CR - NYSE

Welcome to the Crane Company Second Quarter 2025 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Allison Poliniak, Vice President of Investor Relations. Please go ahead.

Thank you, operator, and good morning, everyone. Welcome to our second quarter 2025 earnings release conference call. I'm Allison Poliniak, Vice President of Investor Relations. On our call this morning, we have Max Mitchell, our Chairman, President and Chief Executive Officer; Alex Alcala, Executive Vice President and Chief Operating Officer; and Rich Maue, our Executive Vice President and Chief Financial Officer; along with Jason Feldman, Senior Vice President, Treasury, Tax and Investor Relations, who's on for Q&A. We will start off our call with a few prepared remarks from Max, Alex and Rich, after which we will respond to questions. And just a reminder, the comments we will include some forward-looking statements. We refer you to the cautionary language at the bottom of our earnings release and also in our annual report, 10-K and subsequent filings pertaining to forward-looking statements. Also during the call, we will be using some non-GAAP numbers, which are reconciled to the comparable GAAP numbers, in tables at the end of our press release and accompanying slide presentation, both of which are available on our website at www.craneco.com in the Investor Relations section. Now let me turn the call over to Max.

Thank you, Allison, and thanks, everyone, for joining the call today. I want to start by thanking my teams across the world for delivering yet another excellent quarter, outperforming expectations despite an uncertain macro backdrop and dynamic environment. Adjusted EPS was $1.49 driven by an impressive 6.5% core sales growth reflecting strength across both Aerospace & Electronics and Process Flow Technologies. Core orders were also solid, up nearly 20% in the quarter, driven primarily by the ongoing strength in our Aerospace & Electronics business. This entire leadership team has demonstrated consistently differentiated execution across cycles. And once again, this was reflected in our second quarter results. The cadence and discipline of the Crane Business System, our machine, if you will, along with our performance-based culture, enables us to make data-driven decisions quickly with flexibility to adapt as conditions change and with accountability. And the benefits of that approach are most noticeable in environments like we're operating in today. And given our consistent and unwavering investment in technology, customer requirements and commercial excellence initiatives, both of our strategic platforms remain well positioned to continue to deliver great results. Inorganically, we also announced in June the agreement to acquire the Precision Sensors & Instrumentation businesses, or PSI, from Baker Hughes, executing on our strategy to add proprietary and differentiated technologies to our portfolio and to broaden our unique capabilities through acquisitions. Alex will provide more color on the acquisition in a moment, but I am incredibly excited about the people, the technology and the capabilities that these three iconic brands that make up PSI bring to Crane and also about the capabilities that we will bring to PSI to enhance its long-term performance. Our balance sheet remains very strong, and we have both the financial and operational capacity for significant additional M&A. We continue to work on a robust pipeline of potential opportunities, and we are optimistic about our ability to deploy further capital on acquisitions over the next several quarters. Just a lot of very exciting activities and developments at Crane overall. As we look to the balance of the year, while the macro backdrop remains unpredictable, our backlog, consistently strong execution, and our performance year-to-date gives us the confidence to raise our full year adjusted earnings outlook to a range of $5.50 to $5.80, up from our prior view of $5.30 to $5.60. Now let me pass it over to our Chief Operating Officer, Mr. Alex Alcala, to provide some color on our pending acquisition of PSI, along with comments on the current environment.

