Crane Company (CR) Q1 2016 Earnings Report, Transcript and Summary

Welcome to the Crane Co.'s First Quarter 2016 Earnings Conference Call. [Operator Instructions]. I would now like to introduce your host for today's conference, Mr. Jason Feldman, Director, Investor Relations. Mr. Feldman, you may begin.

Thank you, operator and good morning everyone. Welcome to our first quarter 2016 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 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 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 and 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 Max.

Thank you, Jason. As outlined in our press release last night I'm pleased to report that Crane's first quarter EPS was $0.93, up 2% compared to adjusted earnings in the first quarter of last year. Sales of $660 million decreased 3%, driven primarily by 2% of unfavorable foreign exchange and less than a 1% core sales decline. Operating margins, excluding special items in 2015, declined 30 basis points from last year to 13% primarily as a result of lower volumes and higher corporate expense. Despite continued but expected challenges in our Fluid Handling end markets, first quarter operational results were in line with our expectations and we believe that we're on track to achieve our full year guidance. At Fluid Handling, last quarter we told you that activity dropped off towards the end of 2015 and our guidance set for 2016 was consistent with the fourth quarter run rate. We haven't seen a rebound, but market conditions have not deteriorated further and we're seeing some stabilization in order rates. Overall, we continue to believe that 2016 is the trough for Fluid Handling end markets, like we discussed in February. There is still market uncertainty, but with a full quarter behind us, we have modestly higher conviction in our full year guidance for this segment. We don't expect a material improvement in organic growth rates over the next few quarters but we do expect margin improvement driven by more favorable mix and ongoing productivity initiatives. The Fluid Handling core growth decline of 6.5% is consistent with our full year organic growth guidance and backlog was flat compared to last quarter on an FX neutral basis. At Payment and Merchandising Technologies we had another strong quarter with 2% core growth despite tough year-over-year comparisons. Operating margins of 16.3% increased 300 basis points compared to adjusted margins last year. On last quarter's call, Rich explained that the payment business typically has uneven project timing and we expected the first quarter to be somewhat softer than usual. We did see this impact and we expect improving core growth later this year as project activity picks up and it's year-over-year comparisons become easier. We remain on track to realize $33 million of MEI related synergy savings by the end of this year and we remain optimistic about the prospects for growth of both sales and margins in this segment. This year and well into the future. At Aerospace Electronics we had solid organic growth of 6%, driven largely by the space fence program. Margins rose to 19.3%, up 20 basis points compared to adjusted margins last year, with strong productivity and volumes offsetting unfavorable product mix and higher engineering expense. We remain excited about the expected ramp-up of a number of new platforms. We have invested heavily here over the last several years and this business is very well positioned for years of strong profitable growth. Engineered Materials sales fell by a modest 2% in the quarter, as lower RV sales were partially offset by strength in building products and transportation. Margins contracted modestly to 20.1%, as expected, although profitability is still very good driven by our productivity efforts and lower material costs. Overall, there were no real surprises in the quarter and so far the year is unfolding as we expected. Still early and some uncertainty persists, however, we remain comfortable with our guidance as the year progresses and we're reaffirming our EPS guidance of $3.85 to $4.15. While the midpoint of guidance does reflect a 3% EPS decline compared to last year, we still expect free cash flow flat to up 16% compared to 2015 given substantially lower payments related to repositioning and acquisition integration. Excluding the unique situation related to our asbestos liability the midpoint of our guidance range reflects 100% free cash conversion, reflecting our continued strong execution. Including that asbestos payments conversion is forecast at approximately 86%. I will now turn the call over to Richard Maue.

