Crane Co (CR) 2010 Q4 法說會逐字稿

Good day, everyone, and welcome to Crane's fourth-quarter 2010 earnings conference call. Today's call is being recorded. At this time, I would like to turn the call over to Director of Investor Relations, Mr. Richard Koch. Please go ahead, sir.

Thank you, operator. Good morning, everyone. Welcome to Crane's fourth-quarter 2010 earnings release conference call. I'm Dick Koch, Director of Investor Relations. On our call this morning, we have Eric Fast, our President and CEO, Andrew Krawitt, our Principal Financial Officer, and Richard Maue, our Principal Accounting Officer. We will start off our call with a few prepared remarks, after which we will respond to questions.

Just 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 a table at the end of our press release, which is available on our website at www.craneco.com in the Investor Relations section. Before turning the microphone to Eric, I would like to invite you to attend our Annual Investor day on Thursday, February 17th in New York City. Please mark your calendars. Let me now turn the call over to Eric.

Thank you, Dick. I'm pleased to report fourth-quarter and full-year results that were at the high end of our October guidance, and reflected substantial improvement in our business over the course of the year.

Our sales have now increased for three consecutive quarters, with core sales up 9% in the fourth-quarter and strong demand in our late cycle Aerospace and Electronics segment. These end market trends and improved market shares during the downturn should accelerate our sales as the economy recovers. Our full-year operating margin of 11% excluding special items, approached the 11.1% margin we achieved in 2007. As we have noted, raw material costs are increasing, and price increases, where appropriate, have been implemented to be effected during the first-quarter. Our cost-conscious culture, price increases, and our continuing productivity improvements will assure that we continue to track toward the 13% margin target that we expect to achieve when sales return to $2.6 billion.

During 2010, we made two acquisitions which have strengthened our existing businesses. Merrimac Industries, which was acquired in February for approximately $52 million, and is now part of our Electronics group had its best quarter of the year in the fourth-quarter, and is positioned for further growth in 2011. Our December acquisition of Money Controls for $92.5 million is an exciting addition to our global payment solutions business, which has very good margins and excellent growth prospects. Money Controls, located near Manchester, England and employing 350 people globally, is the leading producer of a broad range of payment systems and associated products for the gaming, amusement, transportation, and retail markets. The product line includes coin hoppers, coin acceptors, and bill validators. Money Controls sales in 2010 were approximately $52 million.

The Money Controls acquisition will significantly strengthen and broaden our product offering. It fits very well in our existing business, and allows us to strengthen our position in the gaming and retail sectors of the market, including self-checkout applications. Reflecting purchase accounting adjustments, we expect Money Controls will be dilutive to our earnings in the first half of 2011, and then accretive as we move through the year, with an overall slightly positive impact to our full-year 2011 earnings. For 2011, we now expect our sales will increase 7% to 9%, and our earnings per share will grow to $2.80 to $3.00, or an 8% to 16% increase compared to 2010. Andrew will now take you through the businesses, and provide some additional financial information.

Thank you, Eric. I will turn now to segment comments, which compare the fourth-quarter of 2010 to 2009. Please note that the segment explanations describe results before special items, which are detailed in the fourth-quarter earnings press release that we issued yesterday evening. Aerospace and Electronics sales increased 19% to $161 million, while operating profit increased 34% to $33 million in the fourth-quarter of 2010. Aerospace sales increased $16 million, or 20% during the quarter. This marks the second consecutive quarter that Aerospace sales have increased on a year-over-year basis, further evidence that the Aerospace industry is emerging from its downturn.

OEM sales increased 25%, while aftermarket sales increased a modest 1%, in part reflecting lower modernization and upgrade sales in the quarter. Sales related to the more traditional aftermarket of spares, repair and overhaul increased 4% in the quarter, compared to the fourth-quarter of 2009. The OEM aftermarket mix was 62% to 38% in the fourth-quarter of 2010. Operating profit in Aerospace increased by $5 million, primarily as a result of higher sales. In the fourth-quarter of 2010, Aerospace engineering spending was $11 million, compared to $13 million in 2009. As we guided last February, we achieved a $22 million reduction in engineering spending from $66 million in 2009 to $44 million in 2010, reflecting the completion of several major development programs.