Thanks, Max. Well, we're very excited about the technologies and capabilities that Druck, Panametrics and Reuter-Stokes bring to Crane. All three brands are global leaders in highly sophisticated sensor-based technologies for mission-critical applications in harsh and hazardous environments, extremely Crane-like businesses that are a perfect fit with our existing portfolio. Each brand contributes to a robust technology foundation along with a durable and resilient aftermarket presence, further strengthening the Crane portfolio. Combined with the strength of the Crane Business System, these businesses will be accretive to our financial profile within the next few years. The Druck brand, approximately $150 million in revenue, will be positioned within our Aerospace & Electronics segment. The addition of Druck's complementary product line meaningfully strengthens our pressure-sensing capabilities across critical applications, including environmental control systems, hydraulics and aircraft engine monitoring with strong positions in both single-aisle and widebody aircraft platforms. Additionally, Druck expands our presence into the ground-based test and calibration equipment for aerospace, further extending our technological capabilities and market reach. As we are planning for the Druck integration and to create the optimal structure for continued growth both organically and inorganically within the Aerospace & Electronics segment, I'm also excited to announce that Jay Higgs, who many of you know as the President of A&E, has been promoted to Senior Vice President of the Crane Aerospace & Electronics segment reporting to me. Jay, who has been with Crane for 35 years has been a driving force behind the success of our A&E business. I look forward to partnering with Jay in driving further record growth and operating performance at A&E. The new A&E segment structure now mirrors the organizational model used at PFT under Shangaza Dasent, which is also the role I held prior to our 2023 separation. This structure will give Jay greater capacity to focus on strategic initiatives and M&A for A&E going forward. And it will give us greater flexibility to integrate complementary acquisitions into our current operations in A&E as well as to continue pursuing acquisitions, including near adjacencies that can be managed as independent business entities like Druck. Reporting to Jay will be the future President of Druck, along with a Head of M&A and Strategy for the segment, and the new President of our current Aerospace business. Replacing Jay, Mr. Joseph Mundinger. Joseph was previously the Vice President and General Manager of our largest A&E solution and has been with Crane for 13 years, a reflection of the bench of talent within Crane. The Panametrics business, which is about $150 million of revenue, adds advanced ultrasonic flow meters and precision moisture analyzers. Similar to Druck, Panametrics will be a stand-alone entity although within our Process Flow Technologies segment reporting to Shangaza Dasent. Panametrics' sensing solutions support critical process industries by enabling accurate measurement of liquids and gases across applications such as chemical production, LNG transportation, cryogenic gas storage and wastewater treatment facilities. It is complementary adjacency to our current portfolio that expands our capabilities into test and measurement. And finally, the addition of Reuter-Stokes, approximately $90 million of revenue, will double the size and capabilities of our existing Crane Nuclear business. With its industry-leading radiation sensing and detecting technologies, Reuter-Stokes enhances our offerings for nuclear plant operations and homeland security. It also positions us strongly to capitalize on the renewed global investment in nuclear energy. The Reuter-Stokes brand will be integrated into our existing Nuclear business under the leadership of our President, Chris Mitchell, who has been serving as the President of our Nuclear business for the past 6 years. We anticipate the acquisition to close January 1, and the integration planning is well underway and progressing smoothly, working with the existing Baker Hughes and Crane teams. In terms of further M&A, our funnel of inorganic opportunities remains full and we continue to look to accelerate EPS growth through additional capital deployment. The deals we are working on today include a number of opportunities in both Aerospace & Electronics as well as Process Flow Technologies and they range and deal size from sub-$100 million to $1 billion. Now some thoughts on the segments in the quarter, starting with Aerospace & Electronics. Aerospace and defense markets continue to see a very strong demand environment. On the commercial side of the business, activity remains healthy with Boeing continuing to ramp up production and aftermarket activity continuing at elevated levels. On the defense side, we continue to see solid procurement spending and a continued focus on reinforcing the broader defense industrial base given heightened global uncertainty today. Looking ahead to the balance of 2025, we now anticipate core sales growth for the year to be up high single digits to low double digits compared to our prior view for core growth to be up mid- to high single digits. We expect that growth to leverage at 35% to 40% for the full year. Our guidance assumes continued strong sales with the ramp-up at Boeing partially offset by decelerating year-over-year growth rates in commercial aftermarket that we have previously highlighted as the comparisons become more challenging and will naturally moderate over time. We also continue to pursue new opportunities and win new business across this segment that gives us confidence that we will continue to see above-market growth for the remainder of this decade. A few examples. First, we agreed to terms on a development contract for the XM30 demonstrator power converter in our defense power business. Second, activity around air defense systems remains very robust with Crane having secured multiple orders in the quarter. Third, Crane was also selected to supply the door signal system on the COMAC C929 widebody aircraft. Crane A&E sensing system solution will include nearly 100 proximity centers along with proximity sensor data concentrators and door indicators for ship set. In addition, our preparation for the F-16 brake control upgrade ramp-up remains on track. And last, we are also pleased to see a significant increase in funding for the LTAM in the recent full year '26 defense budget. This is a large ground-based AESA radar program that we've spoken about many times and where we have significant content. This further increases our confidence in the long- term growth for our defense power business in 2027 and beyond. With a record backlog and pipeline of opportunities, aerospace & Electronics is poised to well outperform its markets over the next decade. At Process Flow Technologies, while end markets have not inflected in any meaningful way since our April earnings call, we remain well positioned to outgrow across the cycles. As a reminder, we have systematically repositioned our portfolio around our core end markets where we have the strongest competitive position and the most differentiation, enabling sustainable market outgrowth. And we continue to win in this segment despite the volatile market backdrop. For example, our cryogenics business reached a record high backlog on orders driven by strong demand in space launch and other segments. We secured key orders in space launch platforms for multiple customers for over $8 million in the quarter. We continue to see our cryogenics front and engineering support and manufacturing capability as a differentiator in the market, and Crane maintains its leadership position as a supplier of vacuum insulated pipes for space launch platforms. Also in the chemical space, our teams continue to secure key projects in demanding applications such as chlorine and PVC due to our reliable XOMOX line valves and our portfolio of line pipes from Resistoflex and Baum. Despite the overall reduction in CapEx announced by many of our chemical customers, this quarter, we booked a $4 million project for an upgrade to a PVC plant as well as a $3 million project for the expansion of a plant in Texas. And with our new high-temperature resistant diaphragm valves, our EX technology in pharma, we continue to take share, securing a nearly $1 million win with a key pharmaceutical company. Tactically, we have proven our ability to react to any changes in demand quickly and we will remain nimble, taking any necessary and appropriate price and cost measures required. However, our strategy is unchanged and we will manage through any potential demand fluctuations without losing focus on our longer-term goals and objectives. Looking ahead to the second half of 2025 and given our line of sight today, we anticipate core growth to fall at the lower end of our low to middle single-digit core growth range with volume leveraging at 30% to 35%. So both our businesses remain well positioned to continue to deliver great results. Now let me turn the call over to our CFO, Mr. Rich Maue, for more specifics on the quarter.

