Crane CEO Discusses Q2 2011 Results - Earnings Call Transcript

| About: Crane Co. (CR)

Crane Co. (NYSE:CR)

Q2 2011 Earnings Call

July 26, 2011 10:00 a.m. ET

Executives

Richard Koch - Director of Investor Relations

Eric Fast - President & Chief Executive Officer

Andrew Krawitt – Principal Financial Officer

Richard Maue – Principal Accounting Officer

Analysts

Deane Dray [James] – Citigroup

James Foung – Gabelli & Company

Ajay Kejriwal [Ben] – FBR Capital Markets

Mark Barbalato – Vertical Research

Ronald Epstein [Elizabeth] – BofA Merrill Lynch

Matt Summerville – KeyBanc

Robert Barry - UBS

Operator

Good day everyone, and welcome to the Crane’s second quarter 2011 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, Dick Koch; please go ahead, sir.

Richard Koch

Thank you, operator, good morning everyone. Welcome to Crane’s second quarter 2011 earnings release conference call. I’m Dick Koch, Director of Investor Relations. On the call this morning, we have Eric Fast, our President and CEO, Andrew Krawitt, our Principal Financial Officer, and Richard Maue, our Principal Accounting Officer.

We will start off our call with a few prepared remarks, after which we will respond to questions. Just as 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, in the table at the end of our press release, which is available on our website atwww.craneco.com, in the Investor Relations section.

Now, let me turn the call over to Eric.

Eric Fast

Thank you, Dick. I’m pleased with our second quarter results, as strong revenue growth, and continued solid execution are sustaining the momentum that we carried into 2011. Sales grew 16% in the quarter, driven by a core sales increase of 10%. Operating profit increased 22% in the quarter, and operating margin was 12.4%.

For Crane, overall, sales, operating margins and earnings improved both on a year-over-year and sequential basis, increasing our confidence in the company’s prospects for the balance of 2011. Accordingly, we have raised our full-year sales, EPS, and cash flow guidance, and increased our quarterly dividend by 13%.

For 2011, our sales are now expected to increase in a range of 14 to 16% compared to our prior estimate of 10 to 12%, reflecting higher core growth of 8 to 10%, favorable foreign exchange of 3%, slightly higher than our April guidance, and 3% from acquisitions, including the sales from our recently completed acquisition of W.T. Armatur. We have increased our 2011 EPS guidance from the previous range of 305 to 325, to a range of 330 to 345.

My messages today will echo the themes of my April remarks, but with added confidence in 2011 as we have another good quarter behind us and expect a strong second half of the year.

Our engineer materials and merchandising system segments are generally tracking to investor day guidance while our longer later cycle businesses of aerospace and electronics, and fluid handling are exceeding our previous guidance and providing strong sales in earnings growth.

For the full year, our aerospace group sales forecast has improved, driven by both OEM and aftermarket demand. In fluid handling, sales have now increased sequentially for five quarters, and we expect sales to further improve in the second half supported by a higher backlog. We expect a leverage higher fluid handling sales into expanded margins, and we now expect fluid handling operating margin to exceed 13% in 2011.

Our message is not just about one quarter, but about positioning ourself for growth longer term. Over the past few years, we have increased our sales in marketing effort in aerospace to do a better job covering the airlines. We have developed a sales force in fluid handling that has expanded our global coverage, including emerging markets, effectively bundling products within our portfolio to provide an enhanced value proposition to our customers.


We are investing internally in capital projects to enable growth and to assure that we don’t face constraints as we look forward into 2012.

Our new key product development efforts have continued even through the worst of the economic downturn. The maturation of the crane business system combined with solid management teams is enabling us to win in the marketplace.

All of this is adding up to core growth rates, better than we anticipated and positioning us to continue our momentum into 2012. We are tracking towards our overall Crane, 13% margin target when our core sales reached 2.6 billion, with corresponding EPS in the range of 350 to 375.

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

Andrew Krawitt

Thank you, Eric. I’ll turn now to segment comments, which compare to second quarter of 2011 to 2010.

Aerospace and Electronics segment sales increased 23% to $172 million while operating profit increased 42%, to $37 million, and operating margins increased to 21.7% in the second quarter of 2011. Backlog was $432 million at the end of the quarter as compared to $431 million at the end of 2010.

