Jul 24, 2012
Executives
Richard Koch – Director, Investor Relations Eric Fast – President and Chief Executive Officer Andrew Krawitt – Vice President, Treasurer and Principal Financial Officer
Analysts
Matt McConnell – Citi Robert Barry – UBS Matt Summerville – KeyBanc Capital Markets Ronald Epstein – America/Merrill Lynch
Operator
Good day everyone, and welcome to Crane’s Second Quarter 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 Koch
Thank you, operator. Good morning, everyone.
Welcome to Crane’s second quarter 2012 earnings release conference call. I am Dick Koch, Director of Investor Relations.
On our call this morning we have Eric Fast, our President and CEO; and Andrew Krawitt, our Principal Financial Officer. We will start off our call with a few prepared remarks, after which we will respond to questions.
Just a reminder, the comments we make on this call may include some forward-looking statements. We refer you to the cautionary language at the bottom of our earnings release, and also in our Annual Report, 10-K and subsequent filings, pertaining to forward-looking statements.
Also during the call, we will be using some non-GAAP numbers, which are reconciled to 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 Fast
Thank you, Dick. Crane reported record earnings per share in the second quarter.
On core sales growth of 6%, we delivered earnings per share of $0.96, up 13% versus last year excluding the divestiture gains and repositioning charges. Operating margin, excluding the repositioning charges, increased to 12.8% versus 12.5% a year ago.
Taking into account the absence of earnings for the balance of 2012 related to the divestitures we have reduced the midpoint of our 2012 earnings per share guidance range by $0.05. Reflecting our continued confidence in the business, we are increasing the quarterly dividend by 8%.
As part of our strategy to trim smaller non-core assets, we divested Azonix business from the Controls group, as well as a valve service center within Fluid Handling. Although Azonix is a small, very successful company with impressive niche technology, we were unable to leverage the business with other parts of Crane.
The sale of the valve service center is the third of three service centers that we previously owned. We sold the other two in the 2007, 2008 timeframe.
These divestitures represent modest trimming of small disparate parts of the company that did not fit into our strategic vision. We are comfortable with our current portfolio of businesses, and have no plans for further divestitures at this time.
The repositioning actions that we’re announcing relate to the transfer of certain manufacturing operations from higher cost to lower cost company facilities and other staff reduction actions, principally in response to weak European economic condition. It is important to understand that we are in various stages of implementing these changes as European employment rules and protocols are complex and time consuming.
Thoughtful interaction with workers counsels is required, as well as appropriate communications to our own people. The repositioning actions are primarily focused on expanding operating margins in our European Fluid Handling business, as leverage on incremental sales in the first half has not [read] through as expected, and economic concerns in Europe will likely continue.
We have targeted opportunities in our energy business, primarily in our manufacturing operations at Krombach, Germany, as well as other European sites within Fluid Handling. While we have consistently delivered fluid handling margins in the 13% range, executing on these important actions will accelerate continued improvement.
We expect the benefit of these actions to impact our results beginning in 2013. Krombach is a highly engineered provider of specialized double and triple offset butterfly valve, as well as metal and soft-seated ball valves.
Our manufacturing operation at Krombach in Kreuztal, Germany, with a highly skilled workforce continues to be a segment strategic platform to drive profitable growth. As we previously discussed, the integration of the Krombach operations presented challenges typically associated with a long-standing privately run business in Germany.
While we have completed a number of actions, including upgrading the information systems, consolidating product lines from another German facility to improve plant utilization and various other operational improvements, all of which have taken longer than planned, we are taking targeted actions to drive significant cost improvements as we close 2012. Specifically we are transferring certain Krombach product lines to lower cost Crane facilities, dedicating additional Crane resources to drive both commercial and operational improvement and reducing headcount at the primary manufacturing facility.
In addition to the European repositioning actions, earlier in the year we initiated an internal merger between our ChemPharma and energy groups. This merger will further streamline the organization and provide better leverage of a wider pool of resources to help drive these important actions.
It is also important to recognize that excluding our energy business, we are very pleased with the balance of the Fluid Handling segment, where operating margins exceeded 15% in the second quarter. In April we said that we expected full-year Fluid Handling margins to be at 14%, although it would be tougher to achieve given first-quarter results.
Excluding special items, we have revised our full year fluid handling operating margin guidance to 3.5% as the repositioning 12.6% margin in the second quarter was slightly below our expectations, and our repositioning programs while moving forward are taking longer than anticipated to work through principally due to German labor protocols. As a result the benefits that we expected to realize during these actions will now start in 2013.
