Crane Co (CR) 2018 Q4 法說會逐字稿

Greetings, and welcome to the Crane Company Fourth Quarter 2018 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Jason Feldman, Director of Investor Relations. Thank you, sir. You may begin.

Thank you, operator, and good morning, everyone. Welcome to our Fourth Quarter 2018 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 few 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 to the comparable GAAP numbers and 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.

I would also like to invite you to attend our Annual Investor Day event on the morning of February 28 in New York City. Please contact me directly if you'd like to reserve a place at the conference. One last item for your calendars. We will report first quarter results on April 29, after the close, with a conference call the morning of April 30. That is a little bit later than normal for us because of the timing of the holidays this year.

Now let me turn the call over to Max.

Thank you, Jason. In 2018, we delivered another year of record financial results. As outlined in our press release last night, we've reported full year record adjusted EPS of $5.99, which increased 32% from 2017. Our record sales of $3.3 billion increased 20% compared to 2017 with 3% organic growth and record free cash flow of $305 million, increased 14% despite a discretionary pension contribution and higher CapEx associated with the recent Crane Currency acquisition as well as our repositioning actions.

Fourth quarter EPS, excluding special items, was $1.64, up 40% compared to last year and included an $0.08 discrete tax benefit.

Sales of $840 million increased 18% compared to the fourth quarter of 2017 with 4% core sales growth. Adjusted operating margins improved 30 basis points to 15.5%. We are executing extremely well, delivering on our commitments, and 2018 was a solid step towards achieving our long-term targets.

At last year's Investor Day on March 1, we outlined a multiyear growth story. Starting from an adjusted EPS base of $4.53 in 2017, we forecast approximately 65% to 75% growth to adjusted EPS of $7.50 to $8 by 2021, with additional potential upside from capital deployment.

The combination of our strong 2018 results with the 2019 guidance we introduced last night shows that we are on track to achieve that objective. The midpoint of our initial 2019 guidance of $6.35 reflects 40% EPS growth from 2017, more than halfway towards our 2021 target in the first 2 years and consistent with what we shared with you at last year's Investor Day event.

I'm very proud of our performance to date. And I'm extremely excited about the opportunities we have ahead of us in 2019 and beyond.

Before I turn to our businesses, I want to highlight again the actions we are taking to ensure that Crane is positioned for years of profitable growth ahead. First, we continue to focus on investing for long-term growth. I can't think of a time when we have had more active projects with higher success rates than we do today. As we discussed last year, to accelerate growth even further, we redeployed a portion of the benefits from the 2017 tax reform bill on growth initiatives. These projects are progressing and the incremental investments will wind down over the course of 2019. Second, we are creating value with our strong balance sheet. In January of last year, we acquired Crane Currency, the second largest transaction in our history. That acquisition is off to a fantastic start. We also opportunistically repurchased $50 million of our shares during 2018. And yesterday, we announced an 11% increase in our dividend, reflecting confidence in our outlook.

Even with these actions and all of our investments, while nothing is imminent, we have substantial balance sheet flexibility today for our next acquisition.

Third, we continue to run Crane with a disciplined cadence of execution. As previously discussed at the end of 2017, we initiated certain repositioning activities across our Fluid Handling, Aerospace & Electronics and Payment & Merchandising businesses as our ongoing focus on continuous improvement created new opportunities for facility consolidations in these businesses. These actions were proactive. They will improve our competitiveness and profitability, and our refined footprint will also be in a better position to serve our customers and meet expected future growth requirements.

These repositioning actions are progressing in line with our original plan, and we are on track to achieve our targeted annualized EPS run rate of approximately $0.35 by the end of 2020. Investing for growth, thoughtfully deploying capital, driving productivity, combined with our discipline and cadence of execution, this is a strategy that has worked very well for us, and we will continue to drive profitable growth in the years ahead.

Turning to our businesses. Fluid Handling results were better-than-expected last year with 4% organic growth and 110 basis points of margin expansion. Order rates and backlog levels are now meaningfully above 2016 trough levels, and we do expect further improvement in 2019. We expect 4% core growth in 2019, driven by share gains and end markets that continue to grow steadily, with the rate of recovery still slower than in prior cycles.

Chemical and general industrial are likely to be the strongest growth drivers, with power market still soft and refining growth positive but sluggish. On the commercial side of the business, we are seeing good trends in the U.S. municipal business, slow growth in Canadian nonres construction markets and slowing in the U.K.

I characterize the markets overall as positive but mixed. In that environment, however, we continue to execute well, both operationally and on growth initiatives. And we will continue to deliver very good leverage rates on core growth moving forward.

Overall, we are on track to return to mid-teens margins in this business.