Aerospace Group sales increased $18 million, or 21% during the quarter. OEM sales increased 20% reflecting broad-basde growth across large commercial transports, regional and business jets. Aftermarket sales increased 22% reflecting significantly higher spares and repair and overhaul revenues, as well as modernization and upgrade sales, primarily for the C130 Carbon Brake control upgrade.


Excluding modernization and upgrade, our more traditional aftermarket sales increased 16% compared to the second quarter of 2010. Higher than anticipated demand for commercial spare parts, including initial provisioning items, contributed to the increase. The OEM aftermarket mix was 57% to 43% in the second quarter of 2011, slightly more favorable than the 58% and 42% mix in the second quarter of 2010.

Operating profit in Aerospace increased by approximately $9 million, reflecting very good leverage of our higher sales. In the second quarter of 2011, Aerospace engineering spending was $11 million, equal to both the first quarter of 2011 and the second quarter of 2010, and consistent with our targeted amount for the full-year 2011. Market conditions in Aerospace remain positive, supported by favorable industry economic indicators and enthusiasm at this year’s Paris Air Show.

Build rates for large transports are projected to increase over 2010 levels and we have recently seen improvement in business and regional jet activity. Aftermarket sales are expected to remain strong, aided by the improved health of the airline industry. Given the current environment, we are now forecasting that 2011 Aerospace Group sales will be approximately $400 million.

Looking beyond 2011, recently announced higher build rates for the 737 and A320 should positively impact future sales. We note that increased fuel cost could negatively impact sales, and that potential industry supply chain challenges could also temper the rate of growth.

The Electronics Group sales in the second quarter increased $14 million or 26% with increases in Power Solutions, Microwave, and Microelectronics. The electronics operating profit increased $2 million compared to the second quarter of 2010 with operating margins remaining in the mid-teens, impacted in part by ERP implementation cost.

In the defense portion of our business which comprised as approximately 2/3s of electronics, results were mostly in line with expectations. Although timing around the release of government funds has impacted the delivering schedule of certain projects.

Results in the commercial portion of our electronics business continues to be favorable driven by demand for power solutions from the commercial aviation market as well as higher sales to medical device customers.

For electronics in 2011, we expect sales to increase at least 10%, slightly better than our investor day guidance as we continue to have confidence in both our military and commercial businesses. Last year, several programs transitioned from development to production, and these programs are ramping up production in 2011.

In June, Merrimac recorded its highly monthly revenue since we acquired company in February 2010. The defence portion of electronics is concentrated in intelligence, surveillance and reconnaissance, or ISR, a market that we expect to continue to grow, despite reductions in overall government spending.

Engineering Material sales increased 2% during the quarter. Transportation related sales increased 46% as a result of significantly higher industry build rates for refrigerated and dry trailers.

Building product sales were 2% higher than the prior year. Demand for our RV-related application decreased 8% as OEMs significantly reduced their build rates to bring dealer inventory into alignment with retail demand.

Several RV manufactures stopped production for a 2 to 3 week period starting in late June. Operating margins were 15.2% compared to 17.3% in the second quarter of 2010, and operating profit declined modestly to $9.1 million from $10.2 million.

During the first quarter, we implemented price increases that positively impacted the second quarter by raw material cost such as resin, which is related to the price of oil, increased more than we expected.

In response, we have announced a second round of price increases to take effect in the third quarter. We continue to monitor raw material costs, and will see to implement price increases as appropriate and as market conditions permit. We are also maintaining our focus on productivity in order to meet our mid-teen margin goal, notwithstanding the challenges of these input cost increases.

Overall, in 2011, for engineer materials, we project an increase in sales and profit, consistent with our investor day guidance. Although the industry expects dealer shipments to increase approximately 7% in 2011, we more conservatively believe that our RV-related sales will grow only slightly.


Demand from transportation-related customers continues to be strong, and we forecast that building product sales will show a slight increase in 2011, driven by nonresidential remodeling.

We are continuing our new product development initiatives as we aim to expand our content to existing customers and find new applications in existing as well as new markets, such as ocean-going containers, decorative interior wall panels, and walls and floors for step vans.

