Crane (CR) Q4 2025 Earnings Call Transcript

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Date

Tuesday, Jan. 27, 2026, at 10 a.m. ET

Call participants

• Chief Executive Officer — Max Mitchell
• Chief Operating Officer and incoming Chief Executive Officer — Alejandro Alcala
• Chief Financial Officer — Richard Maue

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Takeaways

• Adjusted EPS -- $1.53, up 21% due to 5.4% core sales growth and performance in Aerospace & Advanced Technologies.
• Full-year adjusted EPS -- Increased 24% versus prior year, attributed to execution and sustained technology investments.
• Core sales growth -- 5.4% for the quarter, driven by broad-based strength in Aerospace & Advanced Technologies and Process Flow Technologies.
• Aerospace & Advanced Technologies segment sales -- $272 million, up 15%, with nearly all growth organic.
• Aerospace & Advanced Technologies backlog -- Just over $1 billion, an increase of 25% year over year and up slightly sequentially.
• Process Flow Technologies sales -- $309 million, flat compared to last year, with core sales down 1.5% and a 1.6 percentage point FX benefit offset by minor Technifab acquisition impact.
• Process Flow Technologies core FX-neutral backlog -- Down 7%, and core FX-neutral orders down 3%, primarily reflecting weakness in chemical end markets.
• Adjusted operating profit -- Up 16%, supported by higher productivity and favorable net pricing.
• Adjusted Aerospace & Advanced Technologies segment margin -- 23.6%, expanding 50 basis points year over year led by productivity, volumes, and pricing.
• Process Flow Technologies adjusted operating margin -- 22%, a 170 basis point increase driven by productivity and price.
• Total aftermarket sales – Aerospace -- Up 1%; commercial aftermarket up 3%, military aftermarket down 3%.
• OEM Aerospace sales -- Up 23% overall; commercial OEM up 27%, military OEM up 18%.
• Core FX-neutral backlog (companywide) -- Up 14% compared to last year, led by Aerospace & Advanced Technologies segment.
• Core FX control orders -- Up 2% companywide compared to the prior year.
• Net leverage post-acquisition (year-end) -- 1.1x after closing Druck, Panametrics, and Reuter-Stokes transactions; increased to 1.4x after optek-Danulat acquisition in January.
• Adjusted free cash flow conversion -- 102% for the year; non-adjusted at 98%.
• Insurance recoveries -- $5.2 million in Q4 from Hurricane Helene, representing a $0.07 per share benefit; full-year benefit of $9 million ($0.16 per share), of which $2.9 million ($0.04 per share) exceeded latest guidance.
• Interest expense outlook -- Estimated at $58 million in 2026, reflecting new acquisition funding.
• Corporate expense -- $87 million in 2025; projected $80 million to $85 million in 2026.
• 2026 adjusted EPS guidance -- $6.55 to $6.75, representing 10% growth at the midpoint excluding non-recurring hurricane recovery impact and after-tax acquisition-related amortization.
• Slightly accretive acquisitions -- Druck, Panametrics, Reuter-Stokes, and optek-Danulat projected as slightly accretive to 2026 earnings; earlier expectation was no first-year accretion.
• Process Flow Technologies 2026 core growth outlook -- Expected to be flat to low-single-digit growth, with 30%-35% core leverage; recent acquisitions will be incremental to growth but dilutive to margin in the near term.
• Aerospace & Advanced Technologies 2026 core sales growth -- Expected at the "high end" of internal assumptions, with 35%-40% operating leverage; Druck incremental to growth in 2026 but initially dilutive to segment margin.
• Segment naming update -- Aerospace & Electronics renamed Aerospace & Advanced Technologies to reflect strategic expansion into adjacent technologies and end markets.
• Integration and synergies -- Cost synergies from PSI acquisitions are targeted from organizational simplification, product line rationalization, and process efficiencies.
• M&A pipeline -- Management described M&A activity as robust with "many opportunities progressing through 2026," but no additional deals imminent in Q1.
• Leadership transition -- Alejandro Alcala to assume CEO role effective April 27, 2026, with Max Mitchell becoming Executive Chairman for a transition period of up to two years.
• Quarterly 2026 earnings phasing -- Q1 expected to be seasonally the softest and roughly flat year over year, with the full-year weighted 45% in first half and 55% in second half.
• Outlook for power & nuclear -- Reuter-Stokes acquisition doubles the company's nuclear exposure, with identified growth areas in restarts, new AP1000 construction, small modular reactors, and license extension upgrades.
• F-16 brake control program -- Production to begin in 2026, with orders exceeding $30 million annual run rate; guidance includes low-20s million revenue for the year due to delayed deliveries from a flight test schedule shift.
• Free cash flow 2026 -- Projected within the 90%-100% adjusted conversion range despite acquisition-related integration expenses.
• Target leverage for future M&A -- Willing to go up to 3x leverage (or slightly above) for strategic transactions, with an aim to return to 2x-2.5x over a short period.

Summary

Crane (NYSE:CR) delivered notable profitability improvements with margin expansion in both major segments despite flat top-line conditions in Process Flow Technologies. Management provided explicit 2026 adjusted EPS guidance of $6.55 to $6.75, introducing a new non-GAAP convention to exclude acquisition-related amortization for enhanced financial comparability and clarity. Multiple recently closed acquisitions, including Druck, Panametrics, Reuter-Stokes, and optek-Danulat, are already integrating faster than planned, now expected to deliver slight EPS accretion in their first full year under Crane. New orders and record backlog in Aerospace & Advanced Technologies support sustained outperformance versus industry averages through at least 2026. Strategic leadership succession is underway, ensuring continuity as Alejandro Alcala takes over as CEO at the next annual meeting, with Max Mitchell transitioning to Executive Chairman.