Performance of Payment & Merchandising Technologies in 2018 was outstanding with substantial outperformance relative to our expectations at Crane Currency. While a portion of that outperformance was attributable to a large customer order, which may not repeat, the team's ability to ramp up in support of that customer, while moving banknote production from Sweden to Malta was very impressive. The integration of Crane Currency is progressing smoothly and the business has met or exceeded all of our expectations.

Looking to 2019, I'm very excited about the prospects for this segment. The Crane Currency base business is growing with continued execution on productivity initiatives. And the underlying trends for the payment business are extremely strong. Specifically, we are seeing continued broad-based strength for our productivity solutions, particularly in the retail sector. Our solutions have a proven value proposition, and as retailers face continued challenges from e-commerce to rising wage rates to store saturation, they are increasingly focused on productivity. We've also innovated in this space, introducing new solutions for smaller retailers, including our Paypod solutions, which is gaining traction throughout Europe. We're also seeing strong growth for our connectivity platforms in vending and gaming as well as our cashless offerings.

This segment has a dynamic set of businesses that will continue to deliver strong growth and attractive margins over the long term.

Aerospace & Electronics substantially exceeded our expectations in 2018. Core growth of 7.5% accompanied 22.3% margins, both well above our original guidance. We successfully executed in our second large ground-based radar program in our microwave business. And we continue to benefit from solid defense end markets and the ramp-up of the new narrowbody aircraft models, following years of investment in a large number of new aircraft platforms, including the 737 Max, A320neo, C-919 and the E2. These major development programs are completed or nearing completion, positioning us well for growth as volumes continue to improve.

We are pivoting to focus proactively on a number of next-generation technologies, ensuring that we will remain a critical partner for our customers well into the next aircraft development cycle sometime in the next decade.

At Engineered Materials, we had a challenging year as the recreational vehicle market suffered through a channel inventory correction. Execution was solid on the lower volumes, we believe that the correction is largely complete.

In summary, we have a great portfolio of businesses, and I'm excited about our prospects for continued growth looking forward. Our core businesses is executing and leveraging well in improving markets. The Crane Currency acquisition had a great first year, and we're on track for accretion of $1 per share by 2021. We're making great progress on growth investments across our business, repositioning actions will improve our cost position and ensure that we have the right footprint to support future growth, and reflecting our confidence in this outlook, we announced yesterday, that we are raising our dividend by 11%.

Let me now turn the call over to Rich Maue, who will take you through the businesses and provide some additional financial information and guidance details.

Thank you, Max. Before I begin discussing our financial results and guidance, please note that our 2019 expected results will present operating profit and segment margins, consistent with the amended FASB guidance that requires the moment of all nonservice cost components of pension income and expense below the operating profit line on the income statement. This change has absolutely no impact on EPS and no impact on free cash flow. It is simply a movement of certain pension elements out of the operating income line into nonoperating income and expense.

We have provided a reconciliation in our slides on Page 13 with additional quarter details in the appendix showing the historical impact by segment and to provide everyone with a base for comparing to our 2019 guidance.

On a consolidated basis, this change reduces operating margins about 50 to 60 basis points with the substantial majority at Fluid Handling. For Fluid Handling, the margin impact in 2018, if restated is 140 basis points. Again, there was no impact on EPS or free cash flow.

Now turning to segment results. Unless I mention otherwise, my comments about our business unit performance this morning will be comparing our fourth quarter of 2018 and full year 2018 results to the comparable periods in 2017, while excluding special items as outlined in our press release, slide presentation, and the accompanying non-GAAP tables. I will also provide some additional details on our 2019 outlook.

Starting with Fluid Handling. Fourth quarter sales of $280 million increased 3%, reflecting core sales growth of 6%, partially offset by a 2.5% impact from unfavorable foreign exchange and a 1% divestiture impact.

Operating profit in Fluid Handling increased 21% to $38 million, with operating margins of 13.6%, up 210 basis points compared to last year. On a full year basis, Fluid Handling delivered 4% core sales growth with margins up 110 basis points to 13.1%, both slightly ahead of our original full year guidance, an excellent performance by our teams across the board.

Fluid Handling backlog was $280 million at the end of December compared to $262 million at the end of 2017. After adjusting for foreign exchange, the backlog increased 10% compared to the prior year. Excluding foreign exchange, orders increased 5% in full year 2018 compared to 2017.

Looking to 2019, we expect total sales growth of approximately 1% with 4% core growth, partially offset by a 3% impact from unfavorable foreign exchange. Adjusting for the pension accounting change, we expect segment margins to improve 130 basis points to 13%, driven by good operating leverage, productivity and repositioning benefits.

There's a lot of exciting new product development activity in Fluid Handling, and we look forward to sharing more of that with you next month at our Investor Day event.

