Crane Company (CR) Q3 2014 Earnings Report, Transcript and Summary

Good day ladies and gentlemen, and welcome to the Crane Co.'s Third Quarter 2014 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions]. As a reminder, today’s conference call is being recorded. I would now like to turn the conference over to Mr. Jason Feldman, Director of Investor Relations. Sir, please go ahead.

Thank you operator and good morning everyone. Welcome to our third quarter 2014 earnings release conference call. I am Jason Feldman, Director of Investor Relations. On our call this morning, we have Max Mitchell, our President and Chief Executive Officer; and Rich Maue, our Chief Financial Officer. We will start off our call with a few prepared remarks. After which, we will respond to questions. Just a reminder, the comments that we make on this call may include some forward-looking statements. We refer you to the cautionary language at the bottom of our earnings release and also on 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 Web site at www.craneco.com in the Investor Relations section. Now, let me turn the call over to Max.

Thank you, Jason. As outlined in our press release last night, excluding special items, Crane's third quarter EPS was $1.12, up 8% compared to the third quarter of 2013. Sales of 727 million increased 14%, driven primarily by the acquisition of MEI, with core growth of 0.3% along with a slight tailwind from foreign exchange. Third quarter results fell short of our expectations largely related to external market conditions and we’re reducing our full year guidance excluding special items to a range of $4.40 to $4.50 down $0.20 at the midpoint from our prior guidance. I am going to discuss what transpired during the third quarter and Rich Maue will walk you through additional details as well as our revised outlook for the balance of the year. There were two primary causes of the earnings shortfall relative to our expectations in the quarter. First, Fluid Handling organic growth rates were softer than expected. Outstanding quotes are taking longer than normal to convert to orders. In addition some of quotes are tied to projects that are pushed out of it and lastly on a smaller scale some customers are delaying acceptance of existing in-house orders. This had a direct impact on us in the quarter. Second, Aerospace & Electronics margins were lowered than prior year, driven primarily by three issues. Planned and encouraged incremental investments spending, incremental one-time costs associated with an acceleration product launch, and soft defense sales. I would like to expand on each of these starting with Fluid Handling where we were surprised by weaker than expected organic growth. In February at our Investor Day, we guided to 2.5% organic growth for Fluid Handing. At that time, we were seeing Process Valve orders year-over-year in the low to mid single-digit range throughout the first quarter. However, given improving quoting activity we have line of sight to better order profile for the second quarter and the rest of the year. The second quarter developed generally as expected from an order and a revenue perspective. Process Valve orders during the second quarter increased in the mid single-digit range and importantly our project funnel of outstanding quotes was up approximately 20% year-to-date as of end of the second quarter in addition to very solid quoting activity. The average lag between quote and firm order received shortened approximately 25% throughout the first half of this year. Our customers were compressing time schedules on an average we’re increasing the velocity of orders placed from initial quote. Based on these trends, we expected orders for our core process business to increase in the high single-digit range during the third quarter. Based on our anticipated mix about half of those orders were expected to be related to projects with six months to nine month lead times. The other half typically would have been shorter cycle projects and MRO activity with lead times of less than 60 days, a substantial portion of which we would have expected to be shift within the quarter. Based on these trends described existing the second quarter, we felt we had good confidence in our outlook. However during the third quarter we saw a pronounced reversal of the second quarter trends, specifically while quoting activity remains solid and the backlog of open quotes continues to build. The average time between quote and firm order lengthened materially through the quarter increasing approximately 35% compared to the first half. The sales shortfall in the third quarter was primarily related to our chemical and market particularly in the Americas and Europe but with some softness across other regions including the Middle East. While less significant to our results in the quarter, power was the other area in which we saw a change. We had very strong orders during the first quarter in Power. During the second quarter, order rates decelerated but quote activity actually improved. Similar to chemical, we have a large volume of open quotes, but very sluggish pace of conversion to orders in the third quarter. In Power, we do believe that projects in the Americas are moving forward with only modest delays. In China however, we believe the change reflects shifting supply demand dynamics which may be slowing the pace