Conferencia de resultados del T3 de 2026 de Crane Company (CR): Eleva la previsión de BPA tras márgenes récord

Crane Company (CR) presentó un crecimiento generalizado en su conferencia de resultados del tercer trimestre fiscal de 2026, impulsado por la demanda en aeroespacio y defensa, la mejora en los pedidos de Process Flow Technologies y un rendimiento de las adquisiciones superior a lo planeado. La directiva elevó sus previsiones de BPA ajustado para todo el año y destacó un incremento del 9% en la cartera de pedidos orgánicos sin efecto del tipo de cambio.

Puntos clave

• Las ventas totales aumentaron un 28% interanual, lo que incluye un crecimiento orgánico del 8% y una aportación del 21% procedente de cuatro adquisiciones.
• El beneficio operativo ajustado subió un 36%, mientras que el margen operativo ajustado se amplió en 130 puntos básicos hasta alcanzar el récord del 22,5%, a pesar de la dilución temporal por las adquisiciones.
• La cartera de pedidos orgánicos sin efecto del tipo de cambio aumentó un 9% interanual. Los pedidos orgánicos crecieron un 11%, liderados por un alza del 20% en los pedidos de Process Flow Technologies.
• La dirección elevó sus previsiones de BPA ajustado para todo el año 2026 en 0,35 dólares en el punto medio, situándolas entre 7,23 y 7,38 dólares.
• Las ventas de Aerospace & Advanced Technologies aumentaron un 27% hasta los 344 millones de dólares, con un crecimiento orgánico de las ventas del 9,5% y un margen de segmento ajustado del 26,3%.
• Las ventas de Process Flow Technologies subieron un 29% hasta los 413 millones de dólares. Las ventas orgánicas aumentaron un 6,2%, mientras que el margen de segmento ajustado alcanzó un máximo histórico del 24%.

Datos financieros clave

La empresa excluyó de los resultados ajustados los beneficios extraordinarios por recuperación de aranceles para separarlos de las tendencias operativas subyacentes.

Rendimiento operativo y del negocio

Aerospace & Advanced Technologies

Aerospace & Advanced Technologies generó 344 millones de dólares en ventas, un 27% más interanual. Las ventas orgánicas crecieron un 9,5%.

La cartera de pedidos del segmento se aproximó a los 1.300 millones de dólares, con un alza del 9% en términos orgánicos y del 20% incluyendo el impacto de las adquisiciones. El crecimiento se apoyó en el aumento de la producción de equipos originales comerciales y la amplia demanda en defensa. Excluyendo el aprovisionamiento inicial del año anterior, las ventas totales en el mercado secundario (aftermarket) aumentaron un 11%, mientras que el mercado secundario comercial orgánico creció a un ritmo de un dígito alto.

El margen ajustado del segmento alcanzó el 26,3%, 100 puntos básicos más. La dirección afirmó que el resultado se logró a pesar de una mayor proporción de ventas de equipos originales y la dilución esperada por las adquisiciones.

Las oportunidades en defensa siguieron concentradas en defensa de misiles, radares, conversión avanzada de energía y capacidades espaciales. Crane participa en aproximadamente 15 programas de misiles, con una base de ingresos para 2026 de unos 35 millones de dólares. La directiva prevé que esta actividad crezca entre un 40% y un 50% en 2027, teniendo ya gran parte de esa demanda incluida en la cartera de pedidos. La empresa también ve potencial para que el negocio se multiplique por entre cuatro y seis veces respecto a su base actual durante el resto de la década.

Process Flow Technologies

Process Flow Technologies registró unas ventas de 413 millones de dólares, lo que supone un aumento del 29%. Las ventas orgánicas aumentaron un 6,2%, mientras que las adquisiciones aportaron casi 24 puntos porcentuales al crecimiento.

La cartera de pedidos orgánicos sin efecto divisa aumentó un 8% interanual y un 2% intertrimestral. Los pedidos crecieron un 20% interanual y un 8% intertrimestral. El margen ajustado del segmento aumentó 80 puntos básicos hasta alcanzar un récord del 24%.