Moving now to Payment & Merchandising Technologies. Fourth quarter sales of $313 million increased 61% compared to the prior year, driven primarily by the impact of Crane Currency and strong core sales growth of 7%, partially offset by unfavorable foreign exchange of 4%. Fourth quarter segment margins declined 110 basis points to 18.3%, primarily reflecting the expected impact of the Crane Currency acquisition.

On a full year basis, Payment & Merchandising core sales increased 2%, in line with our guidance, and operating margins of 17.6%, exceeded our original guidance by more than 100 basis points, driven primarily by better-than-expected performance at Crane Currency.

For 2019, we expect segment sales to decline 8%, including a 7% core reduction. However, when you look at 2019 guidance, remember that there were 2 unusually large customer projects in 2018, one at Payment and one at Currency. Absent those headwinds, segment core growth would be up 3% to 5%, reflecting continued strength of the underlying business and consistent with our view that this segment should grow in the mid-single digit range over the long term. At present, we are not including any contribution from the large 2018 Crane Currency customer in our 2019 guidance. However, it is possible that we will see some upside from future shipments.

Even with the revenue decline, we expect 2019 segment margins to increase 160 basis points to approximately 19%, strictly within our long-term target range, driven by higher volumes in the Payment & Merchandising portions of the segment along with productivity and cost reductions at Crane Currency. As Max mentioned, the Crane Currency integration is progressing smoothly, and we remain on track for $1 of EPS accretion by 2021.

The team did an outstanding job last year. And we are really excited about this business' potential moving forward.

Fourth quarter Aerospace & Electronics sales increased 6% to $197 million. Segment operating margins declined 190 basis points to 22.8%, consistent with the expected product mix in the quarter. Specifically, fourth quarter OE sales increased 9%, driven by strength across large commercial transportation and military shipments. Aftermarket sales declined 1% with solid commercial aftermarket and military spares, more than offset by softer military modernization, upgrade and repair sales. The OE to aftermarket mix was 72% to 28% compared to 70% to 30% last year.

On a full year basis, sales increased 7.5% with margins up 60 basis points to 22.3%, both well above our original guidance and a testament to the hard work and execution from this team. Aerospace & Electronics backlog was $447 million at the end of 2018 compared to $374 million at the end of 2017. For 2019, we expect 4% core sales growth at Aerospace & Electronics with segment margins up 130 basis points to 23.5%.

Engineered Materials. Fourth quarter sales declined 19% to $51 million. Operating margins declined to 10.8%, primarily reflecting the lower volumes. On a full year basis, sales declined 12% with operating margins of 15.6%, down from 18% in the prior year. The sales decline was primarily related to a RV channel inventory correction, which we believe to be largely complete. While the markets were challenging last year, the team executed well and the deleverage rate on a sharp unexpected sales decline was impressive.

For 2019, we expect flat sales with margins down 50 basis points to 15%.

Turning now to more detail on our overall guidance. As Max mentioned, our revised 2019 guidance, excluding special items, is for EPS of $6.25 to $6.45. Our guidance assumes total 2019 sales of approximately $3.3 billion with core sales down slightly. Excluding the impact of 2 large Payment & Merchandising customer projects from last year, core sales guidance would be in the low- to mid-single-digit range, more reflective of the underlying business performance.

Overall, we also expect a 2% impact on sales from unfavorable foreign exchange and operating margins are forecasted to improve 130 basis points to 15.8%. Guidance assumes an effective tax rate of 20.5%, corporate expense of $65 million, net nonoperating expenses of $30 million and a diluted share count of 61.1 million.

All of these details are provided in the slide presentation that accompanies this call.

Our free cash flow in 2018 was extremely strong and above our expectations at $305 million. 2018 free cash flow included a $28 million discretionary pension contribution along with elevated capital spending to support the new Malta facility and previously discussed repositioning actions. Adjusting for those 2 items, free cash conversion was approximately 100% in 2018, reflecting solid execution and further improvement in working capital performance.

The combination of strong free cash flow and our repatriation of offshore cash puts us in an extremely strong financial position. Just a year after the second largest acquisition in our company's history, our credit metrics are already back to preacquisition levels at about 2.5x adjusted gross debt to EBITDA. We have substantial capacity for additional acquisition activity, and we are acting -- actively working on a robust pipeline of potential target opportunities.

We also repurchased $50 million of our shares during 2018, and announced last night, an 11% increase to our dividend, further reflecting confidence in our outlook and the strength of our investment grade balance sheet.

Following what was another record performance in 2018, for 2019, we expect free cash flow in a range of $335 million to $365 million, up 15% at the midpoint from 2018, reflecting the impact of higher earnings and lower capital spending of approximately $90 million.

We do expect capital expenditures to decline further from last -- from these levels next year and settling at around 2% of sales or in the range of $75 million.

Overall, we are very pleased with our 2018 performance. And we are planning for an even better year in 2019.

Operator, we are ready to take questions.

(Operator Instructions) Our first question comes from the line of Matt Summerville with D.A. Davidson.

