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Crane Co  (NYSE:CR)
Q1 2019 Earnings Call
April 30, 2019, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings. Welcome to Crane Company's First Quarter 2019 Earnings Conference Call. (Operator Instructions) Please note, this conference is being recorded.

I'll now turn the conference over to your host, Jason Feldman, Director of Investor Relations. Mr. Feldman, you may begin.

Jason D. Feldman -- Director of Investor Relations

Thank you, operator, and good day, everyone. Welcome to our first quarter 2019 earnings release conference call. I'm Jason Feldman, Director of Investor Relations.

On our call this morning, we have Max Mitchell, our President and Chief Executive Officer; and Rich Maue, our Senior Vice President and Chief Financial Officer. We'll start off our call with a few prepared remarks, after which we will respond to questions.

Just a reminder that the comments we make on this call may include some forward-looking statements. We refer you to the cautionary language at the bottom of our earnings release and also in our annual report, 10-K and subsequent filings pertaining to forward-looking statements.

Also during the call, we'll be using some non-GAAP numbers, which are reconciled to the comparable GAAP metrics and tables at the end of our press release and a company slide presentation, both of which are available on our website at www.craneco.com in the Investor Relations section.

Now let me turn the call over to Max.

Max H. Mitchell -- President and Chief Executive Officer

Thank you, Jason. After our record-setting 2018 results, we're off to another solid start this year. As outlined in our press release last night, I'm pleased to report that Crane's first quarter EPS, excluding special items, was $1.45, up 11% compared to earnings in the first quarter of last year.

Sales of $832 million increased 4% with 6% core growth and a 1% benefit from acquisitions, partially offset by unfavorable foreign exchange of 2.5%.

Core growth was very strong across all 3 of our large, global growth platforms. Operating profit, excluding special items, increased 12% from last year to $120 million. Adjusted operating margins improved 100 basis points to 14.4%, led by very strong margin performance at both Fluid Handling and Aerospace & Electronics.

Consistent with our Investor Day messaging, I'm extremely pleased with how we are positioned for 2019 and for the years ahead of us. All of our businesses are executing extremely well, and we are continuing to aggressively invest for growth. We have a great portfolio of businesses, focused on critical components that are technologically differentiated. Overall, it was a strong quarter across our portfolio, and I'm excited about our organic opportunities.

Given the strength of our balance sheet, I'm equally equally excited about our ability to create incremental shareholder value through continued capital deployment with a focus on acquisitions.

I will make a few comments about each of our businesses, starting with Fluid Handling, which had a great quarter. Adjusted margins improved to 250 basis points compared to last year and more than 6% organic growth, roughly half of which is from share gains. Very strong execution with progress on numerous growth initiatives as well as our previously announced facility consolidations.

A few weeks ago, I had the opportunity to visit our Marion, North Carolina facility, to see our new large diameter-line pipe-manufacturing equipment and processes. It's a growth investment bringing an entirely new solution to the industry, replacing alternative technologies in the market today with a more cost-effective product that is also more durable and reliable than concrete or rubber line pipes.

Again, Fluid had a great quarter on execution, margins, sales growth as well as order activity, and our FX-adjusted blacklog increased 6% compared to last year.

Our previously announced facility consolidations are progressing smoothly with benefits accelerating later this year. Based on what we know today, we're confident in our ability to deliver on our previously issued guidance of 4% core sales growth and 13% segment margins.

At Payment & Merchandising Technologies, it was also a solid start to the year with 5% core growth and margins about in line with our expectations. The core sales comparisons get more challenging in future quarters, but we will really start to see the benefit from our banknote printing facility move and other productivity initiatives as the year progresses. There's a lot of exciting activity in this segment from new cash flow solution to additional connectivity offerings, new technology innovation across the businesses.

Last month, I attended the official grand opening of our Crane Currency banknote printing facility in Malta, along with many of our central -- key central bank customers from around the world.

At that event, we announced a new set of security features for banknotes that was jointly developed by Crane Currency with their expertise in micro-optics and by our Crane Payment Innovations business with their extensive expertise in machine validation of banknotes. These new products are an extension of our award-winning micro-optic technology, pairing the best-in-class visual authentication of micro-optics with infrared-based solutions that allows the micro-optics to be uniquely machine readable. We see a lot of potential for this new offering, which could not have been developed as successfully without the close collaboration of Crane Currency and the Crane Payment business. Overall, the integration of Crane Currency continues smoothly.

