Hillenbrand Inc (HI)

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Hillenbrand, Inc. (HI)

Q1 2009 Earnings Call

February 6, 2009 8:00 am ET


Mark Lanning – VP IR

Kenneth Camp – President & CEO

Cynthia Lucchese – SVP & CFO


Jamie Clement - Sidoti & Company

Clint Fendley - Davenport

Jack Ripstein - Portrero Capital



Welcome to Hillenbrand’s earnings call for the first quarter 2009. (Operator Instructions) Now at this time it’s my pleasure to turn the conference over to Mark Lanning, Treasurer, and Vice President of Investor Relations.

Mark Lanning

Good morning everyone. With me today are Kenneth Camp, Chief Executive Officer, and Cynthia Lucchese, Chief Financial Officer. We would like to welcome you to our first quarter 2009 earnings call.

During the course of today’s conference call and the question and answer session that follows, we may make projections or other forward-looking statements that are subject to the Safe Harbor provisions of the securities laws regarding future events or the financial performance of the company.

We caution you that these statements are only our view of the future and that actual results may differ materially. We also alert you to the risks described in the documents we file with the Securities and Exchange Commission, such as our Annual and Quarterly Reports on Forms 10-K and 10-Q. We do not undertake any obligations to update or correct any forward-looking statements.

Now let me provide some information regarding our call. We have scheduled one hour and will start with prepared remarks that should last approximately 20 minutes. We will then move directly to Q&A. If you have any follow-up questions after the call has ended, please don’t hesitate to phone me at 812-934-7256 or email me at mrlanning@hillenbrand.com.

Now it is my pleasure to turn the call over to Kenneth Camp, the President and CEO of Hillenbrand, Inc.

Kenneth Camp

Thanks Mark, good morning everyone and thank you for joining us on our call this morning. We will be talking about a number of items starting with highlights of our performance for the first quarter of fiscal 2009 which ended December 31.

I will give you a brief overview of our results and how we performed in the current economic climate as well as a progress update on some of our key initiatives. I’ll then turn the call over to Cynthia Lucchese for details about our quarterly financial results and then I’ll wrap up the prepared portion of our call this morning with some closing thoughts.

Following that Cynthia and I will be available as always to take your questions.

Our first quarter results were very solid with net income growth of 10.4% and a commensurate increase in earnings per share. Net revenue increased modestly at 2.2% and gross margin improved 80 basis points to come back into line with our historic margin performance.

Also in the first quarter cash flow from operations increased 2.6% to $23.3 million and we repurchased shares worth $6.25 million. Additionally in an environment where many companies have cut or eliminated their dividends in December we increased our annual dividend by $0.01 per share to an annual level of $0.74 per share.

This is consistent with our previously stated commitment to return a meaningful portion of our strong cash flow to shareholders and to reinvest a similar amount in growth initiatives. Cynthia will soon give you an in depth look at our financial results and some of the key drivers behind them, however I’ll first give you a quick look at our growth initiative within the Batesville Casket Company.

Let’s start with a little background for those who may be new to our call, our products aren’t purchased on a discretionary basis by consumers. Our funeral home customers, some 16,000, generally order a casket from us immediately after a family has selected a casket. The number of funerals that involve a casket is driven by the number of total deaths in a given period and slow but offsetting effect of the steady increase in cremation.

The number of deaths in the first quarter and carrying into January has been lower then we would normally see in this period in line with what we’ve heard from other public company reports. In addition we haven’t seen the typical seasonal increase in deaths resulting from influenza and pneumonia and indications from the US Center for Disease Control and other sources, are that this year’s flu vaccine has been very effective at reducing the incidence and severity of influenza and resulting pneumonia.

This means that the typical spike in mortality has not emerged. It is possible for an increase to occur yet in the typical winter season, but our data suggests that this will be a year of more steady demand. Because no one can accurately predict the demand for caskets, certainly not in the short-term, our business model is to provide our funeral home customers with consumer tested products and support systems that enable families to select a casket that best fits their needs.

This process is based on the experience that a well-informed consumer makes a better buying decision. And that really leads right into one of our primary initiatives, what we refer to as merchandising. The heart of this process of providing consumer the right products and the right information is the Batesville merchandising system.

Throughout 2008 we talked a lot about what merchandising is and why we believe its important for incremental growth. Approximately one-fifth of our independent buying accounts are merchandised to some degree. In this quarter funeral homes that have implemented a merchandising system outperformed those that haven’t by double-digits compared to the prior year. This is consistent with the results we’ve seen in the past several quarters as well.

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