Crane Company ($CR)

Welcome to the Crane Company First Quarter 2026 Earnings Conference Call. [Operator Instructions] I would like to now turn the call over to Allison Poliniak, Vice President of Investor Relations. Please go ahead.

Thank you, operator, and good day, everyone. Welcome to our first quarter 2026 Earnings Release Conference Call. I'm Allison Poliniak, Vice President of Investor Relations. On our call this morning, we have Alex Akola, President and Chief Executive Officer; and Rich Maue, our Executive Vice President and Chief Financial Officer; along with Jason Feldman, Senior Vice President, Investor Relations, Treasury and Tax, who's on for Q&A. We will start off our call with a few prepared remarks from Alex and Rich, after which we'll respond to questions. And just a reminder, the comments we make on this call will include some forward-looking statements. We refer you to the cautionary language at the bottom of our earnings release and also in our annual report, 10-K and subsequent filings pertaining to forward-looking statements. Also during the call, we will be using some non-GAAP numbers, which are reconciled to the comparable GAAP numbers in tables at the end of our press release and accompanying slide presentation. both of which are available on our website at www.craneco.com in the Investor Relations section. Now let me turn the call over to Alex.

Thank you, Allison, and good morning, everyone. We appreciate you joining us today. As I step into the role of CEO, I'm energized by the opportunity to leave Crane at a time with strong leadership, disciplined execution and agility truly matter. Much like this time a year ago, we are operating in an environment that continues to evolve rapidly. Fortunately, our business system, the CBS machine together with our global team's relentless focus, resilience and commitment to execution with a disciplined cadence continues to differentiate Crane. We view periods of uncertainty and market dislocation, not as obstacles but as opportunities to elevate our performance. Time and again, Crane has emerged from challenging environment stronger than before and increasingly advantaged relative to our competitors. And we're off to a strong start in 2026, with first quarter results reflecting excellent execution across the company, exceeding our expectations and underscoring the strength of our teams and our commitment to delivering shareholder value. Adjusted EPS of $1.65 was up 15% over the prior year, driven by 4% core sales growth reflecting broad-based strength at Aerospace and Advanced Technologies and continued strong execution at Process Flow Technologies, including solid core order and backlog momentum. Also of note with the strong performance of our recent acquisitions that drove substantial amount of upside in the quarter relative to our expectations. Druck, Panametrics, Reuter-Stokes and optek all performed exceptionally well with integration and deployment of CBS progressing ahead of plan and early benefits emerging faster than anticipated and ahead of what was reflected in our January guidance. We entered the year with positive momentum of both AAT and PFT. As the first quarter progressed, our execution further strengthened our confidence in the underlying earnings trajectory for the year. At the same time, however, the external environment became more challenging. Geopolitical dynamics are evolving and macroeconomic uncertainty is still very much part of that backdrop. Taking all of this into account, our performance to date and the range of scenarios, risks and opportunities we see ahead, we are raising our adjusted full year outlook by $0.10 to a range of $6.65 to $6.85. Our guidance reflects what we have clear line of sight to and high level of confidence in delivery even against a more uncertain macro backdrop, and it assumes continued elevated energy prices and inflation through the balance of the year. and already factors in potential decline in commercial aftermarket. In addition, as you would expect, our teams have actions to get ahead of the increased inflation as we move through the year. We remain focused on execution, continuing to build on our momentum and finding potential opportunities to over deliver. Across the organization, we continue to stay agile in a dynamic environment. Our deep management teams have been here before, and we will manage with the cadence and disciplined execution that you have all come to expect from Crane. Now some thoughts on the performance of the recent acquisitions and the segments in the quarter and as we look to the balance of 2026. As I mentioned, the acquisitions performed exceptionally well. I'm extremely pleased with the execution and pace of improvements. Over the years, we have built tremendous organizational capability that has enabled us to integrate 4 businesses simultaneously at speed and with 0 disruption to the core businesses. This performance reinforces the strength of CBS and the opportunity to create meaningful shareholder value through continued disciplined inorganic growth, combined with the power of the CBS machine. The teams are energized, having fun and are driving results better than our expectations at the start of the year. Strong operational execution, restructuring cost actions and early commercial excellence momentum drove a majority of the upside relative to our January guidance. reinforcing our confidence in both the quality of the businesses and our integration playbook. Margins across the acquired businesses were substantially improved from last year and ahead of our plan, and we see opportunity for continued progression in the quarters ahead. More specifically, we now expect the margin and earnings contribution from the acquisitions to be more evenly weighted throughout the year compared to our prior expectation of back-half weighted performance. Based on what we're seeing today, we now expect accretion for the full year to be at least double what we communicated in January or about $0.15 of EPS. And my confidence in exceeding our target ROIC by year 5 has only increased over the last few months. I'm so proud of all our new associates that have joined Crane this year and I'm excited to see where we will continue to take these outstanding brands in the future. We are already moving beyond just the tactical integration actions and are well on our way with strategy deployment, painting a very exciting future for everyone, including our shareholders. Turning