Okay. Now, I would like to introduce our next company and final. Crane, representing Crane here today, is Chief Operating Officer Alex Alcala, and then Head of Process Flow, Shangaza Dasent . Crane is based in Stamford, Connecticut, operates two segments: Aerospace & Electronics, and Process Flow Technologies. The company has 57 million shares and trades around $165 for a $10 billion market cap and $60 million of net cash. This morning or today, we'll start out with Alex. He'll give a brief presentation, and then we'll have some time for a follow-up Q&A after Shangaza. Alex.
Yep. Good afternoon. Thank you, Tony. Briefly, I would direct your attention to the forward-looking statement disclaimer and the related content in our Form 10-K and other SEC filings. This afternoon, I will provide you with a brief overview of our recent results and the exciting story ahead of us, and then Shangaza will discuss the Process Flow Technology business in more detail. As most of you know, after decades of delivering consistent and differentiated execution and building scale, we have more recently focused on evolving our portfolio towards higher growth, higher margin businesses. Today, Crane Company is streamlined and more focused than ever before. We have two primary businesses: Process Flow Technologies , our focus for today, and Aerospace & El ectronics. Both industry leaders manufacturing highly engineered technology, differentiated solutions for large and attractive markets, and with respected and trusted brands.
Across the board, we provide solutions for mission-critical, high-cost-of-failure applications supported by consistently high levels of investments in R&D and new product development. As you can see here, great financial metrics, strong margins, a balance of long and short cycle, and substantial aftermarket sales. We had an exceptional year in 2024: 15% sales growth with 8% core growth, driving 29% increase in adjusted operating profit, reflecting market outgrowth and very strong execution and operating leverage in a challenging environment, and the strength came from both platforms. Aerospace & El ectronics delivered an impressive 13% core growth with significant margin expansion to 23%. Process Flow Technologies delivered solid 5% core growth, with margins expanding 100 basis points to a record 20.9%. An impressive performance and showing the incredible potential of both businesses, with more to come.
Today, our portfolio is positioned to deliver 4%-6% growth across the cycle, higher at Aerospace & El ectronics , where we have direct visibility to a 7%-9% sales CAGR for at least the rest of the decade, and a solid 3%-5% long-term growth rate at Process Flow Technologies, where the business continues to structurally shift its exposure to higher growth markets. That growth, paired with our consistent execution, should deliver operating profit growth at about twice the rate of core sales growth. A critical part of our value creation story is the strength of the Crane Business System: differentiated and rigorous, with more than two decades of maturity driving a culture of continuous improvement into all aspects of our business, along with a history of cadence and disciplined execution that has resulted in consistently excellent operational execution, and increasingly a key driver of growth as well.
A real differentiator for us, and these capabilities are a large part of what gives us such great confidence in our long-term outlook. The other key value creation lever we have is our balance sheet. We are in a net cash position with more than $1 billion of acquisition capacity today, growing to $4 billion through 2028. Given the fragmentation in our end markets and our strong M&A track record, we are confident in our ability to add substantial value through capital deployment. Through strong organic growth and additional acquisitions, our goal is to double the size of our business over the next five years. That's our vision, with a focus on high-return acquisitions that create value for our shareholders, improve the strength of our strategic growth platform, and give us strategic optionality for the future.
We will pursue this vision with the same discipline that we always have: acquisitions that make us stronger, never bigger for the sake of size, and always focused on shareholder returns. A quick slide on our Aerospace & El ectronics business before moving to Process Flow Technologies . Aerospace & El ectronics is a true gem in our portfolio: proprietary technology, with the substantial majority of sales sole-sourced to our customers, a great position on virtually every commercial and military aircraft platform, and numerous recent wins that will drive above-market growth for more than a decade. We invest about 10% of sales in engineering, and that's reading through with the success of our new products and platform wins.
Our content on current platforms, along with recent wins in our position, our next-generation prototype and demonstrator programs, gives us confidence on the 7%-9% core sales growth CAGR for at least the next decade. Now to Process Flow Technologies , which is the largest part of Crane Company and our focus this morning. I'm going to turn it over to Shangaza Dasent, our Senior Vice President of Process Flow Technologies. Shangaza joined us back in September from Danaher. We're so excited about his strategic and operational capabilities that he brings to Crane to continue to drive our solid growth trajectory.
Thank you, Alex. Good afternoon, everyone. Our Process Flow Technologies business is focused on valves and related products for the chemical, petrochemical, pharmaceutical, water, and wastewater in general industrial markets. This is a $1.2 billion business with operating margins of about 21%, a large addressable market of $18 billion, with 50% of the sales from the aftermarket. We offer a wide range of isolation that is on-off types of valves, pumps, and related products, typically for the harshest and most hazardous environments and conditions, particularly for applications processing highly corrosive and erosive fluids and gases. Our largest market is chemical and pharmaceutical, with a strong presence in industrial, water, and wastewater. We also offer vacuum-jacketed pipes and valves for cryogenic applications in space, aerospace, and semiconductor applications.