This is Drew Haroldson on for Matt. Just a couple of quick questions here. First, given that somewhere around 10% of total revenues are generated in the U.K., and Europe makes up for 25% of the Fluid Handling business, is the current noise from Brexit anything that you're concerned about or is it inconsequential? What are the assumptions for Europe embedded in your guidance?

So from a Brexit perspective, no, we -- we feel confident where our overall guidance is. We don't have any very specific assumptions built into our guidance. We feel, through our operating plan reviews and what we set for next year, a good level of confidence with respect to the changes that might be taking place. But at this point, no, nothing significant that concerns us at this time.

Got it. And then just a quick follow-up. Could you provide a quick update to the tariff impact in 2019?

Yes. No change from what we disclosed in October. We had talked about, roughly, I think, $12 million to $13 million overall exposure for the total business. The substantial majority of that residing in our Fluid Handling business. And with respect to offsetting actions, we have price that substantially covers that exposure.

Our next question comes from the line of Nathan Jones of Stifel.

Just like the sell-off in Fluid Handling, sequentially, the FX-neutral orders down 7%, in the third quarter they were down 2%, I would have thought, if anything, the project environment should be improving or at least be stable at this point. Is that typically seasonality in the order book there? Or just any color you can give on why you think those order rates have declined a little bit over the last couple of quarters?

Yes. I think you hit it, Nathan. We typically do see a bit of seasonality in the fourth quarter. I think the numbers are correct. You -- I mentioned we're just below 2% in Q3 and right around the mid-single digit range in Q4 here on a sequential basis, excluding foreign exchange. So I think that was correct. We typically see a little bit of seasonality across both our process as well as our commercial side of the business.

Is there any additional color you can give on the process side versus the rest of the business in terms of where order rates were better or worse over the last couple of quarters?

Yes, I think just compared to the second half -- or the first and second half of the year I think -- I would say there is a general consistency in terms of where we're seeing strength and a little bit of softness. Chemical continues to be strong for us. Obviously, that continued through the second half, particularly in the Americas and in China for that matter. General industrial, same thing, strong, in particular, in the U.S. First half, second half really no momentum shift there, just continuing to show some positive signs. Power, I would say the same, in particular, in the U.S. with very -- particularly, weak overall. And same in China. And again, no change necessarily in that regard.

So it sounds like no real underlying changes in the market structure or the trends that you're seeing there?

I think that's right, Nathan. Overall, that's the message.

Okay. And then on Payment & Merchandising and Currency in particular, and I guess having been over to Malta, one of the takeaways I had there was that I think there's probably a fair amount of productivity improvements that you can make in that business and in that facility. And I would imagine that those things are some things that you discovered post acquiring that business. And I'm wondering if I can push you a little bit on the $1 of accretion by 2021 and ask you those kinds of things that you've learned in the 12 months that you have owned the business give you any comfort that there might be some upside to that $1 of accretion?

Yes, I would say, look -- I think you know us fairly well in the way we drive the -- drive for results and look for opportunities. And look, I don't want to say -- I'd rather not change the number at this point. We feel I would say, highly confident about the $1. I would not say that we're going to -- we're not going to update that number at this point. But we do have confidence in our ability to execute and look for additional opportunities as you pointed out.

I do appreciate the comment, Nathan so I can mention that to my team. And also -- we also see the opportunity. We're chasing it. We've got a robust roadmap. I'm really proud of the team and what we're delivering to date. But as Rich mentions, we're -- not enough to kind of adjust our accretion target at this point. But...

Our next question comes from the line of Damian Karas with UBS.

So I wanted to ask you about Crane Currency. You had suggested previously that the large customer project could potentially repeat or extend through 2019. So I'm just -- at this point that's changed, it appears. But I'm just wondering if there is any chance that, that could ultimately come back or it that effectively a thing of the past? And I guess, just kind of thinking about some of the lumpy projects that you do encounter in the business, is there anything in the funnel that could potentially show up at some point this year?

Damian, I would -- I think it is consistent with what we just highlighted in the script. But for guidance purposes, we have stripped out any impact for further orders from large customer, just due to higher levels of uncertainty. Having said that, this is an important customer that we continue negotiations with into demand expectations in '19. We don't have anything firm that we can share at this point. We hope to maybe update further on the Investor Day and then as the year progresses. It's still uncertain and risky. I think we've guided appropriately, knowing that there might be some upside as well. In terms of other projects that might supplement and offset some of the lumpiness in how we're thinking about it, I'm very, very pleased with the funnel that the team has and what we're chasing. I would say that the bulk of those -- this is a very long cycle sales process, some of the other large projects that we're looking at and tracking that we feel bullish about, most likely will hit and impact 2020, not in 2019.