of investments. In addition to the overall slowdown of quote to order conversion as previously mentioned. We're also seeing some project investment decisions and start dates pushing to the right. Some customers have also delayed our shipment of pre-existing orders and backlog, but this has been a smaller contributor to our overall miss in the quarter. At this time we're not seeing our customers cancelling orders or projects, but we're seeing a material shift in decision making to release those orders and manage projects and spend more closely. We believe this is in response to the generally more volatile and mixed global macroeconomic outlook and political unrest. Our win rate is stable, and we have a very large pipeline of open quotes. Overall market conditions appear to be generally good, but given our recent experience we have less predictability as to when outstanding quotes will convert to orders. And we expect the certain amount of lumpiness and volatility to remain in the short-term, while we expect some continued uncertainty in the fourth quarter; all indicators continue to point to continued long-term secular strength building through 2016. To put this all on perspective, sales and orders did fall short of our expectations in the quarter. However for Fluid Handling overall adjusting for currency and last quarter's small divestiture, backlog is up 10.4% year-to-date, up 2.6% year over year and down less than 2% sequentially. We play in the late cycle portion of the chemical space and we remain confident that we will participate fully in the U.S. chemical up-cycle as well as long-term growth in other geographies and end markets. Despite the weak revenue performance in the quarter we are pleased with execution of Fluid Handling. The 120 basis point year-over-year improvement in margins reflects strong productivity efforts that more than offset a very negative mix and modestly lower volumes. For the fourth quarter, based on the trends just described we expect overall Fluid Handling results to be similar to the third quarter, with the continuation of last quarter's general market conditions. Moving onto Aerospace & Electronics; excluding special items, margins declined 320 basis points year-over-year to 19.2%. More than half of that decline is directly related to higher engineering expense. We have discussed the elevated levels of intentional investment expense over the last two quarters. The increased spending is being driven by programs we won over the last year as well as ongoing quoting and bidding support for new opportunities that continue to present themselves. The level of conscious in welcome investment spending in the quarter was not materially different from the first half of this year. Investment spending in Aerospace is likely to remain at similar levels as we need to support recent wins with R&D and in some cases CapEx. And we will continue to pursue opportunities that are being presented to us that our teams continued to uncover by providing highly engineered solutions, our customers’ value. We look forward to sharing updates at our next Investor Day on new programs and initiatives that have already added new revenue through 2030 above and beyond the 2.6 billion of single IO wins we discussed this past February. The remainder of the decline was primarily related to a product launch at aerospace specific to our cabin business, and lower electronics defense sales. At aerospace we recently introduced a new line of breakthrough seat actuation products that has substantial weight and reliability benefits compared to our older product line. Demand for these new products has been strong, and we saw margin deterioration related to temporary supply chain inefficiencies. Our new suppliers for this product were unable to ramp up as quickly as our end customer demand and resourcing or second sourcing some of those components temporarily added cost. This issue is isolated and largely behind us. And we expect an improvement in aerospace margins in the fourth quarter and 2015. Electronic sales declined just under 10% driven by weaker defense related shipments. We don't believe defense market conditions have changed and the market is stable to down slightly. We believe our decline in defense related sales is timing related. Third quarter order activity in electronics improved, though a substantial portion of orders received for delivery in 2015. Performance at Fluid Handling and Aerospace & Electronics was partially offset by a particularly strong quarter for payment and merchandizing technologies, where we saw volumes increase substantially, and strong margins driven by synergy, realization and productivity initiatives. While margins are tracking above our initial expectations, please remember that there is typically a seasonal drop-off in revenue in the fourth quarter. At engineered materials, sales to the RV market remained very strong, partially offset by a slight decline in building materials. Despite good revenue growth, the product mix was unfavorable compared to prior year and material cost pressures rose during the quarter. We do expect some recovery here with declining oil prices. This is also a seasonal business and the fourth quarter tends to be the weakest RV end market. Rich Maue will now provide more specific details on the businesses, financial performance and our outlook for the rest of 2014.

