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

Breindy Goldring - Wolfe Research Brett Linzey - Vertical Research Damian Karas - UBS Kristine Liwag - Bank of America Robert Barry - Susquehanna Matt Summerville - Alembic Global Nathan Jones - Stifel Jamaine Aggrey - Canaccord Jim Giannakouros - Oppenheimer.

Good day everyone and welcome to Crane's Third Quarter 2017 Earnings Conference Call. Today's call is being recorded. At this time, I would now 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 third 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, Form 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 third quarter EPS was $1.13 up 6% compared to last year driven by improved business segment operating performance and a lower tax rate partially offset by higher corporate costs.

Sales of $696 million increased slightly compared to last year with an acquisition benefit and favorable foreign exchange more than offsetting a 1.5% or 10 million organic sales decline.

The organic decline was driven by comparisons to substancial shipments for aerospace and electronics, large Space Fence program last year, which was more than a three percentage point or $24 million year-over-year headwind.

Adjusted operating margins improved 20 basis points from last year to 15.2% despite the lower volumes driven primarily by productivity. 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 improvement through the first quarter which we attributed half to market and half to share gains.

Orders in the second and third quarters while up meaningfully year-over-year were generally consistent with Q1 and also reflected an improving share position. While the overall trends have been fairly consistent over the last few quarters, the mix of activity has changed somewhat.

Last quarter, our order growth was driven primarily by project with fairly stable MRO order activity. In the third quarter, we saw more improvement in our MRO business driven in part by our market share gains. Orders for projects grew in the third quarter, but at a slower pace than during the first half of this year.

The project activity we are seeing is primarily related to capacity upgrades, productivity and de-bottle necking with very little Greenfield activity. And in commercial markets we saw a modest improvement in our U.K. markets with an extremely strong quarter in Canada. U.S. municipal markets also continued to perform as expected.

Despite the slow market recovery, our business is performing extremely well. At Payment & Merchanding technologies we had another very good quarter, with record adjusted operating margins of 22% and 2% core growth on challenging comparisons. Our team is executing on growth initiatives as well as productivity.

As we discussed previously, this business can be spiky and project timing can be difficult to predict and [Indiscernible] help the margin in the quarter more than we expected. The large retail project that we are working continues to progress and our outlook for the project is unchanged.

More broadly, we continue to seek good growth across the retasil vertical extending beyond the large project in addition to retail, the gaming vertical also remains very strong given the adoption of new products and upgrades partially offset by softer demand from the vending channel.

At Aerospace electronics, we remain very well positioned, and this team is also executing well. There haven’t been any major changes in the market outlook since last quarter.

Business jet demand remains weaker than we originally anticipated this year and our cabin solutions business continues to be impacted by the softening demand for wide body aircraft.

We are still largely on track to hit our commitments for this year, but margins were a little below our expectations in the quarter because of the timing of certain shipments.

At Engineered materials demand for RVs remains very strong and we continue to gain share as resin prices increased in the third quarter partly because of impacts from hurricane Harvey. From an operational perspective, I feel good about how the year is progressing.

Our businesses are all performing very well and our navigating the respective market environments confidently. Sentiment among our customers and suppliers remains releatively stable but there is still a fair amount of broader market uncertainty.

Fluid handling is performing modestly ahead of our expectations on both sales and orders with margins approximately inline with our original guidance. We continue to see lumpy demand and spikeness from our large customers and payment in merchandising and the shorter cycle portions of aerospace and electronics.

While currency headwinds have abated further, the benefit is being offset by higher commodity and input costs, with a net result approximately neutral.

Based on our performance year-to-date taking into account current market conditions and considering there is only one quarter remaining we are narrowing asdn raising our adjusted EPS gudiacne to $4.45 to $4.55. Consistent with our usuaql practise we will not be discussing our 2018 guidance in any detail until our January fourth quarter earnings call.

Regarding capital allocation we repurchased 25 million of our shares in the quarter which followed the deployment of 58 million of cash on two acquisitions in the second quarter. Our M&A pipeline is robust and there is a lot of activity.