If I could just jump in here too. As we -- as you look at the guidance for 2019 for payment, what I would also offer up or mention is that the demand profile and sales profile from a core perspective, excluding the lost onetime project, is a solid mid-single-digit number. And it's actually a little bit stronger than mid-single -- upper-single-digit number in 2019.

Okay. That's helpful. And touching back on Fluid Handling margins. You're guiding up 130 basis points on the restated number. So could you just walk through the moving pieces on your expectation this year? You've talked in the past about kind of 30 to 35 points of core incrementals. You've got some uplift from the repositioning benefits this year. But I'm curious about that. And price-neutral still on -- excuse me, price cost neutral, but you have seen some of the raws, iron, steel, alu, copper and some of the things you've been concerned about in this segment actually see some deflation. Any change in -- any potential that's a tailwind in 2019?

Yes. No, good question. I think if you look at what our implied leverage rate is for 2019 guidance when we have 4% top line guide and a 13% OP margin on a restated basis, where we're looking at leverage rates that are plus 90%. So we're driving quite a bit of productivity. The repositioning is contributing significantly. And then we're leveraging the sales growth at 4%, at those incrementals that you cited. So those -- I would say it's the volume leverage, the repositioning benefits, primarily, and our pricing actions to offset the headwinds, while they are dilutive to margins, right? Because we're essentially just offsetting. We are covering and feel confident about those other actions to help us drive that leverage rate that's in the plan. In terms of deflation, we don't have any expectation of any significant material deflation in the plan.

Our next question comes from the line of Kristine Liwag with Bank of America.

Max, broadly speaking, where are you interested in growing through acquisitions? Do you expect to make bolt-on acquisitions in existing businesses? Or are you looking to make other transformational acquisitions, like you did with Crane Currency?

So I think we'll continue to focus priorities, Kristine, with the bolt-ons within Fluid Handling, A&E, Payment & Merchandising Technologies. We've also -- we are looking at near adjacencies, not far. And Crane Currency was an example of that. So we'll continue along those lines prioritizing in the 3 major segments, bolt-ons and near adjacencies as we move forward.

That's helpful. And in Fluid Handling, backlog was down 5% and orders were down 7% sequentially in the quarter. What are you seeing that makes you confident that you can hit your core growth outlook of 4% in 2019? And how much of that 2019 expected revenue is already in the backlog?

Yes. So Kristine, just to make sure -- when we look at the year-over-year order profile on FX-neutral basis, you look at each of the quarters for this year, up 3%, up 8%, up 6% and then up just under 3% for the fourth quarter, year-over-year. We did see a bit of a sequential decline in the fourth quarter here as we talked about a little bit earlier, but mainly seasonal. And if you take that and then sort of match that up against where our backlog is on an FX-neutral basis in Fluid Handling, and you look year-over-year, we're up 10%. So we have a pretty solid backlog as we think about 2019 and hitting a 4% core growth target, coupled with what we're seeing as just continued momentum in the business. So combination of backlog and order profile to us supports that 4%. Frankly, we're hoping we're a little bit cautious on that 4%.

Okay. And the other question on how much of the 2019 revenue expectations already in the backlog?

Yes, for total Fluid Handling. So as you know, 50% of that business is more of a short-cycle business, the other 50% being process. Maybe I'd be guessing honestly, Kristine, to give you that kind of number, but maybe it's 30% or 40% of total. Something like that.

Our next question comes from the line of Ken Herbert with Canaccord Genuity.

I just wanted to follow-up on the backlog question, specifically in Aerospace & Electronics. I mean you've had 4 quarters now, especially the last 3 of really strong backlog growth in that business. Is that as much -- or maybe can you parse that out between some of the share gains you've taken as well as maybe some of the build rates we're seeing on the commercial side and improvement in military. But any more detail or granularity on the backlog growth within that segment would be helpful?

Yes. I mean we -- to your -- it's been a broad-based growth in backlog. It really hasn't been something that was -- that's specific to a particular part. It's been fairly widespread, right? As I think -- as we think about 2019 in relation to that backlog, it will be a little bit more balanced between OEM and aftermarket for sure. So the after -- the OEM contributing more on a relative basis. Now -- so it's the narrowbody building, without a doubt, commercial transport being probably the largest driver of that OEM. Beyond that, it's so widespread. It's so widespread, Ken, that's it's kind of hard to give you that sort of an overarching color. There's just such nice growth throughout. Even on the spare side, right, the aftermarket. Aftermarket is also fairly widespread, right. And we have some movements quarter-to-quarter. But between commercial spares, retrofit, military, military spare, it's just -- it's been solid.

And that's helpful. Is it fair to say that then the majority of it is market versus Crane-specific share gains?

Well, I mean -- so we won all these programs. I think you know how this works better than most for sure. But these narrowbody platforms that we're on now, the 320, the 737, E2, these are all things and then the engine wins that we've had.

