Crane Co 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations This Quarterly Report on Form 10-Q contains information about Crane Company some of which includes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements other than historical information or statements about our current condition. You can identify forward-looking statements by the use of terms such as “believes,” “contemplates,” “expects,” “may,” “could,” “should,” “would,” or “anticipates,” other similar phrases, or the negatives of these terms. Reference herein to “Crane,” “the Company,” “we,” “us” and “our” refer to Crane Company and its subsidiaries unless the context specifically states or implies otherwise. References to changes in “core sales” or “core sales growth” in this report include the change in sales excluding the impact of foreign currency translation and acquisitions and divestitures from closing up to the first anniversary, of such acquisitions or divestitures. Amounts in the following discussion are presented in millions, except employee, share and per share data, or unless otherwise stated. We have based the forward-looking statements relating to our operations on our current expectations, estimates and projections about us and the markets we serve. We caution you that these statements are not guarantees of future performance and involve risks and uncertainties. These statements should be considered in conjunction with the discussion in Part I, the information set forth under Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2024. We have based many of these forward-looking statements on assumptions about future events that may prove to be inaccurate. Accordingly, our actual outcomes and results may differ materially from what we have expressed or forecast in the forward-looking statements. Any differences could result from a variety of factors, including the following: • The effect of changes in economic conditions in the markets in which we operate, including the impact of U.S. tariff policy and retaliatory tariffs on our business, financial market conditions, end markets for our products, fluctuations in raw material prices, inflationary pressures, supply chain disruptions and access to key raw materials, higher interest rates and the financial condition of our customers and suppliers; • Economic, social and political instability, currency fluctuation and other risks of doing business outside of the United States; • Competitive pressures, including the need for technology improvement, successful new product development and introduction, impact from pricing strategies and/or any inability to pass increased costs of raw materials, including tariffs, to customers; • Our ability to successfully identify, value and integrate acquisitions and to realize synergies and opportunities for growth and innovation; • The impact of commercial air traffic levels which are affected by a different array of factors including pandemic health concerns, general economic conditions and global corporate travel spending, or terrorism; • A reduction in congressional appropriations that affect defense spending; • The ability of the U.S. government to terminate our government contracts; • Information systems and technology networks failures and breaches in data security, personally identifiable and other information, non-compliance with our contractual or other legal obligations regarding such information; • The impact of governmental regulations and failure to comply with those regulations; • Our ongoing need to attract and retain highly qualified personnel and key management; • Adverse effects of changes in tax, environmental and other laws and regulations in the United States and other countries in which we operate; • The outcomes of legal proceedings, claims and contract disputes; • Investment performance of our pension plan assets and fluctuations in interest rates, which may affect the amount and timing of future pension plan contributions; and • Adverse effects as a result of further increases in environmental remediation activities, costs and related claims. 