La demanda mejoró en los mercados de criogenia, energía, agua y aguas residuales, farmacéutico, nuclear e industrial general. La criogenia se benefició de las infraestructuras de lanzamiento espacial y las pruebas ambientales aeroespaciales. La demanda de energía estuvo liderada por las inversiones en turbinas de ciclo combinado de gas natural en Estados Unidos, mientras que la actividad farmacéutica reflejó la expansión de capacidad en EE. UU. y proyectos vinculados a la relocalización industrial (reshoring).

La demanda del sector químico se mantuvo estable. La directiva enfatizó que Process Flow Technologies depende ahora menos de una recuperación en el sector químico, ya que su exposición a este se ha reducido desde aproximadamente el 30% histórico hasta cerca del 20%. Agua y aguas residuales representa aproximadamente el 15% de la cartera, industrial general cerca del 20%, y la energía nuclear y de gas combinadas alrededor del 15%.

Desde el punto de vista geográfico, la dirección describió a Estados Unidos como el mercado más fuerte, a Europa como ampliamente estable y a Oriente Medio en proceso de recuperación tras la debilidad del primer semestre.

Cartera de negocios y adquisiciones

Las adquisiciones recientes continuaron superando las expectativas iniciales de Crane en cuanto a ingresos, márgenes y beneficios. La directiva espera ahora que las adquisiciones aporten aproximadamente 0,30 dólares por acción al beneficio ajustado de 2026, por encima de su estimación anterior de 0,20 dólares por acción. Se prevé que sus márgenes operativos se amplíen en más de 500 puntos básicos en 2026.

Crane también prevé alcanzar su umbral del 10% de rentabilidad sobre el capital invertido aproximadamente 18 meses antes de lo planeado inicialmente.

La adquisición pendiente de Trillium Pumps busca reforzar la posición de Crane en agua y aguas residuales. La desinversión prevista del negocio de Building Services & Utilities completa la salida de la empresa de la exposición a la construcción no residencial. La directiva señaló que actualmente no sopesa desinversiones sustanciales adicionales, aunque recordó que la cartera se revisa anualmente.

Previsiones de la directiva

La directiva prevé que Crane inicie 2027 con una cartera de pedidos récord y un buen impulso en ambos segmentos operativos. La empresa planea ofrecer más detalles sobre su estrategia, oportunidades de crecimiento y perspectivas a largo plazo en un Día del Inversor programado para el 9 de febrero en la ciudad de Nueva York.

Riesgos y factores a vigilar

• Las adquisiciones recientes siguen siendo dilutivas temporalmente para los márgenes declarados, aunque su rendimiento y la mejora de los márgenes se sitúan por delante de lo previsto.
• Los mercados químicos se mantienen estables. La dirección no prevé una recuperación completa impulsada por la construcción y los bienes duraderos al menos hasta después de la primera mitad de 2027.
• Se espera que Europa permanezca estable hacia 2027, mientras que los mercados químicos de Estados Unidos y Oriente Medio presentan una actividad de proyectos más favorable.
• Trillium opera con un margen inferior al promedio del grupo Crane, y la desinversión de Building Services & Utilities eliminará un negocio con unos ingresos anuales previstos de aproximadamente 160 millones de dólares. La directiva confía en que Trillium compense una parte sustancial del impacto resultante, en función del calendario de la transacción.
• La exposición a Oriente Medio representa menos del 5% del total del grupo. Los retrasos anteriores en los envíos se han normalizado en su gran mayoría, aunque los costes de flete siguen siendo elevados.

Aspectos destacados del turno de preguntas de los analistas

La dirección indicó que el potencial alcista de un importante negocio adquirido es ahora mayor de lo previsto inicialmente. Se prevé alcanzar antes el objetivo previo a cinco años de elevar el EBITDA de 60 a 150 millones de dólares, esperando también un mayor crecimiento y mejores márgenes al término de los cinco años.

En cuanto a la asignación de capital, Crane señaló que evalúa las adquisiciones mediante el Crane Business System. La empresa se mantiene abierta tanto a oportunidades de mejora operativa como a activos de alto crecimiento ya bien gestionados, siempre que refuercen la cartera y creen valor para el accionista en un horizonte de tres a cinco años.

