Greetings, and welcome to the Crane Company Second Quarter Earnings Call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host Jason Feldman, Vice President of Investor Relations. Thank you. You may begin..

Thank you, operator, and good day, everyone. Welcome to our second quarter 2020 earnings release conference call. I am Jason Feldman, Vice President of Investor Relations. On our call this morning, we have Max Mitchell, our President and Chief Executive Officer, and Rich Maue, our Senior Vice President and Chief Financial Officer.

We will start up 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 today 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 are tabled 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, and good morning, everyone. On last quarter's call, we did what few tried to and gave our best estimate of guidance for the year based on what we were seeing along with our extrapolations around recovery scenarios.

While the environment is still highly uncertain, I'm pleased with the directional accuracy of our guidance from last quarter, we have narrowed our full-year guidance range and raised the midpoint modestly. As outlined in our press release last night, we reported second quarter adjusted EPS of $0.64.

This was better than our guidance of $0.40 to $0.50, but largely related to timing. Specifically, margins at Fluid Handling were better than we expected, mainly because of mix. Sales and margins at Aerospace & Electronics were better than we expected as the sharpest fall off in sales and orders happened a little later in the quarter than we expected.

Corporate costs in the second quarter were lower than expected because of the timing of a few items. Adjusted sales of $681 million declined 19% compared to prior year with a 24% decline in core sales and a 1% negative impact from FX, partially offset by a 6% acquisition benefit.

Operating margin, excluding special items of 8.9% compared to 15.6% last year, that reflects a deleverage rate of 44%, excluding the impact of the instrumentation and sampling and Cummins Allison acquisitions, the deleverage rate was 37%.

That reflects very solid execution given the magnitude of the market decline, particularly since our cost actions were implemented over the course of the quarter, and we did not benefit from the full run rate until the latter part of the second quarter.

I will review second quarter results, including a comparison to the expectations provided during our last conference call. Rich is going to provide an update on liquidity as well as details on our specific cost reduction measures to date.

Our updated guidance is based on actual results through June, combined with our detailed analytics and scenario assessment planning for the balance of the year.

Based on this, we are narrowing our EPS guidance range for full year 2020 to $3.30 to $4.10, which reflects a core sales decline of 17% to 21% and incremental gross cost savings of at least $100 million this year. We continue to expect free cash flow of approximately $200 million to $250 million with capital spending of approximately $45 million.

Based on what we know today, we expect third quarter adjusted EPS in a range of $0.70 to $0.85 per share. From a cadence perspective, one item to note is that we expect the third quarter tax rate to be approximately 24.5%, dropping to the mid-teens in the fourth quarter given certain timing issues.

On a full-year basis, we still expect the tax rate to approximate 21.5%. Commenting on the first half of the year, the impact of the pandemic, I have some themes I wish to comment on. With travel opening up the last couple of months, I've been particularly pleased by my visits across the U.S. to every one of our businesses.

We have very effectively addressed our associates' concerns and safety related to COVID. Once again, I wish to thank our associates globally for their leadership and support in managing through these difficult times.

In addition, I'm proud of how we have taken enhanced measures to be extremely fair and just to our associates in helping everyone through these times of stress and concern.

We took appropriate rightsizing actions at an intentionally measured pace to ensure proper care and communication in businesses where it was clear that the volume impact would be sustained.

And during my visits, even in the face of COVID challenges, I have been incredibly impressed with the pace of continuous improvement, execution, innovation across our locations in every business from technology roadmap execution to selling initiatives, facility transformations and new product introductions.

Our teams continue to execute at a very high level, and this will absolutely pay off as end markets recover. I will highlight some of these successes as I move forward. Let me move now to our recent performance in forward guidance by business segment. Fluid Handling core sales declined to 21% in the quarter, in line with our expectations.

Margins of 11.2% were modestly above our expectations, largely as a result of mix with a total deleverage rate of 26% and with a 20% deleverage rate, excluding the impact of the I&S acquisition. Overall, Fluid Handling is trending in line with our expectations, and there is no change to our top line guidance for any part of this business.

Margins are likely to dip a little in the third quarter, reflecting the likely mix, with the full-year margin similar to the second quarter. On an FX neutral basis, core orders declined 17% compared to last year and 14% sequentially. FX neutral core backlog, however, increased 7% compared to last year and 2% sequentially.