We are pursuing and making progress in a number of opportunities, however we will continue to be disciplined both on value and on the strategic positioning of potential acquisitions. 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 third quarter of 2017 to 2016 excluding special items as outlined in our press release, slide presentation and the accompanying non-GAAP tables.

In the third quarter, Fluid Handling sales of $267 million increased 9%, reflecting 4% of core sales growth a 3% benefit from the Westlock acquisition, and a 2% impact from favorable foreign exchange. Fluid Handling operating profit increased 8%to $33 million, with operating margins up 12.4% compared to the prior year down 10 basis points.

The margin decline primarily reflected unfavourable mix. Fluid Handling backlog was $269 million at the end of September compared to $228 million at the end of 2016 and $242 million at the end of September of last year.

After adjusting for foreign exchange, the backlog increased 9% compared to the third quarter of last year which includes a point of benefit from Westlock and it improved 2% sequentially. Adjusting for foreign exchange, orders improved 11% compared to last year and were up slightly on a sequential basis.

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

For the fourth quarter consistent with normal seasonality, we expect slightly lower sales sequentially with full year margins approximately inline with our original full year guidance of 12%. Moving now to payment and merchandising technologies. Sales of $198 million increased 1% compared to the prior year.

Core sales improved 2% partially offset by slight headwinds from foreign exchange and the divestitures net of acquisitions. Segment operating profit of $41 million increased 19% from last year with operating margins up 340 basis points to a segment record 22%.

The margin improvement was driven primarily by the impact of the higher volumes and strong productivity gains. Those margins were better than we expected in the quarter given timing and mix. Compared to the third quarter we expect a slight decline in the fourth quarter sales for this business with margins similar to the first quarter.

Aerospace and electronics sales declined 13% to $172 million. Segment operating margins improved to 20.2% up 60 basis points from last year driven primarily by productivity and a more favourable mix. OE sales declined16% compared to last year. Defense OE sales declined approximately 40% compared to the 2016 peak quarter for Space Fence shipments.

Commercial OE sales increased in the low single digit range. After market sales declined 4% driven by challenging comparisons for modernization and upgrade sales although commercial spares were very strong up in the high teens range, and military spares declined modestly. The OE to after market mix was 74% to 26% compared to 77% to 23% last year.

Aerospace and electronics backlog was $348 million at the end of September compared to $353 million at the end of 2016 and $328 million at the end of last quarter. Looking ahead and as we mentioned on the second quarter conference call, we expect a substancial sequential increased in sales and margins in the fourth quarter.

Engineered material sales increased 7% to $68 million. Operating margins increased 10 basis points to 17.8%, primarily as a result of the higher volumes.

Compared to our expectations for this business at the beginning of the year, sales growth has been better than we thought 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 third quarter GAAP tax rate was 29.4 % down 360 basis points compared to last year. On an non-GAAP basis, the tax rate of 29.5% increased 350 basis points. In the quarter, free cash flow was $90 million compared to $105 million in the third quarter last year.

And on a year-to-date basis, free cash flow was $140 million compared to a $130 million last year. We are on track to end our free cash guidance for the year. For the year, for the full year, we are reaffirming our EPS guidance excluding special items to $4.45 to $4.55 up from our prior range of $4.35 to $4.55.

On a GAAP basis, the range is $0.04 lower reflecting one-time items related to our recent M&A activity. Operator, we are now ready to take questions..

Thank you.[Operator Instructions] And our first question comes from the line of Mr. Josh Pokrzywinski from Wolfe Research. You may begin..

Good morning, Josh..

Hi, this is actually Breindy Goldring on for Josh. Good morning..

Yeah, good morning.

How are you?.

Good.

On payment I just was wondering if you could help us understand the timing of the large projects at Sand today, if you could tell us what the incremental growth has been in 2017 from this project and what’s left for 2018?.

Sure. So I would say consistent with what we communicated on the second quarter conference call is the summary answer or overview. When we entered the year we anticipated the segment to see I think 11% overall core growth in the segment.

