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Crane Co (NYSE:CR) Third Quarter 2021 Earnings Conference Call, October 26, 2021, 10:00 AM Eastern Time
Hi. Welcome to Crane Co.'s third quarter 2021 earnings conference call. [Operator Instructions] I will now transfer the meeting to Jason Feldman, Vice President of Investor Relations. Thank you, you can start.
Jason D. Feldman - Vice President of Investor Relations
Thank you operator and hello everyone. Welcome to our third quarter 2021 earnings conference call. I am Jason Feldman, Vice President of Investor Relations. On this morning's conference call, we have our President and CEO Max Mitchell and our Senior Vice President and Chief Financial Officer Rich Maue. We will start the call with some prepared comments, after which we will answer questions. Just as a reminder, our comments on this conference call may include some forward-looking statements. We recommend that you refer to the warning statements at the bottom of the earnings release and our annual report 10-K and subsequent forward-looking-related documents. . In addition, during the conference call, we will use some non-GAAP numbers that are consistent with the comparable GAAP numbers and tables at the end of our press release and the accompanying slide presentation, both of which are available on our website www.craneco Find the investor relations section on .com. Now let me transfer the call to Max.
Max H. Mitchell - President and Chief Executive Officer
Thank you, Jason, and good morning everyone. Thank you for participating in today's conference call. In another special quarter, stable performance was achieved across the board. Even in this environment where constant inflationary pressures, random supply and logistics issues, and various COVID recovery conditions around the world persist. At the end of the third quarter, our adjusted earnings per share from continuing operations was $1.89, an increase of 103% over the same period last year, and the adjusted operating profit margin was 16.8%. We achieved an adjusted core sales growth of 19%. A number of strong leading indicators are reflected in a 31% increase in core orders and a 13% increase in core backlogs compared to last year. Based on this performance, we raised our adjusted earnings per share from continuing operations guidance by US$0.35 to US$6.35 to US$6.45. This is actually the fifth time we raised our guidance this year. Please keep in mind that our original guidance for 2021 was US$4.90 to US$5.10, which included a US$0.44 revenue contribution from engineered materials. This means that since January, we have effectively increased our guidance by more than $1.80 on a comparable basis. Compared with a similar basis in 2020 that does not include engineering materials in the two periods, our current guidance midpoint is US$6.40, and 2020 earnings per share are approximately US$3.52, which reflects a year-on-year increase in earnings per share of more than 80% . Measured by any standard, it is absolutely top-notch performance. Although uncertainty will continue to be related to COVID discrepancies, sporadic supply chain constraints, inflation, and overall global resource challenges, we have full confidence in the revised guidance, which is based on our team’s outstanding performance in driving customer satisfaction, and Actively and effectively manage inflation and the supply chain. For context, our price cost in the third quarter was roughly neutral.
Let me look at our performance in another way. The midpoint of the updated guidance is US$6.40, which is much higher than our 2019 peak adjusted earnings per share before COVID of US$6.02, but there are some significant differences between this year and 2019. Similarly, the $6.02 in 2019 includes the revenue contribution from engineered materials, which is now classified as a discontinued business and excluded from our 21-year guidelines. Secondly, in addition to Crane Currency and our defense business, many of our end markets are still in the early stages of recovery and are still far below the peak levels before COVID. Considering 2022 and beyond, it is worth noting that the commercial aspect of our aerospace electronics business in 2021 will still be lower than the level of 2019 this year, with sales of approximately US$150 million, operating profit of approximately US$80 million, and recovery To the level before COVID, the level of this business alone will increase earnings per share by approximately $1. At Payment & Merchandising Technologies, Crane Payment Innovations will be $200 million lower than the level before COVID in 2021, and more than half of this will be used in our high-margin payment solutions business. Given global human resources and constraints, labor shortages, and wage inflation, the business continues to benefit from very favorable long-term macro drivers that are accelerating, helping our customers increase productivity and safety through automated payment and transaction processes. In terms of process technology, we saw a turning point in the core core growth of business processes in the second quarter, and the demand for our strongest end markets (including chemicals) was sustainable and improving.