Thank you, Alex, and good morning, everyone. Starting off with total company results. We drove 6.5% core sales growth in the quarter driven primarily by the ongoing strength within Aerospace & Electronics. Adjusted operating profit increased 15% driven by strong net price and productivity. In the quarter, core FX-neutral backlog was up 18% compared to last year driven by continued outsized strength at Aerospace & Electronics, and core FX-neutral orders were up 19% compared to last year as well, also driven by Aerospace & Electronics but also modest growth in Process Flow Technologies. We are in a net cash position today. And after the PSI transaction, our leverage will be roughly 1x net debt to EBITDA, still below our 2x to 3x targeted range, leaving us well positioned for further M&A. With respect to tariffs, as a reminder, only about 7% to 8% of our cost of goods sold consist of materials and components that are directly imported into the United States. Another 3% to 4% of cost of goods sold are in our company sales into the United States, a portion of which is exempt from tariffs. Based on current tariff rates, we anticipate the gross cost increase to be roughly $30 million for the year, down from the $60 million we noted last quarter due to the reduction in the China-related tariffs relative to when we last spoke. But this is subject to change, of course, as we move forward. And as we said last quarter, we expect to offset the tariff impacts through price and productivity. A few more details on the segments in the quarter, starting with Aerospace & Electronics. Sales of $258 million increased 12% in the quarter, nearly all of that organic growth. And even with the continued high level of core sales growth, notably, our record backlog of just over $1 billion increased even further, up 29% year-over-year and up 9% sequentially. Total aftermarket sales increased 18% with commercial aftermarket sales up 9% and military aftermarket up 37%. And OEM sales increased 9% in the quarter with both commercial and military up 9%. Adjusted segment margin of 26.3% are record high for the segment, increased 250 basis points from 23.8% last year, primarily reflecting higher volumes price net of inflation, favorable mix and productivity. We continue to expect operating margins to be lower in the second half due to a less favorable mix between commercial OEM and the aftermarket. At Process Flow Technologies, in Q2, we delivered sales of $319 million, up 7%, driven by solid core sales growth of 3% in the quarter, along with a 3% benefit from the CryoWorks and Technifab acquisitions and 1 point of favorable foreign exchange. Compared to the prior year, core FX-neutral backlog decreased 4%. However, core FX-neutral orders were up 4%. On a sequential basis, core FX-neutral orders were down 1% compared to the first quarter. Adjusted operating margin of 20.7% expanded 20 basis points. Importantly, core operating leverage was 35% at the high end of our 30% to 35% targeted range driven by strong net price and productivity, inclusive of net tariff headwinds in the quarter. Below the segments, adjusted corporate expense was about $25 million in the quarter, which is spot on what I guided last quarter. Similar to Q1 and as anticipated, it was higher than our normal quarterly average because of accounting rules that require accelerated amortization of stock compensation expense for associates that are retirement eligible. So as I noted last quarter, this year stock compensation expense was much higher in the first half and will be lower in the second half. We still expect just above $80 million of corporate costs for the full year. I also wanted to address some questions we received about the $14 million swing in net nonoperating income compared to our previous guidance. The largest component of that difference was just a change in geography on how we treated the insurance recovery related to Hurricane Helene in September of last year. As we discussed in January, our guidance included about $9 million of business interruption insurance recovery, $4 million of which was recognized in the second quarter. Our original guidance assumed that recovery has a separate component of operating income. In our revised guidance issued today, we have moved that $9 million recovery to nonoperating income, which we believe is a better presentation and more clearly illustrates the strength of our core operating performance in the quarter. This change does not impact segment income or EPS in any way compared to our original guidance. The remaining $5 million difference reflects greater than expected payoff of our 2023 term loan, and better investment income on our cash. For the full year, as Max noted, we are raising our outlook to a range of $5.50 to $5.80, and from an earnings cadence perspective the second half will be weighted more towards Q3, consistent with typical seasonality. Outstanding quarter, teams continue to be energized and motivated, and if not for some of the events outside our control and keeping us penned in, we would really be flying high. Reminds me what Mark Wahlberg said, as detective Terry Hoitz in the thrilling crime drama, The Other Guys, when he screamed. "you can't keep me cooped up in here. I'm a peacock. You've got to let me fly." And with that, operator, we are now ready to take our first question.