To achieve the 13.5% margins on a full-year basis implies 14% margins in the second half, which will be a full point improvement from margins in the first half. Our revised guidance assumes 20 million of higher sales in the second half of 2012 as compared to the first half and 10 million of additional operating profits.
We expect the incremental sales to leverage about 25%, contributing 5 million of operating profit. In addition, we expect general productivity gains aided by a renewed focus on reducing discretionary cost throughout Fluid Handling to contribute approximately 5 million of operating profit.
The implied profit improvement in the second half is significant, but is supported by a detailed bottoms up forecast for the remainder of the year. Our Aerospace group is benefiting from increased OEM build rates and continued growth in passenger miles flown.
Although we are cautious about the Aerospace aftermarket, modernization and upgrade and repair and overhaul sales helped to offset lower commercial spares in the quarter. Merchandising Systems performance strengthened considerably driven by strong productivity gains.
Fluid Handling is benefiting from its exposure to late cycle end markets. Overall Crane is on track to achieve operating margins of 13% in 2012, a level that we predicted we could achieve when our core sales returned to 2.6 billion and an increase from 12.3% in 2011.
Our continued vigilance on cost management, sales growth, operational metrics and profitability gives us confidence that we will have a successful second half in 2012. Both our recent dividend increase and the 30 million of share repurchases we executed during the second quarter reflect this confidence.
Andrew will now take you through the businesses and provide some additional information.
Andrew Krawitt
Thank you Eric. I’ll turn now to the segment comments, which compare the second quarter of 2012 to 2011.
To assist in better understanding our outlook, we have provided updated segment guidance for 2012. Please refer to the table in yesterday’s press release for detailed comparisons to 2011 on a continuing operations basis, as well as changes from the guidance that we provided in February, which also shows the impact of discontinued operations.
Aerospace and electronics sales increased 4% to $179 million, while operating profit increased 5% to $39 million. Operating margin improved slightly to 21.8% from 21.7% in the prior year.
Sales in the Aerospace group increased $7 million or 7% to $111 million. OEM revenue grew 8% with an increase in both commercial and military applications.
Sales to business jet OEMs and large aircraft manufacturers increased, while sales to regional aircraft manufacturers declined slightly. Despite a decline in commercial spares sales in the quarter, after-market sales increased 4%, aided by modernization and upgrade programs.
Commercial spares sales in the second quarter were flat compared to first quarter levels, but had a difficult comparison versus the prior year. The OEM after-market mix was 58% to 42% in the second quarter of 2012 compared to a 57% to 43% mix in the second quarter of 2011.
Operating profit in the Aerospace group increased by approximately $2.5 million, reflecting good leverage of the higher sales. Market conditions in Aerospace have softened a bit given recent global economic concerns and the International Air Transport Association estimates that the net profit margin for the airline industry will be only 0.5% in 2012.
However, air travel is expected to grow an encouraging 5% this year and Load factors remain relatively high. We expect modest sales growth in the second half of 2012, reflecting more difficult OEM sales comparisons and a cautious outlook for aftermarket activity.
Electronics sales were $68 million, up very slightly from the prior year. Operating profit decreased slightly in part reflecting a less favorable product mix and operating margin remained in the mid-teens area.
We continue to expect reasonably stable results in 2012, with growth in our commercial business expected to offset a slight decline in defense-related sales. Aerospace and Electronics backlog was $423 million at the end of the second quarter, down sequentially from $438 million in March, but $12 million higher than the $411 million level in December 2011.
We have raised our full year sales guidance to $710 million from $700 million, reflecting strong first half results and a solid backlog going into the second half. Our full year operating profit guidance is now $158 million, compared to our investor day guidance of $155 million.
Engineering material sales declined 9% to $54 million. Demand for our RV related applications was relatively flat versus the prior year.
Transportation-related sales, although representing less than 20% of segment sales, declined 29%, reflecting difficult competitive conditions and customer production delays. Building products-related sales decreased 2% reflecting soft commercial construction markets.
Operating profit, before special items, declined to $6.6 million from $9.1 million, and operating margin, also before special items, was 12.1% compared to 15.2% in the second quarter of 2011, primarily as a result of the lower sales and higher material cost. As part of the repositioning actions we announced yesterday, we anticipate closing a small facility in England given challenging European economic conditions.
We expect to supply selected European customers from our U.S.-based facilities. Repositioning charges of $1.1 million on a pre-tax basis were recorded in the second quarter of 2012.
