Q3 2021 Hillenbrand Inc Earnings Call
[music].
Greetings and welcome to the Hillenbrand and third quarter of fiscal year 2021earnings call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.
And if anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder of this conference is being recorded I would now like to turn the conference over to your host Joe Raver, President and CEO. Please proceed.
Thank you operator, and good morning, everyone. Thank you for joining us for our fiscal third quarter earnings call and we hope you and your families are safe and well.
I'm joined by our Executive Vice President and recently announced CEO successor, Kim Ryan and our senior Vice President and Chief Financial Officer, Christina Sarnia Yeah.
On the direct your attention to the supplemental slides posted on our Investor Relations website that will be referenced on today's call.
So turning to slide 3 just to remind you that our comments may contain certain forward looking statements that are subject to the state of safe Harbor provisions of the securities laws.
These statements are not guarantees of future performance and our actual results could differ materially.
Also during the course of the call we will be discussing certain non-GAAP operating performance measures, including pro forma comparisons for our segments.
I encourage you to review the appendix and slide 3 of the presentation as well as our 10-Q and 10-K, which can be found on our website for a deeper discussion of non-GAAP information forward looking statements and the risk factors that could impact our actual results.
With that I'll now turn to the quarter.
We had a solid third quarter with strong revenue growth record of orders and backlog and excellent free cash flow, we saw continued momentum and our and our industrial segments with solid demand for capital equipment across most of our key end markets, including polyolefin and engineering plastics.
Automotive construction and electronics.
All of our industrial brands saw year over year increases and both orders and backlog.
And we're encouraged by our fourth sequential quarterly increase and aftermarket orders and.
And expect this to be and area of strong profitable growth as we head into the fourth quarter and next fiscal year.
And before I move on I want to acknowledge our associates for their dedication and resiliency and the face of continued uncertainty from COVID-19, which now includes global supply chain disruptions rising inflation and labor shortages.
Our employees have gone above and beyond to safely meet the needs of our customers and execute our strategy.
Now I'd like to take a moment to talk about the leadership transition we announced on June 2nd.
After 27 years with Hillenbrand and the last 8 of CEO I've decided to retire at the end of this calendar year.
Our board of directors elected Kim Ryan, formerly the President of co Purion as hillenbrand as new CEO effective January 1.2022.
Kim and I have worked closely throughout our careers at hillenbrand. She has been an integral member of the Hillenbrand senior executive team for over a decade and was instrumental in developing our current strategy.
Kim has extensive knowledge of our company and culture with deep operational expertise and a strong track record of global leadership and execution.
Since the announcement came and I have and executing our transition plan and Kim has been actively engaged with the operating company presidents learning more about their businesses developing plans for fiscal year, 2022, and beyond and driving a strong close to this fiscal year.
And my decision to retire was not easy, but after much reflection, it's clear to me that right now is the right time.
And we haven't experienced leadership team, a strong and flexible balance sheet of more focused portfolio and the integration of milacron is proceeding well.
And a very strong position to continue to drive profitable growth and I know Kim will do a great job, leading hillenbrand into the future.
The entire team is focused on ensuring a smooth transition through the remainder of the calendar year.
With that I'd.
I'd like to invite Kim to make a few comments.
Thanks, Joe and good morning to everyone. It's truly an honor to have been selected to lead hillenbrand into its next chapter of growth.
We are well positioned to build upon our successful track record of execution, which is guided by the hillenbrand operating model. We have developed over the last decade and excited to have the opportunity to work with our talented leadership team and our 11000 associates around the world to advance hillenbrand profitable growth strategy and I want to thank the board of directors for their confidence.
And me as I step into this role and look forward to continuing to communicate with you as I work with the leadership team and a smooth transition and I'll now turn it back to Joe.
Thanks, Kim and congratulations once again on this exciting opportunity now let me touch on our strategy and some highlights for the quarter.
We've consistently communicated for key strategic pillars that we believe will build the hillenbrand into a world class Global Industrial company.
And during challenging times such as these it is critical that we remain focused on executing on executing our strategy in order to drive long term shareholder value.
The first pillar is to strengthen and build business platforms, both organically and through M&A.
Over the past several years, we've invested to develop innovative products and solutions that improve the quality of our customers' products and lower their total cost.
This has enabled us to build strong positions across our core end markets as evidenced by our record quarter of order intake leading to a fourth consecutive quarter of record total backlog, which stands at $1.8 billion.