So let me reiterate the information we have been communicating. We are innovating and developing new products and solutions to provide value to our customers. We are implementing numerous growth plans across our business, and we operate with a consistent rhythm and discipline in the crane business system to drive growth, productivity and cost savings. We have demonstrated the ability to balance these goals very well, achieving profit margins and free cash flow while maintaining 100% investment in strategic growth plans throughout the pandemic. We are and will continue to drive market growth. Combined with our consistent execution of the market recovery, we are very excited about our growth prospects, strong revenue growth and solid operating leverage, which has driven a substantial increase in free cash flow, which has achieved incredible expectations. At the Investor Day event in February, I discussed how Crane is at a turning point in accelerating growth after years of organic investment and consistent and outstanding execution. In the first quarter, you saw a lot of evidence of this change and related topics from the Investor Day reading. In our aerospace and electronics investor event in May, we showed you many examples of how we continue to effectively drive market growth and our expectations for a compound average sales growth rate of 7% to 9% over the next ten years . Also in May, we announced the sale of engineering materials as part of our strategic portfolio management process to improve our overall growth, while continuing our journey of simplification, today you can see more evidence of our core sales growth And in our orders and backlog. Consistently execute our investor argument that as our end market continues to recover, we are ready to accelerate organic growth. Due to our continuous investment in technology, new product development and business excellence, our end market is surpassing our end market. Robust execution continues to translate this growth into revenue and strong free cash generation, which creates great flexibility for capital deployment. It continues to prove that we create value through the acquisition of Crane Currency, Cummins Allison, and the outstanding performance of instrumentation and sampling. At the turning point, as our growth plan gets more traction, we have a clear momentum. We will continue to create substantial and sustainable value for all stakeholders.
Despite our impressive track record, we believe that the value of our stock and our mid- to long-term prospects are not recognized. This is one of the key factors behind our newly announced US$300 million share repurchase authorization. You should think of this as the cash that returns to shareholders after sustained outstanding operating performance and strong free cash generation, and signs that management and the board believe that we have many growth tracks. At this point, I will hand it over to Rich for some additional financial comment.
Richard A. Maue - Senior Vice President and Chief Financial Officer
Thank you, Max. good morning everyone. My job today is very easy, because I think our results speak for themselves. Even in these challenging times, we continue to execute. I would also like to thank our global leadership team and employees for their continued commitment to promoting sustainable value creation for all our stakeholders.
Turning to the breakdown of comments, I will compare 2021 and the third quarter of 2020 on an ongoing basis, excluding the special items outlined in our press releases and slide presentations. Aerospace & Electronics' sales were 169 million U.S. dollars, an increase of 7% compared to last year. Segment profit margin increased by 370 basis points to 19.3%. In this quarter, the total sales of the after-sales market continued to grow, following a 3% increase in the previous quarter, a year-on-year increase of 24%. The strong driving force comes from the commercial after-sales market, where sales of spare parts, maintenance, modernization and upgrades have all increased substantially. In the military, spare parts and maintenance have been improved within 10%, but sales of military modernization and upgrades are low. Following a 4% increase in the previous quarter, commercial OE sales increased 31% this quarter. As expected, defense OE sales declined in their teens.
Year-to-date, defense OE sales have fallen by 6% after three years of double-digit growth. Given our strong position in major projects-the projects we have won will gradually increase in the next few years, we still believe that we have the ability to develop our national defense at a high single-digit compound annual growth rate from 2021 to 2030 business. The fourth quarter of last year marked a trough in sales and profit margins of aerospace and electronic products. Although delta variants have had some short-term effects on demand, the overall momentum of the industry continues. Specifically, we expect that the recent relaxation of international air travel rules and the increase in global vaccination rates will drive the level of air travel in the coming months and quarters.
Looking ahead to the next quarter, we expect sales in the segment to be similar to the third quarter, with lower profit margins. The quarter-on-quarter decline in profit margins in the fourth quarter was mainly related to the delivery time and combination and the very high commercial aftermarket sales in the third quarter relative to the fourth quarter. Based on the aerospace and electronics company’s full-year basis, we should end the year with a slight decline in sales compared to last year, and a profit margin of more than 7.16%, which is much higher than our initial guidance for this year. As we enter 2022, we expect sales will continue to improve as the air travel recovery progresses and the expected time to return to pre-COVID levels continues to advance. Remember, our confidence in the prospects of this business is more than just a market recovery. As a result of continuous investment in technology over the years, we have seen continued acceleration of growth. For example, in the third quarter, we were selected to participate in a $60 million project with our advanced high-precision, high-performance, and pressure sensing technology. Adjacent multi-platform turbofan engine application. In this special situation, we replaced an existing supplier that had been in business for many years. Another example of winning is the advantage of our technology and capabilities, as we described at May Aerospace and Electronic Investor Day, which, by the way, can still be streamed on our website today. This is a new target application of our long history of sensing technology. It is a huge victory for our team, and this is just the beginning. Our investment will continue to lead us beyond historical core markets, expand our target markets and align our business with accelerating long-term trends. For example, last month, we won a low-Earth orbit satellite constellation contract worth 20 million US dollars, using our multi-hybrid microwave technology version, which is expected to produce most of the production and sales in 2023. We are also very excited about our positioning in related investments. The long-term trend of the industry, especially electrification. This gives us confidence to share our sales compound annual growth target of 7% to 9% at the Investor Day event in May last year. We continue to make significant progress in propulsion technology, which will become a key enabler for a more electric world of more electric and hybrid military ground vehicles, electric propulsion aircraft, electric urban aerial vehicles, and advanced radar and guidance systems. All these applications require a higher level of electrification and greater demand for power conversion, sensing and thermal management system integration, all of which are the core technical capabilities of our business. We will continue to work closely with almost all major players in this emerging field, and have been selected by many prototype demonstration programs. We see that these awards reflect the actual returns of our investments.