[Operator Instructions] Our first question is coming from Scott Deutschle with Deutsche Bank. Scott Deuschle Deutsche Bank AG, Research Division Rich, I'm still recovering from that one. It was pretty good. So Max, you grew the backlog at A&E by 29% year-over-year and 10% sequentially. Obviously, it's just a strong environment broadly that maybe you can go around the horn and talk about the areas of the A&E business, maybe even the specific programs that are driving this recent booking strength.

Yes, Scott, I'll take that. It's Rich. Look, I would start off by saying that it is fairly broad-based across both commercial and military as well as broad-based across customers, right? So not one unique customer set. If I was to point out just a couple of areas where we were -- where we saw some outsized strength, I would say air defense in particular was fairly strong with some orders that were not -- they were not actually for 2025. They were for '26 and '27 primarily. And I think you're familiar with some of those programs that are in the air defense that we have. I would say another area was a long-standing program that we have legacy program in the C4ISR space; communication platform where we have some power solutions, also a pretty sizable order in the quarter and then also was for '26 and '27 as we think about the backlog. And then if I was to pick another out on the comm OE side, Alex highlighted in his prepared remarks, successes we had on the C929 program, but we also had some really nice order flow coming in for the C919 if I was to pick something out. And again, for 2026, demand satisfaction and forward. So just really, I think to come back to it, it was broad-based, both military and commercial. But hopefully, those are some examples that are helpful. Scott Deuschle Deutsche Bank AG, Research Division Yes, that's helpful, Rich. And then to get to your EBIT guide, I do have to have the A&E margins drop a lot in the second half, I think, down to like a 30% incremental margin, which is below your own kind of longer-term framework. I guess what's going to drive that, particularly since I think you do make money on OE and you should have volume leverage on the higher sales overall in the second half?

Yes. I would say very consistent with what I had mentioned in my prepared remarks last quarter that the mix shift between comm OE and aftermarket will clearly go in the direction where comm OE is increasing pretty significantly. We had a very nice print on the comm OE side here in the quarter, but that's going to go up, call it, 10%-ish when you look at Q3 and then sustaining at that level. And then with commercial aftermarket, similarly, that comp is going to be very difficult. If you look back to our Q4, it was the highest level of commercial aftermarket that we've ever shipped. And so we faced that. Still good levels, I would say. We're not saying that it's going to decline. But on a year-over-year basis, it will be a challenging comp. In the quarter here in Q2 as well as in Q1, we enjoyed some benefits from engineering programs that really fall through nicely. We don't see that opportunity in the second half. So those are some of the elements, I would say. So yes, at 30%, perhaps a little bit on the lower side and perhaps exhibiting a little bit of caution on our side.

