Crane Co (CR) 2015 Q3 法說會逐字稿

Good day, ladies and gentlemen and welcome to the Crane Co. third quarter 2015 earnings call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions).

At this time I would like to introduce your host for today's conference, Mr. Jason Feldman. Sir, you may begin.

Thank you, Operator and good morning everyone. Welcome to our third quarter 2015 earnings release conference call. I'm Jason Feldman Director of Investor Relations. On our call this morning we have Max Mitchell our President and Chief Executive Officer and Rich Maue our Chief Financial 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 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 with 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.

Thank you, Jason. Good morning, everyone and thank you for your interest in Crane. I will provide a few comments on our quarter, discuss recent trends and share some preliminary comments on 2016 before turning the call over to Rich.

As outlined in our press release last night, excluding special items, Crane's third quarter EPS was $1.03, down 8% compared to the third quarter of 2014. Sales of $670 million decreased 8% driven by unfavorable foreign exchange of 5%, a core sales decline of 2.6% and a slight impact from divestitures.

Operating margins excluding special items were 14.5% a decline of 40 basis points compared to last year primarily reflecting lower volume. However, compared to the second quarter margins improved 60 basis points. Three of our four segments delivered solid results in the quarter.

However, similar to others in the flow space we continue to face challenging market conditions across our Fluid Handling business. Not much has changed in our Fluid Handling end-markets over the last few months. On last quarter's call we commented that conditions weren't worsening. Our sense was that we were at or near bottom and it was a question of duration. We are a little more cautious today. We still do not for clarity on how long these soft conditions will last although it is now clearly extending into 2016.

Customer activity remains stagnant at low levels and we have not seen any real signs of improvement. Broadly customers remain extremely cautious with capital spending both for new projects as well as for MRO work. This behavior continues to be driven by sustained low oil and commodity prices as well as broader concerns about global growth.

The impacts this year have extended well beyond direct upstream oil and gas markets with impacts across the industrial space including refining, chemical power, and even some general industrial end-markets. Consistent with prior quarters we still have not seen any growing trends of unusual project cancellations rather project delays and push out condition and the timing of project releases remains difficult to predict.

We have commented on pricing in the Fluid Handling markets several times over the last few quarters and we continue to see a similar level of competitive pricing pressure today. This pressure is more confined to projects versus MRO activity and it remains most intense in the emerging markets, particularly in China.

During the third quarter we estimate that price had approximately 150 basis points impact on our Fluid Handling segment. Pricing in our backlog is consistent with recent shipments so we do not expect incremental margin pressure from price over the next few quarters.

We have had to walk away from some project opportunities and we firmly believe that being disciplined in this environment is the right approach for the long-term. Moving on to the solid performance of payment and merchandising technologies, Aerospace and Electronics and Engineered Materials.

After an extremely strong first half with organic sales up over 9%, payment and merchandising core growth decelerated to the low single digits, as expected. The business did still drive modest growth of 2% along with good margin expansion as we continue to deliver on our synergy targets.

We remain slightly ahead of schedule on synergies and still expect a $33 million run-rate by the end of next year. In this business we have a very full new product pipeline. We continue to see opportunities around the world. One of the opportunities we are excited about is in the banking and financial services sector.

We are seeing bank branch transformation projects in the developed markets and financial inclusion initiatives in countries like India. Both of these trends create demand for exactly the sorts of cash validation products where we have unique technology and expertise.

We look forward to discussing these opportunities in more detail in February at our annual Investor Day. We have had a number of successes and important wins this year in the transportation space where we provide payment solutions for transit fare collection and parking applications.

In this market we have a very large install base in developed markets driving replacement and upgrade programs as the equipment ages and as operators transition to the more sophisticated bill recycling technology. In the emerging markets, most notably in China, we have been very successful recently in the transit fare collection space. There are numerous cities with plans and funding for new mass transit systems over the next decade in China and other developing economies.

Aerospace & Electronics delivered substantially better sequential growth in margins as expected. Our core business showed growth across all major categories, commercial and military after market with high single digit growth for our commercial OE business. Margins improved 200 basis points sequentially and we expect further improvement next quarter.

