Q4 2022 Hillenbrand Inc Earnings Call
Greetings and welcome to Hillenbrand's fiscal fourth quarter and full year 2022 earnings call.
At this time, all participants are in listen only mode.
A question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero from your telephone keypad.
No. This conference is being recorded.
At this time I'll turn the conference over to sand mines Barrick's Senior director of Investor Relations Ma'am you may begin.
Thank you operator, and good morning, everyone welcome to Hillenbrand's fiscal fourth quarter and full year 2022 earnings call I'm joined by our President and CEO , Kim Ryan and our senior Vice President and CFO Bob <unk>.
I'd like to direct your attention to the supplemental slides posted on our IR website.
Be referenced on today's call.
Turning to slide three a reminder, that our comments may contain certain forward looking statements that are subject to the safe Harbor provisions of the securities laws.
These statements are not guarantees of future performance and our actual results could differ materially.
Also during the course of this call we will be discussing certain non-GAAP operating performance measures, including pro forma comparisons for our segments I.
I encourage you to review the appendix in slide three of the presentation as well as our 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 the call over to Kim.
Thank you Sam and good morning, everyone. Thanks for joining us today as we review our fiscal year 'twenty, two performance and provide our outlook for fiscal year 'twenty three.
2022 was a pivotal year for hillenbrand, and we made significant progress in executing our strategy to grow as a world class Global Industrial company with a portfolio of highly engineered mission critical processing technologies and solutions and leading global brands that serve customers throughout the lifetime of.
Our equipment.
And our Q1 earnings call, which is my first after officially taking over as CEO I communicated several key priorities for the year.
First to ensure our company culture values and working norms, we're aligned to the needs of the evolving global workforce.
Second to successfully complete the milacron integration.
And finally to drive continued growth for hillenbrand through innovation, new product development and strategic acquisitions.
We made tremendous progress on these priorities and now I'll cover some of our highlights.
In June we introduced our company's purpose shaped what matters for tomorrow, which serves as the foundation of our culture and unites all of our associates around the globe through a shared vision of how we can drive a positive impact in the world through our people our products and our partnerships.
Internally, our associates have taken ownership of our purpose, which they helped to create it's been truly inspiring to watch the organization embed this purpose and our unified core values into our culture.
Externally purpose as demonstrated in our recent acquisition of <unk> and also by the progress we have made in increasing our transparency through additional disclosures around energy emissions and Eni and by forging key partnerships with organizations like the American Heart Association Girls, Inc.
And that impact just to name a few of the ways. This purpose influences our company and.
In addition, our recently signed the United Nations Women's empowerment principles as another step in our commitment to advance gender diversity and equality in our company industry and the broader community.
Turning to the Milacron integration next week, we will reach the end of the third and final year of the integration program as.
As we announced last quarter, we achieved and have since surpassed our target of $75 million in run rate cost synergies ahead of schedule.
Very proud of the commitment our team has displayed as they worked tirelessly in pursuit of achieving our goals and creating significant value for the company.
As you know this integration use the hillenbrand operating model to build a scalable foundation for functions like finance, it and HR as well as global engineering and supply chain that is leveraged by the entire enterprise.
We believe the H O N is a key success factor that enables us to drive continuous improvement in our existing businesses and accelerated growth and value realization and our acquisition.
Now turning to performance highlights.
Significant macro headwinds from inflation and supply chain disruption and foreign currency throughout the year, we achieved record levels for revenue and adjusted EBITDA in our industrial segment in fiscal year 'twenty two.
Our molding technology solutions segment had annual revenue and margin expansion that came in near the high end of our expectations and while we did see a slowdown in orders in the fourth quarter largely due to the rise in global macro uncertainty we are entering fiscal 'twenty three with a strong backlog.
We're closely monitoring the demand environment as well as the continued zero Covid policy situation in China and are taking appropriate action to protect the overall margin.
Bob will cover this when he discusses our financial performance and outlook.