Thank you, Max. I'll turn now to segment comments, which compare the third quarter of 2014 to 2013, excluding special items. As outlined in our press release, slide presentation and the accompanying non-GAAP tables. After this segment comment I will provide some addition detail on a revised outlook. In the third quarter, Fluid Handling sales of 314 million declined 2.4%, with a core sales decline of 2%. The core sales decline was primarily a result of weaker sales in our Process Valve business. Fluid Handling operating profit rose 6% to 49 million. Operating margin rose 120 basis points to 15.7% despite the decline in sales. The solid margin performance primarily reflected productivity gains, some benefits from lower pension expense partially offset by lower volume and substantially unfavorable mix. Fluid Handling backlog was 350 million at the end of September after adjusting for the second quarter divesture of Crane Water our backlog is up 6.5% versus the end of 2013, down 5.4% versus the end of June and down slightly compared to the same period last year. Further adjusting for currency backlog is up 10.4% compared to the end of 2013 down 1.4% sequentially and up 2.6% compared to the same period last year. As Max discussed quoting activity remained solid, but since the end of the second quarter quotes are taking much longer than normal to convert to orders, which is a change from what we experienced during the first half. This is important to note because while large projects with our Process Valve business have six plus month lead times roughly half the business is fairly short cycle MRO and small project based sales with lead times of 30 to 60 days. Weakening activity in this area was the primary reason our sales came in below expectations. For our Process Valve business specifically chemical, demand was particularly soft in the quarter across the Americas, China and Europe. Based on strong second quarter quoting activity including order momentum, we had expected an improvement in the Americas and to a lesser extent, Europe. This didn’t materialize quite as expected as conversion from quote to orders slowed considerably. At this point while still expect improvement in the Americas the timing remains uncertain. For Europe and China we expect demand will remain weak in the fourth quarter. In the power markets we saw a more pronounced decline in demand than expected particularly in China. In the United States while orders were also down slightly, we expect a modest improvement in the fourth quarter. We’re finding slow compared to the first half of 2014 and the prior year most notably in the Americas and the Middle East. For the fourth quarter we expect continued softness in the Americas partially offset by project activity in the Middle East and China. With respect to our commercial valve related businesses, commercial construction and mining activity in Canada continues to be soft. We are seeing signs of stabilization, in our UK and Middle East based businesses, including continued positive order momentum over the last several months. Payment and merchandizing technology sales of 181 million increased 97 million, 116% versus the prior year driven primarily by the MEI acquisition. Core sales rose 9.4% and currency translation increased sales by 1.1%. Crane payment innovation sales were approximately flat compared to last year. We continued to see strength in the retail end market and Conlux Japan showed solid growth with continued market share gains. In addition both payment and merchandizing systems sales into the vending end market improved nicely compared to last year. Segment operating profit of 27.1 million increased 244% from 7.9 million last year, primarily reflecting the impact of the MEI acquisition. Operating margin increased 560 basis point to 15%, from 9.4 in the same quarter last year. We were very pleased with the margins in the quarter with the improvement driven primarily by higher volumes, synergy realization and productivity initiatives. The MEI integration is progressing well and we remain on track to deliver $0.20 of accretion in 2014. Synergy realization in the quarter was 3 million bringing the year-to-date total to 6 million. We are on track to exceed our 7 million synergy target for 2014 and continue to expect an annual run rate of at least 25 million of synergies by 2016. Aerospace & Electronics sales declined 2.6% to 167.2 million compared to 169.8 million in the third quarter of 2013. Segment operating profit decreased 16% to 32.1 million and operating margins decreased to 19.2% from 22.4% in the prior year. As Max discussed the margin decline was a result of incremental investment spending. Incremental cost associated with the acceleration of a new product launch which is now behind us and softer defense electronics sales. Sales in the Aerospace Group were 110.7 million, an increase of 3.3% from the third quarter of last year. Commercial OEM sales increased 4%, total aftermarket sales increased 5% and commercial spares improved in the low single-digit range. The OEM-to-aftermarket mix was 63% to 37%, consistent with the third quarter of last year. Electronics Group sales were 56.5 million, a 9.8% decline from the third quarter of 2013, driven primarily by weaker sales of defense related products. As Max mentioned, we expect both sales and operating profit for the segment to improve in the fourth quarter and next year. Aerospace & Electronics backlog was 404.8 million at the end of the third quarter compared to 361.3 million at December 31, 2013, and 381.8 million at September 30, 2013. Engineered Materials sales increased 2.8 million, or 4.5% to 64.7 million. Sales of our RV related products increased 10% versus the prior year, while transportation sales declined 4% and building products declined 1%. Operating profit decreased 1.8 million to 9 million and operating margins were 14% versus 17.4% in the third quarter of 2013. The margin decline was primarily a result of negative product mix and higher material input costs partially offset by leverage on higher volumes. Turning now to more detail on total company results and forecasts. Our third quarter tax rate was 27.5% on a GAAP basis, compared to 30.1% in the third quarter of 2013. Excluding the impact of the special items, our third quarter tax rate was 31.9%, which compares to 27.7% in the third quarter of 2013. We continue to expect our 2014 full year tax rate excluding special items to be roughly 31%, which includes the assumption that legislation will be enacted during 2014 that extends the U.S. Federal Research tax credit, retroactive to January 1, 2014. As a reminder, the increase in our forecasted 2014 tax rate reflects the January 2013 benefit from the reinstatement of the R&D tax credit which was retroactive to 2012, coupled with increased earnings in the U.S. and Japan as a result of the acquisition of MEI. In the quarter, free cash flow decreased 17 million from last year to 57 million. On a year-to-date basis, free cash flow increased 9 million to 81 million. We ended the quarter with 302 million in cash, up 31 million from yearend 2013, total debt at the end of the September was 864 million compared to 875 million at December 31, 2013. During the third quarter, we increased our legacy environmental liability for the Goodyear, Arizona site by 31.9 million on an after tax basis. The updated liability reflects additional site remediation requirement as well as an extension of the time horizon through 2022. Importantly in the future annual cash flow impact for this site is expected to remain stable at current levels. In addition, we recorded $4.4 million after tax charge related to a legacy site in Roseland, New Jersey. This charge covers costs through 2017, at which time we expect to have completed required remediation at the site. We’re updating our 2014 EPS guidance to a range of $4.40 to $4.50 per share excluding special items. Using the midpoint, this represents a decline of $0.20 from the guidance we provided in January. We expect full year core growth between 0% and 1%. The primary reason for guidance revision is the shortfall versus our expectations at Fluid Handling as well as -- as we discussed following by Aerospace & Electronics. We believe that payment in merchandizing technologies will contribute more to our full year earnings than we guided to at Investor Day with engineered materials slightly below that guidance. Compared to our original full year guidance, there were two additional factors that had an impact on our guidance revision. First, based on current exchange rates currency is approximately at $0.05 headwind. Second, on a full year basis, instability in Russia and the Ukraine is expected to be also about a $0.05 headwind primarily related to customer credit availability rather than direct impact from sanctions. Overall, we expect fourth quarter earnings similar to the third quarter. Fluid Handling should deliver results comparable to the third quarter reflecting our current backlog position and recent trends. Our expected improvement in Aerospace & Electronics sales and margins along with the $0.05 benefit from the R&D tax credit is expected to offset the normal seasonal, typical decline for the fourth quarter in engineered materials and payment and merchandizing technologies. I will now turn it back to Max, before we take questions.

