Crane Company (CR) Q2 2018 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Crane's Second Quarter 2018 Earnings Conference 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, this call maybe recorded. I would now like to introduce your host for today's conference, Mr. Jason Feldman, Director of Investor Relations. Sir, you may begin.

Thank you, Operator, and good day everyone. Welcome to our second quarter 2018 earnings release conference call. I'm 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 that 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 Web site at www.craneco.com in the Investor Relations section. Now, let me turn the call over to Max.

Thank you, Jason. After a solid start to 2018 and the first quarter, we have now delivered very solid results for the first-half of 2018. In the second quarter, we reported EPS, excluding special items of $1.41, up 20% compared to last year; record sales of 851 million, increased 21%, with an 18% benefit from acquisitions, and a 2% benefit from core growth, along with favorable foreign exchange. We are confident in our full-year core sales guidance of 2% to 4%, given our strong order growth and backlog position. Operating profit, excluding special items increased 13% from last year to 126 million, and operating margins, which now include the impact of Crane Currency were solid at 14.8%. Overall, most of our major end markets are performing well with a few tracking better than we expected. That strength is reflected not just in our operating results this quarter, but in the strong backlog in order growth across our three largest segments giving us confidence in our outlook for the remainder of this year. The current tariff and inflation situation is well-understood, and we are effectively offsetting the impact. And we continue to position our business for the future with our various initiatives, including repositioning, acquisition integration, growth investments, and ongoing plans for future capital deployment. On balance, we have greater confidence in our 2018 outlook, and we are raising the midpoint of our full-year adjusted EPS guidance by $0.15 to a range of $5.60 to $5.80. We are also raising our free cash flow guidance by 10 million to 250 million to 280 million. We are pleased with Fluid Handling's performance during the quarter. The recent strength in orders and backlog gives us confidence in the second-half outlook as well as continued optimism about the longer term for the segment. Payment & Merchandising Technologies performed as anticipated. And the recently-acquired Crane Currency business outperformed our expectations in the quarter. Based on our year-to-date results, our current backlog and outlook, we are raising our full-year accretion target for this business by $0.10 to a total of $0.40. Aerospace & Electronics had a great quarter. And we now expect to beat our original full-year guidance on both core growth and margins. Looking ahead, we are very encouraged by our backlog, which grow 16% sequentially and 34% compared to last year with the strength broad based across our business lines. Engineered Materials RV demand remains soft, given a continued channel inventory correction. However, we continue to deliver very solid margins despite the weaker end markets, and rising material cost, demonstrating the strength of our overall execution. In summary, I'm very pleased with our operating results so far this year. And we are well-positioned to deliver on our updated guidance for 2018. Rich, let me turn it over to you for some additional financial commentary.