This slide shows why we are so confident that our growth over the next decade and beyond will be substantially better than our historical growth rate. Over the seven-year period from 2017 to 2024, the challenged oil and gas and conventional power markets declined from about 17% of our sales to below 10%, declining at an 18% CAGR. Over the course of the last 10 years, the impact was even more pronounced, and this portion of our business declined by more than $200 million. Fortunately, today, our exposure to these markets is largely immaterial. What is not fully appreciated is that during that same period, we saw substantial above-market growth in our core target markets of chemical, water, and wastewater, pharmaceuticals, cryogenics, and industrial automation. These are the markets with good, strong underlying trends and the markets where our growth initiatives are focused.
These target markets have grown from about a third of our business five years ago to nearly two-thirds today, positioning us well for accelerating growth moving forward. Simply adjusting for today's mix and applying historical growth rates, we are confident in our ability to grow this business 3%-5% over the course of a cycle. But we should do better than that as we continue to make substantial progress with breakthrough innovation, new product introductions, rigorous channel management processes, commercial excellence initiatives, and strategic pricing. The structural shift in our business is not just driving higher growth, but it's also accretive to our overall margin position. Simply put, the higher growth portions of the business, as well as our newer products, along with our ongoing operating improvements, have driven substantially higher margins.
We like our core target markets: chemical, water, and wastewater, pharmaceuticals and industrial automation, as well as our nascent but high-growth cryogenics business for many reasons. Most notable are strong secular drivers and megatrends underpinning growth in these markets, from tightening regulations requiring higher water quality to the need for pharmaceuticals supporting longer life expectancies and the needs of an aging population, to new applications across space, aerospace, semiconductor, and pharma that are needing cryogenic solutions. These are not just areas with secular drivers, but markets with specialized and complex needs where our proprietary solutions are highly differentiated and well-suited to solving our customers' most difficult problems. Our differentiation is reflected in our margin profile in these markets I shared in the prior slide.
Just as our exposure to these higher growth end markets has grown, we're driving above-market growth by leveraging our long history and strong culture of innovation as well. The rate of innovation is accelerating, and it's having an increasingly positive impact on our business. As an example, on the process solutions portion of our business, the improvement in new product vitality or the percentage of sales from new products introduced within the last three years has been impressive, tripling over the last few years, and we have a clear line of sight to hitting 20% within a few more years, and this is in an industry that is typically risk-averse and typically resistant to change. These new products are coming in at higher margins, which is accretive to both of our overall growth and our margin profile.
In addition to product innovation, we continue to drive improvement throughout our enterprise, generating growth and margin expansion through commercial and operational excellence, driving enhanced commercial processes, reducing the lead times to help us win in the market space, driving productivity and cost improvements, driving how fast we can get our products out and reducing that time to market, developing repeatable processes for new product development and commercialization. All of this enabled by the rigorous cadence and disciplined execution for which Crane is well known. For the reasons I just described, we are confident in our growth prospects. Beyond this growth, we also have a strong track record delivering margin expansion. Segment margins have nearly doubled since 2017, as a direct result of the structural shift in the business, as well as productivity and pricing improvements. Looking forward, we continue to see a substantial margin opportunity with three key drivers.
First, we expect to generate approximately 35% operating leverage on higher sales from market growth, continued share gains, and our improving end market mix. Second, our newest products, which are growing rapidly, are generating well above-average margins. And third, we continue to drive productivity as well as improvements in commercial excellence. Overall, a great recipe for profitable growth. Wrapping up the overall story, it's an exciting investment thesis at Crane. We have a very global $2 billion business today competing in attractive end markets with proprietary and differentiated technology, and we are positioned to drive solid mid-single-digit core sales growth that, with operating leverage, should generate double-digit EPS growth before potential upside from capital deployment based on our strong balance sheet.
Two great businesses in attractive markets with differentiated products and capabilities, solid mid-single-digit core growth across the cycle with strong operating leverage driving double-digit core profit growth and substantial potential upside from capital deployment. And management has clearly demonstrated the commitment to shareholder value creation with numerous actions over the last year. Our incentives are aligned with yours as the largest element of management compensation is directly tied to three-year relative total shareholder return. Thanks again for your time and interest today, and we welcome your questions.