Thanks Rich. While there is substantial economic and political uncertainty across several of our end markets and geographies, we continue to focus on execution and those factors which are within our control. We had expected and planned for better sales in the quarter. But our overall margin performance demonstrates our ability to perform in a difficult environment. While disappointed with our results, we’re encouraged by progress on our key initiatives. We continued to gain traction on new product development initiatives across the organization. At Fluid Handling we also delivered strong margin expansion despite negative product mix in revenue declines. Further we continue to expect the pickup in chemical investment, although the timing appears to be moving further to the right. The payment and merchandising technologies the MEI integration is progressing very well and margins are tracking above our expectations. Our fourth quarter was seasonally softer for this segment. We continued to have a strong position in our key end markets. Aerospace & Electronics margins will improve reflecting better performance across the segment and we are excited about the new opportunities we have won as well as those we are still pursuing. And at Engineered Materials we expect to benefit going forward from a non-residential construction recovery. And our restructuring initiatives in electronics and Fluid Handling are on track. We will be visiting with all of our businesses over the month of November to understand the latest market and business updates as we dial in expectations for 2015. And we will provide that guidance as usual during our fourth quarter conference call in late January with a more detailed guidance discussion at our February Investor Day. Now let me turn over to Jason.

Thank you Max and Rich. This marks the end of our prepared comments. Operator, we’re now ready to take questions.

Thank you. [Operator Instructions]. And our first question comes from the line of Ajay Kejriwal of FBR Capital Markets. Your line is now open.

So Max may be just to start with a boarder question here and I asked this is in the back drop of most industrials are actually reporting decent earnings here, and the performance last night really stick out. And I know you’ve mentioned number of issues related to end markets and you provided good detail. But wondering whether some of these issues such as the product launch expenses, et cetera might have been anticipated with some more visibility now?

So specific to aerospace Ajay?

Yes, so that was one. And then I think engineered materials you called out some material input cost. I am just wondering that just a lot of these items across the board, and I know in fluid you’ve talked extensively about end markets kind of product, those order cycles lengthening during the course of the quarter. But I’m just wondering whether you might have had some visibility early on or is this more like a systems issue which caused you to be surprised here.