Thanks, Maximum. Good morning. I'll start with segment comments, which compare the second quarter of 2018 to 2017, excluding special items as outlined in our press release and slide presentation. In the second quarter, Fluid Handling sales of 277 million increased 5%, reflecting core sales growth of 2% and a 3% benefit from favorable foreign exchange. Fluid Handling operating profit increased 1% to 34 million with operating margins of 12.3%. Given the strength in segment orders and backlog, which are a leading indicator primarily for our high-leveraged process valve business and given the strong second-half nuclear outage schedule, we expect both improving organic growth and margins in the second-half of the year bridging to our original guidance of 3% core growth and 13% adjusted operating margins. After adjusting for foreign exchange, the backlog of 292 million increased 7% sequentially and increased 12% compared to the second quarter of last year. Orders also adjusted for foreign exchange improved 6% sequentially and 9% compared to the second quarter of last year. At this point, we believe that we will be able to offset any incremental pressure from tariffs or commodity costs. Payment & Merchandising Technologies sales of 324 million increased 64% compared to the prior year, driven by 62% of growth coming from acquisitions, with a 2% benefit from favorable foreign exchange and approximately flat core growth. Remember that the first-half of 2017 very large shipments for our retail project creating very challenging comparisons. Our core sales growth in the second quarter was consistent with our expectations, and we will see positive organic growth on easier comparisons in the second-half of this year. Segment operating profit of 53 million increased 24% with operating margin strong at 16.5%, but down from last year driven by the impact of the Crane Currency acquisition. At Crane Currency, we are on track operationally, and the integration is progressing well. During the quarter, we announced the closure of our printing operations in Sweden, which we will be transitioning to the new print facility in Malta. We have and will continue to invest in our design and paper manufacturing operations at the same location in Tumba, Sweden. Our core business is performing well, and as Max mentioned, we now expect approximately $0.40 of adjusted EPS accretion from Crane Currency. Aerospace & Electronics sales increased 9% to 187 million. Segment operating margins improved to 23.3%, up 110 basis points from last year, and ahead of our expectations. Total aftermarket sales increased 22%, with particularly strong sales of commercial and military spares with modernization and upgrade business approximately flat compared to last year. Total OE sales increased 5% compared to last year, driven by stronger military sales, as well as large commercial transportation and business jet sales. Engineered Materials sales decreased 10% to 63 million, driven primarily by a decline in sales for the recreational vehicle market. Last quarter, we told you that we believed in retail demand for RVs or sell-through was solid as mid single-digit year-over-year growth rates, but that RV dealers and manufacturers were rebalancing inventory production levels which outpaced the strong retail demand. We thought that this channel inventory correction would be over by the end of the second quarter. It now looks like we will see weak RV production rates to the end of the year as channel inventory levels continue to adjust. However, retail sell-through data continues to support mid single-digit growth for 2018. Operating margins were just under 18% even with the lower volumes, really solid execution by our team. And while resin prices have been rising we have been offsetting effectively with productivity and price increases. Turning now to more detail on our total company results and guidance, our second quarter adjusted tax rate was 23.9% as expected and compared to 30.4% in the second quarter of 2017. The year-to-date adjusted tax rate was 21.6%, and we continue to expect a full-year adjusted tax rate of approximately 22%. First-half free cash flow was 87 million, approximately 38 million higher than the same period last year. Total debt at the end of the second quarter was approximately 1.1 billion, up from 743 million at the end of 2017, reflecting the acquisition of Crane Currency, but approximately 300 million lower than last quarter, reflecting debt pay down using repatriated cash. As Max mentioned, we are raising our 2018 EPS guidance, excluding special items by $0.15 to a range of $5.60 to $5.80, compared to prior guidance of $5.45 to $5.65. The increased guidance primarily reflects an incremental $0.10 of accretion at Crane Currency and a stronger outlook for Aerospace & Electronics, partially offset by a softer Engineered Materials outlook. We also raised our free cash flow guidance by 10 million to a range of 250 million to 280 million. Operator, we are now ready to take our first question.

[Operator Instructions] Our first question comes from Nathan Jones with Stifel. Your line is now open.

Good morning everyone.

Good morning, Nathan.

Good morning, Nathan.

I think I'm going to start off in Fluid Handling, and looking to get a little more color from your around the backlog growth, order growth in the second quarter. I know you guys have said that the Fluid Handling business benefits from higher oil prices, but would do so on a lag, I'm saying oil above 60 bucks for about six months. Is this the kind of lag that you would expect to see, and we should now expect to see those orders continue to strengthen based on higher oil prices?

Yes, I think Nathan, our commentary in the past -- I will start with that last part of your question regarding higher oil prices. We have essentially said that as it relates to RV or Engineered Materials business in particular that the higher oil prices would have a negative impact on our margins, given the petroleum-based raw material input cost we have in that business, but that -- while that might happen, we should see increased demand in Fluid Handling as a result of higher oil prices, and basically increased overall confidence in industrial spending. I think the order profile that we have over the last several quarters or few quarters has demonstrated that that pick-up has in fact happened, but I don't think it's as specific as that there is a particular inflection point that suggest something directly tied to oil and gas, but just generally speaking, that comment still holds. As we think about the balance of the year and just speaking to the performance in the quarter, I would say that performance was as expected in terms of our sales and order profile. We are still on track to that 3% for the year as well as the 13% margins. The strength in orders and backlog, for us it's the leading indicator primarily for that higher leverage process valve business, and given the second-half nuclear outage schedule we do see a very good path of that organic growth rate that we expect by the end of the year.

So, if I continue on that a little bit, you are saying that the high leverage process valve business, this is the leading indicator for a pick-up on that. So that would then -- same to suggest that we should be expecting incrementals to improve a bit as we get into the back -- of 2018 and going into 2019. I know you are going to get some higher incrementals out of the nuclear business, but just if we're still looking at the process valve business specifically?

Yes, that's correct, Nathan.