Thank you, Max. I'll turn now to segment comments which compare the first quarter of 2016 to 2015 excluding special items in 2015, as outlined in our press release, slide presentation and the accompanying non-GAAP tables. In the first quarter, Fluid Handling sales of $248 million declined 10%, reflecting a core sales decline of 6.5% and a 3.5% impact from unfavorable foreign exchange. This is in line with our expectations and consistent with our guidance set forth at our February investor day. Fluid Handling operating profit declined 29% to $25 million. Operating margins were 10.3%, down 280 basis points compared to last year, reflecting lower volumes and to a lesser extent competitive pricing. These negative factors were partially offset by productivity and repositioning benefits. The margin performance in the quarter was slightly ahead of our internal plan and we expect margins to improve over the course of the year, driven by ongoing productivity initiatives and by the relative mix of sales from our various Fluid Handling businesses. Fluid Handling backlog was $263 million at the end of March compared to $267 million at the end of 2015 and $304 million at the end of March last year. After adjusting for foreign exchange, the backlog declined 12%, compared to the prior year and was approximately flat sequentially. Moving now to Payment and Merchandising Technologies, sales of $172 million were flat compared to the prior year. Core sales improved 2%, but were offset by unfavorable foreign currency translation. Growth was solid at our merchandising business. As we discussed previously, our payment business is partly project-based. Sales can be spiky and we had a tough year-over-year comparison in the quarter. The overall payment growth rate was in line with our internal planning assumptions. Segment operating profit of $28 million increased 22% from last year, with operating margins up 300 basis points to 16.3%. The margin improvement was driven by higher volumes, along with MEI integration synergies and productivity benefits at both the Payment and Merchandising businesses. We remain on track for $9 million of incremental MEI related synergies which will bring cumulative synergies to $33 million by the end of 2016. Aerospace & Electronics sales increased 6% to $172 million, segment operating margins improved to 19.3%, up 20 basis points from last year. The margin improvement reflects higher volumes and productivity, partially offset by higher engineering spending and unfavorable mix. Total aftermarket sales declined 2%, driven primarily by softer modernization and upgrade or retrofit sales considering challenging year-over-year comparisons which will persist through 2016 as expected. OE sales increased approximately 9%, led by strong military sales, although commercial OE sales also increased in the mid single-digit range. The OE to after market mix was 76%, 24%, compared to 74% to 26% in both the first and fourth quarter of last year. Aerospace & Electronics backlog was $419 million at the end of March, compared to $436 million at the end of 2015 and $446 million at the end of 2015 in March. The lower backlog reflects deliveries on the space fence program along with the timing of certain commercial OE and space related orders . Engineered Materials sales declined 2% to $68 million. Operating margins declined 40 basis points to 20.1%, still nearly at peak levels. Productivity and lower material costs more than offset by lower volumes and some competitive pricing pressure. Turning now to more detail on our total company results and guidance, our first quarter tax rate was 27.9%, compared to 32.7% in the first quarter of 2015, driven by two factors, changes in Japanese tax law in the first quarters of both 2015 and 2016 that required us to revalue our Japanese deferred tax assets and liabilities and a more favorable expected geographic mix of earnings for 2016. A lower tax rate was partially offset by corporate expense that rose by $1 million compared to last year. Our tax rate and corporate expense should revert to more normal levels over the course of 2016. On a full year basis we expect our effective tax rate and corporate expense to be in line with the guidance that we provided earlier this year. At expected levels, our corporate expense run rate remains near best in class at below 2% of sales. In the quarter, free cash flow was negative $31 million, modestly better than our internal forecast, we ended the quarter with $107 million of lower net debt than at the end of March 2015. As Max mentioned, we're reaffirming our 2016 EPS guidance of $3.85 to $4.15, approximately flat to down 7% compared to 2015 adjusted EPS. Our guidance continues to assume total 2016 sales of approximately $2.7 billion, down 2% compared to 2015. The sales outlook includes an approximate 2% negative impact from foreign exchange and core growth down 1.5% to up 1.5%. Our other elements of guidance remain unchanged. Now let me turn it back over to Max, who will make some additional comments before we take questions.