• Backlog growth provided management with "great visibility into 2026 and beyond" for the Aerospace & Advanced Technologies business.
• Adjusted operating margin increased in both segments even as core orders remained soft in certain end markets.
• Management explicitly expects inorganic investments to support incremental growth and future margin expansion, with cost and growth synergies cited as "fully incremental upside."
• Insurance recoveries from Hurricane Helene contributed $0.16 per share to full-year results, highlighted as a non-recurring item for investors evaluating year-over-year performance.
• The company continues to target consistent free cash flow conversion near 100%, with 2026 expected in the 90%-100% range even as integration activities of acquired businesses elevate spending temporarily.

Industry glossary

• PSI: Refers to Process Solutions Instrumentation, the portfolio of recently acquired businesses from Baker Hughes—Druck, Panametrics, Reuter-Stokes—now being integrated into Crane's segments.
• Core leverage: The rate at which incremental sales convert to increased operating profit, presented as a percentage of sales growth contributing to profit growth.
• AP1000: A class of advanced pressurized water nuclear reactors, referenced in the context of new nuclear construction projects relevant to Crane's valves and instrumentation.
• SMR (Small Modular Reactor): Compact, factory-fabricated nuclear reactors designed for flexible power generation, representing an area of targeted growth in the company's nuclear solutions portfolio.
• F-16 brake control program: A long-term military OEM contract to supply next-generation brake control systems for F-16 fighter jets, noted as a material revenue driver beginning in 2026.
• Adjusted free cash flow conversion: The ratio of adjusted free cash flow to adjusted net income, used by management to assess the conversion of profits into liquid assets after accounting adjustments.

Full Conference Call Transcript

Max Mitchell: Thank you, Allison. Thanks, everyone, for joining the call today. While we've got many exciting things to discuss today as we exit the fourth quarter, and we're already off to a fantastic start for 2026. Our performance last year and our initial guidance for 2026 show that we are consistently and reliably delivering on our commitments and our long-term value creation thesis. 4% to 6% core sales growth, and we were just at the high end of that last year, 35% to 40% core operating leverage and upside from capital deployment. And that's just the baseline. We're always working to over-deliver. All aspects of this thesis have continued to play out as expected and will continue.

For the quarter, once again, we exceeded even our high expectations, underscoring the strength of our team's strategy, excellence in execution and a relentless commitment to delivering shareholder value. Adjusted EPS of $1.53 was up 21% over the prior year, driven by an impressive 5.4% core sales growth, reflecting broad-based strength at Aerospace & Advanced Technologies, and continued strong execution of process flow technologies. For the full year, adjusted EPS increased by 24%, driven by our outstanding teams delivering on customer expectations enabled by our sustained investments in advanced technologies and innovative solutions.

In 2025 we also continued building on our strong track record of enhancing and shaping our portfolio by adding technologies and capabilities inorganically that will drive growth and support both existing and new customers. Having previously announced the signing with Baker Hughes on June 9th last year, we are excited to formally welcome the Druck, Panametrics and Reuter-Stokes brands to the Crane portfolio. Having closed on the acquisition of these brands on January 1st. As a reminder, Reuter-Stokes doubles the size of our nuclear business, adding industry-leading radiation sensing and detecting technologies for nuclear plant operations as well as for Homeland Security applications.

Nuclear is an exciting market space today, and we see additional applications for the core Reuter-Stokes technology and a number of other high-growth adjacent markets. This business is being integrated into our Crane Nuclear business, which Chris Mitchell has successfully run for us over the last 6 years. Panametrics will operate as a stand-alone business unit in our Process Flow Technology segment reporting directly to SVP [indiscernible]. This business adds advanced ultrasonic flow meters and precision moisture analyzers, a really incredible portfolio of solutions that enables accurate measurement of liquids and gases across applications such as cryogenic gas storage, LNG transportation, wastewater treatment, chemical and petrochemical production.

And lastly, Druck will be maintained as a stand-alone business unit reporting to SVP J. Higgs under the newly renamed Aerospace & Advanced Technologies segment. This new name better captures who we are today and our future strategic direction for this segment than the prior Aerospace & Electronics name. Still the same focus on proprietary, highly differentiated technologies with primarily sole-sourced positions, but continuing to expand our range of technologies and offerings and looking at adjacent end markets where our capabilities are similarly valued. We expect to selectively and carefully widen our aperture in this segment without losing focus on what differentiates us.

Specifically the addition of Druck's complementary product line meaningfully strengthens our critical applications, including aircraft engine monitoring and hydraulics with strong positions in both single-aisle and widebody aircraft platforms as well as environmental control. Also expands our presence into ground-based test and calibration equipment for aerospace and certain other end markets, leveraging the same best-in-class pressure sensing technology. Another exciting news in addition to Druck, Panametrics and Reuter-Stokes business is closing January 1st. At the start of the year, we also closed on the acquisition of optek-Danulat, headquartered in Essen, Germany. Optek is the leader in-line process control, optical sensing measurement solutions for biopharma, pharma and other demanding markets with annual sales of approximately $40 million.

Optek is a perfect complement to our growing instrumentation business, my personal thanks to Jurgen Danulat for his trust in Crane as stewards of his legacy moving forward and to the outstanding team at optek. Just really a fantastic addition. The teams have hit the ground running across all businesses. The integration process is well underway, and the machine is fully in motion. Further, M&A activity is robust, and we continue to execute and cultivate accelerated opportunities. We see many opportunities progressing through 2026, but at this time, nothing additional is imminent in Q1.

