CXT Q2 2025: $400M Currency Backlog Fuels Growth Outlook
- Robust CPI Growth and Gaming Momentum: The company’s CPI segment is showing signs of a turnaround with normalized OEM inventories and strong momentum in gaming orders—expected to deliver double-digit growth in the latter half of 2025, reinforcing the organic trajectory of this business.
- Successful Authentication Integration and Margin Expansion: The rapid integration of the De La Rue acquisition is yielding significant operational synergies (targeting $16 million in run-rate synergies) and setting the stage for a margin improvement, with the authentication segment expected to exit 2026 at around 20% operating profit margin.
- Record-High International Currency Backlog and Technology Leadership: The international currency business has achieved a record high backlog of approximately $400 million and is supported by a robust pipeline (including 10 to 15 microoptic wins), underpinning the company’s leadership in technology and recurring customer demand.
- Margin and Revenue Phasing Risk: The guidance suggests that revenue and operating profit in the later quarters will be more concentrated in Q4, with only a 1% to 2% step‐up from Q3 due to timing and mix issues. This uneven phasing creates uncertainty, especially if customer demand or pricing actions do not materialize as expected.
- Uncertainty Around EPS Accretion from Integrations: Management noted that incremental EPS accretion from integrating the authentication business (including the De La Rue acquisition) for 2026 is “too early to say”. This highlights the risk that the expected synergies and margin improvements might be delayed or not fully realized.
- Slower Adoption and Execution Risk for New Technologies: The launch of new products like Fortress is promising, but management acknowledged that the adoption of such authentication technology can take longer than desired. This slower-than-anticipated uptake increases the risk of missing growth targets in a market where technology penetration is still evolving.
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Full-Year Adjusted EPS | FY 2025 | no prior guidance | $4.00 to $4.30 | no prior guidance |
SAT Sales Growth | FY 2025 | no prior guidance | 19% to 21% and $80 to $90 million of De La Rue sales | no prior guidance |
CPI Full-Year Sales Growth | FY 2025 | no prior guidance | negative 2% to flat | no prior guidance |
Adjusted Segment Operating Margin | FY 2025 | no prior guidance | 25.5% to 26.5% | no prior guidance |
Free Cash Flow Conversion | FY 2025 | no prior guidance | 90% to 110% | no prior guidance |
Net Leverage | FY 2025 | no prior guidance | approximately 2 times | no prior guidance |
International Currency Backlog | FY 2025 | no prior guidance | above $300 million with about 60% expected in 2025 | no prior guidance |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Currency Business Performance and Volatility | In Q3–Q4 2024 and Q1 2025, discussions centered on production shutdowns, shipment timing challenges, and a record‐high but variable international currency backlog with noted volatility in U.S. volumes (e.g., a record backlog of $370 million, significant impacts from equipment upgrades and Fed order mix issues). | In Q2 2025, the international currency business delivered a new record backlog of $400 million with resumed U.S. production following technology upgrades, though shipment timing issues continue to impose some margin stress. | Improved backlog and production recovery with persistent volatility due to shipment timing. |
Gaming Market Trends and Order Timing | Previous periods (Q3 2024, Q4 2024 and Q1 2025) described a healthy gaming market with low single‐digit full‐year growth expectations, tempered by slower order rates and extended inventory corrections by OEM customers. | Q2 2025 shows gaming orders rising by approximately 10% sequentially and 30% year-over-year with normalized inventory levels and strong market position. | Demand and order timing have improved, signaling a more upbeat sentiment than earlier inventory correction phases. |
Authentication Integration and Synergy Realization | Across Q3 2024, Q4 2024 and Q1 2025, the focus was on integrating acquisitions (OpSec and the upcoming De La Rue) to create a unified authentication business, with discussions on synergy targets and margin improvements despite ongoing integration efforts. | In Q2 2025, integration efforts have yielded the new Crane Authentication business, with synergy targets of $16 million run-rate and proactive steps (e.g., operational improvements via the CBS) to accelerate margin improvements. | Ongoing and accelerating integration with clearer synergy realization, reflecting a strong positive momentum. |
Margin Expansion vs. Margin Dilution Challenges | Q3 2024 and Q4 2024 highlighted challenges from unfavorable product mix and dilution impacts from acquisitions (e.g., OpSec dilution of 250 basis points, and a noted 190 bps decline in Q1 2025 due to lower volumes) while also noting some improvement in CPI margins through productivity initiatives. | Q2 2025 focuses on margin expansion opportunities driven by improved product mix (e.g., gaming growth and CPI productivity programs) while still contending with some dilution effects from recent acquisitions. | A mixed outlook where dilution challenges persist, yet targeted operational initiatives are expected to drive margin improvements over time. |
Technology Leadership and New Product Innovation | Earlier periods consistently emphasized technology leadership with highlights including micro-optics wins, the integration of OpSec into digital authentication, and the acquisition of Tru Tag for enhanced packaging solutions, reinforcing their competitive “moats”. | In Q2 2025, the launch of new products such as “Fortress” in authentication and the introduction of next-generation offerings like the Jetscan Ultra in CPI showcase continued commitment to innovation and cementing their technology leadership. | Consistent and robust focus on innovation, with new product launches reinforcing their leadership and competitive differentiation. |