But I have to reiterate on a full year basis, it's still 35% to 40% and we feel comfortable with that construct going forward. In any given quarter, there can always be a couple of items here or there, but that's the right way to look at the business in the medium and long term. Scott Deuschle Deutsche Bank AG, Research Division Right. Okay. And then last question, sorry to be a pig, but is the GTF program a material part of your commercial aftermarket mix yet? And then can you give us, Rich, any sense for how quickly GTF aftermarket revenues have been growing in the last couple of quarters?

Alex, do you want to take that one?

Yes. Scott, it's Alex. So I think the second part of your question first, we're seeing pretty strong growth rates in the aftermarket and repair and overhaul. For that program for the GTF, I think this year, around 15% or so, and those rates accelerate. So next year we're expecting somewhere around 30% growth as we see how the projections and the flat hours come together. That said, it's still today a relatively small part of our aftermarket sales, to address the first part of your question, less than 5% today of commercial aftermarket sales. We're growing. So an important platform for us.

And our next question comes from Matt Summerville with D.A. Davidson.

Can you talk a little bit about the cadence you saw throughout the quarter in PFT orders and what you're seeing in July? And I'd always appreciate if you can do a little bit of a deeper dive on the business in terms of end market and geographic trends. And then I have a follow-up.

Yes, Matt, this is Alex. So for PFT, the quarter played out pretty much as expected. We mentioned orders were up 4.7% year-over- year, sequentially up a little bit. So I think starting at the high level, overall, the market continues to be stable, somewhat sluggish. I think there are some areas of strength and other areas that are soft. I think I'll start with the softer side. As expected and as we anticipated coming out of Q1, not really surprised on the chemical market where we're seeing some softness, and we included that in our guidance. Projects pushing to the right. I think Europe, in particular, has been the softest with other regions holding in there better. Customers have, as you know, lowered CapEx expenditures this year, but it's been relatively stable for us. And we continue to win some important projects, as you heard in my remarks. So I think chemical is soft but stable. Bright spots in the market for PFT, cryogenics is growing at double digits. I mentioned space launch, biopharma. These acquisitions that we've done over the last couple of years are really growing very strongly. Water, wastewater segment, also seeing that strength. So that's how we ended up with that result on orders. I think when we look at the second half, we expect something similar, stable, and we're still going to see some growth in PFT on the low single-digit side on core growth sales for the year.

Got it. And then as a follow-up, if I think about 2025 in the $550 million to $580 million, if I wanted to try and derive a cash EPS number, Rich, what would be your acquired intangibles amortization for this year? And are you thinking any differently about guiding towards cash EPS going forward?

Yes. We're -- I mean we're not going to make a final decision until we provide guidance, but that's something that we're seriously considering as we've said previously.

It was a two-part question. Did you...

I didn't catch it, sorry. For '25, if we were to look at our '25 guide, it's not a material -- yes, it's about $7 million.

Yes. Let us grab that for you.

We have the math, but it's not -- as you'd expect, we're modeling that stuff as we're thinking through the details. So we do have it. We'll make sure we share that.

And then just I'll add in one final one quickly. Can you just give a little bit of insight into the more immediate-term actionability in your M&A funnel, which business segment that may be tilted more heavily towards?

Yes. It's still balanced, Matt, across both. I would say that there's nothing active immediately. There's a number of things in queue. There's some things that we know are coming across -- expected to come up from market, some others that we've been working long term. As we've described in the past, we have a rich, robust funnel of opportunities both what we track within conglomerates that make strategic decisions, private equity that's coming out, private companies that are family run that we establish great relationships with over the long term. The funnel is very, very full on both PFT and A&E, balanced. What's in front of us is balanced. Nothing imminent within the next quarter for sure. Hopefully, that helps.

And our next question comes from Jordan Lyonnais with Bank of America.

So on the Big Beautiful Bill and the R&D tax changes that have come through, how are you guys thinking about the impact there?

Yes. Well, we're still studying it, as you might imagine, looking at the R&D capitalization as well as accelerated depreciation for CapEx, so things that we're still modeling. We would expect a modest improvement in free cash flow this year and next year but nothing overly significant, but it will be a nice modest improvement, I would say, less than 5% of our total free cash flow.

Got it. Okay. And then on Druck, could you guys just talk through a little bit on why you're confident in the value you guys are going to be able to add? What should it look like? And what does that do going forward?

Alex, you want to take that?

