Jason Feldman - Director-Investor Relations Max Mitchell - President & CEO Rich Maue - CFO.

Matt Summerville - Alembic Global Advisors Brett Linzey - Vertical Research Partners Kristine Liwag - Bank of America Merrill Lynch Ken Herbert - Canaccord.

Good day everyone and welcome to Crane's Second Quarter 2017 Earnings Conference Call. Today's call is being recorded. At this time, I would like to turn the call over to the Director of Investor Relations, Mr. Jason Feldman. Please go ahead sir..

Thank you, operator and good morning, everyone. Welcome to our second quarter 2017 earnings release conference call. I am 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’ll start off our call with a few prepared remarks after which we will respond to questions. Just a reminder, the comments we make on this call may include some forward-looking statements.

We refer you to the cautionary language at the bottom of our earnings release and also in our annual report, 10-K and subsequent filings pertaining to forward-looking statements.

Also during the call, we will be using some non-GAAP numbers, which are reconciled 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. Now let me turn the call over to Max..

Thank you, Jason. As outlined in our press release last night, I am pleased to report that Crane's second quarter EPS excluding special items was $1.17 down slightly compared to last year as our tax rate reverted to a more normal level.

Sales of $703 million decreased 1% with approximately flat core growth and a modest net acquisition benefit more than offset by 2% of unfavorable foreign exchange. I’m also very pleased to report adjusted operating margins up 80 basis points from last year to 15.9% a record high for Crane, driven by continued solid execution and strong productivity.

Notably, we reached this new record margin despite revenue still near [trough] levels of Fluid Handling, our largest segment by revenue. As a reminder, as Fluid Handling recovers from current [trough] levels we believe that this business can return to prior peak margins in the mid teens at much lower levels of revenue than we saw in 2013 and 2014.

The fact that we were able to achieve new record total company operating margins with Fluid Handling and markets that suppressed is a testament to how far we’ve progressed as a company.

Across our portfolio, we continue to focus on differentiating our proprietary technology and leveraging our best in class engineering expertise and our margins reflect the value we continue to deliver to our customers. We also deployed 58 million of cash on two acquisitions, which I’ll talk about more in a few minutes.

Overall, I feel good about how the year is progressing. If you recall, last quarter we raised the low end of our guidance range by $0.05. While we believed it was too early in the year with substantial market uncertainty to get more bullish, several of you characterised the guidance revision as conservative.

We continued to believe that we made the right decision and we are reaffirming our adjusted EPS of $4.35 to $4.55. While sentiment among our customers and suppliers remained stable, looking ahead there is still a fair amount of market uncertainty.

Fluid Handling is performing modestly ahead of our expectations on sales and orders with margins approximately in line with our original guidance. However, we are seeing some lumpy demand and spikiness from our large customers in payment and merchandising and the shorter cycle portions of aerospace and electronics.

Further, while currency headwinds have moderated, the benefit is being offset by higher commodity and input costs. Balancing these various factors, we’ve remained comfortable with the midpoint of our guidance range at $4.45.

However, to hit the high end of our guidance range, market conditions would have to improve modestly from what we are seeing today.

Rich will provide further details but we also do expect third quarter EPS to be lower than the fourth quarter given shipment timing and anticipated mix, primarily at merchant are merchandising in the aerospace and electronics. Turning briefly to our businesses. Fluid Handling is performing modestly better than expected.

As we have discussed previously, we believe end markets bottomed in 2016 and we saw solid sequential improvements through the first quarter, which we attributed half to market and half to share gains. Orders in the second quarter while up meaningfully year-over-year were generally consistent with Q1 and also reflected an improving share position.

We believe underlying demand will remain generally stable, slightly above trough at current levels as we move through the balance of the year. And while we don't see anything that indicates worsening conditions, we don't yet have visibility to a further meaningful inflection upwards.

More specifically, last quarter, we reported year-over-year core order growth of 10%, and this quarter we are in the same range at 7%. Compared to 2016, process [valve] order growth is being driven primarily by the U.S. and Asia Pac chemical markets, and by refinery activity in the U.S. and China.

We believe that our orders are above market rates with again approximately half of our order growth attributable to market share gains. We received a lot of investor questions on the market impact of the recent softness in oil prices.

While we don't see this as a risk to our guidance, however, it certainly increases the likelihood that a strong recovery takes longer to materialize with that it is not as robust as otherwise it might have been. Rich will provide some more specific market color, but we are seeing a few consistent things across our process valve process.

MRO activity remains fairly stable, with the year-over-year growth coming from new project. To generalize and characterise these projects, we are seeing a number of capacity upgrades at existing facilities along with projects focussed on plant efficiencies and effort to reduce costs.

We are also seeing certain facilities undergoing product conversions where the facility is modifying its process to produce a new product or to change the plants primary output. Lastly we are also seeing some projects driven by environmental considerations.

Overall the general consistent theme is that our customers want to do more with less and they are trying to maximize the profitability without building new Greenfield facilities.

Given current market conditions, we firmly believe that we have the right cost structure for the current environment and as we have discussed many times, we continue to invest for growth.