Alex will provide more detail on our core businesses as well as the recent acquisition shortly, but let me touch on the planned succession time line that we announced last night. I want to congratulate Alex for being appointed as Crane's next CEO, and effective April 27th, 2026, at our next Annual Shareholder Meeting. And at that time, at the request of the Board, I will move to serve as Executive Chairman for a transitionary period expected to be no more than 2 years. Having partnered with Alex for more than a decade, I can confidently say he is the right leader to accelerate Crane's strong momentum.

His deep operational expertise, proven ability to develop and execute complex strategic initiatives and unwavering commitment to our high-performance culture have been critical in shaping Crane into the market leader it is today and our proven performance across PFT and AAT. In my new role as Executive Chairman, I look forward to supporting Alex and the leadership team. As we continue driving strategic growth and long-term value creation. Coming off the incredibly strong performance in 2005 and turning to 2026, I remain highly confident in the strength and resilience of Crane's team and portfolio. Moving to 2026 guidance.

I'd like to highlight that our guidance for '26 includes a change to our non-GAAP presentation of adjusted EPS, which now excludes noncash tax-effected acquisition-related intangible amortization. Rich will provide more on this during his remarks. By using this new convention for both '25 and '26, I'm pleased to announce our initial 2026 adjusted EPS guidance, $6.55 to $6.75. A solid 10% adjusted EPS growth at the midpoint. When excluding the $0.16 benefit of onetime hurricane-related insurance recoveries that we received in 2025. As well as after-tax acquisition-related intangible amortization in both years. Importantly, I'm excited to share that we estimate that the acquisitions will be slightly accretive to 2026 earnings results.

As I started with, many exciting developments across the company and our investment thesis is stronger than ever. Now let me pass it over to our Chief Operating Officer and incoming Chief Executive Officer; Mr. Alex Alcala to provide some color on the current environment, segment performance and recent acquisitions. Alex?

Alejandro Alcala: Thank you, Max. I'm truly honored to have been appointed the next Chief Executive Officer of Crane. I'm enormously grateful for the Board and in particular, to Max for his trust and support over the years. I'm also thrilled that Max will continue as Executive Chairman, allowing me to keep benefiting from his tremendous experience and leadership. But this is not about me. It's about our leadership team and the 8,500 associates who execute every day, leaving the Crane culture of incredible intensity, focus and accountability. I've been fortunate to be part of the Crane journey for the past 13 years.

We've transformed our portfolio, substantially improved our margins and our growth profile, and delivered significant shareholder value under Max's leadership. But I can tell you, I've never been more excited about our future and the progress we will continue to make for our customers, our associates our communities and our shareholders. Looking ahead, we will stay true to our journey, driving the Crane business system to deliver strong organic growth while also pursuing our strategy of accelerated inorganic growth. Over the years, I have literally traveled more than 1 million miles as part of this incredible journey with Crane, and I'm ready for the next million with this extraordinary team.

Now some thoughts on the segments in the quarter as we look to 2026. Let me start with Aerospace & Advanced Technologies. These markets remained very strong. The backlog we built, along with the new programs and opportunities, our Aerospace & Electronics teams have secured continues to provide us with great visibility into 2026 and beyond. On the commercial side, Things continue to look healthy. Boeing and Airbus continue to ramp up production and aftermarket demand is still running at elevated levels, although the year-over-year comparisons have become increasingly challenging. On the defense side, a lot of activity and interesting industry announcements over the past few weeks.

Procurement spending remained solid, and there's a continued focus on strengthening the product defense industrial base given the heightened global uncertainty we continue to see. Given the level of activity we are seeing for 2026, we expect core sales growth for the year to be up at the high end of our [indiscernible]. assumption. And importantly, that growth should leverage at about 35% to 40% for the full year despite the less favorable mix, which is moving back to normal levels. Our guidance assumes OE sales will grow double digits year-over-year, partially offset by decelerating growth rate in commercial aftermarket.

We are excited for Druck to join the AAT segment and expect over the next few years that it will be incremental to both the segment's growth and margin profile. However, while it will be incremental to growth in 2026, we expect Druck to be diluted to overall segment margin in the near term. Overall, we are on track for another outstanding year. And beyond this, we continue to develop new technologies, win new business and pursue additional opportunities across the segment. That gives us confidence we'll deliver above-market growth for the rest of the decade. A few highlights for the quarter in AAT.

First, in our Defense Power business, we remain actively engaged and solidly positioned with defense vehicle OEMs collaborate on the common technical truck and new combat vehicle programs. Second, Crane also continues to win funded next-generation military demonstrator programs for our brake control systems. We will also begin production for the F-16 brake control project in 2026 and received two more follow-on orders, one from the United States Air Force and the other from a foreign military customer. And last, with elevated interest around air defense systems, we are actively tracking and pursuing new high-power AESA radar opportunities. Overall, our Aerospace & Advanced Technology segment is positioned to significantly outperform its markets over the next decade.

We're extremely proud of what this team has accomplished and the momentum they've built. At Process Flow Technologies, we remain well positioned to outgrow the cycle. Over the past decade, we have deliberately repositioned our portfolio towards technologies and end markets that are higher growth and where we maintain leading competitive advantages and clear differentiation, positioning enough to deliver consistent, sustainable growth ahead of the market. And the latest acquisition enable us to continue that journey. Similar to Q3, we continue to see strength in segments such as pharmaceuticals, cryogenic power generation and water while chemical markets remain subdued at trough levels.

Our disciplined approach and sharp focus enabled us to maintain leadership in this segment, as evidenced by our Q4 performance even given today's macro backdrop. A few highlights from PFT in the quarter. Our cryogenic business had another strong Q4, securing orders for a number of space launch customers. We continue to win and expand our share in this important vertical due to our excellence in engineering solutions, along with our ability to rapidly execute orders. Additionally, we continue to drive solid wins in pharma, securing another large order supporting capacity expansion to manufacture GLP-1 drugs.