to Aerospace & Advanced Technologies. We continue to see strength across the aerospace and defense demand environment. The backlog we've built, along with the new programs and opportunities, our aerospace and advanced technology teams have secured continue to provide us with great visibility well beyond 2026. Looking to the balance of the year, we continue to expect full year core sales growth for the segment to land at the high end of our long-term 7% to 9% range. On the commercial side, OE activity remains healthy with Boeing continuing with strong production rates. Commercial aftermarket revenue was down as expected in the quarter due to unfavorable year-over-year comparisons, while commercial aftermarket orders were up 11% in the quarter. While we haven't seen an impact to orders at this time, given the geopolitical situation, elevated oil prices and long-haul travel disruption through the Middle East, we could see an impact to commercial aftermarket as the year progresses. However, even factoring in a decline in commercial aftermarket, we remain confident in our 7% to 9% sales growth range, leveraging at 35% to 40%. Rich will provide more details on how we're thinking about this. On the defense side, a lot of activity and interesting industry announcements over the past few weeks. Procurement spending remains solid, and there's a continued focus on strengthening the product defense industrial base given the heightened global uncertainty we continue to see. We are seeing significant demand signals across both missile defense and radar applications among other areas in our portfolio, further strengthening the long-term outlook with the potential for some benefit this year depending on order timing and lead times. In the quarter, we received strong orders for the PAC-3 program lerwings. Additionally, we received incremental orders for TAM and are currently under negotiations for additional contracts with other providers. We fully anticipate additional orders in these 2 defense growth areas as we move through the year. And beyond this, we continue to develop new technologies, win new business and pursue additional opportunities across the segment that gives us confidence we'll deliver above-market growth for the rest of the decade. Particularly on the defense side, we expect replenishment of military aircraft fares and missiles, along with continued demand for ground-based radar systems, all extending the period of strong demand for years. Very confident for yet another outstanding year at Aerospace & Advanced Technologies. At Process Flow Technologies, another solid quarter, and we remain well positioned to consistently outgrow our markets across the cycles. We have deliberately repositioned the portfolio around core end markets: pharmaceuticals, wastewater, cryogenics, chemicals and nuclear power where we hold strong competitive positions and differentiated capabilities that support sustainable market outperformance. Overall demand for the quarter came in slightly ahead of our expectations and execution was strong, driving a 50 basis point improvement in adjusted margins even with the dilutive impact of acquisitions. On the order side, power generation remained a key area of strength. We also saw solid project activity in pharma tied to U.S. capacity expansion continued momentum in cryogenics driven by capacity needs within the space launch segment and strong orders in LNG. In nuclear, as part of the Holtec Palisades restart, we're able to add value by extending contract terms. With respect to the ongoing conflict, note that only about 5% of PFT segment sales are directly exposed to the Middle East. While we're continuing to ship today and overall demand in the region in the quarter was on track, we do see projects moving to the right and potentially impacting the balance of 2026, along with some shipment lane disruptions. Notably, we're not seeing cancellations. Longer term, we do see incremental opportunities for rebuilding as the geopolitical environment stabilizes. And even with this uncertain backdrop, we continue to invest for long-term growth through disciplined execution of our multiyear technology and new product development road maps along with ongoing commercial excellence initiatives, all supported by strong and consistent operational execution. Tactically, we have proven our ability to respond quickly to changes in demand. We will remain nimble during this period, taking appropriate pricing and cost actions as needed. For the full year, we still expect core growth to be consistent with our initial guidance of flat to low single digits, leveraging within our target range of 30% to 35%. In summary, a really solid start. Our strategy is unchanged and we remain focused on managing through any near-term demand variability without losing sight of our long-term objectives. Taken together, our businesses remain exceptionally well positioned to continue delivering strong results. We also continue to see significant opportunity to further enhance performance through acquisitions. Our balance sheet remains exceptionally strong. with substantial available M&A capacity and we continue to pursue a robust pipeline of potential opportunities. M&A activity has not slowed, and we are actively engaged on a number of opportunities across both Aerospace and Advanced Technologies and process world technologies. While there is nothing imminent at this point, our pipeline remains healthy, and we remain disciplined and selective as we evaluate potential transactions. Before turning the call over to Rich, I want to emphasize that while external conditions remain dynamic, our focus has not changed. We remain disciplined in the areas we control. execution, customer focus, cost improvements, development of our people and continued investment in our growth initiatives and technology road maps. We believe this approach positions Cranes to outperform our end markets and create long-term shareholder value. Regardless of near-term volatility over the long term, our approach remains consistent. We will deliver a 4% to 6% long-term core sales growth through the cycles from resilient and durable businesses with solid aftermarket. Substantial operating leverage on top of our already solid margins today that should lead to double-digit average annual core profit growth with significant upside from capital deployment. Now let me turn the call over to our CFO, Mr. Rich Maue for more specifics on the quarter.