We did take that down to the high single digit range at the end of the first quarter and then slightly lower than that in the second quarter earnings conference call.

And all of that movement was attributable to the push out related to the large project in the retail business for the most part and I would say that’s largely the cause for the push out. We do expect that full project to continue.

There is no expectation on our end or any communications that would suggest any slowdown in terms of the number of units ultimately to be deployed. It’s just a matter of timing when they are deployed and we see that continuing into 2018..

Okay. Thank you.

And then just on Aerospace, can you talk about, it looks like orders were up materially this quarter and backlog grew sequentially, so what’s driving that? And then how we should think about that blacklog playing out, and particular as it relates to the step up in margins in 4Q?.

Sure. Again, consistent with what we had said in this second quarter, the backlog in our aerospace business tends to be impacted quite a bit from timing. We will receive from time to time blanket orders for particular military programs. We’ll also see, received blanket orders for OEM programs.

And the timing of those are difficult to predict and they do occur at different times of the year. Just a little more background, if you look a year ago because we are looking at comps year-over-year we had quite a bit of space fence orders that remained in backlog that ship through this year.

The improvement that we saw this year was just a reflection of the fact that we did see some of those blanket orders come in the third quarter. In line large with our expectation I would tell you that the quarter ended today would be even bigger, so we feel good about the progression of orders into the aerospace and electronics backlog.

I wouldn't say that that order trajectory impact necessarily the fourth quarter, it's more about your future periods more than anything else..

Okay. Thank you..

You’re welcome..

Thank you. And our next question comes from the line of Brett Linzey from Vertical Research. You may begin..

Good morning, Brett..

Hi. Good morning all.

Just want to come back to the fluid handling division, some encouraging development on the MRO side, but maybe put a finer point on the slowness in the order development on the OE side? Are there particular markets that are impacting that? Did you see little bit of near negative headwind from Harvey? Any color you have there?.

Sure. So maybe I’ll split that between MRO and project. Both had similar growth rates I would say in the quarter.

For MRO orders in the third quarter did pick up substantially versus the first half of 2017, and projects although they grow the growth rate decelerated a bit and we see that really driven largely by the timing of these projects not necessarily a particular indication that things are getting better or worse as a relates specifically to projects.

Outside of just the MRO and project dynamic from a chemical perspective, rates in the third quarter were consistent with what we also saw in the first half, very solid frankly and being driven largely by the United State, China and I think to a lesser extent Europe, demand is primarily around fertilizer and agriculture projects, environmental productivity and de-bottlenecking projects, things of that nature.

Petrochem and refinery investments in China are also strong in the quarter. And Asia-Pacific while been strong all year long, you know came off just a little bit, but again I think more timing than anything else. If I moved to refinery, order growth slowed a little compared to the beginning of the year. Turnaround activity U.S.

and Europe has been solid, but the scope of some of those have narrowed than they have been historically, but overall we still feel pretty good about what's happening in that space. And in power, I would say globally remains weak and China there’s been delays as it relates in particular to the new coal-fired projects. And then the U.S.

project activity just continues to be soft and little investment in Europe frankly on conventional power..

Still solid growth in both MRO and project, Brett, just -- we’re just calling out that at the pace of project growth that we saw in the first and second quarter eased a little and MRO strengthened a bit..

The other thing I would just add just a supplement here. Outside of the core process valve portion of fluid handling, we did see quite a bit of nice strength across the board in fluid handling.

So we’ve been speaking largely here to what we see in highly corrosive area of the segment, but beyond that in commercial, general, industrial we saw quite a bit of nice growth in the quarter both from an orders and sales perspective which is very encouraging.

And even in the process valve comments that I just provided that were more specific to maybe revenues. Orders were solid in the quarter..

Do you want to mention Canada?.

Yes. So Canada in particular was solid. So you’re familiar with the fact that we have a pretty nice distribution business in Canada for pipes, valves and fittings. That was one of our fastest growing components within the fluid handling business in the quarter; which did lead to some margin compression in the quarter.