Revenue Phasing and Free Cash Flow Management | In Q3 2024, Q4 2024 and Q1 2025, revenue was noted as being lumpy—affected by delayed international shipments—and free cash flow conversion fluctuated (e.g., Q3 conversion around 89% and full-year guidance adjustments). | Q2 2025 reports an improved free cash flow conversion rate of 120% alongside a revenue phasing that is slightly weighted towards Q4, underpinned by strong performance in CPI and a full quarter of enhanced SAT sales from the integration. | Free cash flow management has clearly improved even as revenue timing remains a factor, indicating more effective working capital utilization. |
Capital Allocation, M&A, and Dividend Strategy | In Q3 2024, Q4 2024 and Q1 2025, the company underscored a balanced capital allocation strategy characterized by disciplined M&A activity and competitive dividend payments (including dividend increases), maintaining a strong balance sheet. | In Q2 2025, while the strong balance sheet and active M&A pipeline remain emphasized, there is a noticeable shift as dividend strategy is less highlighted, with more focus on reinvesting free cash flow and pursuing strategic acquisitions. | A subtle shift away from dividend emphasis toward reinvestment and strategic M&A, though capital allocation remains disciplined. |
New Technology Adoption and Execution Risks | Q3 2024 detailed the adoption of new technologies such as Tru Tag and referenced execution risks tied to integration processes and shipment timing, while Q1 2025 touched on technology leadership but with less explicit discussion of risks. | In Q2 2025, the introduction of “Fortress” and continued focus on technology adoption are paired with an acknowledgment of execution risks—including slower product adoption by brands—which are being mitigated through disciplined processes like the CBS. | Continued new technology adoption with manageable execution risks; the company is actively mitigating these risks while pushing innovation. |
External Factors Impacting U.S. Currency and Government Sales | In Q3 2024, Q4 2024 and Q1 2025, external factors such as equipment shutdowns, Fed print order declines (around 18% down), and tariffs were cited as key challenges impacting U.S. currency volumes and government sales, leading to expected declines in U.S. segment revenue. | In Q2 2025, with U.S. production resuming after technology upgrades and a robust international backlog, the company is carefully monitoring denomination mix and sees opportunities in government tax stamps, all while remaining mindful of ongoing macro uncertainties. | Gradual improvement with technology upgrades restoring production, yet the external environment continues to impose challenges that the company is actively monitoring. |
Evolving Sentiment in Core Business Segments | Q3 2024 and Q4 2024 conveyed cautious optimism with mixed sentiment across segments—strong international currency and SAT backlogs contrasted with challenges in the U.S. currency and gaming segments—while Q1 2025 had less emphasis on sentiment in isolation. | Q2 2025 reflects more positive sentiment overall, with strong performance in gaming, record international currency backlogs, and promising new product launches in authentication contributing to an upbeat outlook despite lingering challenges in certain areas. | A shift toward a more optimistic overall outlook as performance in key segments improves, though some areas continue to face headwinds. |
-
SAT Guidance
Q: Why expect lower H2 sales?
A: Management explained that despite a strong Q2, overall SAT revenue and operating profit will be weighted more into Q4 due to shipment timing and product mix adjustments, with full‐year growth remaining in the mid single-digit range and margins targeting around 21%. -
Margin Phasing
Q: How will margins improve later?
A: They noted a modest 1–2% step-up in revenue and operating margins in Q4 driven by improved gaming mix and productivity actions, which will help offset lower‐margin orders in other areas. -
CPI Performance
Q: What about CPI verticals’ outlook?
A: Management is encouraged by normalized gaming orders and expects mixed outcomes across other CPI verticals such as vending and retail, reinforcing a return to positive organic growth with potential double-digit gains in gaming. -
Authentication Synergies
Q: What is the impact of auth integration?
A: They highlighted rapid integration of De La Rue, expecting operating profit margins to climb toward 20% by 2026 through cost synergies in sales, marketing, and product rationalization; incremental EPS benefits will be clarified in due course. -
M&A Pipeline
Q: How robust is the M&A pipeline?
A: Management remains optimistic about its disciplined approach, with a strong pipeline that supports another transaction within the next year, leveraging both healthy free cash flow and strategic fit criteria. -
Authentication Segments
Q: What drives physical versus digital auth?
A: They described authentication as split between physical brand security—where demand grows with branded goods—and digital solutions for online security, both expected to deliver mid single-digit organic growth. -
U.S. Currency Redesign
Q: What’s the U.S. currency outlook?
A: Management expects U.S. currency volumes to remain in line with 2025 levels, with the key focus on denomination mix; production has resumed successfully to support a launch beginning in 2026. -
International Currency Growth
Q: What drives international currency demand?
A: They pointed to strong recurring revenue from established customers, with the core backlog up nearly 20% year over year and a pipeline of 10–15 microoptic wins reinforcing their technology leadership. -
Luxury Auth Opportunity
Q: Is luxury goods auth promising?
A: Management concurs that the stark contrast between massive luxury ad spends and minimal counterfeit prevention validates the need for authentication technology like Fortress, positioning the business well despite the traditionally slow adoption in the luxury sector.
Research analysts covering Crane NXT.