Our ability to deliver high-performance solutions for our critical pharmaceutical applications continues to set us apart in a competitive market and positions us for sustained growth in this segment. And lastly, despite the sluggish chemical industry, our teams continue to secure targeted opportunities within chemicals, securing key new project wins in the Middle East. Looking ahead to 2026 for PFT, given our fourth quarter orders remain sluggish, we are adopting a cautious view of 2026 demand levels to start the year and expect that core growth to be flat to low single digit for 2026.

However, we do expect core leverage to still be within our targeted range of 30% to 35%, with the additions of Panametrics, Reuter-Stokes and optek-Danulat joining the PFT family, we fully expect over the next couple of years that they will be incremental to both segment growth and margins. In 2026, while there will be incremental to growth near term, we expect them to be [ dilutive ] margin. Overall, both businesses are strongly positioned for sustained success with the resilience and strategic foundation needed to deliver outstanding results in 2026 and beyond. Before I wrap up, I want to provide additional color on the acquisitions of Panametrics, Druck and Reuter-Stokes.

The integration process is off to a strong start, and our outlook for these businesses is already exceeding our initial expectations. As Max mentioned, we now anticipate these businesses to be slightly accretive to earnings in 2026. Compared to our original expectation of no accretion in year 1. We have been preparing for the last 6 months, and I personally spent a significant portion of this month visiting all these teams. And the CBS machine is already being deployed. I'm extremely confident that these businesses will become some of our best performing and most profitable businesses within Crane in the years ahead.

As I think about the levers of focused improvement, the cost synergies will come from 3 major areas, all driven by CBS. Organizational simplification and focus. By operating these businesses as three independent entities, we're eliminating the top management cost layer. Product Line Simplification or 80/20, reducing complexity and eliminating work with limited return on investment; and traditional productivity improvements, driving efficiency through supply chain and lean tools and processes. In addition, all growth synergies are fully incremental upside to our financial model. We have dedicated teams in place and are off to a great start. I'm very confident we will meet or exceed our targets. Now let me turn the call over to our CFO, Mr.

Rich Maue for more specifics on the quarter.

Richard Maue: Thank you, Alex. I really look forward to having as much fun with you as I've had with Max over the last decade. And Alex, I gave Max this same advice when he became CEO, borrowed from Michael Caine as Charlie Croker in the timeless movie classic, The Italian Job. It's a difficult job and the only way to get through it is if we all work together as a team. And that means you do everything I say. I'm kidding, of course. I don't -- not really. And to Max, borrowing Humphrey's Bogart ever famous line as Rick Blaine, in the Academy Award-winning drama Casablanca, We'll always have Paris.

Max Mitchell: I'm going to get choked up.

Richard Maue: Good morning, everyone. Let me start off with total company results. We drove 5.4% Core Sales growth in the quarter, reflecting the ongoing strength within the Aerospace & Advanced Technologies segment. Adjusted operating profit increased 16%, reflecting the impact of higher productivity and favorable pricing net of inflation. In the quarter, core FX-neutral backlog was up 14% compared to last year, again, continued strength at Aerospace & Advanced Technologies and core FX control orders were up 2%, from a balance sheet perspective, with the close of the acquisition of Druck, Panametrics and Reuter-Stokes, we ended the year with net leverage of 1.1x, which reflected 102% adjusted free cash conversion in 2025 and outstanding performance by our teams globally.

And as Max noted earlier in January, we also closed on the acquisition of optek-Danulat, that brought our net leverage to 1.4x, leaving us well positioned for further M&A. A few more details on the segments in the quarter. Starting with Aerospace & Advanced Technologies. Sales of $272 million increased 15% in the quarter, nearly all of that growth organic. And even with the continued high level of core sales growth, our record backlog of just over $1 billion was up 25% year-over-year and was up slightly sequentially. Core orders were up 8%. Again, no surprises and continued strong demand broadly. Total aftermarket sales increased 1% with commercial aftermarket sales up 3% and military aftermarket down 3%.

And OEM sales increased 23% in the quarter with commercial sales up 27% and military sales up 18%, all in line with our expectations. Adjusted segment margin of 23.6% expanding 50 basis points from 23.1% last year, primarily due to strong productivity, higher volumes and higher price net of inflation. At Process Flow Technologies. In Q4, we delivered sales of $309 million, flat relative to a year ago with core sales down 1.5% as we anticipated, offset by a slight benefit from the Technifab acquisition and 1.6 points of favorable FX. Compared to the prior year, core FX-neutral backlog at PFT decreased 7% and core FX-neutral orders remained soft, down 3% driven by the weaker chemical end markets as expected.

However, adjusted operating margin of 22% expanded again and in the quarter was 170 basis points higher. Despite the headwinds on the top line, productivity is reading through as well as price. Moving to the nonoperational items below the segments, along with some additional 2026 guidance matters. The start, as Max mentioned, beginning in 2026, we are excluding intangible amortization from our non-GAAP presentation of adjusted EPS. Following the significant increase in intangible amortization related to this month's acquisition activity, we believe that excluding it from adjusted EPS gives investors a better picture of Crane's free cash flow and also enables better comparison to the majority of our peer companies that use the same convention.

Reconciliations recasting last year are in the slide presentation accompanying this call. Now moving on to a few nonoperational items. Corporate expense for the full year of 2025 was $87 million, modestly up above our prior view of $85 million due primarily to M&A activity. For 2026, we anticipate corporate expense to be in the range of $80 million to $85 million. In Q4, we received $5.2 million of insurance recoveries from the Hurricane Helene flood. We had at one of our PFT sites or a $0.07 benefit to results in the quarter. With this final payment, the matter is now fully resolved with our insurers.