Yes. So I mean, we love these businesses, Jordan. We love the technology, the robust aftermarket it has. We love the improvements that the team has driven, especially over the last few years with the recent management that they implemented. So at a high level, these businesses have all the fundamental characteristics to be really one of the best businesses in Crane as we execute our integration plan over the next 5 years and deliver that 10% ROIC. So we have a bit of a different vision of how we will operate those businesses versus Baker. And if you -- for those of you that attended our investor meeting in Fort Walton Beach, you heard a little bit about our playbook and driving the CBS machine. I can tell you that we have very clear line of sight on how we're going to achieve that and potentially some upside. And we'll share more after closing and educate on our road map in our path to do that. But very confident and very excited that these businesses are going to be one of the best businesses in our portfolio.

And our next question is coming from Damian Karas with UBS.

Congratulations on a big beautiful deal to accompany the Big Beautiful Bill out there. Just a follow-up on PSI. So I just want to make sure, you're not really expecting any synergies, per se, but you're just planning on running the business a little bit differently to drive that financial profile uplift? And Alex, I think you made a comment that it's going to make it easier going forward to integrate complementary acquisitions. Could you just elaborate on what you meant by that?

Yes. So I think on -- first, I'll address the second part of your question. So we reorganized to create a segment similar to what you've seen in the PFT side, which is the role I had before the split. You may recall, we have 5 independent business units on PFT reporting to a Senior Vice President, Shangaza Dasent, in this case. So on the A&E side, with this change, Jay Higgs is now a leader of the segment, and two presidents will report to him, the future President of Druck and Jay's replacement, which is Mr. Joseph Mundinger, a long-tenured Crane leader. So this structure allows us to incorporate future stand-alone businesses under the A&E segment right under Jay under -- just how we operate PFT. So from that regard, that's why we're prepared to do more and it positions us to continue to execute on inorganic growth. I think on the synergy side, there are some synergies from the aspect of Druck has a very strong content on aerospace. It's not necessarily run in the traditional aerospace model. So with our skill sets and customer relationships and processes, we're going to see some benefits and synergies on the aerospace side in particular. And then on the execution of the CBS machine, we're going to see the majority of the gains with these businesses, just like we've done in the last few acquisitions. .

But your summary is pretty spot on, Damian. In the traditional sense of synergies, it's less about the synergies. It's more about the focused investment, commercial excellence, execution in each of these businesses and the focus that we're going to drive and leveraging broader synergies in terms of operating models, if that makes sense.

Yes, understood. And Rich, you alluded to earlier on the price productivity strength that you saw in the second quarter. Could you maybe give us a little bit more color on kind of how the pricing actions you've taken have played out and how we should be thinking about pricing in the second half of the year here?

Yes. I think I would say pricing has played out as we expected and thought we were going to execute back when we issued -- had our discussion at the end of the first quarter. So we expect to fully offset that tariff incremental cost with price in the year. So a little bit of a headwind here in the quarter but nothing really to shout out about or call out. We pretty much covered it all. But yes, consistent, I would say, from here through the balance of the year on price/cost relative to tariffs. From a margin point of view, when you look at -- our typical model is to ensure that we're holding our margin profile. So a little bit of a headwind there. That's included in our guide and included in those leverage rates here as we close out the year. .

Okay. So just to clarify, you wouldn't expect to need to take any additional price because of some of the steel, copper or the raw material tariffs?

Copper really was not material. I don't know, Alex, if you had anything.

Yes. I mean we are taking additional price offset and additional supply chain tariffs in that regard. Copper is really less than $1 million of impact on our total tariff projections, so not really a significant headwind overall. It's all around PFT primarily.

And our next question is coming from Nathan Jones with Stifel.

I guess I'll push a little bit more on PSI, understanding that you're not even going to own it for 5 months yet. It looks like to get to 10% ROI by year 5, there's going to be -- need to be some pretty significant margin expansion across those businesses. I imagine these are noncore for Baker and probably a little bit -- less a little bit of attention, less a little bit of investment. Maybe just any details you can give us on how you plan to get those margins up to kind of the place you need to be to generate that kind of ROIC?