Thank you for that great overview, Alex and Shangaza. And Alex, obviously, congratulations on all that's going on at Crane. And Shangaza, welcome aboard. I'm looking forward to working with you. Maybe we could start out with the backlog at PFT. It's been down for the past two quarters. Maybe talk about concerns, challenges, or opportunities there.
Yeah. So historically, our quarters in Q2 and Q3 have been the higher growth quarters for us. So we would expect that that would start picking up. There's also a drawdown that would be noticed as you go into Q4 since those are lower sales growth quarters. Not concerned about it. We are definitely something that we would be watching. But as you look back in our history, something that would be pretty typical if you will.
Yeah, Tony, thank you. I would just add also that our backlog, although slightly down from where we ended last year, is still pretty much at record highs. If you compare it to 2019, apples to apples, it's up 40%. So pretty healthy backlog to start the year.
Maybe switching to M&A, obviously, you guys have done a great job integrating companies. You've got this cash in the balance sheet, a lot of opportunity to leverage up, like you mentioned in the intro, Alex, you've got $1 billion of firepower. What do you think you want to do with that money on hand?
Yeah, like you said, Tony, I think coming off the split in 2013, Crane with aerospace and PFT, we came out with no debt, basically. So number one, we'd like to deploy the capital through acquisitions. We think we could add significant value to shareholders. We've done four acquisitions that have been outstanding, exceeding expectations since the split in 2023. Right now, our funnel for M&A, we think, is quite healthy, and we're quite confident that we'll be able to keep deploying capital in an accelerated way.
The separation was a huge success. Obviously, your stock has performed really well over the last two years. And I know you've talked about doubling the business. Maybe is there a next step after NXT? Is there another spin in the works? Or maybe you could talk about that longer term?
Yeah, so as we Mario's laughing back there, we just spun, Tony, two years ago. But I think as we deploy this capital, we're going to deploy capital that is accretive to our portfolio, both on the growth and margin standpoint. So five years from now, we double the size of our business. It's a higher growing, higher margin than it is today, even though it's strong. It gives us the optionality, like we said last year on Investor Day, to think about that. So we'll see. We'll be guided by shareholder value and the opportunity to create shareholder value before anything else.
Alex, you've obviously been recently promoted to COO. You've done a great job. Does this indicate anything? I know Max is hard charging, as always, but is there any indication that this might be a next step for Max?
Max is not taking a step back anytime soon. So he's moving faster than ever, focused on the business. He'll be around and committed for the few years ahead. I think if you recall, Max was COO for four years before he took CEO jobs. So I think it's part of transition planning, but no plans for change yet.
We've talked a little bit about in other presentations today about the nuclear space and the resurgence there. I know it's a relatively small piece of your business, but you have discussed it a little bit and more so recently. Maybe you could talk about how that business looks for you, the growth there, SMRs. Maybe you could walk through that a little bit.
Sure. So that business is a smaller portion of what we do, roughly about six, maybe or so percent, but we are well-positioned in that space. So as SMRs take off, and no one knows exactly when we're going to have takeoff, so there's a lot of talk about it. We are well-positioned for expanded content in the SMRs. So if that takes off well, that should be a tailwind for us. So we are anticipating, like everyone else, we continue to execute. But from a product and service standpoint, we're well-positioned.
And then I'll ask a standard question about tariffs. You guys are obviously international. You have a lot of businesses throughout the world, particularly in some areas that potentially could be impacted. How do you look at that as a risk? Maybe you could walk through that for us.
Yeah, I'll comment first, and then I'll let Shangaza add to it. But I think as a reminder for those that follow Crane, our factories are positioned to service the local markets where our customers operate. So we have factories in the U.S. that service the U.S. We have factories in Europe that service Europe. We have a small position in China that services China. So just from a manufacturing footprint standpoint, we're well-positioned to tackle these geopolitical hurdles with tariffs and so forth. That said, we do have some supply chain because we're a global company that will buy from China or from Mexico, and we're prepared to address that. We have some experience with tariffs from 2018. So people sometimes forget we're operating under 25% tariffs even before this cycle with China, with a lot of the PFT products since 2018.
So I'll let Shangaza add to how he's handling it and his team is in PFT.
Yeah. I mean, given the current environment, things are very dynamic, changing very quickly. So we are constantly being abreast of exactly how much exposure we have, particularly from the countries that are targeted, Mexico, Canada, as well as China. And as those target tariffs come into play, we are estimating exactly the impact to us and then working to see how much of that we can offset from internal productivity, as well as how much of it we would need to be passing on to customers. So that will be happening in the industry. Many of our peers are going to be also exposed, so you would expect to see them all having to find ways to pass that forward as well.
Maybe back to supply chain that you mentioned, Alex, how is your supply chain right now? Are you seeing any issues with some of your suppliers? And maybe where are the long poles in the tent in that area?