Remember that our full year 2025 guidance included $9 million of insurance recovery related to Hurricane Helene with $6.7 million received through Q3. So $2.3 million or about $0.03 of the fourth quarter's insurance recovery was in our latest October guidance. So the actual amount received was $2.9 million or $0.04 per share better than we had expected. Also keep in mind that for the full year, total insurance recoveries benefited adjusted results by $0.16, a benefit that will not repeat in 2026. Given the funding for the acquisitions of Panametrics, Druck, Reuter-Stokes, and optek-Danulat, we now anticipate full year 2026 interest expense of approximately $58 million.

And lastly, we estimate our tax rate for 2026 to approximate 23%, slightly higher than [indiscernible]. Looking at the cadence of quarterly results for the year, we expect Q1 2026 to be seasonally softest quarter coming in roughly flat with the first quarter of 2025, lower than historical patterns given acquisition integration and increased interest expense. For the full year earnings split, we expect the first half of 2026 to represent about 45% of full year earnings with 55% weighted towards the second half. Overall another outstanding year at Crane planned for 2026. And with that, operator, we are now ready to take our first question.

Operator: [Operator Instructions]. Our first question is coming from Scott Deuschle with Deutsche Bank.

Scott Deuschle: Max, what are you going to do about your free time here?

Max Mitchell: I'm going to remain busy, Scott, very, very busy. In addition to Executive Chair, I think you know, I've become a very popular Gen X influencer. I have my podcast that started and my only fan page is going well. It's going to be...

Scott Deuschle: I'm looking to hire someone from my team if you're understood [indiscernible] I'll let you buy the Crane nuts. In all seriousness, Alex, I was wondering if you could speak to the pricing opportunity at drop in 2026 and 2027. And specifically, I was curious if there are any meaningful LTAs coming up for renewal this year or next? And what type of price increase might be possible there?

Alejandro Alcala: Yes. Thanks, Scott. So I was just pulling back on all 3 businesses, right? Druck, Panametrics, Reuter-Stokes in our financial model, we assume significant opportunity. I've been working with this team for 6 months, spent most of the months with them. So definitely validate our hypothesis on opportunities potentially more than we even thought. So feeling very bullish about these acquisitions. All three businesses have a significant opportunity to drive the Crane Business System. I talked about the areas on product line simplification, restructuring, how the business model and just traditional operational excellence. As far as value pricing, as you know, in Crane, we do a good job standing for setting up for a value our differentiated technology.

There's opportunity to do better in all 3 businesses and Druck, we would expect to see improvements starting this year, reading more into next year as it takes some time. Just like any aerospace visits, there are contracts some expire naturally that need to be renewed, renegotiated. So everything -- no real obstacles to achieve our goals in that area, Scott.

Scott Deuschle: Okay. Rich, can you clarify what guidance contemplates as it relates to cost takeout at PSI. I think you've spoken about high single-digit million corporate cost takeout. And I wanted to clarify if that was in the guide or still on the comp.

Richard Maue: Yes, I think no change to what we've previously discussed. There's a few buckets. I think they're the same buckets that Alex mentioned. So the cost element is going to -- is -- or productivity element, however you want to categorize it is clearly going to be one of them. On the commercial side being another and then leveraging the growth at rates that we would expect to leveraging our operating cadence. So across all 3, and I would say no difference versus what we previously had communicated.

Operator: And our next question is coming from Myles Walton with Wolfe Research.

Unknown Analyst: This is Greg Dahlberg on for Myles. First of all, I would like to say congrats to Max and Alex. So first one, I guess with the renaming of A&E to A&T, I think [ aperture ] of what you would look at there. Can you go into more details, I guess, in terms of what adjacent tech and strategic direction this is actually referring to?

Alejandro Alcala: Yes, Greg, this is Alex. So just a reminder, our business unit, Aerospace & Electronics was both business unit name and segment name. So last year, we announced the promotion of J. Higgs, as Senior Vice President of the segment, and it's really positioning us to do more deals like Druck. So Druck would be a perfect example of the technologies that we would expand in, where it has a foot in traditional aerospace, but also gets us into lab-based calibration and even some high-growth industrial applications that are combined with the technology. So I think Druck would be a good reference of what you expect to see in that segment.

And the model that we have right now in the structure allows us to keep adding not only bolt-ons, but stand-alone units to keep building out that segment similar to what we've done in PFT. You recall that when we changed the name to -- from fluid handling to process flow technologies, we were thinking about expanding our aperture moving up the technology stack, having more differentiated products, and those have been the acquisitions we've done on that side as well with the sensing applications and now optic as well adding to that.

And that's what you would expect to see high technology differentiated, improving our growth and margin profiles on both sides of the segments, growing both segments, doubling the size here in the next coming years is our goal that continues to create shareholder value and also optionality for the future.

Unknown Analyst: And then just quickly on PFT. I know backlog declined sequentially for the second quarter in a row, mostly due to the chem side. Can you just talk about what you're seeing? And I guess is there a time frame you'd expect that to start turning more specifically to the chemicals? And, I guess, more broadly your outlook for end markets in 2026 in PFT?

Alejandro Alcala: Yes, Greg. So let me pull back just on PST because we have -- we service various segments, right? So first commenting on the areas and businesses markets that grew in 2025 strongly, and we expect to continue in 2026. So wastewater, which is primarily a North America-based businesses. We saw high single-digit growth, we expect strong growth also in 2026. Cryogenics as well, double-digit growth in '25. That will continue pharma. There's a global growth that we're seeing also, in particular, in North America, some increased investments and reshoring from pharma customers that we expect power.

Again, North America-based power generation, where we've seen momentum in '25, expect that to move on to a lot of our segments and verticals of our businesses continue with strong momentum. You did mention chemical, which has been sluggish. Just to pull back also, we expect to see similar to what we saw in '25, which has been varied by region. You can't lump it all together. So Americas and Middle East, we saw growth year-over-year on orders in '25. We expect the sort of modest growth to continue in that area. Our team is doing an excellent job winning. Again, those 2 regions have this feedstock energy advantage.