28 Table of Contents MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Recent Transactions and Events Divestiture of Engineered Materials Effective on January 1, 2025, the Company completed the sale of the Engineered Materials segment to KPS Capital Partners, L.P (“KPS”) for approximately $208.0 million, on a cash-free and debt-free basis. In connection with the divestiture, the Company recognized a pre-tax gain of $35.7 million, subject to a net working capital adjustment and was recorded in income from discontinued operations. We determined that the Engineered Materials segment met the criteria of being reported as a discontinued operation as of March 31, 2025 and December 31, 2024. As a result, the related assets, liabilities and operating results of Engineered Materials are presented as discontinued operations and, as such, have been excluded from both continuing operations and segment results for all periods presented. See Item 1 under Note 3, “Discontinued Operations,” in the Notes to Condensed Consolidated Financial Statements for additional detail. Marion Site Hurricane and Recovery In September 2024, our manufacturing site in Marion, North Carolina was directly affected by flooding from Hurricane Helene. Our insurance generally covers the repair or replacement of assets that suffered damage or loss and also provides business interruption coverage, including lost profits, and reimbursement for other expenses and costs that have been incurred relating to the damages and losses suffered. The recovery related to business interruption will be recognized when realized and received. We are working with our insurance carrier to assess the damage and ascertain the amount of insurance recoveries due to us as a result of the damage and loss we incurred, as such the timing of insurance proceeds may lag behind actual losses incurred. For the three months ended March 31, 2025, we incurred losses and expenses of $5.6 million related to damages caused by the hurricane, which included professional fees to restore and maintain the site. For the period ended March 31, 2025 we have an insurance receivable of $8.4 million, which is net of the $0.5 million deductible. These costs and insurance recoveries are included in Selling, general and administrative expenses in the Condensed Consolidated Statements of Operations. Outlook Our sales depend heavily on industries that are cyclical in nature or are subject to market conditions, which may cause customer demand for our products to be volatile and unpredictable. Demand in these industries is affected by fluctuations in domestic and international economic conditions, as well as currency fluctuations, commodity costs, tariff impacts, and a variety of other factors. In 2025, we expect a total year-over-year sales increase of approximately 5%, driven by approximately 4% to 6% core sales growth, and an acquisition benefit of approximately 1% to 2%, partially offset by an approximate 1% headwind from foreign exchange. We expect an improvement in operating profit driven primarily by productivity benefits, operating leverage on higher volumes, lower transaction related expenses and higher pricing net of inflation and contributions from the Technifab and CryoWorks, Inc. (“CryoWorks”) acquisitions. Aerospace & Electronics In 2025, we expect Aerospace & Electronics sales to increase in the high single-digit range compared to 2024. We expect a substantial improvement in our OEM business driven by higher commercial aircraft build rates. We expect growth in our commercial and military aftermarket businesses driven by continued high utilization of aircraft, but at decelerating rates compared to 2023 and 2024 due to increasingly challenging year-over-year comparisons. We expect segment operating profit and operating margin to increase compared to 2024 driven primarily by productivity benefits and the impact of operating leverage on higher volumes. Process Flow Technologies In 2025, we expect Process Flow Technologies sales to increase approximately 4% to 5% driven by low- to mid-single digit core sales growth, a 2% to 3% contribution from the Technifab and CryoWorks acquisitions, partially offset by approximately 1% of unfavorable foreign exchange. The core sales increase is primarily due to demand in the Chemical, Pharmaceutical, Industrial and Cryogenic markets. We expect an improvement in segment operating profit and operating margin compared to 2024, driven primarily by strong productivity and higher pricing net of inflation. 