Process Flow Technologies, with sales of US$299 million, an increase of 19%, was mainly driven by a 16% increase in core sales and a 3% favorable foreign exchange gain. Process Flow Technologies' operating profit increased by 60% to $46 million. Operating profit margin increased by 410 basis points to 15.5%, mainly reflecting higher sales volume, favorable price-cost dynamics, and strong execution and productivity. Subsequently, foreign exchange neutral orders increased by 3%, and foreign exchange neutral orders decreased by 5%. Compared with the previous year, the backlog of foreign exchange neutral orders increased by 14%, and the core foreign exchange neutral orders increased by 20%. In the first quarter, our shorter-cycle commercial business had the strongest order growth. Then in March, our core process business orders showed a positive year-on-year growth, and this trend has continued for the past six months. We continue to see clear evidence of improved terminal demand, and in some cases, pent-up demand is being released. By the third quarter, the order growth of our commercial business was still slightly strong, but the process order was not far behind, and the growth rate was in the teens. As orders in these core process markets translate into sales later in 2022, we continue to expect strong operating leverage.
The activity trend of the process market is similar to the previous quarter. Broadly speaking, we see signs that new capital projects are under preparation, and we expect more projects to be converted into orders in 2022. Vertically, driven by continued consumer demand, the chemical industry is still strong, and the general industrial market has also improved further along with the further improvement of the industrial market. Activities and production. For the pharmaceutical industry, given the high level of focus on vaccine production in the past 18 months, we have seen many projects that started after being shelved. Many of these restarted projects are related to diabetes treatment, oncology drugs and biological agents. The refinery and power market remain fairly stable. From a geographic perspective, North America has the strongest orders so far this year. MRO orders have stabilized at approximately pre-COVID levels. Compared with last year, project-related orders have increased significantly. According to our project funnel, we expect to see a further rise next year. In Europe, MRO activity slowed in the third quarter, consistent with normal seasonality and summer shutdowns. After seasonal adjustments, MRO activities are close to the normal levels before COVID, and project activities have gradually improved in the past few months, with project orders higher than 2019 levels. In China, we have seen delays in some new projects related to the government's new energy assessment and approval requirements. There is no cancellation, but in view of these new requirements, the progress of the project has slowed down.
While the market continues to improve, we are also very excited about the progress made in our growth plans in process technology. In February, we discussed the breakthrough innovation of our three-offset valve series FK-TrieX. This product was just launched a few months ago, but we have seen a tremendous momentum for chemical and petrochemical customers to quickly realize the value provided by this new valve design. Two-way closure, excellent fugitive emission control, high flow, self-cleaning design and lighter weight. We installed our first valve in a polymer application in a chemical plant in the United States in the third quarter. Usually, it takes several years for a new valve design to be approved by customers after it is launched, but we believe that our sales next year are expected to reach 5 million U.S. dollars and grow to 30 million U.S. dollars within five years. Also in terms of process, the hard seat metal seat ball valve that we launched earlier this year focuses on mud and high-circulation applications. Its excellent design extends the service life of the valve by 50%. We are expected to achieve sales of approximately US$3 million this year, which should double by 2022. Our municipal pump business has also made exciting developments. The chopper pump that we launched in 2018 reduced clogging and cutting-reducing maintenance costs by 75%. This value proposition has driven 30% growth this year, Every month, we add about 10 new customers to our existing base in about 250 cities. In summary, these growth initiatives and many other initiatives in this segment are driving above-market growth. For Process Flow Technologies as a whole, our full-year outlook continues to improve, with a full-year profit margin of around 14%, a full-year core sales growth rate of low double-digits, a foreign exchange gain of 4%, and acquisition contribution of US$5 million We saw it in the first quarter. For the fourth quarter, given the typical and expected seasonality and related combinations, this means that sales and profit margins will experience a slight quarter-on-quarter decline.
