commercial areas of what we have in PFT, North American water wastewater just continues to win, frankly, and taking share. So excited about what we continue to see there. And then U.K. nonres, I would say, a decent double-digit core order rate that we saw here in the quarter, so also recovering.

[Operator]

Next, we'll hear from Justin Ages at CJS Securities.

[Justin Ages, analyst]

You mentioned a bit on M&A and maybe bigger into 2025. Just in the smaller one that we could see before the end of the year. Can you give any color on whether that's on the PFT or the A&E side?

[Max Mitchell, executive]

PFT, and it's -- we'll probably -- you'll probably see this -- it's in the $20 million range, solid EBITDA margins in the cryogenic space again. So it's a really nice fit and we -- on schedule to close Friday. So we'll put a press release out when that occurs.

[Justin Ages, analyst]

All right. That's very helpful. And then one more, if I could. Without getting too political or anything, can you tell us what -- if you're favoring one political kind of climate for the business over the other or how you're approaching the November election?

[Max Mitchell, executive]

No. I think look, no matter what we are -- ready to react to any administration, any occurrence flexibility and being able to respond is a hallmark of Crane and what we've executed over any administration historically and how I view it as we move forward.

[Operator]

Our next question will come from, and I do apologize if I mispronounce your last name, from Scott Deuschle at Deutsche Bank.

[Scott Deuschle, analyst]

I like it. Sorry if I missed it, but do you happen to have the group's -- what's the A&E handy between commercial OE, commercial aftermarket, defense OE and defense aftermarket?

[Jason Feldman, executive]

Yes. Commercial OE was up 17%, military OE, up 13%, commercial aftermarket up 39%, military aftermarket -- sorry, I'm reading the wrong column. I apologize. forget all of those. On a core basis, excluding the acquisition, Commercial OE was up 7%, military OE, up 7%, commercial aftermarket, up 12%, military aftermarket up 30%.

[Scott Deuschle, analyst]

Okay. Great. And then, Max...

[Jason Feldman, executive]

And that's just [indiscernible]...

[Scott Deuschle, analyst]

Right. And Max, what is Crane's dollar shipset content on a new AP1000 nuclear reactor?

[Max Mitchell, executive]

Yes. We haven't disclosed the shipset content on -- yes, a couple of millions. It's not that significant where we're positioned with the valves, Scott. But we are chasing -- we are specified -- as the AP1000 gets built, we'll have that content. Our team is actively bidding and working with all the small modular nuclear reactor builders or new design is getting specified in. So it's clearly a strategic focus for us. That's our smaller $70 million nuclear services business that does turnaround work, wonderfully positioned test equipment, on turnarounds, provides those services and also manufacturing bespoke valves for those solutions just for those that don't remember that history also.

[Scott Deuschle, analyst]

Okay. And Max, it's kind of a tough question, but you had downtime in South Carolina, you had downtime in North Carolina. You have Taiwan impact, and you had a strike at Boeing and you still beat on the quarter and raised the guide on EPS. So just maybe curious if you could rip a bit about what's in the water at Crane that enables you all to perform like this in these circumstances.

[Max Mitchell, executive]

Well, thanks, Scott. I appreciate that question to brag about the team and our processes. Well, we've always described this, some investors' eyes glaze over. Everybody speaks to their own business system. Everybody speaks the same mantra and language. I would argue that very few differentiated themselves in terms of truly being able to execute on what the essence of those systems mean. I would argue that we do for those investors that have visited our facilities. I think we've shown that in practice what that means, what the Crane Business System means. It starts with our strategy and execution, a very disciplined process around that [ team ] and execution.

It's not easy pace for Crane associates. I mean that's something that is regularly talked about, but also with some pride in terms of what it means to be part of Crane and driving that cadence and execution, focused on growth and our approach in driving customer satisfaction. I think we've got an operational prowess around Lean and Six Sigma that is, again, we can always improve, and we always make it ugly and be very transparent with ourselves, but we're really quite good at just a maniacal focus on waste variation overburden on our associates and how we strip out that waste year after year, month after month, day after day, everything from strategic sourcing to newer holistic tools and processes and focus that we just execute really well.

So yes, I think it's a phenomenal culture. It starts with ethics and integrity and that puts this Crane Business System at its forefront, and I think we differentiate, and I think, hopefully, investors see that [ read through ] the results. But thank you for the question.

[Operator]

Damian Karas at UBS.

[Damian Karas, analyst]

I wanted to ask you a follow-up question on Process Flow. I know that power is less relevant to the business nowadays versus the past when it was kind of a larger proportion of the mix, but you do have a strong position in nuclear in North America in particular. Just curious if you're seeing any activity from some of the recent capacity that's coming back online? And maybe any thoughts on how you're thinking about some of the announcements from Google and these other tech companies on planning of some nuclear projects?