In addition to the amounts recorded in the second quarter, we expect to incur additional pre-tax charges related to these actions in the second half of 2012 of approximately $2 million. We estimate that this action will result in pre-tax savings of $1 million annually beginning in 2013.
We have reduced our full-year sales guidance to $215 million from $225 million previously, reflecting soft first half results. Our full-year operating profit guidance, excluding repositioning costs, is now $29 million compared to our investor day guidance of $32 million.
Merchandizing systems sales of $98 million increased $4 versus the prior year or 4%, reflecting higher sales in vending, and to a lesser extent payment solutions. Both businesses also strengthened sequentially from the first quarter.
We have seen some improvement in the German gaming market as some operators have resumed their purchases, despite uncertainty around recently enacted legislations. Segment operating profit, before special items, of $11.4 million increased $4.3 million from the prior year, and operating margins improved to 11.7% from 7.6% as solid productivity gains and benefits from the 2010 acquisition of Money Controls increased the leverage on the $4 million of higher sales.
As part of our repositioning actions, we plan to consolidate the manufacturing of certain products and optimize engineering resources within Payment Solutions. Repositioning charges of $2.3 million on a pre-tax basis were recorded in the second quarter of 2012.
Pre-tax savings associated with these actions are expected to approximate $1 million annually beginning in 2013. We are maintaining our full-year sales guidance of $375 million, but forecast slightly better operating profit based on the success of our productivity initiatives.
Our full year operating profit guidance, excluding repositioning costs, is now $37 million compared to our investor day guidance of $35 million. Fluid Handling sales increased 6% to $302 million, with a core sales increase of 8%, and an increase in sales from the W.T.A acquisition of 3% offset in part by unfavorable foreign currency translation of 5%.
This marks the seventh consecutive quarter that core sales have increased on a year-over-year basis. Backlog was $335 million at the end of June, down slightly when compared to $338 million at the end of March, but higher than the December 2011 level of $314 million.
The decline in backlog from March to June was due to changes in foreign currency translation rates and the divestiture of the Houston valve service center, which together negatively impacted backlog by $9 million, the foreign exchange impact was $6 million and the divestiture impact was $3 million. During the second quarter of 2012 market conditions in Europe have trended lower, particularly for our MRO and [book and ship] businesses, reflecting economic uncertainty.
The major European-based chemical customers are generally moving forward with larger projects on a global basis, but with some orders being delayed. Chemical industry demand in North America is strong with MRO sales benefiting from healthy plant operating rates and lower energy feedstock cost.
Refining quota activity is good both in the U.S. and the Middle East.
Demand from global power markets has softened with some customers delaying delivery dates. In Canada, demand from commercial construction has been stable and we have benefited from MRO orders from chemical companies doing plant turnarounds.
Fluid handling operating profit of $38 million, before special items, increased 4%, primarily reflecting the higher sales, and operating margin was 12.6%, a slight deterioration from the prior year. On our first quarter conference call we said that we did not expect improvement in our Fluid Handling margins in the second quarter because it would take some time to adjust to the cost base in Europe, particularly in our energy business.
The repositioning actions we have announced today should favorably impact our 2013 operating profit, particularly from our German-based operations. Within the Fluid Handling segment the company incurred repositioning charges of $11.4 million on a pre-tax basis in the second quarter of 2012.
In addition to the amounts recorded in the second quarter, we expect to incur additional pre-tax charges related to these actions in the second half of 2012 of approximately $3 million. Pre-tax savings associated with these actions are expected to approximate $10 million annually beginning in 2013.
Our full-year sales guidance for Fluid Handling remains at $1.22 billion, which now represents a 7% increase versus an adjusted sales level of $1.14 billion in 2011. Despite the loss of sales from the divestiture, strong first half results and solid backlog going into the second half have allowed us to maintain our sales guidance.
As Eric touched on earlier, our full year operating profit guidance, excluding repositioning costs, is now $165 million compared to our investor day guidance of $175 million. Operating margin is expected to gradually improve in the second half of the year and we now project a 13.5% operating margin for this segment on a full-year basis.
This implies an operating margin of approximately 14% in the second half of 2012. Currently we expect operating margins to be slightly less than 14% in the third quarter and slightly higher than 14% in the fourth quarter.
Turning now to more detail on our total company results and forecasts, we again experienced raw material cost pressure in the quarter, but increases in our selling prices effectively offset this impact. The operating profit impact of foreign currency translation for Crane tends to be about 10% to 15% of the revenue impact.