No system issue. Let’s start with Fluid Handling. We tried to paint this picture of what we saw with the real order momentum that we had exiting the second quarter. There was a significant drop-off in quote to order conversion in July and August. And we really needed to see this play out through the quarter. It did catch us a bit by surprise. I think we have heard some of our peers also discuss similar volatilities, similar uncertainty. Now it does seem to vary depending on where others are playing specifically, upstream oil and gas versus mid and down, heavier on mixed towards chemicals. So my sense is that there is nothing unusual here that others haven’t felt in the third quarter. And as I continued to analyze the announcements that are coming out not only from our peers but also from the EPCs and our customers. There is a consistent theme of generally strong U.S. markets that are expected to continue to do well as we head into ‘15 and ‘16. Europe continues to be soft generally and it’s going to be sluggish. China, there clearly appears to be a bit of a slowdown here. I think things continued to play out in terms of severity and this is what we’re watching closely on a global basis into the fourth quarter. So with Fluid Handling I don’t think that we could have caught anything sooner and that’s the message that we want to convey. On the cabin launch specifically, this is related to a new product launch that the end customers are the airlines. Our customers are those providers of interior cabins that are bidding competitively on a tighter timeline than the normal aerospace program if you will. Once those are won and bid by our customers, those providing interior cabin solutions. We have a tighter timeline with which we develop. I'm very, very proud of the team's effort here at our new solution within the cabin actuation. It had stronger demand than we anticipated and we chased quite a few opportunities that we were successful with. That ended up compressing our timeline in terms of developing and delivering on to meet the customer's expectations. The team made the right call to make sure that we accelerated whatever it took in terms of the supply chain that was not fully brought up to speed to handle the amount of capacity necessary with the rate of demand that we saw. Now, this played out through the second quarter and third quarter and while we were aware in the second quarter the severity was not fully appreciated until the third quarter, and our efforts continued from second quarter to the third quarter, so that's how I would frame up.

So, maybe just on the product launch charges. Maybe quantify for us the impact in the quarter sounds like they're behind you but maybe just clarify how should we model in Aerospace margins here in the fourth quarter. And I had a couple of other Aerospace questions.

Yes so I think, Ajay hey it's Rich. I think the way to think about maybe quantification of what Max just talked about specific to Aerospace. So we had 320 basis points degradation in the quarter, which is roughly call it $5 million $5.5 million, 3 million of that degradation was planned investments to support new programs, things that we plan, things that we had been talking about all along. And then the balance of that number is really split between this issue that arose in cabin. So call it a 1.2 million or just a little bit north of that in the quarter, and then the other half of that being the impact of the lower defense sales that we experienced in the quarter as well. So, from an order of magnitude we don't like to see 1.2 million in the quarter clearly it's something we take seriously but order of magnitude it's about 1.2 million specific to the quarter.

So that should go away I imagine in the fourth quarter and beyond. But what about lowered the impact from defense? How should we be thinking about that? What the issues were anymore clarity there would be helpful too?

Sure. So I mean in that area we do expect revenues to come back up, in this business in the defense sector we tend to see some lumpiness in the orders and sales. So we do expect sales to return to a higher level in the fourth quarter where we shouldn't experience that kind of a degradation in Q4.

And then maybe on Engineered Materials; what were the raw material issues? Is this any specific material that went up in price on you? Or might there be something else that caused the surprise?

Yes, so it's mainly resin based, right. So that's the primary raw material input cost that we monitor which is really frankly a magnitude or a composition of other things like styrene and benzene. So the magnitude of the increase that we saw was a little bit quicker than expected. We had experienced a benzene plant go down, I think it was in the month of either late June or early July, and those costs hit us here in the third quarter. We do expect them to abate even as we move out of the fourth quarter or even partially in the fourth quarter moving forward. But it was mainly around resin and styrene cost which is a primary input cost of materials that we produce in Engineered Materials.

So some cost bleed into the fourth quarter, but then you'd expect more normalized cost into next year?

Yes. We would expect hopefully some benefit from as Max pointed out in his prepared remarks the impact of some of the lower price of oil.

And last question for me before I pass it on. So Max with the stock having done what it has really over the past coupled months. So share buybacks move up the priority list of capital allocation? Or how should we be thinking about that?

