Crane NXT(US:CXT)2023-11-07 22:00Financial 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]