This provides a strong foundation for continued growth and our industrial segments as we head into the next fiscal year and beyond.
Given our tremendous cash flow over the last several quarters, we've been focused on accelerating growth and our large product platforms, and Aps and the MTS through strategic investments and development of our M&A pipeline.
We're targeting key strategic end markets, such as food and recycling, which tend to be less cyclical than our other industrial end markets and have good long term growth prospects.
We're investing and the development of innovative solutions to meet our customers' needs and these markets that continue to trend towards larger scale more technically demanding applications.
And as many of you know this is an area and which we excel.
We believe these investments will position us well to capture demand as these markets continue to grow.
Our second strategic pillar is to manage batesville for cash as we continue to drive.
We continue to drive growth and our industrial product platforms.
<unk> is becoming a smaller part of the portfolio comprising about 20% of total company revenue.
While this quarter, we saw base will decline on a year over year basis due to lower deaths associated with COVID-19, the business performed better than expected and generated solid free cash flow Batesville.
Batesville the outstanding cash flow over the last several quarters played a key role and reducing our debt and allowing us to accelerate our focus on growth investments, which underscores the important role batesville plays and our portfolio.
The third pillar of our strategy is to build a scalable foundation for growth using the hillenbrand operating model.
And the acquisition of Milacron has provided a unique opportunity for us to transform our functional processes and the areas of HR.
HR and finance as well as our operational capabilities through the global supply management team and our operations Center of excellence.
The integration continues to go well and we are encouraged by the continued opportunities to improve the business by applying the hillenbrand operating model across the enterprise.
Our global supply management team continues to develop from both of talent and the process perspective perspective improve.
Improving our ability to leverage our combined spend to achieve procurement synergy targets and mitigate rising costs and the current inflationary environment and.
In addition, the group is actively implementing supply management strategies to reduce the impact of global supply chain challenges across the organization.
The operation Center of Excellence has improved our flexibility to manage through economic cycles through targeted footprint consolidations capacity management and strategic outsourcing agreements.
And the expansion of our global Engineering Center in India to drive engineering efficiencies across the enterprise.
We believe the processes that we've established and the capabilities that we're building will enable us to accelerate the integration and synergy realization of future acquisitions.
Our fourth and final pillar is to effectively deploy strong free cash flow.
We have a proven track record of quickly deleveraging following the acquisitions, allowing us to maintain a flexible balance sheet. So we can continue to invest through economic cycles.
We've generated over $600 million of free cash flow over the last 12 months.
And our net debt to EBITDA of 1.4 times has improved nearly 2 and a half turns since the milacron acquisition less than 2 years ago.
And the quarter and through the month of July we repurchased approximately $100 million of shares.
We will continue to consider opportunistic share repurchases going forward.
While remaining focused on accelerating growth through strategic investments and our large product platforms.
And evaluating inorganic opportunities and Aps and MTS that maximize long term shareholder value.
As always we will remain disciplined and our approach to deploying cash.
Before I turn the call over to Christina I'm going to give a brief update on our efforts around sustainability and ESG and.
At the end of August we plan to issue our second the sustainability sustainability report to share the progress we've made of.
And our sustainability journey and the past calendar year.
We remain committed to working with internal and external stakeholders and the implementation of our sustainability strategy.
Rounded and our materiality assessment.
We're currently focused on better understanding our overall impact on the environment, particularly in the areas of energy usage and emissions.
We're driving transparency and accountability by building processes to capture and measure of progress and.
<unk> with our stakeholders and building on our public disclosure practices.
On the governance side, we added 2 new directors to the board Dennis Polk, President and CEO of virtue of health of 2 billion nonprofit integrated health system, and <unk> Group General Counsel and Chief compliance Officer of Infosys Limited, a global leader and next generation digital.
The services.
Dennis and industry have impressive backgrounds and complement our board's skill set expertise and diversity and support of hillenbrand strategy.
So in summary, as we enter our final quarter of fiscal 2021 and prepare for next year. Our priorities are focused on remaining vigilant and ensuring the health and safety of our employees NAV.
Navigating the current macro environment to offset inflation and maintain the debt the integrity of our supply chain.
Capturing the full benefits of the milacron acquisition and strategically deploying cash to drive long term shareholder value.
With that I'll turn the call over to Kristina to provide more specific details on our overall financial performance segment performance and the outlook.