So customers see good return on investment on taking action on capacity expansions or increases brownfields in particular in the Middle East. So those will continue at a moderate pace on a negative or sluggish, Europe, China, the rest of Asia Pac, that's been down. We don't expect those to change. So on the net, our assumption for 2026 is continue to see working through the trough, not deteriorating, stable, but not planning for a strong uptick in the year, but we're ready for it. If it happens, we'll take advantage of it, but not built into our guidance right now.

Operator: And Our next question is coming from Jeff Sprague with Vertical Research.

Jeffrey Sprague: Congrats Max and Alex, exciting news for both of you. Just a couple from me. First, just back on the deals. You kind of laid out the cost reduction opportunity and plan I think there's also cost in to get these bedded down and integrated given that they were carve-out entities. Could you just maybe speak to that the interplay between kind of cost to integrate versus cost out? And I would assume those sort of flip as we look into '27, '28.

Alejandro Alcala: Yes, Jeff. So I mean there is some cost in and cost out on a net basis, it will be a cost out. The improvements in the margins will increase in '27,'28 as a lot of our actions to materialize and read through to the P&L. I've mentioned before, Baker Hughes operated these businesses as PSI. So it has that high-level PSI headquarter structure, which we're dissolving, shared services and finance, HR and IT. So that goes away, replaced by stand-alone business unit resources that we're adding overall on that basis, we expect once we're done to operate leaner and more profitable with all these ins and outs from a cost standpoint and then driving improvements on top of that.

Jeffrey Sprague: And then just thinking about what Rich shared on Q1, it sounds like the expenses could be heavy here in Q1. Maybe you could just give us a little bit of color on kind of the expected organic performance in Q1 versus kind of the deal impact in Q1 to get to kind of that relatively flat number.

Richard Maue: So legacy Crane organic, we'll be clearly up in A&E and likely down a bit in PFT in Q1 would be part of that dynamic in addition to the incremental interest expense that we have compared to last year in the first quarter. Sort of the, I would say, the big drivers, Jeff. There's also within Druck, Panametrics, Reuter-Stokes, there is seasonality, and they tend to be stronger in the second half than the first half historically.

Jeffrey Sprague: Okay. Great. Understood. And then maybe just kind of stepping back just on the deal activity. So a lot of bandwidth still on the balance sheet. It sounds like you feel pretty comfortable with just the internal bandwidth to kind of execute all this? Maybe kind of address that, the ability for the organization to take on something else of size this year? Or should we expect maybe sort of smaller bolt-ons as the year is progressing here?

Alejandro Alcala: Yes, Jeff. So the machine is working, right? At CBS, our funnel. We're integrating these four different businesses very well with resources. We have bandwidth to do more, I expect to do more in '26. I can tell you that we're also building capabilities constantly. We improved our capabilities not only to integrate but also our strategic resources that are evaluating adjacent is proactively increasing the potential targets. So we're only getting stronger on the M&A front and expect to accelerate that going forward. So funnel strong, nothing imminent in Q1, but expect to continue the momentum as we move forward. Plenty of bandwidth on our side.

Operator: And our next question is coming from Matt Summerville with D.A. Davidson.

Matt Summerville: Thanks. Couple of questions. First, can you talk about 2026 with respect to the Aerospace segment, what you're expecting from an aftermarket volume standpoint for both OEM and military? And can you also sort of discuss whether there's any sort of government shutdown impact on any of the more material military programs for you guys? And then I have a follow-up.

Alejandro Alcala: Yes. Thank you, Matt. I'll comment on it. Let me walk you through all the assumptions here on Aero in all the segments. So commercial OEM, as you would expect, will continue to be strong, high teens, Military OEM, mid-single digits then to your question of aftermarket. On the commercial side, we're anticipating mid-single digits and on the military side mid- to high single digits. So continued momentum on all those fronts.

As far as the government shutdown the only thing that we've seen no change in orders or programs or funding, but we did see the flight test of the F-16 program get delayed a few months of being completed in January we expect that to be complete more in the early second quarter. So that will delay a few months, the start of the shipments for the F-16, but that's all baked and factored into the guidance we provided. No other real impact right now that we see related to government shutdown.

Matt Summerville: So as it pertains to kind of that $30 million sort of per year beginning '26 kind of target you laid out for F '16, is the is that lower than in 2015, meaning is your guidance assuming you don't fully capture that 30%, yet there's an opportunity albeit over a more compressed time frame for you to ultimately deliver that. And then can you just clarify for the PSI group of businesses, what for your 3-year cost synergy target would be, if you can remind us?

Alejandro Alcala: Yes. So Matt, on the F-16. Yes. In our guidance, we're thinking more on F-16,though the annual rate is 3% this year, more like in the 20s, low 20s of revenue. There is an opportunity and a more compressed time line. But in our guidance, we've pulled that back a bit due to the few months shifting to the right. Related to the cost synergies, right? So this year, as we're starting off, we're moving fast with the actions. The teams are actually impressed me with their ability to embrace the Crane Business System machine, but it takes some time to read through.

So if you're trying to do the math, would expect like mid-single-digit growth and about 200 basis of improvement in the margin profile this year. And then in the coming years, It'll be a little bit higher than the 200 basis points on a CAGR basis that gets us in that 5-year mark to achieve or beat the 10% return on investor capital. So about 200 basis points and then a greater number in the years ahead.

Operator: Our next question is coming from Amit Mehrotra with UBS.