We remain excited about the number of new opportunities we continue to pursue. Over the last few weeks we announced that Crane was selected by Airbus to provide a variety of sensing products for the Beluga Air Lifter. Yesterday we also announced an award to upgrade the brake controls on the B 52 H fleet. There are also larger opportunities we are pursuing including additional content on both existing aircraft with technology insertions as well as new development programs. As we continue our development work for content we have already won on new platforms.

I would like to remind shareholders that we are likely to see sustained levels of engineering expense through next year with revenue from the launch of the re engine narrow-body platforms starting in late 2016 and beyond. I also wanted to briefly highlight the large defense contract we have mentioned in the past. We are a supplier to Lockheed Martin for the U.S. Air Force Space Fence Program.

Space Fence is an advanced grounds based radar system that will improve the way the US detects, catalogs and measures more than 200,000 orbiting objects. Protecting space assets against potential crashes. Compared to the current system Space Fence will allow the Air Force to track more and smaller items at a greater range. We are supplying Lockheed with both power and microwave products, including more than 16,000 receive and transmit antenna tiles in the largest award of for our proprietary multi mix microwave technology.

Our multi mix technology is an innovative process for fusing microwave multi-layer integrated circuits. Reducing size, weight, complexity and component costs. I would like to take this opportunity to acknowledge the Aerospace & Electronics team for driving continued technological differentiation combined new solutions for our customers. The group continues to perform very well this year through the internal merger of Aerospace and Electronics while preparing for the ramp up for our large military contract and winning new business.

And finally Engineered Materials growth decelerated as we anticipated. Typically we see lower seasonal sales in the third quarter compared to the first half of the year with another sequential decline in the fourth quarter. Over the last two years the third and fourth quarters were stronger than the normal seasonal pattern so this quarter had tough comparisons as will the fourth quarter.

The team continues to execute extremely well with margins of nearly 20% in the quarter. Please remember that this business always sees a drop-off in margins in the fourth quarter given the seasonal decline in sales. Shifting to our overall outlook. While overall market conditions have not changed materially over the last few months, we are tightening our full year guidance.

Excluding special items, we now expect full year EPS of $4.10 to $4.20, core responding to the lower half of our prior range. The upper half of our prior range required modestly better Fluid Handling demand and product mix than we saw in the third quarter and what we expect for the fourth quarter. Total company full year core growth is now expected to be down approximately 1%.

Starting later this week Rich and I, along with our team, will spend a month on the road visiting our sites and spending time with the senior leadership of each of our businesses, discussing in detail the outlook and our plans for next year. As we have not yet completed our annual operating plan process it is premature to comment extensively on our outlook for 2016.

That said the weakness in Fluid Handling markets has persisted and we have no visibility to an inflection point any time soon. As usual we will provide guidance in late January with additional details at our Investor Day next February.

For now, however, our best assessment is that for 2016 Fluid Handling full year core sales will be down in the low to mid-single-digit range, consistent with the second half of 2015 run-rate. We continue to execute on our previously-announced repositioning programs which should mitigate the normal de-leverage rate we typically see on lower volumes.

Based on this preliminary market outlook we believe that our current repositioning actions are sufficient to drive towards a cost structure that balances near-term profitability with investments for long-term growth. This year has been far more challenging than anyone expected.

Across our businesses we are thinking about the same questions that all of you are. What is the outlook for the global economy and capital on spending, how will the global economy react to potentially higher interest rates and when will that occur. How will oil and other commodity prices trend? As the late great Yogi Berra once said "The future ain't what it used to be".

However, we feel prepared for a wide range of potential outcomes including the possibility of a sustained low growth environment. The bright spot is that most of the weakness we have seen is confined to Fluid Handling. At Aerospace and Electronics airlines are healthy with low fuel prices and continue flight hour growth averaging 4% per year.

At Payment and Merchandising consumer confidence, spending and retail sales are showing positive trends. And Engineered Materials strong RB shipments remain healthy at elevated levels with favorable trends from an aging US population, low fuel prices and interest rates with domestic travel continuing to be an attractive option. We are staying close to our businesses, listening to our customers, and suppliers and reacting to changes quickly. We are fortunate to have a strong set of diverse businesses paired with a solid balance sheet.

We will remain disciplined in this environment both in terms of how we run our businesses for the long term and how we allocate capital. We continue to review our pipeline of M&A ideas but to-date we are seeing very little is that actionable given current market valuations. However, we will be patient and expect to see more opportunities emerge over time.