And then, you said that the order rates in the quarter there in Fluid Handling were kind of in line with your expectations, could you share was your expectations for those order rates are for the back-half?

We see continued momentum overall in the business. I won't give a specific number, but it feels like we're going to see a same pattern that we saw coming through the first quarter and second quarter as we closed out there.

Nathan, this is Max. As it relates to Fluid Handling momentum, just a couple of comments, it's just since the bottom in '16 we've just seen a nice, steady, consistent increase in a demand where we play some of the factors that are driving our demand, particularly in the niche chemical applications. And we're seeing some nice continued strength in the Americas from a chemical standpoint. We saw a little bit of an inflection point in our Europe order rates for three months in the row, not huge but it's a trend that has been flat for quite some time. Not all of that order growth is specific to Europe, but also for EPCs that are bidding global projects, so we, again, signs of confidence in the second-half and also moving forward. China, particular strength, kind of flat overall still but for some particular movements in and out with chemical really strengthening, and the project funnel increasing significantly. And we're seeing opportunities in China that is interesting in terms of the developments where there's still come overcapacity on methanol and PVC and PET and core alkaline [ph], we're seeing an increase in opportunities for the specialty chemicals driven by domestic demand in automotive and construction around polycarbonates and polypropylenes, floor polymers, MDI. It's just more indicators of good steady growth ahead for where we play. BSF just announced an integrated petrochemical facility in South China, investing $10 billion aimed at automotive supply. And we're going to have content that we'll be bidding on for that project. So, again, good steady momentum that we continue to see.

That's very helpful. Thanks very much.

Thanks, Nathan.

Thanks, Nathan.

Our next question comes from Brett Linzey with Vertical Research. Your line is now open.

Hi, good morning everyone.

Hi, Brett.

Good morning.

I just wanted to come back to the order backlog, posted really good growth across all the core pieces of the portfolio. But just specific to the payments business, did you receive any new or notable contract wins in the retail channel? Maybe just a little bit of color what you're seeing there. And then just a little bit more broadly on the other individual pieces in that business, maybe just the trends between Payment & Merchandizing in the quarter and your outlook for the back-half here?

So, yes, Brett, this is Rich. So on your comment with respect to payments and any unique orders in the retail space, there's nothing incremental, I would say, that -- and sort of big large projects I think will provide a little bit more color on that. But on the individual pieces, maybe I'll start there and give you some commentary overall, and then a little bit of a -- and we'll take it from there. So on gaming we've seen, I think, pretty good growth overall this year so far. Casinos continue to upgrade equipment. We're seeing some benefits around legislation of sports betting in some U.S. jurisdictions and so forth. So we're feeling some pretty good momentum in gaming. Retail, we do continue to see growth across a number of different OEM channels there, Automation continuing to be the focus factor there, as you know, rising wages, low unemployment. Not just traditional self-checkout but more use of attendant lane solutions that automate cash handling portions of the transaction. Financial Services, also pretty good growth there with bank branch automation and our initiatives around growing that business. So overall we're feeling pretty good across the group frankly. Merchandizing on the other side continued to be a little bit weak here in the second quarter. But what I would say is that the outlook for the second-half of the year we expect to improve just based on the customer profile that we have and the order rates that we expect to see read through. So feels good overall in terms of the underlying core business within Payment.

And Brett, this is Max. Also from a -- your question specifically on retail, I'm very proud of what the team continues to drive in terms of organic growth opportunities that are beyond just the large customer project order. An example of that is our Paypod. And I can point you, and so if you just Google CPI Paypod you can see some information on it, there's a video and so forth. But this is an example of, and we described some of this in investor day, but developing an OEM solution for attended self-checkout facing the customer. And again, if you watch the video you'll get a better sense. But the team took this product from ideation to first sale in nine months. I'm just incredibly impressed with the solution, the effort here. We have a dedicated sales team of seven people. We have a funnel already of $25 million. We have value-added resellers already signed up, are really focused on Europe. So it's this kind of opportunity that we're really excited about. Internally, we're targeting 300 to 500 units this year. And when I think about, we've talked about this in the past, but in terms of the productivity drivers as that retail is under pressures to become more efficient, reduce labor costs. When we think of point-of-sale locations and some publicly available data, if we kind of look at $140 million as a number out there on point-of-sale globally, and we backed that down for various reasons to $70 million to $80 million served market, and focusing retail-only with $40 million. Maybe there's been $100,000 of installed solutions today. So you're talking about a 0.3% penetration so far. And it's a growing demand that we are well-positioned to take advantage of. So, again, feeling good about not only the existing momentum, the momentum in the second half, we're going to see order strengthening in the second half but also some of the great work the team is doing to position ourselves longer term.