Thanks, Joe and good morning, everyone.
My section and I'll be referencing year over year comparisons on a pro forma basis, which exclude red valve and Abel from the prior year results of the Aps segment.
We believe these pro forma comparisons and provide a better assessment of our ongoing operation and you will find the comparison of as reported and pro forma results on slide 22 of the earnings slide deck.
Turning to the quarter our teams delivered a strong performance.
Record orders of $787 million double the volume from the prior year drove total company backlog to a new record of $1.8 billion.
Ah, 62% increase year over year on a pro forma basis and of 16% increase sequentially.
The sign of continued strong demand for our highly engineered solutions and products in both EPS and MTS.
We delivered total revenue of $695 million and increase of 14% on and as reported basis.
On a pro forma basis revenue increased 18% driven by strong volume growth with and MTS and Aps.
Excluding the impact of foreign exchange total revenue increased 10% on and as reported basis for 13% on a pro forma basis.
Adjusted EBITDA of $126 million increased 4%.
On a pro forma basis, adjusted EBITDA increased 7%, primarily driven by increased volume.
<unk> EBITDA margin of 18, 2% decreased 170 basis points on a pro forma basis due to cost inflation unfavorable mix and an increase and strategic investments.
Which more than offset operating leverage from our higher volume productivity and favorable pricing.
We've been actively taking pricing actions to help mitigate the impact of rising inflation, we experienced approximately $17 million of inflation in the quarter and we were able to offset approximately 60% through price with 80% price cost coverage and our industrial segment and 30%.
Average within Batesville.
We continue to evaluate our pricing structures and will take further action as appropriate.
Additionally, as mentioned and our guidance last quarter, we are seeing a return of normal operating costs across each of our segments. Following the stringent cost containment actions, we took and the prior year.
We expect to see this impact to continue through the fourth quarter and into the beginning of the next fiscal year.
We reported GAAP net income of $40 million or <unk> 53 per share and increase of 21.
For 66% compared to the prior year.
Adjusted net income of $65 million or <unk> 85 per share increased 4 or 5%.
The adjusted effective tax rate for the quarter was 34% and increase of 370 basis points from the prior year.
And to an increase and the recognition of deferred taxes on unremitted foreign earnings as well as the unfavorable impact of recent German tax legislation.
We had another great quarter of cash generation with cash flow from operations of $184 million and increase of $109 million compared to the prior year.
This increase was primarily driven by favorable timing of working capital requirement.
Particularly due to strong customer advances and both the Aps and MTS segment and higher earnings.
During the quarter, we reached an agreement with the local German works Council regarding restructuring plan within our facilities and Stuttgart, and Vine Garten, Germany.
We expect to incur severance and other related costs of approximately 17% to $20 million over the next 12 to 15 months.
The majority of these costs will result in future cash the cash expenditures and are expected to be substantially paid by the end of the calendar year 2022.
During the quarter, we recognized approximately $5 million of expense.
We are confident these actions will support continued synergy realization towards our 3 year $75 million run rate target and drive further efficiencies within our operations, providing us greater flexibility to respond to customer demand over the long term.
Capital expenditures were approximately $10 million and the quarter lower than anticipated due to project timing.
And the quarter, we also repurchased approximately 993000 shares.
And for $43 million and returned $16 million to shareholders and the form of quarterly dividends.
Subsequent to the quarter, we repurchased an additional 1.3 million shares through the end of July for $57 million, and we have $100 million remaining under our share repurchase authorization.
We realized approximately $8 million of incremental synergies and the quarter and approximately $22 million year to date.
<unk> us well to meet or exceed our target of 20% to $25 million of synergies this year.
We remain on track to achieve the 3 year $75 million total run rate synergies related to the milacron acquisition.
Moving to segment performance.
Revenue of $313 million increased 11% or 5%, excluding the impact of foreign exchange.
And on a pro forma basis revenue increased 18% compared to prior year or 11%, excluding the impact of foreign exchange.
The increase was primarily driven by large plastics projects, particularly and engineering plastics applications and favorable pricing.
Turning to aftermarket parts and service for Aps revenue has stabilized and we saw strong demand as orders increased sequentially for the fourth consecutive quarter.
And we expect to see these orders begin to translate to higher revenue growth in the fourth quarter.
Longer term, we continue to see opportunity for profitable growth and this area as the installed base of our large systems continues to grow.