Let me now Rich Maue who will provide some additional financial information.

Thank you, Max. I will now provide segment comments which compare the third quarter of 2015 to 2014. Excluding special items, as outlined in our press release, slide presentation, and the accompanying non-GAAP tables.

In the third quarter Fluid Handling sales of $265 million declined 16% reflecting an 8% impact from unfavorable foreign exchange and an 8% core sales decline. Adjusted operating margins were 11.8% with a 390 basis points decline primarily attributable to lower volumes, negative product mix and pricing pressure. Fluid Handling backlog was $279 million at the end of September.

Sequentially the backlog declined 3%. Compared to the prior year backlog declined 20% or a 15% decline after adjusting for foreign exchange. As Max discussed, demand for process valves was similar to the prior quarter. We are seeing customers continue to defer capital spending given fairly weak global economic conditions and lower commodity prices.

We have not seen any trends suggesting there will be a widespread project cancellations but project timing is still very difficult to predict. We have seen some ongoing distributor destocking although it hasn't had much of an material impact to date for us and we do not expect it to be moving forward as inventory levels have adjusted. There has not been much of a change in the trends we are seeing by end market and geography.

Chemical market weakness is broad-based. We continue to see some activity in the Middle East but not a lot of incremental movement on project delays in North America. Power markets are still week in Europe, the Middle East, and particularly in China.

In the United States we continue to see further call to gas conversion projects progressing through 2016. Refining markets remain soft across geographies with the most pronounced year-to-date weakness in China. In North America we continue to see turnaround push-outs and turnarounds with lower than normal scope and scale as capital expenditures remain scrutinized across all markets.

Our commercial valve business was mixed in the quarter with continued modest growth in Canada and the Middle East, although the UK was somewhat weaker. We expect total revenue in the fourth quarter for Fluid Handling to be similar to the third quarter with modestly better margins as productivity and repositioning actions deliver further savings.

Sequential margin improvement should approximate 50 basis points. Moving now to Payment & Merchandising Technologies. Sales of $171 million declined 6% versus the prior year. Unfavorable foreign exchange of 6% and a 1% divestiture impact more than offset core growth of 2%. While core growth decelerated as expected please remember that it follows first half core growth of approximately 9%.

The fluctuation in growth is largely related to timing and normal lumpiness of end market projects, particularly in retail, transportation and gaming. Adjusted operating margin of 16.1% increased 110 basis points from last year driven by acquisition synergies, higher volume and productivity initiatives.

Aerospace & Electronics sales increased 3% to $172 million and segment operating margins improved to 21.4%, up 220 basis points from the prior year and up 200 basis points sequentially. The margin improvement reflects higher volumes, more favorable product mix and lower costs.

OEM sales increased 3% with commercial OEM sales up nearly 10%. Total aftermarket sales increased 2% with similar growth rates across both commercial and military markets. The OEM to after market mix was 73% to 27% consistent with the last quarter compared to 72% to 28% in the third quarter of last year. Revenue from the large military contract that we have discussed was immaterial in the quarter but we expect shipments to increase as we closeout the year. Aerospace & Electronics backlog was $460 million at the end of the third quarter compared to $405 million at the end of the third quarter of 2014.

Next quarter we expect further sequential improvement both to our organic growth rate as well as segment margins. In 2016 we expect sustained levels of investment as we ramp-up for the new re engine narrow-body launches. Engineered Materials sales decreased 3% to $63 million. Margins increased to 19.9% from 14% last year with the improvement attributable primarily to productivity along with lower material costs. Turning now to more detail on our total company results an guidance.

Total EPS, the total EPS impact of unfavorable foreign exchange in the quarter was approximately $0.06 compared to the prior year. Our third quarter tax rate was 32.3% on a GAAP basis compared to 27.6% in the third quarter of 2014. Excluding the impact of the special items, our third quarter tax rate was 31.6% which compares to 31.8% in the third quarter of 2014. Our full year tax rate assumptions remain unchanged.

In the quarter our free cash flow was $62 million compared to $57 million in the same quarter last year. And we ended the quarter with $335 million in cash compared to $346 million at the end of 2014. Total debt at the end of September was $847 million compared to $850 million at December 31st, 2014. As Max mentioned we are narrowing our 2015 EPS guidance range, excluding special items, to $4.10 to $4.20 from our prior range of $4.10 to $4.30

We now expect a full year quarter revenue decline of approximately 1%. Free cash flow guidance was also reduced to $190 million to $210 million down from $190 million to $220 million reflecting a lower earnings outlook. Other elements of our guidance are unchanged.