We are pleased with the market acceptance of our AeroSkirts, which our large panel attached to trailers that reduce fuel consumption, and meet California regulatory requirements.

Merchandising system sales of $94 million increased $19 million or 26% primarily reflecting $13 million of sales, associated with the December 2010 acquisition of money controls, as well as sales growth in both our payment solutions and vending businesses.

Segment operating profit of $7.1 million, declined from the prior year because operating profit in 2010 was favorably impacted by the receipt of a patent litigation settlement.

We are continuing our new product development activities in vending, including online vending and are driving efforts to enhance productivity. Although visibility for our vending business is somewhat limited, reflecting it’s short cycle book-and-ship nature, results are tracking to our guidance.

The integration of money controls into our global payment solutions business, is on schedule, and we are beginning to achieve the synergies and visions. As stated previously, due to purchase accounting adjustments, money controls were diluted to our earnings in the first half of 2011. However, it was marginally profitable in the second quarter.

We continue to believe that the acquisition of Money Controls, will have an overall slightly accretive impact to our full-year 2011 earnings.

For the full year, the merchandising system segment is tracking to the guidance we provided at Investor Day, with sales and operating profit, both expected to increase over 2010 levels.

Fluid handling sales increased 13.5% to $289 million in the second quarter, with a core sales increase of 6.4% and a favorable foreign currency impact of 7.1%. This marks the third consecutive quarter that core sales have increased on a year-over-year basis, continuing the measured recovery in fluid handling, which began in late 2010. All business experienced a year-over-year improvement in sales.

Backlog has grown for the past six quarters, and at $320 million, is 19% higher than at the end of 2010. Importantly, we feel that our backlog is properly priced, reflecting our disciplined pricing methodology.

Both MRO and project-related business, continue to improve, with quote activity generally increasing. Market conditions continue to strengthen on a global basis for our ChemPharma and energy businesses. Spending by chemical companies and refineries is increasing due to higher plant operating rates, catch-up maintenance, debottlenecking projects and better industry profits. North America and Asian power markets are also continuing their recovery.

Food handling operating profit of $37 million was 15% higher than the prior year, primarily reflecting the higher sales, and operating margin was 12.8%. The relationship between customer pricing and input cost was in balance during the second quarter.

Operating leverage for overall fluid handling in the second quarter was lower than expected. A large portion of the sales increase was derived from foreign exchange, and there was several miscellaneous smaller expenses, including transaction cost for the WTA acquisition that impacted the quarter.

Although we expect better core operating leverage going forward, we note that revenues from foreign exchange translation and WTA purchase accounting costs will also impact this metric in the second half of 2011.

Earlier this month, we announced that Crane had acquired W.T.Armatur, a manufacturer of highly engineered valves, with zero fugitive emissions used in severe service applications.

WTA, which had 2010 sales of approximately $21 million, is expected to be slightly dilutive to earnings in 2011. The addition of WTA’s Bellow Sealed Globe Valves complements our existing product offering of low fugitive emission valve technology and aligns directly with our objectives of providing comprehensive solutions for demanding chemical and petrochemical applications.

For Fluid Handling, we have increasing confidence that we see stronger second half sales as compared to the first half, aided by strength in our later longer cycle process valves businesses. For the full year of 2011, we expect fluid handling will exceed our February investor day guidance for both sales and operating profits, with an operating margin in excess of 13%.

Turning now to more detail on our total company results and forecast. For overall Crane, we experienced some raw material cost pressure in the quarter, but in aggregate our increase in selling prices largely offset material cost increases in the quarter. Although we have been largely successful thus far in raising prices, we are mindful of competitive pressures in an environment where input cost remain elevated.

Foreign currency translation, positively impacted EPS by approximately $0.04 in the quarter. As a reminder, the operating profit impact of foreign currency translation for Crane, tends to be about 10 to 15% of the revenue impact.

On a year-to-date basis, foreign currency translation has positively benefited EPS by approximately $0.05. We now expect foreign currency translation to benefit second half results by a similar amount, which is a couple of cents more than we expected back in April.

Our tax rate in the second quarter of 2011 was 31.4% compared to 31.2% in the second quarter of 2010. As previously communicated, we expect our 2011 full-year tax rate to be approximately 31%.