In the last 5 years, we've integrated 4 acquisitions with a combined purchase price of approximately $1.7 billion. And we believe that our track record at integration and synergy realization through the application of the conference business system is a key differentiator for us now and moving forward.

In Aerospace & Electronics, the performance in the quarter was extremely strong with 14% core growth and margins up more than 300 basis points compared to last year. Strength was broad-based.

Many of you likely have questions about the rate reduction for Boeing 737 Max. Based on the information available to us today, we are confident in our ability to deliver on our full year segment guidance of 4% core growth, including the rate reduction and 23.5% margins. And we believe that this business is positioned to deliver 3% to 5% sales growth annually at very attractive margins for more than the next decade.

And Engineered Material delivered results in line with our expectations. The top line results remain under pressure from continue destocking by retail dealers, but we expect the inventory correction to resolve itself sometime around midyear, and our solid execution is evident from the deleverage rates you've seen at this segment.

Overall, I'm pleased with our results and how we're positioned for 2019 and beyond. Based on what we know today and barring any new macroeconomic surprises, we're confident in our ability to deliver on our current guidance for EPS, excluding special items, $6.25 to $6.45 as well as free cash flow of $335 million to $365 million.

Ritch, let me turn it over to you for some additional financial commentary.

Richard A. Maue -- Chief Financial Officer

Thank you, Max, and good morning, everyone. A great start to the year. Our teams across Crane doing a fantastic job, executing on all our key initiatives, and we have great momentum as we look ahead.

As usual, I'll be providing comments -- segment comments that will compare the first quarter of 2019 to 2018, excluding special items as outlined in our press release and slide presentation.

Starting with Fluid Handling. The quarter played out as expected. In the first quarter, sales of $274 million increased 3%, reflecting core sales growth of 6%, partially offset by unfavorable foreign exchange. Fluid Handling operating profit increased 26% to $36 million with operating margins of 13.3%, that increased 250 basis points compared to last year, reflecting higher volumes and productivity. A very strong performance by the team in the quarter, driving results while at the same time focused on flawless execution on our repositioning actions.

Fluid Handling backlog was $285 million at the end of March compared to $280 million at the end of 2018 and $281 million at the end of March of last year. After adjusting for foreign exchange, backlog increased 2% sequentially and 6% year-over-year. Orders, also adjusted for foreign exchange, improved 5% sequentially and 2% compared to last year.

Moving to end markets. Conditions are very similar to what we described at Investor Day. By geography, Europe is stable. We're seeing moderate growth in the Middle East and most of Asia outside of China and the United States is growing but with some mixed signals. By application, chemical demand remains solid across most regions. Refinery turnaround activity continues at a moderate pace. Conventional power remains weak across geographies and general industrial activity remains stable. On the commercial side of the business, we had very good quarter across our U.S. Pumps business and our Canadian and U.K.-based nonresidential construction businesses.

At Payment & Merchandising Technologies, sales of $304 million increased 4% compared to the prior year, driven by 5% core growth and a 2% acquisition benefit, partially offset by 3% of unfavorable foreign exchange. Segment operating profit of $47 million decreased 3% from last year, with operating margins of 15.4%, down from 16.5% last year, primarily reflecting unfavorable mix and higher cost, partially offset by leverage on higher volumes and repositioning benefits.

As we mentioned at the beginning of the year, our guidance for 2019 did not include any expected contribution from Crane Currency sales to Venezuela. That said, we are -- we were cautiously optimistic that we might see some further opportunities with this customer. The Central Bank of Venezuela has now been added OFAC's list of specially designated nationals, prohibiting us from conducting further business with them at this time. As a result, the higher cost this quarter did include a reserve to cover a modest inventory and receivable position. And while our guidance assumed this risk, we now have zero net exposure. If circumstances change, we are open to engaging the Central Bank of Venezuela again, but we will obviously make sure that we remain in full compliance with all U.S. laws and regulations.

Moving on, remember that our -- the core sales comparisons in this segment becomes more challenging as the year progresses. But I expect margins to improve over the course of the year, particularly in the second half as we make further progress on repositioning and integration activities. We're confident that we are on track to achieve our full year guidance for this segment.

Aerospace & Electronics sales increased 14% to $195 million and segment operating margins improved to 23.3%.