Thank you, Alex, and good morning, everyone. Wow, what a start to the year. Let me start off with total company results. Total sales were up 25% in the quarter compared to last year, with 4% core growth driven primarily by the ongoing strength within the Aerospace & Advanced Technologies segment. Sales from acquisitions contributed 18% and in the quarter, which was modestly above expectations, reflecting strong execution as these 4 new businesses become a part of the Crane machine. Adjusted operating profit increased 29%, reflecting the impact of the higher core sales, contribution from the acquisitions and productivity and favorable price net of inflation, a truly outstanding result. And total core FX-neutral backlog was up 9% compared to the first quarter last year, reflecting continued strength at Aerospace and Advanced Technologies, and core backlog was up 3% sequentially driven primarily by process flow technologies. Core orders were down 5% year-over-year, but were modestly better than we expected. The decline was entirely driven by an unfavorable comparison within Aerospace and Advanced Technologies where a 15% decline reflected the record first quarter orders last year in this business, which included several multiyear orders that we highlighted to you last April. Core orders in PFT increased 5% compared to last year, and core backlog in PFT was up 7% compared to December. Backlog and orders across the acquisitions were also solid, coming in modestly above our expectations and continuing to support a strong full year outlook. From a balance sheet perspective, we ended the quarter with pro forma net leverage at 1.4x, leaving us well positioned for further M&A, as Alex noted. A few more details on the segments in the quarter. Starting with Aerospace & Advanced Technologies. Sales of $318 million increased 28% in the quarter with core sales up 9.4%. Our backlog of nearly $1.2 billion increased 14% on a core basis and increased 24%, including drug. On a sequential basis, core backlog increased 2% with total backlog up 11%. Again, no surprises and at record levels. Demand remains strong. We are seeing increasing RFP and RFQ activities across several defense programs supporting missile defense and ground-based radars, some of which reflect recent wins at some of our defense customers giving us further confidence in our multiyear outlook. Let me spend a minute on the core business in the quarter. On the OEM side, sales were strong, up 16% with commercial OEM up 20% and military up 10%. Total aftermarket was down 2% in the quarter with military aftermarket posting a very strong increase, up 28% in the quarter, reflecting the breadth and strength of our portfolio. That military strength was offset by commercial aftermarket, which was down 13% as expected. Specific to commercial aftermarket shipments were largely in line with what we expected for Q1, but with an unfavorable comparison against higher initial provisioning in the prior year first quarter. Even with that decline, we came in above our growth expectations for the quarter. Of note, commercial aftermarket orders in the quarter were up 11% year-over-year and 10% sequentially. While we haven't seen any impacts to order so far resulting from the ongoing conflict, elevated oil prices and disruptions to long-haul travel through the Middle East could create pressure on commercial aftermarket as the year progresses. We are factoring into our guidance that commercial aftermarket could decline on a full year basis. Taken all together, though, we remain very confident in our full year segment sales outlook. We continue to expect total core sales growth at the high end of our 7% to 9% algorithm. While the mix across subsegments may shift as the year plays out, our overall guidance is unchanged and that really speaks to the diversity and durability of our aerospace and advanced technologies portfolio. Adjusted segment margin of 24.6% compared to 26.2% last year, primarily reflecting the impact of the Druck acquisition. This was an outstanding result and nearly 200 basis points better than we expected given drug outperformance in the quarter as well as continued strong performance in our core A&E business. At Process Flow Technologies, in Q1, we delivered sales of $378 million, up 23% compared to a year ago with core sales down 0.6%, slightly better than we anticipated with the acquisitions of Panametrics, Reuter-Stokes and optek-Danulat adding 19 points of growth and FX contributed 4 points of growth in the quarter. Compared to the prior year, FX-neutral backlog at PFT decreased 2.5%, but on a sequential basis, improved a solid 7%. In addition, core FX-neutral orders were up 5% and also modestly above our expectations. Adjusted operating margin of 22.1% was approximately 50 basis points above the prior year, and this was inclusive of the dilutive impact from the recent acquisitions, and like Aerospace and Advanced Technologies, results were above our expectations given better performance across our core businesses and each acquired business. Productivity is reading through as well as price. In the quarter, the impact from the conflict in the Middle East was nominal, as Alex mentioned, we have just under 5% of total exposure in region on a full year basis. We expect projects to move to the right, and we do expect notable freight and other inflationary headwinds as we move through the balance of 2026. Our teams are already executing to ensure no net inflation risk to the P&L inclusive of margin impacts. In summary, we continue to expect core operating leverage for the segment between 30% to 35% for the full year. Moving to the nonoperational items below the segments. Corporate expense for the quarter was $24 million, slightly lower than our expectations. Recall, we anticipated corporate expense to be highest in Q1 due to accounting rules that require accelerated amortization of stock-based compensation expense for associates that are retirement eligible. For 2026, we continue to forecast corporate expense to be in the range of $80 million to $85 million. Given the funding for the acquisitions of Panametrics, Druck, Reuter-Stokes and optek-Danulat, nonoperating expense in the quarter was $15 million, and we continue to estimate full year 2026 net nonoperating expense of approximately $58 million. And lastly, we continue to expect our tax rate for 2026 to approximate 23%. Taking all of this into account, our performance to date as well as the risks and opportunities we see ahead. As Alex mentioned, we are raising our adjusted full year guidance by $0.10 to a range of $6.65 to $6.85 again, reflecting what we have clear line of sight to and a high level of confidence in delivering. Looking at the cadence of quarterly results for the year. We expect Q2 to be similar to Q1 and our full year earnings split to now be more balanced at around 49% to 51% between the first and second half given the strong Q1 performance. The second half earnings performance is expected to be more evenly balanced relative to our historical quarterly cadence of a sequential decline from Q3 to Q4 and given the expected performance of our recent acquisitions. We began the year with performance that exceeded our expectations, underscoring the strength of our teams, our strategic direction and our execution. We remain committed to building on that momentum and consistently delivering results. You know, Alex, all the uncertainty that everyone is talking about this earnings season reminded me of a notable quote from the Academy Award-winning actor, Ryan Reynolds from a timeless movie classic, National Lampoon's Van Wilder, "worrying is like a rocking chair. It gives you something to do, but it doesn't get you anywhere." At Crane, leveraging our CBS machine, we are very intentional and focused on what's in our control, no matter what the environment, and we always view periods of uncertainty as periods of opportunity. And with that, operator, we are now ready to take our first question.