Thanks, Rich. I've spent much of the last two months visiting several crane facilities, meeting with our business leaders and attending trade shows to see customers and get an update on our markets and competitors and everywhere I traveled I was very pleased with our progress on key growth and cost initiatives and our position with our customers. At Fluid Handling we received the first orders for our new line of triple offset valves ahead of plan last quarter. We expect initial shipments for this product later this year. From my site visits I've been impressed with the ongoing facility transformations through disciplined deployment of our Crane business system, excellent facilities continue to get even better with our intense focus on eliminating waste, overburden and variation. Fluid Handling markets remain challenging, however, as I discussed at out February investor day, the strategy that has served us well for many years is unchanged. We will remain focused on productivity and cost control while we continue to invest in our businesses, both organically and inorganically. At payment I visited our [indiscernible] Mexico facility where we have consolidated the substantial majority of manufacturing for this business, while this facility rationalization has resulted in cost savings, consolidation into a single larger facility will also improve product quality and consistency and improve our efficiency and related lead times. With our outstanding workforce and leadership team, we will continue to drive superior customer satisfaction. For merchandising, I attended trade show a couple weeks ago. Years ago we introduced our vision of fully connected and digitally enabled vending machines, walking the floor and meeting with our customers it is clear that this vision is now a reality and a reality increasingly embraced by our customers, like Pepsi, with their new Hello Goodness campaign. This campaign marries our equipment with our customers' requirements, resulting in bespoke solution for Pepsi's visionary approach to satisfy the evolving needs of today's consumers, specifically the increased desire for more healthy and better for you choices on the go. And at Engineered Materials we continue to transition customers to our Crane Gold product, the higher gloss of the RV industry, at an attractive price point. And our clean room, clean room wall solutions at building products are gaining traction. For aerospace and electronics, earlier this month at the Hamburg aircraft interiors expo we introduced a new HG hydro lock seat recline device with a 50% weight savings over traditional hydraulic locks and 20% over traditional gas locks for main cabin seating. This product introduction presents an interesting after market opportunity for us as airlines choose to replace the older and inferior gas lock designs. At this show we also demonstrated our next generation MCX powered actuation system for premium seats. This system is half the size and weight of competing products while providing greater speed and low capabilities using the same level of power of current systems. The actuators also provide several new and innovative features not found in existing systems. These two new products have already generated several opportunities with new and existing customers. Elsewhere within Aerospace & Electronics we continue to pursue a number of exciting breakthrough opportunities. I'm also proud of the customer recognition this business has received. We won an award from Airbus at this year's supply chain and quality improvement event in Toulouse that recognizes top suppliers for their performance on key metrics including on time delivery and quality and each year Airbus also conducts a survey of airline customers, recognizing performance of key suppliers on aftermarket support. Ratings are based on repair and overhaul turnaround time, spares delivery, quality and field technical support. Crane received the highest rating and was one of seven suppliers to receive supplier of the year award. These are just two examples but our consistent application of CVS drives business processes that are increasingly recognized by our customers for superior service. Overall, I'm pleased with our performance in the quarter and believe that we're well positioned for future growth. And with that, operator, we're now ready to take questions.

[Operator Instructions]. Our first question comes from the line of Matt McConnell with RBC Capital Markets. Your line is open.

Could we start on the fluid margins? You were down about 290 basis points and expectation is that would be closer to flat for the entire years and I know mix probably gets a little better with the nuclear valve service revenue coming later in 2Q and then repositioning savings, ramp up through the balance of the year or what else would drive the improvement over the remaining three quarters?

I think I'll start off by just reiterating one of the comments I made in my prepared remarks which is that the first quarter results from a margin point of view in the Fluid Handling segment was slightly ahead of our internal plans -- which was consistent, there was no surprise from our point of view in terms of the performance in the quarter and how that lines up for our full year guidance of a 12.2%. We have discussed and as you pointed out the seasonality of our nuclear services business in the past, very solid margins in this business and it's always strongest in the spring and the fall seasons which is when the nuclear outages occur. So consequently we do expect a better mix from that point of view. But also point out that a couple of our other businesses, short cycle nature of some of our other businesses within our pumps, for example and some of our others, tend to have a lower level of volumes in the first quarter and tend to improve from a mix perspective in terms of how it contributes to margins in Q2 and beyond. So those would be some of the factors. And then finally, the productivity improvements that we would expect to see in certain of the businesses, even beyond the repositioning benefits that we've discussed previously, our normal cadence of productivity, increases as we move through the balance of 2016. So I think the overall message here, Matt, is that margins are tracking as expected and we do not see any reason why we would not be able to achieve the full year guidance target of 12.2%.