In our advanced process solutions segment, we entered the physical twenty-three with another record level of backlog, providing us confidence and visibility in this uncertain operating environment as.
As discussed last quarter, we saw some delays in customer decision timing, but finished strong with a record Q4 order performance on an FX adjusted basis, and we continue to see solid order pipeline for large plastic systems aftermarket parts and service and our food and recycling application.
Last month several of our teams across the a T S and M. T. S attended the K fair in Dusseldorf, Germany, the world's largest plastics convention.
Each of our participating businesses saw a significant amount of weed and quote volume coming out of the show, which is a testament to the strength of this industry is evolving trends around durable plastics, and especially sustainability provide a tailwind for long term demand in both our MTS and a P. S segment.
In particular, we have received considerable interest M. D expanded recycling capabilities. We can now bring to the market as a result of our acquisition of hair, both macro shine.
Carol just a leader in the front end of the recycling process with technologies that separates shred fine grind wash and dry recycled plastic which can then be bad through our co purion feeding and extrusion equipment to be made back into plastic pallet. These plastic pellets can then be extruded or molded into.
Products, our injection molding extrusion and hot runner equipment, which are all fully equipped to process recycled content to create high quality more sustainable products.
This circularity within the plastics value chain is a perfect example of how our business helps to shape what matters for tomorrow, where.
Started to share more details with you as a co purion and terrible teams continue their integration and leverage our combined technologies to create enhanced customer solutions to serve this fast growing end market.
Now turning to our recent acquisitions and food.
Yesterday in our earnings release, we announced a tuck in acquisition of Peerless, a premier supplier of industrial food processing equipment, which is expected to close before the end of the calendar year.
Together with the co Purion Linksys group, a gobbler brands, we anticipate our total food and pharma revenue to be over $400 million now providing meaningful scale and balance to our portfolio. We're excited about the opportunities ahead of us from bringing together the complementary technologies across these brands to drive it.
<unk> value proposition for our customers to the improved operational efficiency, we expect to achieve through the deployment of the hillenbrand operating model.
Since closing the linksys transaction in early October our integration teams have been working closely together and are on track to drive synergy realization.
We're confident in our ability to effectively integrate and improve our combined businesses.
As we have proven before through the successful integrations at milacron and before that period.
In total, including Peerless, we executed our disciplined M&A strategy to deploy approximately $740 million towards these acquisition.
Expanding our position in complementary end markets with attractive long term growth characteristics, where we believe our highly engineered mission critical processing capabilities and engineering expertise create a compelling opportunity to win.
We believe these actions position hillenbrand for continued long term growth and shareholder value creation.
Finally, before I turn the call over to Bob to cover our financial details and outlook I wanted to touch briefly on the status of the Batesville strategic alternatives review the.
The process remains ongoing and we are confident the final outcome will be the best result for our associates, our customers and our shareholders. We will provide additional updates as appropriate.
With that I'll now turn the call over to Bob to cover our financial performance and outlook.
Thanks, Kim and good morning, everyone turning to slide six as a reminder, throughout my section I will be discussing our performance compared to the prior year on a pro forma basis, which has been adjusted for the divestitures of Abel Red valve Antero source global from the advanced process solutions segment.
We believe this view provides a clear assessment of our performance and you will find a reconciliation of reported and pro forma results in the appendix of the earnings slide deck.
And our fourth quarter, we delivered revenue of $750 million.
An increase of 1% compared to the prior year or 7%, excluding the impact of foreign currency exchange.
This growth was led by pricing and higher volume in our molding technology solutions and advanced process solutions segments, partially offset by lower volume in Batesville.
Adjusted EBITDA of $135 million decreased three.
3%.
But increased 3%, excluding the impact of foreign currency exchange as favorable pricing and productivity improvements along with higher industrial volume more than offset inflation for batesville volume and increase in strategic investments.
Adjusted EBITDA margin of 18% decreased 80 basis points, primarily due to the dilutive effect of price cost and more volume in batesville.
