Crane Co (CR) 2009 Q3 法說會逐字稿

Good day, everyone and welcome to today's Crane Co. third-quarter 2009 earnings analyst conference call. Today's call is being recorded. At this time, I would like to turn the call over to the Director of Investor Relations, Mr. Richard Koch. Please go ahead, sir.

Thank you, operator. Good morning, everyone. Welcome to Crane's third-quarter 2009 earnings release conference call. On our call this morning, we have Eric Fast, our President and CEO and Tim MacCarrick, our Vice President and CFO. We will start off our call with a few prepared remarks, after which we will respond to questions.

Just as a reminder, the comments we make on this call may include some forward-looking statements. We would 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 the table at the end of our press release, which is available on our website at www.craneco.com in the Investor Relations section.

As another reminder, we will hold our annual investor conference on Thursday, February 18 in New York City from 8:30 until noon. Please mark your calendars. Now let me turn the call over to Eric.

Thank you, Dick. As you saw in our press release, third-quarter sales declined 14% to $551 million. Earnings per share were $0.60, equal to the third quarter of 2008. Operating margins improved to 10.1% from 8.5% and free cash flow was $76 million compared to $28 million last year. I am very pleased with the team's performance in this difficult environment.

Looking forward, we expect our Aerospace & Electronics businesses to perform well. The defense electronics business should be stable with operating margins continuing in the mid teens. Commercial aerospace demand is expected to decline well into 2010; however, the completion of four major development programs will result in continued declines in engineering spending, which should more than offset the sales deleverage. This trend was clearly evident already in the third quarter where we saw a year-over-year decline in engineering spend of $18 million.

Our other late long cycle business, Fluid Handling, is also expected to see continued weak end market demand and competitive pricing. With the changes in our business model and commercial valves, pricing discipline and strong cost control, we are planning to keep operating margins in the area of 12%.

Our early short cycle businesses are seeing some signs of improvement in certain parts of their end markets. In Engineered Materials, we are seeing positive signs in recreational vehicles; although nonresidential construction is continuing to decline. Successful execution of our strategy and aggressive downsizing have resulted in solid margins on very depressed volumes.

In Merchandising Systems, we have seen and modest pickup in North American vending demand, which is attributable to the successful introduction of both our new snack machine and glass front bottler. Payment system sales were particularly weak in spite of successful new product introductions as the end markets in non-US gaming and vending were off sharply.

Our strategy to focus on winning in the marketplace and taking marketshare is working and our cost-reduction initiatives are driving our earnings. Our balance sheet remains solid and with our very strong cash flow, we ended the quarter with $305 million in cash. I believe we are coming out of this global downturn as a much stronger company based on the actions we have taken and our determination to solidify and institutionalize the gains we have made. Now let me turn the call over to Tim MacCarrick, our CFO, who will provide additional detail on our third-quarter results.

Thank you, Eric. I will turn now to specific segment comments, which compare third quarter of 2009 with 2008 and include restructuring charges and benefits.

Aerospace group sales of $80 million decreased $21 million, or 20% from $101 million in the prior year. Commercial OEM sales declined 31% while military OEM increased 19%. Aftermarket sales decreased 11%, which contributed to a favorable OEM aftermarket mix of 57% to 43% compared to last year's third quarter of 61% to 39%. Operating profit in Aerospace increased by $6.2 million as the impact of lower sales was more than offset by an $18 million decline in engineering expense, primarily associated with the 787 and A400M programs.

In the third quarter of 2009, our aerospace engineering spending was $15 million compared to the second-quarter 2009 spending of $19 million and third-quarter 2008 spending of $33 million. Through the first three quarters of 2009, our engineering spending was $55 million, or $28 million lower than the comparable period of 2008, which is better than our original estimate of a full-year decline of $25 million. Our favorable engineering expense performance reflects solid execution against our risk-adjusted business plan.

Notwithstanding the delay of first flight for the Boeing 787 to the end of 2009, we expect engineering spending to continue to decline through the fourth quarter with additional reductions next year. This will be an important tailwind to our Aerospace operating profit in 2010.

As previously disclosed, we remain in discussions with our customer, GE Aviation Systems, regarding the development of a new version of the 787 brake control system based on aircraft level changes from Boeing. These discussions are continuing and our position remains that we will not perform this work without customer funding.