And then just on Fluid Handling pricing, it didn't seem like it was hugely different from recent trends or maybe downplayed a little bit in the comments or maybe that's just how I interpreted it, but any change in what you're seeing on pricing there?

We're not seeing any significant change one way or another in pricing from where we exited 2015. I think it still remains competitive but no material worsening and nothing that we're seeing significantly better, so kind of same situation.

Our next question comes from the line of Brian Konigsberg with Vertical Research Partners. Your line is open.

Maybe just one more on Fluid Handling. Max, you just made the comment you do expect this to be a trough year. Maybe can you give some commentary around what's, you know, driving that confidence. I know you made those comments before. I was wondering if there's anything incremental that has developed that just gives you more confidence that will indeed be the case.

No, you know, Brian, we still mentioned the uncertainty. I think we planned prudently in terms of the run rate we saw in Q4. Q1 has come in as expected. I think the oil price alone has improved slightly since the end of the year, just reading some of the numerous macro reports. We don't expect a recovery, but, again, I do believe that this is the bottom and the next question will be, well, what kind of increase can we see in 2017 and is it slight, is it a little stronger and I think that's far too early to call. But I still feel confident that this is the trough.

And maybe just talking more about the [indiscernible] market specifically, are you still seeing push outs of service? And maybe just secondly to that, with refining after market, are you starting to see that kind of come back into the market this year and is that potentially building for a more meaningful ramp in 2017 at this point?

We're seeing some minor improvement in refining. I think some of the turnarounds have clearly increased slightly. I wouldn't call it too significant. After market project push outs continue. You know, it's just more of the same, really. Again, I think where we exited Q4, planned the year at consistent run rate is playing out as we anticipated. So we're not seeing material improvement, we're not seeing significant worsening. So that's the best I can portray it.

Okay. If I could just sneak one more in, just on the Aerospace & Electronics side, the margin performance was pretty good. You know, we understood you were going to have a mixed headwind with the Space Fence program. Maybe just talk about some of the underlying drivers that are kind of supporting the performance in Q1 and potential for -- you know, to keep that fairly elevated through the year.

In terms of the performance in the quarter, you know, modestly, modestly above expectations, but certainly very close. You know, from a mix perspective, we did see the unfavorable mix that we anticipated coming from the defense program shipping as expected. You know, modest improvement in engineering expense. Some projects moving a little bit to the right but not to the extent that we don't expect a full year engineering target to remain the same as we communicated at investor day. So we had a little bit of a benefit from a timing perspective there, but, you know, other than that, we remain committed and feel good about our full year margin target in the segment of about 20.5%.

And our next question comes from the line of Nathan Stone with Stifel. Your line is open.

I wonder if I could just comment the Fluid Handling margin targets from a little bit of a different angle. You've had a pretty nice tail wind over the last year and a bit probably from lower steel costs. We've seen steel prices increase pretty rapidly recently. In the current environment, how do you feel about your ability to pass that increase, raw material cost, through to customers, you know, I guess given the weak demand environment?

Yes, you know I would point to our strategic sourcing and all that we do from a material cost productivity perspective as it relates to steel and any other commodity that is part of our solutions. As we look at it in terms of our full year guidance target, we still feel confident. You know, we will remain disciplined on pricing, as we had communicated at our February investor day. And would expect that to continue notwithstanding any pressure that we might see, but also just to reinforce that the measures that we take from a productivity point of view in particular around materials, continues in a fairly strong fashion, Nathan.