Aerospace sales of $345 million for 2010 were well ahead of our February Investor Day guidance of $315 million. Despite increasing airline fuel costs, commercial aerospace trends continue to be favorable. Flight frequency and capacity were up around 5% and 6% respectively, and load factors were above 75%, based on the most recent data available. We are optimistic about the prospects for 2011 for our Aerospace group, as build rates for large transports are projected to increase over 2010 levels. Aftermarket sales are also expected to increase in 2011, given recent positive trends in spares and R&O activity, combined with the benefit of significantly higher M & U shipments from 2010 awards.

We are also building the foundation for continued success longer term. For example, in November, we announced an important win when we were selected to design the brake control system for the new Chinese aircraft, the COMAC 919, which is projected to begin flying commercially around 2015. Current estimates suggest that 2000 of these aircrafts may ultimately enter into service.

Electronics group sales in the fourth-quarter increased $9.6 million or 17%, aided by the Merrimac acquisition. Each of our three businesses, power, microwave, and microelectronics contributed to the sales increase. Electronics operating profit increased $3.6 million, compared to the fourth-quarter of 2009 with very strong operating margins. For 2011, we are expecting higher Electronic sales based on projected growth, in both our military and commercial businesses. In the defense portion of our business, which comprises approximately two-thirds of electronics, we are focused on intelligence, surveillance and reconnaissance, or ISR. And we expect our business to grow, despite worries of overall reductions in government spending. Importantly, we are entering 2011 with a strong backlog and excellent momentum in electronics.

Engineered Materials sales increased 2% during the fourth-quarter. Demand for our RV related applications declined 6%, due to a difficult comparison against unusually high build rates in the fourth-quarter of 2009, a time when RV dealers started to rebuild their inventories. Transportation-related sales increased 21% compared to the fourth-quarter of 2009, as a result of continued higher industry build rates for refrigerated trailers. Encouragingly, building product sales were 8% higher than the prior year.

Operating margins in the fourth-quarter was 7.7%, compared to 13.2% in the fourth-quarter of 2009, reflecting cost pressures across all major raw material classes. And operating profit declined to $3.5 million from $5.8 million. As we discussed on last quarter's conference call, we have implemented price increases across all markets that will take effect throughout the first-quarter of 2011, and will begin to improve margins.

Overall, in 2011, we project an increase in sales and profits across our Engineered Materials segment. The RVIA is projecting a 4% increase in RV wholesale shipments in 2011, taking into account the inventory build that occurred in 2010. We expect our RV-related sales to be relatively flat, which is a slightly more conservative view of the potential restocking impact. We are projecting further improvement in transportation-related sales, and now believe that our building product sales have bottomed and will show some increase in 2011.

Merchandising Systems sales of $76 million increased 6%, versus the fourth-quarter of 2009. The sales increase was primarily in payment solutions, where sales excluding the impact of the Money Controls acquisition, increased 7% over the fourth-quarter of 2009. We are beginning to see improvement in several of our key payment solutions vertical markets, including vending and retail. Vending sales increased 3%, in part due to end of year spending by certain customers.

Merchandising systems operating profit of $2.9 million declined $0.6 million, primarily due to the absence of the favorable impact of a legal settlement which occurred in 2009, and a 2010 operating loss at Money Controls which only became part of Crane in mid-December. The Money Controls loss related to acquisition accounting, and a planned year-end plant shut down. For the Merchandising Systems business overall, we are expecting to see core sales and earnings growth in 2011, primarily related to payment solutions, and to a lesser extent vending.

Fluid Handling sales increased 3% to $262 million in the fourth-quarter, with a core sales increase of 5%, partially offset by an unfavorable foreign currency impact of 2%. This marks the first time in nine quarters that core sales in Fluid Handling have increased on a year-over-year basis. MRO business continues to improve gradually and lead the recovery, while project orders remain inconsistent. Project quote activity continues to improve, particularly in emerging markets, and is a positive sign for future orders. Backlog has grown for the past four quarters, and is now 8% higher than December of 2009, providing us confidence that we will see moderate sales growth in 2011. Overall, we believe Fluid Handling has stabilized, and will benefit from a recovery in our later longer cycle businesses, including process valves.

