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    Crane NXT Co (CXT)

    Q4 2023 Earnings Summary

    Reported on Jan 13, 2025 (After Market Close)
    Pre-Earnings Price$58.76Last close (Feb 15, 2024)
    Post-Earnings Price$59.10Open (Feb 16, 2024)
    Price Change
    $0.34(+0.58%)

    What went well

    • Crane NXT's international currency business secured a significant multiyear order in Q4, increasing backlog by 26%, expected to have a meaningful revenue impact over the next three years.
    • The company's RAPID Vision micro-optics technology is gaining traction, with several central banks evaluating it for future currency designs, highlighting Crane NXT's technological leadership and potential for future growth.
    • Crane NXT plans to accelerate growth through M&A in the product authentication market, with a strong pipeline and confidence to announce their first acquisition in 2024, aiming for double-digit ROIC by year 5.

    What went wrong

    • Significant first-half revenue and margin weakness is expected due to the shutdown of papermaking equipment for upgrades in the U.S. currency business and destocking in the gaming segment, with revenue phasing of 40% in H1 and 60% in H2, which raises concerns if the anticipated recovery in the second half does not materialize. , ,
    • The gaming segment, which is a higher-margin business, is facing a significant inventory overhang with customers holding 6 months of excess inventory, leading to substantial revenue decline in the first half and potential margin compression. , ,
    • Margins are under pressure due to an unfavorable mix shift as the higher-margin gaming revenues decline and lower-margin currency sales increase, potentially leading to overall margin compression in 2024. ,

    Q&A Summary

    1. Revenue and Earnings Weighting
      Q: How are revenue and earnings split between first and second half?
      A: Due to the U.S. government shutdown impacting currency production, revenue will be roughly 40% in the first half and 60% in the second half. The shutdown creates a headwind in the first half, with currency expected to be roughly flat before returning to growth in the second half.

    2. Gaming Market Destocking
      Q: What's the outlook for gaming revenue and inventory levels?
      A: The gaming market remains healthy, but customers are reducing elevated inventory levels. The company expects gaming orders to return in Q4, exiting the year with mid-single-digit growth. This destocking creates a headwind in the first half, impacting CPI revenues.

    3. Margin Outlook and Mix Impacts
      Q: How will mix impact margins this year?
      A: Growth in international currency at mid-single digits comes with lower margins, creating a mix headwind. The decline in higher-margin gaming revenue also affects margins. Despite this, the company is confident in its risk-adjusted guidance and is taking actions to fortify margins.

    4. International Currency Growth
      Q: What growth is expected in international currency?
      A: The company expects mid-single-digit growth in international currency, based on high visibility into the pipeline. A multiyear order secured in Q4 will have a meaningful impact over the next three years.

    5. Currency Redesign Rollout
      Q: How will the U.S. currency redesign impact revenues?
      A: Full production of the new $10 bill starts in 2026, with benefits to margins expected then. The company anticipates continuous margin improvement as new bills are introduced from 2026 through 2034.

    6. M&A in Product Authentication
      Q: What's the outlook for M&A in product authentication?
      A: The company sees product authentication as a market growing at mid-single-digit plus. M&A is viewed as an accelerator, and the company is on track to announce its first acquisition in 2024.

    7. Pricing and Cost Offsetting
      Q: How is the company managing pricing and costs?
      A: Teams continue to more than offset costs with pricing, leveraging the Crane Business System. Mid-single-digit growth is expected in all CPI verticals outside of gaming.

    8. Visibility in Gaming and Retail
      Q: What gives confidence in gaming and retail recovery?
      A: Close relationships with major OEM customers provide visibility into their inventory levels. The gaming market is expected to return to normal order rates in Q4. In retail, projects delayed in 2023 are expected to return in 2024, with improvements already seen.

    9. CPI Margins Amid Sales Decline
      Q: How will CPI margins be affected by sales decline?
      A: While facing tough comps in gaming, other CPI areas are growing at mid-single digits. The company has adjusted its cost structure to fortify margins despite revenue headwinds.

    10. $10 Redesign and Micro-Optics
      Q: When will you know if the $10 redesign involves micro-optics?
      A: Confident in the long-standing relationship with the BEP, but cannot comment until the Treasury announces the redesign, expected in late 2025.

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