Q4 2020 Matthews International Corp Earnings Call
Greetings and welcome to Matthews International Corporation fourth quarter and year end fiscal 2020 financial results.
At this time, all participants will be in listen only mode.
Next question and answer session will follow the formal presentation.
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Please note that this conference is being recorded.
At this time I'll turn the conference over to Bill Wilson Senior director of corporate development. It's true Wilson you may begin.
Thank you Rob good.
Good morning, everyone and welcome to the Matthews International fourth quarter and fiscal year and 2020 Conference call. This is bill Wilson Senior director of corporate development witnessed a day or Joe border Lacy, President and Chief Executive Officer, and Steve Nicola Chief Financial Officer.
Before we start I would like to remind you that our earnings release was posted on our website www Dot and May T. W. Dot com and Investor section last night.
The presentation for coal can also be accessed and investor section.
As a reminder, any forward looking statements in conjunction with this discussion are being made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1990 fives.
Factors that could cause the company's results to differ from those discussed today are some force and the companies and the report on form 10-K, and other periodic filings with the FCC.
In addition, we were just discussing non-GAAP financial metrics and encourage you to read our disclosures and reconciliation tables carefully as you consider these metrics.
In connection with any forward looking statements and non-GAAP financial information. Please read the disclaimer included in today's presentation material located on our website and.
Now I will turn the call over to Steve.
Thank you Bill and good morning.
Please turn to slide four.
There are several key items net I want to highlight from our earnings announcement yesterday regarding our consolidated financial results for the fiscal 2024th quarter and fiscal year.
First the company again reported strong operating cash flow as we continue to emphasize cash generation and this challenging environment.
For fiscal 2020, the company set a new record free cash flow from operations of over $180 million.
Second the company again reduced its outstanding debt and leverage ratio during the recent quarter.
For fiscal 2020, we reduced our outstanding debt by $106 million and our net leverage ratio to below four specifically 3.9 at September 32020.
Third we reported growth and consolidated sales adjusted EBITDA and adjusted earnings per share for the fiscal 2024th quarter compared to the same quarter last year.
With respect to COVID-19, all segments continued to experience some level of varying commercial impacts free COVID-19 during the fourth quarter.
These impacts still remain difficult to quantify and as the pandemic has continued into the December quarter, we expect ongoing impacts into our 2021 fiscal year <unk>.
On a GAAP basis.
The company reported earnings per share of 24 cents for the current quarter compared to a loss of $2.28 per share last year. The fourth quarter last year included a goodwill write down of $77.6 million or $2.42 per share.
Also earnings per share on a GAAP basis for both quarters and quoted the impact of the acceleration of the amortization of certain discontinued trade names and the S.U.K. brand solution segment.
Consolidated intangible amortization expense was $17.9 million or 43 cents per share for the fiscal 2024th quarter compared to $18.6 million or 47 cents per share a year ago.
For the year the company reported a GAAP loss per share of $2.79 for fiscal 2020.
Paired to one dollar and 21 cents per share last year.
Significant portion of the decline reflected an increase and intangible amortization expense and charges related to the company's cost reduction program.
And tangible amortization expense was $71.5 million or one dollar and 72 cents per share for fiscal 2020 compared to $45.8 million or one dollar and 12 cents per share last year both.
Both fiscal years included write downs of goodwill, which were $90.4 million or $2.63 per share for fiscal 2020.
And $77.6 million or $2.42 per share for fiscal 2019.
Adjusted EBITDA, which represents net income before interest expense income taxes, depreciation and amortization and other adjustments for the fiscal 2024th quarter was $64.1 million compared to $59.2 million a year ago. The increase primarily reflected the impact of higher consolidate.
And sales, particularly in the Memorial Innovation segment. In addition to realize savings from the Companys recent cost reduction program and lower travel related expenses.
For the year adjusted EBITDA was $203.1 million for fiscal 2020 compared to $220.9 million last year, primarily reflecting lower year to date consolidated sales.
On a non-GAAP adjusted basis earnings for the fiscal 2024th quarter were one dollar and 11 cents per share compared to one dollar and one cents per share a year ago. The increase primarily reflected higher adjusted EBITDA and a decrease and interest expense.
Please see the reconciliations of adjusted EBITDA and non-GAAP adjusted earnings per share on our web site.
For the year adjusted earnings per share were three dollar and once and for fiscal 2020 compared to $3.31 last year, primarily reflecting the year to date reduction and adjusted EBITDA.
Investment income from for the fiscal 2024th quarter was $519000 compared to $100000 a year ago.
Investment income for the year ended September 32020 was $2 million compared to $1.5 million for fiscal 2019 and.
Investment income primarily reflects the changes and the value of investments held and trust for certain of the company's benefit plans.
Interest expense for the fiscal 2024th quarter was $8 million compared to $9.9 million, a year ago, reflecting lower average debt and a decline in our and average interest rates from the current quarter relative to the same quarter last year.
For the year ended September 32020 interest expense was $34.9 million compared to $41 million last year.
Other income and deductions net for the quarter ended September 32020 represented a decrease and pre tax income of $1.8 million compared to $5.5 million for the same quarter last year.