Total aftermarket sales increased 21% with double-digit growth on both the commercial and military sides of the business. Strength was driven by commercial and military spares as well as commercial-modernization and upgrade programs. Total OE sales increased 12% compared to last year with commercial OE up in the high single-digit range and military OE up well into the double digits. Strength was broad-based across platforms.

Our teams continue to work many opportunities across the business, addressing specific customer needs, enabled by ongoing investments and solid execution against our technology roadmaps, fortifying years of profitable growth to come.

Aerospace & Electronic's backlog was $487 million at the end of March compared to $447 million at the end of 2018 and $381 million at the end of March of last year.

Engineered Materials sales decreased 14% to $60 million, driven primarily by a decline in sales to the recreational vehicles customers. Operating margins declined 200 basis points to 15.8%, primarily as a result of lower volumes. Continued strong performance by the team during a challenging period, we delivered results ahead of our expectations in the quarter.

Turning now to more detail on our total company results and guidance. Our first quarter tax rate was 21.1% compared to 18.9% in the first quarter of last year. We continue to expect a full year tax rate of approximately 21%, consistent with our original guidance.

In the quarter, free cash flow was negative $120 million compared to a positive $47 million in the first quarter of last year. Historically, we typically have negative free cash flow in the first quarter, given the seasonality associated with working capital.

Last year, the first quarter benefited by an unusual amount from the timing of receivable collection at Crane Currency, together with lower net asbestos payments. In the first quarter of this year, free cash flow was also impacted by accounts receivable timing, given the strong ramp in sales and Payment & Merchandising Technologies in the quarter. I have high confidence that our teams will deliver full year free cash flow within the top half of our full year guidance range of $335 million to $365 million. We are very comfortable with the strength of our balance sheet, and we're actively working on our pipeline of opportunities, given about $2 billion of M&A capacity over the next few years.

Again, we had a solid start to the year, and I'm confident in our prospects for the future as well as in our full year guidance for adjusted EPS of $6.25 to $6.45.

Operator, we are now ready to take our first question.

Questions and Answers:

Operator

(Operator Instructions) Our first question comes from line of Brett Linzey from Vertical Research Partners. Please proceed with your question.

Brett Linzey -- Vertical Research Partners -- Analyst

We Just wanted to come back to Fluid Handling and just maybe a little bit more color on the market, specifically with front log in the coding book in Q1 and maybe some color into April. If you could just kind of walk around some of the end markets and maybe geographically as well, how that looked from a year-over-year perspective in the quarter and, again, maybe into April?

Richard A. Maue -- Chief Financial Officer

Yes. I would say, Brett, that as -- consistent with my prepared remarks, no significant changes as we exited the fourth quarter of last year. The order profile certainly a bit different compared to the first quarter of 2018, which we expected to see. So when you look at that year-over-year from Q1 '19 from Q1 of '18, again, not a surprise. No real changes as you come out of the second half of last year. So no real surprises from that point of view. And I would just echo or indicate that my comments that I had in the prepared remarks, no change from a geography perspective or end markets perspective.

Brett Linzey -- Vertical Research Partners -- Analyst

Okay. Good. And then maybe just shifting to margins in Fluid, very strong results. You mentioned volume and productivity, but you also did indicate that the Supply business in Canada and U.K. were up, which is obviously good returns, but mix margin, negative, which should -- I would assume you had have to overcome as well. So maybe you could talk about some of the components of the year-over-year progress you made in the quarter?

Richard A. Maue -- Chief Financial Officer

Sure. So look, the team's overall across the segment performed very well, as I mentioned. All businesses were up. But I think for one, from a margin point of view, so really solid execution. When you look at the leverage year-over-year in terms of what we would have otherwise expected or sort of a normal leverage rate, this business performed and executed really, really well, in particular with respect to productivity. So you get your normal volume leverage. But from productivity perspective, very solid performance. I would say it was as we expected internally. And then on top of that normal productivity, the team's delivered everything from a repositioning benefit perspective.

So I think the short answer is just solid execution across the group. To your comment on the mix between Crane Supply and the balance, the performance was more notable in terms of execution in our process valve business, which overcomes that sort of intra-Fluid Handling mix components that you mentioned.

Brett Linzey -- Vertical Research Partners -- Analyst

Got it. Make sense. And then maybe just one follow up on payments. How large was the drag from the reserve related to Venezuela in the quarter?