We are executing well in the market place and winning and the Fluid Handling team deserves a lot of credit for consistent, solid performance during the few extremely difficult years for their markets. At Payment & Merchanding technologies we had another great quarter, with record adjusted operating margins of 21.8% and 7% core growth.

Our team is executing on growth initiatives as well as productivity.

However, as we discussed previously, this business can be spiky and project timing can be difficult to predict exactly, the large retail projects that we are working on is progressing nicely, consistent with our commentary last quarter and based on what we know today we still expect to ship the same total number of units as originally planned, although those shipments are now likely to be spread more evenly between this year and 2018 that we expected when we originally gave guidance for this year.

While I know many of you are focused on the timing of this project, I do want to comment about the broader trends we are seeing in the retail portion of our payment business. Over the last several quarters, we have seen a broad-based improvement in demand for retail, self checkout solutions.

These solutions have a proven value proposition for retailers and have become accepted as the norm by the rent customers.

As retailers face a number of challenges from e-commerce to store saturation they are increasingly focused on productivity and improving the efficiency of their existing operations and retail self checkout is one of the beneficiaries. We've also seen a number of applications beyond traditional retail self checkout.

For example, we have seen substantial growth in a retail pay power business typically used in smaller retail stores, particularly in Europe. These are attended payment solutions where a store employee still serves the customer who then pays at the kiosk tower.

Given the strength we are seeing across retail vertical the team has actually backfilled a third of the large project demand that has shifted into 2018 wins from other OEMs and retail customers. Overall, we are very extreme – we are extremely pleased with the demand in our payment business across almost all of our payment verticals and geographies.

However, we have seen some softening in our vending markets, compared to when we gave guidance and spoke to you last quarter. At Aerospace electronics, we are very well positioned, the team is also executing well.

While most parts of this business are performing as expected, business jet demand has been weaker than anticipated and the softening demand for wide-body aircraft has been more pronounced than we expected, which also spills over to our cabin solutions business.

As the airlines cut back investment in wide-body aircraft, there are fewer new premium seats where our cabin solution seat actuation has the most content. We are still largely on track to hit our commitments for this year, but exiting the second quarter received we see it a bit more challenging than we expected.

Throughout the business we continue to invest and we are continuing to support our customers ramp up of the newly re-engined nobody aircraft now entering service, including the 737 Max, A320neo are also supporting the ongoing development programs for C919 and the E2.

We are well positioned on the next generation narrow body aircraft and we continue to see incremental opportunities for technology insertion into existing platforms. While sales this year are tracking modestly below our planning assumptions, we have seen improved recent coding and bidding activity in a few different categories.

First, we have seen an uptick in [coding] activity for military programs from next-generation military aircraft and new engine technology projects to radar projects and cutting-edge solutions in areas like directed energy.

Some of these opportunities are quite large and although most of these are longer-term projects, we do see opportunities for near-term early-stage funded R&D. Second, we are seeing continued opportunities for technology insertion on both the military and commercial site.

In some cases, these projects are to add new technology or functionality to an existing aircraft and in other cases; OEMs are looking for replacement for a troublesome supplier.

There are no large programs I would highlight as imminent, but overall we are pleased with how we are positioned today and the number of our potential opportunities we see ahead of us. At Engineered Materials, resin prices have moderated somewhat since last quarter and not to the degree that we expected.

However, demand particularly in our RV market has been better than we expected.

We’ve been very disciplined on pricing over the last two years while our competitors have in some cases been more aggressive, however sticking firmly to our value proposition of having the best quality and service levels in the industry we are regaining some share as a result. On the M&A front, we completed two acquisitions in the quarter.

The first Westlock became available because of antitrust reviews of the Emerson Pentair valves and controls transaction. As is typical in these situations, the ability to provide certainty of closing the transaction is a critical consideration for the seller.

The purchase price is $40 million and the business had 2016 sales was approximately $32 million. Westlock based in Saddle Brook, New Jersey is a great business with the industry-leading brand and an excellent product portfolio with particular strength in North America, Europe and South East Asia.

It is a global leader in valve actuation, switch boxes and position transmitters basically solutions that monitor and control process valves. The product portfolio includes integrated solutions that combine multiple component such as switches, sensors, wind terminals, enclosures and visual indicator into a single unit.

Products are available for a wide variety of industrial environments, including those requiring explosion proof or intrinsically safe classifications as well as weatherproof solutions, sanitary solutions and other general-purpose applications.

This is a closed adjacency what we do in Fluid handling, but a new product space for us and one where we hope to expand further in the years ahead. It also fits perfectly with our long-standing acquisition criteria.

This business manufactures highly engineered solutions that are typically specified by the end-user solutions and these solutions are used in a wide variety of niche applications where reliability is critical.

In addition to the business itself, we acquired an outstanding team that is ready and eager to be unleased in -- and the integration has been progressing very smoothly. I look forward to the team growing its business in the Crane family.

The second acquisition Microtronic provides electronic payment systems, primarily preventing markets in Europe, based in Switzerland Microtronic was acquired for a gross purchase price of $18 million.