Growth and improved margins are already apparent in many of our Fluid Handling businesses, with the exception of our energy business. Excluding the results of our traditional energy business unit, Fluid Handling segment margins would be in excess of 15%, a clear reflection of the effectiveness of our cost reduction efforts in the past two years.

Our energy business has been adversely impacted by three factors. First, energy is highly focused on the North American power market and downstream oil and gas markets, which have been particularly affected by the economic downturn. Second, with our success in leveraging our global sales force to sell bundled product solutions, our Krombach operation in Germany has been challenged with large complicated projects, resulting in higher costs, inefficiencies, and some shipment delays. And third, recent and current plant consolidation activities into this facility, which ultimately will reduce cost and drive productivity are impacting efficiency at the site. We view the operational issues as short term, and expect improved results from the energy group in each quarter of 2012.

Fluid Handling operating profit of $33 million was 9% lower than the prior year, primarily as a result of the deleverage of lower sales and energy, as well as raw material cost pressures across parts of our Fluid Handling businesses, including copper, steel and iron. We have been very disciplined to increase prices, which will be in effect for new orders beginning in the first-quarter. Operating margin was 12.5% in the fourth-quarter of 2010, consistent with our guidance range of 12% to 13% for the year. As we look forward to 2011, we expect that our Fluid Handling margins will remain in the 12% to 13% range for the full-year, but could be near the low end of the range in the first-quarter as we ship orders taken in the last half of 2010. We are carefully monitoring material costs movements, and will proactively take action to raise prices again if conditions warrant.

Overall free cash flow was $67 million in the fourth-quarter of 2010, comparing favorably to the fourth-quarter of 2009. Full-year 2010 free cash flow of $113 million included the effect of a previously disclosed $25 million discretionary pension contribution, as well as higher working capital needs to support improving sales trends, and was at the high end of our guidance range of $100 million to $115 million. Our full-year capital spending was $21 million, compared to our October guidance of $25 million to $30 million, as the timing of certain projects was extended.

During the fourth-quarter of 2010, we repurchased approximately 515,000 shares of our common stock for about $20 million, in accordance with our practice of managing dilution related to our stock incentive plans. Our policy is not to pre-announce these purchases, but to report them at the close of the quarter.

On our third quarter conference call, I noted that we expected some foreign exchange head winds in the fourth-quarter, but that on a full-year basis we expected a negligible overall impact. The fourth-quarter currency effect was immaterial, and for the full-year the FX benefit was a positive $0.02 per share. Also, as a reminder, our previous 2010 EPS guidance of $2.50 to $2.60, included a $0.05 per share benefit from the expected reinstatement of the US R&D tax credit, retroactive to January 1, 2010. This tax credit was part of the tax legislation signed by the President in December, and the benefit was included in our fourth-quarter earnings.

On a normalized basis, our Q4 and full-year 2010 tax rate was 29.5%, which included the benefit of the R&D tax credit. We also had the benefit of the R&D tax credit in 2009. Please note, that in 2010, we recognized the full benefit of the R&D tax credit in the fourth-quarter, as the law was not passed until December of 2010, whereas in 2009, we recognized the benefit of the R&D tax credit in each quarter throughout the year.

Our balance sheet remains strong, and we ended the quarter with $273 million in cash. We also have access to our $300 million revolving credit facility. We have no significant debt maturing in the near term, as half of our long term debt of $400 million is due in 2013, and the other half is due in 2036. For 2011, sales are expected to increase approximately 7% to 9%, driven by a core sales increase of 4% to 5%, sales from businesses acquired in 2010, net of divestitures of 2% to 3%, and favorable foreign exchange of approximately 1%. We expect our 2011 tax rate will be approximately 31%, due to a higher proportion of earnings generated by our US businesses.

Pension expense is expected to decline in 2011, reflecting the contributions that we made in 2010, as well as favorable asset returns. We will provide specific sales, operating profit and margin guidance for each segment, and also discuss the Merrimac and Money Controls acquisitions in greater detail at our February Investor Day. We hope you will be able to join us either in person, or via webcast. Now back to you, Dick.

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

Thank you.

(Operator Instructions).

Our first question is from Robert Barry with UBS. Your question, please?

Hi, guys. Good morning.

Good morning.

