Jason Feldman - Director-Investor Relations Max Mitchell - President and Chief Executive Officer Richard Maue - Chief Financial Officer.

Kristine Liwag - Bank of America Merill Lynch Walter Liptak - Seaport Global Damian Karas - UBS Adam Walsh - Stifel Nicolaus & Company Breindy Goldring - Wolfe Research Robert Barry - Susquehanna.

Good day, everyone and welcome to Crane's Fourth 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 fourth quarter 2017 earnings release conference call. I’m Jason Feldman, Director of Investor Relations. On our call this morning, we have Max Mitchell, our President and Chief Executive Officer; and Rich Maue, our Chief Financial Officer.

We will start off our call with a few prepared remarks after which we will respond to questions. Just a reminder that 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 on the accompanying slide presentation, both of which are available on our website at www.craneco.com in the Investor Relations section.

I would also like to invite you to attend our Annual Investor Day events on the morning of March 1st. Please contact me directly if you would like to reserve a place at the conference. Now, let me turn the call over to Max..

Thank you, Jason. Well what I can say but wow, we had a great finish to the year and a lot of really exciting opportunities where we are moving forward on many fronts. There are a lot of moving pieces in today’s results. So please bear with us as we do our best to help you understand the entire story.

As outlined in our press release last night, I’m pleased to report that Crane’s fourth quarter EPS, excluding special items, was $1.18, up 16% compared to adjusted EPS last year. Sales of $714 million increased 5% compared to last year with 2% organic growth and the balance from foreign exchange and acquisitions.

Operating margins excluding special items of 15.2% increased from 14.8% last year. On a full-year basis, we set three new records in 2017. First, 2017 EPS, excluding Special Items, increased 7% compared to last year to a record high $4.53.

Second, full-year adjusted operating margins increased 70 basis points to a record high 15.2% reflecting strong execution and our culture of continuously driving operational excellence, notwithstanding through any of the end-markets that are still at depressed levels.

And third, free cash flow increased to a record high $269 million reflecting outstanding working capital performance across our businesses. I’m very proud of our performance during 2017 and I’m extremely excited of healthy opportunities we have ahead of us in 2018 and beyond.

We expect our core business to execute well in end-markets that are generally showing modest growth. In addition, the Crane Currency acquisition is now closed and we expect substantial accretion over the next few years. Tax Reform will also be a meaningful benefit for Crane.

The new tax rules will improve our profitability, give us greater flexibility to move and deploy cash where it is needed and it will enable us to accelerate investments for future growth. Further, we have initiated proactive repositioning measures to ensure that we are best able to meet customer needs and future demand.

Taken together, we believe these factors should contribute to double-digit earnings growth for the next several years, even before including potential benefits from further capital deployment.

Taking all these factors into account, we expect 2018 EPS, excluding Special Items of $5.35 to $5.55 reflecting more than 20% adjusted EPS growth from 2017 at the midpoint of the range. Impart, to reflect our confidence in our outlook, we also announced yesterday we are raising our dividend by 6% for the first time since 2014.

Let me walk you through some of the pieces, starting with our core business. Overall, our businesses are executing well. As I mentioned, we had a record adjusted operating margin in 2017 and we are making great progress on our continued efforts developing new technology, introducing new products, pursuing new markets across the portfolio.

Fluid Handling performed modestly better than expected. As we have discussed previously, we believe that end-markets bottomed in 2016 and we saw a solid sequential improvement in the first quarter. Orders in the second, third and fourth quarters rose meaningfully year-over-year, but were generally consistent with Q1 order levels.

We continue to believe that about half our order growth this year is already the share gains with the other half underlying market improvement. While order rates and backlog levels are meaningfully above 2016 trough levels, a pace of future improvement is still a little unclear.

We expect modest core growth in 2018 driven by share gains and end-markets that are growing slowly. As the rate of recovery is slower than in prior cycles. We are executing well in this business, both operationally and on growth initiatives and we will deliver a very good leverage rates on core growth moving forward.

Overall, we believe we are on-track to return to mid-teens margins in this business. At Payment & Merchandising Technologies we have yet another great year in 2017.

Full-year core growth of 6% followed 8.5% in 2016 and 6% in 2015 and we have delivered this level of core growth despite softer merchandising markets and a slower than expected roll out of the large retail project. Along with solid growth, we have record adjusted segment margins of 20.8% last year.

This team has done a great job since the MEI acquisition in 2013, adjusted margins for this segment have nearly doubled. In this business, we are making good progress on a very wide range of growth initiatives from new product introductions to entering new markets and in some case actually creating new market opportunities.