Richard A. Maue -- Chief Financial Officer

Yes. So just overall, when you look at the amount of sales increase year-over-year, we would have expected a profit improvement or you would -- we would normally expect a profit improvement somewhere between $5 million and $6 million, right? So when looking at that delta, I would just high level say about 50-50 between the reserve and mix in the quarter.

And the mix in the quarter largely attributable to some of the sales that we had in our currency business, where we had incremental paper sales, which carry a lower margin.

Brett Linzey -- Vertical Research Partners -- Analyst

That's helpful. All right. I'll pass it along.

Richard A. Maue -- Chief Financial Officer

Thanks.

Operator

Thank you Our next question comes from the line of Kristine Liwag from Bank of America Merrill Lynch. Please proceed with your question.

Kristine Liwag -- Bank of America Merrill Lynch -- Analyst

Good morning guys.

Max H. Mitchell -- President and Chief Executive Officer

Hi Kristine.

Kristine Liwag -- Bank of America Merrill Lynch -- Analyst

Good Morning Max, for the 737 Max for Boeing, are you continuing to produce at 52 per months or at 42 per months? And at what rate are you getting paid today?

Max H. Mitchell -- President and Chief Executive Officer

Yes. We're not going to speak to the exact specifics, Christine. I can just say that we haven't had a material impact on our build rates. I would point you to Boeing's public statements, we're supporting our customer. It has not had a material impact on our capacity planning nor do we expect it, and we're maintaining it.

Kristine Liwag -- Bank of America Merrill Lynch -- Analyst

And what's your current ship-set content on the 737 Max?

Max H. Mitchell -- President and Chief Executive Officer

Yes. We don't disclose on each aircraft platform, Kristine.

Kristine Liwag -- Bank of America Merrill Lynch -- Analyst

Sure. And maybe switching gears to Engineered Materials, as this business declines today, do you still think of this business as core to Crane? And if not, how do you think about different strategic alternatives for that segment?

Max H. Mitchell -- President and Chief Executive Officer

And I think, as we've described in the past, Christine, well, potentially, not -- one of our larger global strategic platforms, I wouldn't say that it's not core, I would say that it's not one of our global strategic platforms that we're continuing to stay focused on. However, it remains an important business to us that continues to deliver and execute, contribute significant cash flow, well-positioned, dominant kind of market presence. We continue to invest in our facilities, invest in our people. So it's just a really good business, but we're not going to clearly expand in the composite -- Engineered Materials space on a the global basis.

Kristine Liwag -- Bank of America Merrill Lynch -- Analyst

Great. And if I could squeeze one more. Rich, on Fx, can you provide an update to your exposure? And what exchange rate is embedded in your outlook for the year?

Richard A. Maue -- Chief Financial Officer

Yes. So what we saw into the first quarter was really a nominal change, really, compared to what our expectations were as we set our rates in -- at the beginning of the year and what's embedded in our guidance. But there's a variety of rates, obviously, Kristine, that are included. But I would say no change and nominal impact if any, at all, in the quarter.

Kristine Liwag -- Bank of America Merrill Lynch -- Analyst

Great. Thanks.

Operator

Our next question comes from the line of Damian Karas from UBS. Please proceed with your question.

Damian Karas -- UBS -- Analyst

Good morning everyone So without getting into the exact shipment details and whatnot, maybe you could just help reconcile the 1Q performance for A&E with full year guidance and some of your commentary earlier on 737 Max. Is it fair to assume that the first quarter just came in a lot better than you expected, and you actually are lowering your expectation for the rest of the year on some of the 737 Max impacts? Or really, are you just kind of taking a more conservative approach at this stage?

Richard A. Maue -- Chief Financial Officer

Yes. So I would start off by saying that we're confident in our full year outlook for this business. No question about it. When we look at the performance in the quarter itself, as you saw from the materials and some of the prepared remarks, aftermarket was incredibly strong. And no way, do I expect that to continue at that sort of rate.

The other thing to keep in mind is that the comps are tougher in the next several quarters, the next few quarters. Last year, we were in the high single-digit range. So when you look at those comparables relative to what the comp was here in the first quarter, they get much more challenging. Q1 by far the easiest.

The other thing I would say is that in terms of the outperform the first quarter, about 80% of it, overall, was from aftermarket and military. So they tend to be a little bit tougher to predict from a timing perspective. So if that gives you a little bit more -- it gives us a little bit more of that comfort in terms of we shouldn't be necessarily getting ahead of our skees on the year for this business. So hopefully, that provides a little bit of a color for you, Damian.