So while we feel good about where margins are we’re really encouraged by the fact that it was only a little bit down versus what we expected because of some growth that we’re staying in one of our end markets up in Canada..

Specifically related to some mining that seems to be coming back a little bit..

Correct, we’re seeing some solid progress in gold and diamond mining frankly in the region and excited about some of that traction taking place that we really didn't see in the first half, so some – I’ll call it smaller projects on MRO for mines releasing really here in the second half..

That’s really good color. Thanks. And may be just one more on Aero.

Could you just distilled down on some of the weakness in the aftermarket business? And maybe by program, product category where are you seeing some of the pressure? And then do we return to growth in Q4 here?.

So, as it relates to after market, I think mentioned that commercial spares which is a really important driver to us in particular from a margin perspective was up on a nice clip. Where we saw the headwinds continues to be in the M&U space, most notably in the commercial M&U space where we’re coming off difficult comparisons.

We had a carbon brake upgrade program that was completed, a Tri-Jet program for our fluid business that was completed as well, some battery charger retrofits that we had in the prior years. We had a number of different elements in the commercial M&U space that were a bit of headwinds.

And I would say that we continue to track funnel opportunities to make sure that we can backfill those, but those take time and it really is dependent upon the airlines or airframer’s desire and level of investment to do M&U opportunities or to invest in M&U opportunities.

So that that would be the place where I would say we were soft in the quarter on the aftermarket side. We would expect I think trends in after market to continue to be generally positive outside of M&U until we start to see some of those investments being made by the airlines..

Okay, great. Thanks a lot..

You’re welcome..

And our next question comes from the line of Damian Karas with UBS. You may begin..

Good morning..

Good morning..

Back to fluid handling, I know margins are tracking in line with what you've guided for the year, but perhaps that came in touch slower than we might've expected given the volume improvement in the third quarter? Is there a way to further parse out the various margin impacts such as the mix price versus raw materials and acquisition expense? And how should we be thinking about mix or any of these other margin dynamics thinking ahead to 2018?.

Sure. So in the quarter itself we did see quite a bit of core growth as I just mentioned in our Canadian pipe, valves and fittings business, which we love to see, but the leverage rate on the distribution business are much different than the traditional manufacturing side of the business that we have in our core process valve business.

So, when you see that kind of growth, it dilutes a little bit the margins, but from our perspective that’s welcome sign of continued demand that we’re seeing in that business.

In advance of what we would expect to see moving forward in the process valve side of continued progression on core growth, so when you look at those two elements in particular, a lower level of growth in the quarter from the core process side.

But as expected, but better-than-expected trajectory on sales from a lower margin distribution business that leverages much differently. Now would be the two most important elements related to the margin that we did deliver.

Now I would say overall that the margins we did deliver were solid and in line with what we would've expected, perhaps 10 basis points off or something like that, but we take that in exchange for the demand that we’re seeing.

And then again when I look at that just core growth on sales in the quarter, but just to reiterate when I'm looking at orders in the quarter which I think we highlighted on the conference call quite a bit and in the prepared remarks, the orders are up substantially across the board.

So on an FX mutual basis in the quarter we’re looking at up 8% year-over-year and that’s not really concentrated in anyone business, and frankly its diluted by the fact that I have a valve services business that seasonality drives a negative year-over-year comp.

So some pretty solid order growth across all parts of the business excluding seasonality that would be expected, so excited about the performance in the quarter here in fluid handling..

Okay. Make sense. And regarding the 25 million in share buyback in order, I could be wrong, but it looks like it's the first time you've repurchase shares in about two years here.

Could you comments on what drove that capital allocation decision and whether we should expect maybe see more of that going forward or does the focus really remain on the M&A and the pipeline that you briefly alluded to earlier on the call?.

Yes. I would say that what we did here in the third quarter was consistent with I think our long-standing policy to offset dilution. From a dollar value perspective or go forward perspective however you want to couch it.

I would say that the amount was the amount largely because we want to maintain flexibility around other things that we see and have in front of us..

