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Edited Transcript of HI earnings conference call or presentation 2-May-19 12:00pm GMT

Q2 2019 Hillenbrand Inc Earnings Call

BATESVILLE Jul 7, 2019 (Thomson StreetEvents) -- Edited Transcript of Hillenbrand Inc earnings conference call or presentation Thursday, May 2, 2019 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Joe A. Raver

Hillenbrand, Inc. - President, CEO & Director

* Kristina A. Cerniglia

Hillenbrand, Inc. - Senior VP & CFO

* Richard A. Dudley

Hillenbrand, Inc. - Director of IR

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Conference Call Participants

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* Daniel Joseph Moore

CJS Securities, Inc. - Director of Research

* James Martin Clement

The Buckingham Research Group Incorporated - Analyst

* John Edward Franzreb

Sidoti & Company, LLC - Senior Equity Analyst

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Presentation

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Operator [1]

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Good morning, everyone, and welcome to Hillenbrand's Earnings Teleconference for the Second Quarter of Fiscal 2019. A replay of this call will be available until midnight Eastern Time, May 16, 2019, by dialing 1 (800) 585-8367 toll-free in the United States and Canada or 1 (416) 621-4642 internationally and using the conference ID number 5294659. This webcast will be archived on the company's website at http://ir.hillenbrand.com through May 31, 2019.

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 any 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 call over to Rich Dudley, Director of Investor Relations. Mr. Dudley, please go ahead.

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Richard A. Dudley, Hillenbrand, Inc. - Director of IR [2]

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Thank you, operator. Good morning, everyone, and welcome to Hillenbrand's Second Quarter Fiscal 2019 Conference Call. I'm joined by our President and CEO, Joe Raver; along with our Senior Vice President and CFO, Kristina Cerniglia.

During today's call, we'll discuss second quarter financial results and discuss the outlook for our businesses. After that, we'll open the call up for Q&A. Before we get to the results, let me remind you that our comments may contain certain forward-looking statements that are subject to the safe harbor provisions under 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'll be discussing certain non-GAAP operating performance measures. I encourage you to take a look at our 10-K and 10-Q which can be found on our website for a deeper discussion of forward-looking statements and the risk factors that could impact our actual results. For more information on our use of non-GAAP operating measures and the reconciliation to GAAP financial measures, please refer to our most recent 10-Q and the slides presented with this call.

At this time, I'll turn the call over to Joe.

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Joe A. Raver, Hillenbrand, Inc. - President, CEO & Director [3]

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Thanks, Rich, and good morning, everyone. As you saw in the release last night, we grew the top line 3% year-over-year in the second quarter on the strength of continued momentum in our plastics business. We've now delivered consolidated year-over-year organic revenue growth for 9 consecutive quarters, and we've increased the backlog every quarter over that period.

Process Equipment Group grew 9% and finished the quarter with another record backlog of $960 million. In contrast, Batesville faced a challenging quarter. Volume was significantly lower than last year largely due to a lower mortality rate associated with a less severe flu season. However, Batesville EBITDA margins were in line with our expectations at 22.9%. Despite the Batesville segment headwind, we delivered solid second quarter results with earnings per share of $0.60 or $0.63 on an adjusted basis, which was below the prior year result by 3%, but consistent with our expectations.

Now I'll make some comments on each of our segments. In the Process Equipment Group, our objectives are to strengthen our existing platforms in plastics and to grow our food, pharmaceuticals, separation and flow control businesses in the platforms with leadership positions in their core markets. The plastics business, specifically large Coperion extrusion and material handling systems used in base resin production, has been strong for several quarters, and that trend continued in the second quarter. These large systems have been the most substantial contributors to revenue growth over the first half of the fiscal year, and they account for a significant portion of the backlog we expect to work through over the next several quarters.

Both American and Asian markets where the majority of new polyolefin production capacity is expected to come online over the next few years have been especially strong. We've won a number of key projects recently, and we think much of our success can be attributed to the performance of Coperion systems, which we believe are the best in the industry. We continue to reinvest in the business to strengthen our leadership position by developing innovative solutions to increase system output and reduce the total cost of ownership for our customers.