The change in orders is more representative of underlying demand conditions, and the backlog increase was driven by our nuclear services business, which has largely been unaffected by COVID, and has substantial seasonality impact in the timing of its backlog in sales.

Fluid Handling has executed extremely well, both on continuing to serve our customers, on cost reduction measures and managing a challenging supply chain.

In addition to those priorities, Fluid Handling has continued to drive substantial success with key growth initiatives, including further commercialization of new products, including our new top line our new line of triple offset valves, or TOV.

With our triple offset product line, remember that this was a range of products we first introduced in 2018, and we've gotten substantial traction and gained share toward the target we shared with you at Investor Day at $50 million in sales by 2023.

This was an entirely new product line for Crane that is differentiated from competing products with its inline seal design, ability to limit fugitive emissions and its pressure-sealed bearing that extends the product's life.

We've had great success with this product in severe service, chemical and petrochemical applications, particularly in Europe and China. And it is already margin accretive to our process valve business. We are well ahead of our expectations for the year, tracking at 40% 40% year-over-year order growth through the first half.

While we expect that rate to soften somewhat, we still expect to end the year with orders up more than 30% in markets down in the 20% range. Without question, we are gaining share.

Following on the success of the TOV, the team is introducing a complete metal seated ball valve platform for 2021 for critical applications in corrosive and erosive environments. Also differentiated by reduced emissions, sealing technology and longer product life. This is a nontraditional space that Crane has not served historically.

We expect this to grow into a $20 million product within five years. Our large diameter polypropylene lined pipe launch is seeing similar success, as we described at Investor Day, a new product line that has substantial benefits over the incumbent legacy solutions in the chemical, petrochemical, power and refinery markets.

While power and refinery markets are challenged today, we have pushed into other adjacent areas, including chemicals and other applications, which require high volumes of flow paired with extreme resistance to corrosion and erosion.

Despite the challenging markets, year-to-date orders are flat to last year, and we expect to end the year up approximately 30%. Our funnel has been flat, reflecting difficult markets, but we have been able to grow by doubling our win rate over the last several months. We expect this to be a $25 million product within a few years.

In our pumps business, we continue to see robust quoting activity for our new line of chopper pumps across a wide variety of applications from traditional municipal lift stations to new markets such as poultry processing plants.

Within this business, we also continue to make substantial progress with testing of our new razor grinder pump, which is scheduled to formally launch this fall. Our new I&S acquisition is already seeing progress within Crane, leveraging our global sales team in China.

And in our Xomox brand of sleeve plug valves for the chemical market, we're introducing a breakthrough improvement in 2021 that materially reduces required torque, reducing the size of the required actuator and lowers the total cost of an automation package by as much as 20%. We expect this to generate $10 million in sales by 2024.

With the benefit from these wins, while the benefit from these wins is being overwhelmed by end markets under substantial COVID-related pressure, the traction we are gaining with initiatives gives us comfort that we will exit this downturn in an excellent position to rebound and outgrow during the eventual recovery.

Payment & Merchandising Technologies, core sales declined 25%, with margins of 8.1%, both very closely in line with our expectations. Excluding the Cummins Allison acquisition, the deleverage rate was 47%, reflecting negative mix at Crane Currency, which, as expected, had lower sales to the U.S.

government as well as a sharp drop in our very high margin payment business. There were some incrementally positive developments in our currency business, but the recovery in our payment innovations and merchandising businesses is somewhat slower than we originally expected.

Overall, for the segment, however, there is no change to our expectation of total sales, including the Cummins Allison acquisition benefit. We'll be in a range of up to low single digits to a decline as much as approximately 10%. Starting with currency, the biggest change is that the U.S. treasury issued an upward revised yearly currency order, or YCO.

Last October, we explained to you that the U.S. government had excess inventory of printed bank notes as well as currency substrate. As a result, the 2020 YCO or 5.2 billion notes was substantially lower than the prior years as the Treasury and Bureau of Engraving and Printing intended to destock back to more normal inventory levels.

That destocking has progressed more quickly than expected as COVID has increased demand for most denominations of cash. The revised currency order for the government's fiscal 2020 was increased from 5.2 billion to 6.2 billion notes, still lower than fiscal 2019, but about 20% above the original order that was issued last summer.

Production has already increased to meet this added demand. While we will not receive the official 2021 order for another month or so, as previously communicated, my personal expectation from our data analytics is that orders will revert to historic norms banding approximately 6.5 billion to seven billion notes.