Adjusted EBITDA of $61 million increased 13% on a pro forma basis, while adjusted EBITDA margin of 19, 5% was down 100 basis points compared to prior year on a pro forma basis.
But higher than expected coming into the quarter.
Cost inflation and strategic investments for growth and an increase and variable compensation more than offset productivity, including synergies favorable pricing and operating leverage from higher volume.
Order of backlog reached a new record high of $1.4 billion.
And increase of 52% year over year on a pro forma basis, and 19% sequentially, primarily driven by large polyolefin systems.
We continue to see solid demand for both polyolefin and engineered plastics projects with record order volume in the quarter.
The pipeline for new large plastics projects remain solid, particularly in Asia the.
These projects are expected to contribute to revenue over the next several quarters.
We have not received any cancellations from our large project customers, nor do we expect to.
Finally, although not significant portions of our revenue today, we continue to see strong opportunities for future growth within recycling and processed food.
Turning to molding technology solutions, we saw strong year over year growth and all product lines, and both revenue and margin exceeded our expectations coming into the quarter.
Revenue of $244 million.
<unk>, 31% excluding.
Excluding the impact of foreign exchange revenue increased 26%.
Sales remained strong for hot runner systems across nearly all end markets and regions with solid order volume and automotive consumer goods and electronics.
Order volume and revenue for injection molding capital equipment increased significantly year over year, and nearly all end markets and part due to the prior year impact of the government mandated shutdowns and India and general market softness due to COVID-19.
Supplier disruptions due to the ongoing chip shortage have begun to impact our ability to ship machines, and both North America, and India and we anticipate this to have an impact on our fourth fiscal quarter, which I will talk about later when I introduced our fourth quarter guidance.
Demand for aftermarket parts and service within the MTS segment remains solid with strong year over year growth.
Adjusted EBITDA of $49 million increased 29%.
Largely driven by volume and productivity, including synergies.
Adjusted EBITDA margin of 22%.
Decreased 30 basis points, primarily as a result of unfavorable mix due to an increased proportion of injection molding equipment, which comes at a lower margin compared to hot runner.
Cost inflation and the return of normal operating costs, including variable compensation.
We remain focused on leveraging the hillenbrand operating model to drive sustainable operational improvements in this segment and we see significant opportunity to expand margins and improve working capital over the long term, particularly within the injection molding product line.
Record order backlog of $388 million increased 110% compared to the prior year driven by an increase in orders for injection molding extrusion and heartland of our equipment. So.
<unk> backlog increased 7%.
Turning to Batesville.
Sales performance, while down year over year exceeded our expectations for both revenue and margin.
Revenue of $138 million decreased 1% as the estimated decrease and deaths associated with the COVID-19 pandemic was partially offset by higher average selling price.
While we are closely monitoring the continued impact of COVID-19, including the rise of new variants, we do anticipate deaths due to COVID-19 to continue to decrease during our fiscal fourth quarter compared to the prior year.
Adjusted EBITDA margin of 21, 6% declined 440 basis points compared to the prior year, primarily due to inflation and commodities and wages and the impact of lower volume.
Turning to the balance sheet net debt at the end of the quarter was $736 million and the net debt to adjusted EBITDA ratio fell by over a quarter turn sequentially to 1.4 times.
As of quarter, and we had liquidity of approximately $1.4 billion, including $476 million and cash on hand, and the remainder of available under our revolving credit facility.
And as of June 30th we had no borrowing on our revolver and no near term debt maturities due.
Turning to capital deployment, we are now below our targeted leverage guardrails of 1.7 to $2.7.
As we've said our main focus will be making strategic investments, both organically and inorganically to accelerate profitable growth and our large product platforms and Aps and the MTF.
We have been actively developing our M&A pipeline and evaluating targets that are of good strategic fit and that we expect will provide a high return to shareholders over the long term.
We continue to evaluate opportunistic share repurchases along with other strategic investment opportunities.
Now, let me conclude my prepared remarks, with our fourth quarter guidance.
Similar to the review of quarterly results I will be referencing pro forma pro forma comparisons and this section.
We expect hillenbrand total fourth quarter revenue to increase year over year, and a range of 6% to 9% driven.
Driven by solid growth and our industrial segments, partially offset by a year over year decline and Batesville.
We expect adjusted EBITDA and the range of $121 million to $132 million and adjusted earnings per share and the range of 82 to 92.
