Crane's Q3 2025: Contradictions Emerge on Chemical Market Outlook, PSI Integration, and PFT Growth

Date of Call: October 28, 2025

Financials Results

• Revenue: $589M reported across segments (Aerospace & Electronics $270M, up 13% YOY; Process Flow Technologies $319M, up 3% YOY)
• EPS: $1.64 adjusted EPS for Q3; full-year adjusted EPS guidance $5.75–$5.95 (midpoint implies ~20% adjusted EPS growth YOY vs 2024)
• Gross Margin: No company-level gross margin provided; segment margins: A&E adjusted margin 25.1% (vs 23.5% prior year, +160 bps YOY); PFT adjusted operating margin 22.4% (+60 bps YOY)
• Operating Margin: Company operating margin not stated; adjusted operating profit up 19% YOY; A&E adjusted segment margin 25.1% (+160 bps YOY); PFT adjusted operating margin 22.4% (+60 bps YOY)

Guidance:

• Raised and narrowed full-year adjusted EPS guidance to $5.75–$5.95 (midpoint implies ~20% YOY growth)
• Full-year core organic growth guidance remains 4%–6%; company expects to be in the upper half of that range
• A&E now expects core sales growth up low double digits and to leverage ~35%–40% for the year
• Corporate expense now expected at $85M; net nonoperating income ~ $7M; full-year tax rate ~23%
• Tariff gross cost ~ $30M for the year; PSI acquisition closing Jan 1, financing via $900M delayed-draw term loan and $900M revolver; post-PSI net leverage ~1x

Business Commentary:

• Strong Segment Performance:
• In Q3 2025, Crane Company reported an adjusted EPS of $1.64, driven by a 5.6% core sales growth.

• The performance was broad-based, with Aerospace & Electronics and Process Flow Technologies contributing significantly.

• Pending Acquisition and Integration:

• The pending acquisition of Precision Sensors & Instrumentation from Baker Hughes is on track to close at year-end, with the integration planning well underway.

• The acquisition is expected to be accretive to the financial profile within the next few years, enhancing both margins and growth.

• Aerospace & Electronics Outlook:

• The backlog in the Aerospace & Electronics segment increased 27% year-over-year, with core orders up 5%.

• The growth is attributed to strong demand in both commercial and defense markets, with new programs and increased aftermarket activity.

• Chemical Market Dynamics:

• Despite the softness in the chemical industry, Crane's Process Flow Technologies managed to maintain stability with targeted opportunities in maintenance and upgrades.
• The company aims to continue reshaping its portfolio towards higher-growth markets like cryogenics and wastewater, while maintaining its presence in chemical industries.

Sentiment Analysis:

Overall Tone: Positive

• Management: "we are proud to report another strong quarter with results coming in ahead of our expectations." Company "raised and narrowed our full year adjusted earnings outlook to a range of $5.75 to $5.95" and said this "reflects 20% adjusted EPS growth at the midpoint." CFO: "record backlog of just over $1 billion, up 27% year-over-year."

Q&A:

• Question from Matt Summerville (D.A. Davidson & Co.): On PFT, if the business is up organically low single digits for the year, how does the nonchemical portion look relative to that? And on chemical, what do you expect this year given your exposure?
  Response: Nonchemical end markets (wastewater, cryogenics, pharma, power) are strong—many growing double digits and gaining share; chemical is regionally mixed (positive in North America and Middle East, softer in Europe and China) and remains part of the portfolio while the company invests more in higher-growth, differentiated markets.

• Question from Matt Summerville (D.A. Davidson & Co.): The margin upside in PFT this quarter—can you parse drivers (price, cost, mix, cost-out) and how to think about levers next year?
  Response: PFT margin expansion was driven by new-product innovation (higher-margin sales), commercial excellence/value pricing, and operational productivity; tariff impacts were managed via pricing and supply-chain actions.

• Question from Justin Ages (CJS Securities, Inc.): On chemicals, are you seeing stabilization or signs of return to growth—when might it rebound?
  Response: Chemical markets are stable year-to-date with projects concentrated in Middle East and North America and stable MRO; no clear inflection yet but management expects improvement next year.

