Crane Co. (CR) Management Discusses Q2 2013 Results - Earnings Call Transcript

Jul.23.13 | About: Crane Co. (CR)

Crane Co. (NYSE:CR)

Q2 2013 Earnings Call

July 23, 2013 10:00 am ET

Executives

Richard E. Koch - Director of Investor Relations & Corporate Communications

Eric C. Fast - Chief Executive Officer, Director and Member of Executive Committee

Richard A. Maue - Chief Financial Officer, Principal Accounting Officer and Vice President of Finance

Analysts

Matthew W. McConnell - Citigroup Inc, Research Division

Matt J. Summerville - KeyBanc Capital Markets Inc., Research Division

Michael Callahan - Topeka Capital Markets Inc., Research Division

Brian Konigsberg - Vertical Research Partners, LLC

Operator

Good day, everyone, and welcome to Crane's Second Quarter 2013 Earnings Conference Call. Today's call is being recorded. At this time, I would like to turn the call over to the Director of Investor Relations, Mr. Richard Koch. Please go ahead, sir.

Richard E. Koch

Thank you, operator. Good morning, everyone. Welcome to our Second Quarter 2013 Earnings Release Conference Call. I am Dick Koch, Director of Investor Relations. On our call this morning, we have Eric Fast, our Chief Executive Officer; Max Mitchell, our President and Chief Operating 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 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 the table at the end of our press release, which is available on our website at www.craneco.com, in the Investor Relations section.

Now let me turn the call over to Eric.

Eric C. Fast

Thank you, Dick. Before commenting on our second quarter earnings, I'd like to briefly touch upon the MEI update that we announced on Friday. As mentioned in the release, the European Commission has cleared the pending acquisition of MEI. The clearance by the European Commission is conditioned upon Crane Co.'s entering into agreements to implement remedies regarding 2 of our product lines. As agreed, we will be divesting our B2B bill recycler product line and related assets, as well as providing a technology license covering our Currenza coin recycler product line for the European vending market. The B2B bill recycler product line is sold primarily in transportation markets in Europe and North America for fare collection and off-street parking. These 2 remedies only affect the operation of Crane's Payment Systems business. And MEI will continue to offer its competing lines of coin and bill recycler products in these same markets.

As previously reported, we are in negotiations with Bain Capital and Advantage Partners, the owners of MEI, concerning the economic effects of these required actions. The time necessary to implement the remedies will shift the anticipated closing of the acquisition into the fourth quarter of 2013. We remain excited about the potential acquisition of MEI. This acquisition is consistent with our strategy of niche market leadership. A combination of MEI with our CPS business creates a global platform to drive product innovation and integration for the benefit of customers in developed and emerging markets. We are hopeful that we will be able to come to agreement with MEI's shareholders over revised pricing and timing to allow us to complete this acquisition. But as we previously announced, no assurance can be given that a mutually satisfactory adjustment to the transaction terms will be achieved.

Now I'd like to move to our second quarter results. As outlined in our press release last night, excluding special items, I am pleased to report second quarter EPS of $1.06 per share, an increase of 10% versus $0.96 last year. Operating profit increased 14%, as margins reached 14.8%, a substantial increase over 12.8% last year with improvements led by our Fluid Handling segment.

In the first quarter of 2013, our total company sales declined 2.4%, and our second quarter decline was just under 1%. While we have seen some sequential improvement, we remain cautious on the global economy and its impact on our sales and earnings. We have adjusted our guidance accordingly, bringing down the top end by $0.05 per share, and our 2013 EPS is now expected to be in the range of $4.10 to $4.25 per share excluding special items compared to our previous range of $4.10 to $4.30 per share, primarily reflecting the impact of lower than previously anticipated revenue growth, mostly offset by strong productivity. The 2013 guidance does not include potential impacts from the pending acquisition of MEI.

Full year 2013 free cash flow remains in the range of $190 million to $220 million. Reflecting our confidence in the future, we increased our dividend 7%.

Rich Maue will now take you through the businesses and provide some additional financial information.

Richard A. Maue

Thank you, Eric. I'll turn now to segment comments, which compare the second quarter of 2013 to 2012. Aerospace & Electronics sales decreased 3% to $172 million compared to $179 million in the second quarter of 2012, while operating profit declined 5% to $37 million. Operating margin decreased slightly to 21.5% from 21.8% in the prior year.