Please also note that the revised EPS guidance range of $3.30 to $3.45, includes the $0.05 per-share gain we recorded in miscellaneous income in the first quarter, primarily related to the sale of real estate.

Overall, free cash flow was $21 million in the second quarter of 2011, compared to $43 million in the second quarter of 2010. We have increased our free cash flow guidance to a range of 140 to $160 million, compared to our previous guidance of 130 to 150 million, reflecting the potential upside associated with our higher EPS guidance, but also considering our needs for higher working capital to support the higher projected sales.

Capital spending for the second quarter of 2011 was $10 million, a significant increase over the $4 million spent in 2010. As stated on investor day, our capital expenditure guidance for 2011 is $40 million compared with $21 million in 2010.

During the second quarter of 2011, we repurchased approximately 421,000 shares of our common stock for about $20 million. Our policy is not to preannounce these purchases, but to report them at the close of the quarter.

On a year-to-date basis, we have repurchased approximately 1 million and 56,000 shares, for about $50 million, which is equivalent to the amount of cash deployed for share repurchases during all of 2010, and meets our objective of offsetting the expected dilution, related to our stock incentive plans.

Our balance sheet remains strong and we ended the quarter with $231 million in cash. We also had access to our $300 million revolving credit facility, half of our long term debt to $400 million is due in 2013, and the other half is due in 2036.

Now, back to you, Dick.

Richard Koch

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

Question-and-Answer Session

Operator

(Operator instructions). Our first question comes from Deane Dray of Citigroup.

Deane Dray [James] – Citigroup

Hi. Good morning, James filling in for Deane. With the aerospace aftermarket, I remember on the last quarter you guys mentioned that there could potentially have been some pre-buying ahead of the quarter given any supply disruption and people to pre-empt that. Did you see any of that in the aftermarket sales for aero this quarter?

Eric Fast

I would say there may have been a small amount of that, but nothing to a notable degree for us.

Deane Dray [James]– Citigroup

And I heard you reference the 737 and the 8320. I was wondering if you could maybe give some more clarity on what exposure you guys have to that American Airlines order that came out, I think it was last week, the 460 planes and maybe you can quantify, you know, the numbers you could probably get from that as that platform builds out.

Eric Fast

Well, James, what I’ll say is that the impact of that is built into our updated guidance. You know, clearly both models are important to us as a company. But we’ve build in the impact to our latest guidance.

Andrew Krawitt

The American order for these planes is not going to start ship for two, three, four years from now. So we’re on both planes. We have a little bit more content on 737 than we do on the 320, but we’ve got plenty of content on both. I consider it a win for everybody.

Deane Dray [James]– Citigroup

Can you give some granularity on the fluid margins? I think that’s sufficient. How about the M&A pipeline for Fulton and Fluid I think in a couple of years. Is this something we should expect to see throughout the year? I think they’re about 11% net debt still. I just wondered if you could give us some update on the M&A pipeline?

Eric Fast

And we’ve had a long-term strategy of filling out our process values in our fluid handling business. We did Krombach 18 months or two years ago, and WTA, we continue that process to fill it out, to be the leading or a leading supplier of process valves, again, focused on strengthening our existing businesses. I would say generally in M&A, prices are clearly back to 2008 levels, if not starting to get above. And you see both private equity and strategic buyers well-armed here.

As I look at the pipeline we don’t have anything imminent, but this can change. The environment can change rapidly, and we are very proactive in terms of our M&A effort.

Deane Dray [James]– Citigroup

Great, that’s all I have. Thank you.

Operator

Thank you. Our next question comes from Jim Foung of Gabelli & Company.

James Foung – Gabellis & Company

Hi, good morning. Good quarter.

Eric Fast

Thank you.

James Foung – Gabellis & Company

I wanted to just take a swing back on the commercial aerospace business. You touched upon the 787, 8320, and by 2014, following the Airbus, we’ll have higher production rates on their airplanes. And then I supposed we’ll see the new airplane programs entering service. So I was wondering, as we get to that kind of period, what kind of revenue growth we can expect on that aerospace business, or sales number, as we get to 2014 when these production levels peek?

