Key PointsCrane Company had a solid quarter and guided for strength in 2024. Core, ongoing business and acquisitions are driving growth. The balance sheet is robust, leaving the company in a position to continue its trends in 2024. 5 stocks we like better than CraneCrane NYSE: CR is a high-flying stock, having gained 58% since the IPO spin-off and keeping most of it. A recent downshift in analyst sentiment driven by valuation capped gains in January, presenting a minor headwind, but nothing this industrial ...

Financial Data and Key Metrics Changes - The company reported $353 million in sales with a 4% core sales growth for Q3 2023, and adjusted EPS of $1.09, exceeding expectations [86][96] - Adjusted operating margin was 26%, and adjusted EBITDA margin was over 29%, reflecting strong operational performance [16][96] - Adjusted free cash flow was $98 million, supporting a $125 million paydown of the term loan, resulting in a net leverage ratio of 1.3 times [8][16][88] Business Line Data and Key Metrics Changes - Crane Payment Innovations (CPI) reported flat core sales, with adjusted segment operating margins increasing by 190 basis points to 29.4% due to strong pricing and productivity [7][96] - Crane Currency experienced a 12% core sales growth driven by international sales, although adjusted segment operating margin decreased to 28% due to an unfavorable product mix [18][96] Market Data and Key Metrics Changes - The international currency market backlog increased approximately 80% year-over-year, indicating strong demand and market share gains [95][97] - The CPI segment is experiencing softness in retail and gaming markets as customers adjust inventories, with expectations for sales to decline year-over-year in Q4 [87][95] Company Strategy and Development Direction - The company aims to achieve $1.4 billion in sales for the year with adjusted operating margins above 27% and a free cash flow conversion of approximately 100% [6][79] - The strategic focus includes disciplined M&A targeting adjacent, resilient, and higher growth end markets, with a goal to grow revenue to $3 billion and maintain high EBITDA margins [80][81] Management's Comments on Operating Environment and Future Outlook - Management noted that the operating environment remains challenging due to inventory adjustments in CPI's end markets, but they expect normalization by Q2 2024 [87][95] - The company is confident in its backlog and market dynamics favoring technology and sophisticated anti-counterfeiting solutions, which are expected to drive growth beyond 2024 [35][36] Other Important Information - The company has approximately $1 billion in M&A capacity and plans to continue investing in core business growth while maintaining a competitive dividend [88][90] - The Catalyst Series for U.S. government currency is on track for production in 2025 and launch in 2026, but is not expected to materially impact 2024 [36][43] Q&A Session Summary Question: What is the mix of the backlog by vertical and how does destocking affect it? - Management indicated that the currency backlog is strong, up close to 80% year-over-year, with gaming segment backlog at about twice the normal level, expected to normalize by Q2 2024 [69][70] Question: How is the M&A environment looking? - The company is actively reviewing potential deals and expects to execute some in 2024, with a focus on disciplined capital allocation [74][75] Question: What are the main issues affecting CPI demand? - The primary issues include inventory drawdowns, project pushouts, and macroeconomic factors, with inventory adjustments being the most significant [26][39]

Financial Data and Key Metrics Changes - The company reported $352 million in sales with a 6% core sales growth, exceeding expectations [4] - Adjusted EBITDA was $104 million, with adjusted EPS of $1.12 and adjusted EBITDA margins over 29% [4][25] - Adjusted operating margins were above 30% in both segments, reflecting significant sequential improvement [4] - Adjusted free cash flow was $70 million, supporting $50 million of debt repayment, reducing net debt-to-EBITDA to approximately 1.5 times [23][27] Business Line Data and Key Metrics Changes - Crane Payment Innovations (CPI) achieved core sales growth of 8%, driven by end-customer demand and easing supply chain constraints [25] - Crane Currency reported core sales growth of 3.7% with an adjusted segment operating margin of 30.2%, a 330 basis point improvement [26] Market Data and Key Metrics Changes - Solid demand was noted in the gaming sector, with new casino wins contributing to market share growth [7] - The service business showed continued strength, increasing recurring revenue through a large order from a financial services customer [7] Company Strategy and Development Direction - The company aims to grow to $3 billion in revenue and maintain high adjusted EBITDA margins while achieving approximately 100% free cash flow conversion [29] - A key component of the strategy includes introducing new products to enhance customer productivity and consumer experience, such as the Paypod Compact [7][10] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the outlook for 2023, citing strong orders and backlog at Crane Currency [5][7] - The normalization of order rates to pre-COVID levels is expected as customers adjust inventories [7][12] Other Important Information - The company is on track with its separation from Crane Company and winding down transitional service agreements [5] - The backlog is nearly twice the size compared to the same time last year, indicating strong market positioning [8] Q&A Session Summary Question: Can you talk about the backlog burn in CPI? - Management indicated that the backlog burn is a normalization process rather than a concern, with customers adjusting orders due to shorter lead times [12] Question: How is the gaming vertical performing? - The gaming sector is performing strongly, with a rich installed base and growth in service business expected [33] Question: What is the outlook for international sales in Crane Currency? - The upside in international sales is attributed to new country wins and increased volume at existing customers, driven by technology superiority [34][42] Question: How is the M&A activity evolving? - The company remains disciplined in its M&A approach, focusing on opportunities that align with its strategy and can generate strong returns [46]