Just a couple of questions here. I was wondering if you could walk us through what your outlook is for the margins in the Merchandising Systems business. What are the puts and takes there, as we look ahead over the next year?

So Rob, as we go into 2011, one thing to keep in mind our merchant -- is that our Merchandising Systems business is really a combination of two businesses, payment solutions and vending. And our payment solutions business is a high growth, high margin global business for us. And we expect that business to over time to be in the mid-teens margins. Our vending business is a bit more challenged from a margin perspective, and is probably more appropriate to think of that in the single digit range.

Right. But I saw that sales were up in both businesses. Are you not seeing any leverage there?

We didn't have a -- we did not have leverage in our Merchandising Systems, that's a correct statement. I think that --

If I could, Andrew. This is Eric. A couple of things. First off, in the fourth-quarter, we had the purchase accounting for Money Controls. And the increase in amortization, and we had the -- the plant was closed for a couple of weeks as planned, and we have to step up all of the inventory.

So we've got a difficult fourth-quarter as we planned it. And then, we got some dilution from Money Controls next year. I would say though, that the payment systems business, as a high margin high growth business has clearly turned here. You can see that our sales are up here in this quarter. They kind of bottomed in the prior quarter, and I would expect that to accelerate as we go through the year. The vending tends to be lumpy. What you saw in the fourth-quarter was a lot of our -- or at least several of our customers who were -- had some unspent marketing dollars that they went ahead and spent. So the growth there -- is a little -- it's less certain.

Yes. Okay. Then just lastly, I was wondering if you could comment on what you're seeing in the end markets for fluid. In particular in energy, you mentioned some of the operational challenges, but how about the demand outlook? And also within the fluid, in the commercial construction part of the business, what is that end market looking like?

I would characterize the end markets very similar to what I did in the third, except they generally feel a little bit stronger across the board. So power is -- has been down all year in North America, perking up in Asia and the Middle East. Our downstream refinery business in MRO is a little bit better, but the projects are spotty. I would characterize it, the chem pharma business is certainly a little bit stronger. So I would characterize it similar to the third, but feels stronger, sales are up. Backlog is up generally, in Fluid Handling. I would characterize the commercial products part of our business as -- first thing I would say is the bulk of this is in Canada, the UK, and the Middle East. So those economies are stable, and in pretty good shape, and it's to a lesser extent here in the US. But that being said, I would characterize those overall as again the tone is a little bit better also.

Okay. Thank you.

Thank you. Our next question is from Wendy Caplan with SunTrust. Your question, please?

Good morning. As we look at your free cash flow for the year, the conversion ratio of 117% is certainly acceptable, if not good. Can you talk about the -- your -- yet your working capital to sales dollars, about $0.20, $0.21. Can you talk about that working capital perhaps, Andrew, and kind of what we are aiming for this year, and where the opportunities are? And then, Eric, if you could address the cash deployment issue? Obviously, opportunistically, we are buying back shares. But if you can talk about the acquisition priorities for you?

So Wendy, on the working capital as a percentage of sales, it's a continued focus for us here. And we would expect to try to drive another 1% improvement in the working capital percent of sales metric in 2011 versus 2010.

And where is that coming, from specifically? Is it across the board, or in terms of the inputs? In terms of inventories, receivables?

Well, I would say it's primarily in Fluid Handling.

Okay.

And then, secondarily in Aerospace and Electronics. And those are the two areas where you are going to see it -- our Engineered Materials is already in good shape. Our Merchandising Systems is in good shape. So you will see it come from those two segments. We expect to improve working capital as a percent of sales each year, Wendy.

Okay. And specifically, would that be the inventories, or cross -- or receivables, or both? Or how should we --

Primarily inventories.

Okay. That's what I thought. And then again, the cash deployment priority --?

I think we always had a balanced capital deployment. So last year we did -- you saw $145 million of acquisitions. You saw $50 million for the stock, and in July we raised the dividend 15%. So I think we've got a pretty balanced deployment. We -- our stock repurchases, we really just look to mitigate the dilution. And that's about as far as we go. Our strong preference is acquisitions. And I think we've had a successful record doing that.

Okay. And one more, if I might. You mentioned in your prepared remarks, that the mix -- and given the backlog mix of Fluid Handling, in terms of some of the less favorably priced projects, would be impacting the first half -- first quarter of the year. Are there any other meaningful backlog issues relative to mix or margin that would hurt or help profitability going forward?