Sales in the Electronics Group were $107 million compared to $111 million last year. Commercial OEM increased 5%, and strong sales to large aircraft and private jet manufacturers were partially offset by a decline in regionals and in our seat actuation business.

Total aftermarket sales were lower by 14% compared to a strong second quarter of 2012, with declines in commercial and military spares and military modernization and upgrade sales. The decline in military modernization and upgrade sales reflected the completion in late 2012 of the carbon brake upgrade program for the C-130 aircraft. The OEM to aftermarket mix was 63% to 37% in the second quarter of 2013, which compares to 58% to 42% in the second quarter of 2012, reflecting the aforementioned continued strength in OEM and lower aftermarket sales.

While sales declined, operating profit in the Aerospace Group increased by approximately $1.3 million, and margins were strong, driven by productivity and solid cost management, including lower pension expense as well as lower engineering spending due, in part, to the timing of certain development programs.

Market conditions in the aerospace industry remain positive. The International Air Transport Association is forecasting slightly improved profitability for the airline industry in 2013, with passenger traffic projected to increase 5% worldwide and industry load factors to average 80.3%, which is a record high. We continue to benefit from increasing OEM build rates across a broad range of platforms, and we are cautiously optimistic about commercial aftermarket spares improving in the second half of the year.

The Electronics Group sales were $66 million in the second quarter of 2013, $2 million lower than in 2012, reflecting continued delays in defense-related programs. Operating profit declined as a result of the sales decline and unfavorable sales mix, as well as higher costs. Based on our forecasted production schedule, with an improved product mix from our shorter-cycle, higher-margin product lines and cost actions already taken, we expect improvement in both sales and operating profit in our Electronics Group during the second half.

Aerospace & Electronics backlog grew to $403 million at the end of the second quarter compared to $398 million in March and $378 million in December. While our Aerospace & Electronics backlog supports improved performance in the second half of the year, the slower commercial aftermarket recovery and the year-to-date weaker performance in Electronics is expected to result in modestly lower sales and profits in the segment compared to what we communicated at Investor Day.

Engineered Materials sales increased $3 million or 6% to $58 million. Sales of our RV-related applications increased to 24% versus the prior year, reflecting higher RV OEM build rates. The RVIA wholesale build forecast remains at 307,000 units, an 8% increase compared to 2012. Building-products-related sales declined 5%, reflecting the continued soft commercial construction market and transportation-related sales increased 1%. We expect these market trends to continue in Engineered Materials for the balance of the year.

Excluding special items, operating profit increased to $9.2 million, and operating margins grew 380 basis points to 15.9% compared to 12.1% in the second quarter of 2012. The improvement was due to the higher sales, savings from the 2012 repositioning actions and strong productivity.

Merchandising Systems sales of $85 million decreased $13 million or 13% versus the prior year, with slightly higher sales in Payment Solutions, more than offset by a significant decline in Vending Solutions. The decline in Vending Solutions was driven by lower sales to certain U.S. bottlers and weak market conditions in Europe. The higher sales in Payment Solutions was driven by strength in the retail, vending and casino gaming vertical markets.

Excluding special items, segment operating profit of $9 million decreased to $2.5 million, reflecting the impact of the lower sales in Vending Solutions, partially offset by continued strong performance in Payment Solutions and strong productivity across the segment. Operating margin decreased to 10.5% compared to 11.7% in the same quarter of last year.

For the full year, we now expect vending sales to decline by approximately $25 million compared to our February Investor Day guidance. This reduction reflects the shortfall in sales experienced in the first half, partly offset by expected improvement in vending sales in the second half of the year as a result of recently received and anticipated orders from certain U.S. and European customers.

In spite of the decline in vending sales, operating profit in 2013 for the Merchandising Systems segment is only expected to be modestly lower than our February guidance, driven by continued productivity gains, strong cost management in vending and higher operating profit in Payment Solutions.

Fluid Handling sales increased 2% to $334 million in the second quarter. A core sales increase of 3% was partially offset by unfavorable foreign exchange of 1%. The increase in core sales was driven by higher sales in our ChemPharma, Energy and our nuclear valve services businesses, partially offset by lower sales in certain short-cycle, book-and-ship businesses, primarily in Europe and Canada. Backlog was $350 million at the end of June compared to $365 million at the end of March and $343 million at the end of December.