Given the current market weakness we have taken appropriate and necessary cost actions while continuing to invest for the long-term. Our repositioning initiatives are on track and we continue to expect that we will deliver approximately $17 million of incremental repositioning savings next year in addition to achieving the remainder of our $33 million savings related to the acquisition of MEI.

As Max discussed, we continue to focus on execution and we will remain disciplined and patient with respect to capital allocation. It is a challenging environment but our proactive cost efforts have positioned us appropriately for an uncertain growth environment.

With that I will now turn it back over to Jason.

Thank you, Max and Rich. This marks the end of our prepared comments. Operator we're now ready to take questions.

(Operator Instructions). Our first comes from Brian Konigsberg from Vertical Research Partners. Your line is now open.

Yes. Hi. Good morning.

Morning, Brian.

Morning.

Just starting off on Fluid Handling, the 150 basis points of price pressure actually doesn't seem too bad and it doesn't sound like you're seeing much incremental. Can you actually break that out by OE versus the MRO and maybe just give maybe some commentary on why you would think that MRO could remain steady in this low commodity environment?

Yes. I think, so far, Brian, what we are seeing is the pricing pressure largely on the OE and not necessarily on the MRO, in the MRO market space. At this point frankly we haven't seen too much of it in the MRO space and we feel as we exits the third quarter into fourth quarter our position in that regard remains unchanged.

We're not seeing the change, this is Max, Brian. We're not seeing the change, we're seeing consistency. That's not to say that it couldn't worsen in the future so I think there's a bit of unpredictability and uncertainty as we head into 2016 as well. Depending on how things either stabilize or strengthen or worsen, I think, consistent with others in our space a lot of mixed signals.

I mean we were hearing from some of your peers that the pricing pressure on the larger project work could be upwards of over 10%. Are you seeing similar type of things or is it just the projects you're addressing may be of different scale and maybe seeing different pressures within there?

Probably a combination of all and some different pressures. I did mention, in my script, that we are walking away from some business so we are seeing some crazy project pricing that we're just not competing against and holding up for our value proposition as well.

Okay. Got it. And just separately, on the refining and turnaround, so it's been fairly (inaudible) and that's been getting pushed out. Can you adequately just quantify how big of a contributor that is for your business and, I mean, most people would agree that it can only go on for so long. Do you anticipate that that's going to return back to normal or maybe even be of above normal in 2016.

Oil and gas is 11% for us within Fluid Handling sales so from a significant standpoint it's less so. It's had an impact. The turnarounds are happening. There's still some push-outs. People or trying to push out where they can. Turnarounds are occurring.

I think there is a balance also of just some very disciplined spend and scrutinizing all capital and expense, too, Brian. So it's just one of the turnarounds that are occurring are doing the bare minimum is our impression as people are just being very cautious in the environment and I think it will, certainly what we hear is that the turnaround schedules will continue into next quarter into the first quarter of 2016. I still think you're going to see some scrutinized spend to be as efficient as possible.

So you think it could actually be a below average year in 2016 as well? Is that a possibilities or, I mean, just functionally can your customers hold off.

It's my best guess. It's just a guesstimate.

Okay.

In this environment.

Got it. Got it.

Thanks, Brian.

I'll pass it along. Thanks.

Our next question comes from Matt McConnell from RBC Capital Market. Your line is now open.

Thank you, good morning.

Morning, Matt.

Matt.

Thanks for the initial outlook on 2016. You're looking for that mid-single-digit decline in Fluid Handling and I know there's not a ton of visibility. So could you give us a sense of what are some of your macro assumptions or oil price assumptions or anything else? You know, how did you build-up to that initial view on what 2016 might look to be like for Fluid Handling?

Yes. I think, Brian, -- Matt -- sorry Matt, the way we're looking at that is we're looking at the recent trends that we have seen you know as we have exited Q3, really looking at the trends throughout all of 2015 exiting Q3 our views on Q4, you know, if you look simply at our run-rate in that regard and compare year-over-year to what you would otherwise expect it would be about a low single digit decline next year.