Okay. So you don't foresee any problems on that side of the business at the moment?

Nothing significant.

Okay. I'm going to jump over to Engineered Materials, you continue to generate very high margins and significantly above, you know, your own forecast of what the long-term margin profile of that business looks like. Does it play within that segment on, you know, lower raw material costs because oil is lower and consistently talking about improved productivity. Can you give us some color on how the split works between those two, how much the productivity improvements have added to the margins in that business over, you know, the last two or three years, you know, longer than, you know, just the last quarter or so and whether or not you think you've structurally improved the margin profile of that business over the long-term.

Yes. So, in terms of the performance in the first, maybe I'll try to attack it from the performance in the first quarter, clearly still seeing some benefit from the resin prices as they cascaded through the back half of 2015, so still seeing some of that. Clearly we do expect to see some erosion in that regard, as prices do increase and then certainly the balancing of those material cost pressures or benefits that we've seen with pricing. So between the two of those things, also contributing to some margin degradation as we move through the balance of the year. As it relates to productivity in a constant -- you know, that focus that we have that's relentless and that will continue to every one of our businesses, you know, I would say that, you know, it's all around operations in the plants themselves. It's mold utilization rates. It's scrap rates and things of that nature. But we haven't quantified the difference between either that or just sort of one off improvements we might otherwise see in the business. It's just going to be a constant pursuit of productivity.

To give you an example, Nathan, on the material costs, we do expect that to continue to move closer to our guidance. We're already seeing some increases in material costs, also some moves we're going to need to make to continue remain competitive, as per our guidance and plan. On the productivity side, just to give you an example, this business used to be just white panels and to be more customer driven over the years we continued to be very innovative and creative and so we at colors, we add more changeovers, we add mix and early days, that introduces increased variability, at a continuous process that -- continuous runs and efficiencies around that can be impacted. So was we drive customer satisfaction, we drive more innovation, we tend to drive inefficiencies, then we go back in with the crane business system and drive productivity gains that drive out that inefficiency. It's almost a never ending cycle as we continue to become more and more customer driven with new innovative product, we then have new opportunities to drive efficiencies and productivity. Hopefully that gives a flavor for what happens here when we continue to talk about productivity in that business.

It does, thanks and I'll just get one in on the Aerospace & Electronics margins. Again, you've got a couple of headwinds there which are both high class problems, negative mix from Space Fence and the higher engineering expenses. Can you just give us an idea of when Space Fence finishes shipping so when that mix goes away and when you expect the engineering expenses to peak and start declining again?

So in terms of the mix, the mix headwind, we see that pretty consistently as we move through the balance of the year, specific to the Space Fence program. And then from an engineering perspective, we do see that peaking this year, consistent with what we said during February investor day, should see that start to tail off as we think about 2017.

Is Space Fence done by the end of the year?

We expect it to be done by the end of the year.

Okay. And any color you can give us on the reduction in engineering expense as we go into 2017?

No, we're not prepared yet, Nathan, to provide guidance on 2017.

And our next question comes from the line of Chase Jacobson with William Blair. Your line is open.

I thought I would ask a question on payment here. It seems like you're pretty confident in the growth there throughout this year into next. Can you just give us some color on the visibility that you have into the growth trajectory there and is this a shorter cycle, would you consider the next largest variable outside of Fluid Handling in your consolidated revenue guidance for the year?

No, I would not say that. I think the guidance that we put out there for the year is that I think plus 5%. We feel confident in hitting that number for a variety of reasons in terms of the solutions that we provide, in terms of how they drive productivity across all of our customers' various applications and the demand profile that we see across, you know, each of those verticals. So it's really a bottoms up view, by customer, by application and really driven by the productivity improvements that are generated from the solutions we provide. So we don't see that as being a business that, comparing Fluid Handling and the end markets that we see there at all.