Microtronic provides closed cashless payment solutions that utilize RFID technology, typically money is loaded onto a card, a key fab or a smartphone app and used in a specific set of vending machines.

The systems are prevalent in Europe, particularly for office location, coffee vending machine where the average product price is too low to justify a credit card based cashless solution.

This acquisition adds to our portfolio of cashless solutions and we believe our global footprint can help accelerate growth beyond Microtronics traditional European market. These were relatively small transactions.

We continue to pursue numerous acquisition opportunities of all sizes from those similar to Westlock and Mictronics to some that are much larger. As a reminder, we look at acquisitions for three primary growth platforms, Fluid Handling, payment solutions and aerospace electronics.

Acquisitions should either strengthen our core business or give us access to new product categories customers and markets that are closely aligned with our existing [served] market where we can differentiate our offerings based on proprietary of differentiated technology.

Financial criteria include positive NPV at the target specific discount rate, return on invested capital of 10% by year three and ideally EPS accretive in the first year with an accretive margin and margin cash flow profile. Both of the acquisitions discussed today meet all these financial criteria.

Valuations are still challenging and we will remain disciplined. There are still a large number of opportunities we are pursuing across a variety of size ranges and for all three of our primary growth platforms. Rich let me turn it over to you for some additional financial commentary..

Thank you, Max. I'll turn now the segment comments, which compare the second quarter of 2017 to 2016 excluding special items as, outlined in our press release, slide presentation and the accompanying non-GAAP tables.

In the second quarter Fluid Handling sales of $264 million declined 1%, reflecting flat core sales and a 2% benefit from the Westlock acquisition, offset by a 3% impact from unfavorable foreign exchange.

Fluid Handling operating profit declined 5% at $34 million, with operating margins of 12.8% and while 50 basis points compared to last year these were consistent with our expectations. Fluid Handling backlog was $259 million at the end of June compared to $228 million at the end of 2016 and $246 million at the end of June of last year.

After adjusting for foreign exchange, the backlog increased 5% compared to the second quarter of last year and it improved 1% sequentially. Adjusting for foreign exchange orders improved 7% compared to last year and were up slightly sequentially.

Again, about half our order growth was attributable to share gains and a lot of activity in our core process filed markets where we focus on applications for some of the more harshest and most hazardous erosive and corrosive conditions.

Starting with our core process end markets, in the Americas, we saw double digit order growth driven by projects with MRO approximately flat. Growth was strongest in the chemical markets where we won a variety of projects across product lines and an end applications.

Refinery activity was somewhat mixed, but overall the full refining season looks like it will be modestly stronger than last year. North American general industrial activity is still showing some positive signs, particularly for us and pharmaceutical projects, but conventional power remains weak with [furic] gas combined cycle power plant projects.

Europe performed as expected, with orders down modestly on tough comparisons for our MRO business. The underlying markets are basically flat and we expect relative stability for the rest of this year. In Asia-Pacific, we had another good quarter with strength across Japan, Taiwan, Australia, Malaysia, Indonesia and Singapore.

Activity was broad-based with a pickup in both project and MRO. Strength was evident across all of our verticals in this region, including chemical power, refining and general industrial. China was strong overall, particularly for projects but the strength came from refining activity, power and general industrial.

In refining, we are seeing capacity expansion projects and the activity appears to be driven by increasing domestic demand. Chemical was somewhat weaker with multinationals holding off on incremental investment in the region. The Middle East is the only region that has been weaker than expected so far this year.

The main drivers appear to be current political dynamics and sustained low oil prices. MRO quoting activity has recently improved but project activity does remain weak. And in commercial markets we saw modest improvement in both our Canadian and U.K. markets, U.S. municipal markets also continue to perform as expected.

Overall, while we have performed modestly better than our expectations for Fluid Handling year-to-date, we remain somewhat guarded in our outlook until we see this level of activity, sustain for another few quarters. For the second half, we expect total sales and operating margins slightly below second quarter levels, given normal seasonality.

Moving now to payment and merchandising technologies, sales of $198 million increased 3% compared to the prior year. Core sales improved 7% with a 3% impact from unfavorable foreign exchange and a 1% net divestiture impact.

Segment operating profit of $43 million increased 25% from last year with operating margins up 390 basis points to a segment record 21.8%. The margin improvement was driven primarily by the impact of the higher volumes and strong productivity gains. We are very pleased with how this business is performing.

We saw continued strength in our payment business this quarter, particularly in the retail and gaming markets. Mac has discussed our views on the retail market, but some of our accomplishments in the gaming space merit mentioning as well. So far this year we are seeing good results in the European gaming market.

This is being driven in part by customer adoption of our newer SCR bill recycler, which has enabled us to win with our customers. In North America, we are clearly gaining share in the casino market by encouraging product upgrades to newer versions of our high-end bill recyclers and by driving adoption of our easy track solution.

[Easy tracks] is a software in RFID based asset management system, that links the slot floor to the casino cash count room giving casinos access to performance and transaction data that is used to make faster and more strategic decisions and drive productivity in the casino.