We continue to see broad based strength in demand for retail self-checkout solutions. These solutions have a proven value proposition for retailers and have become accepted as the norm by retail customers. As retailers face numerous challenges from e-commerce to store saturation, They are increasingly focused on productivity.

We also continuing to see growth in application fee on traditional retail self-checkout such as with our retail pay tower business, a solution that is typically used in smaller retail stores.

Beyond retail, we remain very focused on developing and commercializing digitally connected applications where we have a very strong position particularly in the vending and gaming markets.

Despite extremely challenging comparison following three years of mid to high single-digit core growth we expect, further core growth in 2018, but at a more moderate rate. At Aerospace & Electronics, we are very well positioned and this team is also executing very well.

In 2017, we had challenging comparisons from both the 2016 completion of the Space Fence project and the end of certain modernization and upgrade programs along with cabin markets that was softer than anticipated. Despite those challenges, margins improved 170 basis points last year.

Turning to 2018 in this segment as previously discussed, we have another large ground based radar program for our microwave business and we expect growth across our commercial business as the ramp up of the new narrow body aircraft models continue.

It’s been exciting time for this business, following years of investment in a large number of new aircraft platforms including a 737 max, A-320 NEO, C-919, E-2 these major development programs are completed or nearing completion positioning us well for growth as volumes continue to improve.

This shift is also freeing up engineering resources to focus on a number of next generation technologies, ensuring that we will remain a critical partner for our customers well into the next aircraft development cycle sometime in the next decade.

We are also seeing continued opportunities for technology insertion on both the commercial and military side of our businesses. At engineering materials share gain and further growth in the ARV market contributed to 7% core growth in 2017 above our expectations, although the benefit was muted somewhat by rising resin costs.

At this point, we expect further growth in the RV and building products markets in 2018, we continue to focus on new colors and formulations for new products and our best-in-class service levels continue to be a major competitive differentiator.

Overall, our core business is positioned well where we expect 2% to 4% organic growth in 2018 with solid core operating leverage. Across the business we continue to drive productivity, invest in technology and execute on numerous growth initiatives.

Turning to Crane’s Currency, we closed on this acquisition second largest in Crane’s history in early January, while it has only been a few week we have been very pleased with that we have seen so far. This is a great business and it’s an excellent fit to compliment our standing presence in the currency and payment markets.

Like most of our businesses Crane’s Currency has sophisticated proprietary and differentiated technology. We are very happy with the Crane Currency team, the integration has gone smoothly to-date and we have been impressed with the strength of the leadership team. Crane Currency is a well run business.

That said, we have already begun working with them on ways to improve operations and have held several events to develop a roadmap for operational improvement across several sites. In a number of areas, we are prioritizing and accelerating investments and site improvements.

We are encouraged by the progress of the new bank note printing facility in Malta. This site is on-track to begin operations later this year, enabling growth and improving the underlying cost structure.

And we continue to be impressed with the Crane Currency Micro-Optic Technology, which are incredibly sophisticated and highly engineered security solutions utilizing microns thick multi-layer film and resin-based features that have never been successfully counterfeited.

Crane Currency is an industry leader with this technology and we see many opportunities ahead. Louis Pinkham will discuss this business in more detail on Investor Day. But we see good opportunities for growth, innovation and margin improvement.

For now, we are comfortable with our accretion forecast of $0.15 in 2018 with approximately $1 annual accretion by 2021. Moving on to Tax Reform and growth investments. Like many companies, our tax team has been working around the clock for the last several weeks assessing the impact of the new tax legislation.

Based on their work, to-date we are pleased to report that we expect substantial benefits from the recently enacted Tax Cuts and Jobs Act, with an annual effective tax rate of approximately 22%, down from our historical effective tax rate in the low 30s. This equates to an annual benefit of approximately $0.50 per share on our current earnings base.

We feel very good about how the new tax tool will help our profitability moving forward and we are using the immediate benefits from the lower tax rate to accelerate a number of growth investments across our primary growth platforms. These investments primarily include research and development projects and new product development initiatives.

These additional investments would utilize approximately $0.25 of the tax benefit in 2018 and then $0.15 in 2019 with the full $0.50 tax benefit reading through by 2020.

Beyond the EPS impact, the legislation also gives us more flexibility to move cash back to the United States, easing the constrains of balancing domestic cash flow with domestic cash needs for corporate expenses, interest expense, dividends, repurchases and the steps of payments.