We are incrementally positive on the outlook for Crane Currency this year with full-year sales growth likely in the teens. This business has had incredible CBS success with improved process control and variation reduction, and the improvement is reading through in our results across all sites.

Our micro-optic technology team is second to none with algorithmic geometric encryption that continues to develop new breakthrough anti-counterfeiting products with a growing portfolio of products suitable for all of our customers' needs across all denominations of nuts.

We now offer a full suite of micro-optic solutions at various price points and levels of sophistication while also invested in a rich pipeline of continued breakthrough technology. And we're also continuing to work closely with the U.S.

government on the plans for an eventual new series of notes, which will be really exciting opportunity for our security business and for core substrate demand. On our vending business, second quarter core sales were down more than 40%. This is a short-cycle business with limited backlog and visibility.

But we expect continued pressure as primary vending locations are in office buildings, schools, manufacturing facilities, many of which are currently closed or operating with substantially fewer people. We do expect some improvement later this year, probably in the fourth quarter.

In April, we told you we expected vending sales to decline 30% to 40% for the full year. We're still comfortable with that range, but probably closer to the down 40% end of the range.

While COVID has had a substantial impact on demand here, this business has driven continued improvement in their primary facility manufacturing facility, breakthrough improvements on both flow and productivity.

Our payment business is a short-cycle business, seeing substantially lower demand across all verticals, including retail, casino, vending, financial services and transportation.

We continue to believe that there will be benefit for the retail and financial services verticals in the medium-term as banks and retail locations like grocery and big box stores look to improve not only productivity but now also hygiene by limiting direct contact between customers and employees.

However, while we are seeing little actual movement on new projects, interest level remains very high with increased outreach, discussion and RFQ activity. On a full year basis, we still expect this business to see a core sales decline in the 20% to 35% range, but probably closer to the 35% end of that range.

We also still expect a contribution of approximately $150 million to $170 million in sales from the Cummins Allison acquisition. Across this segment, we have a lot of exciting initiatives, particularly in the retail, gaming and financial services segment of payment.

We're continuing to see a steady incremental interest in our Paypod solutions in the current COVID environment as more businesses are exploring options to automate transactions and minimize direct human contact and interaction.

In Europe, we're seeing growing interest from a wide range of customers such as bakeries, butcher shops, convenience stores, pharmacies, and in addition to continued deployment of installed units, we have a number of trials under way with smaller chains of stores.

In the United States, we are now leveraging the Cummins Allison sales organization to aggressively market the Paypod solution to our existing customer base who use Cummins Allison in the back office, and now we are generating numerous sales leads with these same customers in the front end of their locations.

And in Japan, we're gaining traction with Paypod and pay station solutions in numerous settings, particularly convenience stores. We're also seeing more discussions and interest in jointly developing kiosk-based solutions with a number of partners for various applications.

Some of these applications have been relatively traditional such as bill payment kiosks for cellphone providers. In other cases, we're working with kiosk manufacturers to integrate our Paypod cash models into full kiosk solutions, particularly for the fast food industry.

We've also made substantial progress focused on the gaming market, working with one of our partners to offer an e-ticket solution integrated with our EasiTrax Connect software, providing a cashless option for slot machines, expanding our presence, not only in cash but cashless solutions.

In addition to the successes we have had commercializing new products, we are also continuing to invest in next-generation note and coin validation technology, consistent with our technology road maps. This is a business where, given the short-cycle nature of the business, we've seen a very sharp reduction in sales.

However, the level of activity and customer interest is very high. We are pursuing numerous exciting opportunities. The real question is timing, as we still have lower visibility than normal. And in Aerospace & Electronics, core sales declined 23% with margins of 15.4%.

Both sales and margins were modestly better than we expected based on the timing of rate reductions and aftermarket shipments. Our overall outlook is unchanged, and we continue to expect full-year sales down in the 20% to 25% range.

While near-term end market demand challenges in commercial aerospace will drive reduced customer spending, we continue investing and are making excellent progress on many customer program opportunities.

Except for final spending to support completion of major single-aisle program wins from years ago, most of our engineering investments today are largely aimed at differentiated solutions for increased electrification requirements, spanning both commercial and military end markets.

For example, in our microwave business, we have over 20 funded new products in development for 10 different defense radar applications that we are working on today, which on a relative basis, is significantly more than our historic four to five programs that we typically are working on at any point in time.