Damian Karas -- UBS -- Analyst

Thanks Yes. It does. And I guess a follow-up question on just the free cash flow. Rich, you alluded to this being the seasonally weaker period for free cash flow and you had some receivable timing. I'm just wondering if you could give any additional color on perhaps expectations for the timing of those receivables? And should we expect sort of just through the rest of the year normal type of free cash flow profile or any sort of movement around the quarters?

Richard A. Maue -- Chief Financial Officer

Yes. No, I'd -- it's all-I expect to get all of that in the second quarter, Damien. So I have zero concern here with respect to the profile moving forward and deliver into that guidance range. I've got no issues with the quality of the receivables. It was just timing.

Damian Karas -- UBS -- Analyst

Okay great. Thanks for clarifying.

Richard A. Maue -- Chief Financial Officer

Yep. Thanks

Operator

Our next question comes from the line of Matt Summerville from D.A. Davidson. Please proceed with your question.

Matt Summerville -- D.A. Davidson -- Analyst

Thanks A couple questions. First, on the Payment & Merchandising Technologies vertical. Can you maybe give a little bit more color from an end-market standpoint as it pertains to CPI and talk about maybe around the 5% overall organic growth? Which businesses between CPI vending and currency tract may be above or below that? Can you just give more granularity on that business overall?

Richard A. Maue -- Chief Financial Officer

Yes. Sure. So overall, in the quarter, we had a solid performance, as you said, the 5% versus last year, the majority of it -- substantially all of it came from the Payment business, which we largely expected. It was a little bit stronger in payment than we even expected. And most of that coming from the retail channel, frankly. We're continuing to see solid retail demand as we painted for you all at Investor Day. So that's continuing.

I will also say that although the core growth year-over-year didn't come necessarily as much from currency, it did outperform our own internal expectations a little bit. So it was a solid performance by the currency team as well. Some of that being in those paper sales that I mentioned earlier, which carried a little bit of a lower margin but, overall, pleased with the performance there.

So those will be the 2 dynamics I'd paint for the segment and, in particular, the strength that we're seeing in retail.

Matt Summerville -- D.A. Davidson -- Analyst

And then I think, Max, it was maybe last quarter, the quarter prior, I apologize, I can't remember. You talked about pursuing a number of opportunities on the microwave side of Aero & Electronics I think framing it upwards of $150 million to $400 million in opportunities. Is there any sort of progress update? You can provide us some kind of thoughts there going forward?

Max H. Mitchell -- President and Chief Executive Officer

Yes. That was an Investor Day, and Steve Zimmerman, our new President, highlighted satellite-constellation program that we're chasing. We're chasing a number opportunities in everything from Nextgen of just plug for everything the team's doing from a technology standpoint. Matt will come back to that. But from Nextgen aircraft, engine satellites, high-power electrification, I mean, I just -- of the technology this team continues to drive is impressive.

On the microwave side, our unique multi-mix technology solution with the density of the packaging for that solution is a clear differentiator, especially for the low weight and size that's needed on satellites. We continue to chase that opportunity. It's advancing. It's still in that $150 million to $400 million range, and so it's progressing. No other update other than that. But there continues to be movement in normal cycle of bidding the programs.

Matt Summerville -- D.A. Davidson -- Analyst

Okay And then just one last one. Can you maybe speak to Max the actionability of your M&A pipeline and quality of the funnel and where you're seeing opportunities, whether it be in the Fluid or the Payment side of the business? I imagine Aero assets are overpriced in your mind?

Max H. Mitchell -- President and Chief Executive Officer

Interestingly, there's some activity across all segments right now. So whether anything will come fruition, we're busier than we've been lately. So -- and it's across each of the 3 segments, believe it or not, including A&E. So we're looking hard at all of them. And excited about the opportunity that we're going to bring. If we're able to close, we feel confident in our ability to execute and drive integration planning, drive improvement through CBS. But yes, actually, there's quite a bit of activity right now, Matt, that we're focusing on in each of the remaining 3 segments, looking at bolt-ons, near adjacencies, and we'll see how the year progresses.

Matt Summerville -- D.A. Davidson -- Analyst

Great. Thank you guys.

Max H. Mitchell -- President and Chief Executive Officer

Thank you.

Operator

Our next question comes from the line of Nathan Jones from Stifel. Please proceed with your question.

Nate Jones -- Stifel -- Analyst

Morning everyone.