Respecto a los márgenes de Process Flow Technologies, la directiva atribuyó la sólida rentabilidad incremental a la fijación de precios, la productividad y un cambio en la mezcla hacia negocios de mayor crecimiento y margen. El apalancamiento operativo orgánico estuvo ligeramente por encima del 40% en el trimestre, y la directiva reiteró un marco de apalancamiento a lo largo del ciclo del 35%–40%.

La directiva prevé que la desinversión de Building Services & Utilities y la adquisición de Trillium se cierren en torno al final del primer trimestre. Dado que ninguna de las dos transacciones afectará a un año completo, Crane espera que Trillium compense una parte significativa de la dilución de beneficios derivada de la desinversión a lo largo del ejercicio.

Transcripción completa de la conferencia de resultados

Transcripción completa de la conferencia de resultados

Comentarios de la dirección

Operator

Welcome to the Crane Company Third Quarter 2026 Earnings Conference Call. [Operator Instructions] I'd like to now turn the call over to Allison Poliniak, Vice President of Investor Relations. Please go ahead.

Allison Ann Poliniak-Cusic

Thank you, Stephanie, and good day, everyone. Welcome to our third quarter 2026 Earnings Release Conference Call. I'm Allison Poliniak, Vice President of Investor Relations. On our call this morning, we have Alex Alcala, President and Chief Executive Officer; and Rich Maue, our Executive Vice President and Chief Financial Officer; along with Jason Feldman, Senior Vice President, Treasury and Tax who's on for Q&A.

We will start up our call with a few prepared remarks, Alex and Rich, after which we will respond to questions. And just a reminder, the comments we make on this call will include some forward-looking statements. We refer you to the cautionary language at the bottom of our earnings release and also in our annual report, 10-K and subsequent filings pertaining to forward-looking statements.

Also during the call, we will be using some non-GAAP numbers, which are reconciled to the comparable GAAP numbers and tables at the end of our press release and accompanying slide presentation, both of which are available on our website at craneco.com in the Investor Relations section. Now let me turn the call over to Alex.

Alejandro Alcala

Thank you, Allison, and good morning, everyone. Crane delivered another quarter of record performance, reflecting the strength of our portfolio, broad-based demand across our end markets, exceptional execution throughout the company and the continued success of our acquisition strategy.

Demand remains very strong across Aerospace and Advanced Technologies Momentum continues to build within process for technologies, and our recent acquisitions are performing well ahead of expectations. Together, these drivers resulted in an 8% core sales growth. Strong operating leverage, record margins, record earnings and a record backlog while reinforcing our confidence in the outlook for both 2026 and 2027.

Of note, order activity was particularly strong in process both technologies, where core orders increased 20% year-over-year and 8% sequentially. This combined with exceptional strength and resilience across the aerospace and Advanced Technologies, total company backlog increased 9% year-over-year providing strong visibility as we close out the year and enter 2027.

Execution continues to be a key differentiator, adjusted operating margin expanded 130 basis points to a record 22.5% despite the temporary dilutive impact of our recent acquisitions. These results demonstrate our ability to translate growth into meaningful earnings expansion while continuing to invest for the future.

Our acquisitions continue to significantly exceed expectations. Revenue growth, margin expansion and earnings contribution are all ahead of plan. And we now expect to achieve our 10% ROIC hurdle approximately 18 months earlier than originally anticipated. We expect these acquisitions to contribute approximately $0.30 per share to 2026 earnings up from our previous expectation of $0.20 per share, with operating margins expanding more than 500 basis points this year.

These incredible results reinforce our confidence in the Crane business system and our ability to create substantial shareholder value through disciplined capital deployment. We are equally excited about the opportunities ahead including the pending acquisition of [ Trillium ] pumps. Given our strong year-to-date performance, record backlog levels and confidence in both our core and acquired businesses, we are raising our full year adjusted EPS outlook by $0.35 at the midpoint to a range of $7.23 to $7.38 per share.

Turning to Aerospace & Advanced Technologies. This segment continues to perform exceptionally well. Demand remains robust across commercial aerospace, defense and space, supported by a record backlog and a growing pipeline of opportunities. Commercial aerospace remains healthy with solid OE demand and continued strength in aftermarket.

On the defense side, investment remained very strong as customers continue to prioritize missile defense, radar, advanced power inversion and space-based capabilities. All areas where we continue to invest and win. Strong execution and continued program wins are providing increasing visibility into the future growth.