This is directly a result of driving specific technology enhancing investments around low noise solutions, stack filters and hybrid converters that we started several years ago. Long-term investments, benefiting results today as we move to winning higher value-added integrated microwave assemblies rather than only components.

On the military side, we're making significant gains with our high-power electrical conversion business with continued investments and development serving the increasing customer demands for various high-power radar applications.

You may recall, we announced a major program win with Raytheon last fall for their missile defense radar platform, a program with a value comparable to a midsized aircraft platform and which will ultimately replace the Patriot missile systems.

I'm pleased to report that during the quarter, we delivered on our first key milestone for this program, and equally important, we won two more high-profile programs with another major defense contract, leveraging the same strategic investments for similar high-power radar applications, well-known multiyear programs.

Again, excellent progress by the team. In our brake control business, while most large program work is substantially behind us, we secured and are working nine development programs today.

While smaller in size, these programs include unique brake control algorithms tailored to our customers' applications, while also advancing our core underlying technology, including increased sensing capabilities.

And a good mix between commercial and military programs and a unique multiyear military M&U opportunity that we are pursuing on a platform, having a significant installed base of aircraft.

In our sensing solution, we are investing in increased power conversion efficiency from driving wireless sensing solutions, among other things, and in fluid management moving into near adjacencies, such as coolant pumps to enable delivery of more complete fluid solutions to our customers.

Again, in both these solutions, improving our capabilities for increased electrification and technology requirements moving forward. And operationally, I couldn't be more pleased as we won our fifth Airbus Supplier of the Year award within the last six years with improved ratings year-over-year in 11 of 12 categories.

In Engineered Materials, core sales declined 40% with margins of 7.1%, reflecting a deleverage rate of 23%. Most of the RV manufacturers shut down production completely through April and early May, but production has been restarted in most parts of the industry.

The Building Products market also slowed, with sales through retail home improvement channels performing well, but more than offset by weakness sales for commercial applications, where we have a particular strength with quick service restaurants. You've probably all seen a lot of positive press about the opportunity for the RV industry.

In the medium term, RVs will be incrementally attractive to families looking for a domestic and isolated safe vacation alternative. We are just now starting to see increased demand flow through to us. We're optimistic at a renewed demand rebirth of the RV lifestyle for U.S. consumers and are seeing early signals of a meaningful uptick.

Overall, we continue to expect segment sales down in the low 30% range for the full year. Let me now turn it over to Rich Maue, who will provide a little more color..

Thank you, Max, and good morning, everyone. To start with a brief update on our financial status. Our balance sheet strength and cash flow generation allows us to remain confident in managing through this downturn, continuing to drive our long-term strategic growth initiatives.

We are managing all aspects of our cash flow carefully and that effort showed in the second quarter cash flow results. Capital expenditures in the second quarter of 2020 were $6 million compared to $16 million last year.

Second quarter 2020 free cash flow was $106 million compared to $137 million last year and putting us solidly on track to deliver on our full-year free cash flow guidance of $200 million to $250 million. We continue to expect 2020 capital expenditures of approximately $45 million as most discretionary CapEx is being deferred.

We are prioritizing spend toward investments that ensure we come out of this period stronger. As of June 30, 2020, we have approximately $900 million of liquidity comprised of $592 million in cash and $308 million available under our revolving credit facility. As a reminder, we do not have any bond maturities before 2023.

We believe that we have ample liquidity for the current environment, and we have no need or plans to draw on our revolving credit facility at this time. We expect that we will reduce leverage naturally over the course of 2020, leaving the year in a stronger financial position than we entered it.

From a cost perspective, we are on track to meet or exceed our target of $100 million in gross realized savings in 2020. Based on our outlook today, that is still the right amount, appropriately balancing near-term results with longer-term investments to strengthen our competitive position and prepare us to outgrow the eventual recovery.

All strategic growth initiatives are still funded, and we have reviewed all proposed reductions in force in great detail to ensure that we are protecting as many of our associates critical to our long-term success as possible even if we are not able to fully utilize them in the near term.

We also completed an internal merger in July, moving our merchandising business into the vending vertical within the Crane Payment Innovations business. This will result in cost savings related to delayering and the elimination of a business unit president and other management synergies.

However, the primary driver of the move was to ensure better coordination and collaboration between our vending hardware business and our payment business to develop even more sophisticated connectivity solutions for our customers and how we continue to evolve our complete system product line, production and manufacturing strategy in addition to sales capabilities.