The prior year included a $3.7 million loss on a cost method investment and related assets.
Other income and deductions net for the year ended September 32020 represented a decrease in pre tax income of $9.2 million compared to $8.9 million last year.
Other income and deductions include the non service portion of pension and post retirement costs for the quarter ended September 32020, the non service portion of pension and post retirement cost was $1.1 million compared to $950000 last year for the year ended September 32020, the non service portion of pension.
It and post retirement costs was $7.8 million compared to $3.8 million last year.
Consolidated income taxes for the fiscal 2024th quarter were and expense of $4 million compared to a benefit of $3.6 million for the same quarter last year.
The income tax benefit for the prior quarter, primarily reflected the pre tax loss generated from the goodwill write down.
Consolidated income taxes for the year ended September 32020 were a benefit of $18.7 million compared to expense of $806000 last year fiscal 2020 reflected the pre tax loss for the year and an expected net operating loss carry back benefits.
Please turn to slide five to begin a review of our segment results.
Memorial and station segment sales for the fiscal 2024th quarter were $177.7 million compared to $162.6 million a year ago.
The increase primarily resulted from increased unit sales of caskets improved price realization on caskets and cemetery memorial products and higher sales of cremation equipment vs.
The increase in casket sales, primarily resulted from the increase in us deaths due to cope and 19.
And also Liam and International Memorial product sales were also higher for the quarter compared to a year ago.
Changes in foreign currency exchange rates had a favorable impact of $465000 on current quarter sales compared to a year ago.
For the year ended September 32020 Memorial physician segment sales were $656 million compared to $636.9 million last year.
The increase was primarily the result of higher casket sales and an increase in sales of cremation equipment offset partially by lower cemetery memorial product sales.
Cemetery Memorial product sales were impacted by local stay at home orders related to COVID-19, which limited families access to cemeteries and ordered order there memorials.
Changes in foreign currency exchange rates had an unfavorable impact of approximately $615000 on the segment sales compared to last year.
Moralization segment adjusted EBITDA for the fiscal 2024th quarter was $43.3 million compared to $32.9 million a year ago for the year ended September 32020 Memorial physician segment, adjusted EBITDA was $146.3 million compared to $134.3 million.
Last year, the quarter and year to date increases primarily reflected the benefits of higher sales productivity initiatives and lower travel related expenses offset partially by higher material cost and performance based compensation expense.
Please turn to slide six sales.
Sales for the SDK brand solution segment were $179.6 million for the quarter ended September 32020.
Compared to $186 million a year ago.
The increase primarily resulted from declines and European sales and in the private label brand market lower sales of cylinders and surfaces products and lower sales of merchandising solutions much of which was attributable to the impact of Cove at 19.
These decreases were partially offset by higher us brand sales and increased revenues from engineered solutions.
Changes in foreign currency exchange rates had a favorable impact of $2.5 million on the segment sales compared with the same quarter last year.
For the year sales for the SDK brand solutions segment were $693.1 million for fiscal 2020 compared to $743.9 million last year changes in currency rates had an unfavorable impact of $5.9 million on the segment sales for fiscal two.
Thousand 20 compared to last year.
Fiscal 2024th quarter adjusted EBITDA for the SDK brand solution segment was $28.8 million compared to $32.9 million a year ago.
The segment's adjusted EBITDA for the year ended September 32020.
And was $90.6 million compared to $119.5 million last year.
The quarter and year to date declines primarily reflected the impact of lower sales combined with an unfavorable product mix shift and ongoing pricing pressure.
The unfavorable shift and product mix, partly reflected lower tobacco related sales and our cylinders business, which generally have higher incremental margins.
In addition performance based compensation expense for the current quarter and fiscal year were higher than a year ago realized savings from the segment's recent cost reduction initiatives and lower travel related expenses Favourably impacted adjusted EBITDA for the current quarter and year to date periods.
Please turn to slide seven.
Sales for the industrial technology segment were $41.9 million for the quarter ended September 32020, compared to $43.8 million a year ago. The decrease primarily reflected lower sales of warehouse automation systems orders for warehouse automation solutions remains strong but order releases.
And access to job sites to complete these projects has been impacted by COVID-19.
Changes in foreign currency exchange rates had a favorable impact of $469000 on the segment sales compared with the same quarter last year.
For the year ended September 32020, industrial technology sales for fiscal 2020 were $149.2 million compared to $156.5 million last year, primarily reflecting lower warehouse automation sales for fiscal 2020 product identification sales.
Were relatively consistent with last year.
Changes in currency rates had an unfavorable impact of $356000 on the segment sales segments year to date sales compared with last year.
Adjusted EBITDA for the industrial technology segment for the current quarter was $7.5 million compared with $8.4 million a year ago.
Year to date, the segment's adjusted EBITDA was $22.8 million compared to $24.1 million last year the.
The decrease in this segment's adjusted EBITDA for the current quarter and year to date periods, primarily reflected the impact of lower sales, which was offset partially by lower travel related expenses.
Please turn to slide eight.
Cash flow from operating activities for the fiscal 2024th quarter.