[Operator Instructions] We'll take our first question from Amit Mehrotra.

I wish I had a good movie quote, but I'll have to come up with one next quarter. Maybe starting with the progress you're making on PSI, which is obviously very, very strong and clear. Maybe just unpack where the upside is coming from across Druck, Panametrics, Reuter-Stokes. And obviously, you've had this target of getting from $60 million to $150 million over 5 years to hit that ROI target. It seems like you're achieving that greater or even faster. Maybe you can just update us on timing with respect to that progression?

Yes. Thank you for the question. So related to PSI, the quarter upside, I mentioned 3 areas. First, the execution of the 3 businesses was stronger than expected. Just from a volume standpoint, demand and stronger execution has been very solid. So that created some upside. The cost actions. You may recall that we're taking 2 types of cost actions in the short term. One is eliminated the overall PSI layer, management layer. We're really operating in these 3 businesses. So that was executed very well. We're executing product line simplification there's realignment also resources and restructuring. So we moved -- teams moved quite quickly in the quarter, and we started to see some of that upside. And then the third element is the beginnings of excellence that are starting to read through as we move also at great speed, and expect that to improve during the year. Related to timing overall. So this year, we came in thinking on the top line, the PSI set of businesses would be in the range of 4% to 6% on the growth. We're now thinking closer to the higher side of that range. And we were thinking we would improve 200 basis points of margin, and now we're thinking at least 300 basis points of margin. So ahead of schedule of our plan. which puts us overall in that 5-year time line really gaining ground. So very confident and over delivering to those benchmarks.

Great. And just maybe as a follow-up, can we talk about PFT core order improvement? Obviously, very, very strong sequentially. Is it enough to sort of call an inflection in the process flow cycle, where you're seeing the strongest momentum across, obviously, you're in various regions and various end markets. Maybe you could just double click on that in terms of where you're seeing that momentum.