[Max Mitchell, executive]

Overall, I think it's just -- it's stable. We haven't seen -- nothing I can [ see ] in the data, any major shifts from that standpoint. And the nuclear -- hey, look, it's exciting news. The nuclear researches is certainly exciting. We're excited about those announcements as well. There's going to be a lot of money and investment in there. I think it's going to be a longer-term cycle for sure. But on a smaller scale, our nuclear team is investing for growth. One of our strategic initiatives is a brand-new typing capability that allows for remote testing for the annual process of certifying the valves. And so we're excited about that, investing for growth. But it's a positive place to be. It's something that will be certainly looking at also from an M&A strategy also if and when it makes sense on assets that come up.

[Damian Karas, analyst]

That's great. Very helpful. And then I want to ask you on aero. Just curious if there's any contract discussions or negotiations happening with any of your major aerospace customers. And Max, you expressed the kind of confidence in the rest of this year? Just any risks in [ arrow ] you could possibly see a little bit of a disruption in 2025 versus the 7% to 9% long-term target you have? Or you still feel pretty confident looking at 2025?

[Max Mitchell, executive]

Well, on the contract question, first, I mean, we're always in negotiations on various contracts when they come up when they do. That's just ongoing. I would say that the pace and scope of contract discussions continue, nothing unusual. So that's all positive. I would say that -- look, I mean, anything outside of our control, we've always said what worries me the most is those things that are outside of our control. it's some economic shock. It's war. It's another virus. It's those types of things. Could that happen? Sure, I guess so, based on what we have clear line of sight to based on everything we're triangulating on, we have high confidence as we exit the year and head into 2025.

[Operator]

Ron Epstein at Bank of America.

[Ronald Epstein, analyst]

How long does the strike at Boeing have to go for it to be kind of really problematic, meaning it seems like if it were to last 3 months that a 3 months kind of line in the sand is when maybe some of your smaller suppliers could really start the trouble. So I was just curious if you have a sense on obviously, getting it results sooner than later is far better. But if it were to go on for a while, where is that line in the sand?

[Max Mitchell, executive]

For us, look, I think if you look specifically for Crane and we're not interiors. We're not -- some of the others that might have some clear -- greater challenges with the delay. Right now, with the aftermarket, if the strike continues, I mean, unfortunately, new aircraft are not being delivered. Older aircraft continue to fly. Our aftermarket continues to remain strong. So we feel that even in a worst-case scenario with the strike, we're going to be okay. we're protecting some of the volumes. I mean we're adjusting some of the forecast rates, of course. But in terms of making sure that we have the appropriate inventory for a startup, not excessive, but appropriate level of inventory. Managing our supply chain, no knee-jerk reactions into our supply chain. So I think we're managing it really, really well. And I don't see a red line. I really don't, for us.

[Operator]

Nathan Jones at Stifel.

[Adam Farley, analyst]

This is Adam Farley on for Nathan. I wanted to start with PFT. Again, really strong margin performance there. Can you talk about maybe the primary drivers, including price cost, operating leverage, [ A320 ] mix? Is there anything else maybe contributing to the improved margins?

[Richard Maue, executive]

No, it's all of the above. Honestly, I mean we had a very solid performance price/cost. Productivity continues to be really strong. The team executes extraordinarily well. I'd reiterate that the results in the quarter also include that impact from Marion. So on a gross basis, we did even better. I think the way to think about it is nothing unusual, and as we think about next year and moving forward, that 35% leverage rate that we've been speaking to is the way to think about our comfort and ongoing performance.

[Allison Poliniak, executive]

And also keep in mind, Adam, the focused shift in the PFT business that we've done in terms of the higher growth, higher-margin end markets has certainly been beneficial as well.

[Adam Farley, analyst]

Okay. That's great to hear. And then shifting over to 80/20. I know it's still very early days. But is there maybe one business or the other that stands to benefit more from both a growth and margin perspective, specifically from 80/20 deployment?

[Max Mitchell, executive]

Adam, what I'd highlight again is our approach is a much more -- it's a balanced approach. We don't follow the herd. We don't just run with some new shiny thing. 80/20 truly is a holistic improvement philosophy and approach that is not just about price, it's pricing for value. It's about really good product management too and simplifying the portfolio for those things that you really should not be continuing to try to produce it as that bears the brunt of your cost and you're really not making the kind of margins that you think.

So you simplify the business over time, you're taking costs out. So it's not just the price up, it's a cost out. And then it's a focus on overserving your core customers and redirecting your assets and making sure that those core customers are getting super served. So it's about a growth strategy.

So when you put it in that context, I think it's a wonderful fit with our overall CBS philosophy approach, tools. It's been a phenomenal addition. I would say that it's still -- when we talk about early innings of the approach, it's really around the simplification continue to see opportunities. But we've always been aggressive at stripping out costs, closing facilities. So this is, again, just a natural extension for us from a Crane Business System standpoint. But this extension of simplification, cost out over serving customers still early innings, it's a purity of the approach, which I'm really, really excited about.

Remember, for investors, coming out of COVID in an inflationary environment, we were maniacal of making sure early and fast that we stood up for our value prop, and passed on inflation very fast, very quickly. I would not say that was 80/20. That was just, in many cases, a brute force driving it through the business. Since then, of course, it's become much more sophisticated, strategic. We continue with the momentum. But I still think it's early innings for us. And we're really approaching this the right way and in a balanced way that will have longevity for, I mean, many, many years ahead. Could you frame it up any differently?