In the near-term our priority for capital deployment should reduce our debt levels following the Crane Currency acquisition. Longer term, however, we expect to have substantial opportunities with more flexibility for capital deployment than we have had in the past. Turning to Repositioning. Our core business is performing well.

The Crane Currency acquisition is off to a great start and the Tax Reform bill help our profitability, fund additional investment and give us more flexibility. But as you all know, as a Company, we are constantly focused on productivity and rationalization where possible.

Along those lines, we are moving forward with certain repositioning activities across our Fluid Handling, Aerospace & Electronics, and Payment & Merchandising businesses. Our relentless focus on continuous improvement has created new opportunities for facility consolidations in these businesses.

Importantly, these actions are proactive, we are not currently being forced to do this by market conditions or financial performance.

However, we expect these proactive actions will improve our competitiveness and profitability, better protecting the rest of our business and helping to ensure that we don’t end up in a situation where we have to be reactive later.

When completed, we believe that our refined footprint will also be in a better position to serve our customers and meet expected future growth requirements. Together, these actions should contribute approximately $0.10 of EPS excluding special items in 2018 growing to an annualized EPS run rate of approximately $0.35 by the end of 2020.

In summary, Crane had an exciting multi-year earning story ahead, our core business executing well, leveraging well in improving markets. Crane Currency acquisitions off to a great start, we expect it to contribute $1 per share by 2021.

Tax reform legislation will contribute $0.50 per year to EPS will that amount fully reading through starting the 2020 and we are accelerating growth investments across our business in 2018. Repositioning actions will add $0.35 per share by 2020 and reflecting our confidence in this outlook, we also announced we are raising our dividend to 6%.

It’s a very busy time but also an incredibly exciting time with an attractive multi-year earnings outlook. We will talk more about this story at our upcoming Investor Day as we try to convey how much we have evolved as a Company. Crane Co.

has a rich history of past, many decades of success and we continue to leverage that history from our unwavering commitment to ethical behavior, a track record of engineering excellence and innovation and extremely strong heritage brands, but we continue to evolve.

And today, we are more focused than ever on growth initiatives in our three primary platforms and have delivered record results, and importantly we have positioned Crane for an ever brighter future, ensuring we have the right footprint, are investing in the right technologies and with the right operational foundation.

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

Thank you Max. As Max mentioned, we have all been very busy in a good way and the team is very excited about the opportunities we have ahead. I will provide you all with a little more color on the fourth quarter and some insights into our performance.

Before I begin, unless I mention otherwise, my comments about our business unit performance this morning will be comparing the fourth quarter of 2017 to 2016 excluding special items as outlined in our press release, slide presentation and the accompanying non-GAAP tables and after my comments on our segments, I’ll provide some additional details on our 2018 outlook.

Starting with Fluid Handling, fourth quarter sales of $272 million increased 13% reflecting core sales growth of 7%, a 4% benefit from favorable foreign exchange and a modest net benefit from the West Lock acquisition. Operating profit and food handling increased 12% to $31 million with operating margins at 11.5%.

On a full-year basis, Fluid Handling delivered 2% core sales growth with margins flat compared to 2016 at 12% reflecting volume and net productivity offset primarily by negative mix. Fluid Handling backlog was $262 million at the end of December compared to $228 million at the end of 2016 after adjusting.

After adjusting for foreign exchange, the backlog increased 9% compared to the prior year. Excluding foreign exchange, orders increased 9% in full-year 2017 compared to 2016. However, as Max noted, orders are for fairly consistent on a run rate basis throughout 2017.

Looking through 2018, we expect 4 % growth with a 3% increase in core sales of Fluid Handling together with an approximate 1% impact from favorable foreign exchange and a small carryover benefit from the West Lock acquisition.

We expect margins of approximately 13% reflecting good operating leverage with repositioning benefits roughly offset by accelerated growth investments. Moving on to Payment & Merchandizing Technologies. Sales of $194 million were approximately flat compared to the prior year. Core sales declined 2% offset by favorable foreign exchange.

The core growth decline primarily reflected extremely challenging comparisons for the fourth quarter of 2016 which reflected core growth of 16%. Segment operating profit of $38 million declined 2% from last year with operating margins down 30 basis points as expected to 19.4%.

On a full-year basis, Payment & Merchandising core sales increased 6% with operating margins up 260 basis points to 20.8%. For 2018, we expect core growth to moderate to approximately 2% on difficult comparisons following three very strong years of growth.

This forecast assumes continued shipments on the large retail project from 2017, but at a lower amount than we saw last year. We also expect Crane Currency to contribute approximately $400 million in sales.