At Payment & Merchandising Technologies, sales for the quarter were $366 million, an increase of 31% year-on-year, mainly due to a 29% increase in core sales and 2% favorable foreign exchange gains. The sales of Crane Currency and Crane Payment Innovations have both increased significantly, although the sales of Payment Innovation are still far below the pre-COVID operating rate. Segment operating profit increased by 87% to US$83 million. Operating profit margin increased by 680 basis points to 2.26%. The Crane Currency and Crane Payment Innovations once again maintained an impressive performance, and are now recovering and making meaningful contributions. For Crane Payment Innovations, similar to the trend of the last quarter and the entire business, we see that the results of the growth plan are accelerating. Starting in retail, our solutions provide productivity through automation, safety and hygiene, and this value proposition is now more resonant than ever. In general, retailers in the service industry are struggling to cope with labor supply and inflationary wage pressures, and they are investing in productivity. Our solutions provide instant value and have a proven high return on investment, and these returns are more attractive in the current environment. We continue to see the broad strength of the entire field, including traditional self-checkout systems from large OEMs, and we also see the momentum of some retailers working directly with us to develop solutions based on customized self-checkout and self-service terminals. For customized self-checkout solutions, our current channel of opportunity is approximately US$185 million, twice the amount at the end of 2020. Our semi-participatory system solutions such as Paypod and Pay Tower are also favored by more and more retailers, including historically inactive categories, such as convenience stores. Judging from this higher demand, our Paypod opportunity funnel today is approximately US$13 million, which is more than four times that of the end of 2019 and more than twice that of the end of last year. In terms of gaming, the casino markets in North America and Australia have almost returned to their pre-COVID activity levels. We are now seeing casinos in Europe and Latin America begin to recover, about 9 to 12 months behind North America. This is good news for 2022. Given our strong technical strength, we will continue to gain share in this market because customers realize the benefits of our simple rail connection solution. Our traditional paper money and coin products combined with simple tracks, now combined with the back-office and service products acquired by Cummins Allison, provide us with the most comprehensive cash management solution in the gaming world. This combination of products and services also helps our customers to significantly increase efficiency and increase revenue by strengthening the communication and coordination between the back office and the front office environment. As CIT, casinos, and retailers continue to invest in advanced and larger back-office coin and banknote counting and sorting devices, the Cummins Allison business also benefits from customer labor shortages. Cummins Allison has products with differentiated technologies and services that most of our competitors in North America do not have. At Crane Currency, we continue to see the strength of the domestic and international markets, and we continue to gain share through our technology and banknote products. In the United States, we expect that the level of demand for currency will continue to rise in the next few years, and we will continue to work hard to ensure our position in the new series of banknotes launched in the next few years.
In our international business, our ever-expanding micro-optical security product portfolio has helped us double the guarantee rate for new denominations compared to previous years. So far this year, we have won 15 products from many countries in the Caribbean, Northern and Eastern Europe. New denominations, Asia, Africa and the Middle East. When our technology is designated in a new denomination, it usually earns recurring income from more than a decade of reprints. We are winning because the central bank realizes that our technology is safer and more difficult to counterfeit, and because it is fully customizable and can be integrated into innovative and stunning banknote designs, such as the new Bahamas 100 dollar banknote. With our latest products, we have also successfully demonstrated that our technology can be used on any substrate, including polymers, thus expanding our target market.
We are also very excited about our progress in product certification and brand protection business. We believe that our micro-optics technology is the best solution for high-end authentication applications, far superior to foils and holograms that are commonly used to prevent counterfeiting of consumer products. We recently signed a long-term agreement with Octane5, one of the leaders in the high-growth brand license management software and security solutions market. Today, Octane5 provides product safety and licensing solutions for some of the most iconic and valuable brands in the world. Through our cooperation, we have won some blue-chip customers of world-renowned consumer brands. We hope to share more with you next. year. This is a very exciting potential opportunity, opening up a new $800 million potential market for us.
As we explained throughout the year, taking into account time and mix, we do expect payment and sales technology profit margins to slow further in the fourth quarter. We now expect full-year profit margins to be in the 22% range, reaching or above the high end of our long-term target range of 18% to 22%. It is now expected that the core sales growth for the whole year will reach 3%, which is favorable for foreign exchange earnings. In a difficult comparison, sales in the fourth quarter should still grow in the mid-single-digit range year-on-year, but given the currency delivery time we have been discussing and explaining in the past few quarters, sales will experience a significant month-on-month decline. No surprises here, totally expected. Given the continuous decline in sales, profit margins may fall back to the teenage range in the fourth quarter, and then rebound again to their 20s next year.