You know, we see some potential opportunity for further deterioration frankly. You know, we mentioned in our prepared remarks that we're a little bit more cautious today than we were exiting the second quarter and so it's a combination of everything. It's each of the end markets we look at. It's not just one particular area. It gets to what we're seeing in chemical, oil and gas, you know, the refining. All the elements that we look at in our project funnel.

Matt, this is Max. I mean, it's really around an assumption of things stay the same for longer.

Yes.

And we're going to be heading outright now working with the teams getting much closer and understanding how (inaudible) in for 2016 and have that update and we will see how things continue to progress in Q4, but it's just, it's a directional run-rate.

Okay. And have the order declines moderated (inaudible) FX? Because the Fluid Handling order decline, it was about down 13% versus high teens in the first half of the year. How much of that is just FX not being as big of a deal and, maybe, (inaudible) your comps, is there any kind of fundamental change that's impacting your orders 3Q versus 2Q?

Yes. I mean if you look at the second quarter the comps definitely were unfavorable. We had, if you remember last year in the second quarter was one of the strongest order performance quarters we'd had in some time. There is also FX noise.

So the comps down in Q2 this year from an orders perspective core, you know, it's in that mid-teens range and that would appear to have moderated when you look at the Q3 core growth rate. So, which has improved year-over-year Q3 to Q3 but, again, a very strong unfavorable comp this year in Q2 could lead you to believe what you need to be careful about things that improve from Q2.

Okay. Okay. Thank you. And then last one just on the Fluid Handling decremental margin in the mid-30% range. Are there any restructuring savings in there from some of the more recent upside initiatives and what's a fair decremental margin assumption for once those restructuring savings start to hit in a for meaningful way?

Yes. So our restructuring is reading through. It's not overly significant at this point, but it is reading through. You know, I think if you were to look at next year, I think is what your question is in terms of decrementals.

Right.

If you were to assume a 35% or something like that decremental, it wouldn't be out of the range.

Okay. Thank you.

Yes.

Thanks, Matt.

Our next question comes from [Chase Jacobson] from William Blair. Your line is now open.

Yes. Hi. Good morning.

Morning, chase.

So I guess to look at one of the other businesses in Aerospace, you know, coming out of last quarter you guys were pretty confident in that mid-single-digit upper mid-single-digit outlook for growth for the second half the year and it seems like you're fairly confident that will pick up.

I was just kind of curious because, Max, you talked about the engineering expense and the timing of some of the programs. So when we look at that for the year, are you still expecting kind of a mid-single-digit growth?

Does that accelerate and if you could just kind of give the trajectory or any color on the trajectory of how the revenue plays out there over the next few quarters because I think that's something there's been some concern over. Thanks.

Sure. So in the third quarter just over 3% is what we delivered and we did say exiting the second quarter and on this conference call that we would expect improvement, right? So I think year-to-date through Q2 we were down and that we would see a second half improvement. We did see the second -- the third quarter improve to just over 3%.

We do expect that to improve modestly again in the fourth quarter, but it will be difficult for us, we don't believe we will see, you know, a very high single digit growth rate in the fourth quarter to bring us to the, you know, overall growth rate I think that we got it to of about 3% for the full year.

Now, the reasons for that some of that, just to add some color, is two items. You know, one after market we anticipated to see a little bit of strength, a little bit more progressively through the year. A lot of that had moved to the right we did see improvement here in the third quarter.

We would expect to see that also improve in the fourth quarter and that's supported by a nice backlog position that we currently have. The other element that I would point to in terms of not achieving that core growth overall profile for 2015 is just the nature of some of the projects that we're working. One in particular being the defense contract that Max alluded to in his prepared remarks, just moving a little bit to the right.

But overall when you look at our backlog position today and as we think of 2016, and in particular as you look out even to 2017 and 2018 we feel real good about the growth trajectory in this business given the program wins that we have had and that we have talked about in the past several quarters.

Okay. And then, back on Fluid Handling as it relates to, kind of, of the price competition and your discipline, I mean one, where are you seeing or who are you seeing the most price competition from and then, two, I mean when you look at your discipline at what point do you, you know, it seems like early on you're able to walk whey from some work and stay disciplined but at what point do you kind of have no choice and have to get more price competitive with your bids?

