Hillenbrand Inc (HI)

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Hillenbrand (HI)

Q3 2013 Earnings Call

August 06, 2013 8:00 am ET

Executives

Chris Gordon - Director of Investor Relations

Kenneth A. Camp - Chief Executive Officer, President, Director, Chairman of K-Tron International and Chief Executive Officer of K-Tron International

Cynthia L. Lucchese - Chief Financial Officer and Senior Vice President

Joe A. Raver - Senior Vice President and President of Process Equipment Group

Analysts

Daniel Moore - CJS Securities, Inc.

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Hillenbrand Third Quarter Earnings Conference Call. [Operator Instructions] As a reminder, today's conference call is being recorded. I'd now like to turn the conference over to your host, Mr. Chris Gordon, Director of Investor Relations. Please go ahead.

Chris Gordon

Thank you, Ally, and good morning. Welcome to our earnings call for the third quarter of fiscal 2013, which ended on June 30. After the market closed yesterday, we issued our earnings press release and filed our 10-Q for the fiscal third quarter. Both of these documents are available on our website. With me on today's call are Hillenbrand President and Chief Executive Officer, Ken Camp; and Chief Financial Officer, Cindy Lucchese.

Some of the information you will your today will consist of forward-looking statements within the Safe Harbor provisions of the securities laws. These statements are not guarantees of future performance, and our actual results could differ materially from what is presented in any forward-looking statements. Please see our latest Form 10-Q filed with the SEC for a more in-depth discussion of forward-looking statements and the risks and other factors that could affect them.

During the course of the call, we will be discussing certain non-GAAP operating performance measures. For more information on those measures and their reconciliation to GAAP financial measures, we refer you to our earnings press release and our Form 10-Q on the Investor Relations tab of our website at www.hillenbrand.com.

Now let me provide some information regarding our call. We've scheduled one hour, and we'll start with prepared remarks from Ken and Cindy that should last approximately 20 minutes. Ken will start with an overview of the business for the past quarter and Cindy will follow with financial results, and then Ken will wrap up the prepared portion of the call with some closing comments. After that, we'll move directly to Q&A where we'll be joined by Process Equipment Group President Joe Raver and Batesville President Kim Ryan. If you have follow-up questions after the call has ended, please feel free to call me at (812) 931-5001 or email me at chris.gordon@hillenbrand.com.

Now it's my pleasure to turn the call over to Ken Camp, Hillenbrand's President and Chief Executive Officer. Ken?

Kenneth A. Camp

Thanks, Chris, and good morning, everyone. We appreciate you joining us today.

As many of you know, we started our journey as a separate public company a bit more than 5 years ago after the spin-off from our previous parent company. At the time, our sole business was Batesville Casket Company, the leader in the North American funeral products business. That business was and still is characterized by a terrific brand, substantial profit margins, robust cash flow and very valuable core competencies. The funeral products industry had minimum volatility. It was also characterized by a slow, but steady, increase in the rate of cremations. Over time, these conditions led to excess industry capacity and resulting price competition, circumstances that we expect to continue.

It became clear to us that these conditions require that we diversify into new areas, which had industry characteristics with greater growth opportunities. The strategy we created was to leverage our strong financial foundation and our exportable core competencies to deliver sustainable growth and long-term value for our shareholders. Starting with the acquisition of K-Tron in 2010, we have used Batesville's strong cash flow and invested it in good businesses we can make even better by effectively leveraging those core competencies.

At the outset, we recognized that the task of transformation wouldn't be easy, and it was obvious that we would be on a steep learning curve about new industries and doing business in new parts of the world. We added new talent at the executive and board levels to bolster the critical skills that we just didn't have. Perhaps most exciting, although not necessarily in a positive way, we embarked on this journey just weeks before the beginning of the 2008 economic crash. Despite the challenging times, the results have been very positive. Over the ensuing 5 years, we've grown revenue at a 25% compound annual growth rate.

At the beginning, only a few percent of our revenue came from outside North America, and 100% of it came from funeral products. This year, we expect that nearly half of our revenue will come from outside North America and 2/3 of it will come from our Process Equipment Group platform. In our most recent quarter, consolidated revenue increased more than 70% with both Batesville and Process Equipment Group platforms growing over the last year. We also had respectable increases on the bottom line with adjusted EBITDA up over 40% and adjusted earnings per share 30% higher than last year.

In addition to making 3 high-quality acquisitions since 2008, we've invested cash in positioning our operating companies to grow in new markets, preparing these businesses for successful expansion into new geographies and new customer segments. These growth investments, along with the cost of acquisition, have put some downward pressure on near-term earnings but are preparing us for greater future earnings and cash generation.

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