So just in the timing, quite frankly was -- we look at the overreaction to what we considered to be an overreaction to last quarter’s results that we felt pretty good about and looked at as an opportunity on the timing..

Okay. One last, so free cash flow, you guys are still tracking towards the long-term target of 100% plus. You did have asbestos payments that were maybe $4 million, $5 million higher than normal.

Was that related solely than you New York, the NYC settlement and should we kind of on a go forward basis expect those cash outlays or asbestos’s run rate closer to sort of mid-teens level? Thanks..

So, I would say, you’re right in terms of the reason why it might be a little bit higher in the quarter not concerning to us overall I would say that our overall position is here that and continues to be that we would expect on an after tax, after insurance basis to be somewhere in the $30 million to $40 million range.

We’re towards the higher amount in this quarter, but again it was related to specifically to some settlements that we did make that you reference, but when you look at what we did in terms of the update at the end of the year, last year, we feel pretty good about our position and in our cash outflow associated with it being consistent with our disclosures that we’ve made previously..

I think you framed it up well, Damian and you’re characterizing it at the right way. So good question.

Okay, great. Thanks guys..

Sure..

And our next question comes from the line of Kristine Liwag from Bank of America. You may begin..

Good morning, Kristine..

Hi. Good morning, guys..

Good morning..

Max, you mentioned that half of fluid growth is from market recovery and half in market share gains.

Can you describe what’s driving the market share gains in fluid? And perhaps if pricing did contribute to the share gain, can you quantify how much that could have been?.

It’s mostly from our actions. I’m just so pleased with our activities across Crane honestly our teams from our niche engineered solutions and what we’re driving within fluid handling specifically, the FKX 9000 Triple Offset Valve continues to win and take share.

We’re doing some great work in the channel making some tough decisions in some cases and relining, partnering and we’re seeing growth and taken some share with channel work.

The team is doing some incredible work around value engineering taking significant cost out of existing product which allows us to compete in areas that we had not been historically and we’re winning, we’re seeing that. We’re investing for growth. We’re putting a new cryogenic testing facility in Belfast Duo-Chek and Noz-Chek operation to attack LNG.

We’re expanding in India specifically focused on aseptic diaphragm valves, which is aimed at the pharmaceutical industry in India. I could go on and on, range of API 620, gate, globe and check valves specifically for refinery.

I mean there's just a level of activity around new product introduction, geographic expansion, channel enhancement, value analysis, value engineering that is winning and working.

Meanwhile we have competitors that historically over the last couple of years have been retrenched mode, focused on taking significant cost out, closing facilities and in some cases we see opportunities because their deliveries are impacted, or quality might be impacted and we’re winning up against that..

That’s helpful.

And then with fluid handling backlog up 9% in the quarter, I mean, what are the puts and takes that should prevent you from seeing high single digit growth in fluid next year?.

High single – we remain a little bit cautious here to talk about our 2018 just yet. We’re entering our plan season here in the months of November and December, Kristine, I love to be able to provide a little bit more on the call.

I would say just broadly speaking, we’re pleased with the progression that we’ve seen year to-date in terms of both orders and backlog and our ability to execute to what we said we were going to do. We would anticipate growth next year per sure. I just – I’d rather not make a commitment here on where in that range of potentials that we would….

High single digit market, I mean, its going to be – where do we think the market is going to be? I think we continue to execute very, very well.

The uncertainty is going to be around just how strong the market is?.

I think, we’re confident to say that we’re going to outgrow the market a little bit. And so, if that market -- if we determine that market is going to be there then I would expect thus to outpace that..

That’s helpful. And maybe one last follow-on. So, when you guys talked about the next $100 million recovery and fluid that’s going to have much higher incremental margins.

With the business that you’ve book so far and with the new product introductions that you have in the pipeline, are you on track for that higher incremental margin on that next $100 million of revenue?.

Yes..

Great. Thank you very much..

You’re welcome..

Thanks, Kristine..

And our next question comes from the line of Robert Barry from Susquehanna. You may begin..