Max H. Mitchell -- President and Chief Executive Officer

Nathan morning.

Nate Jones -- Stifel -- Analyst

A couple of follow-ups here. Firstly, on free cash flow. I don't how far you guys want to get into the weeds on this. Clearly, a big swing in receivables, which you've talked a little bit about. Any more color you can give us on what drove the timing? Where the timing is? What the confidences is in that coming back? And I think, Rich, you said on you're confident on getting all that back in the second quarter.

If I look back at last year, receivables used $17 million of cash in the first half of the '18. If you're somewhere similar and this was just a timing thing, that would imply maybe $40 million of cash generation out of receivables in the second quarter. Is that a reasonable expectation?

And then pretty much every current asset or current liability account got a little bit worst than it was last year. Any color you can give us on any of the drivers behind that?

Max H. Mitchell -- President and Chief Executive Officer

You're into the weeds. He's in the weeds.

Richard A. Maue -- Chief Financial Officer

Yes. So I mean, I think, the way to maybe just simplify this a little bit, there's year-over-year and then there's what you said is your operating plan for the following year, right? If I look at what the components of working capital are relative to what I expected to occur in the quarter, outside of receivables, everything was a little bit better. So in terms of inventory or the other line items in working capital.

Receivables were, I would say, from a prior-year perspective, is a big swing. And versus my expectations -- or our expectations from our planning point of view was modestly worse. And that modestly worse was all related to timing of shipments in our Payment and Currency business and all of which I expect to recover in the second quarter.

Nate Jones -- Stifel -- Analyst

Okay. And then one here I guess for Max. You guys don't seem to be getting a lot of credit for the capital allocation that you've done over the last few years, which I think has been very good. And the execution that you have demonstrated over the last few years, which I also think is very good. How do you view potentially using some of the balance sheet here to repurchase shares, rather than target M&A to take advantage of what I think is a dislocation in the value of the stock price here?

Max H. Mitchell -- President and Chief Executive Officer

Well, we never preannounced, Nathan, as you know. I'll just reiterate what we've said historically. We prioritize internal investment first. We certainly are going to look at deploying our capital in M&A. We think we've got a number of opportunities that would drive longer shareholder value creation versus simply share buyback. But if we're unsuccessful, we will absolutely look at returning capital to shareholders.

Nate Jones -- Stifel -- Analyst

I guess fair enough I'll pass it on thanks.

Max H. Mitchell -- President and Chief Executive Officer

Thanks Nathan.

Operator

Our next question comes from the line of Ken Herbert from Canaccord. Please proceed with your question.

Ken Herbert -- Canaccord Genuity -- Analyst

Hi good morning Max and Rich I just wanted to first start off in Payments & Merchandising. It sounds like, obviously, probably a little better than expected in the first quarter in terms of the top line and maybe even the margin. But I'm curious on the top line. Clearly, the comps do step up here in terms of difficulty in the second and third quarter. I mean, it looks like there is a fairly significant step down in the top line implied in the guidance, looking at the full year number.

Two questions really around it: Is there anything you can comment on in terms of cadence, or how we should think about that segment on the top line progressing through '18 -- I'm sorry, through '19? And then second, maybe was there -- was new product or I guess one of the things I'm trying to think about is how some of the organic opportunities you're pursuing could offset some of the comps in the back half of this year. Any commentary around the success of some of what you outlined at the Investor Day last year in this segment and some of the new initiatives and maybe where we could potentially see some upside?

Richard A. Maue -- Chief Financial Officer

Yes. I guess I'll start there, Ken. So in terms of the comps, right, I think, as you know, we guided down 7% on the segment for the year. A good performance here in the first quarter. That down 7% contemplated 2 relatively large programs that aren't going to repeat and, therefore, the down 7%. As I look at the cadence of revenues through balance of the year, in this segment itself, with the strength that we had here, I wouldn't expect a step up at a significant degree from where we are today. And it's probably relatively around where we're at. There's a little bit of outperformance in maybe the second quarter. But generally speaking, it's fairly consistent as you move to the balance of the year. On -- Yes. On your second question, with respect to I think it was around NPD. Is that -- with a number initiatives...

Ken Herbert -- Canaccord Genuity -- Analyst

Yes. It was, yes.

Max H. Mitchell -- President and Chief Executive Officer

Yes. In terms of what we're driving, not just for '19, but also '20 and beyond, I mean, with Payment & Merchandising Technologies at 7% of spend percent of sales for engineering. And A&E, it's 6% right now. We continue to just overdrive investments for growth.