Okay, great. No, I appreciate the detail there. And just on repositioning, it looks like you only spent $0.03 of the estimated $0.15 for the year. Are you seeing some projects a little bit slower to release or is this in line with your plan? And then any change in the expected payback timing if they move closer to the end of the year there?

No, I think the $0.03 is -- I wouldn't read anything into that. It's timing if anything. There's nothing on our schedule that slipped. In fact if anything we're looking to accelerate as much as we can. So if anything the opposite, but nothing to read into the spend side of that.

Okay, great. I'll pass it along.

Thanks, Brett.

Our next question comes from Matt Summerville with D.A. Davidson. Your line is now open.

Thanks. You guys mentioned that you expect $0.40 of accretion this year from Crane Currency. Would it be possible for you guys to also give the top line expectation for the full-year? And then in that same vein is there anything we should be thinking about in terms of the second-half cadence with the large project you guys have been working on to sort of delineate what we should see in 3Q versus 4Q? Any color you could give around that would be very helpful.

Yes, Matt, so we're not going to provide top line guidance on this. We have some unique customers here and would rather not do that for a variety of reasons. What I would say is that it's progressing according to plan. We feel really good about the business, both our core business, our large customer that we've talked about. In fact, we've even started to talk about opportunities with that customer into 2019. So I can appreciate the question, but we're rather not giving that sort of color frankly for a variety of reasons, one of them being competitive.

But our current guidance does include our full expectations through the balance of this year. And we have good confidence at the year's progress and consistency in shipment payment relationship where we feel confident in the balance of the year.

Got it. And then just with respect to Aerospace & Electronics, the 20% plus growth you say in aftermarket. Was some of that timing-related? Was there a big slug of initial provisioning in that? I guess I'm curious as to why that number was quite as strong in Q2. And then, I guess, how do we think about the back-half of the year in Aerospace?

Yes, it was very solid, as you pointed out. A little bit of timing for sure. They tend to be a little bit quicker. It's a little bit more difficult to predict, it's short cycle. So we do see some of that in the quarter here that perhaps benefitted us from a timing perspective. But we have no indications of things on an overall basis slowing down. I don't -- I hesitate to say that we would expect the same growth rate next quarter but the momentum that we've seen coming out of the first quarter and through the second quarter now, things feel very good from an aftermarket perspective, and frankly more broadly across the rest of the business.

Thank you.

You are welcome.

Our next question comes from Damian Karas with UBS. Your line is now open.

Hey, good morning, everyone.

Good morning, Damian.

Good morning.

Just a follow-up question for you on Fluid Handling margins here, it sounds like one of the primary drivers in the second half is going to be some nuclear maintenance, is it reasonable to assume that's pretty certain business from you guidance perspective, once those allergies are scheduled. And additionally, should we -- it's also fair assumption that margin expansion that you are expecting would be more 4Q-weighted just given third quarter, you are still sort of in the higher generation, hotter summer month?

The first answer is yes. It is quite certainly because these are planned and scheduled for an advance.

Right, and to answer your second question, no, I would not say that it's more heavily weight to the end of the year or fourth quarter, it's -- we would expect the margin profile to return or progressively get better as we move through. So I would expect similar margins in both quarters.

Okay, great. That's helpful. And you talked a little bit on the aerospace growth here characterizing it as really, really broad base. But could you maybe just elaborate a little bit more on any pockets of strength you are seeing across the business?

So both orders and backlog just to reiterate once forward base and as you mentioned that's military, it's commercial both aftermarket OE. There is a decent portion of the backlog growth and order growth that we've seen that's multiyear. So we do expect to see a lot of this wind up benefiting us in future periods of course as you can tell from the sequential growth that we saw in year-over-year. It definitely makes us more confident as we think about not only the balance for this year but also next year. Defense has been an area that we've seen also when we say military that defense profile of the opportunities that we have in the final increasing, but not unlike probably what you are seeing everywhere else from the commercial side or defense, it's broad based and our solutions are such that we are seeing that pull through that everybody -- that some others are seeing.