29 Table of Contents MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results from Continuing Operations – Three Months Ended March 31, 2025 and 2024 The following information should be read in conjunction with our condensed consolidated financial statements and related notes. All comparisons below refer to the first quarter 2025 versus the first quarter 2024, unless otherwise specified. First Quarter Favorable/(Unfavorable) Change (dollars in millions) 2025 2024 $ % Net sales $ 557.6 $ 510.2 $ 47.4 9.3 % Cost of sales 320.0 303.4 (16.6) (5.5) % as a percentage of sales 57.4 % 59.5 % Selling, general and administrative 136.5 125.5 (11.0) (8.8) % as a percentage of sales 24.5 % 24.6 % Operating profit 101.1 81.3 19.8 24.4 % Operating margin 18.1 % 15.9 % Other income (expense): Interest income 3.2 1.2 2.0 166.7 % Interest expense (4.5) (7.2) 2.7 37.5 % Miscellaneous expense, net (1.0) (1.2) 0.2 16.7 % Total other expense, net (2.3) (7.2) 4.9 68.1 % Income from continuing operations before income taxes 98.8 74.1 24.7 33.3 % Provision for income taxes 20.5 15.3 (5.2) (34.0) % Net income from continuing operations attributable to common shareholders $ 78.3 $ 58.8 $ 19.5 33.2 % Sales increased by $47.4 million, or 9.3%, to $557.6 million in 2025. The period-over-period change in sales included: • an increase in core sales of $38.5 million, or 7.5%, which was driven primarily by higher pricing and to a lesser extent higher volumes; • an increase in sales related to the CryoWorks and Technifab acquisitions of $12.7 million, or 2.5%; and • partially offset by unfavorable foreign currency translation of $3.8 million, or 0.7%. Cost of sales increased by $16.6 million, or 5.5%, to $320.0 million in 2025. The increase is primarily related to higher material, labor and other manufacturing costs $17.0 million, or 5.6%, the impact from the CryoWorks and Technifab acquisitions of $8.8 million, or 2.9%, higher volumes of $6.7 million, or 2.2%, partially offset by strong productivity gains $11.6 million, or 3.8%, favorable foreign currency translation of $2.0 million, or 0.7%, favorable mix of $1.3 million, or 0.4%, and savings of $1.0 million, or 0.3%. Selling, general and administrative expenses increased by $11.0 million, or 8.8%, to $136.5 million in 2025, reflecting a $10.9 million, or 8.7% increase in administrative expenses. The increase in administrative expenses was primarily driven by the acquisitions of CryoWorks and Technifab and investments in core businesses. Operating profit increased by $19.8 million, or 24.4%, to $101.1 million in 2025. The increase primarily reflected the impact from continued pricing gains and strong productivity of $12.2 million, or 15.0%, higher volumes of $6.6 million, or 8.1%, favorable mix of $1.3 million, or 1.6%, partially offset by unfavorable foreign currency translation of $0.9 million, or 1.1%. Our effective tax rate for the three months ended March 31, 2025, is slightly higher than the prior year’s comparable period due to a lower statutory U.S. deduction related to our non-U.S. subsidiaries’ income and slightly higher statutorily non-deductible costs, partially offset by excess share-based compensation benefits. Our effective tax rate for the three months ended March 31, 2025 is approximately equal to the statutory U.S. federal tax rate of 21%, and any overall net differences are primarily due to earnings in jurisdictions with statutory tax rates higher than the United States, expenses that are statutorily non-deductible for income tax purposes and the impact of U.S. state taxes, partially offset by excess share-based compensation benefits, tax credit utilization, and the statutory U.S. deduction related to our non-U.S. subsidiaries’ income. 30 Table of Contents MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Comprehensive Income Three Months Ended March 31, (in millions) 2025 2024 Net income before allocation to noncontrolling interests $ 107.1 $ 64.8 Components of other comprehensive income (loss), net of tax Currency translation adjustment 18.3 (12.4) Changes in pension and postretirement plan assets and benefit obligation, net of tax 2.7 3.0 Other comprehensive income (loss), net of tax 21.0 (9.4) Comprehensive income before allocation to noncontrolling interests 128.1 55.4 Less: Noncontrolling interests in comprehensive income — (0.1) Comprehensive income attributable to common shareholders $ 128.1 $ 55.5 For the three months ended March 31, 2025, comprehensive income before allocation to noncontrolling interests was $128.1 million compared to $55.4 million in the same period of 2024. The $72.7 million increase was primarily driven by higher net income before allocation to noncontrolling interests of $42.3 million, and $30.7 million year-over-year favorable impact of foreign currency translation, primarily related to the euro and British pound. 