It was $56.8 million compared to $41.7 million a year ago cash flow from operating activities for the year ended September 32020 was $180.4 million compared to $131.1 million a year ago.
The significant increase in operating cash flow compared to last year, primarily reflected favorable changes and the company's working capital, particularly from our accounts receivable collection and payment management efforts.
As a result of the company's strong operating cash flow the company reduced its outstanding debt during the fiscal 2024th quarter by $26.4 million for the current fiscal year the company reduced its outstanding debt by $106.2 million.
Outstanding debt was $835 million at September 32020, with net debt, which represents outstanding debt less cash at $793 million the leverage ratio covenant and our domestic credit facility is based on net debt.
At September 32020, the company was well within this bank covenant as our net leverage ratio for bank covenant purposes, approximated 3.8 compared to the covenant limit at September 32000 24.75.
As you may recall and the renewal of the revolving credit facility last quarter. The company proactively negotiated a temporary increase and the net leverage ratio covenant threshold due to the global economic uncertainties of COVID-19. This.
This covenant limit will reduce back to 4.5 at March 31 2020.
As previously reported we renewed our domestic revolving credit facility and accounts receivable securitization facility in March 2020, the renewed revolving credit facility provides for borrowings up to $750 million and has a five year term the renewed revolving credit facility generally maintains the same credit sales.
Credit terms and interest rate structure of the previous facility.
Approximately 31.8 million shares were outstanding at September 32020 during.
During the recent quarter the company contribute contributed 668000 shares to its principal defined benefit pension plans. In addition, the company purchased 100000 shares under and share repurchase program.
Year to date, the company repurchased approximately 174000 shares.
Finally earlier this week the board of directors increased the company's quarterly dividend from 21 cents per share to 21.5 cents per share the increase which represents the company's 27th consecutive annual dividend increase.
Reflects the board's continued confidence and the company's operating performance and cash flow.
The dividend is payable December 14, 2020 to stockholders of record November 32020.
This concludes the financial review and Joe will now comment on our company's operations.
Thank you Steve.
Good morning.
Again this quarter, we are very pleased with our results, particularly given the ongoing circumstances in which we operate it.
Once again, we demonstrated the resiliency of our portfolio of businesses as it were Moralization business delivered very strong results, while all but one of the remaining significant businesses delivered remarkably stable results.
We truly believe the resiliency of our various businesses is the most underappreciated facet of our business our company.
Perhaps more important than our financial results I am proud to acknowledge the efforts of our 11000 colleagues around the world.
I've been instrumental and achieving these results.
Most of our colleagues have worked very long days throughout this pandemic and factories production centers offices and their homes all in less than ideal situations to continue to satisfy our clients' needs, while we work hard to keep them safe.
Our colleagues recognize that we deliver essential products and services, which are critical to the success of our clients and they have stepped up to the plate and delivered.
Of particular note is our Memorialization segment, which generated almost $50 million of EBITDA for the quarter.
Although many of you may have and expected these businesses to perform well during the pandemic I.
I believe they have performed exceptionally well.
Our funeral home products business for example saw a 13% increase in revenue and a 43% increase and EBITDA a remarkable performance, particularly when you consider the increased demands on the business.
This business is benefiting from years of continuous improvement efforts and today is delivering at a very high level of customer satisfaction and operating performance with EBITDA margins hitting 22% for the quarter.
All of this was done as our production team port facilities beyond the engineered capacity of the facility, while production planning and logistics teams struggle to keep up with ever changing demands and warehouse operations across the country work long hours to assure that our clients receive the critical products that they're moving families had selected ciber.
Similarly.
Our cemetery products business saw a modest revenue increase while EBIT up also rose thanks to cost containment efforts.
Even with many traditional services across the country reduced or delayed by the pandemic.
This business is find a way to improve results.
Our cemetery products business has not yet begun to feel free to fully realize excuse me the revenue opportunity of the recent increase in coated related deaths, but nevertheless, it was a significant contributor to a strong quarter.
Finally, and environmental solutions business also saw a modest increase in revenue and a more significant increase in EBITDA on a year over year basis, all while continuing to build a very strong backlog of orders as customers around the world recognize us as the leading provider of cremation equipment and services in the world.
All in all I hope that you would agree that art Memorialization segment as a whole has performed exceptionally well and a very difficult environment.
And STK brand solutions again, this quarter, our core packaging business, particularly in North America saw strong results as our clients continue to expand their marketing efforts and product lines to meet the changing consumer brand markets.
In fact, despite a slight global decline and revenues during the quarter for our core packaging business.
Team did an excellent job of managing costs, which allowed our core business to deliver flat EBIT results when compared to prior year.
Unfortunately, several businesses and the UK segment continued to be challenged in particular, our retail and private label business has struggled with grocers, who continue to be focused on keeping and shelf stock and traditional consumer goods retailers struggling due to reduced foot traffic and their stores simmer.
Similarly.
Our cylinders surfaces and engineering business, a large part of the consolidated EPS GK segment continued to struggle due to reductions and the tobacco and the non woven markets.
A bright spot, however, and the cylinders surfaces and engineering business remains our energy storage business, which reported strong results for the quarter as we began the commissioning of our first significant equipment order, which to date has been successful.