No.

Okay. Thank you very much.

And again, part of that is we got the pricing -- we have done a very good disciplined job on price increases, both in Fluid Handling and across -- and in Engineered Materials, and across the Company. But those are on orders that are going to be placed in the first quarter here. So we've got a bit of that to wash through. But it's not -- we have quite a spike in material prices here in the last four or five months of the year. So, I think we are on top of this, Wendy. Thank you.

Thank you very much, Eric.

Thank you.

Thank you. Our next question is from Ron Epstein with Banc of America. Your questions, please?

Yes, hi. Good morning, Eric. You mentioned on the call the C919, and investments being made there. Do you expect you are going to have to ramp up your manufacturing in China, in Aerospace, right? Because, my understanding now it's mostly an import market for you guys? That you don't do much on the ground there.

In this case, we are working through Honeywell, and not directly with the Chinese on this. We do not have a requirement to have manufacturing in China for this award.

Now do you expect in the future that you might have to -- maybe future Chinese airplanes?

As I sit here today, the answer is no. But at some point we may well choose to do that, because we want to do it. And obviously, there is the whole intellectual property protection, and how we manage that. But we have got a lot of experience in China. I mean, we've got eight plants there. We have been doing business in China for a long time. So I'm pretty comfortable where we are here.

Okay. And then, when you look at the Aerospace businesses and the recovery there, can you subsegment that into large commercial versus business versus regional?

Have you guys got those numbers?

No.

I don't have those -- we will get those numbers on Investor Day and lay it out. It's primarily large commercial here. But we will lay that out in detail on Investor Day for you, Ron.

Okay, none. And then, in 2011, you might have mentioned this, and I might have missed it. When we think about restructuring in 2011, is there more restructuring costs in 2011, or how should we think about that?

No. No. None.

None. And then finally, -- of all the costs that you took out in the downturn, how much of that is permanently gone, when we think about the kind of leverage you will have to the reengineering that you did?

So Ron, in the -- of the $175 million of cost that we took out in 2009, we talked about $45 million being related to the reduction in R&D spending at our Aerospace unit, and that we view to be out permanently. In addition, there is about $40 million related to restructuring activities and plant consolidations, and severance and so forth. And we also think of that as being out permanently as well.

That leaves $90 million that's associated with general cost reductions. And of that $90 million, we talked about some of that will come back as volumes increase, and as we continue to make investments in sales and marketing, and other R&D, and new products and so forth. We will obviously have some head winds that as we go into 2011, related to commodity costs and other pressures. And what we will do at our Investor Day conference in February, is be a little more specific about what we expect to come back and enter into the algorithm for 2011.

Great. Super. Thank you.

Okay.

Thank you. Our next question is from Deane Dray with Citigroup. Your question, please?

Thank you. Good morning, everyone. Hi, Eric, I was hoping you could give us a little more color on the energy issue. You said it was more of a temporary issue, but the idea of the bundled products, the higher complexity in creating some of the delays. What is actually going on?

Again, this is a very late, longer cycle business that -- where we are feeling this. The large bundle products are really a success, but when -- you've got special alloys. You've got unusual castings. We've got special SKUs, that are not so much standard SKUs, and we are trying to put some of that volume through the plant.

Secondly, we've got a plant consolidation that is falling on top of the ERP implementation, that we are in the process of doing. And so I consider this fairly normal. We expect margins to improve in the energy sales, and margins to improve in the energy business each quarter as we go through 2012. And I feel we are on top of this, Deane.

Sure. And then, is there an impact on oil price? And just the idea here is, you just speak to companies like Emerson and their refinery businesses, that higher oil prices, you end up seeing more delays, and some MROs and scheduled maintenance. Does that have a ripple effect into any your businesses?

I think the bigger impact for us Deane, has been the downturn in power in the United States. That's the dominant impact on our profitability. And then the whole kind of Krombach, and plant consolidation activities going on there, with the complicated projects.

Good. And then swing over to Fluid Handling. On the increase in backlog of 8%, how much of that new -- the new orders have gone into backlog reflect the new pricing? Just trying to get a sense of what the implied margins are, in that new business as you begin to work that off later in the year.