With respect to key end markets for our process valves, while conditions remained generally uncertain in Europe, order and quote activity was solid during the quarter. And there are encouraging signs from European-based customers, who remain committed to projects on a global basis. Chemical industry demand in North America and Asia-Pacific was soft, and investments in the Middle East and China are generally moving forward.

Refining demand has been picking up and refinery turnaround activities are showing gradual improvement. Demand from power markets in China is relatively strong, while the Americas, Europe and India remain soft. With respect to our commercial valves business, nonresidential construction and mining activity in Canada, which was strong in 2012, continues to be soft, and we continue to see weakness in Europe.

Excluding special items, Fluid Handling operating profit of $54 million increased 29% and margins increased 340 basis points to 16.2% compared to 12.8% in the same quarter last year. The improvement in operating profit and margins reflected the impact of the higher sales, improved productivity and the benefits of the European repositioning actions that we took in 2012. We expect Fluid Handling sales will increase modestly over the course of the second half of the year. And margins will return to the 15% range, as we have some normal seasonal slowing in our valve services product line and a higher mix of projects to MRO in our process valve business.

Turning now to more detail on our total company results and forecasts. While we experienced raw material cost pressure on certain commodities in the quarter, the effect was modest in aggregate. Foreign currency translation had a negligible impact on EPS in the second quarter and first half. On a full year basis, we expect foreign-currency exchange headwinds could be slightly unfavorable to what we anticipated back in February. As a reminder, the operating profit impact of foreign currency translation for Crane tends to be about 10% to 15% of the revenue impact.

Our second quarter tax rate from continuing operations was 13.9 -- 32.9% on a GAAP basis compared to 31.7% in the second quarter of 2012. During the quarter, MEI transaction costs, which are not deductible for tax purposes, together with withholding taxes related to acquisition funding, were $7.3 million. Excluding the impact of these 2 items, our tax rate was 30%. This compares to 29.6% in the prior year, which excludes the impact of the 2012 repositioning charges and the impact of the 2 divestiture gains. Our full year tax rate guidance of 30%, which excludes the impact of MEI, remains unchanged.

Overall, free cash flow was $24 million in the second quarter of 2013 compared to $52 million in the second quarter of 2012. The year-over-year decline was driven by higher working capital requirements, including higher payments related to MEI transaction costs. In addition, capital spending for the second quarter of 2013 was $6.6 million, unchanged from 2012. For the full year, capital expenditures are expected to be $25 million to $30 million.

Our balance sheet remains strong, and we ended the quarter with $421 million in cash. As Eric mentioned earlier, our 2013 EPS is expected to be in a range of $4.10 to $4.25, representing an increase of 11% to 15% over 2012 earnings per share of $3.70 before special items. Our 2013 guidance does not include potential impacts from the pending acquisition of MEI.

Now back to you, Dick.

Richard E. Koch

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

Question-and-Answer Session

Operator

[Operator Instructions] And our first question comes from Matt McConnell from Citi Research.

Matthew W. McConnell - Citigroup Inc, Research Division

Could you talk about that Fluid Handling margin? I know you've been talking about getting to 15% for a while, and -- so that 16.2% looks really nice. How big a contributor was mix in the quarter? Because I know there's a lot of nuclear valve service activity. Was that a big driver of that? And I know the expectations are for a step down. Is mix a part of the kind of second half step down as well?

Richard A. Maue

Matt, just to an extent, yes. Most of the benefit that we actually saw from a margin perspective was in our core process ChemPharma and Energy business. We did see some mix benefit from valve services, but the expectation, going forward, leaning more towards that 15% is due in part to some of the removal of valve services but also to a greater extent, more on that mix of project to MRO, as we move into the balance of the year. So no significant -- I would not point to significant mix issues in the quarter for Fluid Handling.

Matthew W. McConnell - Citigroup Inc, Research Division

Okay, great, helpful. And then as we think about that $0.25 first-year accretion target for MEI, how would that be impacted when you're going forward without the 2 product lines that you have to divest? Would those be material enough to impact that target?

Eric C. Fast

So Matt, what I would say -- first off, we're in -- it would be inappropriate, I think, for us to comment here, while we're negotiating economic terms with the owners of MEI. I -- what I would say is what we've said publicly, which is, together, we've got a $600 million, $625 million sales business. And we've announced publicly that the 2 products that are involved here that would be -- that are conditions of closing represent less than 10% of the combined sales. And what I would say, and this is all I'm going to say to it, is that, in my view, represents a relatively modest impact but an important one, which is why we're having the discussions with Bain and Advantage as the owners of MEI. And I think -- I just think, because there may be other questions here, we're going to leave this at -- with that comment until we conclude -- hopefully, conclude, those negotiations.