Because of project timing, transportation was a little softer in the quarter, although the medium and long term outlook remains quite solid, especially as countries like China and India continue to focus on their infrastructure build out.

In the near-term we remain excited about China where we continue to capture projects associated with the transit system build out. While our payment business has been strong, the domestic and vending market has been more challenging over the last few months as large customers adjust capital spending and their timing and prioritization.

Please remember that the revenue comparisons get much more challenging in the second half of this year or payment and merchandising and given the project push out Max has discussed, are large regional project in a much bigger contribution in the first half than it will in the second half this year.

Although we do expect core sales growth for the year to be very strong in the mid to high single digit range for the year after growing 6% and 8.5% in the last two years, core sales growth will come in below our original guidance.

The shortfall will be driven by the 150 basis points of project delay that I spoke about last quarter, as well as incremental weakness in vending that has become more pronounced over the last few months.

On an operating profit basis, however, we still expect this segment to make nearly the same contribution to full year EPS as we did when we provided guidance in January. Second quarter revenue and margins were at the highest level for this year.

Given project mix and timing elements, we expect third and fourth quarter revenues to be similar to each other but fourth quarter margins are likely to be much higher than the third quarter, possibly as much as 150 basis points. Aerospace and Electronics sales declined 10% to $171 million.

Segment operating margins improved to 22.2% up 180 basis points from last year consistent with our expectations and driven primarily by productivity and lower engineering expense. OE sales declined 9% compared to last year.

Defense OE sales declined in the mid teens given challenging comparisons from last year's Space Fence program, partially offset by higher shipments for the F-35. Commercial OE sales declined in the mid-single digit range, driven primarily by weaker demand for business jets and for our Cabin solutions.

Total aftermarket sales declined 11%, driven primarily by weaker modernization and upgrade program cells, particularly related to the B-52 break upgrade program and the 737 titanium sensor and carbon break upgrade programs.

Remember that compared to many other, aerospace business is a greater portion of our aftermarket business is related to modernization upgrade projects. Consequently, there is some spikiness and some cyclicality inherent in this business.

While comparisons are challenging right now, we have seen a recent pick up in bidding and quoting activity for M&U programs across both commercial and military programs, and across multiple solutions including our landing solution, sensing and fluid solutions. The OE aftermarket mix was 75% to 25% comparable to last year.

Aerospace and electronics backlog was $328 million at the end of June, compared to $353 million at the end of 2016 and $436 million at the end of June 2016. The lower backlog year-over-year primarily reflects deliveries on the Space Fence program along with the timing of certain orders including multiyear military aircraft orders.

Looking ahead, we expect a slight sequential increase in sales next quarter with a more substantial increase in sales in the fourth quarter. Given the expected mix, we expect a modest sequential decline in margins in Q3 with a much stronger fourth quarter. On a full-year basis, we expect to be close to original guidance issued in January.

Engineered material sales increased 8% to $69 million. Operating margins declined 190 basis points to 19.1%, primarily as a result of higher material costs.

Compared to our expectations for this business at the beginning of the year, sales growth has been better than expected although this benefit has been approximately offset by material costs at higher levels than we anticipated. Turning now to more detail on our total company results and guidance.

Our second quarter GAAP tax rate was 30.5% up 350 basis points compared to last year. You may recall that in the second quarter of 2016 we benefited from the favorable resolution of a tax audit. On an non-GAAP basis, the tax rate of 30.4% increased 300 basis points.

In the quarter, free cash flow was $56 million compared to $54 million in the second quarter last year. We are on track to hit our free cash guidance for the year.

As we discussed at our investor day earlier this year, our free cash conversion has shown a step function improvement over the last few years and we remain focused on delivering our goal of 100% free cash conversion on a consistent basis. For the year, for the full year, we are reaffirming our EPS guidance excluding special items at 435 to 455.

On a GAAP basis, the range is now $0.04 lower reflecting one-time items related to our recent M&A activity. Overall, we remain comfortable with the midpoint of this range consistent with the numerous puts and takes that Max and I have discussed this morning.

While we have provided annual guidance for many years, we deliberately do not give quarterly guidance. While Crane has a number of short cycle businesses that can periodically have spiky demand, we have a consistent focus on managing the business for long-term growth and value creation.

We will not deviate from our long-term focus, but we do want to be as transparent as possible. Consequently, we will on occasion provide additional commentary on certain timing elements as we have today.

From that perspective, while we are reaffirming our full-year EPS guidance, please note that we believe second-half EPS will be much higher in the fourth quarter than in the third quarter, primarily because of anticipated shipment timing at aerospace and electronics and expected mix at payment and merchandising.

At the midpoint of guidance, the difference between third and fourth quarter EPS is likely to be in the range of $0.05. Operator, we are now ready to take questions..

[Operator Instructions] Our first question comes from the line of Matt Summerville with Alembic Global Advisors. Your line is open..

Thank you. I just wanted to talk about payment business for a few moments perhaps, can you talk about what is sort of the rationale behind the slippage on the retail self checkout project.