With the Crane Currency sales and associated estimated intangible amortization of approximately $23 million, we expect segment margins of approximately 16.5% in 2018. We do expect substantial margin improvement over the next few years here and we will discuss our longer term outlook for the segment from a margin perspective at Investor Day.

Aerospace & Electronics sales declined 1% to $185 million driven primarily by tough comparisons related to the 2016 Space Fence program, as well as military modernization and upgrade programs. Segment operating margins were 24.7%, up from 21% last year due largely to very strong productivity.

OE sales declined 2% on difficult Space Fence comparisons, but after-market sales increased 2% led by strong commercial spares growth. The OE to after-market mix was 70% to 30% comparable to last year.

On a full-year basis, sales declined 7% but margins increased 170 basis points to 21.8% with lower volume more than offset by productivity and more favorable mix. Aerospace & Electronics backlog was a solid $374 million at the end of 2017 compared to $353 million at the end of 2016.

For 2018, we expect 5% core sales growth at Aerospace & Electronics with segment margins of 21.5%. Engineered Material sales increased 5% to $63 million in the quarter. Operating margins declined 150 basis points to 15.9% reflecting higher resin prices.

On a full-year basis, sales increased 7% with operating margins of 18% compared to 19.1% in the prior year. For 2018, we expect 2% core sales growth with margins approximately flat compared to 2017. Turning now to more detail on our guidance.

As Max mentioned, our revised 2018 guidance, excluding Special Items, is EPS of $5.35 to $5.55, an increase of 20% from 2017 at the midpoint of our range. Our guidance assumes total 2018 sales of approximately $3.3 billion, up 18% compared to 2017.

Core growth is expected in a range of 2% to 4% with a 15% or approximately $400 million contribution from Crane Currency and a modest benefit from favorable foreign exchange. Operating margins are forecasted to decline to 14.7% from a record 15.2% in 2017.

That decline however, reflects a very strong improvement in the underlying core business and approximately $8 million repositioning savings that are being more than offset by approximately $20 million of accelerate growth investments and the first year of Crane Currency.

While Crane Currency will be initially dilutive to margins, it is well positioned for future growth in both sales and profitability. Remember that a lot of our 2018 activities are setting us up for years of growth ahead and we are managing the business for the long-term and we are still able to guide the 20% EPS growth for next year.

To put some of these items in context, the only reason we aren’t guiding to a new record margin level is because of the 20 million of additional growth investments. For your reference, we have included a page in our materials posted on our website this morning where we provide a business segment view of both sales and operating margins.

We expect an effective tax rate of approximately 22% and a diluted share count of approximately $61 million, net interest expense will be approximately 57 million. Our free cash flow in 2017 was extremely strong and above our expectations at $269 million.

For 2018, we expect free cash flow in a range of $220 to $250 million down 13% at the midpoint from 2017 reflecting the impact of repositioning and acquisition integration cash costs along with elevated capital spending related to repositioning, growth investments and the Malta of startup at current currency.

Total capital expenditures for 2018 are expected to be approximately $125 million. We do expect capital expenditures to decline from these levels in 2019 and revert to a more normal 1.5% to 2% sales by 2020. Overall, we are pleased with our 2017 performance and we are planning for an even better year in 2018. Operator, we are ready to take questions..

Thank you. [Operator Instructions]. Our first question comes from Kristine Liwag with Bank of America Merill Lynch. You may begin..

Good morning guys. Max I would like to understand the moving pieces in Fluid Handling in the quarter. I guess I was surprised that profit margin excluding the special items are flattish, even the revenues grew 13%. I would have thought that your repositioning actions in the past would have created higher incremental margins.

Were there any pricing issues or execution problems that could have hurt performance in the quarter?.

Yes, Kristine its Rich. From a Fluid Handling perspective in the quarter we grew at 6% from a core perspective. I think if you add in the foreign exchange perhaps that part of the issue, you know you leverage a little bit differently on that foreign exchange.

But on the growth from a core perspective, what hurt us in the quarter that was just a mix in-between the business that actually participated in the growth for the quarter. So we saw some really nice double-digit growth in Crane supply which followed the exceptional third quarter growth as well.

And as you know with the distribution business for us, it doesn’t leverage the same as say our core process valve business does. Our core process valve business actually did grow for the first time in the quarter, but at really a low rate and that’s a business where we do see that exceptional leverage rate.

The other business that I would point to that pulls down the leverage rate a bit in the quarter would be our Valve Services Business which from a seasonality perspective in the quarter was lower than it was say in the second or third quarter.

So I think the way to think about it is, nothing unusual from a pricing perspective, cost perspective it was just largely around mix among the different businesses that we have in the segment. And foreign exchange to your question..