As a result, we continue to expect 2026 core growth modestly above the high end of our long-term 7% to 9% growth framework, leveraging that growth between 35% and 40%. The team continues to execute at a very high level, and we remain highly confident in the long-term growth opportunities across the segment.

Process [indiscernible] Technologies also delivered an outstanding quarter. The business returned to core growth while delivering record profitability. Core sales increased 6%. Orders grew 20%, and adjusted operating margins expanded despite the dilutive impact of recent acquisitions. More importantly, the transformation of the portfolio continues to gain momentum.

Growth was broad-based across cryogenics power, wastewater nuclear and general industrial markets. We secured additional wins in cryogenics, supporting the growing space launch market. New pharmaceutical orders related to GEO P1 capacity expansion and further wins in wastewater and power.

For the full year, our outlook has improved. Driven by solid core growth in the second half. We now expect low single-digit core growth full year and continued margin expansion. We also continue to enhance the quality of our portfolio through disciplined capital allocation.

The announced acquisition of Trillium pumps strengthens our position in the attractive water and wastewater market. while the announced divestiture of our Building Services & Utilities business further sharpen the strategic focus of the segment. Before moving on, I want to recognize and thank the outstanding Basin team.

For nearly 120 years, this business has been an important part of Crane, built by incredibly talented people who consistently deliver results the right way. We are grateful for the many contributions and proud of what they have accomplished. As they begin this next chapter, I'm confident they have a bright future ahead.

Together, these actions continue to reposition PFT around highly engineered mission-critical technologies, serving attractive growth markets, including pharmaceuticals, water and wastewater, power Progenics and nuclear. Importantly, we are not finished. We continue to see attractive opportunities to further strengthen the portfolio and remain confident in our ability to outperform the markets we serve over the long term.

To summarize, Crane is performing at a very high level. Our businesses are executing exceptionally well. Our end markets remain attractive. Our acquisitions are exceeding expectations. Our portfolio continues to become stronger and more resilient.

We will enter 2027 with record backlog, strong momentum across both segments increasing earnings power and significant strategic flexibility. As we look toward 2027, our confidence continues to grow. Over the summer, we completed strategy reviews across all our businesses, and those we reinforce our long-term growth framework.

In particular, 4 themes stand out. First, Aerospace and Advanced Technologies remains exceptionally well positioned. Strong aerospace and defense demand, combined with the benefits of years of investment in differentiated technologies, creating a resilient portfolio gives us confidence in the segment's ability to deliver attractive growth for many years to come.

Second, the transformation of the process flow technologies portfolio is gaining momentum. While the benefits are increasingly visible in our results today, we believe we are still in the early innings of our value creation journey as we continue to reshape the portfolio around higher growth, higher margin and less cyclical markets.

Third, our acquisition strategy continues to create meaningful value. We have significant capacity to deploy capital, a robust pipeline of opportunities and a proven ability to integrate businesses and accelerate earnings, margins and returns.

And last, but most important, we have an incredible intangible asset, the Crane Business System. The combination of world-class processes and a high-performance culture built on focus, intensity and accountability, continues to differentiate Crane and drive sustainable value creation.

pimply put, our businesses are performing very well. Our portfolio is stronger, it has ever been, and we continue to see significant opportunities to create value through both organic and inorganic growth.

Before turning it over to Rich, I'm pleased to announce that we will host our next Investor Day on February 9 in New York City. We look forward to sharing more about our strategy, growth opportunities and long-term outlook at that event.

With that, I'll turn the call over to Rich.

Richard Maue

Thank you, Alex. Another outstanding quarter with certainly more to come. Alex, as you just said, the Crane business system, this machine that we have and this unique culture is what enables us to consistently deliver the results that we do quarter after quarter. .

And it reminded me of the Academy Award-winning movie Fletch during an iconic scene, where Chevy Chase was impersonating Gordon Liddy, an airplane mechanic supervisor. During that scene, I was reflecting on our well oiled machines and I thought about full or coaching to our leadership teams and even how we talk with our investors when Fletch pro claims, it's so simple maybe you need to refresh your course.