No, I think the answer is no. It's not just market. It's clearly share gains. Ken, let us -- it's a great question. Let us put some added detail around this for Investor Day, and we'll be prepared to answer that one for you.

Okay. Perfect. That's helpful. And then just finally, Max. I mean just to follow-up on the M&A question, I mean you are relatively underlevered now, heading into 2019, and I can appreciate bolt-ons. But can you just sort of reset us again in terms of what your comfort level is from the leverage? Or how much capacity you think you've got from a broader capital allocation standpoint this year. But then, maybe more specifically to deploy the M&A, obviously if the opportunities arise?

Yes, so -- I'll take that, Ken. So just currently now at 2.5x, we're well in excess of $1 billion in terms of capacity for the right EBITDA that we'd be acquiring, right? So when you look at that and how we would expect to deleverage from there, I mean, today that's sort of where we sit. As we look out beyond 2019 or even as we build through 2019 and into that 2020, 2021 range, we're looking at $2 billion, $2.5 billion, something around there.

Our next question comes from the line of Robert Barry with Buckingham.

So just a few follow-ups on things. You mentioned offsetting the tariff impact in fluid with price. So you're actually getting price in fluid now?

Yes, we are. We have been. Clearly, through '18, it was a big driver for us, and we expect to continue to see that in '19.

Got it. And just to kind of level set everyone. The headwind from that large currency project, you said about $0.25 to earnings, that's about how much it was when it came into the P&L?

Yes, it's probably just a little bit north of that.

Got it. And on large projects side. Can you remind me, was there a big one in aero too, a microwave project that you're lapping this year?

Yes. There was -- not as big as the prior one that we had, but there was a headwind there as well that's baked into our 2019 guidance. It's also contributing a little bit to our margin profile improvement next year because it did -- it did mix this down a bit.

Got it. I mean, if I remember correctly, it was worth maybe about 3 points actually to the top line. Is that ballpark?

In over 2 years, starting in '17, second half of '17.

Got it. So the headwind year-over-year in '19 is just about 1.5 points?

I think that's about right.

Got it. And could you just give us some color on the cadence of the earnings for 2019, if there's like normal seasonality of earnings, and what you expect it to be this year versus that normal?

Yes. There’s nothing, I would say, terribly out of the ordinary in the cadence through the year. As -- it's some years, we guide a little bit to saying, hey, Q1 is going to be a little bit softer. And the cadence of earnings this year is a bit more balanced. But we will refresh everybody at Investor Day and make sure that we give you that added color. But I would say, largely, it's going to be right around what I said.

Got it. And I guess just finally. I think, Max, in your opening remarks...

By the way, what I mean by -- sorry, Rob, what I mean by balanced, by the way, is historically, right? It's not meant that every quarter is the same. What I mean by that is, is a progression from Q1 through Q4, and it's balance in that regard, just to make sure you didn't take me as equal each quarter. That's not the case.

Okay. I mean is there like a normal percentage allocation we should be thinking of?

Anymore and we'll be giving guidance, but let's take that for Investor Day. We'll try to give more color, Rob.

Okay. Just lastly, I think, Max, you mentioned in the opening comments that there was nothing imminent from an M&A perspective. Just curious what your appetite is on repos, just given you've got some cash, cash flow is good, and nothing sounds imminent on M&A. And what's the authorization...

Yes, we never -- I think we'll continue a balanced -- our approach towards returning cash to shareholders if -- I think it's real early to look at any major buyback. We'll have that capacity. If we can't put it to use, we'll certainly be looking at that. We never preannounce. So it certainly remains an option. But I remain optimistic that there -- we'll look for opportunities in 2019.

Our next question comes from the line of Brett Linzey with Vertical Research Partners.

Just wanted to come back to payments, and then I guess more specifically on CPI. I mean, it sounds like it's pretty broad-based in terms of the strength and the activity that you're seeing there. What's your growth assumption for the year for CPI? And have you tried to size, how large the Paypod opportunity could be and what that funnel might look like today?

Well, in terms of the funnel, we have every chance on the growth side. But in terms of the funnel, we got 80 units in the field already. We got a funnel of 900 units. And we'll give you some more color in terms of how we're sizing the market overall. But it's progressing well. We're pleased with the progress to date.

What I would add on the growth side, and specific to payments, even with the headwind that we have, we are going to see a low single-digit core growth here in 2019. So notwithstanding the headwind that we have.

Okay. And then any update on the retail self-checkout challenges, the state of conditions there and opportunities you might have in 2019?

It continues to strengthen. I mean it's been broad-based and continues to remain strong. So we're optimistic.

Okay. And then I didn't want to have -- ask an Engineered Materials question. But just given the destock you've seen and the channel adjustments in RV, what's your visibility there? I know you're guiding flat organic sales, I think is what you said for the year. What's your level of confidence? And really what are customers telling you?