And I guess what is your level of confidence that I think you said last quarter you thought 30% to 50% of it could move in 18, based on your comments if I heard you right and now it sounds like that’s closer to 50%.

I guess what’s sort of the confidence interval that that does and that [Indiscernible] next year and I would assume perhaps that’s more first half weighted and then can you also sort of fold that into this whole timing thing from a mid stand point in payments, i.e., should we expect another big chunk of self checkout to hit in Q4, is that really the differentiating factor?.

I’ll start and then Rich join in too Matt, but in terms of the drivers, this is a pretty significant to all upgrade for the end customers and a capacity in installation is what we gather to be one of constraints governing the ability to fully implement and kind of paste this versus the original expectations So there’s nothing more than that really in terms of what’s occurring.

We’re using the best forecasting that we can. It doesn’t have the exact specific visibility. It’s clearly coming through, so I’m not that worried about it. Trying to remember all of your questions here, so in terms of the drivers and wider slippage nothing more than just a building capacity to execute on the installations and the upgrades.

As we think about next year, yes more than likely you’re still in that 30% to 50% range, but we’re still trying to get the full forecast for the balance of the year, there is definitely going to be slippage and that’s still that 30% to 50% range. We are planning for the 50% and we’d expect that to be delivered in the second half of next year.

The reason we added the color commentary in the script as well was to talk about the fact that we are seeing some broader strength across other OEMs of the retail space for payment and more probably than just North America and Europe as well, and as I mentioned had replaced about a third of that slippage.

I would expect as we move into next year as well to continue to see that momentum and move forward also..

Yes, I would just – I would just signal, I think we are feeling very good about the program. Overall, it’s more about the pace, I think the customer feels the same way and certainly that’s the feedback that we are getting.

As it relates to the mix question, in terms of the fourth quarter, it’s across all of our different verticals within the payment, payment and merchandising business, we have a variety of different profit levels and the way projects are rolling in between Q3 and Q4, as well as some of the seasonality that we tend to see in our vending business in particular, we tend to see, we tend to see that impact as well.

So it’s really, it’s a mix of projects between Q3 and Q4 to answer your question, and it can vary from period to period..

And then just a follow up question on aerospace, if you sort of look at kind of the recent historical peak end backlog, $460 million, now you are down rounding at $330 million.

I get a big chunk of that walk down is going to be Space Fence, but perhaps some more granularity there, and I guess are you seeing backlog bottom, and when you just think about in percentage terms, even in dollar terms, the magnitude of decline there is very substantial.

And I guess, I just want to get comfortable that there's not something more systemic going on here that you need to be concerned about?.

Yes, I can appreciate, I appreciate the [optics] on what you see when you look at the numbers in the press release. I'm not worried, we’re not worried at all about the backlog and its relation to sales and OP in the future period is the way I would start off.

When you look at the big components that are driving the disparity from period to period; the biggest driver clearly is Space Fence. I think at this point last year we weren’t even close to half way through the project delivery. So it’s a substantial component of the reason.

The other piece that we tend to see from time to time and in this particular period when compared to June of last year, and a little bit even sequentially is a multiyear military programs that we would book from time to time. So we had a rather large one for a large military program that we had booked, so another element is bad.

And then you are really the last driver of this is just strictly timing related to large all orders for certain platforms and mainly platforms that we are the sole provider on. So again, reinforcing the fact that we are not worried here at all, as it pertains in particular to that, to those OEM demand levels.

I think in summary, the timing can vary substantially, you got some one-offs from time to time, and I think our content per aircraft is fairly fixed, we feel pretty good..

Got it. Thank you guys..

You’re welcome..

Thanks, Matt..

Thank you. Our next question comes from the line of Nathan Jones of Stifel. Your line is open..

Yes, hi good morning. This is [Adams] calling on for Nathan. We’ve heard reports that the long-awaited chemical plants is being built around the Gulf Coast, downstream of the completed [ethane] crackers are out for bid and likely to be awarded in the first half of 2018.

I wonder if you have any color on these projects, details on timing maybe what the opportunity is for that?.

Yes, so Adam, the plants you might be talking about sort of methanol plants in the Gulf and the ethylene glycol.

But in relation to the ethylene build out and then as we talked about in the past, the derivative plans that we would see content on where Crane has its strength is really a further down in the erosive, corrosive downstream of even though the plants that I just mentioned vinyl chloride monomers, re -- of propylene, propylene oxide, ammonium nitrate, ethylene oxide and we are tracking a number projects and the opportunities in the Gulf Coast.

In our early stage project tracking, we still from where we play the strongest, we still see the derivative plants on the -- in the feed stage, early and pushing to the right looking at 18, 19 so this whole shift has continued to take place.

So while I think you're right, about the plants that are out for bid and should see some activity, I think it’s an encouraging sign in general for everyone in the flow space where we have our strength is going to be a little further in other derivatives and further to the right.

Does that help?.

Yes, it’s helpful. Then follow up questions [Indiscernible] to engineering materials. But this is continues a personal growth and healthy margins with some signs out there than incrementally positive RV market.