On a full year basis, our fourth quarter outlook implies total hillenbrand pro forma revenue growth of approximately 11% to 12%.
And with pro forma adjusted EBITDA, and the range of $515 million to $526 million.
Representing an increase of 16% to 18%.
Full year adjusted EPS is anticipated to be and the range of 3.
And $3.61 to $3.71.
Reflecting growth of 13% to 16%.
Starting with advanced process solutions, we expect fourth quarter revenue to grow year over year, and the range of 9% to 12% primarily due to strength and revenue from large plastics projects as well as aftermarket parts and services revenue.
The delays still persists for some of our large polyolefin projects and the backlog, we see strength and other end markets like engineering plastics food and recycling.
We expect adjusted EBITDA margin of 19, 5% to 20% to be lower from a year over year perspective down 60 to 110 basis points as the impact of higher volume price and productivity improvements.
Our more than offset by the headwinds from inflation and project mix due to a higher proportion of large plastics projects, which come at a lower relative margin and a return to normal spending patterns. Following the cost containment actions put in place and the prior year.
As a reminder, while the large plastics projects have a lower margin, we expect them to generate highly profitable aftermarket parts and service revenue in the future.
Turning to molding technology solutions, we expect solid fourth quarter revenue growth and a range of 10% to 15% over prior year led by growth within our injection molding product lines and continued strength and our hot runner systems.
And our guidance for the fourth quarter, we have accounted for disruption due to the ongoing chip shortage impacting our ability to ship injection molding machines.
We expect adjusted EBITDA margin of 19, 5% to 20% down.
Down 330 to 380 basis points year over year as the benefit of higher volume and continued productivity improvements is expected to be offset by higher injection molding sales, which carry lower margins and hot runner systems inflate.
Inflation and a return to more normal spending patterns with respect to investments and other costs.
We expect there will be of lag and the price cost offset within this segment as we worked through the high backlog of injection molding equipment that has built up since the fourth quarter of fiscal 2020 prior to the significant increase and inflation.
And finally with Batesville and the fourth quarter, we expect revenue to decrease of 6% to 8% year over year as we expect the continued year over year decline and burial demand due to a decrease and COVID-19 related deaths and North America.
We expect adjusted EBITDA margin of 18% to 19% down $530 to 630 basis points versus prior year, primarily due to the adverse impact of lower volume rising inflation and a return of normal spending patterns, partially offset by productivity.
As a reminder of price increase will go into effect at the beginning of the next fiscal year.
Additionally, given the significant volume earlier in the year, we are slightly behind on our execution of productivity initiatives and.
The business prioritized its resources to meet the unprecedented unprecedented customer demand.
Overall, our team has demonstrated the ability to execute through challenging circumstances and I am confident that we can continue the momentum through the last quarter of the year and.
And now I'll turn the call back over to Joe.
Thanks Kristina.
Instead of using speaker equipment, and it may be necessary to pick up your handset before pressing the sarkies 1 moment, please while we pull for questions.
Our first question is for Matt Somerville with T. A Davidson. Please proceed with your question.
Thanks for more than a couple of questions. If you just do the math and physical Q3 of sounds like you're on absorbed inflationary costs and was about $7 million what would the number of look like or what is incorporated and your guidance and that regard for queue for and then also what is the chip shop.
<unk> and packed and the either revenue or profitability and queue for as well.
Good and worrying mat and so as it relates to inflation for Q for and I think the way to think about it is <unk>. It's gonna be an increase from Q3. So we have roughly we're forecasting roughly 25 per cent.
I mean, I'm, sorry, $25 million of inflation and and the fourth quarter and we're really only gonna be able to cover half of that with price. So we'll we'll have about of 12 and a half million dollar and absorbed hit to the piano for the fourth quarter for and.
Inflation and.
M as it relates to the the chip shortage, we anticipate that roughly about $10 million and packed to the fourth quarter.
Does that just to be clear as of 10 million and root in terms of revenue yeah, alright, and that is yeah. That's revenue sorry, that's revenue.
Okay, and then with respect to the restructure and Youre doing and Germany is that a subset just to be clear of the 75 million and total savings contemplated with with Milacron and then if you could also comment on your lemonade out welcome terms of the funnel and as well as action ability. Thank you.
Sure I'll take the restructuring and point and then I'll flip the other question over to Joe So as it relates to restructuring and and Kocharian or and Germany, it's really related to achieving our $75 million of synergies and.