Amit Mehrotra: I wanted to ask about the power -- come back to the power generation market for a minute. I think you talked about Power Gen being 10% of the portfolio inside of PFT, but you're also adding nuclear exposure with PSI. And obviously, that's a pretty important place right now. So maybe you can just reset kind of the exposure to total power gen, and then I'll also talk about nuclear power gen and how that's changing.

Alejandro Alcala: Yes. Thank you, Amit. So like you mentioned, the traditional power combined cycle power plants in our valve segment, that's what I've mentioned in '25, significant, as you know, amount of being built in the United States. So that's driving our growth. As far as nuclear, as you stated, we're basically doubling our exposure in the nuclear with Reuter-Stokes. So we have our core business, Legacy Crane Valve Services and then now Reuter-Stokes and then combined, we call it, Crane Nuclear now. So the growth exposure there is pretty attractive. Think about it 4 buckets you've got the restarts of the various nuclear plants like [ Polek ] or the Crane Clean Energy formally Three Mile.

So that will drive upside. You have the new construction with AP1000, Westinghouse where we're very strong, have a very strong position with those reactors in our valve business, and there are some expected starts in Europe. The third area, really, which comes with Reuter-Stokes is we also have very good exposure now to the small module reactors. So -- we have a partnership with one of the leaders that's building the first SMR in Darlington, Canada. That's starting construction already or soon, one of the reactors. And there's three more on the plan depending on how this one goes.

This is boiled water reactors that Reuter-Stokes has the neutron sensing technology, which is used to gauge the power that's being generated. And then we're also benefit on this fourth leg with the extension of licenses, right? So 5 years ago, nuclear plants were decreasing or shutting down. And now we're seeing licenses being extended 50 years or so, and that requires upgrades and investments. So pretty good tailwind that will keep getting stronger as the decade progresses.

Amit Mehrotra: Okay. And just as a follow-up. I want to revisit that 55% back half, I guess, obviously, 45% first half. And then you've given us the first quarter. It looks like just the way the math works, there's not a lot of growth year-over-year in 2Q implied by those comments as well. I don't know if I'm doing my math wrong or maybe there's the hurricane dynamic in there in terms of the comp. But can you just talk about that.

Richard Maue: Yes. Jason and Allison will catch up with you. But I would say that, yes, on the part of the headwind in Q1 and in Q2 clearly will be the insurance recovery. Those were included in our numbers, $0.16 on the year, and it was probably close to 50-50 in terms of first half, second half. Yes. But from a growth perspective, I'd rather hold off on commentary on individual quarters from a core growth perspective, frankly at this point.

Amit Mehrotra: Fair. That's fair. Can I just ask 1 quick follow-up, if I don't mind, just on the synergies for PSI because you talked about PFT growth flat to up low single digits and then 35% to 40% incrementals. It doesn't feel in that number, there's a lot of synergies in there, but there's still 7, 8 points of margin gap. And so maybe this is just a timing thing or maybe it's conservatism but it would just be helpful to understand maybe if there's an opportunity for EBIT and PFT to grow disproportionately from revenue in 2016, just given maybe some of that margin gap that you can close? Or is that maybe more of a late '26,'27 thing?

Richard Maue: Yes. I would probably err towards what you closed there with on your question. The 30% to 35% is on the legacy. And then as we continue to integrate the Druck, Panametrics Reuter-Stokes, we'll start to see some of that incremental coming in more so in the second half versus the first half. So that would be -- that would absolutely be the case for '26.

Operator: Our next question is coming from Nathan Jones with Stifel.

Nathan Jones: Everyone. Congratulations to Alex. And unfortunately, Max, I can't see you're on the fan page.

Max Mitchell: I'm not taking your request any more.

Nathan Jones: I guess, first on the acquisitions. I know you guys didn't include any revenue synergies in the deal model and in that kind of 10% ROIC target by year 5. But I also know that you anticipate getting some. So I'd be interested in getting some color around kind of where the most the most bright areas for you to generate revenue synergies are? If you can put any kind of financial framework around that of like would generate 100 basis points of revenue synergies or 200 or whatever the expectation might be over the next several years? Understanding that those are a little more squishy and maybe a little harder to track.

But just any color you can give us on how you'll approach that? And if you can give any financial framework around affects.

Alejandro Alcala: Yes, Nathan. So let me try to answer the first part of -- you're right, we expect some growth synergies in these areas, different for each of these businesses. For example, in Druck very strong, very strong position on the commercial side, not as much on the military side. So with our legacy core A&E, as you know, we have an outstanding position there. So there will be some synergies opportunities to grow the businesses there. Traditional CBS commercial excellence and driving key accounts, channel management, project pursuit funnel management, et cetera, that will drive as well within the core business, improved performance similar for Panametrics, Reuter-Stokes incredible position in the power generation.

We're looking at these adjacencies where they also play in homeland security, on the other industrial applications where there's a lot of room for growth with the right focus. So none of that is baked into our model, our guidance. I'm not yet ready to provide you with the financial numbers as much as I would like on what those growth opportunities would be. but they'll be there and you'll see them eventually read-through in the P&L need.

Richard Maue: Yes. I think the confidence in -- I forget if it was Max's comments or Alex's is on the 4% to 6% and these businesses taking us towards the higher end of that range, part of that confidence level comes from these adjacencies and other opportunities that we already see. So I think we expect to be at that high end or even slightly above it when you look out a couple of years.

Nathan Jones: And this is probably just a housekeeping one. I think it was maybe Jeff earlier on was talking about integration costs and the impact that might have on your reported numbers. Are you eating those in the reported results? Or are they adjusted out of the reported results.

Richard Maue: Yes. So I think in our response to Jeff's question, clearly, if they are directly associated with the integration, we will be excluding them and keeping them visible for everybody. But there are other investments that we'll be needing to make just part of bringing the business to where -- in the certain areas where we need to be. So in finance, for example, if I have to hire people or an HR have to hire people in IT, those are continuing costs of the business, and I can't exclude those. So that's really what we were referring to in the response to Jeff's question.

