Crane's Q3 2025: Contradictions Emerge on Aerospace Growth, Chemical Market Outlook, Automation Strategy, F-16 Retrofit Targets, and PFT Business Direction

Date of Call: October 28, 2025

Financials Results

• Revenue: $589M (Aerospace & Electronics $270M; Process Flow Technologies $319M), 5.6% core sales growth YOY
• EPS: $1.64 adjusted EPS for Q3; full-year adjusted EPS guidance raised to $5.75–$5.95, implying ~20% adjusted EPS growth at the midpoint vs 2024
• Gross Margin: 25.1% (Aerospace & Electronics adjusted segment margin; +160 bps vs 23.5% prior year)
• Operating Margin: 22.4% (Process Flow Technologies adjusted operating margin; +60 bps vs prior year); company adjusted operating profit +19% YOY

Guidance:

• Full-year adjusted EPS raised and narrowed to $5.75–$5.95 (was $5.50–$5.80), implying ~20% growth at midpoint vs 2024.
• Full-year core organic growth guidance unchanged at 4%–6%; expect to be in the upper half of the range.
• Aerospace & Electronics now expected to deliver low double-digit core sales growth for the year, leveraging ~35%–40%.
• Process Flow Technologies expected to be at the lower end of prior low‑to‑mid single‑digit growth but with greater margin expansion.
• PSI acquisition expected to close Jan 1 and be accretive to margins and growth over the next few years.
• Corporate expense ~$85M (vs prior $80M); net nonoperating income ~$7M (vs $4M); tax rate ~23% (was 23.5%); tariff gross cost ~$30M for the year.

Business Commentary:

• Revenue Growth and Sales Performance:
• Crane Company reported adjusted EPS of $1.64 for Q3 2025, driven by a 5.6% core sales growth, reflecting broad-based strength in Aerospace & Electronics and continued strong execution in Process Flow Technologies.

• The growth was attributed to the company's differentiated technologies, operational discipline, and investments in new technology and solutions.

• Backlog and Order Growth:

• The company's core FX-neutral backlog increased by 16% compared to last year, with core orders up 5%.

• This increase reflects strong demand and new program wins in the Aerospace & Electronics segment, particularly in commercial aircraft and defense procurement spending.

• Acquisition and M&A Strategy:

• Crane announced a pending acquisition of Precision Sensors & Instrumentation from Baker Hughes, expected to close at year-end.

• The strategic outlook for these businesses has improved, with integration planning well underway, enhancing Crane's portfolio with complementary technology and positioning for future growth.

• Operational Efficiency and Margin Expansion:

• The company's adjusted operating profit increased by 19%, driven by continued strong net pricing and solid productivity.

• Margin expansion was supported by a focus on operational excellence, waste elimination, and effective management of tariff-related costs.

• Geographic Market Performance:

• Process Flow Technologies saw stability in end markets, with particular strength in wastewater, pharmaceuticals, and cryogenics, primarily driven by North American demand and investment in aging infrastructure.
• The segment also faced softer conditions in chemical markets, notably in Europe and China, though North American demand remained relatively stable.

Sentiment Analysis:

Overall Tone: Positive

• "We are proud to report another strong quarter with results coming in ahead of our expectations." Management raised and narrowed full‑year adjusted EPS to $5.75–$5.95 (≈20% growth at midpoint). Record A&E backlog just over $1 billion, up 27% YOY, and company core sales up 5.6% drove messaging of continued momentum, M&A activity (PSI) and confidence in 2026 assumptions.

Q&A:

• Question from Matt Summerville (D.A. Davidson & Co.): Can you break out PFT nonchemical vs chemical trends and exposure?
  Response: Nonchemical end markets (wastewater, cryogenics, pharma, power) showing double‑digit growth and share gains; chemical is stable with strength in North America and Middle East but softer in Europe/China—management is deliberately reshaping portfolio toward higher‑growth markets.