Good morning, Rob..

I just wanted to follow-up on a couple of things. So, in process valves you talked about in refiner some scope narrowing. Can you just give a little more color on that? Is refiner MRO still improving just at a slower pace or what's the story there? And specifically in the U.S.

there's been some concern that maybe the hurricanes pushed out some of that refiner MRO, any comments there?.

I don’t recall – did we say….

I think I did. I said that Max, yes I did..

I think what we meant, Rob, it was around -- we have specific solutions in HF calculation and that’s where we see the wins and the turnarounds. And so I think what you’re referring to is was that narrow scope of HF..

Correct, it’s more on the perhaps niche side..

I mean, maybe the broader question is just what’s happening with refiner MRO, specifically in the U.S.

and whether there was any hurricane impact?.

For us I’ll tell you, we do not see – no, again we’re not -- I think this is where what we’re trying to describe. We’ve not broad-based refinery which is the same degree as others, so I think it would be unfair to characterize our description as tying directly to the market. That’s what we’re trying to portray here.

We did not see a significant impact from the hurricane..

Got you.

And then, also wanted to clarify the message on the Aero margin you talk about 4Q being much stronger, I mean, are you still on track as far as you’re concern for the plan for Aero margins because I think that would have to be kind of from mid-20s in 4Q to get there?.

That’s a good question. I would say that we’re on-track, largely on-track. We’ll probably miss the full-year margin target by a little bit, if I was to say our margin target was 22, if we come in at 21.5 that would not surprise me.

We did 20.1% last year, so it still going to be 150 basis points better than last year on called it a 6%, 6.5% core decline in revenue. So we’re still pretty proud of what we've been able to do there. But yes to answer your question, we’ll probably come off that just a bit, because to hit that 25.

But we do expect a pretty nice sizable uptick here in the fourth quarter..

Yes. Just lastly big picture on Aero, I mean, its been pretty dramatic swings in the last couple of years with the project comp. As we start to kind of frame out next year should we be kind of thinking back to your -- through the cycle target of three to five plus maybe a couple points I think you got the microwave award in 1Q.

Is that kind of what the base case should be at this point?.

Well, we are trying not give guidance. First to say, we’ll definitely see some single-digit growth. I wouldn't parse it is finally as we just did, Rob..

But I think if I’m ask, if I’m hearing your question right, we had some of these big projects, it makes it little bit difficult to convey the message around revenues. This quarter is a perfect example of difficult comp, but I think over the long term we’re not coming off our 3% to 5% target..

Right.

And then next year it would be kind of more of a normal year?.

We would expected to be a little bit of a normal – yes, we’re not going to have the down five and some kind of an adverse mix or comp element really hurt us next year as it did this year..

Yes. All right. Thanks a lot..

Thanks Rob. You’re welcome..

And our next question comes from the line of Matt Summerville from Alembic Global. You may begin..

Good morning, Matt..

Thanks. Good morning. Hey, Max, I think in your prepared you actually called out what you're kind of doing or seeing in the M&A pipeline is being pretty active. Can you maybe speak in a little more detail as to the action ability of what you're looking at? You had some transaction costs hit in the quarter.

You decided to sort of one time out, was that a deals you either missed on price or ended up walking away from. Just kind of talk through the size of the stuff you're looking at.

What business segments you see most action ability? Just to put a finer point on M&A please?.

Well, with what I can, I think activities has been stronger than it’s been from what I've seen in a few years for us. Fluid handling, payment & merchandising as well as aerospace across each of the segments there's been significant activity. There are some very current that we’re working that I think are all actionable.

There is also an opportunity in addition to the cost that we had last quarter. We did have a particular fluid handling opportunity that late in this game, late in the stage we decided to walk away from for various reasons. And again, it relates to our discipline, our discipline on value, our discipline on the targeted acquisition.

So, I think we remain very discipline. I'm very pleased with what we what in the pipeline and we’ll keep working our process, but across each of the three major segments that we focus on strategically..