Yes. Sure, Nathan, this is Alex. So I think if you -- just to compare and contrast, the PFT journey that you've been a part of or seeing or witnessed from 2017 on and more than 1,000 basis points of margin expansion and those fundamentals, I think what we see is a strong resilient aftermarket. We see technology that's incredibly sticky, hard to replace. We see many opportunities to adjust the model and be more efficient and reduce cost. So were -- in those regards, has even more of the traits that we liked in some of our traditional businesses where we've achieved very, very strong margin improvement. So very, very confident on that path to significantly improve the margins in the first few years, certainly hitting that 5 year 10% ROIC or beating. I would say that our model has upside to -- any of the additional growth that will drive is all upside, right? So we have a very clear line of sight to how to increase those margins. And then there's other opportunities that can drive upside. So level of confidence is extremely high.

Maybe you can comment on what value-based pricing -- I mean, I'm sure you're not going to do it in terms of...

Nathan, I think we'll be more comfortable commenting on the full path once we're able to outline the full guidance, which we gave you in January and after the transaction is closed. And so I think we'll wait on providing some additional specificity and details to that.

Fair enough. Can't blame me for trying. I guess a last one on the A&E orders then. I'll ask last one on the A&E orders then. They can be lumpy, and you guys did talk about some of the larger orders in the quarter that stretch across '26 and '27. Do those phase in? Or are they single large orders that you would then ship in '26 and '27? And how should we think about the potential for sustainability of this kind of level of orders?

Yes. So these are -- it's -- they're in a phase in. There's not -- it's not like we received a $20 million order and it's going to hit in the fourth quarter of next year. It's a phase in. Think of it as a blanket order, Nathan, on each of those opportunities that I mentioned.

Yes. I mean I think we ship to meet the demand of the customer from a build standpoint, right? So it's not all at once. We ramp up, level load and continually ship. And then we expect orders to continue to come in and fill as we continue to grow.

And our next question is coming from Jeff Sprague with Vertical Research Partners.

Just back on PSI, if I could. Just wondering if this deal itself, do you see it kind of further opening the aperture to go further in kind of these sensing weighted end markets? And also, kind of the nature of my question is, when I look at Panametrics in particular, right, I see the ABBs and Emersons in the near neighborhood. And just wondering your kind of degrees of freedom in that space in particular, or should we view this as more of kind of a rifle shot kind of targeted situation as it relates to those capabilities?

Thanks, Jeff. I would say that the aperture has always been open, as we've discussed in the past, around sensing and sensing technologies. We like the niche position that the Panametrics, Druck and Reuter-Stokes holds even against some of the more larger competitors. There's a wide range of additional sensing solutions that are attractive as we think about it. This is going to be one of a few spaces that we'll continue to look at for continuing ongoing portfolio transformation as we move forward. I don't know, would you add anything else, Alex?

Yes. I mean I think that this test and measurement space is something that we've always targeted, tried to build on. So we'll continue to work in this space and other adjacencies both in A&E and PFT. To the other part of your question, Panametrics is positioned in this high end of the highest accuracy in these products. So in particular, flow, a distinct position versus those other competitors you mentioned and also gas analyzers. So Panametrics was really the pioneer of the ultrasonic flow technology. So they've maintained that top highest accuracy for those most critical applications. So they do quite well and we're pretty confident they'll continue to grow. .

Great. Understood. And then, Alex, I was on a little late but I heard your comments about PFT and some of the projects slippage that's happening in some verticals. Would you characterize that as simply slippage at this point around kind of uncertainty around tariffs and the like? Or are you starting to see projects get canceled? Think of Europe chemical in particular being pretty rough, right? And tough news out of Dow Chemical last week. So that vertical market in particular.

No. I mean we don't see this big trend of projects being canceled. It's really things shifting to the right as we expected coming out of Q1. I think it varies in degrees from region to region. I think you've probably seen in Europe some of the plant closures that occurred in the chemical space. It hasn't added any significant headwind for us. But I think some just pushing to the right. It's all based on customer demand, right? And customers waiting to see that inflection in demand of their product, which is driven by a few key factors in the economy like housing, durable goods and so forth. So as customers start seeing some recovery in those markets, these projects are moving again. And that's what we've seen when we've been in these cycles. So things will inflect back at some point.

So we'll continue to watch carefully. I mean, all the announcements coming out, but we still have not seen it worsened. So as we look into the back half, it feels more of the same.

And then, Max, on the OB3, or Big Beautiful Bill, whatever we want to call it, I think as Rich said, for 2025, we're probably just working through deductibility of CapEx and R&D and figuring out what applies. But when you think about this bill going forward, do you see it actually impacting CapEx decisions leading to further investment in the U.S.? Sure it's probably early to have gotten any kind of demand signal from customers, but just interested in your opinion on that.