• Question from Matt Summerville (D.A. Davidson & Co.): What drove PFT margin upside this quarter and how should we think about levers next year?
  Response: Margin expansion driven by new‑product mix, commercial value pricing, operational productivity and effective tariff management; these are the primary levers to sustain improvement.

• Question from Justin Ages (CJS Securities, Inc.): Are you seeing chemical markets stabilize or rebound?
  Response: Chemical demand is stable with MRO steady and pockets of project activity in North America and Middle East; management expects recovery next year but no clear inflection yet.

• Question from Justin Ages (CJS Securities, Inc.): PSI margins are a bit below Crane's — what improvement do you expect post‑integration?
  Response: Expect PSI to be accretive to margin and growth as Crane applies the Crane Business System (CBS); management will provide more detail after close but is highly confident in improvement potential.

• Question from Damian Karas (UBS Investment Bank): Why is guidance baking in a Q4 margin step‑down despite strong YTD performance?
  Response: Q4 moderation reflects anticipated deceleration in commercial aftermarket, mix shift toward OE build rates, lower seasonal production hours and the absence of certain one‑time Q3 benefits.

• Question from Damian Karas (UBS Investment Bank): Any impact from the U.S. government shutdown?
  Response: No impacts to date—no payment or bill‑pay signals and no expected near‑term effect on Crane going into Q1.

• Question from Scott Deuschle (Deutsche Bank AG): What are you seeing in power/data‑center demand and how does Crane participate?
  Response: Power is a U.S.‑centric opportunity (valve content) driven by natural gas combined‑cycle plant builds and data‑center demand; funnel is increasing and Crane expects continued participation.

• Question from Scott Deuschle (Deutsche Bank AG): Is the F‑16 brake retrofit program still on track for ~$30M revenue in 2026?
  Response: Yes — management confirmed the program remains on track for the $30M 2026 target.

• Question from Scott Deuschle (Deutsche Bank AG): Will A&E organic growth accelerate next year?
  Response: Management expects A&E to be at the high end of its long‑term 7%–9% growth algorithm given current strength across commercial OE, military OE and aftermarket.

• Question from Scott Deuschle (Deutsche Bank AG): Is the $85M corporate expense level sustainable next year with PSI?
  Response: They do not expect corporate expense to grow next year; corporate expense rate should decline and be closer to ~3% of sales, leveraging growth.

• Question from Nathan Jones (Stifel): Why are you more bullish on PSI than three months ago?
  Response: Increased confidence from positive interactions with the PSI team, transparent integration planning, and clearer, detailed opportunities to capture quick gains across aerospace, nuclear and Panametrics.

• Question from Jordan Lyonnais (BofA Securities): How should we think about opportunities from NGAD/F‑XX and larger drones?
  Response: Crane is well positioned with multiple demonstrator positions and secured CCA exposure; management expects to benefit as NGAD and medium/large drone programs ramp.

• Question from George Bancroft (Gabelli Funds, LLC): How do you view automation long term and its margin/throughput impact?
  Response: Focus is on targeted automation (cobots, welding, specific hard tasks) to remove variation and address skilled‑labor gaps rather than full factory automation, yielding incremental productivity and margin benefits.

Contradiction Point 1

Aerospace & Electronics Growth Expectations

It involves differing expectations for growth in the Aerospace & Electronics segment, which is crucial for understanding the company's strategic direction and financial outlook.