And if I can add a second question. From my understanding you had planned to optimize your footprint and reduce cost by 20% in 2016 through 2018, I thought those at previous outlook.

Is the $0.10 in repositioning in 2018 part of this previous plan or is this a new initiative with a different expected return in reduction of cost?.

Yes new initiative with new expected return and cost..

Could you provide your expected cost reduction for that $0.10?.

Kristine, I’m not following on the $0.10 question again please?.

So I thought that previously you guys had your 2016 to 2018 plan and that repositioning would reduce cost by 20% for 2016 through 2018. But your new 2018 guidance has $0.10 in repositioning.

So I’m trying to see if this is new or old and if this new, what is your expected reduction in your footprint from that $0.10?.

Yes, so from the older initiatives, we didn’t have any incremental year-over-year benefit in 2018 planned. I would start off with that. From a new initiative perspective, I think you are referring to the new $0.10 that we just discussed on the call.

From that point of view, the way I would think about that as we look forward, not just the $0.10 but even through the period of time through which we will complete these initiatives, it’s roughly about a third, third, third in terms of savings between the segments we are recurring these costs.

From a Fluid Handling perspective and if that’s part of the nature of that question, we are seeing the least amount of benefit in 2018 in that segment, may be 10%, 15% with the balance split among the other two groups..

Great. Thank you very much..

Thanks Kristine..

Thank you. Our next question comes from Walter Liptak with Seaport Global. You may begin..

Hi. Good morning, guys. One just as a follow-on to that rationalization question. In 2018 you said $0.10 of EPS.

I just want to make sure I understood that as a benefit and if it is a benefit, is it a benefit net number like is it net of special charges?.

So that is the benefit that were expected to see in the midpoint of our guidance if you will. So if the midpoint of our guidance is 5.45, included in that is $0.10 of benefit that’s going to read through associated with these actions.

That $0.10 split as I just mentioned on the last question to Kristine, or answer to Kristine, at a roughly 10%, 15% in Fluid Handling and then the balance split evenly among the other groups. The cost associated with this program for next year were not included within that $0.10..

Okay.

And the cost, are we going to see them for second quarter or is it spread throughout the year?.

It will be fairly spread throughout the year. We did take a net charge here in the fourth quarter to accrue for certain costs associated with the program that you will see in the earnings release that was released last night. So there is a piece that was recorded.

We anticipate roughly another $10 or so million, might be closer to $12 million actually or $11 million, sorry about a $11 million in full-year for the entire Company is related to the program..

Well great. Okay. Alright thanks for the clarity on that.

I wanted to ask about in the payments business you know I guess thinking about the margin for next year, and can you talk to us a little bit in more detail about what is impacting that margin and maybe timing of orders that you are expecting throughout the year to get to that growth rate that you guides to..

Sure Walt. From a margin perspective, it’s a combination of the growth investments that we had covered during the prepared remarks and impact of the Crane Currency acquisition.

What I would point out or highlight is for the Crane Currency acquisition there is quite a bit of incremental amortization expense that’s included in the margin profile that results in the guidance that we gave.

I would also point out that there is quite a bit of unabsorbed cost I would say in the Crane Currency business for next year that we would expect to expand when you think about 2019 and 2020 relative to starting up operations in the Malta facility. But I think the way to think about this is it’s the reason for the lower margin profile next year.

It’s the reinvestments in the business coupled with Crane Currency which includes quite a bit of intangible amortization expense..

Okay.

Are you going to be with any kind of purchase accounting or any one-time things where you would be carving those out in the first, second quarter?.

Yes, we will be very clear about that, we will try and provide us much more or lot more transparency around those figures at Investor Day to ensure that everybody has the right numbers. Clearly as you might imagine we are in the midst of completing that work.

I think the most salient number for you right now is that $23 million of intangible amortization but there will be other things like amortization associated with stepping up other assets and things of that nature and other cost associated with the integration.

So we will guide and give more clarity on that at Investor Day and try to break up those pieces for you..

Okay, great. And just a last one. In the quarter P&M business the orders were down a little bit in the fourth quarter and I wonder if you can talk specifically about the core P&M business in just kind of the order visibility for the year.

And I think you alluded to a large project you know that’s going to be a little bit down year-over-year, but does that come into expectations, is it at the margins we were hoping for?.

Yes, so maybe I will start with the second half of that question and then I will go back to the order profile.

So on the large project, there is nothing different that’s happening here relative or to relative to our prior conversations around the program, so it’s a wonderful retail opportunity where we are delivering a fantastic solution to somebody in the retail space.