I'm -- again, the margins are going to come from two places. They will come from normal MRO activity. A little of the pricing went in in the fourth-quarter. Most of it is going in in the first quarter. And I have been pleased with how disciplined we've been in doing that.

And I think on the projects, we have been pretty disciplined and consistent on our pricing on the projects. So there is no bad lumps, if you will, from what we've been able to see, and would be our practice. Nor have you seen it during the course of the year, from -- taking on a bunch of projects that we are not going to make money on.

We have been very disciplined, and as a result of that, I think even though you've seen sales grow each quarter, and the backlog grow kind of each quarter but you don't see any big increases, because we have been disciplined on the pricing. So we warned a little bit that there might be a little bit of pressure on Fluid Handling margins in the first quarter. But again, as Andrew carefully said, it's at the low end of the 12%. It's still in that ballpark.

That's real helpful. Then over on Aerospace, the comment with spares up 4%. And that's really getting back to the bread and butter commercial spare activity, which we obviously know is higher margin. GE reported higher, much higher rebound in spares. And I was curious whether -- has there been more deferrals there? You are lagging a little bit on flight volume, but not by much. But is that -- should it just be tracking flight volume there as well?

Every time I try to compare our spare activities to anybody else, Deane, I just can't get a correlation. I would say unequivocally, that when you look at our order rates, fourth-quarter versus third quarter, both in the commercial Aerospace business and our Electronics businesses, you are seeing very strong sequential improvement. You are seeing not only in the sales growth, but you are seeing -- you saw a very strong improvement in the backlog in the fourth-quarter. And I -- we've got good momentum here in both these businesses, and we are doing a good job leveraging the volume.

Yes, as long as you are tracking flight volume, there shouldn't be anything missing. I was wondering if there was any pent up demand, because with engine spares there can be cannibalization, deferred maintenance. I just don't think you have that same thing in braking controls. And then --.

Yes. I'm not aware of anything unusual, and if anything our front end on spares and our turnaround times is better than it's ever been. So I think we are in good shape.

Great. And last question, it was interesting, Andrew said that on the R&D, the engineering development cost takeout is permanent. But what about the new COMAC plane, and won't there be some engineering spend on development and braking control system there?

So Andrew and I are deciding who to answer this. We are going to carefully manage our R&D engineering spend, to work very diligently to keep this between 10% to 12% roughly as a percent of sales for the Aerospace, so we can really do a good job leveraging the incremental volume that is going to come in. The big part of this spend in the 919, and as you know well, Deane, these big programs got delays all over the place. But as per the plan, there is a little -- some here in 2011, but the ramp up starts in 2012, really. But we've planned for that, and we look at our engineering spend over that three year horizon to make sure we are keeping that in line.

We aren't expecting any wheel well surprises in this aircraft, right?

Yes, sir.

Thank you.

Thank you. Our next question is from Matt Summerville with KeyBanc. Your question, please?

Good morning. A couple questions. First, in the Merchandising business, you mentioned a little bit of purchase accounting hitting the fourth-quarter, that planned plant closure and Money Controls. Are those things fully behind Crane, or will they linger into the first quarter? And I guess, is there any reason maybe you can't quantify a little more specifically, how much of a head wind that would have been in Q4?

Well, the acquisition costs have largely been accounted for in the fourth-quarter. But in terms of the actual cost of doing the acquisition, there will be --

One-time costs.

The one-time costs. There will be some continued amortization associated with the acquisition, that will continue on as we go through 2011 and beyond.

So there are three pieces. We will -- through this, because it is going to be for every acquisition. The way we are going to deal with the acquisitions, is we've got the one-time cost of doing the deal. I think it was a [1.3] or [1.4] on this. And we are going to highlight that for you.

The second piece of any acquisition is, you have got to take all of the finished goods inventories and you've got to ride it up to the market value, so that all of those sales for let's say the first three or four months that you own that, there is no way you are going to make money.

So we expect that to hit particularly strongly in the first-quarter. And then the third piece is, is the amortization from -- of the intangibles that you write off over the course of -- what is it -- seven years, or something like that.

So the first piece we highlighted, the [$1.4 million], that will never be done. We got some dilution early in the year, from getting rid of finished goods inventory, and increased amortization. That goes away and falls off, which is why we said it will turn here in the second half and will be accretive. And for the year, it will be very slight, slight positive. Is that clear?