I'll pull back. We're going to continue to study the Big Beautiful Bill. But we've always made the right business decision regardless. Our presence in the U.S. is very strong. A number of our sites that are growing significantly are U.S.-based, many of our locations. Our historic weaknesses is in some of the LCC countries is a strength right now for us overall. I don't see any unique decisions at this point in time specifically driven because of the bill. We always look at the right capital allocation decisions regardless, that it's the best interest of shareholder value long term. And if there's some benefits in addition because of some tax policy, we take advantage of that. But that's historically how we've operated.

And our next question is coming from Justin Ages with CJS Securities.

Question on the PSI acquisition, and maybe this is a bit early, but can you give a sense of the opportunity in nuclear? I know a lot of investors are keyed in on that. So I wanted to get your comments.

Yes, Justin, thanks for the question. This is Alex. So Reuter-Stokes has a very strong share position in the boiling water reactor installed nuclear facilities. So very mature position there over the years. So the base business is really about replacement in those. And secondly, taking advantage of any of the new nuclear plant restarts, I think, would be the second growth opportunity that are happening, and they're well positioned to take advantage of that. And then third would be the small module reactors. I think Reuter-Stokes is positioned to be a leader in radiation sensing for small modular reactors. They actually have a formal partnership with one of the leading firms in small modular reactors. So in all three legs, I think they are very well positioned to take advantage of replacement, restarts and new technologies that come in the nuclear space.

Homeland security.

And then separate than that, Max reminded me, there's a whole space about radiation sensing, monitoring in homeland security, Reuter-Stokes has a position on that. So that will be a market that will be interesting to continue and explore and grow beyond nuclear power generation as well, medical, homeland security or other segments for their technology. .

Great. That's helpful. And then shifting to PFT. I know you have made some comments about the core segments that you're focused on. Is there any signs of brightness in those PFT subsegments that are not core? Like any pockets of strength there that you're seeing?

Yes. So outside of chemical, there's a lot of pockets of strength, right? So in the cryogenic space, as you may recall, we did a couple of acquisitions, CyroWorks, Technifab plus our organic investment. So we're very strongly positioned in the space launch platforms, which is growing. So that's driven by the increased demand of satellites. So this is a reference point. The number of launches that occurred in 2012 for SpaceX platform were 2, and then 10 years later in 2022, 60. This year, I think it's more than 160. So that's growing significantly in the cryogenic space as well as biopharma solutions. So very strong demand there. On the -- for our Crane Pumps & Systems business in the wastewater, we're seeing high single-digit growth demand. Municipalities look to become more efficient, attacking critical problems, cost of operation. Middle East from a regional standpoint, Saudi Arabia, where we have a presence there in a facility, they continue to invest both in the process side and also just in the building services side with our building services business, water utilities, clean water as well with our Viking Johnson brand. So there's a lot of bright spots that make overall PFT strong. And as you know, those portions of those markets have become a bigger part of the overall portfolio over the last 7 years that we repositioned PFT. So definitely a lot of good areas in growth.

And our next question is coming from Tony Bancroft with Gabelli Funds.

Well done on the quarter. I know you talked about this in your comments. But just any -- obviously, a pretty big deal closed today with Baker Hughes -- not closed, assuming it was announced today with Baker Hughes and Chart. Any potential for acceleration of the PSI closing or any changes with that? I know you said it's going -- expected in January, but just maybe any color with that since you're sort of connected there, I guess, in that sense? .

Yes. Tony, this is Rich. No change in time line. We still feel like end of the year, December 31, January 1 is the way to think about the close. And tracking nicely, as Alex said, from an integration perspective and our cadence. But still end of year.

Thank you. This concludes the Q&A portion of today's call. I would now like to turn the floor over to Max Mitchell for closing remarks.

Thank you all for joining us today. Another solid quarter at Crane, and we continue to strategically cook up some exciting opportunities for the future with the latest PSI acquisition and more to come. As the late great celebrity chef and Food Network star, Anne Burrell said regarding the cooking process, "Taste as you go. When you taste the food throughout the cooking process, you can make adjustments as you go." Strategy deployment and execution is sampled often at Crane to ensure we're adding the right ingredients and delivering the best product for shareholder returns. The PSI acquisition adds a dash of spice to kick up performance for the long term. New savory dishes being added regularly. Thank you all for your interest in Crane and your time and attention this morning. Have a great day.