Okay. And then on the working capital side, you mentioned slightly better cash flow in the quarter. Was there anything material? And then as we look out throughout 2016 and into 2017 and kind of longer term, as the mix of your consolidated sales changes, really, as payment continues to grow as a percentage of the total, is there any structural change in your working capital potential, either positive or negative, that we should be kind of paying attention to? Is that, you know, that business kind of outperforms on the growth side?

No, I wouldn't suggest any significant changes in the working capital metrics. I would point out that our -- in that business, we actually perform quite well. One of our strongest performing free cash flow providers for the company, but from a metric point of view, I wouldn't at this point start to model any significant changes to the working capital metric in any significant way. We're going to be looking to continue to improve leveraging all the different tools that we use, but nothing significant structurally.

Okay. And one more, if I could, I know internal investment is a top priority this year, but any update on the deal pipeline?

No new update, a lot of activity, nothing imminent.

And our necessary question comes from the line of Ryan Connors with Boenning & Scattergood. Your line is open.

I thought we could kind of step back up to the higher level a bit and talk a little bit about aerospace in terms of the market. It seems like there's been a lot of news flow regard to go profitability pressures for some of the major OEMs and the steps they're taking to shore up their own margins. Obviously that's not necessarily news but it does seem like the tone on that part of the supply chain has taken a turn for the worse. Can you give us some perspective of how that impacts your business both near term and strategically?

Yes, we continue to with our largest customers, partner in every way to come up with win/win solutions. There's an enough-cost reduction solutions that we have and will continue to surface. We openly embrace the various programs that our customers are working, just as we would with our supply chain. Where it's also a challenge is also opportunity. You're seeing decisions made to shift and open opportunities that in some cases is providing us with interesting new opportunities as well. So as much as it can be a challenge, there are also new opportunities. So we view it as balanced, we view it as we're working it assertively, aggressively, partnering with our customers and continuing to find win/win solutions.

And a similar question on Fluid Handling, you talked about the business from an aggregate standpoint and obviously the oil and gas would seem to be the main issue but can you drill down for us into the trends in the other niches of that business? You know, you've got some nonresidential construction exposure, some general industrial. Can you kind of talk about the different growth rates and order patterns among your various niche markets and, you know, you talked about this year being a trough, but are there pockets of the business that, you know, are maybe not in a trough and headed in a different direction? Can you just kind of give us some color there?

Sure. So when looking at the different components of Fluid Handling, you know, the valve services business we talked to a little bit earlier, we feel good about what's happening in that business. I mentioned the seasonality and the upticks we would expect to see in the spring and fall season, things are moving, I would say, status quo from a market perspective in that area. When looking at, you know, commercial building or nonresidential construction exposures that we have in our Crane Supply and Building services and utilities business in Canada and the U.K., you know, end markets in Canada have been very difficult but, you know, as we disclosed last years we've been performing very well from a market share perspective and actually growing in those end markets. So we feel good about the trajectory that we're seeing there. As I mentioned, building services and utilities in a similar fashion. There are unique one-off type opportunities that tend to happen from time to time on -- you know, in the different regions that we serve there and feel good about what we're seeing in both the U.K., the MENA region and in Europe where we serve some various water applications. So I'd say overall, outside of the process valves, we feel good and moving in accordance with the plan that we set forth at the beginning of the year.

And lastly Crane Pumps and Systems which domestically in the U.S. is seeing growth in municipal water.

So you don't feel like there's any possibility that we end up seeing a trough this year in the oil and gas type applications but that balances with something else, like nonresidential comes down and we end up, you know, having a flatter down 2017 as well? I mean, does that kind of likelihood would you put on that kind of an outcome?

We don't see that occurring, Ryan.

And our next question comes from the line of Robert Barry with Susquehanna international. Your line is opening.

Due to this particular morning I'm on the line for Rob today. First question on the payment margins, I mean, that's pretty good performance, 300 business points year-over-year. I was wondering how much of the MEI synergies was realized in 1Q and what's the cadence going forward.