Now turn to more detailed information about our company's overall performance and guidance. Year-to-date, our cash flow performance has been extremely strong, with free cash flow of US$286 million compared to US$177 million last year. As a reminder, on May 24, we announced that we had signed an agreement to sell our engineering materials department for USD 360 million. The process is ongoing and we will continue to work hard to obtain regulatory approvals. When the transaction is completed, we expect the after-tax income to be approximately US$320 million. Our balance sheet is in very good condition. We currently have no remaining short-term or prepaid debt. At the end of the third quarter, we had approximately $450 million in cash on hand. By the end of this year, we expect that the adjusted total leverage will be close to the lower limit of our current credit rating range of 2 to 3 times, and we estimate that we will have approximately US$1 billion in additional capacity by the end of the year.
Although we continue to actively seek the acquisition of process technology in the aerospace and electronics fields-as you all know, today's valuation is quite high, we will maintain financial and strategic discipline. In the long run, we still believe that we will be able to increase the maximum value through acquisitions. However, we will also maintain discipline on the efficiency of the balance sheet. As I mentioned last quarter, we will consider returning excess cash to shareholders instead of maintaining an inefficient balance sheet when our acquisition capabilities exceed the size of our possible M&A channels. As Max mentioned, we announced that the board of directors authorized a $300 million share repurchase program. We believe that the plan appropriately balances the two objectives to maintain balance sheet efficiency, while maintaining sufficient financial flexibility for the amount of M&A activity we believe is feasible, while also providing attractive cash returns to shareholders. Given that we are very confident in the mid- to long-term prospects, coupled with our current stocks-the current discount to trading peers and fully coordinated acquisition multiples, we believe that stock repurchases are beneficial at this time. We will continue to evaluate all capital deployment and strategic investment portfolio options, and drive shareholder returns with strict financial discipline and a focus on long-term sustainable value creation.
Turning to guidance, as Max explained, we increased our adjusted EPS guidance by $0.35 to $6.35 to $6.45 to reflect continued outstanding execution and stronger end markets. There are four main moving parts in the higher and narrower guide range. First, we now expect the tax rate to be approximately 17.5%, compared to our previous guidance of 20.5%. Compared with the previous guidance, the lower tax rate is approximately 23%—earnings per share of $0.23. The lower tax rate mainly reflects discrete items related to the expiration of audit statutes in certain jurisdictions. We continue to expect the tax rate on a normalized basis to be approximately 21%. Second, we now expect company costs to be approximately US$90 million, US$10 million, or US$0.13 per share higher than our previous guidance. Higher corporate costs reflect many factors, including fees related to the foreign pension plans we are restructuring and higher levels of professional service costs, especially legal costs related to M&A due diligence and other matters. Third, compared with the previous guidance, the core operating improvement reflected in the guidance is approximately US$0.25 per share. This improvement reflects the current forecast of strong leverage for sales growth of US$50 million. The core sales guidance for the whole year has been raised by 300 basis points, ranging from 10% to 12%, partly reduced by 100 basis points to approximately 2.5% by foreign exchange conversion. Offset by the gains. Fourth, in addition to raising the midpoint of the guidance range, we also narrowed the range from US$0.20 per share to US$0.10 per share, reflecting how close we are to the end of the year, and continuing supply constraints may limit further gains this year.
Our revised guidance continues to reflect the same earnings growth cadence that we have discussed since the beginning of the year. Specifically, given the order and delivery time, especially in terms of currency, and the fourth quarter follows the usual seasonal pattern-the weakest seasonal quarter for most of our businesses, we continue to expect a decline in earnings per share in the next quarter . In general, after adjusting the changes in assumptions related to company expenses and our tax rate, our expectations for the fourth quarter have hardly changed, but given the extremely strong operating performance and strong demand, the third quarter is definitely better than ours expected. We also raised our free cash flow guidance to US$340 million to US$365 million, an increase of US$17.5 million from the previous midpoint guidance, reflecting higher earnings and lower capital expenditures, and the current forecast is US$60 million. The full details of our adjusted guidance are contained in our earnings press release and our earnings slide presentation. Overall, an outstanding year continues. The outstanding execution of all our teams has driven outstanding performance, increased profit margins and free cash flow. As the end market continues to recover, we are still facing continued tailwinds in 2022 and 2023. Feel excited.
Before we start the Q&A, let's briefly introduce our 2022 Investor Day. We usually hold the annual Investor Day event in the last week of February. Taking into account certain scheduling issues and our desire to maximize the possibility of us hosting the event in person, we will postpone this event in 2022. Our goal is the week of March 28, and as we plan to consolidate in the coming months, we will provide more details. Operator, we are now ready to answer the first question.
Thank you. [Operator Instructions] Our first question comes from Elizabeth Grenfell from Bank of America. please continue.