Benefitted us quite a bit here in 2018, its going to continue to benefit us next year but at a much lower rate, so hence the reason for the down - core growth guidance for next year and the profit associated with the margin associated with that program is healthy, it’s what we would expect to see.

As it relates to the order profile in the business in the quarter, so what we started to talk a little bit more about in the last quarter call and even in some of Max’s prepared remarks today was some headwinds that we are seeing in vending.

So overall, we had core growth in our payment business where we are lacking or didn’t see core growth within our merchandizing business. And the way I would think about it that is it was a challenging year this year where some of our larger customers cut CapEx, made some decisions and they are in the process of resetting those expectations for 2018.

So we feel pretty good about next year and I think that’s taken into context of the good profile growth that we saw in payment, may be it helps you understand a little bit about the down 2% in the quarter..

Okay, sounds great. Okay, good luck for the year, thank you..

Thank you Walt..

Thank you. Our next question from Damian Karas with UBS. You may begin..

Hi. Good morning, everyone. So in Fluids, your order book finished the year quite strong and you are starting to see that reflect in the organic growth rate in the quarter.

I was just wondering given the momentum you are seeing kind of closing out the year here, if you could provide any color around what seems like it could possibly be a conservative 3% guidance number for 2018?.

Yes, I understand the point or the question. I think the way to look at this is to look at the sequential order rates that we saw exiting 2016, coming into 2017 and then the profile of orders in each of the quarters up to today.

If you look back, we really saw a first step up in the order profile in the first quarter and since the first quarter it’s been relatively flat, okay, big picture it’s been relatively flat, Q2, Q3, Q4, however, it’s comparing very favorably to 2016.

So we are consider that in our guidance estimate for next year, we don’t see the year-over-year benefit on comps in 2018 like you see in 2017, I think is the simplest way of putting it..

And I would add that Damian, so as we think about the forecast for 2018 and this question about conservative while we haven’t seen any inflection point in orders quite yet, we certainly feel better about the end-markets.

We feel a little bit better about what we are seeing in terms of project activity where we have been tracking projects for many years. No matter what stage they may be in, there seems to be new activity around those projects in whatever stage they may be, so that’s encouraging.

MRO activity picking up a little bit, some distribution orders that seem to be picking up a little bit. So we don’t believe There is going to be a significant inflection point. I think it’s going to be slow steady, very little risk of any type of softening, we will continue to execute, we think we have got Fluid Handling dialed in being pretty well..

Okay, that’s helpful and on accelerated growth investments you mentioned R&D and your product development, you quantified sort of the EPS impact next couple of years here.

I was just wondering if you could may be provide any additional color on the areas of focus or the product offering where you are targeting these investments?.

In any business, there is always a prioritization of affordability versus initiatives and every year we have coming out of our strategic planning process those things that we have decided we are going to do and those things that we close calls that we decide to potential defer, hold on, hold for another year.

We looked at the opportunity with the Tax Cut Jobs Act and I think very consistent with what we are hearing from very large shareholders in terms of making sure that we continue to stay very focused on the long-term versus just short-term quarter-to-quarter and we have made a strategic decision to go back to that list of initiatives that we have in our businesses.

And have allocated roughly 40% in Aerospace & Electronics, 40% to Payment & Payment & Merchandising Technologies and 20% to Fluid Handling. So kind of a 40/40/20 split across three segments.

If I start with Aerospace & Electronics, what we are looking at it there is modernization and upgrade opportunities that typically from an affordability standpoint you would ask the customer to fund. I mean it’s always a price discussion, either they fund, we fund but it’s going to be reflected in price.

They are always really good, it’s a good return on investments, it’s a really good business model. The question is does the customer want lower pricing later and fund it upfront or is it we fund and its higher pricing later.

And in this case we believe there are some opportunities for us where we normally would have gone to a customer and said we are bidding this with customer funded engineering that we can win some opportunities here if we fund and so a lot of this is in engineering, engineering expense and in the U.S.

So that’s an example of aerospace, MNU and some technology. On the payment innovations side, it’s a combination of accelerating existing [NPD] (Ph) initiatives. So by additional resources on we want to pull in some of the growth initiatives we do have.

Its accelerating some market expansion with a new product introduction in a new market outside the U.S. and it’s also developing some new technology in the - we will provide a little more color on Investor Day, but in the connected space within one of our solutions from a cloud connectivity standpoint.

In Fluid Handling, again it’s a combination of accelerating some existing new product, one particular new product development initiative at West Lock on the control side and then a localization decision to have late stage assembly in Saudi Arabia.