With that said, let's get to your questions.

Operator?.

Thank you. At this time we will conduct a question-and-answer session. [Operator Instructions] Our first question comes from Matt Summerville with D.A. Davidson. Please proceed with your question..

Thanks. A couple of questions. First, are you seeing any impact in your business as of yet from that upwardly revised print order? And do you feel the BEP will be able to ramp up production to meet that demand? And then as a follow-up, maybe talk about what you're seeing again in the currency business as it relates to international governments..

We have that demand revised. YCO was put into effect. We are we have adjusted to meet that demand.

The BEP is able to meet that demand from every indication that we see I think as we look forward, I feel pretty confident, Matt, just on our own analysis, there's nothing that the government has shared with us officially, but we feel pretty confident that it will be certainly an increase from the revised existing YCO, so that feels solid.

And I think the supply chain is ready to produce the required demands for the treasury. Question on international, we're seeing still seeing solid double-digit improvement. The teams are executing really, really well. Our technology is winning the micro-optic thread. Technology is a clear differentiator.

The outstanding printing facility that we have in Malta as a differentiator. We are seeing similar uplift from some cash demands by various countries as well related to COVID. So things in the business overall are very strong..

And then just as a follow-up.

And I apologize if you said this and I missed it, what should what would be your decremental expectation for the overall company on a core basis in the back half of the year?.

Yes, I'll take that, Matt. So from a on a core basis, so excluding the I&S acquisition and Cummins Allison, we feel a full year of that 30% to 35% is still the right number as we're looking at things today..

Great. Thank you guys..

You are welcome..

Our next question comes from Nathan Jones with Stifel. Please proceed with your question..

Good morning, everyone..

Good morning Nathan..

Good morning, Nathan..

I would just like to start off with a broad question on top line growth.

You guys have said 17% to 21% for the full year, which, given the first quarter was pretty decent, it gives you a range in the second half of down 17% to 25%, which at the low end is this same as you had in 2Q? And it doesn't imply much improvement to comparisons in the back half.

Even though you actually do have some easier comparisons in the back half.

So can you maybe give us a little more color on your expectations there? And what is kind of keeping that those comparisons pretty muted here in the back half?.

Yes. What I would say, Nathan, is that and as you pointed out, we really haven't changed much in the way of our total outlook in terms of guidance by segment. When you look at but there are some moving points, as you pointed out.

When you look at the second half, there isn't an overall meaningful uptick, I would say, but we do expect to see sequential improvement when thinking about moving from Q2 to Q3 and Q3 to Q4. Crane Currency, for example, in particular, in Q3, we're going to expect to see some tailwinds on that year-over-year comp with the U.S. government.

However, that's muted a bit by some of the benefit that we saw in Q2 in Aerospace & Electronics coming down a bit in Q3. And the natural progression of sales decline in some of the other businesses also offsetting.

So what I would say is that the rate of decline on a year-over-year basis improves for the most part from Q2, but still on a sequential basis, not a meaningful uptick for the second half..

Okay. And you guys had also said $100 million to $115 million of costs taken out in 2020. Max, you talked about being pretty measured in the pace that you're going through that.

Can you talk about where you are in executing that plan? How much more is still to do? And whether or not with another three months under your belt and a little more clarity on what the demand picture is likely to look like, at least within a narrower range, if there's any further plans to take some more structural cost out of the business?.

Yes, Nathan, I'll take that. So overall, what I would say is that we're tracking really nicely to the program that we communicated to you all in April. It's tracking as expected. Most of the cost actions have been executed to date. I think through the end of this month, I would say 95% of those actions will have been fully executed on.

There's still minor initiatives that will track through the balance of the year, but it's not as meaningful to the total. As it relates to incremental actions or other things that we might do in response to demand changes, again, I would say that our outlook for the balance of the year is consistent with what we thought in April.

So nothing in front of us would suggest we need to do anything. And I would say that also includes our initial views on how we think the pace of this recovery is happening in terms of 2021. We did talk a little bit about consolidation of vending into our vending vertical and CPI.

There's some incremental savings there, a few million bucks or so that will be incremental moving forward..

Okay. Thanks. I will pass it on..

Thanks Nathan..

Thanks..

Our next question comes from Ken Herbert with Canaccord. Pleased proceed with your question..

Yes. Hi. Good morning Max and Rich and Jason.

How are you doing?.

Good..

Good morning..