Electronics group sales at $56.6 million decreased $2.2 million or 4%. Despite the sales decline, strong program management, cost discipline and lower engineering spending contributed to operating profit growth of $3 million, or 38% compared to the third quarter of 2008. Operating margins for the Electronics group for this quarter were at record levels.

Military and space-related applications represent 70% of our 2009 Electronics group sales and we are well-positioned to serve the growing needs of the military for intelligence, surveillance and reconnaissance. While the ISR market is projected to grow 3% over the next three years, we expect our ISR business to grow by more than twice that rate over the same period, reflecting our strong presence on key military programs.

In the third quarter, Engineered Materials sales of $48.1 million decreased to $10.1 million, or 17%, reflecting lower demand across our transportation and building products businesses where sales decreased 29% and 27% respectively. Third-quarter 2009 sales increased 6% in the recreational vehicles business, reflecting marketshare gains and some improvement in industry sales.

Engineered Materials has delivered strong sequential operating profit improvement from $1.5 million in the first quarter to $4.6 million in the second quarter and now to $7.5 million in the third quarter of 2009. Operating margins in the third quarter were 15.7%, twice the level of the third quarter of 2008 on a 17% decline in sales.

Our significantly improved third-quarter results reflect our leading market position and excellent cost productivity associated with the shutdown of manufacturing facilities, a 42% reduction in headcount and intense scrutiny of all other costs.

We are cautiously optimistic about the sales levels within the RV market. RV shipments to retailers totaled 17,800 units in August, an increased of 32% over July and 5% ahead of August 2008. This was the largest shipment month in 2009 and the first year-over-year gain in shipments in nearly two years.

Demand from transportation-related customers is expected to be relatively flat and demand in the building products market is expected to decline, further consistent with the trends in commercial construction. We do expect to see normal seasonality in the fourth quarter.

Overall Merchandising Systems segment sales declined 19% versus the third quarter of 2008, reflecting continued difficult end-market conditions and operating profit declined $4 million, or 37%. Payment system sales were particularly weak as retail transportation and non-US gaming end markets declined sharply.

New orders for Payment Solutions continue to be lower than sales, which suggests continued market weakness. Operating margins eroded 250 basis points year-over-year to 9.1% and remained flat with the second quarter of 2009. Sequentially, we have seen slightly stronger sales during 2009 with quarterly increases of 2% to 3%, reflecting moderate improvement in our North American vending business. We expect to see normal seasonality in the fourth quarter in this business as well.

We remain on track to complete the relocation of our North American vending production operations from St. Louis, Missouri into our Williston, South Carolina facility by the end of December. As the relocation is completed, headcount levels, which have been flexed during the equipment transfer, will be aligned with the ongoing operational requirements of the consolidated operation.

Our new product introduction efforts continue to yield positive results in the marketplace as we stimulate near-term sales and capture incremental marketshare. We are pleased with the customer acceptance of our new snack machine merchant, which has lower operating costs, more capacity and a modern and attractive appearance.

We have also recently introduced a special version of our BevMax 4 can and bottle merchandiser, which has a smaller footprint. And in Payment Solutions, we continue to be pleased with the market acceptance of our Currenza system.

Fluid Handling sales declined $27 million or 9% in the third quarter. Core sales declined $38 million, or 13% compared to the second-quarter decline of 15%. Sales were also impacted by unfavorable foreign currency translation of $15 million, or 5%. Delta Fluid Products, which was acquired in mid-September 2008 and Krombach, which was acquired in December 2008, contributed incremental sales of $26 million in the quarter. In spite of the decline in sales, Fluid Handling operating profit was $35 million, equal to the third quarter of 2008. The third-quarter margin was 13.1% compared to our first-half average margin of 12.1%.

New orders and backlog in Fluid Handling continue to be an area of concern. Our chemical and pharmaceutical end markets are unfavorable compared to the third quarter of 2008 and have been sequentially weaker for the past few quarters. They are likely to remain under pressure well into 2010. Fluid Handling backlog was $252 million at quarter-end, a decline of $4 million, or 2% compared to June 2009 levels. New orders have trailed sales for each of the three quarters of 2009, but the gap between orders and sales in the third quarter was the smallest it has been this year.