Within Engineered Materials, I think we've taken a prudent top-down bottoms-up look at the marketplace and kind of triangulating with what we're seeing. There was a destocking at the wholesale level while retail sell-through still remains fairly strong. Well, it held kind of flat and projections are anywhere from flat to up slightly for '19. I would say that when we try to triangulate, we think that for us, and what we're seeing, we see this continue through Q1. And then a bit of a bounce back through the balance of the year. In looking at -- the early indications from consumer shows well attended, should bode well for the retail not to be down. I think we've looked at RVIA data at a range of 440,000 to 480,000 units. We've dialed into the low end of that, just to be a little prudent. So we think we've got it set properly. We think it bleeds through the balance of Q1, and we have the proper guidance that we don't expect to be any worse then.

Okay. But you think Q1, Q2 still finding a bottom, and then maybe some improved activity as inventory is clear there in the back half?

We're moving it more towards Q1. It starts to recover by Q2.

Our next question comes from the line of Walter Liptak with Seaport Global.

I want to stick with learning, want to stick with payments and understand the growth ex to a large customer, low single digit. But I wonder if we could just -- going into a little bit detail within there. And I think you mentioned that there is -- you're ramping a large customer, I think, you said that in the opening remarks, offset by maybe 2 large payment customers that are coming off and then a large customer coming out. Can you just provide a little bit more detail, be a little bit clearer about that?

Yes. Sure. no, so overall just the -- on the first comment on low single digit, that was specific to a comment or question that came up that was -- because we have 3 businesses within Payment & Merchandising Technologies. We have Crane merchandising, we have Crane Payment Innovations, which we refer often to payment and then Crane Currency. The question earlier was about Crane Payment Innovations and notwithstanding a pretty sizable retail top line headwind that we're going to see in '19 because we delivered it in '18 that we're going to still see in '19 a low-single-digit core growth rate. That was very specific to that business payment, Crane Payment Innovations. Just to rephrase overall in terms of the headwinds, it's 2 large programs that we had in '18 that were very nice customer projects for us. And with those not repeating next year, we therefore, have this headwind that's driving the 7% core overall decline in the business. If you would exclude those, if you would exclude those 2 projects, the underlying business overall for all of payment is growing in the 3% to 5% range. So I think that -- I'm hopeful that answers your question, Walt?

Okay. Yes. Got it. Okay.

In terms of anybody replacing, there isn't anyone large program that we're banking on. The way we're going to still drive that underlying 3% to 5% core growth is just broad-based demand that we're seeing across the business. There isn't any unique onetime customer wins that we are planning on in 2019.

Okay. Great. I thought I heard you say you're ramping a large customer. But maybe you didn't say that.

No, no.

Okay. Great. And then looking at price cost. I wonder if we could just going to back up a little bit and think about it from 2018 and 2019. Overall -- was there an overall headwind to profits because of price cost in 2018? And then what kind of recovery do you get in 2019?

I would say, no. There -- our teams responded in an excellent way through '18. It was -- there was a growth headwind. But net-net, we were able to offset all material/inflation headwinds in 2018. 2019, we expect to do the same. We are planning for tariffs to hit this a bit. But we feel very confident that we'll be able to offset that. And then our normal cadence of productivity and price around regular material inflation is more than offsetting that -- the headwinds.

Okay. That sounds great. Okay. And then one last one. You talked a little bit about Europe related Brexit impacts or no impact. I wonder what you're seeing in rest of Europe? We've been hearing about some slowing. Would you factor it into your guidance for Europe, actually U.K.

I think it's -- Walter, it's mixed in the sense of -- depending on what business we're talking about. Payment & Merchandising Technologies is actually quite strong in Europe. I think in the food business, it's slightly mixed and then when you get to the commercial side of some of the U.K.-based business, Middle East, it's a little soft. So mixed, but even on the Payment & Merchandising actually strong.

(Operator Instructions) Our next question is a follow-up question from Nathan Jones with Stifel.

Just a couple of follow-up questions. I know, we -- on the call, we here seem to get a little bit focused on these large projects in Payment & Merchandising. And you guys have talked about at least mid-single-digit ex that. Maybe you could talk a little bit more about where you're seeing traction? I know you've made a lot of growth investments in areas within Payment & Merchandising. What's driving that continued growth there in the core outside of these large projects that create some noise in it?