Elizabeth Grenfell-Bank of America-Analyst
Jason D. Feldman - Vice President of Investor Relations
Richard A. Maue - Senior Vice President and Chief Financial Officer
Elizabeth Grenfell-Bank of America-Analyst
Good morning. I just have a few questions. The first is, how do you view the minimum cash balance on the balance sheet to maintain flexibility in mergers and acquisitions, instead of assuming that you can obviously do more than $300 million in stock repurchases? The authorization you announced.
Richard A. Maue - Senior Vice President and Chief Financial Officer
Yes, I think this is more about general capacity and cash on the balance sheet. Therefore, based on our rating agency's view of capabilities, our goal is to account for debt to account for 2 to 3 times EBITDA. So this may be the first starting point for our consideration, because we will consider how much potential allocation to shareholders’ capital deployment.
Elizabeth Grenfell-Bank of America-Analyst
Okay, got it. Secondly, when we consider the profit margin of aerospace, is there any reason-I think you said it might be more than 17%, but it looks like it might be far more than 17%. In terms of our annual situation-the date and the pair What does the fourth quarter mean. Is that accurate?
Richard A. Maue - Senior Vice President and Chief Financial Officer
Yes, we do expect profit margins to slow in the fourth quarter. We have some very strong aftermarket shipments, in the third quarter compared to the fourth quarter, we originally expected to ship in the fourth quarter. Therefore, some of the profit margin performance in the third quarter is related to time, and we think this is at the cost of the fourth quarter. Therefore, the fourth quarter guidance that we provide you here is something that all of you should model. As Rich said to next year before, he said that we expect to reach 20% in the second half of next year. right. Therefore, we are committed to achieving good growth in 22 years.
Elizabeth Grenfell-Bank of America-Analyst
Okay, great. Then my next one is can you talk about any concerns you see about supply chains and inflation, any type of headwinds you might see or how you can mitigate these?
Max H. Mitchell - President and Chief Executive Officer
You know Elizabeth, let me take that. This is Max. We have been dealing with this problem all year, and even going back to the operating plan in November last year, we made some assumptions about the operating environment. Inflation will be with us for a long time. We will continue to learn more about COVID. On any given day, we will have X employees who may be quarantined. Sub-suppliers will also see the same situation. Labor supply remains a challenge, wage pressure, and logistics. I mean what we see on the port, it just continues. In my opinion, the way we operate in Crane is that we forecast at current operating rates and expect to continue to disrupt. This means that in any given month or quarter, things will happen, and you will be surprised. In some good aspects, you will get some new surprises that you should expect, but you can't pinpoint it accurately. This is the reality of the environment we live in today. It hasn't gotten better. It hasn't gotten worse. The machine is operating worldwide. It just has a higher degree of variability and a higher degree of destruction. So I think it’s interesting to see how other people continue to point this out, whether they specifically point out whether something is cited. This is the environment, we will enter, and we plan to do it in 22 years. I think what we do in this environment are the decisions we make every day, and these decisions are made by our excellent team of 11,000 employees worldwide to operate as efficiently as possible in this environment. This is first of all being very selective and conscious in how we provide services to our major customers. Protect our factories and our workers from over-stress and overburden, ensuring that we strike a balance between customer needs and our ability to execute and manage supply chain disruptions. And I think we are doing an extraordinary job, and all of this leads to an excellent performance in the income statement.
So I know this is a lengthy answer, and I believe others have the same problem. I think the general question is what specific component, what product, where do you see it, it is everywhere, nowhere to go. It is constantly changing, and this is our environment. We think we have the ability to continue to operate effectively in this environment and continue to develop in this environment, which is what I think we clearly demonstrate.
Richard A. Maue - Senior Vice President and Chief Financial Officer
I'm just-I'm just responding to Max's comments about the new reality, we saw it early-as early as Max pointed out in our planning season in November and the outlook we provide, as well as what we offer you today The latest outlook has accepted this new reality. Therefore, our forecast takes into account the environment in which we operate today.
Max H. Mitchell - President and Chief Executive Officer
Elizabeth Grenfell-Bank of America-Analyst
Yes, this helps. Then, if I can ask another one. How do you think about vaccine authorization and how will this affect the existence of your defense contract?
Max H. Mitchell - President and Chief Executive Officer
At present, we have not formulated vaccine regulations. We are evaluating rules and regulations, and we will definitely abide by the law. But we only have these now.
Elizabeth Grenfell-Bank of America-Analyst
Okay, great, thank you very much.
Max H. Mitchell - President and Chief Executive Officer
Richard A. Maue - Senior Vice President and Chief Financial Officer
Thank you. Our next question comes from Nathan Jones and Stifel. please continue.