And we were anticipating and and setting the initial target for synergies as you know synergies are coming not just both from milacron, but also from our legacy hillenbrand businesses and and this was and the plan all along so it will be you know this will help us achieve that 75 million.
Savings.
Yeah, and I'll I'll I'll take the lemonade question, So Matt we've been.
You know probably more active over the past couple of quarters, and we've been and a few years since prior to the milk on the acquisition and the phone will is good. So there's lots of businesses out there that are available I would say the multiples are pretty high right now, but but.
We're looking as I've mentioned earlier, you know mainly our focus is really around strategic bullhorn kind of acquisitions, particularly the particularly in the areas of.
Processed food, where we have a good of good product line and offering, but but it's relatively small part of our overall revenue. We expect we can grow that and that's a good solid stable market. That's expected to grow and then recycling and and Bioplastics and so there's a sort of a lot of.
Of activity around both recycling and alternative materials to make plastics from both of those of relatively small markets today, but there and we look at our quote volume and the activity. Those are both a couple of places where we're investing and we expect those to be fast growing.
Markets for for a long time, and so you know these markets. These particular markets continue to unfold.
They they play the our strength over time, given that were pretty good technically and all of our product lines and so the more challenging the material to work with the better off we are because we're good at that and then I think the other part of it is predicted and the engineering plastic our <unk>.
Impounding business, we tend to do very well with higher volumes and and higher output and so as things like.
You know meat analogs or of Bioplastics as they look to scale of those things our equipment becomes more and more suited as a as companies move to larger production capacities to bring costs down. So those are a couple of places so M&A, we're very active and and.
And it's a lot of it is sort of bolt on activity and in terms of places that we're targeting from and and market and and market perspective.
Got it thank you guys.
Sure.
Our next question is from Daniel more with the C. G. S. Security. Please proceed with your question.
Mmm operating it sounds like maybe we lost and.
Sorry about that my apologies Joe came of Christina can you hear me.
Yeah.
And better now and good morning, Thanks for taking the questions start with Batesville. It sounds like volumes are normalising, maybe not quite as quickly as you would have expected do we expect to me you know stay a little bit above prepandemic levels here and short term.
Yeah, It's a really good question day, and so I think you know a few things on the Batesville side, you you're right I think desk, we're down you know a little bit less and we had expected I think.
For our revenues for a little bit higher in terms of the burial market. So the cremation rate was spiked.
Despite the last year or so on the year over year basis, and there was not a huge increase and the information rates of the burial market the better than we expected and we saw that volume flow through.
You know now if you look at what's happening on mortality and deaths in North America really the U S and Canada has remained market.
You know the rates are pretty low right now so we haven't seen and they've been low for awhile, but we've seen the just recently the uptick in the Delta variant. So it's not clear how that's going to play out clearly of lower mortality rate associated with the number of infections compared to to what we saw last year.
And but so there are still some uncertainty as we head into the into the fourth quarter of through our fourth quarter and into the new year round, what's gonna happen with mortality, but.
If anything there may be a little bit of upside as opposed to a downside to the <unk> to what we expect on the normal kind of normal normalized basis.
Alright, that's helpful. And then of the 12 million kind of expected unabsorbed inflation hit and the Cisco queue for guide how much of that is Batesville and talk about your ability to close that gap and once price and the annual round of.
Price increases goes into effect from September.
Yeah. So roughly half of that 12 is is going to the base fell down and and obviously, we we'll do our best to to cover the inflation, but at this point in time as you can understand and we will be announcing.
And that price and Crazy October 1st.
I think the other thing of <unk> mhm.
I think the other thing that you should just be aware of it is is the team is is really working hard to on their productivity initiatives and so we will try and continue to offset that inflation not just with the price, but with also productivity action.
Got it and 1 more from items on the M. T. S side, you mentioned, obviously all of it seems like it's across the board, but maybe highlight of any of those areas that are driving continued growth from the backlog and the injection molding as well as and it seems like a bit of the the resurgence or pick up and and hot.
Owners as well so you know, whether it's and markets Geography's for you see and the most of taking the last few months. Thank you.
Yeah. Thanks, Dan So if the MTS segment, just overall I would say you know we've seen really good orders really across the board you know, including automotive of electronics consumer goods construction. So so solid orders I think you know the the the hot runner.