• Question from Justin Ages (CJS Securities, Inc.): PSI margins are below Crane—how will applying the Crane Business System affect PSI margins after integration?
  Response: Closing expected Jan 1; management expects PSI to be accretive on both margins and growth over time through Crane Business System improvements (productivity, pricing, commercial execution) and is very confident in outcomes.

• Question from Damian Karas (UBS Investment Bank): Q4 guidance appears to bake in a step down in margins—what are the moving pieces behind that expectation?
  Response: Q4 modestly lower margins primarily due to anticipated commercial aftermarket headwinds (some Q3 one-time benefits won't repeat), less favorable mix from higher OE build rates, and typical Q4 seasonality with lower production hours.

• Question from Damian Karas (UBS Investment Bank): Any impact from the U.S. government shutdown?
  Response: No impact to date; no signals of payment issues or operational effects and no anticipated impact into Q1 based on current information.

• Question from Scott Deuschle (Deutsche Bank AG): Can you share more detail on power and data center demand and how it's benefiting PFT?
  Response: Power demand (primarily U.S., <10% of PFT) benefits Crane's valve portfolio via natural gas combined-cycle plant builds and related projects; funnel and project activity are increasing and expected to continue.

• Question from Scott Deuschle (Deutsche Bank AG): Do you have any content on smaller reciprocating engines like Caterpillar?
  Response: No, Crane does not have content in that small reciprocating-engine market.

• Question from Scott Deuschle (Deutsche Bank AG): Are you investing organically at PFT to increase shipset content on AP1000—could this be a bigger driver?
  Response: Yes—Reuter-Stokes investments target increased content on pressurized water reactors (AP1000), with teams pursuing bids estimating ~30% additional content capture alongside organic and inorganic initiatives.

• Question from Nathan Jones (Stifel, Nicolaus & Company): What have you learned in the past three months that makes you more bullish on PSI strategically?
  Response: Management cited the PSI team's caliber, transparency, and detailed integration planning, which produced clear, prioritized plans and a line-of-sight to quick, definable gains across aerospace, nuclear and other product lines, increasing confidence since the initial deal.

• Question from Nathan Jones (Stifel, Nicolaus & Company): Initial thoughts on 2026—do you still expect the 4%–6% organic growth range next year?
  Response: Early planning is underway, but based on current visibility and end-market outlook management continues to expect their investment thesis to hold and models still support the 4%–6% organic growth assumption for 2026.

• Question from Jordan Lyonnais (BofA Securities): How should we think about opportunities from F/A-XX CCA downselection and larger Group 4/5 drones?
  Response: Crane is well positioned on multiple demonstrators and already secured CCA positions with leading players; the company participates in medium and larger unmanned systems and expects to benefit as these programs ramp.

• Question from Jordan Lyonnais (BofA Securities): With strong book-to-bill in A&E, do you have capacity to meet demand?
  Response: Yes—teams have prepared for OEM ramp rates, building inventory buffers and are confident in the ability to support Airbus and Boeing production increases.

• Question from George Bancroft (Gabelli Funds, LLC): Views on automation long term—impact on margins and growth?
  Response: Automation is applied selectively (cobots, welding, specific tasks) to improve productivity and address skilled-labor gaps; full-factory automation is not the plan—human involvement remains important.

• Question from Scott Deuschle (Deutsche Bank AG): Is the F-16 brake retrofit program still on track for $30M revenue in 2026 (and essentially nothing in base for 2025)?
  Response: Yes, the F-16 retrofit program is on track for ~ $30M in 2026 and contributed essentially nothing to the 2025 base.

• Question from Scott Deuschle (Deutsche Bank AG): Should we think A&E organic growth accelerates next year given OE, military OE and aftermarket strength?
  Response: Management believes A&E will be at the high end of its long-term 7%–9% growth algorithm, though the sustainability of the elevated aftermarket pace remains a key variable.

• Question from Scott Deuschle (Deutsche Bank AG): Is the $85M corporate expense level sustainable next year or will it grow with PSI?
  Response: Corporate expense is not expected to grow next year; overhead rate should decline (management expects overall corporate rate closer to ~3% next year as growth is leveraged).