Yes, I mean the synergies for that business fairly consistent quarter to quarter, so we have $9 million in expected incremental synergies, you know, these are synergies in programs that we started last year and so this is sort of at the run rate and what we're going to conclude on achieving those synergies for the balance of the year. So that contributed as expected, you know, I would say in the segment, both businesses, both the Merchandising and the Payments business performed very well from a productivity perspective and drove some incremental benefits. I wouldn't suggest that that's something that can continue on a sustainable level. We're going to drive it the best we can. But I wouldn't get over our skis with respect to margin profiles, you know, exceeding what we have as a full year target in that segment which is about that 16.6%. You know, the mix in terms of the sales, on track overall from a top line perspective. We did see some incremental benefit from a mix point of view in terms of the products that we sell, but from an overall cost/synergy perspective, on track synergy wise and maybe slightly better on just recurring productivity.

And then maybe on the growth in the segment, if you can comment maybe by end market where you're seeing the gaming, retail and financial services end markets.

So again, I would say no real significant changes from what we had talked about previously. If I was to people back the quarter a little bit, we had some strength in retail, some strength in transportation and helps from a mix perspective in some aspects, but overall feel like the profile of business that we have for the balance of the year is going to be consistent with what we laid out during February investor day.

And our next question comes from the line of Ken Herbert with Canaccord. Your line is open.

I just wanted to follow up on the payment question. So I know on the payment side, it can be very lumpy based on projects in that business. It sounds like there wasn't anything unique necessarily in the first quarter that drove margins and it was predominantly, you know, the shift to Mexico and productivity in the segment? Is that a fair way to think about it?

That's a fair way to think about it and slightly better mix, I would say, in terms of the sales profile. So the overall sales numbers were exactly what we expected, frankly, very, very, very close. We just slightly from mix to add to the points you made on productivity and the synergies.

Okay. So it sounds like as we think about the full year, you're not ready to get too aggressive based on this first quarter from a productivity standpoint, but maybe a little upward pressure to the full year number, but you don't want us to get too ahead of ourselves, I guess is the right way to think about it?

Yes, we're holding to our internal guidance at this point. It's early and the point of this business being lumpy, it's important to have that in the back of your mind as we move through the balance of the years.

Second, on Aerospace & Electronics, what was the growth in the quarter for the commercial after market in particular? I think you said total after market was down 2, but I'm guessing part of that was tough comps on the military side.

Yes, so, from a commercial -- what I would say is that from a commercial spares point of view, very, very consistent, flat overall is the way I would characterize it. On the MNU side, on the commercial side, not as strong as last year and that's because of some of those MNU programs that we had talked about during the February investor day. So those would be the two things I would point to, to answer your question. So commercial spares relatively flat and then some of that, you know, comparable year-over-year headwinds associated with the MNU side of aftermarket.

Okay. And just finally again on Aerospace & Electronics, I think you said commercial up mid-single on the OE side. Can you just talk about your outlook now for the year? I'm guessing part of that is some of the newer programs that you've got, you know, increased content on. How do you think about sort of the legacy business there as you go through the year and growth for OE sales within commercial aerospace?

Yes. So on the OE side, our guidance for the full year for large transport and regional was around 3%. I think we still feel good about that on the business side and we're going to be forecasting down consistent again with what we said at that investor day, but we're holding to that 3%. It still feels good in terms of the programs that we're tracking.

And our next committee comes from the line of Jim Foung with Gabelli & Co. Your line is open.

Both of my questions have been answered but I did want to ask you in terms of the new aircraft ramp-up. Are you seeing any delays in the transition as they move from the old aircraft to the new aircraft?

No, at this point we're not seeing delays. When I look at our engineering profile of expense and when that's supposed to tail off and when we expect platforms to launch, we're not seeing any real significant changes for the primary platforms that we participate on.

Okay. And are you seeing any supply chain issues as they bump up the monthly rate on these aircraft going out in the next couple years?

No supply chain issues.