I know in the past you’ve taken a conservative outlook on the business, and RV sales are close to peak, margins are likely compress on oil prices, I don’t know is there anything new out there that you are seeing any positive signs in the business?.

Just I thought we were encouraged that the strength of the cycle and the strength, I mean this has been pretty impressive, so we are about to begin our strategic planning period right now and I will be travelling in the month of August to all of our facilities and one of the questions we have for the team and looking at the data is what are our projections for next year.

It’s been a strong run, it’s been stronger than expected this year. It’s encouraging, but I think we’re going to be cautious on how long this cycle can continue..

Okay, thanks for taking my questions..

Thanks Adam..

Thank you. Our next question comes from the line of Brett Linzey with Vertical Research Partners. Your line is open..

Hi, good morning all..

Good morning, Brett..

Yes, I just want to circle back to the earlier payment question, I guess just more a point of clarification. You mentioned the constraints on capacity. Were you speaking more to your internal manufacturing capacity. Is this more of a supply chain just in readiness..

Yes, this is installation. This is actually putting the retail checkout facilities in the stores. I mean this is a pretty significant install. And so it’s just simply the reality of speed and pace of the installation across the U.S. .

Okay, got it, got it. And I’d like to….

And just for that clarification if anyone else was confused. I wasn’t clear enough..

And then just in terms of the outlook for the segment, clearly lowering the growth guide, I understand that, but the profit contribution does unchanged here.

I guess what are the big drivers there, is it just simply mix are there other cost actions or things you are doing to sort of make the original profit contribution guide for the year, any color there would be helpful?.

For the overall payment segment, you are referring to...

Yes, for the overall payment segment..

No, I don’t think there is anything terribly unique. It’s not like there is some different project or something else that we are seeing in the space. We’ve been executing very well on productivity on a year-to-date basis in the business being careful about how it’s not withstanding all that we were seeing in the business.

So, no as I look at our guidance on a full year basis for the segment, we’ll come a little bit, just slightly under the EBIT target or OP target but not really all that consequential, and again with sales coming in, in that mid to high single range as opposed to the low double digit range that we talked here before.

So that’s really all driven by cost and productivity in the business that we continue to execute on..

Okay, great. And then just back to Fluids, you mentioned on the Q1 call that productivity measures and some other things, on [design] and value were allowing you to be a little bit more competitive on price.

I guess, what's the state of the market there on price both in the project business and the aftermarket with the MRO side and then any color you can provide on like to like price in the quarter would be helpful?.

I think the story is more similar. So we haven’t seen any new significant pricing pressures that we haven’t seen the ability to significantly seeing robustness in pricing, so I think our pricing discipline remains firm and it’s more of the same breath from what we see..

Okay, all right, great thanks guys..

Thank you. Our next question comes from the line of Kristine Liwag with Bank of America Merrill Lynch. Your line is open..

Hello guys, can you hear me..

Yes, we can hear you now..

Okay. Maybe a bigger picture question to start, as you know Boeing is making concerted effort in gardening more the aftermarket and it looks like it will start picking this segment starting in 3Q.

How do you expect this strategic shift to impact your aerospace businesses and how do you see, how defensible is your aerospace portfolio?.

Well, we know what’s our property is, is ours and so we start there and we continue to work with Boeing in every way as an incredibly important customer for us. We’re partnering success program, we’re partnering for our mutual success, we continue to work on all fronts to drive cost reductions where we can participate.

So from a Crane standpoint, I would say with all of our major customers where continue to be incredibly competitive provide the full value including not just price but the quality and service that the customer requires is an important factor.

I think these pressures are not going to go away I think that we’re going to continue to work with Boeing on all fronts to be the partner that they expect.

At the end of the day Kristine, quite honestly I’m looking for our team to continue to be a partner that can provide solutions that others potentially can’t or Boeing is struggling with and see it as a growth opportunity of benefit..

And maybe following up on that I mean, so far and some of the suppliers that we’ve seen report, it looks like there is some general replacing of some contracts presumably with Boeing partnering for success and we’ve seen Boeing partnering for success 2.0, there will be a 3.0 and possibly in the future 4.0.

When you think about that how does that change your expected total return on investment and that business and is there a point where you could decide to allocate capital elsewhere to get higher incremental rates of return?.

Well, on the capital allocation question we continue to invest and if anything we continue to reinvigorate innovation and ideation across Crane including aerospace and electronics and where we’re going to continue investment growth.

Whether it’s 2.0 or 3.0 or 4.0 it’s the same types of initiatives I would expect on my own supply chain teams across Crane which is continuing to get the most value with your supply chain partners.

So I plot Boeing on their efforts quite honestly and as I mentioned I think we’re well positioned to continue to work with them as an important customer and win you opportunities because of it..

The only thing I would add is that it’s not like we’ve changed our hurdle rates in terms of expectations and profit returns either on any of the opportunities including the ones we see with Boeing from time to time. So to answer your question on do we change our metrics or desire or return change overtime that’s not the way we’re looking at it.