Yes.

We try not to muddy the water on that.

No, that helps. I appreciate the granularity there. With regards to the fourth-quarter you did about $8 million or so of structuring, and it sounds like 11 at this point. There is really no -- nothing meaningful being contemplated. Would you expect the savings from the things you did in the fourth-quarter to all hit in 2011? And should that be a like amount, as far as what hit the P&L, i.e., that $8 million?

Here is the way I would say this. First off, understand that of the $0.09 of restructuring, $0.05 is associated with Money Controls. That's all tied to capturing the synergies, making sure our cost base is riding, capturing the synergies that we got in our plan. So I feel very good about that, and we have very detailed plans associated with that. The second piece -- was the $3.5 million around Fluid Handling, which again is the right sizing of the business and a plant consolidation. And other than those two, we don't really have -- we don't have any other restructuring contemplated, and with the savings equal the $0.09 --not quite in the first year. It will be something less than that. I don't remember exactly what the number is. I apologize.

Okay. With regards to Fluids, just with this plant consolidation and the ERP implementation, what sort of time frame are we looking at for those projects to kind of be behind Crane?

ERP is done, and the plant consolidation is being consummated during the first quarter -- might -- little bit left in April.

All right. And then one just last question here. If you look at the Engineered Materials business, and as you think about the RV space 4% up on wholesale volume, I think you indicated coming out of the RVIA, can you just hit on -- I apologize if you said it already. How do you expect your business to perform relative to that industry growth rate, if you will?

Matt, I would say that we really took -- we really managed to -- and during the downturn to really take share where we could. And so to the extent that the RV industry here returns, we would expect to be able to match, if not exceed the growth that the -- overall industry growth. So we got some -- maybe a little bit more conservative assumption in our 2011 guidance, reflecting the fact that we are overlapping some inventory build at a dealer level. But we certainly feel comfortable that we would keep pace with the industry growth.

Great. Thanks, guys.

Okay.

Thank you. Our next question is from Ajay Kejriwal with FBR Capital Markets. Your question, please?

Thank you. Good morning. Just couple here. First, on Aero, and if I heard you correctly, aftermarket up 1%, with spares up 4%. So does that imply R&O, or M&U is down? And maybe color on what's going on there, and expectations this year?

Well, Ajay, we talked about in the past how M&U can be a little bit lumpy. And so, we wanted to kind of break out the more traditional spares and R&O activity in the fourth-quarter. Going into 2011, we actually had some nice M&U projects that will benefit us, including the C130 carbon brake upgrade. So, yes, the -- M&U was weakened in the fourth-quarter, but we expect actually good things in 2011 from M&U.

So maybe any color on the plan -- initial look on what you are expecting for aftermarket this year?

We will break that out, at our February investor day.

Okay, And then just on OE, you're up 25%. That is very impressive. I mean what's driving -- you said large commercial, but any specific color you can provide? And then, what are you looking for this year?

In terms of what we are looking for this year, we will provide a little bit better guidance on that, at our February Investor Day conference. For the results we had in the fourth-quarter, as we talked about, we have a large portfolio of large commercial aircraft that we make product for. And I wouldn't attribute the increase in sales to any particular aircraft. It was really across the portfolio.

Okay. And then, maybe just one follow-up from Rob's question earlier on. So Merchandising, maybe talk about what ramp up in margins is, from 4% here. You had some one-time costs in the fourth-quarter, but maybe any color? What do you expect -- the full-year margin in 2011 to be higher than 2010? How should we be thinking being that?

I would -- let me answer that this way. For 2011, I expect sales, and operating profit, and margin to be up in every one of our segments.

All right. That's very helpful. Thank you.

And we will be -- we'll be specific about that -- (multiple speakers).

As you know, in February we will give you sales and OP by each of the segments. And we'll lay it out exactly the reason. I'm reluctant to start this pick at it here, within three weeks or four weeks, we are going to lay it -- so you'll you get the whole story. Okay?

All right, all right.

It's kind of been our practice here.

Thank you. Our next question is from Jim Foung with Gabelli & Company. Your question, please.