Yes. So in terms of the competition itself, I would speak it a little bit more geographically. We're seeing most of that price pressure in China frankly would be the one spot that we would point to as we're seeing pricing really looking difficult for us to compete with given that the solutions that we provide and we, as Max mentioned, we have walked away from some of that business.

So I would point to China being where we're seeing it mostly. In terms of your question on at what point do you start taking low margin jobs or reducing price, you know, that's a careful balance that we move through as part of our normal operating procedures. We're going to be extremely cautious and careful about doing that.

You know, we did take some specific repositioning actions in the business to be careful on our cost base to accommodate or mitigate margin pressure but we're going to hold up to our value prop as best we can here in this environment to make sure that we don't have a backlog that's filled with low price margin projects. It's not an easy thing, but it's going to be a balanced process that we'll continue to move through.

Okay. Thanks a lot I appreciate it.

Yes.

Our next question Ken Herbert of Canaccord. Your line is now open.

Hi. Good morning.

Morning.

Max and Rich, I want today just jump over to payment and merchandising. A nice quarter here considering the macro backdrop and everything going on. Just wanted to better understand if you could talk about the margin improvement in the quarter which was pretty impressive.

Can you parse that out, the 120 basis points, by the synergies and volume and productivity and maybe what the key drivers there were within the margin improvement?

Yes. I think part of this business that's a little bit unique compared to perhaps so some of the others is the unique nature and lumpiness of the some of the projects that we see so from quarter to quarter we will have some benefit from large projects that read through, but I think on the margin as you go quarter to quarter that should be fairly stable as we look forward because you're going to always have some of this lumpiness but the margins, perhaps, will be a little bit different in each.

But as I look at the third quarter and our performance overall and in terms of our expectations I think we performed a little bit better on the topline and the other pieces that I would just point to is the constant view towards reducing cost in the business and the execution of the synergies. So I probably would broadly say it's a third, a third, a third between, you know, the growth element, maybe a little bit less there and more on the synergy savings and ongoing focus on productivity.

Okay.

And then as you know for 2016 we do anticipate further synergy realization as we look out to next year that should continue to help bolster margins. Our margin targets in the segment are 17% to 20% and here we are at 16% and we have made a comment, I think on the last earnings call, that we should see that low end of the range, at a minimum, next year.

Yes. So it sounds like you have gotten there maybe a little faster if you thought if you go back sort of 12 months or certainly back to the time of acquisition. Is that a fair statement?

I think that's a fair statement. And Max even mentioned in his prepared remarks that we are doing a little bit better from a synergy attainment perspective year-to-date.

Okay. Okay. That's great. And if I could on the, just on the EPS guidance, and I just want to get your thinking about this as you head into fiscal 2016. I mean obviously this year a lot more challenges probably than you thought when you go back to, you know, when you were putting together the guidance at the end of last year and presenting all the detail in February, you know, you have had to address the guidance here in each quarter so far this year.

What are you going to be thinking about differently now as you really start to go meet out with the teams and sort of build the plan bottom up or top down as you look at 2016 and maybe de-risking, sort of, the outlook in the guidance? And are you changing the approach as you think about that heading into 2016 at all?

Well, I think, Ken, you know, the work is going to be in the flow space and it's going to be trying to read the tea leaves and triangulate on everything that we see from peers and marketplace and really dial in that top line and understands where that's going to be. That's where the variability is going to continue to be if there is at its largest within the portfolio. I think the others, relatively speaking, I feel better about our process and making sure that it's achievable and realistic. Rich, do you have anything?

Yes, I mean, even if you think back just in terms of guidance that we provided this year, you know, we felt okay coming out of the first quarter from an overall performance perspective. I think foreign exchange was the only reason why we took down guidance at the end of the first quarter and then at the end of the second quarter the only reason why we took down guidance was because we did not see a path to Fluid Handling improving in the remainder of the second half and I think that is inconsistent with perhaps some of what you have heard from some of our peers.

And then the remainder of the businesses I kind of feel like we have done fairly well and evidenced by really the performance here I think on a year-to-date basis from a margin point of view in the other segments at quarter date, for sure, here in the third quarter with being better overall from a margin point of view. I think as Max mentioned it's all going to be about Fluid Handling, not say we didn't that we didn't look closely last year, you know, we always look at a fairly deep level, very deep level, and we'll continue to do the same and we'll just have another year's worth of data behind us in terms of what we learned in 2015 as we set the plan for 2016.