So a nice combination of investments that really sets us up for even further growth to read through and some of this will start to read through even as soon as 2019. Hope that helps a little bit..

Yes, I know that great, very helpful color. Thanks gentlemen..

Thank you..

Thank you. Our next question comes from Nathan Jones with Stifel. You may begin..

Hi good morning and this is Adam following on for Nathan. [indiscernible] that the Engineered Materials business was a source of domestic cash which I think help service I think helps service [indiscernible] liability.

With deem repatriation, how does this change in the access of foreign change and the way the Company views hone in the Engineered Materials business..

Yes, you know nothing changes Adam. I think we like the existing portfolio, we like the businesses that we are in.

We have said before is it a strategic focus for additional bolt-on, no we are focusing on other three business segments, but Engineered Materials as a matter of fact I would point to the fact that we continue investments in new formulations, new products.

We are undertaking a quite a strategic initiative at one of our facilities to driven an industry 4.0 types process improvements, complete controls of an existing facility that will drive further efficiencies and improvement. So I feel pretty good and we are certainly not treating the cash though we continue to investor growth.

Having said that, I can assure our shareholders I’m very pleased and proud of a level of discussion at the Board that we will continue to act as our own activist investor constantly questioning strategy direction portfolio to maximize shareholder value and we will continue as we move forward..

Alright, that’s helpful and then just turning to monetization and upgrades in Aerospace and Defense.

Do you have dome of the line of sight or visibility on any larger scale upgrade cycle similar to like the B-52 upgrade cycle?.

There is a number of things we are chasing, nothing is large as that. But I’m pretty excited about the technology insertion across landing, sensing, a lot of sensing opportunities that we are chasing, exciting opportunities in fluid, I mean no one produces lube and scavenge pump like we have. We are on some advanced engine developments work there.

Power conversion opportunities that we are chasing. A lot of smaller initiatives, I wouldn’t say any major large program upgrade.

Do you agree?.

Yes, I think that’s a fair composition. Yes..

Alright. Thanks for taking my question..

Thank you. Our next question comes from Josh Pokrzywinski with Wolfe Research. You may begin..

Hi, this is Breindy Goldring on for Josh. Good morning. I wanted to get back to Fluid Handling guide. So this year there was a lot of strength in non-resi markets in Canada non-oil.

But with oil prices getting better and process spending internally getting better, how should we think about that guide for next year? should we think about in more mid to high single-digit growth in process industries offset by a tough comp in the other portions of the business?.

No, not necessarily. I think first I would say that oil and gas - our exposure directly to oil and gas is much different at Crane versus some of the others may be in the space where you could be seeing that kind of growth, right. We don’t have process pumps and things of that nature.

So where we are in the flow loop would not support that kind of impact relative to where the price of oil is. So I would start with that.

From a process valve perspective which is about half of what we have in Fluid Handling, I think the commentary that I had earlier follows pretty significantly specific to that particular part of the business in terms of the sequential order growth profile that we saw.

In other words, the step up change we saw in Q1 and then consistency from Q1 through Q4. And then building on Max’s comments with respect to activity, we sort of feel like that’s going to give us some momentum. On the other businesses, maybe there is a little bit of tough comp headwinds that I wouldn’t look at it that way.

I think again its year-over-year with those comps arrived from 2017 to 2016. We are at a level in those businesses as well but I think in terms of the demand that we see in the profile supports the 3% on a core basis for the rest of the business as well..

Okay. That’s very helpful. Thank you. And then just on Crane Currency.

Can you help me walk through the $0.15 accretion number? How we get to the $400 million in sales?.

Sure. So when we first talked about the $0.15 we had disclosed what the impact or what the business size was back in -- I think it was early December. The revenue profile of this business is roughly $400 million for us in 2018.

When you look at the EBITDA of the business and adjust to that difference of revenues from what we had previously disclosed the $500 million down to $400 million, just that impact alone has about a $0.15 impact that you have to deduct away from the balance of the business.

So if you started with an EBITDA value comparable to the $500 million and pulled the way to depreciation and amortization that’s inherent in the business in particular with the amortization expense, incremental interest expense I would call it roughly $15 million and then a tax rate you get to basically a net income value of around $20 million.

So with that 20 then offset by that other 15 that I mentioned in terms of $0.15 you get to a net $0.15 number overall for the business. There is a lot of moving pieces here, I understand that, but we can perhaps walk you through that in a little bit more detail at another time, but those are the biggest components.