[noise] business continues its strength and is doing quite well and and we had a really good quarter and we're continuing to see good momentum and that business. The injection molding business. As you know we backlog is very high we had some orders of of some quarters of really high orders I think we're sort of of that of normalize.
The order of run rate was settling into a good normalized order run right that is is is very positive and again and that business we've seen good.
Good resolves across multiple and markets and both of the businesses have done well I mean, all geographies are doing pretty well all of our major geographies and both both of those businesses, which are the make up the lion's share of the Mtf's segment.
So so again good order pattern, good backlog and we expect continued momentum and.
And the MTS segment.
Our next question is from John Francek with Canadian Company. Please proceed with your question.
Good morning, and everyone and congratulations with both of the Joe and can.
Thanks, and I'd like to start with the with the backlog and maybe Joe your thoughts about pent up and how much has been addressed that was kind of differed from kind.
2020, and how much do you think is still out there and maybe you could talk a little bit about the times now versus historical lead times.
Yeah. So let me tried to unpack that question a little bit.
And then I'll ask him to maybe way and as well. So you know I think if you think about the the segments that drive the backlog I think on the day.
A P. S side I don't believe that that's pent up demand from from the from the from the downturn and <unk>, maybe a little bit and service, but but really we're seeing solid service orders back and and good momentum and service and so these.
These are the kind of projects. The typically you know of our longer term projects and that part of the business and so I don't really think that's pent up demand. It's come back the number 1 I think it's a little bit different story and the M. T. S side, the hot runner business, which is.
A good chunk of of the MTS business you. That's a quick turn business and so that scene momentum now for a number of quarters coming out of the downturn. So I don't think there's really any pent up demand. There. We did see a big slug of of orders related to injection molding and some previous quarters and so that the there isn't the backlog some pent up.
Demand that will continue to work down but I'd.
I'd say the the consensus view here is that we're we're sort of settled into and more normal sort of normal kind of run rate order patterns on the injection moving business and so so we're seeing sort of more normal order rates and growth rates. There. So let me just turn it the Kim.
[noise] real quick and maybe she can talk a little bit how what she sees and the particularly with maybe the larger projects.
That are in the backlog and also.
Of how that market looks.
Good morning, John Thanks for your question and 1 and I I agree with everything that Joe said and in addition, as we think about the the east Aps and especially the large project remember that these of projects and or years and the planning cycle and that oftentimes you can't and you can't stop and start these things without you know huge and.
Huge increases to the cost of the project. The overall, so they tend to and that's through the cycle and because they the the planning phase and the execution phase of our literally years in terms of the planet. So that that creates at least some stability and unnoticed project for us, which is which is good. So we have seen those projects continue through.
Even through and the last year. We've continued to have have a number of quotes and projects and although we quoted them differently, we've quoted them and virtually versus being noticed noticed like we normally are we have continued to we have continued to see this project and the pipeline.
And terms of what we're seeing in terms of lead times obviously.
The lead times for all of the the businesses are along getting somewhat and and that has been going on and frankly for quite some time, which I think is and has been has resulted and people really moving their projects. They had because they want to make sure that they get their projects and the queue. So that they can execute them in line with their plans for.
Gross out in the marketplace. So hopefully that adds a little bit of color commentary to what we're seeing and the order backlog.
And just the in regards to the long the link tons of where you're seeing and the labor force and how is that impacting the piano.
Well Fortunately as we started to see the volume of increasing over the last couple of years. We have it started developing partners, who help us to to deal with this incremental volume and so.
So that we have and ability to control of those lead time for a bit more.
And and we've worked overtime to develop that yeah, and I think that's especially true of of the Aps business, John and we have seen some challenges on labor in the MTS business, particularly the injection molding business. So you remember you know we had some pretty low.
And orders and revenue if you go back about a year and we've furloughs quite a number of people and so we're building back of that Labor force, but that's a challenge for us, especially domestically and and we continue to work through that I will also tell you that I think on the hot runners side.
During the second or I'm, sorry during the third quarter. We did have some labour challenges, but we were able to solve those pretty quickly and and don't feel like we missed much revenue at all in the and the hot runner business.
And in.
And the third quarter, but we are continuing to see wage pressure I think around the world. When it comes to lay ever. So so just the summarize me Aps I think it's done of really good job and most of that business and we haven't felt much other than wage pressure the and the Mcs segment. We have we have seen some lead times expand.