As expected, we experienced some moderation in sequential order volume for these large projects this quarter compared to the record level we brought in, in the first quarter. However, order intake remained higher than it was a year ago. In addition, we continue to see new projects added to the pipeline in the U.S. and China as large global petrochemical companies moved forward on investments designed to increase capacity. There continues to be a substantial pipeline of new projects on the horizon, and we believe we are well positioned to capitalize on this opportunity.

During the quarter, we also had some success in processed food and pharmaceutical applications. In the pharmaceutical industry, we're seeing a shift from batch to continuous processing. We are a technology leader in the areas of high-accuracy feeders and continuous farm extruders that have become critical components in production processes. The long-term outlook for the food business remains attractive as well, and we have visibility into a variety of projects in the pipeline for which our products are well suited. We remain bullish on the opportunity for profitable growth in these areas, and we intend to continue to build out this business both organically and inorganically.

The engineered plastics business remains healthy and has continued to grow modestly. However, we're watching cautiously as we see possible signs of a slowdown in the automotive industry and slowing economic growth in China. At the same time, we believe we can grow faster than the underlying markets we serve by partnering with our customers to help them develop the next generation of innovative technical plastics.

As expected, sales of separation equipment used to process proppants were down compared to last year. Demand for new capital equipment for separating proppants remains low, and we anticipate that will continue in the near term. On the other hand, we've seen some growth in other end markets where separation equipment is needed including fertilizers, and we expect contributions from the BM&M acquisition will further offset some of the current weakness in proppants.

In flow control, we've seen limited investment recently by North American municipalities, and mining and industrial markets have been mixed. Overall, we're anticipating modest growth from the pumps and valve businesses in the second half of the year.

In summary, for the Process Equipment Group, we had a good first half of the year with strong revenue growth and record backlog, and we're excited to carry that momentum forward.

Now if we turn to Batesville. Our strategy for this business is to build on our leadership position and leverage the Hillenbrand operating model to run the business as efficiently as possible and generate predictable cash flow to fuel Hillenbrand's growth initiatives. The second quarter was challenging for the business. We anticipated a more subdued flu season compared to last year, but the estimated mortality rate was even lower than we expected. While that's generally good news for society, it resulted in a year-over-year estimated drop in demand for burial caskets, and Batesville's revenue was down nearly 10% against a challenging prior year comparison. That decline is comparable to past years when a strong flu season was followed by a much weaker one, but we anticipate a much more stable market in the second half of the year. On top of the pressure from lower volume, cost inflation and product mix continued to be headwinds in the second quarter.

In response to these challenges, Batesville continues to pursue productivity savings to help stem some of the margin pressure. The team has worked tirelessly to reduce cost and operate a lean and flexible organization to better serve our customers. As I just mentioned, we anticipate burial volumes will stabilize during the second half of the fiscal year which will result in more consistent year-over-year results. We also expect Batesville will continue to generate strong predictable cash flow to support the execution of our strategy.

Okay. Before I turn the call over to Kristina, let me briefly comment on M&A. We remain focused on building platforms to develop scale and enhance leadership positions in our targeted markets of plastics, prudent pharmaceuticals, separation and flow control.

Last quarter, we announced the acquisition of BM&M Screening Solutions, a small acquisition that improves our position in the separation space. BM&M delivered solid results in its first quarter as part of Hillenbrand and the integration is going well. We'll continue to look for strategic acquisitions where we think we can make our businesses stronger, accelerate profitable growth. As always, we are committed to a disciplined approach to ensure the investments we make align with our strategy to create value for our shareholders.

Now let me turn the call over to Kristina to review our second quarter financial results and outlook for the second half of 2019. Kristina?

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Kristina A. Cerniglia, Hillenbrand, Inc. - Senior VP & CFO [4]

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Thanks, Joe, and good morning, everyone. We reported total revenue of $465 million in the second quarter, representing growth of 3% year-over-year after a 4% foreign currency headwind. Growth was driven by the Process Equipment Group which was up 9% year-over-year. Batesville faced weaker demand in the quarter and was down nearly 10%.