And then just getting back to fluid handling for a second, if you look at the level of activity you're currently seeing in your end markets, can you look at kind of the revenue run rate of the business today, over what time horizon would you need again bearing in my current and market conditions in order to get fluid handling back towards the mid-teens operating margin? Or what kind of revenue run rate you feel that you need given over the last several years you've done something structurally to improve the business et cetera.

So I would imagine the run rate you need today is less than what you would've needed five years ago, but maybe if you can speak to that place?.

Yes. If I can try to take that here, so it pleasing to us to see the 4% as expected for us, a 4% core growth in the quarter, looking at the run rate over the last several quarters certainly that’s not we’re going to need to be able to hit that that mid-teens margin. But we’re starting to see some of this core growth come through.

If we’re at this 3%, 4% and look at that as a proxy to what could happen over the next several years or couple years. We would expect to get to that 15% or 14%, 15% margin target within the next three years at most..

Great. Thanks, guys..

Thank you. And our next question comes from Nathan Jones from Stifel. You may begin..

Good morning everyone..

Good morning, Nathan..

Guys, I wonder if you could just talk a little bit more about the price cost dynamic across the businesses. We've had a lot of companies so far talking about drag from rising steel prices and inability to pass that through.

If you could just maybe give us a little bit more detail on the impact of that across the segments?.

Sure. So, yes, obviously it’s been a headwind for all of us. As we look at – what we’ve been able to do within the segments at Crane, successful in putting price increases in through various elements of our fluid handling business, offsetting quite a bit of material cost increase.

I would say probably net-net or probably a little bit less than we would've liked, but the net impact after putting through price increases against those commodity costs raises in that segment in particular is nominal. If I cascade across the rest of the business, our Aerospace & Electronics, it’s all programs driven.

You sort of have to pull yourself away from that given it is tied to specific programs and agreements that we have in place for long durations. And then you left with Payment & Merchandising and in our payment I mean, look where our margins are.

We’re not really concerned about any inability to increase, in fact we’re pushing price increases given the value of the products to where it needs to be not withstanding any kind of cost increases we might have. So those I would say the big elements of where price impacts us across Crane and we feel pretty good.

The other side of it is where we’re not getting it perhaps, in some cases we’re seeing foreign exchange sort of help us offset a little bit. And some time that foreign exchange has changes over time, creates its own foreign exchange – sorry, commodity cost headwind, right, depending on where you’re buying from.

But overall net-net to answer the question, we feel pretty good about the balance between foreign exchange pricing and commodity costs. And I would be….

Okay. On the….

And I would be….

Go ahead..

And I was going to say we feel that way as we think about next year..

Okay. On the Payment & Merchandising business margins are pretty well outperforming your goals that you light out at the start of the year.

Where should we think about the long time margin level of that business can attain?.

Yes. We’re still comfortable with 18% to 22% target and clearly we feel pretty good about the high end of that range today. Year to-date we’re at 21.2%. I think that’s about 70 basis points higher than our guidance overall.

As I mention a little bit earlier we do expect to come off a little bit in the fourth quarter in that segment just given the mix -- some of the mix elements that we see, and we’ll likely finish in the full year about 50 basis points better than our guidance.

So, we’re going be our guidance overall and not terribly so, 50 basis points is nice, but its not way out of range I would say..

But no change on the long-term target and teams continue to focus on growth and with significant new product introductions planned and the business models that we’re continuing to work that it's all focused on the growth as well..

Okay. Just one more, Rich you helped a little bit with probably the full year, A&E margins coming in a little bit lower than anticipated at the start of the year. Its look like probably the top lines going to come in a little lower than you’d anticipated at the start of the year.

Can you give us any help with where you think that will end up at the end of the year?.

Yes, sure. Yes. At the end of year we guided to down 5%, I would expect this to probably fall in the 6% to 6.5% range down on the year..

That's helpful. Thanks very much..

You’re welcome..

[Operator Instructions] Our next question comes from the line of Ken Herbert from Canaccord. You may begin..

Hello. This is Jamaine Aggrey calling in for Ken. Good morning..