Because of the labor shortages, but were work and that to to get those positions filled and get back to.
A more normal kind of run rate with the business.
Okay, and if I get the sneak 1 more and you said that there's a price costs leg and the engine molting business and the last <unk>, we discuss what's going on in Batesville and you talked about what's going on and a P. S. A lot. What's the why is there a price cost less and injection molding.
Yeah. So good question. So if you'll remember we took a bunch of orders and the injection moving business. So there was as I mentioned earlier there was some pent up demand. So we had a few quarters of very high orders to to do that pent up demand.
And that was pre pre the inflationary environment and so we have some backlog, where we have set set prices to the customer of the customers paying and then the the.
The inflationary costs are going to are going to pressure margins as that backlog works off now of course subsequent to that we've taken the series of actions around price to ensure that we're covering and covering inflation, but we do have.
Uhm, some backlog, where we have some margin compression due to inflation.
And again, it's mainly injection moving equipment.
Okay. Thanks, a lot for Ya I'll get back to the <unk>.
John.
Our next question is from Chris How is Barrington Research. Please proceed with your question.
Good morning, Joe Good morning, Kim Good morning, Christina.
This morning credit credit.
Alright, Yeah, and most of my questions of me shaken here, but.
Once a couple of <unk> still remain the for sequential increase of the aftermarket orders of 29 per cent of the mix and EPS 33 per cent and M. T S.
Talk about the sequential growth and kind of put it in the context as to what it may indicate and moving forward for this piece of of your business and it seems.
With the after market sequential growth and.
Other re occurring parts of the business seems to be and increasing level of predictability of for some of these parts.
Yeah. So I think if you look back.
Back at a historically this last few quarters I mean, I think we were probably you know it of at a low point an aftermarket around the first our first fiscal quarter of 21, and then and we've had steadily rising backlog and orders in the and the parts and service business and so we.
Spec that to continue as we go into the fourth quarter and and the fiscal 22 and so the.
The you're right. This is a profitable and stable part of the business I think just the other thing to point out is while you know of.
A chunk of the aftermarket parts and service is pretty quick turn and we also do a lot of the aftermarket parts and service for the large polyolefin customers and they tend to be scheduled out you know some cases up to a year, but their schedule out a few quarters and so.
We've continued to see good orders and then will that will be followed with continued.
Continued of revenue momentum from parts of the services week as we go through physical the end of this fiscal year and into the next fiscal year.
I hope that answered your question.
That's good thank you and.
I'll just ask 1 more here on the Batesville segment continues to do well relative to our expectations. You've mentioned the death rates related to the number of cases for the spell to variance is lower than what it was for COVID-19.
But perhaps outside of COVID-19, or the delta variance or the.
The variance of next week can.
Can you talk about what impact.
Uhm if this.
Like stay at home environment lingers for longer a lack of visiting doctors and how that may impact the death rate.
And.
Yeah. So I you know I think that was.
So this would be sort of the the the indirect mortality associated with Covid and.
And we saw that Spike I believe early in the pandemic, where people stayed away from the doctors and.
And we're really shutting down and if you'll recall and we were people advice don't go to the hospital unless you have an emergency and so we saw that spike early I think thats moderated somewhat it's hard to see that data and in fact, it takes years ultimately to figure out what the impact is.
And so.
You know I think we will return I think once the <unk>, if if and when COVID-19, the and.
And the variance kind of go away I think will return to more normal patterns, what we've seen thus far as we've seen I don't think we've seen a lot of hospitals stop kind of normal in the doctor's visit or procedures, even with this rise of the Delta variant and so it's a different it's a little bit different situation and it.
Was early and the pandemic, where you are still seeing hospitals operate their normal business people come and getting back to the physicians and and going ahead and having the procedures that are required. So you know and again I think this is we look forward much more of a normal kind of more.
<unk> the pattern.
Is the is our expectation going forward.
Okay, great. Thanks for taking my questions.
Thanks, Chris.
So with that I want to thank everyone for joining us on the call today, we really do appreciate your ownership and your interest and hillenbrand.
And as a reminder, just 1.1 last reminder, we are publishing our second sustainability reported at the end of August.
And we're excited to share some of the progress we've made on this important part of our business over the last over the last year.
And so then with that we'll we'll talk to you again and November when we report our fourth quarter and full year results.
So thanks, everyone and have have a great day.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.
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Okay.
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