31 Table of Contents MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Segment Results of Operations - Three Months Ended March 31, 2025 and 2024 Aerospace & Electronics First Quarter Favorable/(Unfavorable) Change (dollars in millions) 2025 2024 $ % Net sales by product line: Commercial Original Equipment $ 94.0 $ 85.5 $ 8.5 9.9 % Military Original Equipment 71.8 71.4 0.4 0.6 % Commercial Aftermarket Products 60.4 50.7 9.7 19.1 % Military Aftermarket Products 22.7 18.3 4.4 24.0 % Total net sales $ 248.9 $ 225.9 $ 23.0 10.2 % Cost of sales $ 147.8 $ 141.7 $ (6.1) (4.3) % as a percentage of sales 59.4 % 62.7 % Selling, general and administrative $ 36.5 $ 35.9 $ (0.6) (1.7) % as a percentage of sales 14.7 % 15.9 % Operating profit $ 64.6 $ 48.3 $ 16.3 33.7 % Operating margin 26.0 % 21.4 % Supplemental Data: Backlog $ 960.1 $ 791.8 $ 168.3 21.3 % Sales increased $23.0 million, or 10.2%, to $248.9 million in 2025, primarily due to higher pricing and volumes of $23.3 million, or 10.3%, offset to a lesser extent of unfavorable foreign currency translation of $0.3 million, or 0.1%. • Sales of Commercial Original Equipment increased $8.5 million, or 9.9%, to $94.0 million in 2025, reflecting strong demand from aircraft manufacturers. • Sales of Military Original Equipment increased $0.4 million, or 0.6%, to $71.8 million in 2025. • Sales of Commercial Aftermarket Products increased $9.7 million, or 19.1%, to $60.4 million in 2025, reflecting continued strong demand from the airlines due to improving air traffic. • Sales of Military Aftermarket Products increased $4.4 million, or 24.0%, to $22.7 million in 2025, reflecting stronger demand for military products, partly in response to heightened geopolitical tensions globally. Cost of sales increased by $6.1 million, or 4.3%, to $147.8 million in 2025, primarily reflecting increased material, labor and other manufacturing costs of $8.8 million, or 6.2%, higher volumes of $5.3 million, or 3.7%, partially offset by strong productivity gains of $6.1 million, or 4.3%, and favorable mix and savings of $1.9 million, or 1.3%. Selling, general and administrative expense increased by $0.6 million, or 1.7%, to $36.5 million in 2025, primarily related to higher administrative costs, offset by lower engineering costs. Operating profit increased by $16.3 million, or 33.7%, to $64.6 million in 2025. The increase primarily reflected the impact from higher volumes of $5.6 million, or 11.6%, strong pricing and productivity gains of $8.6 million, or 17.8%, and favorable mix of $1.3 million, or 2.7%. 32 Table of Contents MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Process Flow Technologies First Quarter Favorable/(Unfavorable) Change (dollars in millions) 2025 2024 $ % Net sales by product line: Process Valves and Related Products $ 233.5 $ 214.0 $ 19.5 9.1 % Commercial Valves 37.4 32.9 4.5 13.7 % Pumps and Systems 37.8 37.4 0.4 1.1 % Total net sales $ 308.7 $ 284.3 $ 24.4 8.6 % Cost of sales $ 172.2 $ 161.7 $ (10.5) (6.5) % as a percentage of sales 55.8 % 56.9 % Selling, general and administrative $ 73.7 $ 65.7 $ (8.0) (12.2) % as a percentage of sales 23.9 % 23.1 % Operating profit $ 62.8 $ 56.9 $ 5.9 10.4 % Operating margin 20.3 % 20.0 % Supplemental Data: Backlog (a) $ 389.9 $ 393.3 $ (3.4) (0.9) % (a) Includes $21.8 million of backlog as of March 31, 2025 pertaining to the CryoWorks and Technifab acquisitions. Sales increased by $24.4 million, or 8.6%, to $308.7 million in 2025, primarily driven by higher core sales of $15.2 million, or 5.3%, primarily due to higher pricing, the impact of the CryoWorks and Technifab acquisitions of $12.7 million, or 4.5%, offset by unfavorable foreign currency translation of $3.5 million, or 1.2%. • Sales of Process Valves and Related Products increased by $19.5 million, or 9.1%, to $233.5 million in 2025, primarily driven by the impact of the CryoWorks and Technifab acquisitions and higher core sales. • Sales of Commercial Valves increased by $4.5 million, or 13.7%, to $37.4 million in 2025, reflecting an increase in core sales driven by higher volumes and pricing. Cost of sales increased by $10.5 million, or 6.5%, to $172.2 million, primarily related to the impact of the CryoWorks and Technifab acquisitions of $8.8 million, or 5.4%, higher material, labor and other manufacturing costs of $8.1 million, or 5.0%, higher volumes