And as we highlighted, that's everything from EasiTrax Live and Payment & Merchandising. EasiTrax Live and gaming, which is moving into EasiTrax Connect, all-in-one CashCode reader, ALIO. We're developing breakthrough OEM solutions in not only Paypod in the U.S., but also smart save and (inaudible) in Japan.

Moving over to currency. Introduction of new technology, rapid and surface solutions. And we're really focused on brand protection as well, which we're very, very excited about that market. And Louis highlighted that on Investor Day. So it's not only the momentum that we're going to see through '19 but, also, the continued investments in growth opportunities that we see moving forward.

Ken Herbert -- Canaccord Genuity -- Analyst

Okay. That's helpful. And if I could, I just wanted to follow up on one comment you made, Rich, about very strong aftermarket trends in the first quarter. Obviously, difficult to replicate those comps for the full year, but are you seeing anything yet in the second quarter that would imply deceleration there or a slowdown in the growth? Or were they very specific onetime items you point to in the first quarter that were a nice benefit on the aftermarket, both military or commercial.

Richard A. Maue -- Chief Financial Officer

Yes. The trends are still fairly solid, I would say. But we certainly did have some items and maybe on the military side, that were a little bit stronger. That are, again, a little bit tougher to predict in terms of timing some of the military aircraft, the F-16, the F-22, C-130, things like that. But...

Max H. Mitchell -- President and Chief Executive Officer

No dramatic changes in the aftermarket. Momentum...

Richard A. Maue -- Chief Financial Officer

Yes. Momentum on the spare side, it still feels pretty good here in April.

Ken Herbert -- Canaccord Genuity -- Analyst

Great. Thank you very much.

Richard A. Maue -- Chief Financial Officer

Thank you.

Operator

(Operator Instructions) Our next question comes from the line of Robert Barry from Buckingham Research Group. Please proceed with your question.

Robert Barry -- The Buckingham Research Group -- Analyst

Hey everyone.

Richard A. Maue -- Chief Financial Officer

Good morning Mr. Barry

Robert Barry -- The Buckingham Research Group -- Analyst

Good morning Rob. I'm good thanks

Good.I just wanted to start the following up on that last question about Payment and what did you mean by that, Rich, when you talk about things kind of staying where they're at, you mean in terms of dollars of revenue? Or...

Richard A. Maue -- Chief Financial Officer

I think the question was the cadence of revenues through the quarters as we look forward. Yes.

Robert Barry -- The Buckingham Research Group -- Analyst

Do you think It'll -- the revenue will stay at about 1Q level?

Richard A. Maue -- Chief Financial Officer

Yes. So there was a step up I was saying in Q2, and then it's relatively stable.

Robert Barry -- The Buckingham Research Group -- Analyst

Okay. Because if you stay at around in the low 300s for the remaining quarters, I think you'll do...

Richard A. Maue -- Chief Financial Officer

Yes. No, that's not -- hopefully, that not what I -- yes. No. I think I set a step up in Q2, no? And then a move from there, but it's not dramatic.

Robert Barry -- The Buckingham Research Group -- Analyst

I see. So the back half is where really the pressure will be to kind of get the year down to negative $7 million? The way you're thinking...

Richard A. Maue -- Chief Financial Officer

So -- yes, I mean, we're getting into the details. But it's like $5 million to $10 million range one way or the other as you move to the balance of the year.

Robert Barry -- The Buckingham Research Group -- Analyst

Okay. I mean, a similar question at Aero, I guess. So you did 14%, you guided 4% for the year, implies the remaining quarters are growing like 1%. But the backlog looks really good. I mean, I think it's up almost 30% year-over-year in the first quarter. So I don't know what the timing of that is, but it implies that things are tracking nicely better and up for in Aero. Just trying to kind of reconcile that.

Richard A. Maue -- Chief Financial Officer

Yes. What I would say that, Rob, obviously, in this space, you tend to get a multiyear orders that tends to happen often in this segment. I would say -- I would probably reiterate what I said at the beginning of my first question on this, which was that we're fairly -- we're confident in this business. I wouldn't say that we're being overly conservative by any means, but we feel good about executing on the year. And most confident in this segment overall.