And I -- you're going to get a lot more color on this on February 28. But -- and I think it's an extension of what you heard for those that attended in Malvern about a significant number of new product launches and solutions. It's the intersection of sensors, connectivity, software-as-a-service, applications from -- give some brands here in terms of our product solutions, but from Compass to TELUS, Scripps and sync, Ally on the payment side, cashless opportunities, we highlighted just -- those of you who were at Malvern, EasiTrax connected solutions. We're having gains in gaming-converting casinos, already based purely on the value proposition of the connected solution that EasiTrax provides. We'll remind you of all this in February on the Investor Day. When I think about Crane Currency and the investment in technology, not only on the U.S. side and what the opportunities are that we're chasing, but on the technology side, with new features and solutions that our customers are valuing, moving into brand protection. And again as I mentioned, internationally, just a very long funnel that we're chasing. So it really is quite broad-based in terms of hardware, software, sensing, connectivity, cashless solutions. And we'll highlight all this again on February 28, Nathan.

Obviously, you guys have a very high market share in those businesses, and you're pumping a good amount of money in here to get these new products out, to get these connected solutions software-as-a-service products out into the market. Do you feel like this is something that your competitors are incapable of doing, given your greater size, your greater financial resources, your greater ability to invest in these kinds of things where you are likely to capture most, if not all, of these kinds of new markets that you're opening up?

I never want to say never. I never want to get overly cocky. But clearly, from a scale standpoint, we have a scale advantage at this point in these solutions. And even in addition to the high share, I would argue that we're -- we've got a team that's truly innovating and generating new market solutions, for example, pay tower and retail safe in Japan, for the Japanese marketplace, that is a new solution for that marketplace. And we're on the front-end of investing and creating -- helping to create that market in Japan in addition to Paypod and moving into some of the OEM space more broadly in Europe in retail solutions. So just to highlight that as well.

And then just one last one on the growth investments that you've got plan for 2019. Relative to 2018, are you at same level, a little bit higher, a little bit lower?

This is on the...

No. Roughly the same, is that what you're referring to? You're talking about this payment space?

No, I'm talking about -- in the portfolio overall and the level of growth investment -- are the level of growth investment up in 2019 over where they were in 2018 for the company in total. I'm just trying to figure out whether it's a headwind to margins, tailwind to margins or nothing?

I would say it's going to be modestly higher overall in terms of our investment profile. And when you think about where most of them are coming from, it's going to be in our aerospace business, it's going to be in Crane -- it's across the board. We're not holding back on any of our investment opportunities. And we're growing on our core basis throughout. So it's going to be higher.

And, Nathan, just to build on your question, and I sort of heard this a little bit throughout, people asking about the one-offs, the headwinds, the large projects, what do I model in for this. As I look at -- maybe this is another way of looking at this, and perhaps we'll share a little bit of this information on Investor Day as well. But in 2018, we delivered the $5.99, right? And of you pull out of that, the large contract from -- just the additional accretion beyond what we expected at the beginning of the year for Venezuela and you pulled out the tax -- we've pulled out the tax benefit that we did receive here in the fourth quarter, now you've come in to a number of something like $5.60 to $5.65, something like that in 2018. When you compare that to 2017, that's like 20%, 25% of earnings growth versus the 32% that's reported, right? So if we remove those one-offs, we really grew something like 20% to 24%, if you wanted to isolate those one-offs. Compare that $5.60, call it, $5.63, $5.65 to the $6.35 guidance. It would imply that we're growing another 13%, right? And how we're doing that. And so I'm trying to get to some of them -- I'm listening and I'm trying to get to some of the answers here, or hopefully providing some of them. So $5.63, call it to $6.35. I've got the repositioning benefits and other discrete items, whether that's more investments, less investments, whatever it is. Call it roughly $0.20. I'm getting another $0.20 from moving operations from Sweden to Malta plus additional productivity and margin opportunity, Nathan, to your earlier question in the currency business. That's probably roughly another $0.20, so I got $0.40 from those 2 items. Then I have headwinds of roughly $0.20 that could be in the form of pension, tax, a bunch of miscellaneous items. And then what's my core business doing. And when you look at the core business, I'm probably growing at about 9% earnings, underneath those one-offs and onetime items, so maybe contributing roughly $0.50. So that's just -- it's another way of I think pulling back and looking at what did we earn in 2018 and how do I think about 6% in 2019. So hopefully, that helps. And again, we'll pull some more information together on Investor Day and lay it out for you all.

That's a good walk. I appreciate it, Rich. Even though I think Nathan got a bonus, bonus answer.

Yes, you got a bonus answer.

Operator, anymore questions in queue?

No, we have no further questions at this time.

Outstanding. Thank you, operator. We hope to see you all at our February 28, Investor Day event in New York City, where we look forward to providing you informative discussion of business and an update on current market conditions. We've got a lot to share, and I'm extremely proud of our performance in 2018 as well as the consistently strong execution of Crane's team of 12,000 associates. There are many great heroes across our businesses, driving customer satisfaction, innovation, growth and execution. As the late great Stan Lee once said, "Every day, there is a new development, there is no limit to the things that are happening." That's certainly how it feels around here. And that's what makes it so exciting. Thank you all. Have a great day.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.