of $1.4 million, or 0.9%, offset by productivity gains of $5.6 million, or 3.5%, favorable foreign currency translation of $2.0 million, or 1.2%, and to a lesser extent favorable cost savings of $0.2 million, or 0.1%. Selling, general and administrative expenses increased by $8.0 million, or 12.2%, to $73.7 million, reflecting an increase in administrative costs of $7.3 million, or 11.1%, primarily from the impact of the CryoWorks and Technifab acquisitions. Operating profit increas ed by $5.9 million, or 10.4%, to $62.8 million in 2025. The increase is primarily due to continued strong pricing and higher productivity gains of $6.0 million or 10.5%, higher volumes of $0.9 million, or 1.6%, partially offset by unfavorable foreign currency translation of $0.7 million or 1.2%. 33 Table of Contents MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Resources Three Months Ended March 31, (in millions) 2025 2024 Net cash (used for) provided by : Operating activities from continuing operations $ (46.2) $ (70.9) Investing activities from continuing operations (14.4) (113.4) Financing activities (23.6) 87.9 Discontinued operations (a) 207.7 (10.1) Effect of exchange rates on cash and cash equivalents 4.9 (3.7) Increase (decrease) in cash and cash equivalents $ 128.4 $ (110.2) (a) For the three months ended March 31, 2025, the cash provided by discontinued operations is from the sale of the Engineered Materials business. See Note 3, “Discontinued Operations” for additional information. Our operating philosophy is to deploy cash provided from operating activities, when appropriate, to provide value to shareholders by reinvesting in existing businesses, by making acquisitions that will strengthen and complement our portfolio, by divesting businesses that are no longer strategic or aligned with our portfolio and where such divestitures can generate capacity for strategic investments and initiatives that further optimize our portfolio, and by paying dividends and/or repurchasing shares. At any given time, and from time to time, we may be evaluating one or more of these opportunities, although we cannot assure you if or when we will consummate any such transactions. Our current cash balance, together with cash we expect to generate from future operations and borrowing capacity available under our revolving credit facility, is expected to be sufficient to finance our short- and long-term capital requirements, as well as to fund expected pension contributions. Operating Activities Cash used for operating activities from continuing operations was $46.2 million in the first three months of 2025, as compared to $70.9 million during the same period last year. The decrease in cash used for operating activities from continuing operations was primarily driven by the $27.2 million increase in net income from continuing operations adjusted for the exclusion of non-cash items. Investing Activities Cash flows relating to investing activities from continuing operations consist primarily of cash used for capital expenditures and acquisitions of businesses. Cash used for investing activities from continuing operations was $14.4 million in the first three months of 2025, as compared to $113.4 million in the comparable period of 2024. The decrease in cash used for investing activities was primarily driven by the net cash paid in the prior period for the Vian Enterprises, Inc. acquisition of $102.5 million, partially offset by a $6.2 million increase in capital expenditures. Capital expenditures are made primarily for increasing capacity, replacing equipment, supporting new product development, and improving information systems. Financing Activities Financing cash flows consist primarily of dividend payments to shareholders, repayments of indebtedness, proceeds from our Credit Facilities and proceeds from the issuance of common stock in connection with employee stock plans. Cash used for financing activities was $23.6 million during the first three months of 2025 compared to cash provided by financing activities of $87.9 million in the comparable period of 2024. The increase in cash used for financing activities was driven by a $108.1 million decrease in net borrowings. 34 Table of Contents Item 3. Quantitative and Qualitative Disclosures About Market Risk There have been no material changes in the information called for by this item since the disclosure in our Annual Report on Form 10-K for the year ended December 31, 2024.