It's all ball bearings nowadays guys. Now you just prepare that [indiscernible] valve with that 3 in 1 oil and some gas pads and I'm going to need about 10 courts of any freeze preferably prior. No, no make that Quaker Stan, and we'll just keep delivering top quartile results quarter after quarter.

And with that in mind, let me start off with total company results. Total sales were up 28% in the quarter compared to last year with 8% core growth, reflecting broad-based strength across both process flow technologies and aerospace and advanced technologies. Sales from our 4 acquisitions contributed 21% growth in the quarter, once again outperforming our expectations.

Adjusted operating profit increased 36%, reflecting the impact of the higher core sales contributions from the acquisitions, productivity and favorable pricing net of inflation, another outstanding result. And total core FX neutral backlog was up 9% compared to the prior year, reflecting strength at both Aerospace and Advanced Technologies and Process flow technologies.

Core orders increased 11% year-over-year, with continued strength in Aerospace & Advanced Technologies, up 2% as expected. And when excluding a multiyear order received in the same period last year, we're up in the mid-teens and process flow technologies up an exceptional 20%.

We generated strong free cash flow in the quarter and repaid $170 million of debt, resulting in pro forma net leverage today at 1.1x a very strong balance sheet that positions us well for further M&A. Before discussing segment performance, I wanted to remind everyone that our adjusted results exclude the benefit from [indiscernible] tariff recoveries recorded during the quarter.

Once again, in our view, it's important to isolate these onetime benefits from the true underlying operating trends in the business. A few more details on the segments of the quarter here. Starting with Aerospace and Advanced Technologies.

Sales of $344 million increased 27% in the quarter, with core sales up 9.5%. Our record backlog of nearly $1.3 billion increased 9% on a core basis and increased 20%, including the impact of the DRC acquisition. Once again, demand remains very strong across our highly diverse portfolio.

Top line strength in our core business was driven by the commercial OE ramp as well as ongoing broad-based strength within the defense market. Total aftermarket remained strong, bolstered by military and when isolating prior year initial provisioning was up 11%, with core commercial aftermarket up at a high single-digit rate, exactly what we expected.

Adjusted segment margin was exceptional at 26.3% ahead of our core leverage expectations and up 100 basis points year-over-year. That performance is notable given the higher OE sales and expected dilution from the drug acquisition and it speaks to the resiliency of our margin profile, irrespective of any changes in OE aftermarket mix.

Drug continued to outperform our expectations, and our core A&E business delivered another very strong quarter. Taken all together, we remain very confident in our full year segment sales outlook and continue to expect full year core sales growth slightly ahead of our 7% to 9% algorithm.

The diversity of the overall AAT portfolio supports the durability of that 7% to 9% regardless of periodic changes in the sales composition, whether that be in OE versus aftermarket or commercial versus military. Moving on to Process Flow Technologies.

In Q3, we delivered sales of $413 million, up 29% compared to a year ago with core sales up 6.2%, and the acquisitions of [ Panametrics ] were topotecan adding nearly 24 points of growth. Demand improved significantly in the quarter. Compared to the prior year, core FX-neutral backlog of PFT increased 8% on a sequential basis was up 2% and core FX-neutral orders were up 20% year-over-year and up 8% sequentially.

Adjusted operating margin was a record 24% and was 80 basis points above the prior year. And like AAT, results were above our expectations, given better performance across both our core businesses and each of our 3 acquired businesses. In summary, another outstanding quarter.

Moving to the nonoperational items below the segments. Corporate expense for the quarter was $20 million as expected. And for the full year, we expect to be within our previously guided $80 million to $85 million range.

Net nonoperating expense in the quarter was $14 million and we continue to estimate full year 2026 net nonoperating expense of approximately $58 million.

And lastly, we continue to estimate our tax rate for the year to approximate 23%. And taking all of this into account, our performance to date as well as the risks and opportunities we see ahead.

As Alex mentioned, we are raising our adjusted full year guidance by $0.35 to a range of $7.23 to $7.38. Overall, again, an outstanding year-to-date and momentum continues to build. And with that, operator, we are now ready to take the questions.

Operator

[Operator Instructions] And we'll take our first question from Jeff Sprague with Vertical Research.