[Richard Maue, executive]

No, I think that's right. In the near term, to answer your question on which side as well, I mean, I think PFT is naturally just given the lack of the long-term contract environment that's there relative to A&E. But yes, I would just echo everything Max said.

[Max Mitchell, executive]

Adam was Nathan, would he rather listened to Scott versus me, my feelings are hurt.

[Adam Farley, analyst]

No, that's nothing like that.

[Max Mitchell, executive]

All right. Tell him [ I sent ] -- giving that message.

[Adam Farley, analyst]

Will do.

[Operator]

Next we'll hear from Jeff Sprague with Vertical Research.

[Jeffrey Sprague, analyst]

I was a little late, bouncing between some calls, I have kind of 3 things on my mind if you already had touched on any of these, feel free to pump the transcript. But we had Honeywell call out kind of delays in energy-related projects. Obviously, you've sort of deemphasized kind of straight oil and gas, but it can rhyme into chemicals and other things. So I'm wondering if you're seeing anything there if you didn't quantify kind of storm impacts, please do so.

And then on the Boeing strike, I think you guys were almost exactly on rate, right? You weren't one of the problem in children in terms of supply chain as far as I could tell anyhow, which I think would make you a little bit more exposed to them needing to tap the brakes if things drag on. So any additional color there would be great. I appreciate it.

[Max Mitchell, executive]

On the Honeywell delays, we're just -- we're still not seeing any major significant shifts in push-outs or cancellations, anything along those lines. On the storm impacts, do you want to...

[Richard Maue, executive]

Yes. I mean, on the storm impacts, Jeff, it was $0.03 in the quarter in the third quarter in PFT. And then for the fourth quarter on PFT, we gave an estimate of $0.05 to $0.10 of impact.

[Max Mitchell, executive]

On the Boeing [ rate ] question, Jeff, we don't feel that we have risk here with Boeing on any kind of adjustment moving forward. We've all been prudent in our internal planning and execution. And as a matter of fact, we're taking some proactive measures to continue to protect Boeing as we're moving forward. So I think we've planned this really, really well, executing well, and we're not concerned over how this plays out.

[Richard Maue, executive]

Just on the storm impacts, with those impacts holding the prior guidance that we issued for PFT in July.

[Operator]

And we'll hear from Tony Bancroft at Gabelli Funds.

[Tony Bancroft, analyst]

Max and team, great job as always. Just with your -- given your strong performance you've had and putting out at the last Investor Day, [ your so ] long-term '28 outlook. Could you sort of maybe walk us through any update on that longer-term plan, getting to [ 2 ] businesses at scale at appropriate margins. And then also an update on any potential sale of the [ engine ] material business. I realize it's in -- is not the best time, maybe, but just your thoughts on that would be helpful.

[Richard Maue, executive]

Yes. I would say no change on the long-term targets, 3% to 5% in Process, 7% to 9% in Aerospace & electronics, leveraging at 30% to 35% in PFT and 35% to 40% in Aerospace & Electronics. So I would say that, that equation holds -- is still something that we're marching forward on and continuing to look for the right opportunities to deploy capital to continue to support the inorganic side of things.

[Max Mitchell, executive]

On the inorganic side, I would say that the activity has never been higher. I mean, our funnel is very full. We're very, very active. So I think from that standpoint, it plays well our goal of scaling up in both A&E and PFT strategically. We like the assets. We like where they're positioned. We'll see what we can continue to get across the goal line here, but a lot of activity. So that's all incredibly positive.

And on Engineered Materials, as we've stated before, we love the business, great team, great business, great end markets. We don't -- it's not strategic for Crane. We tried to sell it once, DOJ had some issues with the acquirer that unfortunately, we missed that cycle. We will not miss the next cycle. So that will -- just a matter of time.

[Tony Bancroft, analyst]

Great job, everyone.

[Max Mitchell, executive]

Thanks, Tony.

[Richard Maue, executive]

Thanks, Tony.

[Operator]

And there are no further questions in our queue for today. This concludes the Q&A portion of the call. And I am pleased to turn the floor back over to Mr. Max Mitchell for closing remarks.

[Max Mitchell, executive]

Thank you, operator. Appreciate it. Again, yet another very solid quarter with results outperforming expectations even with surprises outside our control that our teams reacted to incredibly well. As the late great Wally Amos, founder of Famous Amos Cookies, once said, "Nothing is an obstacle unless you say it is."

As I highlighted previously, a key [ tenet ] and strength of the Crane Business System is the flexibility and speed to react to issues outside our control. Third quarter performance in fourth quarter guidance is another great example of exceptional performance even in the face of adversity. Our strategy is working. The team is executing, driving through its earnings, through its growth and commercial excellence initiatives. Our M&A pipeline is full, and we have the balanced capacity to execute. We look forward to closing out 2024 on a strong note and are well positioned for continued growth and delivering on expectations in 2025.

Thank you all for your interest in Crane and your time and attention this morning. Have a great day.

[Operator]

Ladies and gentlemen, this concludes today's Crane Company Third Quarter 2024 Earnings Conference Call. Please disconnect your lines at this time, and have a wonderful day.