Foreign currency translation negatively impacted EPS by approximately $0.03 in the second quarter. As the currency impact in the first quarter was small, the EPS impact of foreign currency translation for the first half of 2012 was also about $0.03.
Based on current FX trading levels, the third and fourth quarters will also have difficult comparisons versus prior year levels, and on a full-year basis we expect a headwind from currency translation of $0.08 to $0.10 per share. Our second quarter tax rate associated with continuing operations was 32% in 2012 compared to 31% in the second quarter of 2011.
Excluding the impact of repositioning charges and divestiture gains, the normalized tax rate for continuing operations was 29%. Our full-year tax rate guidance of 30%, excluding special items, assumes that the U.S.
Congress passes legislation during 2012, which would extend the research tax credit retroactive to January 1, 2012. The assumed benefit associated with the R&D tax credit is worth approximately $0.05 per share in 2012.
Free cash flow was $52 million in the second quarter of 2012 compared to $21 million in the second quarter of 2011. Free cash flow for the first half of 2012 was $2 million compared to a negative $3 million in the first half of 2011.
We are slightly reducing our 2012 free cash flow guidance to a range of $150 million to $180 million, reflecting the divestitures and expected cash flow related to repositioning actions. In 2012, we expect pre-tax cash payments of approximately $5 million related to the repositioning action, and in 2013 we expect an addition of $10 million of pre-tax cash outflow.
Capital spending for the second quarter of 2012 was $7 million, roughly similar to the first quarter level. We are slightly reducing our capital expenditure guidance for 2012 by $5 million to $35 million, reflecting the modest first half activity.
During the second quarter of 2012 we repurchased approximately 772,000 shares of our common stock for about $30 million. These repurchases reflect our confidence in the company’s future and our willingness to more than offset stock incentive plan dilution if conditions warrant.
As previously communicated, our policy is not to preannounce these purchases but to report them at the close of the quarter. Sales from continuing operations for 2012 are expected to increase 4% to 5% driven by a core sales increase of 6% to 7% and sales related to the WTA acquisition of less than 1%, partially offset by unfavorable foreign exchange of approximately 2%.
The revised full year sales guidance reflects strong first half sales growth in Fluid Handling and Aerospace and a stable outlook for overall Crane in the second half. The updated 2012 earnings per share guidance range, excluding Special Items, is $3.75 to $3.85, which is a reduction of $0.05 to the midpoint of the previously communicated guidance range of $3.75 to $3.95.
This primarily reflects the absence of second half earnings from the divestitures that we completed in the second quarter. We have also narrowed the guidance from $0.20 to $0.10 given that we are already halfway through 2012.
The company's 2012 EPS guidance on a GAAP basis is $3.80 to $3.90. On a full year basis, $0.31 of divestiture gains are expected to be offset by $0.26 of repositioning charges.
As a result GAAP guidance is $0.05 higher than the guidance excluding Special Items. Our balance sheet remained strong and we ended the quarter with $252 million in cash.
We have access to our $300 million revolving credit facility, which we recently updated and now matures in May of 2017. Half of our long-term debt of $400 million is due in 2013 and the other half is due in 2036.
Now back to you Dick. Thank you Eric and Andrew.
This marks the end of our prepared comments. Operator, we are now prepared to take questions.
Operator
Thank you. (Operator instructions) Our first question comes from Deane Dray of Citi.
Your line is open.
Matt McConnell – Citi
Andrew Krawitt
What I would say is that first off we expect to complete all our repositioning activities within 2012 and are confident in doing that. Secondly the – I consider – you know, we have been working on these activities.
They have very detailed plans around them and we are moving up particularly manufacturing process, but largely product lines from one existing Crane facility to another, which is dramatically lower cost. So I view these activities as kind of an acceleration of trends that have been going on here for a long time.
So I see them as low risk impacting – we're not going to quantify the revenues that it impacts but this to me is you know, just an acceleration of a product movement to reduce cost.
Matt McConnell – Citi
Okay, great, and have you said where those new facilities are, and I'm assuming there is…
Andrew Krawitt
There is no new facilities involved here. This is moving product from a higher cost location to a lower-cost location in existing Crane plants that we have owned for a long time.
Matt McConnell – Citi
Okay, great. Thank you and are there any buffer inventory requirements and is that part of the free cash flow guidance reduction or is…
Andrew Krawitt
Inventory issues here are nominal at best.
