Hillenbrand Inc (HI)

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Industry: Consumer Durables
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Hillenbrand, Inc. (HI)

Q2 2014 Results Earnings Conference Call

May 06, 2014, 08:00 AM ET

Executives

Chris Gordon - Director of Investor Relations

Joe Raver - Chief Executive Officer, President and Director

Elizabeth Dreyer - Chief Accounting Officer and ‎Interim CFO

Kimberly K. Ryan - President, Batesville and Senior Vice President, Hillenbrand, Inc.

Thomas Kehl - President, Coperion

Analysts

Daniel Moore - CJS Securities, Inc.

John Franzreb - Sidoti & Company, LLC

Stephen A. O'Neil - Hilliard Lyons, Research Division

Clint Fendley – NewBridge Group, Inc.

Rich Glass - Deutsche Bank

Presentation

Operator

Good morning, everyone, and welcome to Hillenbrand's Earnings Teleconference for the Second Quarter of Fiscal 2014.

A replay of this call will be available until midnight, Eastern Time, Tuesday, May 20, 2014, by dialing 1-855-859-2056 toll-free in the United States and Canada or 1-404-537-3406 internationally and using the conference ID number 30133997.

This webcast will be archived on the company's website at www.hillenbrand.com through June 6, 2014. If you ask a question during today's call, it will be included in any future use of this recording. Also note that any recording, transcript or other transmission of the text or audio is not permitted without Hillenbrand's written consent.

At this time, it's my pleasure to turn the conference over to Joe Raver, Hillenbrand's, President and Chief Executive Officer. Mr. Raver, please go ahead.

Joe Raver

Thank you, Laurel, and good morning. I appreciate you joining us this morning for our discussion of Hillenbrand's results for the second quarter of fiscal 2014, which just ended this past March 31st. I'm joining in the prepared remarks portion of the call today by, Elizabeth Dreyer our Chief Accounting Officer and ‎Interim CFO, Chris Gordon, Director of Investor Relations is also with us here today.

And then during the Q&A portion of the call, we will be joined by Thomas Kehl, President of Coperion, and Kim Ryan, President of Batesville.

Prior to getting started, I'd like to briefly remind you that during the call we may use certain forward-looking statements that are subject to the Safe Harbor provisions of the securities laws. These statements are not guarantees of future performance, and our actual results could differ materially.

Also during the course of this call, we will be discussing certain non-GAAP operating performance measures. I really encourage you to take a look at our 10-Q which can be found on our website for a deeper discussion of forward-looking statements, the risk factors that could impact our actual results and more information on our use of non-GAAP operating measures and the reconciliation to GAAP financial measures.

Before we get into the results and segment performance discussion, I want to take a few seconds to remind you of our overall strategy. If you followed us for a while, you know we have a pretty straight forward strategy that is to leverage the strong financial foundation of Batesville, acquire good business in growing markets and make them better to the application of Lean, account development and strategy management.

As we've executed this strategy over the past several years, we've completed a number of acquisitions that have transformed Hillenbrand into a global diversified industrial company. And today we participate in a number of large and growing end markets all around the world.

Our largest and most recent acquisition Coperion is now operating effectively within the Hillenbrand infrastructure and is progressing nicely with the subsequent integration of K-Tron.

Now let me turn to the results for the second quarter. I will talk mostly about how we preformed compared to expectations and Elizabeth will spend more time discussing results compared to prior year.

As you saw on the release last night, revenue for the quarter was relatively flat and lower than we expected. I'll get into a bit more detail in a second, but on a high level on the Process Equipment Group side of the business, orders were strong as indicated by a record level backlog.

However, the timing of large orders dropped lower than expected revenue. And on the Batesville side of the business, the burial casket market was down more than we had expected.

Despite lower than expected volumes, our margins were inline with expectations and adjusted EPS was higher than we anticipated due to other income gains that will be covered in more detail later in our prepared remarks.

Now let me turn the discussion to segment performance and continue with the Process Equipment Group.

As you know, our strategy in this segment is to expand globally, penetrate underserved end markets and grow on the top and bottom line by applying Lean in all aspects of this business.

The global expansion efforts are going well, Rotex and TerraSource are both leveraging Coperion facilities in India and Russia to warehouse parts and their bookings some nice orders in these locations.

Coperion and K-Tron are working well together in North America where the petrochemical and polyolefin markets are strong.

Europe's economy has been steady in the last couple of quarters with some improvement in bookings there mainly driven by Germany and like everyone else, we're seeing some slow down in China.

Just a quick note about the conflict between Russia and Ukraine, we're monitoring the situation from a few different perspectives including making sure that we're in compliance with all U.S. and easy sanctions, we're accessing the impact on large projects in the region and generally we're monitoring the impact on the regional economies there.

Revenue in the Process Equipment Group was up about 5% compared to the prior year but as I mentioned earlier, it was lower than we expected due to the timing of large orders. You can see by the sizeable increase in backlog that we ultimately received a number of large orders during the quarter particularly from North American shale gas projects but they were later than plants and therefore generated less revenue during the quarter.

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