Adjusted EBITDA decreased 2% year-over-year to $75 million, and adjusted EBITDA margin decreased 80 basis points to 16.1% primarily driven by lower volume in Batesville, cost inflation and product mix, which were partially offset by pricing and productivity improvements. GAAP net income of $38 million or $0.60 per share was up $0.94 per share compared to last year.

As you will recall, last year, we incurred approximately $0.98 per share of noncash charges for goodwill and trade name impairments that did not repeat related to a reporting unit of the Process Equipment Group with exposure to domestic coal mining and power. The effective tax rate for the quarter was 25.9%.

Adjusted net income of $40 million or $0.63 per share was 3% below prior year as lower profit from Batesville was not fully offset by profitable growth in the Process Equipment Group. On an adjusted basis, the effective tax rate of 25.9% was 50 basis points higher year-over-year largely due to the mix of income from higher tax jurisdictions. We generated $11 million of operating cash flow which was about $24 million lower than last year's second quarter. We also returned $13 million to our shareholders in the form of cash dividends. As expected, the timing of large projects caused working capital requirements to fluctuate accounting for the majority of the decrease in the cash produced. While we expect working capital will continue to fluctuate over the next several quarters, our goal remains to generate free cash flow that exceeds net income over the full fiscal year. We'll continue to look at all aspects of working capital including aggressively managing inventory and negotiating better terms with our suppliers and our customers as we seek to maximize our potential cash flow.

Turning to the next slide. Let me cover segment performance beginning with the Process Equipment Group. Process Equipment Group revenue of $327 million increased 9% after a 5% foreign currency headwind. Growth was primarily driven by continued strong demand for large plastics projects and the recent acquisition of BM&M. Organic revenue growth was 7%.

Parts and service business remains solid in the quarter, and we expect constant currency revenue growth for the full year.

Adjusted EBITDA margin of 17% increased 40 basis points primarily driven by operating expense leverage. Pricing and productivity improvements more than offset inflation. However, we continue to face mixed pressure with lower sales of separation equipment for proppants and an increased proportion of lower-margin large systems projects. As you will recall, these large projects have a high proportion of pass-through content and tend to come with lower margin. We expect to see continued margin pressure for these projects over the back half of the year. At the same time, we believe that growing the installed base of these systems will lead to new opportunities for profitable parts and service revenue in the future. As expected, the level of new orders moderated a bit compared to the record first quarter but remained higher than last year. The total backlog expanded again this quarter, growing $14 million or about 1% sequentially over the first quarter to $960 million. That represents growth of 28% over last year's second quarter. Excluding foreign currency headwinds, backlog grew 37% year-over-year. Not surprisingly, large plastics extrusion and material handling system constituted most of the increase. Keep in mind a large portion of these systems projects are scheduled to be delivered outside of this fiscal year which we believe positions us well for the future.

Looking ahead to the back half of the year. We anticipate demand for separation equipment will remain below prior year level. On the other hand, there remains a healthy pipeline of announced polyolefin projects. We don't expect these projects to drive revenue in the current fiscal year, but we're encouraged by indications of sustained momentum for investment in new capacity. Again, we believe winning these large systems projects will fuel growth in parts and service revenue in the future.

Moving to the Batesville business. Revenue of $138 million was down nearly 10% compared to the prior year. The decrease was primarily the result of lower estimated demand for burial caskets. The estimated mortality rate associated with this flu season was significantly lower than last year which factored into a decrease in the estimated number of deaths. Additionally, the industry continues to face a predictable increase in the cremation rate.

Adjusted EBITDA margin of 22.9%, while in line with our expectations, was 240 basis points lower than the prior year mainly driven by lower volume, less favorable product mix and cost inflation. The Batesville team fully offset material cost inflation with productivity improvement as the business continues to leverage the Hillenbrand operating model to aggressively drive efficiencies and control cost.