Eric Fast
The free cash flow guidance reduction is very slight. It really just reflects the fact that we are losing a little bit from not having the divested businesses and also some cash flow associated with the restructuring this year.
Matt McConnell – Citi
Okay, great.
Andrew Krawitt
I would just add that if we use the word repositioning on purpose to reflect in our view relatively modest kind of trimming movement, relatively low-risk activities as opposed to you know, closing major facilities et cetera, et cetera.
Matt McConnell – Citi
Right, okay, and is the margin target for fluid is that down just because of its energy piece, it is being restructured or are there any other headwinds in that business that are worth calling out, any update on price cost or anything else?
Andrew Krawitt
Again, as I said in my comments away from energy the rest of the business operated at 15% margins, which indicates we've got healthy good businesses, and the repositioning, I think the tax we've got a concern about the European markets and the tax, those costs principally in energy but other parts of fluid handling as well.
Matt McConnell – Citi
Okay, great. Thanks very much.
Andrew Krawitt
Thank you.
Operator
Thank you. Our next question comes from Robert Barry of UBS.
Your line is open.
Robert Barry – UBS
Hi guys good morning.
Andrew Krawitt
Good morning.
Eric Fast
Good morning.
Robert Barry – UBS
Thanks by the way for all the added disclosure in the release and on the call today. I appreciate it.
So I just, you know, wanted to follow up on a few things in fluid. First of all it sounds like there is no benefit at all from the headcount reductions, the other repositioning actions in this year.
It sounds like it's all coming in 2013. Is that right?
Andrew Krawitt
The benefits, that's correct from the repositioning activities, and this is primarily due to the length of time it takes to follow these, the German kind of labor protocols and working through the working counsels and as I said we thought we could get some this year, but really working through that process, it is going as planned but it's just taking longer than anticipated. That being said there are activities that we are implementing both in energy and throughout Fluid Handling with respect to reduction in temporary workers, contractors, overtime, travel, discretionary spend.
They are stepped-up activity with respect to negotiating with certain key suppliers with reductions – to get reductions in material costs and all of these activities are ongoing particularly in our European Fluid Handling businesses, but basically throughout Fluid Handling as we look to reduce cost in this year.
Robert Barry – UBS
Yes, so I just wanted to make sure I was very clear on what's going to drive the margin improvement in the back half and it looks like about $10 million of incremental EBIT in second half versus first half and that half of that is from better revenue and half of that is from just other productivity things, belt tightening kind of stuff is that right?
Andrew Krawitt
Just that I mentioned, I mean there is very specific productivity plans throughout the Fluid Handling organization, and again related to those items that I mentioned that our well underway.
Robert Barry – UBS
Yes, and so I guess my question would be just maybe tough to answer but you know, it sounds like half of the expected improvement is related to revenue and as you called out in the prepared remarks there is, you know, projects being pushed out, there is obviously macro weakness in Europe. I mean, you do have a very good backlog going into third quarter.
So, I don't know how you're thinking about the kind of over or under on that $5 million from the revenue related piece.
Andrew Krawitt
We are giving guidance that revenues are going to be up $20 million. You look at our backlog compared to here we’ve had organic growth in Fluid Handling, what is it 6%, 7% in the first six months and if you and our backlog still up $20 million.
So you got a good backlog going into certainly the third quarter and that backlog runs you know, three to four months typically. We've tried to account for some slowing in the MRO business.
I would say there is some risk there unless you have a crystal ball on economic outlook. So I wouldn't say that there is not risk, but we wouldn't have said we expect revenues to be up to $20 million unless we felt we can do that, but I would acknowledge some risk there.
I don't think there is risk in our reducing costs. We are pretty good about those activities.
Robert Barry – UBS
Okay, just finally shifting focus to Aero, I mean, off to a pretty good start there. You know, you raised the guidance but it still implies only about 3%, 3.5% revenue growth in the back half versus you know, about 6% in the first half.
Is that deceleration, it sounded like perhaps related to caution on after-market, and if so can you just share some thoughts on what you're seeing in after-market, and if there is anything else causing that deceleration as well. Thank you.
Eric Fast
Yes, Robert, let me just comment on the after-market. You know, as we mentioned in the remarks commercial spares have flattened out for us, and we think you know, some customers are working off of inventories, likely driven by some over provisioning in 2011, but for us helped by, you know, our strong M&U sales we expect the total after-market sales in the second half to be really similar to first half levels.
So that would result in a modest growth in the second half of the year versus the prior year.