Yes. So on the question of orders for PFT, the strength has come in some markets that we've been highlighting in the past has continued. I think that will continue through the year. So power generation in Americas pharmaceuticals, cryogenics, wastewater, in particular, gave us the upside. So that's been pretty consistent. Interestingly, we don't see those segments impacted by the higher energy prices. So we think demand will remain solid through the year. Chemical has continued to be sluggish at a trough holding, but I wouldn't call it an inflection point yet until we see that piece of the business changing. Now historically, higher energy prices has led to increased demand in that chemical segment, but it takes a while to read through particularly in the Gulf, where we -- the customers see that benefit of feedstock between gas and oil. And even though the end demand and customer demand for their customers may be slower, it still makes sense to invest and expand capacity debottlenecking and so forth. So I think solid not quite calling an inflection, especially on the chemical, but definitely better than we expected going into the year and feel better about the prospects that we did 3 months ago.

Great. All right. Congrats on good results. Appreciate it.

We'll take our next question from Matt Summerville of D.A. Davidson.

A couple of questions. Can you maybe comment on the magnitude of EPS accretion you witnessed as it pertained to the acquisitions and specifically what you've done to drive near immediate linearity in those businesses, which last conference call were sort of deemed to be quite second half -- back half loaded overall? And then I have a follow-up.

Rich?

Yes. So we obviously did see some accretion in the quarter, as Alex mentioned. We felt just given the results that -- we feel like we're going to see at least double what we thought on a full year basis. So coming into the year, we were -- had in our minds about an $0.08 number in mind, and we felt comfortable today saying that we would see a full year of $0.15. So we did see a portion of that here in the first quarter. I wouldn't say it's necessarily linear, but perhaps close. So that would be the overall impact and how we're feeling about the business if that helps.

Yes. I think to add, Matt, on the cost actions that we took, we were able to execute faster than we had originally planned. So that creates not only upside for the year but also more balanced earnings through the year. Now that said, some of this backlog with improved pricing reads through, we'll still expect to see some gradual improvements from the acquisition as the year progresses.

Yes. The only other thing I would add is that you saw -- we saw more -- a little bit more in the way of -- I think as we think about the cadence, the volumes have been a bit stronger as well in particular for Druck.

Understood. And maybe, Alex, or Rich, if you can expand just on kind of the actionability you're seeing in the M&A pipeline, maybe handicap a bit whether you see more deals getting over the finish line before the end of the year into the early part of '27. And if the average deal size you're looking at is starting to kind of melt higher similar and maybe more similar in nature to the size of PSI as an example.

Yes, Matt. So deal activity or M&A opportunities continues to be quite strong. There's a lot happening. We're involved in several processes on both sides of the segment. It's a range of sizes. I think we've commented before that our sweet spot is around that $500 million of value and -- but there's deals that are smaller than that. that we're looking at that seem quite interesting as bolt-ons, and there are some deals that are a little bit bigger than that, that also look interesting. So it's a bit opportunistic. We remain disciplined. So we'll see how the year plays out. But as far as activity and focus, there's quite a bit happening. You'd add anything, Rich?

No, I think that sums it up. The nature of the transactions, too, I would say, from a complexity and bandwidth perspective, everything we're looking at is nothing is going to cause us to hesitate in the way of resource constraints.

We'll take our next question from Jeff Sprague with Vertical Research.

I just wanted to come back to the comments about Aero aftermarket and completely understand it could sort of fade as the year progresses given what's going on but it's a little unclear what you're actually doing with your guidance. Are you sort of saying, yes, it could be weaker, but we can make it up elsewhere? Or have you actually dialed in a decline in aftermarket in the way you've guided the year here? I think in the range [ something ] changed, right? But, yes.

Yes. Thanks, Jeff. So I think maybe a little perspective to start as well on this. So if you remember, when we came into the year and we initially issued our guidance for commercial aftermarket, we where I would say, on the lower end of perhaps what the rest of the industry was projecting, right? We were saying something like in the mid-single-digit range coming in. And we did get a lot of questions. We did get a lot of questions back on that. And here we are a quarter later, and we see the headwinds in the marketplace potentially from the Middle East, the conflict and so forth. And we're basically saying here, we're going to guide down. So our guidance reflects a down number for commercial aftermarket. Now when you consider what our initial guide was the move, and you guys can all do the math, right? It isn't a big number overall. And then in terms of offset, what we are seeing is a pretty considerable demand increase in our view, potentially -- I would say, we are seeing in military, in particular in spares aftermarket you saw in the quarter. we were up 28%. We have the incremental benefit that comes in the second quarter through the balance of the year in the F-16 brake control upgrade program, I think you're aware of. So when you look at -- when you step back and you just look at the overall complexion of our aftermarket and where we're coming from off the first guidance number that we put out in January, we feel highly confident that we're going to offset even in this revised down outlook for commercial aftermarket.