Matthew W. McConnell - Citigroup Inc, Research Division

Okay, certainly understood. And then maybe even independent of MEI, how has Crane's Payment Solutions business performed over the past couple of quarters? Just to give us a sense of how the end markets have performed since, maybe, year-to-date, I guess, would be helpful.

Eric C. Fast

So we -- I would say, it's on track with good margins, and we like what's going on with our current -- our business. And good results in vending, good results in retail. Gaming is fine, a little weak in AWP or [ph] with prices over in Europe, tracking and good execution. Rich, you can correct me.

Richard A. Maue

Yes. No, we're excited about performance in Payment Solutions year-to-date, Matt. First quarter, we were up in a big way, in a core basis, and that continued in the second quarter. And when we look at our plans, we're feeling really good about how they're executing and meeting their plans.

Eric C. Fast

Which is in spite of all the integration planning.

Operator

And our next question comes from Matt Summerville from KeyBanc.

Matt J. Summerville - KeyBanc Capital Markets Inc., Research Division

A couple of questions. You mentioned, Rich, in your prepared remarks that aftermarket was down 14%. Can you maybe give a little more granularity in terms of military versus commercial around that 14%?

Richard A. Maue

Sure. I mean -- so overall, we're down 14%. I think from a commercial point of view, we're down 6%. And that's a combination of spares, MNU and R&O [ph]. So recall though that commercial -- total aftermarket includes military modernization and upgrades. We have the headwind from the C-130 program, but at a high level, I think...

Eric C. Fast

From last year.

Richard A. Maue

From last year, so at a high level, I think that provides the color, I think, you're looking for.

Eric C. Fast

I think the C-130 program ended...

Richard E. Koch

October of last year.

Eric C. Fast

October of last year. So we've got that comparison through October.

Matt J. Summerville - KeyBanc Capital Markets Inc., Research Division

Got it. And then, I guess, the year-over-year delta [ph] in commercial spares, is that starting to trend favorably? If you look month-to-month, is your order rate in the commercial aftermarket piece of the business starting to show any inflection?

Richard A. Maue

We expect it to increase as we move through the balance of the year. So our forecast would indicate that, that progression should start occurring.

Eric C. Fast

More commercial spares. Mostly in the fourth.

Matt J. Summerville - KeyBanc Capital Markets Inc., Research Division

Okay. And then question on Fluid Handling. The performance in the second quarter doesn't sound like there were any major aberrations there, which is encouraging. So do you rethink the long-term margin profile target for this business? And the other question would be the quote in order activity you're seeing in Fluid would support what kind of book to bill, do you think, in the back half of the year?

Richard A. Maue

Yes. So it's -- I don't think we're going to comment on the go forward book to bill. But I would say that for the margins in the quarter, at 16.2%, that's a high water mark executed really, really well in the quarter. That followed really strong execution in the first quarter. And we made comments here that suggest that we should see it come down in that 15% range for the balance of the year. From a long-term perspective, we would expect that to continue to improve as we continue to see sales leverage come down. So as we grow, we would expect margins to continue, to also improve.

Eric C. Fast

The core strategy for the whole company, recall it, as we're running at 60%, 65% capacity, 2 shifts, 5 days a week, is as we grow core sales, we can leverage that $0.25 on the dollar. So this is just as true for the rest of the company, but, particularly, for Fluid Handling. So I can get -- we can get constant, positive margin pressure as we grow core sales. So we've been fighting that headwind in the first half, so that would be my first comment. The second comment would be that -- remember that in our process -- we consider that the process valve business is a higher-margin business than the commercial valve business, although commercial valve business, for what we got invested in, is a very good business, and we've changed those business models. So we start to run in a little bit of a mix tension with Crane Supply up in Canada, our commercial valve business versus process, when you start to look at overall margins. And that has to be considered. But clearly, in process valves, that's a good business that long term will do better than what it's currently doing.

Matt J. Summerville - KeyBanc Capital Markets Inc., Research Division

And then from a -- last question. From a restructuring standpoint or cost take-out standpoint, you mentioned seeing cost pressure in military. You've already taken some actions there. Is there anything you're doing and/or contemplating in the vending business in response to what sounds like a pretty big downdraft relative to your initial forecast?