In our Controls segment, sales decreased $15 million compared to the third quarter of 2008 and we recorded an operating loss of $1.7 million, reflecting lower demand for oil and gas and transportation end-use applications.

Our continued focus on cost and productivity and our systematic culturally embedded process to reduce costs in all parts of our business is fully in place and yielding results. Based on the traction of this program, we raised our cost-reduction target from $75 million to in excess of $125 million in July and now project our savings will be more than $150 million for the full year. This cost reduction equates to approximately 7% of our projected 2009 sales, a significant accomplishment.

The impact of over 400 companywide productivity initiatives are reading through in our third-quarter results and during the first nine months of 2009, we have reduced our SG&A costs from $456 million to $395 million, a $61 million or 13% reduction. As part of our cost-reduction efforts, we reduced companywide employment, excluding the impact of acquisitions, by 2050 people since the end of 2007, a decline of 17%. We expect our headcount to decline another 3% in the fourth quarter and to end 2009 approximately 20% below the end of 2007 levels.

The cost savings we expect to achieve in 2009 will annualize to a greater number when the full-year effect of these actions is realized in 2010. We believe that as volumes return, we will be able to hold a significant portion of these cost savings and accordingly are well-positioned for margin expansion in 2010.

Interest income was $0.3 million in the third quarter of 2009 compared to $3.2 million in the third quarter of 2008, reflecting lower rates of interest on higher cash balances. The third-quarter tax rate was 28.2% compared to 30.3% in the third quarter of 2008. We now expect the full-year tax rate will be closer to the year-to-date tax rate of 29.4% than our previous guidance of 30%.

We maintained our 2009 sales estimate of $2.2 billion and increased the lower end of our GAAP earnings per share guidance to $1.90 to $2.05 from $1.75 to $2.05. The guidance includes charges for potential restructuring and integration activities of $0.07 per share compared to the prior estimate of $0.10 per share. And a charge of $0.08 per share associated with a previously disclosed legal settlement. Excluding those charges, non-GAAP guidance is $2.05 to $2.20 per share.

I would note that there is a possibility that gains on some minor asset sales could offset some portion of the $0.07 restructuring charge that I just mentioned.

Our balance sheet remains strong and we ended the quarter with $305 million in cash and access to our $300 million revolving credit agreement. We have no significant debt maturing in the near term as half of our long-term debt of $399 million is due in 2013 and the other half is due in 2036. Capital expenditures in the third quarter were $3.8 million compared to $13.3 million in Q3 2008. Our year-to-date spending is $21 million compared to $34 million year-to-date in 2008. Now back to you, Dick.

Thank you, Eric and Tim. This marks the end of our prepared comments. Operator, we are now ready to take questions.

(OPERATOR INSTRUCTIONS). Deane Dray, FBR Capital Markets.

Thank you, good morning, everyone. Hey, could we start in the Fluid Handling sector first? The idea here is it looks as though the order trends have actually held in well given the fact that, sequentially, you only had a 2% decline in backlog, but you called out pharma and chemicals being weak. So can you take us through first the order trends and the customer activity in the key end markets -- chemical, pharma, process and energy please?

Sure, good morning, Deane, it's Tim. Yes, I mean we have seen some dynamics in Fluid Handling that have given us a little reason for optimism. Fundamentally, we still think the markets are continuing to decline, but we see that rate of decline slowing. We certainly saw our book-to-bill start to narrow, as we mentioned. We do still see projects being delayed and there is some spotty activity around projects and even on the OEM or the MRO side, we continue to see declines, but the rate of decline seems to be letting up a little bit. And orders were slightly up in the quarter on a quarter-over-quarter basis. So I think there is some reason to be carefully optimistic here, but it is too early to call any bottoming out of this market at this point.

Tim, can you talk about pricing in fluid and the raw material costs?

Sure. In the aggregate, we have really been able to hold price. Price was a slight positive in the third quarter for us as it has been pretty much in each of the quarters of the year. So really our core sales decline is volume driven. Price versus material was favorable in the third quarter as well and recently, of course, we have seen prices increasing for a number of commodities such as oil, styrene and copper. We monitor this very aggressively in a very careful way and we will react as necessary and appropriate to the ongoing material price changes and increases as we see them in the market. But it has been -- we have done, I think, a good job in Fluid Handling and across the Company to hold price.