It plays out differently, Jeff, right? Because aftermarket demand has been resilient post coat, as you know, higher energy and travel has been resilient. But if it plays better than our assumption, then that's an opportunity for us and upside but we felt comfortable assuming a more conservative view because we have the offsets already line of sight in our backlog.

Yes. No, great. I was just unclear if you have formally dialed it in or you were just saying you had contingency to deal with it that happened. So Rich, very clear answer there. I appreciate it. And then on -- just back to PSI, to what degree have you seen just maybe the commercial front end of the business change? In other words, very good businesses, right, but orphan, so to speak, inside a larger organization. So maybe just a little bit of color on what's happening on the customer side. Are you seeing better order intake or inquiries in some of those businesses than you might have otherwise expected? Or again, is the upside more about -- and accounts, obviously, but it's more about the pricing and some of the cost actions that you already elaborated on.

Yes, Jeff. So what we're seeing right now on the commercial side, I know there's been significant changes on how we operate which projects we go after, how we go after them. So I would say we're being more successful in winning the target projects that are more interesting and more profitable for us very quickly. And also around just our pricing practices, value pricing, those would be the primary areas where we're starting to see differences. So we have this long period, as you recall, 6 months to really prepare ramp-up. And those are the areas we've been able to impact shortly. Now we're starting to work the strategies of longer-term growth, which were never baked into our model. And so now we're shifting focus into that, and we think there's upside even to the numbers that we talked about as those initiatives develop.

And maybe just a quick unrelated one. plenty of capacity in your defense businesses for these missile-related ramps and the like? Or we should expect some more capacity in the ground to ride this wave.

We have plenty of capacity. Actually, Rich and I just did a deep dive review with the team a few weeks ago. We're very well positioned for that. I think the pacing item in the industry will be more the prime we can significantly outpace the ramp-ups of the manufacturers of the actual missile. So we're in pretty good shape there.

We'll take our next question from Justin Ages with CJS Securities.

You mentioned chemicals still sluggish holding at trough levels. And I just want to know how that fits into the broader commentary that you gave about seeing some PFT projects being pushed out. is that chemical being pushed out? Or those have already been pushed out, so no change in the time line there?

Yes. The pushouts that we commented on were specific to the Middle East dynamic, and it's really related to the conflict where some of the petrochemical areas or refineries have been shut down temporarily. So some of that activity has pushed out to the right, no cancellations. So that's very unique to that region and that conflict. Now here as we started Q2, we started seeing those things starting to move a little bit faster than I thought they would. So that said, in our guidance, we did factor in some delays in projects in that region, the Middle East in our guide from a conservative standpoint. If it moves faster, then again, it will be a positive for us. More broadly, in chemical, again, higher oil prices. We expect the Gulf at some point to see some momentum in projects that will take several quarters. We are starting to see a little bit of MRO activity pick up, particularly in the Americas which usually precedes project investments here in the year going into next year would be our expectation.

And then staying in PFT, you mentioned good performance in cryo. Can you just remind us or give us some color on the size of that space and the market opportunity there?

Yes. So our cryo business today is about 4% or 5% of total PFT, but it's growing at mid-teens of 15%, 16%, 17%, so it's growing quite fast. It's mainly Americas-based servicing very high-growing markets like space launch or commercial space launch, as you know, is increasing significantly. So supporting that launch platform, not on the actual rockets or aircraft, but on the launch is where we're seeing a lot of demand supporting general aerospace, environmental testing. So as aerospace keeps ramping up, the investments in infrastructure for testing, pharmaceuticals and other areas, semiconductors as well. So very, very interesting markets, high growth, and growing at a fast pace. So this is an area that has been part of our transformation. We basically went from 0 a few years ago to 4% to 5% now, combination organic and inorganic actions.

We'll go next to Scott Deuschle with Deutsche Bank.

Alex, what are the most PMI sensitive parts of PFT? Is then are you seeing any uptick in demand in those PMI sensitive businesses? Or is it more just areas like pharma and cryo and nuclear?

I mean our biggest uptick has been power generation, which is right now driven obviously by the investment in data centers. That has not, I think, been PMI-related pharma, cryo wastewater. We did see pretty solid just industrial activity in the quarter. we didn't call it out, but it was a little bit stronger than we expected going into the year.

Yes. I would have said general industrial portion as well of the market where we are seeing a little bit of improvement, Scott. That helps?