So as we've announced previously Ajay, we don't preannounce and our policy or capital deployment strategy is to offset dilution. That’s all I can really say.

Thank you. And our next question comes from the line of Ron Epstein of Bank of America Merrill Lynch. Your line is now open.

So just maybe a couple of details and then maybe one broader kind of strategic question. When we look at the environmental remediation liabilities, kind of what drove the change there? Was it just kind of just updating everything? I mean what kind of made that happen now? And then how do we think the cash? How do we think about the cash flow from that? And just maybe a quick accounting, I mean do you sort of take the charge now and then the cash flow is out over time or how does that work?

Sure. So with respect to the initial charge for our Goodyear, Arizona site this was part of our normal process that we go through and working closely with the EPA. And really all this was updating our normal work plan, extending certain elements of the remediation requirements and taking cost up through that 2022 timeframe. So I think that’s important, but equally as important to your question we see the cash cost resulting from this has been stable. So we’re really just taking the accounting, the liability out further in a more simplistic way, but the cash requirement to satisfy that liability being relatively stable. The second one is specific to our site in Roseland, a site in Roseland, New Jersey where the New Jersey, DEP adopted changes to their standards recently and that required us to perform some additional work. We completed our work plan actually in the quarter and we anticipate that the charge that we took will allow us to substantially complete all of our remediation work by 2017 in that regard. It’s a much smaller in scope and scale and I think its 4 million after tax, so not material.

And then Max, when do you stand back and you looked at the portfolio of businesses that you have, now that you’ve been in the leadership role little bit longer. How do you think about that portfolio, right? I mean you kind of know where I am going, I mean the question I get all time is why they do this? Why do they do that? Meaning in terms of the broad variation of businesses that you’re in. Do you think there is places you need to build out the portfolio or are there places you need to save it back? I know you can’t be super specific. But can you speak broadly about how you’re thinking about your portfolio of companies right now?

Sure, Ron, and I think we’ll continue to be consistent here in terms of how we view our strategy at the corporate level and portfolio. We think of ourselves as a diversified manufacturer of highly engineered products that deliver above average returns that we are able to reinvest the cash flow. We act as an integrated operating company and we drive synergies on a global basis with our Crane business systems. So as diverse as these businesses appear, there are significant synergies that we drive as an integrated operating company. We like the portfolio we’ve had over the last 14 years; we’ve continued to drive a transformation within that portfolio. There has been careful pruning and significant investment that has focused our portfolio in three key strategic areas of Aerospace & Electronics, Fluid Handling, Payment and Merchandizing technologies. We’ve said that we will continue to look at bolt-on acquisitions that will strengthen our core as well as look at near adjacencies. So the update data to our strategies we think about the portfolio was clearly expanding our lens in terms of near adjacencies in our core areas of Fluid Handling and Aerospace & Electronics. Meanwhile, we have very good businesses within Payment and Mechanizing technologies. The MEI acquisition is doing very, very well for us. And Engineered Materials continues to be an outstanding business with strong North America presence that we’ll be able to leverage for years to come and as a significant cash flow contributor. So we like the portfolio, at the same time without emphasizing the continued evolution of this portfolio has seen, through careful trimming, synergies as well as major investments. We’re going to continue along that path.

And then just kind of as a follow-on to that would be, I mean how busy is it in terms of M&A activity now? Or is as we think out over maybe the more short-term is just a more focus on core operations in what you have.

Valuations are a challenge right now, and that’s we’re going to remain disciplined and I think that’s putting a hurdle in terms of the activity that we see. Each of our businesses has an active funnel and we have a disciplined process from a business development standpoint that each of our businesses continue to work within the core bolt-on opportunities. And we also are looking at larger over $100 million opportunities where we can -- we find that in terms of the effort and synergies that we’re able to capture that we want to focus our capital allocation on those as we continue to move forward. Having said that right now it’s fairly light in terms of any active acquisition target.

Thank you. [Operator Instructions]. And our next question comes from the line of Brian Konigsberg of Vertical Research Partners. Your line is now open.

Max, I apologies if you had mentioned this. But just Fluid Handling trend as far as quoting and booking that has extended into the month of October. So has that changed at all or it’s the same type of experience you had in Q3?

Yes, it’s still similar to Q3. Now it’s still too early, Brian I mean this is something we are going to continue to understand on a daily weekly, monthly basis here. But we did see that sizable shift. We went from a quote to order average, call it 14 months on average and one as low as 10 months, 11 months and that has extend back out to call it 14 months. And so we see this careful decision making orders that appear to be eminent and less predictable.