I would say Damian beyond what just the market, but there are some of the initial provisioning and some timing there or some replenishment spares that it certainly feels like, we are seeing a bit of potential catch-up on some spare replenishment both military as well as commercial, it's strong. I would give a nod to our team and our technology because a piece of this also is what we have been saying in terms of the programs we've won and what we continue as we move forward in terms of rate improvement as in terms of using our programs that continue to ramp up. So we expect to see that, we are also seeing some nice wins by our team, a kind of across the board and continue whether its technology insertion within incumbent that's struggling, some share gain on management power with competitors having some challenges. I just got back from the air show and I was very, very pleased that the customer feedback that I received. I think our teams are just doing a fantastic job delivering our new programs, working with our customers that builds credibility and confidence new opportunities, our microwave team is continuing to identify a significant number of new opportunities. We are funded engineering that's increased a significant level. In addition to our funded engineering internally, this is customer-funded engineering identifying new programs and opportunities that bode well for the long-term also. So I'm encouraged by the momentum that we see not just in market and where we are positioned but also what our teams are doing to drive that.

Okay, thanks. That makes sense and a great color. Congrats on the quarter and the improving outlook for the rest of the year.

Thanks, Damian.

Thank you.

Our next question comes from Ken Herbert with Canaccord. Your line is now open.

Hi, good morning everybody.

Good morning, Ken.

Good morning.

Max and Rich, I just wanted -- a first -- just one final question from me on the aerospace and electronics. As I think about the $0.05 or maybe more contribution to the full year guidance increase from that business, is it fair to say that most of that at least is aftermarket related as you look at the full year or is part of that $0.05 or a little bit greater than $0.05 you are seeing sort of relative to your expectations, significant changes in other parts of that business as well?

Yes, good question, Ken. I think it's a little bit -- first of all, it's probably a little bit more than what you pointed out there in terms of $0.05 and not just aftermarket. So we are seeing momentum on the revenue side beyond aftermarket and we leverage on the OEM side in aerospace very well. So it's really a combination and we expect to see that continue.

Okay, okay that's helpful. And then, on the guidance raise or sort of the better outlook, it sounds like within in the current currency and the accretion, two questions around that first I know obviously you don't want to maybe try too much cover. But would you, is the accretion is it may be related to the faster ramp and implementation of motor, you may be getting a little bit top line visibility, can you just provide maybe a little bit more specifics on sort of where you are seeing the real sort of relative expectations, better performance?

Yes, so the overall increase was attributable, so going from the $0.30 to $0.40 attributable to our larger customer. But we are seeing for the most part is a little bit of benefit elsewhere but it's substantially that customer. Overall it feels really good about the underlying business and the order profile.

Okay, that's helpful. So fair to say aside from that customer, no significance sort of movement one way or the other and just the operation or the execution of the integration?

No, no. But integration is progressing as we planned, as we expected. WE feel good about the transition. As I mentioned in the prepared remarks what we did in our high cost moving to low cost and all moving along according to plan.

Okay, that's very helpful. And just one final question, Max, obviously coming out of the air show, there was a lot of discussion around timing of when Boeing being launch a new middle of the market or NMA aircraft and a number of suppliers were expressing significant reluctance maybe to participate in this program considering potential contract terms or concessions around or participation of that program. Can you just talk about how you view that opportunity maybe and from your perspective as you look at your return on investment require to participate in these programs maybe just any of the puts and takes you are thinking about or maybe your view on participating on that program if and when it does move forward?

So, NMA is clearly on our sight. Can we -- this has been strategic for us. So a little over not quite two years ago, we had a strategy deployment process that continues to focus on innovation and strategy focus and NMA has been on that roadmap. So each of our solutions has very specific go gets in terms of technology readiness and so we have been working and developing a TRL six level of technology readiness that we will be ready to go to Boeing with that we've already been communicating with and look forward to partnering when and if that announcement comes out. So we are excited by it, we've been planning for it, we've been executing to it. We are getting our technology ready for it and we think that the return will be there.

Okay, very helpful and really nice quarter guys. Thank you very much.

Thanks, Ken.

Thanks Ken.

[Operator Instructions] Our next question comes from Kristine Liwag with Bank of America. Your line is now open.

Hey. Good morning, guys. It's Kristine Liwag.

Good morning.

Good morning.