As we have mentioned in the past we have high expectations for our energy storage business, which operates in a very fast moving market you all know as lithium ion batteries and fuel sales.
In fact, the cylinders services and engineering business is expected to deliver a significant turnaround in 2021, when new orders and our energy storage business together with cost actions taken throughout this business and the return of tobacco and tissue orders are expected to add to an overall result.
And our industrial technology segment modest delays and significant projects, causing team to Miss prior EBIT results by only $1 million, but.
But those delays as a result and record backlog for warehouse automation orders and strong orders and our production identification business, all which bode well for 2021.
This team continues to add wins to their portfolio and as again projecting a very strong year in 2021.
Meanwhile, regarding our new product in this segment. We are on track to launch later this year and we have begun the process of adding critical talent to achieve our goals.
We have also begun discussions and potential alternative uses for this product, which we believe proves the innovative nature of our solution.
As noted in Steve's remarks, and in our press release. The combined result of good operating performance and strong and strong cash management have allowed us to reduce our gross debt by $106 million for the fiscal year.
These results are the best evidence of the quality of our business and the people we have as part of our team as we demonstrated in the most difficult operating environment in my career.
Again, we do not believe our resiliency and our current performance is reflected in our stock price.
Looking forward to 2021, our ability to forecast remains difficult and thus we remain cautious as events outside of our control can still arise which can impact our results.
Although we have not experienced any significant disruption in our businesses low.
Localized outbreaks and government action can cause plant shutdowns at our facilities or those of our clients, which can impact our performance in any given quarter.
Nevertheless, our business has remained strong with the largest overall backlog of orders and the history of the company.
In addition, recent wins and our SDK brand business, which can be attributed to our financial stability compared to our competitors and our proven ability to onboard new clients. Even in this challenging period also gives us confidence of a good year.
Our global capacity has served us well and our ability to continue to meet increased client demand even in these difficult times.
Although quarterly results may be challenged through the pandemic those orders will ultimately you delivered.
Moreover, we have demonstrated the ability to manage during these uncertain times, which we will book, which we believe will ultimately be reflected in our results.
Assuming we are able to continue to operate and most significant businesses. We expect to continue to focus on our cost structure initiatives and cash generation, which should allow us again to perform well.
Although we will not be providing specific guidance at this time because of the uncertainties and the present environment. Our current expectations for fiscal 21 is that we will deliver results relatively similar to our current year results.
We have the orders to have a stronger year, but we cannot be sure of our ability to deliver due to matters outside of our control and.
Nevertheless, we hope to be able to provide better visibility throughout the coming quarters, while at the same time, we improve our balance sheet throughout the year now, let's open it up for questions.
Thank you.
Moving conducting a question and answer session if you'd like to ask a question. Please press star one from your telephone keypad and the confirmation total indicate your line is and the question queue you.
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One moment, please while we poll for questions.
Thank you and our first question is from the line of Daniel Moore with CJS Securities. Please proceed with your question.
Joe Steve Good morning, Thank you for taking the questions good.
Good morning, Dan.
I wanted to start with Memorial day station obviously.
Very strong results in the quarter curious how you see those continuing just kind of how you see fiscal Q1 shaping up.
You know and broad stroke terms relative to fiscal third quarter that you just posted.
So I mean, you all read the same newspapers that we read so I.
I would as what we're seeing today is relatively consistent performance with what we saw last quarter and going into our first quarter of 2021 on that business and for that matter. The rest of the businesses that we have.
We have.
And we have some we have businesses that operating core parts of a lot of our clients that are critical to getting them, where they need to be whether it be packaging whether it be.
And our industrial automation businesses, but our bread R.R.R. Moralization business. As you all are abundantly aware are tied to death rates and those remain elevated at this time.
Very helpful and and one of the things we talked about for quarter. Two now is the.
The more morals are markers bronze and granite.
Being delayed obviously because the stay at home orders do we still expect.
Is that opportunity set continuing to build the longer it lingers has that impact the likelihood of families going back and purchasing markers and I'm just kind of what I don't know if there's any.
Yes.
Examples historically to pull on but any thoughts there.
And the last time, we have and this kind of an event. It would have been around the 2008 2009, and a financial crisis and.
And those morals did come back just what I want to caution everybody is it doesnt come back and the next quarter or the next maybe 12 months.
We saw we saw orders coming in over the next 24 to 36 months now more at the beginning rather than the latter part.
But at the end of the day those those those sites generally get mark.
So right now we are operating at rates more consistent with normalized levels of deaths.
Which would tell you that with the.
As you all know the hundreds of thousands of people that may have passed.
Some point in time should come to.
Being memorialized.
Can't tell your web.
Understood, Okay, and maybe one more and and I'll hand, it over but brand solutions, maybe just talk about the conversations with their like now with larger cpgs.
Our folks starting to look at new product upgrades, new versions designs for 21 or is it and kind.
Kind of largely the status same.
Level of activity that we've seen for the last say 12 months.
So if you take a look at.
The underneath the covers of that segment, we break up that segment really into what we call our core core business and then we take.