Great. And then if I could just touch on the cost restructuring program, looks like you have boosted the projected savings in 2009, but also reducing the amount of restructuring costs by $0.03. So just what are the dynamics there? You are getting more savings and it is going to cost you less?

Yes, we have really done a terrific job as a company and I think fundamentally adjusted our culture with a strong focus on costs. We have been on track with our restructuring savings estimate through the year. We will do better as we indicated in the engineering side of it. The reductions in our engineering spending have been tremendous through the year and will continue into the fourth quarter.

But the real significant improvement in our overall cost savings has come in the discretionary cost area where, as we have said in the past, it is everyone, everywhere really scrutinizing all the expenses that we have and we have made great progress in accelerating the takeout of those discretionary costs. And accordingly, as we said last quarter, we saw in excess of $125 million of costs coming out and we now think that we will do better than that based on another quarter of evidence here of the costs coming down. So it has really been, I think, a terrific performance by the Company.

And then just to make sure I understand why it is costing you less, are you doing -- do you have fewer plants? It sounds like you haven't let up on the headcount reduction, so it is not severance. So where is that lower restructuring coming from?

Sure, sure. It is really just fundamentally lower costs that we have had to exit some of these facilities. So we are still exiting the facilities, but we have been able to have lower costs and scrubbing the numbers and making sure that our exit strategy is as cost-effective as it possibly can be and we have seen some good results in that regard.

And can you remind us how much of this savings carries into 2010?

Sure. Just before I get to that, there is also, coincident with the move of our manufacturing operations from St. Louis to Williston, we did work with the state there, South Carolina and we have been able to work with them and they have given us some assistance as well on job training and some tax benefits and some relocation costs. So that also has helped keep our restructuring costs -- keep them down and keep them low.

And the savings into 2010?

Well, if you look at the broad scope of our savings, restructuring, engineering and the non-restructuring or discretionary components, as we mentioned, we do believe a significant portion of that will hold for us. So we originally guided, I think, $37 million of structuring savings moving into to be about $50 million on an annualized basis in 2010. I think that number is probably still a good number on the restructuring side.

For engineering expense, we talked originally about $25 million. Obviously, we are there on a year-to-date basis. We will do better than that, much better than that in the year and we have guided in the past kind of $50 million to $60 million coming out over the two-year period '09 to 2010. I would expect that we would exceed that. And then the non-restructuring component also -- we feel that we are going to be able to keep a substantial portion of those costs out. So there is really some nice tailwind for us from an operating leverage perspective next year.

Tim, thank you for the color.

Paul Mammola, Sidoti & Co.

Hi, good morning, everyone. As we look at the Fluid Handling operating margins sequentially, I guess could you flesh out just a few of the items that improved I guess if we talked in terms of materials and specific cost savings items?

Sure. Well, our Fluid Handling business has really been -- has evolved and has been transformed over the past several years where we have attacked the infrastructure costs, we have reduced facilities over the last two to three years. They have also participated in a very strong way in our cost-reduction programs this year and even are a little bit later cycle even in those cost-reduction programs within Fluid Handling.

So we have seen a steady improvement in operating margins in Fluid Handling now for several quarters, if not several years and I think what we have shown here in the third quarter and even in the first half is a business that, even on declining sales, is able to hold their margins and that is on the back of continued cost reductions.

As I mentioned, from a price versus materials perspective, we have seen some benefit in price. We continue to have very, very strict pricing discipline in Fluid Handling and have seen some benefits from that on a net basis, although at a fairly moderate level. And we like the operating model that we have there and we would expect margins to be in the 12% range for the future, which I think is a very healthy level for the business.

I would just add, this is Eric, that we pointed out in the second quarter that margins had been adversely impacted by a number of very large project orders that were, as all projects are, pretty aggressively priced. But more importantly, they had a lot of bundled valves in it, that is valves we bought from other people. So the combination of some very large project orders that particularly had a lot of bundled valves, were impacted adversely second-quarter margins and we said at the time of the second-quarter call that we didn't, as we looked at our backlog, we didn't see any of that going to that extent going forward. So what you are seeing in the third quarter was kind of a more normal quarter.