Okay. That's very helpful. Thank you very much.

Thanks, Ken.

Thanks, Ken.

Our next question comes from Robert Barry of Susquehanna International Group. Your line is now open.

Good morning, guys. This is Fillippo Forlani on the line for Rob today.

Good morning.

Good morning. First question, if you can give some color on the performance in fluid outside process valve for the business in pumps, supply in Barksdale?

Yes. You mean generally pleased with the results both supply and pumps. Barksdale impacted by the upstream oil and gas and seeing similar in a general negative growth impact that we are seeing in the broader process valve space. So there's a tighter correlation to Barksdale business, but actually pleased with results in CP&S and pumps business and Crane Supply where the team has taken some share and seeing some growth in a downmarket.

Okay. Great. That's helpful. And then general, more of a big picture question. There's a lot of concern about slowing global industrial end markets. Did you see any particular evidence of slowing industrial demand in, just particularly, in the industrial end market in 3Q?

No. I think we see, for us, we see the same level. We don't see it improving. We don't see it materially worsening. So it's, there's a big question mark, that I think all of us faced with, to understand when and where we're at a bottom and is there an inflection point one way or another but generally we see stable demand from the industrial space as well compared to the last quarter.

Okay. Finally, a quick question on engineered solutions. Those very high margins in 3Q, do you think those are sustainable given the oil prices continuing to be below $50?

In our February Investor Day we highlight where we think over the cycle of margins are targeted and we gave a 12% to 16% range and we still believe that's the right long, over the long cycle, that's the right range so, hopefully, that dials, you know.

Yes. Very helpful. Thank you.

Our next question comes from Joe Radigan from KeyBanc. Your line is now open.

Hi. Good morning, guys.

Hi Joe.

Max, I wanted to go back to what you said about the chemical markets. Obviously that's an important end market for you especially from a mixed standpoint and it's been soft for some time. So what are you, I understand there was a pricing headwind but how much of a headwind was there just from mix in the quarter on margins and then what barometers are you looking at in that chemical space to gauge when that turns around or what are you hearing about chemical CapEx plans or OpEx plans for next year from your customer base?

Well, from a North American standpoint certainly ethylene's still, long-term is a very positive over three wave installation and we're tracking each one of those projects carefully. They continue to be pushed to the right and we're going, so that trend continues. From a Europe standpoint it continues to be soft. MRO is steady, you know, across the spectrum but China very, very weak, Middle East mixed and it's just this consistent depressed level across all end markets including chemical.

Okay. And then in terms of, I think, Rich, you said you expect some sequential margin improvement in fluid maybe 50 basis points. Do you still expect the favorable mix from the nuclear services business there? It seems like maybe, you know, margins should improve a little more sequentially just based on the seasonality there or is that not the mix not quite as favorable as what you maybe had thought exiting last quarter?

Yes. I mean, so exiting last quarter, you know, it's or really when you think about it even quarter-over-quarter, when you look at the outage seasons that we had last year versus this year, the outage services component of what we deliver carries a little bit of a lower margin compared to some of the other aspects of that business so, you know, from an overall perspective I would say it was a little bit weaker but, you know, not materially so.

Okay. And then lastly, on asbestos is there anything new therein terms of how the Garlock case is playing out either how it could impact your liability or your defense costs going forward?

No.

Anything to update there.

You know, generally we're just very, we continue to be pleased with our progress at the claims that continue to decline, defense and settlement costs that continue to decline. We continue to look at the data from Garlock and see how that can continue to highlight some of the abuses in the (inaudible) system today and we continue to fight on a case law basis state by state as well so, you know, it's nothing significantly new, Joe, but all positive in the year.

Okay. Very good. Thanks, Max. Thanks, Rich.

Sure.

Our next question comes from Ron Epstein Bank of America Merrill Lynch. Your line is now open.

Hey. Good morning, guys. Just a quick question. There's been a lot of discussion this morning about areas where you're paring back but what areas are you making investments in now? What areas do you see as good places for product development so on and so forth, within the portfolio?

Oh goodness, Ron. We continue to make investments in every one of our segments from Aerospace and Electronics, into payment merchandising, golly, the new product is significant including Engineered Materials with a significant new launch of higher cost products aimed strategically at the RV market and competitors and Fluid Handling.