Take a look ahead and surfaces cylinders and engineering on the core business frankly, we had we had relatively strong results last quarter and not so bad quarter before that and that is despite what I would call really challenging environment in the retail segment, whether it be our private label work that we do for grocers or.
Whether it be the in store displays that we do with our merchandising business those.
Those two businesses frankly have struggled and so if you take a look at where the core business has performed we're pretty pleased I mean, we we like it to be really robust sure.
But it has not been anything that anybody would have expected and.
We always have said packaging the critical nature and these kinds of environs often times you see an uptick in those packaging efforts to try and to entice and encourage.
Consumers to spend and revised and Thats, what we saw this this event as well.
We hope there and we believe that there is a significant amount of pent up demand.
When it looks at retail as a whole.
At the end of the day and for all practical purposes, Let me give you perspective, we.
We don't believe we have done any kind of significant work and not much significant work has been done in the retail segment in store since before Christmas of 2019.
So we are and by the time this pandemic, it's past its current state and gets into the store openings again, let's say six to nine months out we will be better than 20 months without having done any retail investment. So we expected to be a significant build up and.
Demand at that point in time, we know we had contracts that were in place at the beginning of the pandemic that were canceled that were very significant we think those things come back at the end in the meantime, we expect our core packaging business to remain relatively stable over this period, maybe maybe upticks with some wins that we had.
But we will see how that plays out we don't have a lot of visibility 12 months out the suggested were going to have a lot of new packaging.
That's just the nature of the business.
Very good I'll jump back with any follow ups. Thank you.
The next question comes from the line of Liam Burke with B. Riley. Please proceed with your question. Thank you and good morning, Joe Good morning, Steve.
Good morning, Liam good morning, Liam.
Joe could you sort of parse the CPG business us versus Europe, I imagine Europe with all of the shutdowns and whatnot have been a little more challenging on that side and I wanted to get a sense after that.
How cove and his influence the U.S. CPG business are they continue and invest on true.
So thats its a great question and you can you can divide and subdivide and subdivide a lot of two facets, but lets kind of break it down geographically first in North America, frankly, we did better this year than we did the year before and that was.
On the backs of a number of clients, while a number of clients that we do business with was significantly that were significantly non.
We do work and the beverage industry, we do a lot of work and the food industry, but then the beverage industry, where you see things tied to restaurants, and sporting events and things of that nature. We've seen one of our largest clients spend fractionally of what they spent on a normal basis. They try to contain costs to move forward, whereas in other areas.
And the serial world and the breakfast food World. We've seen just an explosion of new products trying to meet a new demand.
At the consumer is staying at home and eating there now geographically in Europe, you are right. The shutdowns have impacted them more significantly less people.
And with less consumer spending as a whole and market that traditionally probably stays home more than than North America does in general, but we expect that to reverse and this was not a forever market, but when we look at the portfolio of our overall business is a APAC was relatively stable. So we we think that business has.
Performed exceptionally well and these challenging times, which was probably very misunderstood by the market because of what they expect we're not printers. We are not and we are not the high end of the design spectrum, we have businesses and do that and those businesses have been challenged we do a lot of work for example for air.
France Air France spending is significantly down, but overall, what we call. The core packaging business has performed very very well in these challenging times.
Great and on the cremation front.
His incineration and you have any incineration and that backlog number yes.
Yes, we do in fact, the project and we expected to occur in 2020 were were postponed as you might expect because of the environment lot of that work is done and the UK you all know as well as we do what's happening in the UK with various shutdowns and probably the epicenter of what's going on and Europe today.
But those those low.
Incineration projects remain.
In discussion I would tell you they probably have ramped up a little bit as people have accepted that this is more a part of their normal and worker and environment right now and can't wait we expect we expect today.
Is a big word word when we can't control expect but not control those projects to be done this year at least substantially completed this year.
Okay, and just a quick clarification Joe.
Even in your prepared comments, you said relative to 2021, I know, you're not giving guidance, but it just sort of giving us a directional sense.
Relatively steady year over year over 2020 is that on a revenue or on an EBITDA basis.
I mean generally we speak on the EBITDA basis, but and we would expect to revenue not to be materially off.
And we give that guidance.
And with knowing that we have the opportunity for more but really can't control, whether we can deliver more.
So it is EBITDA.
And ribbon, Okay, EBITDA, okay, well it was principally EBITDA and revenue okay.
Thank you Joe.
Our next question from the line of Scott Blumenthal with Emerald advisers. Please proceed with your free.
Good morning, Joe Good morning, Steve.
Hi, Scott morning, Scott.
Hey, Steve and this one's for you.
Terrific gross margin performance year over year great.
Work there on the working capital I think you had $60 million swing or something there and the other opportunities in order to pull a little bit more cash out of there.
And.
Well, let's start with that one.
So Scott, Yes, we're working on that all the time, we believe there are opportunities.
It's.
I guess, a couple of up a couple of points to make up one when you think about the environment that we're in and the progress that we made on working capital, we certainly set a difficult threshold.
For next year so.
Having said that though if.
If you recall several years ago, when we implemented our our ERP.
We talked about the opportunity to optimize our systems. Once we are one on one global ERP.
And we're going through those though that we're going through that work now so.