A lot of DNA, a lot of interest expense and then a lost contribution from the $100 million difference in the top-line..

And how much of the growth investments are attributable to Crane Currency alone?.

Reinvestments, none zero. There is other investments that we are making in that business, but it’s not connected to the reinvestments that are attributed to the Tax Cuts and Jobs Act..

Okay. Thank you..

Thank you..

Thank you. Our next question comes from Robert Barry with Susquehanna. You may begin..

Hey guys good morning. Actually just a quick follow-up there.

What or did you say is the tax rate changing in that Crane Currency P&L given what happened with tax reform?.

Its modest, it’s a modest impact, it’s probably a couple of pennies at the most..

Got it. Just a one or two chat a little bit about aero, I know generally you are kind of through the cycle expectation is three to five. I think the microwave award is adding what maybe what two to three in 2018. So what is holding back the underlying growth there kind of that macro award..

Yes, so you hit that pretty close actually so on the 5% guide about half is from the microwave program that Max mentioned in his prepared remarks and which we talked about previously.

You know we do see some decent commercial OE growth next year driven by the single isle ramp up as you might expect, but there are still some MNU comparisons that will even hit us again next year as it pertains to 2018.

We will provide a little bit more color I think Rob to you guys at Investor Day, but so we still see some good commercial OE growth and we don’t see a whole heck of a lot from business jet, it’s not a big mover for us and that’s basically how we arrive at that balance of 2.5..

Having said that I think that you know while I think Fluid Handling is kind of at the right level. There are some signs here that we might have some slight momentum here building in A&E that could be positive. So it feels good..

Got it. And just on as you mentioned lots of moving pieces this year but on an kind of adjusted basis of earnings. Anything to keep in mind about seasonality of earnings this year. I think historically 1Q is like 22% to 23% of the year.

Is that been a hold for this year?.

That’s a good question. It’s one that we have talked about here, if we just look at our underlying business, it’s a little bit better that it was in prior years, but not a lot you know I think last year for example I think our earnings, our EPS in Q1 was roughly 23%.

It’s going to be higher than that on a base business and as we see the actual plan unfolding. We are continuing to do a lot of work as you might imagine Rob on Crane Currency and how that $0.15 parses out through the quarters this year.

And we will provide quite a bit more detail in that regard - the appropriate level of detail in that regard at Investor Day as well, as we get closer to the business..

Got it.

So for now, should we just assume the $0.15 from currency is kind of pro rata for the year?.

Yes, I think that’s a good equation..

Yes, okay. Great, thank you..

You are welcome..

[Operator Instructions]. And next question is a follow-up from Walter Liptak with Seaport Global. You may begin..

Thank you, guys. Now just a quick follow on in the Payment & Merchandising, you called out that retail self-checkouts still stronger, the retailers are looking for productivity, labor productivity, which makes sense with rising wages and competition.

I wonder if you could comment at all about just sort of what you are hearing from your customers, are they willing to make investments? The U.S. Tax Reform may be free up some capital for them to make investments into their self-checkout..

I don’t think we hear anything related to the Tax Act yet from our customers, that’s a great question and one that I absolutely dialed into or may be give some more color at Investor Day. But clearly there even before the Tax Act on retail, there is an increased willingness to invest. So we have heard that loud and clear from the customers, yes..

Okay, great. Thank you..

Yes. Thanks, Walt..

Thank you and this concludes the question-and-answer session. I would now like to turn the call back over to Max Mitchell for closing remarks..

Thank you, operator, I appreciate it. We had a strong close to 2017. It’s an exciting start to 2018. Crane has an exciting multi-year earnings story ahead. Our core business is executing and leveraging well in improving markets. Crane Currency acquisition is off to a great start. We expect it to contribute $1 per share by 2021.

Tax Reform legislation will contribute $0.50 per year to EPS that will fully read through starting in 2020. And we are accelerating growth investments across our business in 2018. Repositioning actions will add another $0.35 per share by 2020. And to reflect our confidence in the outlook we announce a 6% in our dividend.

And on top of all this, we should have substantial flexibility for capital deployment over the next several years.

As the late great David Cassidy sang in his role as Keith Partridge in the 1970s smash hit series The Partridge Family, “hello world here is a song that we're singing come on get happy.” It’s a busy time but also an exciting time at Crane with an attractive multi-year growth and earnings outlook.

We hope to see you all at our March 1st Investor Day event in New York City where we will look forward to providing you an informative discussion of our businesses and an update on current market conditions. Thank you all. Have a great day..

Ladies and gentlemen, this concludes today’s conference. Thank you for your participation. Have a wonderful day..