Eric Fast

I’m not going to give a specific number here, Jim, but the way I’m thinking about it, is first off, we’ve done a very good job both at Airbus and Boeing, so these 7, 8, 9-year backlogs that they’ve got on their core planes, we’re extremely well positioned on them.

So, we are going to have solid core growth as well as aftermarket and initial provisioning.

On top of that, as you know, we’ve spent a lot of money in the last four years on the new development programs for the 787, for the A400M, we did a whole landing gear indication and control unit that is going to go on the A320. So those are revenues that you don’t see in our current revenues. It will be on top of our existing core revenues as we get to ‘12, ‘13, and ’14, and we would expect those to build, so that is the way that I would characterize it.

When we do an investor conference in February, certainly for ’12, I think we can break out the revenues from the new programs, maybe in the aggregate for you, to give you a better picture on that.

James Foung – Gabellis & Company

Okay, at the next investor conference, okay.

I guess the second question is, just swing back to fluid handling. I guess, you made a comment that the backlog in your fluid handling business is appropriate price. I was just wondering, could you expand on that comment?

Did you mean that the margins in the back log are equal to your current margins in that segment?

Eric Fast

What we mean by that, and I think this is really important, is that we’re winning – we feel like we are not only participating along with the market, we think we are gaining share in the market in process valves, and we are winning without giving on price. So as I look at the third and the fourth quarters, and even in to the first quarter 2012, and we look at the backlog, we just want to make comfortable that that backlog’s priced appropriately so that we can get the right leverage on the incremental volume.

We actually went back and had both of the key units take a look at that, and we feel very confident about it.

James Foung – Gabellis & Company

Okay, great. Thank you.

Operator

Thank you, our next question comes from Ajay Kejriwal of FBR Capital Markets.

Ajay Kejriwal [Ben] – FBR Capital Markets

Thanks, this is [Ben] on for Ajay, I just wanted to follow-up on this previous question on the fluid margins. With the backlog, what was the contribution from FX in the quarter?

Andrew Krawitt

It was a good – Ajay, it’s Andrew, it was a good portion of the growth that did come from FX. We talked that the margins associated with FX tend to be between 10 and 15% of the revenue impact, and they were in that range.

Ajay Kejriwal [Ben] – FBR Capital Markets

Okay, thanks. Then, you guys mentioned potential recovery in North America-Asia power markets. Could you maybe just give some more color on what you are seeing, at least in North America?

Eric Fast

I think we are seeing some sort of continued kinds of recovery, as we talked about, Ajay. It’s been a gradual recovery, but what we are seeing is at the margin, things are getting better and positive signs continue. We are not seeing a ramp up, or a steep slope in demand, but a gradual recovery that is continuing and positive for us.

Ajay Kejriwal [Ben] – FBR Capital Markets

Okay, thanks. No slowdown in MRO, is there anything different month to month there?

Eric Fast

We are confident in the trends for both our MRO and our project-related activity, and I think the overall message in fluid handling is we are quite positive about the second half, and what it’s going to do for us as a company.

Ajay Kejriwal [Ben] – FBR Capital Markets

Okay, thanks.

Operator

Thank you, our next question comes from Mark Barbalato of Vertical Research.

Mark Barbalato – Vertical Research

Morning gentlemen.

Eric Fast

Good morning.

Mark Barbalato – Vertical Research

I guess my first question is, could you give us a sense, by business segment of the pace of orders as you guys progress through the second quarter.

Eric Fast

I’ll take a shot. The way I would characterize things, is clearly in our short cycle businesses, our book and ship business, engineer materials and vending payment systems, this is a book and ship business, so it’s very hard to kind of predict, but you can almost see in the uncertainty in the economy, so no clear trends here.

As we’ve said, as Andrew was at the offset, we feel very strongly that both of those businesses will be in or around where we guided in – for 2011. So, there are no clear positive trends there-some uncertainty but it’s comfortable about where we guided-a little bit more, little bit less. Where we do see very confident trends and backlogs and performance, is in our two big late long cycle businesses in aerospace, electronics and in fluid handling.

We like the trends that we see in both of those businesses, we are confident about it. And as I just said in an earlier question, we are winning in the market place because of our customer metrics and the value proposition as opposed to here it is, cheap, and feel very good about that. So that is the way I would characterize what we are seeing in the marketplace.