Some of that is embedded in the cost initiative that we talked about that that project that we talked about.
But one of the one of the outcomes that were looking for from that.
Is.
More improvement and working capital so I do expect theres more to come up but I would I think I I think I would be overly optimistic to suggest it's going to be at the same level and as quick as we were able to achieve in fiscal 2000.
Have you and non seeded a working capital to sales target at all.
No we have not.
Okay Alright.
All right and.
Joe you mentioned that.
The backlog and.
And.
The largest ever backlog and the and the history of Matthews I suspect that some of that has to do with the fact that you weren't able to get on to customer sites for certain projects and cremation and and.
And and industrial.
And I know that you don't give a backlog number but can you kind of size that up compared to where we were at this time is it 25% higher than 50% higher maybe just give us and have a gauge there.
It's difficult to each one of our businesses.
Art as you might expect and our Memorialization segment other than our cremation equipment business, we do not have.
Backlog that last more than four four weeks essentially so that's not.
And that's not where we see the backlog cremation dollar wise is probably five.
Five and 10% higher than the year before this time at least I can't give you a specific number there, but you're right on the warehouse side we are.
20, 20% to 25% higher than we were because we couldn't get things up and new orders continue to come in I caution you, though because for example, I'll give you a perfect example of a recent win that added to that portfolio was a use client operating in Canada.
Well I can't get into Canada today to do the work so when can I get in there or how are you going to get in there and that's why we remain cautious over the course of next year, we just don't know but.
But the other part part of the puzzle is we had talked about and surfaces cylinders and engineering, our engineering business, which is where we are.
Energy storage function is located has tripled its backlog for all practical purposes, no I'm not going to give you dollar amounts associated with that but it's a big number that we're we're very proud of and we hope it to be a significant contributor that we'll talk about over the course of the year, but again things that we are not in control low.
Those orders will ultimately be delivered our expectations that will be delivered over the course of 2021, but I don't control whether they can be.
Sure.
What do you and whether you they're up you'd be able to venture a guess as to how much of an impact you feel.
You had on Q4 sales Jeff Bye.
The fact that you weren't able to get onto a customer site for any number of reasons.
Customer sites, I mean, not necessarily that I mean look at the simple answer to that is our expectations and our industrial automation business would have been without a better year over year result, and they were $1 million down could have been $135 million is now.
$50 million.
As not fit our so I don't want to mislead you there, but for him and we expected to have better year over year results, we had poor year over year results by a modest amount.
So that's the kind of numbers and what we would have been closer to flat year over year.
Okay Super Thank you.
Thank you Scott.
The next question comes from the line of Bruce Geller retailer interest. Please proceed with your question.
Hi, good morning.
Admire the Cup hi, Yeah, I admire the company's resilience through and very difficult period here.
Total we.
And as a shareholder I appreciate that.
On this post this call and the last call you made some references to and energy storage.
Component to your engineering business could you please elaborate.
And what exactly that is.
How large the backlog is there how big of a business. This is for you today and how big the.
Potential opportunity is for you and then also how that business even fits within a segment called brand solutions.
[laughter] innovation, that's what it really really know how it fits but let me kind of kind of go through dissect a couple of those questions. So first off.
Our engineering business is it is principally a purpose built equipment.
Group, what they do it historically has made.
Equipment that utilizes our and technology and capacity to produce cylindrical solutions, meaning I work in areas right now and our gravure cylinder business over in Germany, particularly where I produce printing cylinders that print packages and and wallpaper and.
Other related products will will that printing technology thats cylindrical solution is used to produce and the engineering business solutions that do everything from tissues non.
Non wovens paper towels feminine hygiene anything that is produced in a roller capacity.
Now the energy storage business that we referred to is the effort of several years multiple years and investments that we've made group over there to understand how we can take the cylindrical solutions and purpose built.
And that business to calendar lithium amongst other things or and boss plates that are used and fuel cells.
And it is the same types of solutions that you might look at when you look at a printing technology, but a highly highly sophisticated.
Piece of equipment that that can take raw lithium.
And whatever form and fixture mixture that you may have to produce the sheets that are necessary for lithium ion battery or produce.
Embossed plates that are used and fuel sales.
The market is anything you wanted to be it's still a relatively small.
Business for us today, and our overall portfolio. It is something we have invested in and we continue to invest but we have some intellectual property in the space that we are very very very proud of and protective.
But we we have high hopes for it it could be a significant contributor over the course of the next 234 years or even this year for that matter.
So how does how large is that business today, roughly and on an annualized run rate and.
We probably did 40 or $50 million this year.
And yes.
Good and and how many I mean like how many customers.
Does that represent is that one day customer and you're looking for others or are you involved with many customers and that industry at the moment I'm just wondering how oversupplied this businesses much.
Much much of what we've been operating and has been in pilot lines of testing. So we have done work for a lot of different players and the industry as they test out their formulations to try to determine how to produce the batteries and principally in the auto industry right now, but obviously those application elsewhere.
And what we've talked to and sold to a lot of different players small.
Smaller pieces of equipment than what we were talking about which is the production size scale.
Yes.
So with this being a $40 million to $50 million business today.