Preguntas y respuestas

Jeffrey Sprague

On TSI, Alex, obviously, very, very encouraging. Is the endpoint now much higher on this than you thought also, obviously, you're ahead of schedule on what you wanted to do. But as the upside were even bigger than you thought maybe you could kind of frame that relative to how you initially bridged the deal shortly after you closed it.

Jason Feldman

Yes. Thank you, Jeff. So yes, the upside is higher. I think we have that 5-year mark, where we're going to go from $60 million EBITDA to $150 million in 5 years. Now we think that's going to be quicker than that. And then when we look at the 5-year mark, the growth is going to be higher and the margins are going to be higher as well. So outside to that 5-year reference point for sure.

Jeffrey Sprague

And then one of the other sort of interesting things here, and I don't know if it's how you plan to approach all deals. But a lot of companies that are doing deals, right, seem to be allergic to trying to fix stuff.

They just want to pay for growth. Not saying that everything you'll be looking to buy is a fixer upward. But both PSI and Trillium, right? They seem to win good assets, maybe not run the way they should be an opportunity to kind of run it through your business system. As you look at the M&A pipeline, is there a lot of that sort of asset opportunity out there? .

Alejandro Alcala

Yes, Jeff. So every -- yes, that's a good observation. I think we do look at deals from the lens of CBS. So we obviously would see more opportunity than the seller.

But you feel is different. There's other deals. You may remember, Optech, which we also did earlier this year, a smaller deal we don't talk a lot about, but that was a high-growth business, very well run, and we're just adding contributing to it.

So I think we're open to a combination of circumstances, certainly not opposed to turnarounds or improvements like what we've been doing. It's all about where we see shareholder value creation and a combination of a path to improving the portfolio when we're hitting that 3-, 5-year mark.

Operator

We'll take our next question from Matt Summerville with D.A. Davidson.

Matt Summerville

I was wondering if you could maybe comment, you've sold the business up in Canada. You're in the process of selling the U.K. business -- are there more consequential portfolio actions still to be had specific to PFT?

And I'm also curious, sort of tangential to that, given that I would assume that transaction in isolation is going to be dilutive. Maybe comment on that and maybe how much Trillium can backfill relative to that dilution .

Alejandro Alcala

Yes. Thanks, Matt. So there is no more substantial divestitures that we're looking at right now. We evaluate the portfolio every year and our thinking could change.

But if you recall, like you mentioned, we divested that Crane Supply in Canada exposure to nonresidential construction. This business in BSU primary exposure is also nonresidential.

So this completes our exit of that market, a very well run business operated by a great team, but not really aligned to the markets that we're trying to expand into. As far as the accretion dilution, I'll let Rich answer that.

Richard Maue

Yes. Matt, yes, I think the way to think about the BSU business, right, we did -- this is a business that does roughly $160 million will be the outlook this year in revenue, and they're essentially at fleet margin.

So when you look at that and compare to Trillium, Trillium is $115 million in revenue with below fleet margin. So there will be some dilution to your point, obviously, the timing and the amount -- the timing of the close and the amount will coincide, right?

So we're currently thinking that, that will close sometime near the end of the first quarter. So if you tried to create a model around that, it's not a full year impact, but we would expect to offset a good portion of that with Trillium in the year. If that helps.

Matt Summerville

Perfect. And then maybe if you could just provide a little bit more end market and geographic color specific to in the context of that 20% year-on-year improvement you saw in organic order activity.

Alejandro Alcala

Yes, Matt. So it's looking quite positive from our perspective for PFT. I think a number of end markets that are seeing the growth, which is a positive from our perspective, makes us confidence on sustainability. .

We -- where we've seen the tailwind, those markets where we've been focused on over the last few years and increasing our exposure cryogenics, which is driven by space launch, water, wastewater, primarily U.S.-based business, where it's been resilient pharma, which our backlog is growing, and we expect increased investment in particular in the U.S. power as well.

So all these markets and of note, Chemical continues to be flat, where in the past, we've depended on chemical recovery to boost our growth -- that's not the case anymore in PST. So that chemical recovery is all upside still. We expect to drive growth without depending on that, and that will be additive to it.

I think regionally, U.S. continues to be the best market overall. Europe pretty flat. I think Middle East has recovered from the first half and continues to be solid, and then we have much less exposure in the rest of the world.