Mark Barbalato – Vertical Research

All right, thank you. Then, is there any update on Krombach? It sounds like any kind of operational issues were left far behind.

Eric Fast

We didn’t really talk about it because we are seeing quarter over quarter of improvement, and nice progress there. We have a lot of opportunity left for us, which I view as a real opportunity,. But clearly we’re making some real strong progress in terms of getting the shipments out and booking the profit, and orders have remained very solid here-actually quite good.

Mark Barbalato – Vertical Research

Great, thank you very much.

Operator

Thank you.

Our next question comes from Ronald Eptsein of Bank of America.

Ronald Eptsein [Elizabeth] – Bank of America/Merrill Lynch

Hi, this is actually Elizabeth in for Ron this morning.

Just on the aerospace side, I was wondering what sort of opportunities you think you’ll have potentially on the C919, and then also on the re-engine 737 are there additional opportunities for you?

Eric Fast

Elizabeth, we had previously announced that we were selected for the break control system for the C919, so that could be very positive for us. Of course, shipments on that air craft may not be until 2015 or 2016, so sort of on the future horizon.

I would say in general, [inaudible] provides some opportunity for us, but it is probably too early to comment on that specifically.

Ronald Eptsein [Elizabeth] – Bank of America/Merrill Lynch

You might have said this earlier, but what portion of the raising guidance was due to the WTA acquisition?

Eric Fast

Actually the WTA acquisition, we expect to be slightly diluted in the second half.

Ronald Eptsein [Elizabeth] – Bank of America/Merrill Lynch

Okay, thank you.

Operator

Thank you. Our next question comes from Matt Summerville from KeyBanc.

Matt Summerville – KeyBanc

Good morning. I have a couple of questions.

First, as we look at how the backlog has evolved in fluid handling, I described it in 2010 as more of a small step functioning increase on quarter on quarter on quarter. Now, we have started to see for the last two quarters bigger increases on a sequential basis, Q1 over Q4, Q2 over Q1, do you expect, Eric, that type of trend based on the quoting activity you are seeing, to continue in the back half of the year? Are we still going to see those more sizeable increases in back log?

Eric Fast

I don’t actually know the answer to that question, Matt. The way – I expect it to stay very strong. And as I think about it in a macro sense, when you look at the markets we serve, we serve the chemical business globally, energy, and as part of energy, power.

So, there is not a chemical company in the world that does not have higher sales earnings, and CapEx here, and they are making more money, so they are incredibly focused on throughput efficiencies, de-bottlenecking, making sure those plants are up 100% of the time.

You could say the same about the energy and the refinery business, we are mostly downstream in the refinery-I see that globally. You have even seen a recurrence of profitability here in North America in refineries because of the cheaper feed stock. In power, I think, you know, there is a global shortage in power, and with some of the nuclear being held up, you may even see more in some of the traditional power markets of coal, gas, etc. etc.

On a macro basis, for our process valves, which is geared towards those three businesses, I feel very good about both trends and both our project activity and MRO.

Matt Summerville – KeyBanc

As far as the WTA acquisition, can you quantify what the magnitude of cost was weighing on the margin in the second quarter. And then Andrew, what you expect the purchase accounting adjustments for that acquisition to be in the back half?

Andrew Krawitt

Matt, let me just talk about the transaction costs. Our estimate at this point is that transaction costs at this point for the WTA are going to be about $1.5 million or so. Not all of that was in the second quarter, we had some costs in the first quarter, and we will have costs in the third quarter as well, but that will help you gauge the impact of the transaction costs.

We haven’t broken out, yet, the amortization impact for WTA, but as we go forward we will have better visibility around that.

Matt Summerville – KeyBanc

I was thinking more from an inventory step up stand point in the back half, Andrew, as opposed to intangible amortization.

Andrew Krawitt

Okay, and there will be an impact in the inventory step up in the third quarter.

Eric Fast

Let me just say it this way, when we said it was going to be slightly diluted, and we put our forecast out, we included that in it.

We’re not going to be specific here, though, Matt.

Matt Summerville – KeyBanc

So the transaction cost, and the inventory step up are all in this revised guidance, is, in the end, what I’m trying to get to.