You know what the projected growth and the industry.
Im sure you are reluctant to throw numbers out, but you know is this something that could be multiples of the current size that it is today based on their projected growth and and the industry and your position within it.
Look I mean as all you know this is the early stages of energy development. We think we have a solution. We think we have a great solution is it the only solution I mean, we're not that well aware whats in the marketplace. It could be multiples of that we hope it to be multiples of that but we also don't know all the other available solutions that could be.
Applied to produce what we do today, so part answer hard question to answer for us.
Tim to what we play but I will tell you. We have operated in this space in a smaller scale for almost a decade.
Okay.
That's great.
And then I guess to my initial question.
How does it fit in the segment, even I mean should you guys have and engineering segment.
Well as a highlight this business.
And its current size, we have not but we clearly have those and the discussions it's probably something that as if assuming good gross will start to reposition into an indoor industrial technology segment and.
And highlighted yeah, it's Bruce it's really the evolution because right now it's it's evolved out of the cylinders business, which supports our brands for our brand business and Europe today.
Well.
Again, I applaud you guys on on the innovation here, that's amazing and congratulations and best of luck with it.
Thank you. Thank you.
The next question is from the line of Daniel Moore with CJS Securities. Please proceed.
With your question.
Thank you again, just wanted to maybe those things that are in your control as we look to fiscal 21 talk about the balance between yeah.
Additional cost containment initiatives and maybe some temporary expense reductions.
That would come back in and 21 and.
[music].
Order of magnitude of sort of the net of those.
So.
We have.
It had a fairly significant initiative going on and our German and us markets for cost benefits to be achieved utilizing asap. We've talked about this before I would say we are a third of the way there and we have a fairly significant runway to go over the next 12 to 24 months and will continue to benefit from.
I mean, a good a good estimate on that is that we will substantially improved our results based on our investment we made in Mississippi and that's.
A true benefit for that.
The return.
What I would call.
Normalized expenses is anybody's bet and admitted it's anybody has been we are currently I won't call. It I mean, our own form of locked down and our people are still working from home.
And where we can we're reducing travel unfortunately, some of our businesses have to travel I mean, it's difficult to do service on a cremate or from pop to Florida, We got to get to the site or do and installation for warehouse without travel. So what we're really seeing is cost containment and our.
Travel and entertainment on the sales side more than anything else and right now and that might be might be a more permanent change maybe not to the same extent, we have right now, but a more permanent change and our overall cost structure going forward.
We'll see I mean, it's hard to estimate what you're asking for Dan.
Just a difficult environment.
Okay.
And just maybe Steve tipped to pin down a little bit more on cash flow and.
Any sense for Capex for fiscal 21 and.
And it seemed like you were indicating you get more benefit from working capital I would have thought maybe.
Potentially a headwind in fiscal 21 after.
Holding a line that hard.
And it did I hear that right that you think you could see a little bit more benefit this year.
I think we've got a longer term working capital benefit from the initial from the and.
The initiatives that we have going on I do think you're right Dan.
Our we're at least going to work hard to hold the line working capital year over year. So for modeling purposes, I think I think that would be my my my my best recommendation with.
With respect to Capex.
I given the environment that were and I think we're still going to be prudent.
Prudent on from a from a cash flow perspective, so traditionally at a normal year, we might be mid fortys mid $40 million range ice right now I would see us less than that but a little bit more than than what we spent this year, which was 33 34.
In dollars.
Perfect and lastly, just an update on you spent.
A few dollars at least on buybacks I know youve been adamant that obviously the shares are undervalued, just how you're thinking about balancing leverage debt reduction with two additional buybacks as we get into fiscal 21, thanks, well I'd and I think I would tell you that what we've demonstrated over the course of the year as we have the ability to generate cash from repeat and get ourselves.
Right and in a difficult environment and for stock was where it was 17 $18 not that long ago. You bet, we will be applying all of that cash regenerate and buying back our shares.
As we move forward I think we've created the headroom to be able to do whatever we need to do if we think it's an important part of where our cash flows are coming in and we think there are price still does not reflect where are where we need to be then we'll we'll pick that action as well we'll balance the two.
Very good and best of luck next quarter. Thank you.
Thanks, Dan.
Our next question is from the line of David and you would with Phoenix Insurance Company. Please proceed with your question.
Hi, good morning, gentlemen.
Phoenix is a relatively new shareholder but day.
We are happy with the and.
Crest of all around performance and in a difficult period I Didnt want to if I may follow up on the energy storage issue that was discussed previously and the popular it's been in the public them and I wouldn't say the popular price industry price has suggested thats, our resi is working with Tesla.
And their dry battery electrode technology and given.
The numbers discussed and in terms of what your business has done.
I'm curious you may not be able to speak specifically about specific customers or the like if the 40 to 50 million is.
Specific mostly to one customer and.
If it is exclusive.
When listening to Tesla talk about the dry battery electrode theyre.
You're talking about something thats going from tens of gigawatts to as much as a need and three terawatt.
Hours and.
Which suggests.
Anywhere from tends to even.
A 100.
And multiple fold.
Of the potential business.
And I.
So the question is is it right to think about it in those terms.