Nathan Jones - Stifel - Analyst
Richard A. Maue - Senior Vice President and Chief Financial Officer
Nathan Jones - Stifel - Analyst
I will start working on several businesses that are still far below 2019. Max, I think you said that the speed of the INA business is 150 million US dollars, which is 80 million US dollars lower than the profit in 19 years. This will give you the same profit margin as in 2019, which is Payment Merchandising's $200 million, and I think most of it may be related to the average profit margin given the currency's good performance. Do you have any comments on when you can restore these to 2019 levels? I mean, if we think the current things are good for you, more travel, casino openings, more business openings, all these things. Coupled with labor shortages and other unfavorable factors, it may even help you to surpass that level, so when you think you can restore it to the level of 2019, you can provide us with any comments.
Richard A. Maue - Senior Vice President and Chief Financial Officer
In general, I would say that within two years, giving or accepting will be the quick answer, Nathan. Therefore, your view of A&E is correct because of the tailwinds there and how we should view our own improvement. I made a promise, as Jason mentioned, as the situation continues to recover and how we operate in this business, we should reach the 20% level by the end of next year, and by 2023, we don’t think they will become problem. I agree with your comment about payment.
Nathan Jones - Stifel - Analyst
OK. Then I want to ask what you said is a good opportunity for high-priced consumers using Crane Currency technology. This sounds like a very interesting opportunity. You mentioned an addressable market of $800 million. What market share do you think your technology can occupy in this business?
Max H. Mitchell - President and Chief Executive Officer
Well, just to clarify the technology itself. Therefore, no matter when you buy it, you can say that it is an excellent sports equipment. You know the holograms you see-you might see them on some labels-all of which are to prevent counterfeit goods from entering the country and make them easy to identify. Well, counterfeiters continue to become more sophisticated. High-end retailers and brand managers continue to care about physical products and counterfeiters, and continue to seek higher and more difficult-to-counterfeit solutions, just like the low light we provide. Therefore, we have proposed some-and thanks to our design team, some very attractive designs are used in conjunction with a wider range, such as the software solution traceability provided by Octane5. We are very excited about the opportunity to gain share. I want to say that I don’t have the exact number of shares right now, Nathan, but in the foreseeable future, as we continue to attack this market, I obviously have $50 million.
Nathan Jones - Stifel - Analyst
OK. My last one will use Crane Currency. I know you usually drop in the fourth quarter. I don't think the Fed has issued a bill for fiscal year 2022, even if we have already started. They haven't announced this fact, which is part of the reason you left here in the fourth quarter. I guess you should make up for this in the first three quarters of next year?
Richard A. Maue - Senior Vice President and Chief Financial Officer
Do not. No, I mean it won't-in that environment, such a demand profile won't change so quickly. So it is definitely not any part of the basic principle. This is the time we expected. Once again, we have been reiterating since the beginning of the year.
Max H. Mitchell - President and Chief Executive Officer
It just revolves more internationally.
Richard A. Maue - Senior Vice President and Chief Financial Officer
It's more about international than domestic.
Max H. Mitchell - President and Chief Executive Officer
So [technical problem] normal time. In the United States, you are right. The Fed has not issued an order. I think that as we discussed and described, we have a range of 7.6 to 9.6 this year, and it is very unusual that it is difficult to stay at the low end for various reasons. I think-we may see, as we predicted, this will help expand higher operating rates in the foreseeable future. We may expect to reach the low end of the interest rate range again this year. This is how we think.
Nathan Jones - Stifel - Analyst
Great, thank you for answering my question.
Max H. Mitchell - President and Chief Executive Officer
Our next question comes from Damian Callas of UBS. please continue.
Max H. Mitchell - President and Chief Executive Officer
Damian Karas-UBS-Analyst
Hey, good morning everyone. Congratulations this quarter.
Richard A. Maue - Senior Vice President and Chief Financial Officer
Damian Karas-UBS-Analyst
So just-you bet. So here is just a follow-up question about currency. As you have been discussing, you have already talked about the decline in profit margins in the fourth quarter due to the delivery time. I just want to think about the direction and profit margin trajectory, so should we consider the fourth quarter run rate for the business? I mean it’s clear that you got some positive combinations from the US earlier this year. Therefore, we should think that the fourth quarter is the operating rate of the profit margin, or more like the situation of the full-year performance.
Jason D. Feldman - Vice President of Investor Relations
Damian, this is Jason, and I will not use the fourth quarter as the starting point for 22 years of currency or any business. Each quarter will be different. Rich actually stated in his prepared comments that we expect the payment and merchandise sales department to return to the 1920s next year. right? Therefore, we will not provide more precise guidance than this at this time. It will be in the 1920s.
Damian Karas-UBS-Analyst
Okay, great, great. Do you have to reveal how much potential growth is in currency and payments this quarter?