Robert Barry -- The Buckingham Research Group -- Analyst

margin, you're targeting in Payment kind of the opposite story guided 19% started at 15%. I mean, I think you said kind of the progress is back half weighted. So I think that would imply kind of low 20s in the back half. I mean, how much line of sight do you have to actually getting there? How much of that is in your control?

Richard A. Maue -- Chief Financial Officer

Yes. We feel confident in those margin targets, Rob. I mean, again, a couple of unique items here in the first quarter that we don't expect as we move to the right. And we feel good about the integration, savings coming through the transition to Malta as well as the repositioning actions that we have in the core Payments business, all contributed to that confidence in the second half or in the next 3 quarters.

Robert Barry -- The Buckingham Research Group -- Analyst

Got it. Just lastly for me that Fluid order sequentially number up 5%. How does that compare to normal seasonality between 4Q and 1Q?

Richard A. Maue -- Chief Financial Officer

Yes. So how does that compares sequentially? So up 5% from Q4 last year, I will have to go back to Q4 '17. I don't have Q4 '17 in front of me, but it's not -- I would say it's not uncharacteristic. If you look at the profile of sales, orders and backlog coming off of Q4 of last year, which I don't have in front of me, but I have Q1 through -- it's not -- I need that sequential improvement to generate the backlog that I have here for the step up that we typically see in the second quarter. So I would say it's fairly consistent, Rob, without having the numbers in front of me.

Robert Barry -- The Buckingham Research Group -- Analyst

Got it. All right. Great. Thanks a lot.

Richard A. Maue -- Chief Financial Officer

Thanks Rob.

Operator

Our next question comes from the line of Ken Herbert from Canaccord. Please proceed with your question Ken.

Ken Herbert -- Canaccord Genuity -- Analyst

Yes, Max, just a quick follow-up on Aerospace & Electronics. I'm just wondering your exposure to the 919 in China. Was that at all a factor in the backlog growth? Are you seeing any step up in activity there? Or maybe within the Aerospace & Electronic segment, if you can just provide any more color on the backlog and the growth there and what you saw that? But I'm specifically curious, if you're seeing any increase in activity on the 919 considering your obviously a strong content on that aircraft.

Richard A. Maue -- Chief Financial Officer

No. Nothing notable on 919, in terms of any of the growth in this quarter.

Max H. Mitchell -- President and Chief Executive Officer

In this quarter, activity continues just in terms of ongoing support development. We're excited as we said in the past. We have more content on that single aisle than any other single aisle just to put in -- we don't give content per aircraft, but on a relative basis. So when the 919 launches and flies, we're excited about the growth that will be coming in the backlog in the future. But nothing in this current backlog.

Richard A. Maue -- Chief Financial Officer

And just to add on color with respect to the growth in the quarter, F-35 was a contributor, probably the most substantial individual contributor across what was really a bit broad-based. But that was the #1, I would say, contributor. But again, broad-based across a number of platforms, many of which were military.

Ken Herbert -- Canaccord Genuity -- Analyst

Okay that's helpful thank you. Thanks again.

Operator

We have reached the end of the question-and-answer session, and I will now turn the call over to Max Mitchell for closing remarks.

Max H. Mitchell -- President and Chief Executive Officer

Super. Thank you, operator. Appreciate it. Thanks, everyone. Fantastic quarter. Just so proud of all of our associates across Crane with a great start to the year. Consistent with our Investor Day messing, we're also very focused on our long-term objectives, investing to protect and improve our position for profitable growth in the years ahead.

As the late Nipsey Hussle once said, "Instead of trying to build a brick wall, lay a brick every day. Eventually, you'll look up and you'll have a brick wall." While we have ambitious goals at Crane, we make sure we never lose focus on the fundamentals, and we continue laying new bricks of innovation and execution, building our foundation of solutions and technologies for our customers. Thank you for your interest in Crane, and have a great day.

Operator

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.

Duration: 42 minutes

Call participants:

Jason D. Feldman -- Director of Investor Relations

Max H. Mitchell -- President and Chief Executive Officer

Richard A. Maue -- Chief Financial Officer

Brett Linzey -- Vertical Research Partners -- Analyst

Kristine Liwag -- Bank of America Merrill Lynch -- Analyst

Damian Karas -- UBS -- Analyst

Matt Summerville -- D.A. Davidson -- Analyst

Nate Jones -- Stifel -- Analyst

Ken Herbert -- Canaccord Genuity -- Analyst

Robert Barry -- The Buckingham Research Group -- Analyst

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