Contradiction Point 1

Chemical Market Outlook

It involves differing perspectives on the stability and potential improvement of the chemical market, which could impact the company's revenue and growth expectations.

What is the expected organic growth rate for PFT this year, and how does the nonchemical portion compare? What is your outlook for the chemical end market this year? - [Matt Summerville](D.A. Davidson & Co., Research Division)

2025Q3: Chemically, we play in critical, corrosive applications, and though cyclical, we maintain a presence while investing in higher-growth markets to shape PFT growth. - [Alejandro Alcala](COO)

Can you discuss the cadence of PFT orders and end-market and geographic trends? - [Matt J. Summerville](D.A. Davidson & Co., Research Division)

2025Q2: The market is somewhat sluggish, with softness in the chemical sector, particularly in Europe. - [Alejandro A. Alcala](COO)

Contradiction Point 2

PSI Integration and Synergies

It pertains to the expected synergies and benefits from the PSI acquisition, which could influence the company's financial performance and strategic direction.

Can you discuss applying the Crane Business System to PSI and the expected margin improvements after integration? - [Justin Ian Ages](CJS Securities, Inc.)

2025Q3: These businesses have strong technology and stable aftermarket, expected to become accretive to our profile over the years. Improvements will be made through the application of our Crane Business System, which has proven successful on the PFT side. - [Alejandro Alcala](COO)

Are you expecting synergies from PSI and how will it impact your M&A funnel? - [Damian Mark Karas](UBS Investment Bank, Research Division)

2025Q2: No synergistic cost savings are expected; instead, focus is on operational improvements and leveraging the Crane Business System. - [Richard A. Maue](CFO), [Alejandro A. Alcala](COO)

Contradiction Point 3

Chemical Market Performance

It involves differing assessments of the chemical market performance, which directly impacts revenue expectations and operational strategies within the company's segments.

What is your outlook for organic PFT growth in the low single digits this year? How does the non-chemical segment of PFT compare to this outlook? What are your expectations for the chemical end market this year? - [Matt Summerville](D.A. Davidson & Co., Research Division)

2025Q3: Chemical markets are stable, with North America and the Middle East showing positive activity, while Europe and China are softer. - [Alejandro Alcala](COO)

Is the $60 million the unmitigated cost impact of tariffs? Can you elaborate on chemical market performance? - [Matt Summerville](D.A. Davidson)

2025Q1: The chemical market showed varied performance by region, with U.S. and Middle East strong, while Europe and Asia are soft. - [Alex Alcala](COO)

Contradiction Point 4

Process Flow Technologies (PFT) Growth Expectations

It involves differing expectations for the growth of the PFT segment, which is a key component of the company's revenue and strategic focus.

What is the expected organic growth rate for PFT this year, and how does the non-chemical portion of PFT compare to this expectation? What are your expectations for the chemical end market this year? - [Matt Summerville](D.A. Davidson & Co., Research Division)

2025Q3: We expect PFT to deliver low single-digit organic growth for the full year 2025. - [Max Mitchell](CEO)

Can you explain the dynamics of Process Flow Technologies (PFT), particularly the backlog reduction in Q4? - [Nathan Jones](Stifel)

2024Q4: We expect to deliver low to mid-single-digit growth in 2025. - [Alex Alcala](COO)

Contradiction Point 5

Chemical Market Conditions and Demand

It involves differing assessments of the chemical market conditions and demand, which directly impacts the company's business in the PFT segment.

What is the expected organic growth rate for PFT this year? How will the nonchemical portion of PFT perform relative to this growth rate? What is the expected performance of the chemical end market this year? - [Matt Summerville](D.A. Davidson & Co., Research Division)

2025Q3: Chemical markets are stable, with North America and the Middle East showing positive activity, while Europe and China are softer. - [Alejandro Alcala](COO)

Can you explain the mixed signals in the industrial economy and potential changes in 2025? - [Nathan Jones](Stifel)

2024Q4: We are seeing demand across cryogenics, chemicals and pharmaceuticals. We expect demand trends to improve in 2025. - [Max Mitchell](CEO)