Crane Company Q2 FY2026 earnings call

Overall Company Performance

• Delivered record Q2 2026 results with 5% core sales growth, 26% total year-over-year sales growth, with acquisitions contributing 20% of total growth above expectations.
• Total company adjusted operating margin expanded 180 basis points to a record 21.3%, driven by favorable pricing, strong productivity, and disciplined cost management.
• Total backlog increased 5% sequentially, with core sequential backlog growth across both segments, giving strong visibility into the second half of 2026.
• $100 million of debt was repaid in Q2, with an additional $90 million repaid after quarter close, bringing pro forma net leverage to 1.2x, well below the 2-3x target range, creating strong capacity for future M&A.

Acquisition Integration Progress

• The four acquired businesses (Panametrics, Druck, Laura Stokes, OpTec) are performing ahead of plan, with integration progressing faster than expected and synergies being realized earlier than anticipated.
• New unanticipated growth and margin improvement opportunities have been identified, and the acquisitions are on track to become some of Crane's most profitable businesses, well ahead of the original schedule.
• Full year 2026 contribution from acquisitions is now expected to be ~20 cents per share, up from the prior expectation of 15 cents per share.
• The acquired businesses are on track to hit the 10% ROI target 1.5 years ahead of the original five-year timeline, with 2026 growth expected to exceed the original 4-6% guide and margin improvement expected to exceed 300 basis points (projected to reach 350+ basis points).

AAT Segment Highlights

• Broad-based demand strength across both commercial aerospace and defense markets, with share gains across multiple new high-profile programs, including component supply for the GE RISE program and a brake control system for the Auto Aerospace Phantom 3500 business jet.
• Accelerating demand for defense power solutions for ESA radar platforms and expanding position in hybrid electric combat vehicle programs, with multiple recent contract wins.
• Continued strength across commercial OE (up double digits year-over-year), military OE (up double digits), and commercial aftermarket (up 8% year-over-year).

PFT Segment Highlights

• Delivered the second consecutive quarter of sequential core backlog growth, with order trends strengthening through Q2, in line with management's expectation that the first half of 2026 would be the softest period for the segment.
• Strong sustained momentum in cryogenics driven by space launch segment capacity demand, with new project wins for both SpaceX and Blue Origin.
• Strong demand from existing nuclear facility restarts, with a solid position for future new build growth for both AP1000 projects and small modular reactors (SMRs).

1. Aerospace and Advanced Technologies (AAT): Q2 2026 sales reached $339 million, a 31% year-over-year increase, with core sales up 13.3%. Core year-over-year backlog grew 11% to nearly $1.3 billion (20% including the Druck acquisition), and sequential core backlog increased 7%. Core orders grew 5% year-over-year. Adjusted operating margin was 25.8%, down 80 basis points year-over-year due to expected dilution from the Druck acquisition. This segment contributed 46.8% of total Q2 company revenue.

2. Process Flow Technologies (PFT): Q2 2026 sales were $386 million, a 21% year-over-year increase, with core sales down 1.4% (acquisitions added 22 percentage points of growth, and foreign exchange added 0.8 percentage points). Core FX-neutral backlog decreased 2% year-over-year but improved 2% sequentially, and core orders were flat year-over-year in line with expectations. Adjusted operating margin was 22.2%, an 80 basis points year-over-year increase even including acquisition dilution. This segment contributed 53.2% of total Q2 company revenue.

• Full year 2026 adjusted diluted EPS guidance raised by 20 cents at the midpoint, to a new range of $6.85 to $7.05 per share.
• Full year AAT segment core sales growth is now expected to land slightly above the high end of the prior 7% to 9% long-term range, driven by broad-based strength across all end markets within the segment.
• Full year PFT segment core sales growth is maintained at the prior guidance of flat to low single digits, with management confident PFT will turn positive year-over-year core growth in the second half of 2026. The 3% to 5% long-term core growth framework for PFT remains intact.
• PFT adjusted operating margin expansion is expected to exceed the segment's stated 30% to 35% incremental leverage target in the second half of 2026, driven by volume growth and operating leverage.
• Full year 2026 corporate expense is guided to $80 to $85 million, net non-operating expense is guided to ~$58 million, and the effective tax rate is estimated at ~23%.
• Q3 2026 performance is expected to be similar to Q2 2026, with Q4 modestly lower reflecting normal historical seasonality.

No new material risks or ongoing operational failures were discussed on the call. Management noted that timing of M&A activity is inherently unpredictable due to competitive dynamics, and all forward-looking statements are subject to standard cautionary disclosures included in the company's public filings.

Q: What PFT growth trends did management see in Q2, and what core growth is expected for the second half? / A: Management entered 2026 expecting the first half to be the softest period for PFT, and was pleased to achieve two consecutive quarters of sequential backlog and sales improvement. Order trends strengthened throughout Q2, with rising quote activity and emerging volume growth in U.S. chemical markets, alongside continued strong demand in industrial power, natural gas, water/wastewater, and cryogenics. Management confirmed PFT will return to positive year-over-year core growth in the second half of 2026.

Q: What is Crane's current M&A outlook and pipeline status? / A: Management reports the M&A pipeline is the strongest it has ever been, with high-quality opportunities meeting the company's criteria in both the AAT and PFT segments. All prospective deals are expected to be accretive to growth and margins, strengthen the company's technology portfolio, and meet strict financial hurdles. The company has ample debt capacity and management bandwidth to complete deals, with no imminent transactions to announce, and management remains optimistic about future disciplined capital deployment.

Q: What exposure does AAT have to the growing global missile defense rearmament trend? / A: Crane currently has ~$35 million in annual content for over 10 active missile programs, including Patriot, Tomahawk, and other major systems. Management expects demand to expand 4-5x from current levels by the end of the decade, with no existing capacity constraints to meet this growing demand. The company is also receiving new incremental quote requests for additional content opportunities beyond growth on existing platforms, creating extra upside.

Q: How durable is current commercial aerospace aftermarket demand, following prior guidance haircut from geopolitical risk? / A: Commercial aftermarket demand has remained solid, with no material demand destruction materializing from geopolitical risks. Current run rate is $55-60 million per quarter in commercial aftermarket revenue, and management expects sustained mid-single to upper mid-single digit growth going forward, which is already incorporated into the updated 2026 full year guidance.

Q: What are Crane's current capital allocation priorities? / A: The company's target leverage range remains 2-3x net debt to EBITDA, and with current leverage at 1.2x, M&A is the clear top capital allocation priority. While debt will continue to be paid down as needed to maintain capacity for future deals, the company prioritizes M&A first, with share buybacks only opportunistic when M&A opportunities are not available.