Eric C. Fast

We already did it.

Richard A. Maue

Yes.

Matt J. Summerville - KeyBanc Capital Markets Inc., Research Division

When would you have incurred those expenses?

Eric C. Fast

In the second quarter.

Operator

And our next question comes from Michael Callahan from Topeka.

Michael Callahan - Topeka Capital Markets Inc., Research Division

I guess, firstly, I wanted to dig into a little more -- just on the commercial aftermarket side of things. Minus 6%, I guess, is somewhat of a disconnect to like system-wide-capacity increases that have taken place globally here in the quarter. I just -- in your guys' minds -- what do you attribute that to? Is it more new builds entering the system? Or just what are your thoughts around that?

Richard A. Maue

So we would not necessarily be comparable to some of the others, right? We have -- most of our commercial spares are on condition, whereas others would not be on condition. They're more sort of engine repair. They're on fixed schedules based on usage of aircraft. So you're going to have a disconnect in comparing, I think, Crane to other larger organizations that are centered around engines, for example. So that would be the primary reason for a disconnect in comparison.

Eric C. Fast

I think, secondly, there's -- our sense is as we've talked to the marketplace, that there was some over inventory here early in the year, and that's been worked down, which is one of the reasons we expect an improvement in the second half, which I would add to Rich's comment.

Michael Callahan - Topeka Capital Markets Inc., Research Division

And then kind of along those same lines, as it relates to margin improvement in that segment, can you guys achieve margin improvement in the back half without an improvement in just overall aftermarket?

Eric C. Fast

So look at -- the way I would answer that is I think that aerospace -- the Aerospace Group, as part of the Aerospace & Electronics segment, Aerospace Group had an excellent quarter. Sales were down slightly, but a negative mix with a lot of OEM and a weak aftermarket, and yet, operating profit was up 1.3% -- excuse me, $1.3 million, driven by productivity. So we clearly executed well in Aerospace. And we look at our backlog, and our OEM backlog looks solid and in really good shape. And we're anticipating better commercial spares here as we -- particularly, as we get towards -- more towards the end of the year. So that would be how I would characterize Aerospace. And we feel quite good about those results. And the commercial spares will come. It's just a matter of timing. In the Electronics business, we had down sales, and we had a negative mix in terms of our short-cycle, higher-margin businesses in that segment that impacted margin, and we had a couple of programs that shipped that -- big shipments on programs that were at low margins. As we sit here -- so that's what happened in the second quarter. We expect the third and the fourth quarter in Electronics to be better. We -- with some of the orders on the short-cycle, higher-margin business, looking to us, indicating that they should be a little bit stronger. And as we mentioned, we've already had some cost take out in Electronics that's already behind us. So the combination of those 2 factors give us confidence that the third and fourth quarter will be better in Electronics.

Michael Callahan - Topeka Capital Markets Inc., Research Division

Okay, great. And then maybe one last thing here. On Merchandising Systems side of the business. I guess, it seems like the focus on Payment Solutions, MEI will, obviously, kind of greatly enhance that product offering. On the flip side, vending has been weak and appears to be taking another leg down here for several years. Is there a point at which maybe you guys exit that business altogether and just focus on Payment Solutions? Or have you guys given any thought to that kind of thinking?

Eric C. Fast

We're not prepared to exit the vending machine business, which I've been consistent on as we go through here. You want to deal with the buy-in drops?

Richard A. Maue

Yes. So as Eric mentioned, committed to the segment for sure, it's still strategic for us. In the period, we saw a few customers who we obtained routine forecasts from experience senior management changes that impacted those forecasts and reduced capital spending. And it really impacted us here in the second quarter. We expect that the balance of the year for the demand to improve. So when you're looking at it sequentially, first half to second half, we do expect revenues to come back. I would point out that there hasn't been any share loss, which is important to us, naturally. And to Eric's point earlier, we've taken cost out already to make sure that we can see the margins continue to improve as we move through the balance of the year. But strategically, no change in direction.

Operator

[Operator Instructions] Our next question comes from Brian Konigsberg from Vertical Research.

Brian Konigsberg - Vertical Research Partners, LLC

I saw -- or I heard that you had mentioned -- I apologize, I was a little bit late to the call, so if you have said this, my apologies in advance. But North American chemical, you mentioned, was still weak. I think you've been saying that for a couple of quarters. Maybe just give us your take on how this market unfolds. Are you starting to see projects start to materialize, as far as bids and quotes? Maybe just start with that, and we can add on.