We’re looking at it holding our financial criteria and all the programs that we’re evaluating with them..

Great, thank you very much..

Thanks Kristine..

Thank you. And our next question comes from the line of Robert Barry with Susquehanna, your line is open..

Hi this is Mike [Indiscernible] on for Rob. I’ve a couple of questions on the aero business.

First you mentioned softer spend on cabin solutions, how big is a business is that and what’s the outlook for it? And then second how much of the year-over-year margin expansion aero was on Space Fence related mix or what’s happening with margins outside of mix impacts?.

On mix impacts relative to what we expected in the quarter is right what we thought it would be. We had some upside on mixed benefits from Space Fence and conversely we had some going the other way on certain programs. But really, exactly what we expected in the quarter, across your mind it’s a small amount but fairly well aligned with what expected.

So with the margins that we delivered in the quarter in aerospace and electronics at 2022 we felt pretty good and it’s setting us up nicely for the balance of the year.

The [Caden] business is the smallest of the solution set businesses that we have I think it’s roughly call it $40 million to $50 million I think in total revenue or something like that. But any impact to any of our solutions that we feel like it’s important to callout we go ahead and do that.

I would say at an overall basis notwithstanding the pressures that we’re seeing in business jet and Caden that we do expect to come close to our full year EBITDA that we provided..

Okay, thanks. And then, one more question if you don’t mind on working capital.

Do you expect working capital being a source of use this year and are you building working capital in full or is there a coverage still too uncertain at this point?.

We’re working on working capital down if I look at my full year, my full year guidance externally, we feel like that’s an opportunity I talked about that at investor day. We’re managing it tightly and particularly in the area of inventory and fluid handling some of our – in particular in our process valve as part of the business.

And so I don’t see that as being headwind in 2017. We did see a little bit in the way of payables I think as a potential headwind when we came in and we talked about that as well at investor day. If you recall at investor day I think we delivered $267 million in free cash flow in 2016 and we came down a little bit just because of timing elements.

And some of those are in working capital but from a sustained improvement perspective we feel like we’re making progress on all front in particular in fluid handling..

Okay thanks..

Thank you. Our next question comes from the line of [indiscernible] your line is open..

Good morning guys. Just a couple of follow ups on some of the questions that have already been asked already.

I guess first on forward handling, if I’m reading right kind of a mixed message on the turnaround environment characterization of the order growth being maybe half market, half outgrowth, so seeing some projects pushed at [indiscernible] finding them more on the chemical side.

And I guess, could you maybe square that a way with some of what the actual service providers are saying. I mean, you guys are like team report EBITDA of half of what they would have expected.

How would you square that up with what you guys are seeing in the refinery MRO right now?.

You’re going to look at the pure refining MRO, you got to look at our product and the mix and the niche applications that we’re in as well and refineries we have a particular strength and HF operation and some of the turnarounds that we’re seeing there is a bit of an uptick so that’s a particular bit of strength for us.

Just to give you a sense of some of the other project wins we’ve had in the quarter Josh, the activity that we’re seeing is fairly diverse and hard to pin down on any one.

Given market it tends to be around this higher value added, higher pressure temperature erosive, corrosive one example in the gulf coast, a refrigerate manufacturer changing refrigerants and the significant capacity increase in the facility and we want some significant content there.

Another win in the quarter force very sizeable in AsiaPac on the chemical side, chemical related is [indiscernible] process that goes into supporting chicken feed for example.

So these are some of the end market dynamics that are planned now where we’re winning what we referenced refining strength and tends to be around HF calculation in particular and some related areas. Hopefully that helps a little bit..

Got it.

So I guess that to summarize that it sounds like it’s more niche than a call on our broader uptick?.

Exactly..

And then just a couple more little follow up, I guess on the payment and merchandizing side you guys have been able to backfill a good amount of the slippage.

How does that make you feel about how 2018 sets up, I mean, I definitely don’t know how sustainable some of this other backfill strength is versus how these pushup way around as a tough comp with the larger projects.

It’s a lot going on there between slippage and you found business would you say you still kind of hard overall or the 18 month pipeline here still look and go?.

Anything. I think, the shifting is not necessary as we think it has been a bad thing it’s going to help us smoothen out in the year-over-year comps, we feel we got some real more momentum continue to show growth in the next year that’s how we’re feeling about it right now..

Yes. Just to add I think it’s not just this one project that we pulled it out because of its significance so that size and its impact year-over-year and what not.

But we’re seeing good strong fundamentals in the retail space as a whole whether that would be other self checkout, traditional self checkout opportunities that were continuing to make really good progress with, and seeing momentum. I think that’s maybe to answer your question as we think about 2018.

Are we seeing momentum and sort of underlying fundamental self checkout? And I would say that we are.

We’re also seeing some – and we mentioned this in the prepared remarks, different applications where there is we call them a pay tower applications where consumer actually operates that by himself or herself and again pulling through some of our technologies into more niche applications in the retail space.

So, we are seeing good I would say fundamental momentum that underlines – underlies the business as we think about 2018..