Okay, thanks for that clarification. And then if I could just go back to Deane's question on the cost savings. I guess asked another way, how much of the $150 million have you observed so far on a percentage basis?

Well, through the third quarter, we have identified cost reductions that approach $125 million at this point. So again, the third quarter was an important litmus test for us as it relates to the continued cost reductions. It was a strong quarter and on the back of that. Again, as we said last quarter, we had visibility at greater than $125 million and we now have visibility at greater than $150 million.

Okay, that's perfect. And then on material costs as we look at 4Q '09, do you see your material costs as more reflective of 3Q or are they increasing sequentially?

My gut would be that I am not too concerned about material costs in the fourth quarter. I think it is more of an issue we have got to watch going into 2010. And we have got a lot of benefit from the lower commodity costs. They have come here a little bit. It is just something we have got to be alert to, watch and make sure that our pricing is adjusted accordingly. I don't see it as a fourth-quarter issue.

Okay, and then finally, compared to 3Q, are you anticipating that there would be any more or more manufacturing or machine downtime that might cost you in terms of absorptions? Or is that not part of the plan?

Nothing specific. We did mention that, in our shorter cycle businesses, seasonality will be a bit down in the fourth quarter. But no, we don't foresee any unusual absorption issues in the fourth quarter.

Okay, thanks for your time.

Ronald Epstein, Merrill Lynch.

Yes, good morning, guys. Eric, when we think about the cost activity you guys have taken, how much of that do you view as permanent?

Well, we are not -- we do our first 2010 plan review meeting tomorrow actually and we are going to spend all of November -- the plans just came in yesterday. So we are going to spend all of November making sure that the costs stay out of here and our plans are to be disciplined about it because we work too hard and too many people have done too much good work to let it creep back in here. So I am very confident about the engineering spending. I am very confident about the restructuring spending and the savings that we are going to get flowing through next year that Tim has already articulated.

And I think the challenge is just that it is -- as I think I said last quarter, it is staying in the $87 a night hotel instead of a $139 and everyone, everywhere 10,000 people really watching it and I feel that we made tremendous progress in -- we were never a fancy company to start with, but we have really buttoned it down because everybody has bought into it. And the challenge here is to make sure we keep that out. I think when we do our February investor conference, we will give you a more accurate feel for that.

Okay, great. Thanks.

(OPERATOR INSTRUCTIONS). Shannon O'Callaghan, Barclays Capital.

Good morning, guys. I might have missed this at the beginning of the call, but just in Arrow, did you say why you think you are exceeding the R&D reductions? I mean why is it coming down faster, number one and number two, I know you don't have any clarity on this potential modification of the brakes yet, but do you have a timeline of when we think we are going to know one way or the other?

Shannon, regarding the engineering expense, obviously, when we planned this at the beginning of the year, we took a risk-based approach to how these costs would come out. And I think we have continued to see change orders come through on kind of a normal business-as-usual basis and we have reacted and responded to those well. But the management team has also really operated well and executed well to continue and sequentially take more and more engineering expense out.

We also have the benefit of four key programs coming through to major milestones and that represents an opportunity also to kind of realign and rescope the engineering expenses. So it has been, I think, a combination of good execution and admittedly a risk-adjusted plan that we started with.

We don't have any more clarity on the new brake control than we did when we announced it in February. Discussions are continuing.

Okay. But I mean are we going to know one way or the other by year-end, February? I mean are there gating factors where we have got to make a decision one way or the other?

Shannon, it is a very fair question to be honest with you. It is a question we ask ourselves and if you would ask me in February, I would have told you it should be a matter of months. Here I am sitting in October and we have got the same disclosure that we had in February. So I can only assure you that we are doing everything we can from a Crane point of view to properly resolve this, but we remain steadfast in our position that this needs to be funded by our customer.

Okay. In Merchandising, you called out a couple of benefits in there, the legal settlement, the reduction of the liability estimate. What were the size of those?