Boeing expects to extract $115 million of cost synergies from its acquisition of Embraer's Commercial Aviation portfolio. When we talk to both companies, there seems to be an expectation that Embraer will be able to benefit from Boeing's buying power. Now when I look at your Embraer E2 content, you've got significant share, you've got the Fluid Solutions business, the brake control systems power solutions and sensing solutions. Can you help us understand on high-level, how we should think about your long-term pricing agreements with Embraer, and how much latitude Boeing would have in order to change it?

Well, first of all, kudos to you for the insight on the E2 content, and we're pleased and proud of that content. We view this as -- the Boeing announcement as a good thing. This is going to drive we think incremental volume that is favorable. And as we have had in the past, we will work with our customer and develop joint solutions of opportunities at cost reduction and opportunities to participate. We've successfully completed partnering for success. We look forward to what we know is the expectation on behalf of this important customer. I am proud of the way our team has, and will continue to embrace the process, and identify opportunities for cost savings. So specifically, how do I think about this contract and what it means? I don't have that level of specificity at this time, Christine. It's an excellent question, but I don't think -- I'd say that -- I don't think we are intimidated by that all and we look forward to the discussions.

That's great. That's helpful color. And maybe switching to commercial aftermarket, can you discuss fair fact if any of use and serviceable parts in your Aerospace & Electronics business, because I guess at Farnborough last week, we heard that these pieces are -- there really aren't many of them in aftermarket in the use market today, and we're seeing a little bit of a pick-up from commercial aftermarket orders from other companies in the industry. So I'm trying to understand if this affected you and also how much this could have affected your 22% growth in the quarter for aftermarket?

I think it, Kristine, would be on the margin. We've been hearing the same thing anecdotally, and to be precise about it is difficult, I think you know, but I think it would be on the margin. We haven't heard of anything significant in terms of how we've benefited from that in the quarter.

Great, thank you.

You are welcome.

Our next question comes from Walter Liptak with Seaport Global. Your line is now open.

Hi, thanks. Good morning.

Hi, good morning.

I wanted go back to the Fluid Handling business and ask about just what you're seeing with, you know, the discussion we had about some international markets with oil prices higher, and I'm wondering about pricing, and if the pricing environment is getting any better, we're hearing that some of the bidding is so fairly fierce out there, I wonder if we're able to tick up prices in the quarter and how you're thinking about pricing in the back-half on bid jobs?

Well, project pricing was always -- at point of time and I think it's always been -- everybody is always complaining, and it's always fierce. So, it's fierce, and we have to take into consideration inflation and pressures, and we're seeing that put in place. And through distribution, we're getting price -- through the distribution, so I'd say our teams are effectively getting pricing.

And I wouldn't expect that change as we think about the balance of the year either.

Okay. Is there anything changing on or getting better on the energy side? Drop on pricing will get easier there I think.

No. So, the one area that we have point to, where pricing tends to be a little bit more challenging is U.S. Power. And that's been an area that continues to be challenging. We have some I would say unrealistic competitive pricing tactics, and we walked away. So I would expect that to continue as we move through the balance of the year, and probably into '19 as well.

Okay, great. And then just thinking about the Engineered Material business and your comment on this inventory overhang lasting into the second-half, is the revenue that we saw this quarter, is it sort of the new normal for this business until production levels pick-up perhaps in 2019, or is this number going to move around a little bit?

Yes, I think that's a safe way of looking at it. We don't expect any kind of a return this year. And again, we think that retail is still going to continue, this is just about rebalancing at this point. That's our view in terms of the inventory that's out there. So I would concur with your comment in terms of the balance of the year and the expectations.

Okay, great. All right, thank you.

You are welcome.

Thanks, Walt.

At this time, I'm showing no further questions. I'd like to turn the call back over to Mr. Max Mitchell for closing remarks.

Thank you, Operator. Solid execution by our teams in Q2, investing and driving growth in differentiated technology solutions for our customers, executing on productivity and repositioning, and driving results. As many of you know, I have a practice of honoring and quoting a person who has passed away in the most recent quarter, which attempts to convey a theme in our current quarter, or how we think about Crane's future. As the late author Tom Wolfe said, "The problem with fiction, it has to be possible; that's not true with non-fiction." This quote has nothing to do with our quarter or Crane. I just like to quote especially given our present global environment of late. Thank you all for your interest in Crane. Have a great day.

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