Operator

We'll take our next question from Nathan Jones with Stifel.

Nathan Jones

Maybe a follow up maybe a follow-up around the chemical market there. I would imagine it's probably the tale of a couple of different regions with capacity still coming out of Europe and maybe capacity improvements in the U.S. .

Maybe you could talk about chemical in a little bit more detail from a regional perspective and your outlook for a recovery there is -- I mean, if Europe just gets to being kind of a flat chemical market or something like that and stops going down, can the U.S. add growth to that, just how you view the shape of a recovery there?

Jason Feldman

Yes, Nathan. So Yes. I think you stated in Europe, we expect to continue to be flat even going to next year. I think the 2 markets that are the most interesting for us is the U.S. and Middle East. I think the U.S., as I mentioned in the last call, is held up pretty well.

As you know, when oil prices are high, there's a feedstock advantage on natural gas. So even when there's capacity globally, it makes sense for chemical companies to invest in the U.S. So we see some sporadic project activity.

Middle East also recovering. I think a full recovery that you'll notice in the P&L will come -- it's usually driven by construction, residential construction, durable goods, which I'm not expecting, not counting on at least in the first half of '27, we'll see after that.

But again, very pleased with the transformation of the portfolio that we're much less dependent on that recovery to drive growth.

Richard Maue

Maybe just to add, if you recall, our chemical exposure is mainly in the U.S., right? So maybe 70% of our chemical exposure is U.S.-based.

Nathan Jones

I'm going to try and pin you down a little bit more on PSI. The 5-year target was $150 million said you're going to get that quicker than that now. Do you have a new target for the 5-year number that's over that $150 million?

Alejandro Alcala

Yes. I mean I think -- it will grow in the 4% to 6% range and be leveraging that 35%, 40% after the 3-year mark.

Operator

We'll take our next question from Myles Walton with Wolfe Research.

Myles Walton

I'm curious if -- if I can on something off here, as were the acquisitions of PFT about 100 basis points dilutive to the reported margins, just backing into it based on -- you talked about up 500 basis points this year for the acquisitions. And then if that's the case, the 300 basis points of core margin expansion on 6% core growth, could you just maybe help us understand how you got that kind of operating leverage in the core business.

Richard Maue

Yes. I mean, in the quarter, look, it was -- I think you you're correct. Our performance from a margin point of view was exceptional. The leverage on the core business. And if I just -- I'll give both in the aerospace Advanced Technologies sector.

We were just above the high end of our 35% to 40%. So I think low 40s in terms of operating leverage there. And it's a combination of everything, right?

We just continue to execute really well from a price cost point of view, a productivity point of view and so forth, even in the face of any changes in mix. So like I said, the durability and resiliency of our Aerospace & Advanced Technologies part of the portfolio.

We're going to see that kind of performance irrespective of the composition of revenues. On the PFT side, we're already accretive in that zone today with the deals as we're exiting the year. Our core leverage in the quarter was just -- I think it was just north of 40%, something like that. So fairly solid.

Alejandro Alcala

Myles, just to add to that. We've continued to invest in PFT through the cycle. So there's no incremental cost increase that we'll see. So our leverage is pretty strong.

As we continue to mix more into these higher growth market. That's also where we are more profitable. So we see this bit of a flywheel effect where the growth is in our higher-margin businesses.

So the incremental leverage will be very solid in PST as we continue to drive growth.

Myles Walton

Got it. And just a clarification, if I could. The margin is up 500 basis points. That's for the full year. So you're saying you're already above that level here in the third and fourth quarter. Is that right? In terms of the PSI acquisition.

Richard Maue

Yes. In the second half of the -- yes, in the second half, just mathematically, I think we have to be there. .

Myles Walton

Yes, great. And then -- so then this PFT performance from a margin perspective, we should think about this as being reasonably sustainable at these levels?

Richard Maue

Yes. Yes. Again, it gets back to our core leverage rate in that 35% to 40% range through cycles. And we expect Q4 to be very, very similar. .

Operator

We'll take our next question from Dan DiCicco with BMO Capital Markets.

Daniel DiCicco

You mentioned PFT wins throughout the quarter. I think power, cryogenics wastewater. Could you provide some color on what you're seeing there?