Nathan Jones: Yes, I understand. Can you just give us an idea of what the impact to free cash flow will be in 2026 from these expenses, not from the hiring, but from the costs to achieve synergies just to level set that for us.

Richard Maue: Yes. I don't have that off the top of my head here, Nathan. So we'll look to provide more color on that at the right time. I would expect our free cash flow, though, overall. Just stepping back, we had an outstanding performance here in 2025 in our business 102% on an adjusted basis. If we didn't adjust for it, for certain items, we were at 98%. So it's not like we pulled the whole heck of a lot out to adjust. Our core business will continue in that 100% range is our view right now.

In next year, I would say, including the acquisitions, it will be down a little bit, but we'll be within that 90% to 100% range without a doubt. If that helps.

Operator: Our next question is coming from Justin Ages with CJS Securities.

Justin Ages: Congrats to Max and Alex on this new chapter. A question on the F-16. You know you noted that some of the win additional in the U.S. and international partners. Is that layered on top? Or is the international -- after the U.S. orders get built to maybe not into '27 where we see the benefit of the F-16 from international orders.

Alejandro Alcala: Yes, Justin. So on F-16, the way we think about it is this $30 million annual sales doesn't really change much what -- as we get more of these foreign orders, what it does is it extends the whole program link. So it goes out further that we'll continue to see the benefit. We will ship first to the United States Air Force and then complement that with foreign military sales. At that $30 million or so rate per year.

Richard Maue: We have orders that are in excess of that annual rate today. So it's not like we have to wait for the orders. It's -- we have them in backlog today, Justin. So anything incremental to that, just to Alex's point extends.

Justin Ages: All right. That's helpful. And then you guys have done a bunch of acquisitions. You talked about your M&A capacity. You're levered now at 1.4. Can you discuss a little more what your target leverage is? What would you would be willing to go to if the right acquisition is out there?

Richard Maue: Yes. So with the right acquisition, we don't have a problem going to 3x even strategically, if it made a lot of sense even going beyond as long as there was a path to come back down within a pretty short period of time to be in between, I'll call it, 2x, 2.5x, something like that on a -- from a target perspective. But we have no problem going up as high as 3x or even above that for the right deal.

Operator: And our next question is coming from Jordan Lyonnais with Bank of America.

Jordan Lyonnais: On Aero and the name change, how are you thinking about adjacencies or opportunities into IGT or Aeroderivatives. And then two, [indiscernible] on the military side, is there any changes to your thinking on CCA's with the new group of on select on Tranche 2.

Max Mitchell: You're breaking up just a little bit, Jordan, if you can say that again.

Jordan Lyonnais: Apologies. Yes. Sorry, is this better?

Max Mitchell: That's much better is better.

Jordan Lyonnais: On CCAs, has that opportunity changed at all for how you're thinking about the program with Tranche 2 now coming online with a batch of 9 new contractors?

Max Mitchell: And you're opening as well because it was -- repeat it again, that would be great.

Jordan Lyonnais: Yes. For Aero & Advanced Tech now with the name change, the adjacencies that you're looking into, are you thinking about opportunities in IGT or Aeroderivatives.

Alejandro Alcala: I think on the first piece of the question on the AAT, again, we are exploring many different types of adjacencies. Traditionally, right, our core business has been in improved power control. So expanding beyond that in aerospace, just like we did in sensing, many different avenues, land-based. We're thinking about -- I don't want to call out specific adjacencies at this point, but many, many other adjacencies that complement both military and aerospace technologies and also play in other high-growth markets at the same time. And on the second part of your question, with CCA, do you mean collaborative combat aircraft? So I mean we're definitely playing in that space.

We think we're very, very well positioned both with the, I guess, the traditional primes and the new entrants. In fact, in prior quarters, Jordan, you may recall that we have this great position in one of the new program Fury to call it out where we expect significant growth in the future. So in this different cycle, different sales cycle, different type of speed that is required, but all the demonstrators we have won our position there. And also with the new entrants, we have excellent content. So we feel very, very bullish about that segment and our ability to benefit from that.

Operator: [Operator Instructions]. This concludes the Q&A portion of today's call. I would now like to turn the floor over to Max Mitchell for closing remarks.

Max Mitchell: Fantastic. Alex, congratulations again.

Alejandro Alcala: Thank you.

Max Mitchell: Thank you all for joining us today. Great call, great team, great performance. There's a great deal of momentum here at Crane. We delivered an exceptional 2025, and I couldn't be proud of our teams. We continue to innovate, win critical projects and execute and deliver exceptional results.

We also accelerated and delivered on our M&A efforts, adding differentiated technologies that further strengthen the Crane portfolio, and we're set up for an even stronger 2026 with a leadership transition that will drive a continued focus on transformation, execution and the relentless pursuit of improvement, relentlessly driving towards perfection while accepting the reality we will always fall short that is what pushes us forward driving change as a late great performer, Diane Keaton once said, What is perfection, anyway? It's the death of creativity, that's what I think, while change on the other hand, is the cornerstone of new ideas.

As always, change Crane is constant, and it remains the catalyst for fresh ideas, strategic evolution and continued outperformance with our excellent strategy, exceptional talent, strong momentum, our progress speaks for itself, and truly, there's no limit to what we will accomplish in 2026 and beyond. Under Alex's leadership and the team. Thank you all for your interest in Crane and your time and attention this morning. Have a great day.

Operator: Thank you. This concludes today's Crane Company Fourth Quarter 2025 Earnings Conference Call. Please disconnect your line at this time, and have a wonderful day.

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