Richard A. Maue

Yes. I think North American chemical, where our products have strong application are in severe service applications. So where demand I think is occurring today is in the more sort of traditional chemical applications, not necessarily requiring severe service valves. So that would be the primary reason why we're not seeing a strong pickup, maybe, compared to others that are supplying valves into the North American chemical market space. That said, we are seeing activities and quotes reading through and projects on the horizon. We would expect a lot of that to kind of start to read through towards the first half of 2014.

Brian Konigsberg - Vertical Research Partners, LLC

Okay. Do you see the pricing on those projects coming into '14 fairly stable? Or is it that you kind of ramped that you potentially see a little bit more competitive than your typical projects?

Richard A. Maue

No, I wouldn't say it's -- I wouldn't characterize this as us seeing price pressure in any way. It's the normal sort of pricing routine that we go through, so nothing unique.

Eric C. Fast

So on these process valves and chemical plants and power plants, typically, you have to be on what's called the AML list. So you've got to be approved by the chemical company. They typically approve 2 or 3 different vendors. For different severe service applications, you got to be on that approved list. So it's -- there's always price competition, but it's among a high-quality group and a small group.

Brian Konigsberg - Vertical Research Partners, LLC

Got you. And then just lastly, on just -- on aero margins, so took a step down in Q2. I think you're suggesting you were going to see a little bit of a pickup in the second half, especially as spares picks up. I'm just curious, as far as kind of the customer base, obviously, you guys are just pruning [ph] money in that business. Longer term, do you think -- and I know you're spending a little bit less on R&D than usual, but are we thinking kind of sustainably that you're within 20% plus for an extended period of time? Or is this kind of an elevated period, which maybe is kind of temporary in nature and should come down to a more normalized level?

Richard A. Maue

No, I wouldn't suggest that there's anything necessarily temporary. I think our margin profile has been consistently growing through -- mainly through us, executing in a different way, increasing our productivity, continuing to look at cost.

Eric C. Fast

You can see the productivity in the Aerospace Group reading through on down sales and down aftermarket 14% and the profitability. This is -- that's making money the old-fashioned way.

Brian Konigsberg - Vertical Research Partners, LLC

And the customer base isn't pushing back on it? I guess, that's my question.

Eric C. Fast

Well, again, these are long-term contracts. It's price where we've got niche, special technology. So you've got a $200,000 brake control on a $200 million plane that's got to work every time. This is -- the technology on the 787 brake control is in the wheel well operated wirelessly from the cockpit, never been done before with software as emergency brake back up versus a mechanical. I mean, this is -- costs $110 million to develop. So this is niche special -- there's 2 people in the world who can stop a big commercial airplane. This is...

Brian Konigsberg - Vertical Research Partners, LLC

Fair enough. Just last question. Just on -- so in R&D, I think you -- I didn't hear it, but I remember you said in Q1 that you were expected to step up to 8% of Aero sales on the R&D front. Do you anticipate it's going to remain around these levels for some time? Or does it drift back to that 10% to 12% that you had previously talked about as the normalized range?

Eric C. Fast

What I would say is engineering is going to be a little bit higher in the second half than it was in the first half. And we've clearly got some nice winds here in the marketplace. So I would expect engineering to go up a little bit. But we manage that, and we're careful about it. Some of the big programs we've already won, for example, the 919 has taken a lot longer than what the original schedule was, so that offsets it. So we're very sensitive about where that engineering expense needs to be through a combination of making sure we win the right -- win the best programs, make sure we're on the right ones, and manage it in a way to produce a good return for our shareholders. And we'll lay out what that engineering expense is going to be when we do our investor conference in February.

Brian Konigsberg - Vertical Research Partners, LLC

I think you said, for the year, around 8%. That's still the view?

Eric C. Fast

It's going to be slightly higher in the second half than the first half. [indiscernible]

Richard A. Maue

Yes, given -- so given that we're seeing some sales decline through the lower aftermarket, it's still going to likely fall in that 8% range. But from an overall dollars perspective, we're pointing to about $35 million in...

Eric C. Fast

For the Aerospace.

Richard A. Maue

Total for the Aerospace Group.

Operator

And I'm not showing any further questions at this time. I would now like to turn the call back to Richard Koch for any further remarks.

Richard E. Koch

Thank you for joining us today and for your continued interest in Crane. Bye-bye now.

Operator

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

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