Is their exclusivity or can you sell.
To the broader industry.
So first off we're not going to talk about our individual customers.
I can't.
Going to deny or or confirm individual customers I would tell you that we do not have exclusivity with anybody today as too early as to operating in this space and we are providing solutions to multiple players out there.
You're right and when the markets could be astronomical we think we've got wonderful IP and that's what we talked about before and but I don't know what else is out there and I'm not I don't profess to be the only solution that they can look to.
But we have got a wonderful team wonderful IP and it's not and it's turning out to be proven.
Very good to hear the good performance over and thank you.
Thank you. Thank you.
The next question is from the line of Austin Nelson with ABG. Please proceed with your question.
Good morning, Thanks for taking the question I.
I just wanted to go back to the backlog questions and then.
Specifically around memorial injection.
Yes, the the results weren't particularly surprising to me.
And it was very impressive that you're able to keep up with all the demand.
Given that you had.
Your ability to price Memorial day that were otherwise would have been purchased last quarter and we did have some reopening.
And then the continued demand for caskets. Thanks My question is.
Do you kind of have a sense. If you if you think about how many caskets you've sold and the growth on that and then maybe from the cremation stuff as well versus what happened on the memorial side.
And what pent up demand is there to that and deliver memorials and and follow up to that the at least the publicly traded customers of yours and.
And actually reported very strong premium sales.
In the last quarter do you are you seeing that flow through to pre need sales.
Sales and your reward realization business as well so we are beyond they perceive the backlog and you actually have gross in yeah.
It will later be booked and.
And go into the trust.
You, obviously understand the market.
So you're right our clients have report our large publicly traded group have sold and advanced a lot of pre need sales, but that doesn't translate to an order to us until they collect and pay and so you're right. Our orders on the memorials have been well.
Well and pre need have been pretty much non existant were behind significantly where we normally have would be we would expect that to come over time.
That again is not in our control, but is clearly and order to come and when you take a look at our casket volume and it mean to dissect the pieces for you.
And Steve correctly, we sold on a prior year basis, 40000, caskets more plus or minus.
And if you think about that from the standpoint of 40000, a day 40.
40000 deaths, which should translate to a rough numbers, 40% and markers, 30% and markers and 70% and stone.
We do not we have a strong share of the stone market, but not as strong of a share that we have and and the bronze market. If you slice that 30%.
Let's say 20000 bronze markers there will ultimately be marked.
We have 65% of that so you're you're somewhere in that 20015 to 20000 markers yet to come we.
We believe now how fast or how that's probably 10% better 15% better than we are today in terms of units.
But there's other side so that story as well when we operate we do about $100 million and the cremation industry as a whole 50 million of which is equipment and.
And service, plus or minus and $50 million or so that we do and everything from earns two memorials to niches and other solutions in that space. So we'll get some of that as well as time moves on.
That's right.
And then just one more on brand solutions.
Much better than I had expected so congratulations and I.
I think I understand what you're saying that the core packaging business and doing well and I mean, if you look at the you know the results.
Do you use that are your customers are finally growing again.
Yes, and maybe there is some pandemic benefit just from a retail pent up demand side I guess can you kind of segmented for me the way I always thought about it was that it was essentially a lot of and caps and that kind of thing. So to some extent you'll have lost sales because those are weekly promotions or that kind of thing, but it is it essentially.
And that there are no end cap speakers and just trying to stock up on everything they can and there's really no need to do promotions and so we don't want to get experimentation you'll have that I'm sorry.
No no no no I mean, there and it's a good question. It's not we don't do and caps were not a corrugated box guy that puts and end cap out there we do a lot of in store store and store functions. So for example.
For a large television and electronics supplier global.
We do complete in store reef refurbishing of marketing displays that are everything from brass and glass to metal to grafix too.
Whenever its associate these are 10 to 15 million dollar projects on a national basis that is done. We also do work and in things like the the fast food industry, where we've done some work with a large national fast food industry. We do work and a lot of places that are in store that have not had.
Add foot traffic and.
And therefore have not had the spend that you're going to have I would not suggest that those are lost sales in the sense that.
They that we may not do that exact same program again.
But the desire to redo in store displays as we talk about them, we'll come back and we think its pent up and I can't give you a number on it because you I just don't know our discussions are.
With our recurring client base that.
When those stores reopened.
There's almost two years worth of delayed investment that will have to come in all at one time profit and given the timing of the pandemic. If you. If these vaccines turn out to be what they will be will be hitting it right around pre Christmas season, which is usually our biggest quarter anyway.
So we're we're fairly bullish on that presuming, we're able to get through this next six nine months.
That's helpful very helpful that makes a lot of from.
Centrally big capital projects and yes.
They are not small we're not we're not talking about $200000 projects.
Okay. That's very helpful. That's all I had thanks, a lot and congrats and the quarter.
Thank you.
Thank you at this time, we've reached and the question answer session Bill we have no additional questions at this time.
Thank you Rob and thank you for joining us today and free interest in Matthews, we plan to file our 10-K and later today.
And again as a reminder for additional information about the company and our financial results. Please contact me or visit our website enjoy the rest of your day. Thank you.
Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.