Yes, hi, good morning, Max, I just wanted to start off high level. The world's changed pretty substantially in the last three months since your first quarter results. I'm just curious, as you it sounds like you've met with a lot of your locations here domestically and your team members. I'd imagine you've had extensive customer conversations.

Is there anything you particularly point to that's really stuck out either positively or negatively in terms of customer actions or intentions, say, maybe relative to what you expected a few months ago or relative to your expectations?.

Well, that's an interesting question. We have such diverse end markets and customers, it's hard to overgeneralize on that one. I probably would just say, look, I think we I think everybody was hoping for a little sharper recovery a little faster.

And it's just fascinating to see how various end markets are benefiting or not from consumer behavior, whether you're stuck at home and some of the trends that are occurring around that and some of the companies that are benefiting from it.

Where we're positioned, I think, travel, aerospace, just in terms of commercial travel, we're all seeing this play out real-time in our own lives. This lockdown that continues to change by state, by geography, open, close. I think all of us had hoped that, that would be a better situation.

It certainly feels like it's going to be slower, longer, and we're all going to pat the power through this. And so I think customers are continuing to try to adjust to the realities of that.

Others who are trying to come up with ways to open, as I mentioned, Gaming, Las Vegas, some e-ticket solutions by us partnering with customers to help aid in this environment, Paypod, an increased level of interest is being aided, certainly, currency and some of the demands that I think surprised some end customers with cash usage.

Those are some of the interesting trends, I would think..

Yes. I appreciate. Sorry go ahead..

Yes, just to add a little bit, I would say what's difficult is the question relative to what we thought in April, I think we were all hopeful that would that things would improve quicker. But relative to our views then and where we are today, not all that different.

I would say, a little bit encouraging is on some of the engineering side with new product development initiatives and customers working with us on various initiatives, right, development programs, the ones that Max mentioned, for example, during his prepared remarks, are clearly still moving ahead. Maybe a little bit slower.

You can't get to certain test facilities, and there's some headwinds in that regard, but encouraging to see that everybody realizes that this is temporary and at some point we're all coming back..

That's helpful. And if I could, just to drill down within Aerospace & Electronics for a second. It sounds like sales were maybe a little better than you expected with some maybe some spillover from some aftermarket and OE sales.

Are you seeing on the original equipment side, are you seeing much customer destocking yet? Or have you seen that? It sounds like that could be a fairly significant headwind for some suppliers.

And then on the aftermarket, did you see any improvement as we went through the quarter from sort of April to June? Or is there any comments you can make on maybe aftermarket trends here and through July?.

Yes. What I would say on OE, on the OE side, a little bit of what you said in terms of destocking, definitely, I would say, it was expected we have a various we're a component supplier and the OEMs will stock a bit. And so there was some of that certainly but certainly expected.

On the aftermarket side, yes, we did see things gradually show some level of improvement as we went through the month of June and here in July, but it's still pretty anemic, but definitely hit a bottom I would say in that May timeframe and coming back a little bit in June and here in July..

Great. Thanks Rich. I'll pass it back there. .

Sure..

Thanks Ken..

Our next question comes from Damian Karas of UBS. Please proceed with your question..

Hey good morning everyone. .

Good morning Damian..

Good morning..

I wanted to first ask you about Fluid Handling.

If you look at those order rates, down 14% sequentially and 17% versus last year, I was just wondering if you could maybe give a sense on the monthly progression there and whether you've seen any improvement more recently? Like how did that exit rate in June compared to the 17%?.

Yes. I would say is again, it was a bit of what we expected in the quarter. We do expect this to be a longer recovery for Fluid Handling, again, consistent with what we said in April, not a heck of a lot of sequential improvement.

In fact, on the process side, we would expect that to continue to go down given the backlog, long cycle nature of that business. On the commercial side, I would say that we're starting to see some things pick up a little bit. But again, still year-over-year down at a level that fits our guidance range.

So Q2, feeling like it was certainly the worst on the commercial side. Still down year-over-year, Q3, Q4, pretty considerably, but improving from the Q2 rate, if that helps, Damian..

It does. And just a follow-up question on PMT. It sounded like incremental tailwind in currency given the BEP revised order. But is the way we should view that it sounded like you're slightly more negative than on vending and CPI.

Is the way we should do that kind of effectively, a wash if you think about the currency a little bit better, but the lower negative significance on vending and CPI? And I guess, regarding Max, you had mentioned some medium-term benefits you're expecting in retail and financial services.