So the liability estimate was $1.7 million, basically just some updated more current information around asset performance as it relates to a pension situation. Regarding the legal settlement, we did reach an agreement with the counterparty obviously, but those terms are confidential. So at this point, we are not really able to comment on the quantity of that settlement.

Okay, well, I guess you -- Merchandising Systems margins were more about 9% in the second quarter, but adjusting for these items, they went down. You mentioned continued tough conditions there. I mean what is the margin expectation for that segment? I mean do they continue to decline sequentially or what are you thinking?

Could I just give you the big picture here? What we are seeing is local demand in payment systems, which has been a high-technology, high-margin business for us, has softened substantially. I think we disclosed 32%. So we are seeing that really attractive, high-margin business, global demand decline. It is continuing to decline and we have three really well-run plants there with perfect customer metrics, excellent throughput efficiency and the deleverage that is coming from payment systems is difficult to adjust.

We are seeing and have seen, as Tim pointed out, some nice, short-term orders in our, particularly our North American vending from the successful introduction of new products. Of course, they are coming right at the time we are consolidating our two plants and as we are just ramping up. So we really have kind of that mix going on and there is clear downward pressure on margins in Merchandising Systems given that mix and those dynamics. I don't think we are going to hand out margin expectations for the fourth quarter at this point.

Okay. I mean is the pressure on Payment Solutions, is this a customers are financially stressed-type pressure or is this a technology switch?

No, I think, first off, we are really happy with the new products and how they are being introduced and comfortable with our market positions and clearly battling for marketshare improvements here. You have a substantial decline in global gaming just to begin with. They turned it off completely in Russia, would be an area I would point. European vending is down substantially for the industry and the industry leaders and we make quite a bit of successful penetration there with our Currenza 2 in Europe. But again overall vending orders are down. So substantially, it is hard to see the marketshare gains, which we know we have got. So it is really all retail, transportation. This is all tied into end-market softness globally and not anything to do with our businesses or their success in the marketplace.

Okay. Last one from me, I am actually going to ask a question on Controls, which I'm not sure that ever happens, but we are losing money here for another quarter. What needs to be done there? When does that get back to breakeven and what are you -- what is the margin potential in that segment and what needs to happen to get there?

Listen, Shannon, I think frankly that is also a very good question. We have a handful of small, very well-run businesses in Controls with excellent customer metrics and on-time delivery, quality, nice positions in niche markets. But if you look in those businesses, revenues in the quarter were down 39% and frankly, in these small businesses, it is very hard to absorb that kind of deleverage. And it is going to be a longer, slow, gradual recovery here for Controls and it is going to take us a while.

We have got end markets here largely tied to oil and oil and gas exploration, transportation, and then even some of the nice military business we have are development programs where we have done the engineering, but they have -- the production is going to be over a long period of time and it takes a while to ramp up. These are good businesses that are well-run. But it is tough when revenues are down 39%.

Yes, I understand. All right, thanks, guys.

Matt Summerville, KeyBanc.

Just two quick questions. First, I have seen in your prepared remarks you indicated that operating margins in the Electronics group were running at all-time record levels. I was curious if you can kind of walk through what has transpired in that business to kind of get you there. I know that, in general, Electronics has been a bit problematic for you in the past. And then I guess going forward, the level of sustainability you see there with respect to the current margin structure.

I can't resist. I have got to take this. I have to say we work so hard on Electronics and for years, everybody said -- we said for years we were going to get to 15% margins and now we are doing over 15% margins and the reason we are doing over 15% margins is because we have strong positions in niche markets in microwave and custom power. We have done a superb job on -- every one of our plants is running at very strong on-time deliveries with very high quality. We are getting throughput efficiencies in the plants and our program management process is so much better and so much tighter than it used to be. I mean my view is we have a wonderful niche business here running at mid-teens margins, expected to do that with -- Tim said 70% tied to IS&R, which in my words are find them, track them and kill them and it is the place you want to be here in the defense electronics business. So I am very proud of the team and we stayed the course and now the results are coming in and they have come in consistently all year. And I know the Electronics team feels very good about it also.

Thanks for the color, Eric.

Deane Dray, FBR Capital Markets.

Thank you. Just want to circle back on Fluid to make sure I understand some of the dynamics in the quarter. In previous quarters, you have talked about mix and MRO within the products and how can you -- what has changed here in any sort of the customer activity and specifically on MRO?