Okay. I think you all have described PFT as being pretty early cycle. So if the broader industrial cycle is turning, as the PMI data suggests, I guess, why would it just be a small benefit to your general industrial business?

Well, I mean it was a mid-single-digit type activity that we saw there, right? So in the industrial space, that's a pretty healthy activity. We'll see how things progress. But was we're pretty pleased with how it started the year.

Okay. And then Alex, how large is the PAC-3 product line for Crane today? And if it's not material now, I guess, could it be beat become material if it grows 200%?

I mean we look at the whole missile platform, right, which is the number I have in my head, it's around that $30 million to $40 million range of microwave and modular power or product lines. And so I would use that $30 million to $40 million jump-off point and the projections are from 2x to 4x, 5x growth from now to 2030.

Okay. And then last question -- go ahead.

Yes. PAC-3 would be towards the top end of the programs. We have maybe 12 or so programs that we're watching closely, and that would be 1 of the ones that are at the top, Scott.

Okay. And then Alex, can you give us a sense as to how much of PFT's cryo sales are related to the space market? And will that space growth within cryo? Is that going to correlate with SpaceX's launch cadence over the coming years?

Yes. On the Space launch, it's about 35%. So it -- and then you put in aerospace in general, now you're looking more like 45% and the balance is other industrials like I said, pharma and so forth. But the growth does correlate with the launch activity, which is increasing but not only SpaceX, but the other companies, like Blue Origin and so forth. So we service -- I think there are 6 or 7 key customers of ours in that space launch, and it's growing exponentially in line with the space launch activity.

We'll take our next question from Myles Walton from Wolfe Research.

I was wondering on the commercial aftermarket comments that whether or not you are reducing the outlook there because of what you're seeing or because of what you anticipate seeing? And if you can give us any clarity or color as it relates to recent bookings trends, the 11% growth in orders versus the 13% decline in the quarter wouldn't suggest you're seeing much, but maybe just add color if, again, you're doing this based on what you're seeing or what you anticipate you'll see.

Yes, I'll comment first and then Rich can add. But I mean, if you look historically, right, over the last 15 years, high energy prices, precoded and post-COVID are 2 different stories. Pre-COVID, it was a pretty strong correlation, higher energy prices, higher airfare, lower activity demand. Post-COVID, we saw a big spike in energy prices in the 2022 with the Ukraine conflict. And it was very resilient. There was no slowdown from there. So we're not sure what is going to happen. We have not seen any decline, as Rich mentioned, 11% up, and we're also sequentially up. However, as we look forward and considering the industry general concerns, we wanted to think through a range of scenarios that would give us a lot of confidence in our guide. So based on that, we assume the decline in our guide to have really, really high confidence. But it could maintain, it could sustain and that would just be upside for us. You'd add anything, Rich?

No, I think that sums it up, Myles.

Okay. And relative to the decline, you're thinking like mid-single-digit positive was before and now you're sort of conceptually thinking that decline is what you're baking in from a conservative viewpoint. Is that right?

Yes, I think that's fair.

Okay. All right. Great. And then on PFT, just as it relates to core growth as you look to the rest of the year, given the strong orders in the first quarter, are you able to see the turning to get to low single-digit positive organic growth or core growth for PFT in the second quarter?

I think for the year, we're still expecting flat to low single digits. I think for the quarters -- yes. I think we're -- the second quarter may be a little bit consistent with Q1, right?

Yes. I would think if you're looking at just sequentially, think of it as not that different from Q1. into Q2 sequentially, Myles, without having the FX in front of me. And -- but that's the way we're thinking about the overall absolute number.

Okay. And then just one last one. What is the downward pressure on margins for the rest of the year versus the 23.2% you did in the first quarter?

The downward pressure? So we mentioned on the call that increased -- we're definitely going to be seeing and are starting to see the inflation on commodities as well as freight. Earlier in the year, you have a backlog that you're getting through. But -- so just from a timing perspective, we see the opportunity to get more price to offset as we move through the balance of the year and we get through that backlog. So that pressure is -- I would say it's modest, but something that we're working through and comfortable with overall and suggesting an increase net to the margins.

So for the full year, improved margins versus...

About a half -- yes, we're seeing about a half -- I think 0.5 point improved overall margin profile.

Yes. Sorry, I was just comparing the first quarter versus the implied next 3 quarters is. The next 3 quarters are obviously slightly down versus the first quarter on the 23%.

Yes. Well, I think, again, it gets to -- it does get to some of that -- it's basically the same answer, right? I'm going to see some inflationary pressure. I'm going to cover some of it. Net-net, albeit up 50%, but yes, it's going to be that inflationary pressure, Myles.