Okay, perfect. Then just one last more housekeeping one than anything else. If I back in the something, I guess pent [ph] amounts of book-to-bill in Aerospace and Electronics.

Clearly a lower number than what you guys have had in a while, it sounds like timing, but – I mean, is that removes lot of the year-over-year noise and your run and then call it the mid 0.85-ish.

Is that something that you expect to start picking up as we get into the back half?.

Yes. We would start to see that picking up. But we are an increase on sales. The one thing I think to think this book-to-bill that you’re referring to is the last off of this project in Space Fence in the backlog. So, when looking at the backlog and looking at our sales profile it's not necessarily a perfect indicator.

So, we do expect sales to improve slightly I would say in the second half of the year. We gave guidance in the aerospace segment of down five I believe. As we look at where we are in a year to-date basis in that business, we’re down I think just over -- just about 7% -- just about 7% on a year-to-date basis.

So we feel like we’ll improve slightly from that, but still potentially be a little bit off on our topline guidance on a full-year basis..

Got you. That’s very helpful. Thanks guys..

Thanks. You’re welcome..

Thank you. [Operator Instructions] Our next question comes from the line of Ken Herbert with Canaccord. Your line is open..

Hi. Good morning..

Good morning, Ken..

Max, I just wanted to follow-up on your comments in the prepared remarks regarding Fluid Handling and/or maybe it was Rich, but it sounds like you identify them or caught of the Middle East as one area where you’ve seen sort of incremental downside relative to the initial guidance for the segment.

Would you attribute that to or think of that is temporary, I guess there's clearly been a lot of volatility in that region not just from oil prices and everything else, but how do we think about that part of the world for you moving forward and timing or maybe getting back to a more normal environment in terms of your outlook or catch-up relative to the guidance?.

Our best estimate, our best understanding is there’s been a shift of capital deployment in terms of military spending, in terms of investment in the region, outside of chemical and other build outs that we’ve historically seen. So it’s been a redeployment of capital that is constrained because of low oil prices.

So, I think we’re seeing this even in today's paper but OPEC trying to do what they can to get some discipline depending on sale [ph] U.S. and the impact – I mean, these are some of the global dynamics.

You got a forecast where oil is going to go to understand what the Middle East is going to be capable of doing, plus couple of that with the tensions between Qatar and what’s occurring there. I think all these things are just putting a slowdown on free. So I don't think – we’re not forecasting significant change to the balance of the year.

Is it timing? I think if these conditions change than its clear they’re going to improve, but I don't think you’re going to see much change to the balance of this year..

Okay. And to that point if we are in a situation where tar sands and other areas incrementally add capacity and we’re in a relative world of stability in terms of crude pricing, how does that impact? What you view is timing or recovery in the segment or potentially sort of the margin ramp.

I know you’ve done a phenomenal job of taking cost out, but how do we think about that post 2017?.

We have – as I mentioned it’s going to lower longer. We feel like we’re properly position. We’re getting overall peak margins as a company. We’ve got to look at this as the year continues to progress and understand the implications creating. We do not -- I do not see it worsening.

I think it's an inflection point that could have accelerated a little faster than what we’re seeing as I mentioned sustained at a new level and feel pretty good about that. I think it’s going to be growth clearly into next year, we’ve got some work to do to dial in what our assumptions are in terms of just how much..

Okay. Now that’s fair. I appreciate that.

And then if I could, just bigger picture on payment and merchandising and the one retail project obviously you’ve colored out if that’s the only one, but when you think about the secular trend for self checkout and what it might be able to do to your business, do you think of that as were in the early innings, was this a sort of one-off project or maybe anything you could comment on sort of how you view penetration rates there and just maybe where we are in that sort of secular cycle or trend if you would call at that..

Everything that we are learning and understand it’s early innings. There is real opportunity here to continue..

Okay. I understood..

In terms of adoption, in terms of acceptance, in terms of the drivers of acceptance, other applications..

Other applications, so we think it’s early innings and has some momentum for a while..

Okay. Perfect, thank you very much..

All right, Ken thank you..

Thank you. And I’m showing no further questions at this time. I’d like to turn the call back to Mr. Mitchell for closing comments..

Thank you, operator. We are pleased with our performance so far this year to date. Fluid Handling modestly outperforming our expectations and while Payment & Merchandising and aerospace electronics are facing a few more challenges than we expected, both are performing very well on an absolute basis.

We remain comfortable with our guidance range and we will continue to focus heavily on driving productivity and on our organic growth initiatives. The late great Roger Moore once commented that I am a mixture of an idealist and a realist. That sort of approach here at Crane as well.

We are never satisfied with the Status Quo, pushing for continuous improvement and constantly working to get better at everything we do. But that drive has to be tempered with realism acknowledging some of the challenges that we face while continuing to focus on those factors that are within our control.

I believe that our guidance and execution strikes this balance successfully and I look forward to giving you all additional updates in the quarters ahead. Thank you very much for your interest in Crane and have a great day..

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program and you may all disconnect. Everyone have a wonderful day..