Before turning to our outlook, I'll comment briefly on capital allocation. We've generated a lot of cash over the past several quarters. We're currently operating with a relatively low leverage with a net debt to EBITDA ratio of about 1.0, and we have a strong balance sheet. We believe this gives us ample flexibility to execute our strategy. Our main focus is reinvesting in our businesses both organically and inorganically to accelerate profitable growth and build stronger platforms in the key areas we've defined.

With that, let me turn to our outlook for the second half of fiscal 2019. We are reaffirming our guidance for top line growth in earnings for the year. As a reminder, we expect consolidated revenue growth of 1% to 3% including an estimated 2% foreign currency headwind. We're forecasting Process Equipment Group revenue to grow 3% to 5% including an estimated 3% foreign currency headwind. We expect large plastics projects and backlog and revenue from BM&M to put us at the high end of that range. As that implies, we expect low single-digit revenue growth in the second half of the year as we come up against tougher comparison. We're targeting 30 to 60 basis points of EBITDA expansion for the full year in the Process Equipment Group. We anticipate margin pressure in the third quarter as a result of large project timing and the prior year contribution from proppants, followed by considerably stronger margins in the fourth quarter.

Batesville sales are projected to decrease 1% to 3% for the full year. We anticipate being at the low end of this range as a result of the less severe flu season. We continue to expect Batesville's adjusted EBITDA margin to be approximately 21% for the full year. Adjusted earnings per share for 2019 is projected to be $2.45 to $2.60. The adjusted EPS range reflects earnings growth of 1% to 7% and reflects a negative foreign currency impact of approximately 2%. We expect year-over-year earnings growth to be modest in the third quarter followed by a much stronger fourth quarter. We anticipate our adjusted effective tax rate to be at the high end of our original guidance of 25% to 26% for the year. We remain on track to meet the financial objectives we set for the business this year, and we are reaffirming guidance. We're confident the business is on the right track to achieve sustainable profitable growth.

At this time, I'll turn the call back over to Joe.

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Joe A. Raver, Hillenbrand, Inc. - President, CEO & Director [5]

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Thanks, Kristina. Our goal is to transform Hillenbrand into a world-class global diversified industrial company in the eyes of our customers, our employees, our communities and our shareholders. Overall, our financial performance in the first half of the fiscal year was in line with our expectations as sustained strength in large plastics projects helped overcome weak demand for Batesville's burial caskets. Our team continued to execute successfully on our key strategic priorities for profitable growth. Additionally, we've leveraged the Hillenbrand operating model to drive productivity improvements across the business. We're well positioned to deliver on our targets for both top line and bottom line growth for the year. We expect to generate solid cash flow during the second half, and we believe our balance sheet is in great shape to execute our long-term growth strategy.

That concludes our prepared remarks. We're ready to take your questions. Operator, would you please open the lines?

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Questions and Answers

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Operator [1]

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(Operator Instructions) And your first question comes from Daniel Moore with CJS Securities.

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Daniel Joseph Moore, CJS Securities, Inc. - Director of Research [2]

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Start with clearly pretty solid results given the outsized declines in -- at Batesville. Clearly, volumes are challenged in Q2. What do you see in so far, Joe, in the June quarter as far as trends? I know you mentioned you had more normalized trends in the second half, but what are we seeing so far? And given the declines in the quarter, are you seeing any competitors acting more aggressively on price? Or has it been pretty rational?

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Joe A. Raver, Hillenbrand, Inc. - President, CEO & Director [3]

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So just, thanks. Good question, Dan. Thank you. And just a reminder, the second quarter is where we see the most variability because it's typically -- our second fiscal year quarter because it's where the flu season is. And so as you saw, it was a pretty challenging quarter for us. We are seeing sort of more normal year-over-year in line with expectations in terms of deaths and burials, so we expect to see that in the second half of the year. And we have a long history of data around that, and the second half of our fiscal year tends to be really stable. It's always a challenge when there's a difficult quarter in the second quarter. The smaller competitors are left with inventory and work to move that to generate cash, and so we saw some of that during the second quarter. I think we're working our way out of that but anticipate a relatively stable and typical second half of the year.