Is 4% to 6% organic growth achievable in 2026? What is the growth outlook for this year? - Nathan Hardie Jones(Stifel, Nicolaus & Company, Incorporated, Research Division)

2025Q3: Currently, the investment thesis holds for 2026. We are continuing to monitor the environment, and upcoming plan meetings will provide clarity. - Max Mitchell(CEO)

Given that you won’t fully own PSI until January, how do you plan to improve PSI’s margins to achieve a 10% ROIC? - Nathan Hardie Jones(Stifel, Nicolaus & Company, Incorporated, Research Division)

2025Q2: We've got a portfolio of product offerings that are relevant to not only NGAD and CCA but medium and larger drones, and we expect to benefit from market growth in all those areas. - Alejandro A. Alcala(COO)

Contradiction Point 2

Chemical Market Stability and Recovery

It involves differing perspectives on the stability and potential recovery timeline of the chemical market, which impacts expectations for sales and revenue growth.

Is there ongoing stabilization or a return to growth in the chemicals market, and when might that rebound? - Justin Ages(CJS Securities, Inc.)

2025Q3: The chemical market is stable, with some positive activity in North America and the Middle East. Although no clear inflection point for recovery yet, stability and expected improvement next year. - Alejandro Alcala(COO)

How will tariffs and trade disruptions impact your business, particularly in aerospace and defense? - Tony Bancroft(Gabelli Funds, LLC)

2025Q1: It's anyone's guess how tariffs will play out, but I'm optimistic that trade disruptions will resolve positively, benefiting global trade. - Max Mitchell(CEO)

Contradiction Point 3

Automation Strategy and Implementation

It highlights differing views on the company's approach to automation, which can impact operational efficiency and cost management.

How do you view automation long-term, and how might it impact margins and growth? - George Bancroft(Gabelli Funds, LLC)

2025Q3: Automation is focused on specific tasks and skilled workforce gaps. It will enhance productivity and reliability, but not a primary strategy for full facility automation. - Max Mitchell(CEO)

What was the volume and price growth split at A&E this quarter? - Scott Deuschle(Deutsche Bank AG, Research Division)

2025Q1: Automation is absolutely a weapon as we go forward, and we'll see that in some of the things we're going to be doing this year. - Max Mitchell(CEO)

Contradiction Point 4

F-16 Brake Retrofit Program Targets

This involves the company's stated target for the F-16 brake retrofit program, which is a significant revenue opportunity for the Aerospace & Electronics segment.

Is the F-16 brake retrofit program still on track to meet its $30 million 2026 revenue target? - Scott Deuschle(Deutsche Bank AG, Research Division)

2025Q3: Yes, the F-16 brake retrofit program is still on track to hit the $30 million target for 2026. - Richard Maue(CFO)

Why are A&E margins expected to decline in H2 despite OE profitability? - Scott Deuschle(Deutsche Bank AG, Research Division)

2025Q2: We have a program in place to upgrade those brakes over the next 10 years, and we expect to book over $10 million in revenue in 2025 and then book roughly $25 million over the next 9 years. - Richard A. Maue(CFO)

Contradiction Point 5

PFT's Higher Growth and Higher Margin Business Strategy

It reflects differing assessments of the progress and success of Crane's strategic shift towards higher growth and higher margin business segments within its PFT division, impacting overall business strategy and revenue projections.

What is the expected PFT performance with organic growth of low single digits this year? How does the nonchemical portion of PFT compare to this figure? What are your specific expectations for the chemical end market this year, and how do you assess the exposure to it given its significant role in the segment? - Matt Summerville(D.A. Davidson & Co., Research Division)

2025Q3: The nonchemical markets like wastewater, cryogenics, and pharmaceuticals are strong and expected to continue. Cryogenics has grown double digits due to commercial aerospace participation. Pharma sees reshoring investments, and power benefits from U.S. demand. - Alejandro Alcala(COO)

How far is the PFT portfolio shift to high-growth, high-margin businesses? When will the transition to a steady state occur? - Nathan Jones(Stifel, Nicolaus & Company, Incorporated, Research Division)

2024Q4: Our portfolio is now north of 60% in higher-growth markets, up from 30% in 2017. We aim for a 70% share in these markets eventually. Continued strategy execution, innovation, commercial excellence, and operational improvements will drive ongoing progress. - Alex Alcala(COO)