Jason D. Feldman - Vice President of Investor Relations
No, we don't, but both are in the upper two digits.
Nathan Jones - Stifel - Analyst
Okay, great, thank you. Then there is the last question about the cost of the company, which is about 10 million US dollars higher. Rich, what is the reason?
Richard A. Maue - Senior Vice President and Chief Financial Officer
Yes. So we took it-in my prepared comment I mentioned that we do charge fees this quarter, or we expect to charge fees this quarter-charge fees related to closing foreign pension plans in the fourth quarter, so it is not -Cash expenses for the quarter. So this hit us. Then there are general professional fees. We spend on countless things mainly around mergers and acquisitions, due diligence and things of this nature. We expect to fall back next year.
Damian Karas-UBS-Analyst
Okay, great. It's really helpful. I will return to the queue. thank you all.
Jason D. Feldman - Vice President of Investor Relations
Our next question comes from Matt Somerville and DA Davidson. please continue.
Max H. Mitchell - President and Chief Executive Officer
Matt Somerville-DA Davidson-Analyst
thanks. Hi, good morning. The numbers you gave are really shocking-I want to focus on, one of which is CPI's [illegible]. I think Rich mentioned that in the retail vertical, some of the things you are doing are more on the basis of customization or partnership with retailers, followed by $185 million. I think I'm curious about the time frame after the conversion, whether it is still growing or showing signs of being kicked out. I just-I am very shocked by this number.
Richard A. Maue - Senior Vice President and Chief Financial Officer
Yes, I would say-I might think that this is about a two-year funnel, in terms of when the idea starts and when one of our clients will execute the procedure. I would say that two years is a typical timetable. As you might expect, we hope to win part of it. So I think this is the way to think about it, Matt.
Matt Somerville-DA Davidson-Analyst
Then with regard to pricing and how do you consider "22 Max", how much incremental price do you think you need to obtain, I wonder if you strategically consider how to implement these increases and how to carry out the post-planning process similar to the one you emphasized earlier?
Max H. Mitchell - President and Chief Executive Officer
Yes, I am going to start, I will see if Rich has anything to add. But in terms of pricing, all of our businesses are very, very different. No one size fits everyone. I would say, of course, because it is related to some more direct expenses, we have already-it is not included in the price. We have actually implemented a surcharge. Therefore, we expect that these surcharges will also disappear when certain logistics costs, etc., disappear. In other respects, we have been openly communicating with customers the reasons for the price increase. We think we are very, very effective in management. Honestly, Matt, I think we will respond as we need based on inflationary pressures. We will try our best to remain competitive. We need to be careful. If the market improves, if inflationary pressure subsides, we will prepare for some of these surcharges, and we will be able to adjust if necessary and continue to grow. So I think we have achieved an incredible balance. I think our team has done a great job. I want to say that this is a continuation of our way of operating from 2021 to 22.
Richard A. Maue - Senior Vice President and Chief Financial Officer
I will say the same thing-we don't think these challenges will subside in the short term. So we will continue the same discipline.
Matt Somerville-DA Davidson-Analyst
understood. thank you all.
Our Q&A session is over. I want to turn the meeting back to Max for closing comments.
Max H. Mitchell - President and Chief Executive Officer
excellent. thank you very much. Another excellent quarter continued to deliver on our commitment to turning point and momentum, further proving that the investment thesis we put forward in February last year is proceeding as expected. We are in the early stages of a strong market recovery. We have invested heavily in our organic growth plan, and as a result, we are reading through and maintaining sales growth above the market. We have more and more acquisition and process technology opportunities in the aerospace and electronics fields. Based on our core competitiveness, we continue to be confident in our ability to add value through acquisitions. However, we still maintain financial discipline. As shown in our repurchase announcement yesterday, we will return the excess cash when it is attractive and appropriate. We have an incredibly strong foundation based on a crane business system that promotes consistent execution and a culture of ethics and integrity. As the late great inventor of Veg-o-matic and creator of the TV shopping show Ron Popeil said, "Wait, there is more" is very suitable for us today, we are just beginning. I am very excited about our opportunity to drive sustained shareholder value in the next few quarters. Remember, crane inventory is limited and the store does not provide it, so act now. I look forward to speaking with you on the fourth quarter earnings call in January, and then hope to meet many of you at the Investor Day event in March 2022. Thank you for your interest in Crane, and have a nice day.
Jason D. Feldman - Vice President of Investor Relations
Max H. Mitchell - President and Chief Executive Officer
Richard A. Maue - Senior Vice President and Chief Financial Officer
Elizabeth Grenfell-Bank of America-Analyst
Nathan Jones - Stifel - Analyst
Damian Karas-UBS-Analyst
Matt Somerville-DA Davidson-Analyst
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