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Daniel Joseph Moore, CJS Securities, Inc. - Director of Research [4]

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Got it. And then I think in your prepared remarks, you mentioned a lot of puts and takes, a lot of positives. But also on the cautious side, China auto slowing and maybe some second derivative impact on your demands -- from demand for midsize plastics. What are the trends you're seeing there? Is that slowdown accelerating? Is it more a function of what you saw last quarter and you're cautious just would have -- and any additional color would be great.

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Joe A. Raver, Hillenbrand, Inc. - President, CEO & Director [5]

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Yes, I think we're seeing what the rest of the world is seeing when it comes to automotive and to China. And so we've been relatively stable on a year-over-year basis. I think we expect order intake to moderate a little bit as we go into the second half of the year just based on what we're seeing in terms of projects. And again, that's sort of moderating demand. I don't want to overemphasize, it's still at a very good level compared to our history, and so there are still projects out there at a good level. The year-over-year comps are getting a little bit tougher, but as we said in our prepared remarks, we also are still seeing pretty solid project announcements and progress on larger polyolefin systems. So I want to overemphasize what we're seeing in the midsize projects, but it is certainly much more modest growth expectations compared to the larger projects.

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Daniel Joseph Moore, CJS Securities, Inc. - Director of Research [6]

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Got it. And lastly from me on the first cut in terms of process equipment, 10th straight quarter of backlog increases. Obviously, you mentioned the pipeline remained strong. Just in terms of expectations, given you usually ship a lot of equipment in the back half of the year, will we expect backlog to moderate to some degree for the remainder of at least fiscal '19? What are the expectations there?

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Joe A. Raver, Hillenbrand, Inc. - President, CEO & Director [7]

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Yes. So as you know, we typically see the backlog come down a little bit in the fourth quarter just based on shipping a lot of product in the fourth quarter. And given the exceptional demand that we've had in the first half of the year, particularly for large projects, I think it's hard to predict because you can't tell which product is going to win or not win. But I would say that we expect orders to moderate a little bit and backlog to come down a bit in the second half of the year, particularly in the fourth quarter as we deliver some of the larger projects in the fourth quarter.

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Operator [8]

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Your next question comes from John Franzreb from Sidoti & Company.

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John Edward Franzreb, Sidoti & Company, LLC - Senior Equity Analyst [9]

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Let's get started with process. Could you just kind of remind me, Joe -- I guess a couple of things. Joe, were you surprised by the relative order bookings that you received in process? And can you kind of remind us how much of what you shipped last quarter is still pulling from backlog, how old that backlog is and how much are you shipping that would be more of a short cycle in nature?

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Joe A. Raver, Hillenbrand, Inc. - President, CEO & Director [10]

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Yes, let me try to answer that question. I mean in terms of the way the orders have flowed in over the quarters, I would say our first quarter was an exceptional quarter, right? So we saw some projects that we actually expected to close in the second quarter come into the first quarter. And then our second quarter, of course, was strong as well. And so what I say we're surprised, we were sort of pleasantly surprised which we are a little ahead of where we expected to be in terms of the timing of the orders. But again, we can see those orders for a relatively long time, and as I mentioned earlier, I think we'll see orders moderate a little bit as we go into the second half of the year.

In terms of shipping from backlog, long cycle versus short cycle, the parts and service business is relatively stable on a quarter-over-quarter basis, and that continues to be a good piece of business for us. And then we had more larger projects ship in the quarter, so more longer cycle projects ship in the quarter. And we, based on our backlog, expect that to increase in the second half. So we expect to see some of those larger projects ship and be fulfilled in the second half of the year. So when I think about our mix of business as a percentage in the second half of the year, we've seen growth over the last year in larger projects, we'll see that accelerate a little bit in the second half of the year. So we'll see more revenue. As you know, that carries slightly lower margins or lower margins because of the buyout content. And so we expect to see revenue strong -- relatively strong, but a chunk of that will come from those larger projects. And then as we look out, those projects are starting to get scheduled. Most of what we're closing now you're seeing in backlog will not be delivered this year. It's delivered next year and then even into -- a little bit into the next year. So we expect that, that mix of large projects to be relatively high over the coming, say, 4 or 5 quarters.