We'll take our next question from Nathan Jones with Stifel.

A couple of the acquisitions. Alex, you talked about moving to the strategy deployment phase on the acquisitions, I think you talked a little bit about shifting the focus to growth initiatives. Hoping you could maybe provide a little bit more color on what that involves for each business?

Yes. So when you think about -- again, just to be clear, Nathan, none of this was baked into our model, it's all upside. But if you think about drugs, some of the opportunities we saw military defense, Druck has a pretty good position in Europe and not really any position of note in the United States defense where our legacy Aerospace and Defense business has strength. So we're building up the strategies of how to create those synergies and create growth. There's various regional differences in penetration and share also in drug in the business. Europe, U.S. differences channel, non-channel that we are working through. So those are a couple of examples of where there's potential growth upside. Panametrics in that business, we think about really also regional. I think we see a lot more opportunity in Americas to grow. They have a lower share in Americas than average. So there's opportunity there in aligning those efforts from a commercial standpoint. And then Reuter-Stokes, we've been -- we have a very, very strong position in power generation piece of nuclear. But we also have some product lines around other platforms of radiation monitoring and Homeland Security. So we plan to build on those platforms as well and grow. So those are some of the things we're thinking about from a strategy deployment standpoint.

That's great. My second question was going to be on the value-based pricing that you're already beginning to realize. I think that's very rapid benefit there. I know some of these businesses have longer-term contracts. So maybe you can talk a little bit about where you're seeing value-based pricing where you'll see it in the future. And I mean it's obviously it's very early in the [indiscernible]. Just any color you could give us around that stuff.

Yes. So the longer-term contract, lengthen are probably less than you would think. If you think about Druck, about 30% of the business is on longer-term contracts. So there's a lot of areas where we can move more quickly. On the Reuter-Stokes, part of the business is about 40%. Some of these are naturally coming up and renegotiated. And the Panametrics is very, very low, a longer-term contract. So all in all, there's a lot of opportunities within the year and then as we continue to work the longer-term contracts. So very confident in our ability to keep improving these margins through the year and going into next year.

[Operator Instructions] We'll take our next question from Ronald Epstein with Bank of America.

This is Jordan Lyonnais on for Ron. I hear you guys on the balance of the year for commercial aero, if we're going to see aftermarket decline in the guide, how should we be thinking about margins for the segment? And for PFT, are you guys factoring in or have any concerns on the new tariffs that are going through on raw materials?

No. A good question. So on the margins overall, Jordan, when you look at the mix differential, I would say -- I'd step back and say, first of all, our portfolio in aerospace and Advanced Technologies. When we say commercial OE, we make money on commercial OE, right? It's -- our model, as you know, is very -- or perhaps different from others in the industry. So when we do mix up and down, yes, there is some impact, but it's not as perhaps drastic maybe in other companies. Specific to the commercial aftermarket as we have that coming down in our forecast or in our guidance. When we look at what we're seeing in military moving in the opposite direction, the margin profiles are not that far off, frankly. They're quite similar. So that mix change is not going to be as significant, if at all, from a margin pressure point of view. In PFT, with respect to tariffs, I would say the overall tariff change has not been all that material to us so far in the year. or it won't be in the year. The one area that I would point to is with the refund process to the extent that we're successful there. We'll, of course, call that out in the balance of the year, but none of that is factored into our guidance. No upside is factored into our guidance.

This concludes the Q&A portion of today's call. I'd like to now turn the floor back over to Alex Alcala for closing remarks.

Thank you all for joining us today. Over the past 13 years, Crane has undergone a meaningful transformation, reshaping the portfolio, significantly improving margins and growth and delivering strong shareholder value under Max's leadership. That foundation positions us exceptionally well for what comes next. This transition is not a change in direction. It's the next phase of the same journey it's about acceleration of profitable growth. Looking ahead, I am more excited than ever about Crane's future and the opportunity to continue delivering for our customers, our associates our communities and our shareholders. We will remain focused on executing our strategy, leveraging the Crane Business System to drive strong organic growth while continuing to pursue our disciplined approach to accelerating inorganic growth. I've had the privilege of working alongside an extraordinary team across the globe, and I'm energized by the path ahead. With this team, this strategy and this portfolio, I'm confident that the best chapters of crane are still in front of us. Thank you all for your interest in Crane and your time and attention this morning. Have a great day.

Thank you. This concludes today's Crane Company First Quarter 2026 Earnings Conference Call. Please disconnect your lines at this time, and have a wonderful day.