Well, Deane, I don't think anything has fundamentally changed. I mean we continue to see softness in both the OEM and MRO side, as I mentioned. But in a very moderate way, the book-to-bill has been narrowing and we have seen that improvement in very small measures over the last few months. And I mean certainly in the quarter with orders being flat to up slightly, that is helpful here. So I don't think there is anything new here. We continue to see projects being spotty. There is continued delays. We haven't seen a particular resurgence here per se. It has just been kind of bouncing at the levels it has been at. Too early to call anything specific about the bottom of the market, but that is pretty much it.

I don't think there is anything unusual in the quarter really.

And how about the two new additions, Delta and Krombach? If I got it right, in the second quarter, it looked like they were together, $35 million in revenues and we are seeing a drop-off to $26 million. Is that at all seasonal or is -- just give us some additional insight into what their markets are and what they are seeing?

Sure. I think both of those acquisitions are obviously exposed to the same, many of the same end markets that the broader Fluid Handling segment is exposed to. And I think what you're seeing sequentially quarter-over-quarter is the same thing that we have seen in other parts of the Fluid Handling business. So spotty projects, the acquisitions continue to perform well, but they are subject to the end-market conditions just like the rest of the business. There is nothing new, nothing unusual there from a quarter-over-quarter perspective.

Any marketshare changes within Fluid? You called out -- it sounded like you were getting some share in some Merchandising and maybe in Engineered Materials. Anything in the Fluid side?

Again, nothing worth mentioning per se. It is obviously a continued focus. The investments that we have made in the front end and the continued focus that we have there and staying close to the customers. We have a business here that also has excellent customer metrics, so we certainly are comfortable with our competitiveness in the market. But I wouldn't say there is any meaningful change in marketshare here from the last quarter.

Deane, it is important -- this is Eric. It's important to keep in mind that, in Fluid Handling, we are going through two big internal mergers and this is really the second year. One is Chempharma where we are putting three businesses together. The other is energy where we are putting several businesses, plus the Krombach acquisition, together and these are -- it is still kind of early days of those internal mergers. We have done an outstanding job getting -- we have invested this year in our global salesforces in both those businesses. So we have got better coverage than we have ever had. We are now putting in processes to better run those businesses. We have aggressively integrated Krombach into the energy business. We are starting to drive a common ERP system throughout Chempharma. So there is a lot of internal merger integration activities going on to strengthen those businesses. And I think given all that, holding marketshare here is pretty solid performance.

Great. And just last question for me is the higher quality problem that you are now getting, are you beginning to stockpile some cash? This is what happens when you have a solid quarter like this that people start -- are going to start asking about uses of cash potential for any selective bolt-on acquisitions. Just what your mindframe now, Eric and just over the next couple of quarters?

We are smiling here because I always said -- I said six months ago, you couldn't have enough cash and then in the last couple of months, it is probably adequate. I said by the time we get to the year-end, people are going to be wondering what the hell we are going to do with it. And I think it is a good question. We are aggressively hunting. We have been disciplined about it. There has been some cases where we just haven't seen people come down in price commensurate with the operating performance. And we are going to stay disciplined about it, but have no doubt that we continue to hunt here.

I just had -- I lied, I have one more question. Engineered Materials, for the longest time, it was such a market leader in this thermal plastic resin and you really cut to the bone and what I am concerned now -- we see it bottoming, we see the margins coming back. Have you compromised any of the business's ability to flex back up and see the kind of growth rates that it commanded and margins it commanded in the past cycle?

Absolutely in no way. In fact, we have maintained all our engineering capacity. We have more new product activity going on than we ever have. Our machines are better than they have ever been. I mean we have done an outstanding job here. The whole front end has been maintained and when you go through market-by-market, we are on the offense taking marketshare here. So I feel that we have done a heck of a job and when you talk to the management and the team there, we have got really a solid team and they are on offense looking to take marketshare here without giving up price.

Great. Thank you.

We have no further questions at this time. I will turn the conference back over to our speakers for closing remarks.

Thank you very much for joining us today and for your continued interest in Crane. Goodbye now.

Once again, that concludes our conference. Thank you all for joining us.