We continue to invest in new product that adds significant new serve market for us. So we're still making investments across every one of our businesses without a doubt.

And just, I mean, just to maybe dig down a little bit more on that are there any particular products or areas that you're excited about? I mean just to highlight something.

Yes. So, I mean, in terms of some of the specific highlight, I mean the first one that I would point to, which is I think is your, perhaps you're maybe close to as well is the developments that we have got underway with 737 Max and 8320 and E-2 and some of those platforms.

These are significant investments that we continue to make in that space. And the long-term growth that's associated with that. In terms of, and then actually fuel flow meter. We at the beginning of the year talked about investing in a particular facility out in our Lynnwood operation, you know, where I think post pulling that facility up and generating the revenues we expect we should be close to, you know, we are going to have a significant share of that particular end-market.

So I'm very excited about what we have going there and the margin profile that comes along with it. You know, Max mentioned in his prepared remarks some of the key development that we are pursuing in our payment space as well. So recycling being a particular area that commands a lot of high-margin business for us as well. And then of course we have the normal in Fluid Handling in terms of the ongoing NPD that we have there every year.

We are constantly looking to expand the window to market for us in that space and we have a number of initiatives that are going to do that for us in 2016 as we start our plan process.

So I guess, so if we think about maybe things in hindsight a little bit, is there any area where you could have done things a little different to have growth better today? And then, maybe, as I follow-on to that is there anything in the portfolio where you think you could bolster it through M&A or something like that?

Well, that's a good question. I mean certainly there's always thing that we could do better. You know, nothing sticks out to me in a dramatic way over the past year that said gee, I wish I would have done this versus something that we have done.

In terms of M&A we continue to be very, very focused on our, as I have mentioned publicly before, we are looking not only at bolt-ons but also near adjacency's we're focused on our Fluid Handling process, space as well as aerospace, valuations continue to be certainly a challenge. However, there's a number of areas that we have a road map, a rich funnel that we continue to execute on that would accelerate growth and opportunities for us as we think about it moving forward.

Alright. Maybe just one last one while I got you guys. Max, do you think there is a better way, with the existing portfolio of assets that you have do you think there's a better way to extract value from it? That is to say is it a collection of businesses you have today the most efficient way to extract value from those businesses?

So our Board, we meet and look at all options with you are our portfolio. We continue to explore, always driving shareholder value and return and we consistently question ourselves every option and we continue to believe that with our diversified portfolio, with our integrated operating.company, excellence in execution, with our Crane Business System we're very pleased with our current portfolio, with our strategy driving that as an integrated operating company and we'll continue to, we continue to believe that with our portfolio we will, we are well positioned to continue to unlock maximum value for the shareholders as we move forward.

Okay. Great. Thank you very much.

Thanks, Ron.

Thanks, Ron.

(Operator Instructions). Our next question comes from [Ryan Castle] of Seaport Global Securities. Your line is now open.

Good morning, guys. Thanks for taking my question.

Morning, Ryan.

Morning, Ryan.

Just to touch back on the Fluid Handling side. I think you had suggested that de-stocking and sort of bottomed here. Were you talking about specifically in the third quarter or was that what you expect in 2016?

We were talking about what we have seen as we had moved through this year and where we are here at the end of the third quarter.

Okay. Got it, thanks. And thanks again for the outlook down mid-single-digits in the fluid business. Perhaps you could give a little color on what you're expecting growth rates, maintenance versus new projects.

At a high level we haven't really broken that out to that degree yet, Ryan.

Yes. We're about to embark on our plan process. Historically it's been about a 50/50 split but given what we have seen we have to be careful about providing any guidance in that regard given what we have seen here coming out of the second will second half of 2015.

Okay. All right. Thanks, guys. Appreciate it.

Thank you.

Thank you.

At this time I'm showing no further questions. I would like to turn the call back over to Max Mitchell for closing remarks.

Thank you, Operator. As Rich and I discussed our Fluid Handling end markets are challenging we remain focused on what we can control and we'll take all necessary cost actions while continuing to invest for long-term growth.

At times like this we are glad to have our diversity and portfolio quality allowing us to be patient and disciplined on capital allocation as we wait for the right opportunities to emerge.

Thank you all for your time this morning and your interest in Crane. I look forward to speaking with you next quarter. Thanks so much. Bye now.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program. You may all disconnect. Everyone have a great day.