Just wondering if there's any you could elaborate a little bit more on timing, quantifying that opportunity.

And I guess, just more importantly, whether you're kind of prepared to deliver on that or if it would require additional investment from here?.

Yes. We're prepared to deliver. As I mentioned, we haven't seen the increase in orders yet, but in tracking the funnel and RFQ activity and customer outreach and discussion, it's very high.

So I think it's going to play out, Damian, as the economy plays out, as retail stores are going to open, so it's back to that question of the broader macroeconomic environment, how strong as it starts to pick up Q3, Q4 into 2021.

But I feel pretty bullish about the opportunities as we get COVID behind us and things continue to open up and people are out in a more normal environment. On the payment question, overall, when you said we're a little more negative, we gave a range. I think we've incredible that we gave guidance in that range in the time where no one else was.

And within that range, we've moved a little bit toward the lower end of that range. So I would just temper it a little bit instead of staying more negative within what we expected, but just more on the downward side, offset by currency. I think that's fair that the way you stated it was a bit of a wash to previous..

Yes. I would have said the same thing..

Okay. Fair enough. Appreciate the color guys. I'll get back in the queue..

Thank you..

[Operator Instructions] Our next question comes from Brett Linzey with Vertical Research Partners. Please proceed with your question..

Hey good morning, everybody..

Good morning..

Hey. I Wanted to come back to the cost reduction savings, so the $100 million to $120 million, sounds like Q3, you're going to get a full run rate there.

Could you just remind us how much of that total bucket is structural and what the carryover savings will look like into 2021? And then separately, in terms of just the discretionary or temporary savings, what do you realize in the quarter? And do you expect some of those spending buckets to stay lower for longer?.

Yes. So about 40%, I would say, is what we would refer to as structurally changed for the next few years or a couple of years to answer that question. As it relates to the quarter itself, we were, to your point, run rate basis in Q3 and about half that in Q2..

Okay. Got it.

So the 60%, should we think of that coming back, reversing in the next year? Or do you think you can maintain lower levels of discretionary spend based on the way you do business and just efficiencies? Just how you're thinking about the headwind?.

Yes. Exactly what you just said. It's not like it's going to start coming back all that soon, right? It's going to be aligned to what we see with respect to end markets and investments that we want to make, but I would not look at that as cost coming back. That's cost staying out.

But when demand comes back, we'll make we'll be selective and careful about what we add..

Got it. And then just shifting to A&E. You mentioned orders started to slow later in the quarter. So I assume the Q3 top line steps down year-over-year versus Q2.

What did the A&E order exit rates look like in that segment? And then the high-profile high-power radar win in the military, could you just quantify and size this that project? And maybe just a finer point on the delivery cycle there?.

Yes. On the order rates, just trying to follow your question, they paced what we expected. Certainly, on the aftermarket side, notably worse. We're in that 65% to 70% down range on the commercial aftermarket. So on the overall quarter, but again, improved a little bit from the run rate between May and June and now here in July.

On the program, I'm trying to think about which one you're referring to the two wins that we had that built off of the first one. We haven't quantified that yet. I would say they're meaningful to the business. We wouldn't have highlighted them if they weren't.

I would say that they maybe I'd rather not say, Brett, and just wait here until we actually announce..

Got it. Yes. I will leave it there and pass it on. Thanks for the color..

Thanks Brett..

At this time I would like to turn the call back over to Max Mitchell for closing comments..

Well, thank you, operator. I would like to thank our teams around the world for their outstanding execution and perseverance in these challenging times. Across Crane, we remain committed to ensuring a safe working environment for our associates while continuing to drive execution and innovation to best serve our customers.

Later this week, we enter our annual strategic planning review process with one- to two-day meetings with each of our 11 businesses to review their long-term strategy.

Pandemic certainly creates some challenges for long-term planning, but it also reinforces the importance of this annual exercise for us as we continue to challenge ourselves about the most critical strategic initiatives across Crane.

While there is uncertainty today, I've never been more energized and excited about the opportunities that lie ahead, and we are working diligently to position Crane for a market recovery. As the late great Little Richard once said, it's not the size of the ship, it's the size of the waves.

At Crane, our differentiated technology and innovation continue to make big waves across the industries in which we participate and solidify our future profitable growth. Thank you for your interest in Crane, and have a great day..

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time and have a great day..