Eric Fast

Yes, absolutely, Matt. It’s built in to the guidance range that we provided today.

Matt Summerville – KeyBanc

One final question. The sequential decline that you saw on the aerospace and electronics backlogs, is there anything to read in to that?

Are there one or two deals that maybe got pushed out, deferred or canceled? Can you just talk about that dynamic that you saw in backlog in aero in Q1?

Eric Fast

In Q2, you mean?

Matt Summerville – KeyBanc

I’m sorry, in Q2, yes. I apologize.

Andrew Krawitt

Okay, so, aerospace and electronics backlog did decline slightly in the quarter, and there were some timing differences in there between orders and sales, which the sales were strong in the quarter.

We did have some military program deferrals in the electronics group, including one program cancelation that may come back at a later date, so there was some noise in there.

Matt Summerville – KeyBanc

Great, thank you.

Andrew Krawitt

I think the overall message is, we are very confident about the backlog and our prospects for growth going forward.

Matt Summerville – KeyBanc

Perfect, thanks, Andrew.

Operator

Thank you.

(Operator instructions). Our next question comes for Robert Berry of UBS.

Robert Berry – UBS

Hey, guys. Good morning.

Eric Fast

Good morning.

Robert Berry – UBS

I apologize, I hopped on late, so if these are dupes just tell me and I’ll read the transcript. But could you talk about the mix of the large project activity in the fluid back log now, and how that has changed sequentially?

Eric Fast

Robert, historically we have really not given a kind of a profile of the backlog, but what we did say earlier is that we are confident with the pricing that is in the backlog, and also with trends in both project and MRO-related activity. And I think as you know, our overall mix in fluid handling between project and MRO is about 50/50.

Robert Berry-UBS

I just know in the past couple of quarters you’ve talked about how the quoting activity in some of the larger projects has been weaker, but starting to pick up, and I was just curious if there was any acceleration in the large project side.

Eric Fast

Yeah, well, I would say, I would characterize it as a continued, gradual improvement in project activity, and the quoting activity continues to increase, but it is not a step change function. It is a gradual measured recovery that we are seeing, but we are very positive about it, and the prospect for the second half in fluid handling.

Robert Berry – UBS

Then, a question on cash, you’ve had very good cash generation, and the amount of access cash on the balance sheet seems to be building. I saw that you did buy back some stock in the quarter, and I was just curious what your latest thoughts were on use of cash?

Andrew Krawitt

No change, Rob in terms of our overall strategy. We continue to be focused on looking for acquisitions that strengthen our existing businesses. And our share repurchases are largely to offset the impact of expected dilutions from our stock and center plans. We recently raised the dividend, reflecting our confidence in the company, but I would say acquisitions first and foremost would be our desired use of that cash.

Robert Berry – UBS

Okay, and then just finally on the strength in the aerospace business, I was wondering how much of that might be driven by a market share gain, and even the possibility of market share gain in that business impacting results in the near term, or had there been some market share gain a year ago that’s kind of impacting the business now.

Eric Fast

We’ve announced positively that we are doing the C130 upgrade on the break control, so I don’t know if it’s market share gain, but I would call it a market share gain.

What you are seeing is an overall terrific market, and we are doing a very good job covering it and a very good job of covering the aftermarket, particularly with the airline.

Where you will see the market share gain, here, comes in ’12, ’13, ’14 and ’15 due to the 787 and the content there, the A400M, the landing gear integration control unit we have on the 320. We’ve got some nice winds here that are just coming in to production, and you will see that in the out years.

Robert Berry – UBS

But, even starting in ’12, I guess with the 787 it will start to ramp later this year.

Eric Fast

Sure. We are starting on that 320 right now. Some of our manufacturing are starting to go in to that original production line for that A320.

Robert Berry – UBS

Yep. Okay, excellent. Congrats on a very solid quarter. Thank you.

Operator

Thank you. I’m showing no further questions at this time. I’d like to turn the call back to Mr. Koch for closing remarks.

Richard Koch

Thank you, very much for joining us today, and your continue interest in Crane. Bye-bye now.

Operator

Ladies and gentlemen thank you for your participation in today’s conference. This concludes the program. You may all now disconnect. Thank you and have a nice day.

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