Yeah, so supply chain, two different worlds for Aerospace and Process Flow. So I think on the Process Flow, supply chain has pretty much normalized to pre-COVID levels. Not that there's not an issue here and there, but it's similar to pre-COVID levels. We saw those extended lead times in 2021, 2022, started to come down in 2023, 2024, basically normalized on the Process Flow side. So we're not experiencing anything unusual. On the aerospace side, there's been very moderate improvement. Still, the industry is facing substantial supply chain challenges. So at Crane, through our normal discipline cadence and Crane Business System, we keep getting better and better. When we compare ourselves to our competitors, we fare well, but we're still seeing significant supply chain headwinds in the aerospace side of the business.
What about labor? Obviously, you're operating in a very technical industry and maybe both on both or just on the PFT side, what are you seeing as far as labor? Is there any issues going on?
I think in 2023 was the toughest from a labor availability standpoint, and it's moderated through 2024, and now it's very pocket-specific in regions, primarily in the United States. If you're on the West Coast or you're in the Southeast, it varies quite a bit, so I think we've seen, from our standpoint, improvement with still some pockets of areas that are challenging.
I'll open it up to the audience if anyone has a question. Hey, Kevin.
I think one thing that stood out to me from the presentation was your new product development and the improvement in your vitality index. Could you talk about not just what you spend on new product development, but how have you changed your internal processes in getting these new products out there, and I assume that they're also probably positive mix and leading to some of that margin improvement that you can see.
I'll comment first and then Shangaza. Thank you for that question. I think on the new product side, on the A&E side, I commented about 10% of our revenue is spent on new products, so quite significant. On the PFT side, it's about that 3% of sales, but if you recall what Shangaza showed, we're really focused on those growth segments, so in those growth segments, it's almost double that when you just look at that revenue, maybe 5% or 6%. Now, what we've done is really two things. One, we've improved our whole mindset ideation where we put more pans on the stove. We have a bigger funnel, and we're driving more projects that we think can be successful, so that's been a change over the last decade where we just increase the number of projects we're funding and executing.
Then we've driven various process improvements from the front end of defining the problem we're trying to solve for our customers to the actual execution of the design. We've cut down the lead time about 50% from beginning to end over the last seven or so years on ideation to launch just through process improvement, leveraging our Crane Business System. I think those are the big factors.
Do you have anything?
Yeah, the only other thing I would add to that is as we go through the process as well. You well know with R&D, you have many stops, spurts, et cetera. So we're much more focused on have we completed exactly what needs to be completed in short sprints. So you set a list of activities, you run, you make sure you've completed those, and then you course correct as quickly as possible. And with a lower number of projects, as much as that might sound, because we're focused on the higher growth markets, we're able to then drive that operational excellence from a programmatic process standpoint as well.
Shangaza, you've got deep experience in this industry. You come from a storied company. What do you see maybe five years from now? How do you see evolving this Process Flow business? I know you maybe briefly talked about it, but what's your vision for Process Flow going forward?
Sure. So the transformation that we've been, or rather Alex has been leading over the last seven years, I will, of course, be continuing that, which is repositioning our portfolio to continue to be even more so in higher growth in markets, whether or not it's chemicals, it's pharma, it's water and wastewater. You've seen we've now expanded into cryogenics. So this is another very exciting high growth area for us. So that will continue to be driven forward. We will also continue to drive the portfolio in terms of operational expansion. We've done extremely well. We believe there is more to be done. And as we continue that flywheel of continuing to deploy cash, which we'll be doing on the PFT side as well, we bring those acquisitions in.
There's going to be ample opportunity to expand the operating profile and help those to continue to grow the overall portfolio as well.
Wonderful. Well, it looks like we're out of time, gentlemen. Thank you for being here today. Great job. Look forward to following you. I know you have your Investor Day next week. Look forward to attending that. And hopefully, I'll get you back, the other team, back this summer at our aerospace conference. Thank you, gentlemen.
Thank you.
That concludes our presentation. I just want to thank all of the companies for coming, all the attendees as well, both here in the room as well on the Zoom. Of course, thank you to all my colleagues for putting in a lot of work to make this happen, both the analysts and portfolio managers doing the questions as well as everyone else in the background as well. Then finally, of course, thank you to Mario for allowing us to put this event on. Thanks to everybody. Yeah, a quick advertisement. We do host 11 conferences throughout the year. Our next one is our Specialty Chemicals Conference on March 20th, then Waste Management April 3rd. We've got our Media and Entertainment in June and several others then throughout the year, Aerospace, PFAS, of course, Auto, and others coming in the fall. Thank you.