Robert Barry – UBS
Great, thanks a lot guys.
Operator
Matt Summerville – KeyBanc Capital Markets
Good morning. Couple of questions in particular on input costs Eric, I think you mentioned in Engineered Materials your input costs are up, oil prices have come down in fluid, a lot of metals prices have come down.
I guess I'm wondering when that starts to positively benefit your P&L.
Eric Fast
What you said is true Matt. You know, we have seen some of those prices come down and you know, there is some potential benefit of some input cost upside on the back half of the year.
We have I think tried to be somewhat conservative about it, but obviously if prices continue to come down we would expect to see some benefit.
Andrew Krawitt
I think it's you know, it's primarily styrene in Engineered Materials. That is a little help, but it's not – it is more of the margin here in the third quarter from what I can see.
It takes a while for them to read through, and I would say the same with you know, steel and copper as it just takes a lot of work to the system and your inventory. So I don't see much help in the third quarter.
Matt there might be a little bit more in the fourth.
Matt Summerville – KeyBanc Capital Markets
Okay, and then with regards to the backlog in order momentum in fluid as you progressed through the quarter how did that momentum if it did change, how did that momentum evolve, did you exit at a better rate or worse rate than what you entered. Can you kind of talk about the cadence throughout the quarter in your order book there?
Andrew Krawitt
The rate of growth decelerated as we went through the quarter. We see the projects, project activity relatively stable.
The rate of growth year-over-year declining slightly on the projects as not so much that they were canceled but they were pushed out. We see the rate of growth year-over-year on MRO activity clearly lower in June and declining through the quarter.
I think that’s the fair way to say it.
Matt Summerville – KeyBanc Capital Markets
Okay great, and then…
Andrew Krawitt
Still growth but the rate of growth, particularly in MRO is much reduced.
Matt Summerville – KeyBanc Capital Markets
Given the dynamics you mentioned there Eric, and how they are playing out, would you expect backlog then in your business because we obviously don’t know what kind of deferral rates you're seeing. Would you expect the backlog to move higher from here or moderate?
I just want some sort of -- see if there is some sort of expectation there for the back half.
Eric Fast
I don't know how to answer that. I think we -- in fluid handing we can feel comfortable about the revenues that we've got.
I'm less comfortable with kind of articulating where we end up in backlog at this point.
Matt Summerville – KeyBanc Capital Markets
Okay, and then just one more for Andrew, what euro-dollar exchange rate are you using in your current updated you know, FX guidance for Crane?
Andrew Krawitt
We use the month-end May rates, which is about $1.24. So we are pretty close to those levels if you touch on this.
Matt Summerville – KeyBanc Capital Markets
Great, thank you.
Andrew Krawitt
Thank you.
Operator
(Operator instructions) Our next question is from Ronald Epstein of Banc of America/Merrill Lynch. Your line is open.
Ronald Epstein – America/Merrill Lynch
Hello, good morning guys.
Andrew Krawitt
Good morning.
Ronald Epstein – America/Merrill Lynch
So Eric, since we met over at Farnborough just a couple of weeks ago.
Eric Fast
Right.
Ronald Epstein – America/Merrill Lynch
Has anything changed from kind of the economic backdrop and are you feeling any more optimistic, less optimistic?
Eric Fast
You know, we clearly have a slowing global economy. We clearly have slower growth rates here in the United States in the second quarter than what people had anticipated and I think the real question is are things going to get any better in the second half, and at this time I don't see any real growth activities being put in place other than monetary easing, which I think is losing its ability to boost the economy with their ground.
And my concern, so I see continuing very slow growth in the United States and globally slowing economy and the concern is I articulated at the Airshow is that financial institutions in corporate America facing that will continue to -- would start trimming discretionary spending and reducing headcount, and I think you participate in all the calls. I mean, we clearly are tightening our belts here, positioning ourselves, making sure we’re well positioned for 2013.
I would just you know, it's not clear to me yet what all the other companies are but in that scenario I think that's prudent and we’re doing it.
Ronald Epstein – America/Merrill Lynch
Yes, that’s great. Thank you Eric for, you know, the comments.
All right, thanks.
Operator
Thank you. I'm showing no further questions in the queue at this time.
Andrew Krawitt
That’s great.
Richard Koch
Okay. Thank you very much for your interest in Crane and we will talk to you in October if not before at one of the conferences.
Thank you. Bye-bye.
Operator
Thank you. Ladies and gentlemen this concludes the conference for today.
You may all disconnect and have a wonderful day.