Good morning..

Most of my questions have been asked, but I guess one question I had was – in terms – in Aero segment, could you talk a little bit about some of the new business opportunities you saw in the quarter? Or you foresee going forward? And I guess along those same lines kind of the any retrofit trends you saw on the quarter going forward?.

Well, look, there’s a number of opportunities both existing. As we’ve described numerous times on our Investor Day, we really feel we’re well-balance. We’re working our existing programs. We’re working product development for new programs and single significant content, COMAC, E2, 737, Cessna 777x. So, all that activity continues.

Meanwhile within a quarter and we continue to look at technology insertion and opportunities across each of our solutions; landing, sensing, fluid, power, cabin that the team is chasing.

Some of its military programs, some of it is on next-gen programs, next-gen engine programs of which we may get some funding on that we are looking at, participating in, space is particularly strong right now in modular power.

We've had some military releases in our high-voltage, high-power business segment around some missile programs as well as high-energy. So there’s a broad breadth of opportunities that we’re continuing to chase, that's resulting in some immediate opportunities, some longer-term.

And then, I'm very, very excited about how we’re strategically positioned within Aerospace and Electronics.

How far we’re thinking ahead strategically even the long cycle that we have in this industry, we’re already positioning ourselves in terms of technology development that is already aimed at the next-gen single-aisle aircraft, which is at least a decade away.

That's how long -- this long thinking and long-term planning and execution our Aerospace and Electronics team strategically plans for and executes on. So just to highlight that it's more than just the immediate quarter opportunity. It really is a multiyear plan of opportunities that we go after..

All right. Thank you. Thank you for the color..

Thank you..

Thank you. And our next question comes from the line of Jim Giannakouros from Oppenheimer. You may begin..

Hi. Good morning, everyone..

Hi, Jim..

Doing well. Thanks for letting me sneak in here. You cited vending market softer and sorry, if I missed it, but can give us an update there with maybe some finer points on what you’re seeing there.

We entered the year thinking it could sustain growth that it established in the last couple years, but not quite sure exactly what's working against you there and do think it's temporary? Thanks..

Thanks, Jim. So, we have some strong comps last year, number one, with some major programs. We've seen – its part of this business, we talked about some of the spikiness with some of our more major customers. Sometimes there is some capital allocation decisions that are made that impact on the short term.

We believe that it's deferred spending only and that it will come back and will pick up, but we see couple movements with some major customers that slowed some of the spending decisions down and we still feel really good about where we’re positioned the full solution, media, connected machines driving incremental sales volume, our customers understand the value proposition and we do believe that it will come back..

Thank you. And another one if I may.

You mentioned that the acquisition pipeline is pretty full and that you’re working three out of the four segments, but from a divestiture standpoint are there sub-segments within the segments? Or there are certain product lines? Are there any areas that you’re considering rationalizing? Or is your business portfolio pretty much.

How we should be thinking about it for the intermediate term?.

Yes. We like portfolio and no divestiture discussions at this time..

Thank you..

Thanks Jim..

And I'm showing now further questions at this time. I would now like to turn the call to Mr. Max Mitchell, President and CEO for closing remarks.

Thank you, operator. We are pleased with our performance. Our businesses are executing extremely well and our teams are focused on our growth initiatives. I’ve talked before about how we operated Crane with a prescriptive and rigorous discipline cadence of management activities focused on continuous improvement.

This focus results in consistency of execution across the cycle. That is one of our key differentiators as a company. Our consistency of execution freeze-up our teams to accelerate and drive innovation and engineering excellence. We will continue to communicate this differentiation to our investor base.

But I was recently reminded of the wise words of the late great Jerry Lewis who once commented for those who understand no explanation is needed, for those who don't none will do. However, we will continue to highlight what makes Crane special and differentiates us as an organization.

I look forward to speaking with early next year on our fourth quarter earnings call in late January, and then at our Annual Investor Day Event scheduled for March 1 in New York City. Thank you for your interest in Crane, and have fantastic day..

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