Okay. And then just lastly, I guess in reference to, you know, when the airframe manufacturers taking back some of the parts which they design made by suppliers, you know, do you have any parts that you make for Boeing that's originally designed by them?

No. All the intellectual property is owned by us.

And our next question comes from the line of Ron Epstein with Bank of America. Your line is opening.

It's actually Christine Lewin calling in for Ron. So I'm following up on a question earlier. So it looks like for a payment in merchandising, this is the second quarter you've reported margins in excess of 16%. So with synergies from MEI coming along and your cost reduction measures on their way, is it fair to say that 16% is a minimum margin for the segment going forward?

So I think we've disclosed in the past a long-term margin target and it's in excess of 16%, so, you know, at some point as we move through 2017, for example, we would expect to see margins continue to grow. You know, it's also a combination of the successes that we're seeing in the merchandising side of the business as well, our margin targets historically have been 10%. We've exceeded that. You know, as we discussed previously. So there's a little bit of upside that we're seeing as we look out into future periods with respect to that business as well. So it's a combination of what we're seeing in both, you know, the CPI payment side as well as the Merchandising Systems side. But I think it's fair to say that -- to your question that as you look out in future periods, that we would expect that business to do better.

And maybe if I could squeeze one more in Fluid Handling, can you quantify how much pricing pressure you're seeing in the segment and then also, based on your previous experience with up cycles, can you give us an idea of how quickly you would expect to regain better pricing, if the end markets improve?

Yes. So from an overall price perspective, you know, in the quarter itself, it was probably, you know, somewhere around, you know, 100 basis points which is consistent with the guidance that we provided during February investor day of about a $5 million overall headwind for the year and that headwind really being the lapping of what we started to see in the second half of last year and then here cascading into Q1 and Q2. But to answer your question on when would we expect to see pricing to go up, that's a very difficult thing for us to be able to predict and at this point we're just comfortable communicating that we see pricing not eroding significantly at this point and not seeing a lot of upside at this point.

[Operator Instructions]. We have a follow-up question from the line of Nathan Jones with Stifel. Your line is open.

I'm wondering if you could comment specifically on what you're seeing in the refinery and chemical plant turnaround season this spring, if there's been any improvement and what your outlook is for the fall season.

So just slight improvement, we saw a couple of emergency orders placed, not hugely significant, but clearly the turnaround activity is increasing slightly. It's at low levels. We don't expect dramatic change as we continue to move through the year but stabilized and slight improvement.

And the scope and the scale of what we're seeing is lower as well.

Yes, from a historic standpoint.

And we have a follow-up from the line of Brian Konigsberg with vertical research partners.

I know at the analyst day we were talking about Aerospace & Electronics, you have already -- lifetime value but you're also pursuing another billion-4. I was wondering if there was any progress on some of those competitions that may have added to your visibility on that front.

A lot of work, a lot of internal progress and nothing new to update on that number and we hope to provide some added clarity as the year progresses.

Okay. And then actually just back to the refining question, how big of a business is that for you today versus in a more normalized environment? The refining aftermarket business?

I would say it's probably roughly around 50 million to 60 million. I would have to double-check that number, though, for you 50 to 60 is the number that I have at the top of my head.

We'll clarify.

That's where it stands today or that's kind of in a normal environment that's where you expect it to be?

Where it stands today.

And how depressed is that relative to the overall business? Is that substantially more depressed?

I would say it's consistent. I wouldn't say that one is -- it could be a little bit more depressed than others but not in a material way.

Thank you. And this concludes today's Q&A session. I would now like to turn the call back over to Max Mitchell for any closing remarks.

Thank you, Operator. While we continue to execute well in challenging end markets and as the late great Merle Haggard once said, by the time you get close to the answers, it's nearly all over. We believe that captures what we're experiencing today, uncertainty appears to be diminishing, albeit slowly, as we continue to approach what we believe is the bottom for Fluid Handling end markets, our other businesses are performing extremely well and the investments we're making across our business position us well for the future. Thank you all for your interest in Crane and have a great day.

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