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John Edward Franzreb, Sidoti & Company, LLC - Senior Equity Analyst [11]

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Okay. Great. And can you just kind of give us some updated thoughts on -- well, you mentioned the screen sales are still soft, but what are your thoughts about what's going on in the frac market and proppants market? Can you just kind of -- where we are in the cycle? What are you hearing from customers? An update there'd be helpful.

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Joe A. Raver, Hillenbrand, Inc. - President, CEO & Director [12]

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Sure. So just a comment about our separation business. If you take out the proppants which is very cyclical, the underlying business is in great shape, right? It's performing well. It's getting nice growth in a number of end markets. What I mentioned in the prepared remarks was fertilizer as we've seen prices come up a little bit and some capacity come online. Related to the fracking market, we continue to see really soft demand in the fracking market. I think there's overcapacity right now in the industry, and we don't see an end to that at the moment, but this is -- as you know, these cycles happen relatively fast and go up and down quickly, so -- but we're not seeing any signs of that coming back right now.

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John Edward Franzreb, Sidoti & Company, LLC - Senior Equity Analyst [13]

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Okay. Shifting to Batesville, I was a little surprised that you didn't pull down your revenue expectations for the year only because that kind of suggests the second half revenue has to be above the first half to hit the low end of the target. Is there any reason to expect that? Or is there -- I can't understand why that would be the case.

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Joe A. Raver, Hillenbrand, Inc. - President, CEO & Director [14]

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Yes, that's a great question. So if you look at our first half, the first half in terms of just the market was pretty soft. And oftentimes what you see then is the second half is a little bit stronger than what you would normally see because the flu season was pretty mild. And so we'll have to continue to perform well for us to be at that negative 3%. And so I think Kristina said in her prepared remarks we expect to be at the low end of that range, and so yes, we'll have to have a nice second half and the market will have to be -- but we expect that given sort of the way the market has behaved historically.

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John Edward Franzreb, Sidoti & Company, LLC - Senior Equity Analyst [15]

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So kind of a reversion to the mean expectations?

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Kristina A. Cerniglia, Hillenbrand, Inc. - Senior VP & CFO [16]

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Yes.

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Joe A. Raver, Hillenbrand, Inc. - President, CEO & Director [17]

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Yes. Yes, there's a little bit of a pull forward with the flu that happens occasionally, so people who are compromised will die earlier because of flu and so you tend to have a little bit better second half when there's a big flu season.

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John Edward Franzreb, Sidoti & Company, LLC - Senior Equity Analyst [18]

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Okay. And one more thing on...

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Joe A. Raver, Hillenbrand, Inc. - President, CEO & Director [19]

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Or I'm sorry, a better second half...

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Kristina A. Cerniglia, Hillenbrand, Inc. - Senior VP & CFO [20]

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(inaudible)

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Joe A. Raver, Hillenbrand, Inc. - President, CEO & Director [21]

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Sorry, a better second half when there's a weak flu season.

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Kristina A. Cerniglia, Hillenbrand, Inc. - Senior VP & CFO [22]

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Right.

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John Edward Franzreb, Sidoti & Company, LLC - Senior Equity Analyst [23]

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Okay. Fair enough. And one more thing on Batesville, if I did the math right, it looks like the decremental EBITDA margin in Batesville is nearly 50%. You alluded to, I think, 240 basis points year-over-year which was volume and cost inflation. I'm actually curious how much of that was the volume side of that decremental margin year-over-year?

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Kristina A. Cerniglia, Hillenbrand, Inc. - Senior VP & CFO [24]

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Yes. So John, this is Kristina. When we look at the margin degradation, I think I mentioned in my prepared remarks that the productivity that the company generated more than offset the material cost inflation. So that 240 basis points that you're seeing in decline is primarily as a result of the 10% volume decline.

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John Edward Franzreb, Sidoti & Company, LLC - Senior Equity Analyst [25]

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Okay, so it's all the volume. Okay. Great.