And this type of work, I mean is it related more to Greenfield project work or we’re talking about Brownfield expansions? Bottlenecking? I mean is there some sort of specific niche within, I think I'm referring more to chemical but maybe a sense beyond that is particularly I guess challenge for you.

The change that we saw from Q2 to Q3 was actually fairly broad based.

And coming back to Aerospace & Electronics. So with the additional investment, are you anticipating you should be able to get some accelerated organic growth emerging in that business, perhaps in 2015. I think you’ve want a pretty nice return on what you’re spending.

Well as we painted at Investor Day, some of the programs don’t kick in until 2016. But there is no question that the return on investment is there on the programs that we’re working on.

And can you also flush out Russia exposure a little bit. I guess I wasn’t quite clear as to why you think it’s should be such a significant headwind for you. I mean you are not selling directly into the region but you are concerned about I guess receiving payment. I guess I wasn’t certain what the description was.

Yes, so wasn’t so much about credit in the way of us worried about receivable so much as there is impact of sanctions that are impacting our customers directly and because of that they have less funding available to invest in systems and in particular within our financial services sector in our payment business. So it’s really more of an indirect impact of the sanctions to Crane. So it’s not that we have a sanction that we can’t ship a product, it’s our customer that has a sanction and they don’t have the ability to actually fund to acquire components for systems that we would normally be selling into their end markets in particular in Russia. Yes I was just going to add, and the comparison that I made here was to our full year guidance from the beginning of the year. So that $0.05 or so is some of it digested already really not all that significant in the second quarter a little bit more here in Q3 and then an equal amount in Q4.

And what’s your total Russian exposure at this point or exposure to customers that are being impacted here. What percent of sales would say they make out?

For Crane total sales that would go directly go into Russia is in call it $25 million to $30 million range. But the sanctions haven’t necessarily impacted those sales all that much. It’s been more again this indirect exposure to our financial services sector which is I would say about 30% of our CPI business, and only a sub-component of that. So overall it’s probably, we’re talking here a little bit about maybe its $4 million worth of sales, $4 million, $5 million worth of sales in the fourth quarter.

If I may ask one or two more actually just on MEI. Can you just give some update, so that business as a standalone how has it been performing? Maybe year-to-date if you want to give some year-over-year growth comparisons. I guess I was under the assumption, was there a little bit more backend weighted. I know the synergies are coming at backend weighted but I assume that the revenue was backend weighted as well? Is it just more heavily concentrating Q3 and Q4? Maybe if you could address those two things would be helpful.

So in terms of the actual synergies themselves?

Well I guess is MEI, and I am picking more organic growth how has that performed year-to-date? And trying to get a sense of is it growing or is it not.

So overall on a year-to-date basis we’ve been largely flat. And it’s been some exposures that we’ve had, we’ve had strengthened certain of the verticals as we’ve mentioned but we’ve seen some headwinds and vending towards the beginning of the year and we saw some headwinds with respect to our gaming and market as we move to the balance through the third quarter here that we’ve been talking about. So it’s been generally flat I would say in terms of our performance there. From a synergy perspective we’ve been outperforming a bit. We’ve come very close here to the synergy target for the first year we expect to out deliver the synergies by a couple of million dollars, which should point us to slightly over achieving the $0.20 EPS accretion target for the full year.

And why is the 25 million over the first several years not increasing as well as a pull forward or its just conservatism at this point?

Yes, I would say there is some opportunity there to potentially exceed at this point we're just not ready to commit.

Thank you .And I'm showing no further questions at this time. I'd now like to turn the conference back over to Mr. Feldman for any further remarks.

Well thank you operator. This is Max Mitchell. I have a few closing comments before we conclude the call. While third quarter was challenging, we will continue to focus on initiatives within our control, restructuring and MEI synergies are on or ahead of schedule and we will see benefits from these activities next year. New product development is progressing nicely at Fluid Handling and we continue to pursue additional opportunities at Aerospace & Electronics and our Payment and Merchandizing business is executing very well. While we remain somewhat cautious given continued macro-uncertainty, we continue to believe in the long-term opportunities in our end markets, and we will make sure that our business is positioned to take advantage of the eventual end market strengthening. Thank you for your interest in Crane, and I look forward to speaking with you next quarter and giving updated guidance on our plans for 2015.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Have a great day everyone.