Alejandro Alcala

Yes. If you think about those markets, Dan, cryogenic, the 2 main markets are space launch, on the rocket itself but on the launch pads and those build-outs continue.

So we're seeing good traction there. And then the second biggest market is just general aerospace in the factories with environmental testing to aerospace ramp-up continues. We see that demands and the teams are doing an exceptional job.

When you think about power again, our power business is mainly U.S.-based and the expansion on natural gas combined cycle turbines. That's where we see the momentum. And pharma -- similar in the U.S., the reshoring activity of funnels are increasing. So capacity expansion in the U.S., those type of project wins. Those are some highlights then. Always we expect to continue those markets to continue to '27.

Operator

And we'll take our next question from Ronald Epstein with Bank of America.

Unknown Analyst

This is Andrew Steiner on for Ron. I just wanted to ask a quick one on the missile demand and the broader domestic munitions ramp with several primes securing ops over the past few months.

Can you talk about how the process towards getting under contract for these programs has looked from your end so far?

Alejandro Alcala

Yes, I'll comment, and then I'll let Rich comment just we said, we're in about 15 missile programs. I think our jump-off point this year is around $35 million, mostly or different type of product power products and microwave products. And we expect next year to grow 40%, 50%.

A lot of that demand is already in the backlog. And then the projections for -- after that, 4 to 6x growth of the 35 base. And I think is where these contracts come into play, securing a bit more growth next year, but also securing that continued expansion growth through the rest of the decade. Do you have anything?

Richard Maue

I would just -- I would echo that, but just say that the demand signals that we're getting just continue to increase. We continue to see a lot of activity, a lot of RFQ work and so forth to the point that you made, we're seeing a lot of that. It's not slowed. It's increased.

Unknown Analyst

Can you just comment on what the process with these UPS actually looks like from the view of a subcontractor?

Alejandro Alcala

You broke up a little bit. Can you repeat?

Unknown Analyst

Yes. I was just looking to see if you guys could provide some color on what the UCA contracting process has looked like a view of a contract?

Alejandro Alcala

Yes, I think you asked -- I don't know if everybody heard, but we're seeing to break up how the contract processing looks for that missile demand. So we get RFP requests for tranches of multiyear opportunities for the different programs.

And we provide those updated quotes. And then we align with the customer to cure and then get a contract in a purchase order. So it's all happening at different times and different programs for different tranches for different periods of year that's on an ongoing basis. Hope that helps.

Operator

[Operator Instructions] I'd like to now announce Justin Ages with CJS Securities.

Justin Ages

Given the ongoing repositioning that you guys have done in PFT, can you give us an update on what the relative contribution of each of the end markets is you used to say like nuclear, 5%. Anything like that so we can see what the current contributions are?

Alejandro Alcala

Yes. I'll give you a quick snapshot. So I think starting with chemical, right? In the past, it's been like 30%. Now we have it close to 20% in chemical, water wastewater is around 15%; general industrial, up 20%.

And then our Power business, combined with -- when I say power, it's gas and nuclear -- it's like 15% with [indiscernible] I think those are the main ones of them.

Justin Ages

Great. And then given lingering conflict in the Middle East. Can you just remind us what your current exposure there is?

Alejandro Alcala

So exposure is mainly in PST and it's less than 5% overall. So what we -- we don't see really any material impact this year going forward. We saw some delays in shipments earlier in the year that's somewhat normalized. There's plenty of activity -- so not really a headwind that we expect.

Richard Maue

I'd say maybe tangentially, it's just the freight costs being higher and things like that, that we've been able to more than offset.

Operator

Thank you. This concludes the question-and-answer portion of today's call. I would like to now turn the call back to Alex Alcala for closing remarks.

Alejandro Alcala

Thank you for your questions and continued interest in Crane. We have significant momentum across the company, a record backlog and substantial opportunities ahead.

Most importantly, we have a proven team, a proven system. We remain highly confident in creating future and our ability to create long-term shareholder value. Thank you, and have a great day.

Operator

Thank you. This concludes today's Crane Company Third Quarter 2026 Earnings Conference Call. Please disconnect your lines at this time, and have a wonderful day.