Good morning. Eric, you have done a great job in managing the Company through the downturn. And we are seeing other companies like ITT and Fortune Brands, splitting up the business to get more value in their stock. So just wondering, you spun off Huttig in the past, and just wondering what your thoughts are in this area?

Have no present plans, Jim.

It seems like that seems to be a trend, in terms of getting more value. But you have to --

Again, with all due respect, ITT, we didn't go out and buy some huge defense electronics business, that's got a big chunk tied to the war in Afghanistan and Iraq. Right? And their stock hadn't moved, and our stocks moved aggressively.

And we aren't a $10 billion Company. We are $2.5 billion in stock. We have -- I feel very good about how we are positioned with the portfolio that we've got, and the good work that we did in the downturn. Our challenge here is, we've just given guidance here for 4% and 5% core growth for next year.

In the fourth-quarter, our core growth was 9%. Now admittedly that's off a very weak fourth-quarter of 2009. But I like to think that all the good work that we did in the downturn, on all of the expansions in the Middle East, China, and in India in our Fluid Handling business, our new products, our aggressiveness in taking market share, would give us an opportunity here, around that core 4% and 5% of growth. And I think the management team has demonstrated an ability to leverage volume over -- on a year-to-year basis. And we like the opportunity we've got ahead of us with what we've got. And I might add, a lot of capital to deploy to accelerate it for -- late in the year or 2012.

Okay. Can you talk a little more about your acquisition appetite then going into 2011?

So we've -- I would say pretty similar comments to what I made last quarter. Unfortunately, Jim, I mean we have got $270 million in cash and plenty of debt capacity. We are being very proactive.

We see a competitive market. I see prices up, but certainly more opportunity in the market, as people say, maybe I will sell. I have nothing of any real size, that in near term, but as you saw, we had the same kind of remarks with -- of last quarter. And we were able to do Money Controls in the fourth. So that's the way I would characterize it. And certainly, a preference for us here, as we move through 2011.

Okay. And then one last question. In 2011, do you expect your engineering spending to be down in Aerospace again? Or is it going to be flat over 2010 level?

I would call it about flat.

About flat. Okay. And then, the COMAC 919 spending, could you just give us an order of magnitude -- how much it will go up 2011, 2012?

I'm sorry -- I didn't catch --?

The 919, the Chinese 919?

I just can't -- as a matter of policy we don't give out the spending on individual programs here. Again, we are very disciplined in trying to maintain that engineering spending as a percent of sales to make sure we leverage the volume. I think we've got a team in place that is doing a much better job, in terms of managing these programs, and where we take technology risk, and where we don't. There is a lot of lessons learned by the entire aerospace community, on the 787. And I am not going to make the same mistakes.

Okay. Sounds good. Thank you so much. Bye-bye.

Thank you.

Thank you.

Our next question is from Robert Barry with UBS. Your question, please?

Hi, guys. Thanks for taking the follow-up. When you were talking about the late aerospace projects I thought of the 787, and I was just curious to what extent any volume there was factored into your outlook?

Not significant.

A little bit, but not --?

That it slipped -- I wouldn't -- it's not significant. What is significant, is we are black label on the hardware and the software. So we are in great shape on that program. And when it starts to ramp up, I will start to benefit.

Sounds good. Thanks again.

Thank you.

Thank you. Our next question is from Ron Epstein with Banc of America. Your question, please?

We already had Ron, so maybe --.

Mr. Epstein, your line is open.

Hello? Hi, thank you for the follow-up. Just maybe a couple more aerospace questions. What opportunities are there for Crane on A-350?

I don't know how to answer that. I know there is a couple -- there is at least one that I'm aware of, and possibly a second one. But I'd just as soon at this stage not get into it.

Okay. Okay. And then maybe one more, in terms of just cash deployment. How are you thinking about buybacks in 2011?

Again, with -- along the same line as what you have seen, in terms of our consistent capital deployment program, to just make sure we mitigate the dilution.

Okay. Great. Thank you.

Thank you.

Thank you. I'm show nothing further questions in queue at this time. I would now like to turn the call back over to Mr. Richard Koch.

Thank you very much for joining us today, and for your interest in Crane. Bye-bye, now.

Ladies and gentlemen, thank you for your participation. That concludes the conference. You may disconnect, and have a wonderful day.