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Operator [26]

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(Operator Instructions) Your next question here comes from Jamie Clement with Buckingham.

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James Martin Clement, The Buckingham Research Group Incorporated - Analyst [27]

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Guys, looking back at last year and kind of thinking about Batesville for the second half, can you kind of remind us of the distortion that the upfront customer incentive in the third quarter created? And kind of help us bridge kind of third quarter last year to third quarter this year.

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Kristina A. Cerniglia, Hillenbrand, Inc. - Senior VP & CFO [28]

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Yes. So as we think about third quarter from last year to this year, we did mention that we had a customer contract. That will account for a couple of 100 basis points as it relates to volume.

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James Martin Clement, The Buckingham Research Group Incorporated - Analyst [29]

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Okay. And then there -- and that's kind of...

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Kristina A. Cerniglia, Hillenbrand, Inc. - Senior VP & CFO [30]

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So Jamie, I think the last question you heard, how are we going to remain relatively flat to meet the low end of the range, that is one of the reasons why.

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Joe A. Raver, Hillenbrand, Inc. - President, CEO & Director [31]

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Yes. And that...

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Kristina A. Cerniglia, Hillenbrand, Inc. - Senior VP & CFO [32]

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We will not have that repeat.

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James Martin Clement, The Buckingham Research Group Incorporated - Analyst [33]

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Yes. And that's why I brought it up. And kind of -- I mean is -- without I mean getting real specific, is there a way of thinking about kind of EBITDA margin on that distortion from last year?

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Kristina A. Cerniglia, Hillenbrand, Inc. - Senior VP & CFO [34]

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Yes. We probably won't -- we won't talk to that on the call right now.

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James Martin Clement, The Buckingham Research Group Incorporated - Analyst [35]

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But that helps you -- but you can't -- what was your comment in terms of full year Batesville margin? Was it 21%?

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Kristina A. Cerniglia, Hillenbrand, Inc. - Senior VP & CFO [36]

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Yes, it will be...

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James Martin Clement, The Buckingham Research Group Incorporated - Analyst [37]

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Okay. Will that...

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Kristina A. Cerniglia, Hillenbrand, Inc. - Senior VP & CFO [38]

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We're guiding 21%.

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James Martin Clement, The Buckingham Research Group Incorporated - Analyst [39]

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Okay. Well, then I think that gives us enough. All right. And also just one last thing. The $200 million share repurchase authorization, I think it was -- was it early December, you did not buy back any during the quarter, right? I just took a quick look at the Q. Am I right about that?

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Kristina A. Cerniglia, Hillenbrand, Inc. - Senior VP & CFO [40]

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Yes, you are correct.

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James Martin Clement, The Buckingham Research Group Incorporated - Analyst [41]

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How -- as you think about the M&A opportunities that are out there but also your low leverage which keeps on getting lower, at what point in time would you think about maybe stepping into this, then buy back more of the stock?

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Joe A. Raver, Hillenbrand, Inc. - President, CEO & Director [42]

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Yes. So as you know, Jamie, we take a holistic view of our capital allocation strategy, and there are a bunch of things that go into that. I would just mention that our capital allocation strategy really hasn't changed. I agree with you we're at the low end of our leverage. We will be looking to -- absent M&A, we'll be looking to buy shares back. But again, we did not generate a ton of cash in the quarter and so -- but our allocation -- capital allocation strategy hasn't changed, and we would -- we'll continue to look to buy back shares, again, if there's no better use for the capital because we are in pretty good shape in terms of our balance sheet and leverage.

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Operator [43]

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And there are no further questions at this time. I will turn the call back over to Joe Raver for final comments.

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Joe A. Raver, Hillenbrand, Inc. - President, CEO & Director [44]

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Thank you, operator. And again, I want to thank everyone for joining the call today. We look forward to speaking with you again in August as we report our fiscal third quarter results. Have a great day. Thanks.

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Operator [45]

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And ladies and gentlemen, this concludes today's conference call. You may now disconnect.