We reported GAAP net income of $57 million or <unk> 81 per share an increase of 9% compared to the prior year.
Adjusted earnings per share of $1 five came in slightly above the high end of our expectations and was five cents or 5% higher than the prior year.
Favorable pricing.
Productivity higher volume in our industrial segments and lower shares outstanding were partially offset by inflation lower batesville volume and the impact of foreign currency exchange.
The adjusted effective tax rate in the quarter was 27, 9%.
We had cash flow from operations of $97 million in the quarter, an increase of 13% year over year.
Primarily due to higher customer advances and timing of cash paid for taxes.
She offset by an increase in inventory.
Capital expenditures were $18 million in the quarter, which was in line with expectations.
Now moving to segment performance on slide seven.
Aps revenue of $328 million was approximately flat compared to the prior year, but up 11%, excluding the impact of foreign currency, primarily driven by favorable pricing and higher volume of aftermarket parts and services.
Adjusted EBITDA of $69 million decreased 1% year over year, but increased 9%, excluding the impact of foreign currency as pricing and productivity improvements and higher volume were partially offset by inflation and strategic investments.
Adjusted EBITDA margin of 29% was essentially flat as the dilutive effect of price cost, mostly offset productivity and operating leverage from higher volume.
Record backlog of $1 $4 billion increased 6% compared to the prior year or 22%, excluding the impact of foreign currency driven by strong order volume for large plastics projects record aftermarket orders and the acquisition of apparel.
Looking forward as Kim mentioned the project pipeline remains healthy as we continue to see good demand for our leading products and solutions across the key end markets we serve.
Turning to molding technology solutions on slide eight.
Quarterly revenue of $276 million increased 6% year over year or 11%, excluding the impact of foreign currency, primarily driven by favorable pricing and higher volume for injection molding equipment.
Adjusted EBITDA of $60 million increased 11% compared to the prior year or 16%, excluding the impact of foreign currency exchange.
While adjusted EBITDA margins of 21, 6% increased 100 basis points as pricing and productivity improvements and operating leverage from higher volume more than offset inflation.
Backlog of $364 million was essentially flat compared to the prior year or up 3%, excluding the impact of foreign currency.
And still remains at historically strong levels.
As Kim mentioned order volumes slowed in Q4 due to a delay in customer decisions, resulting from the increasing macro uncertainty.
We expect these customer delays to negatively impact orders and revenue through at least the first half of fiscal 'twenty, three which I'll discuss further when I cover our outlook.
In response to the slowdown in orders and our MTS segment, we have taken measures towards containing discretionary costs.
Hiring for critical roles and a prioritization of key investments.
Additionally, our global supply management organization remains focused on optimizing our global supply chain costs. While the continued deployment of the hillenbrand operating model drives further operational efficiencies, particularly within our injection molding product line.
Now turning to Batesville on slide nine.
Compared to the prior year revenue of $146 million decreased 6% due to lower burial casket volume, resulting from an estimated decrease in deaths associated with the decline in effects of the COVID-19, pandemic and an estimated increase in the rate at which families opted for cremation.
This decrease was partially offset by the price surcharges implemented earlier in the year to offset the significant increase in commodity cost.
Adjusted EBITDA of $24 million decreased 28%.
And adjusted EBITDA margin of 16, 6% declined 500 basis points due to lose effect of price cost on lower volume.
Margin in the quarter came in below expectations, but we still anticipate the normalized margins for this business to be approximately 20% as we've communicated previously.
Now I will briefly cover full year results on slide 10.
Consolidated revenue of $2 94 billion increased 5% over the prior year or 9%, excluding the impact of foreign currency exchange.
EPS revenue of one point to $7 billion increased 8% or.
Or 14% excluding currency exchange.
And MTS revenue of one point over $5 billion grew 5% or 8% excluding currency exchange.
Batesville revenue of $626 million was roughly flat year over year, largely due to the commodity price surcharges, which offset lower volume.
Total backlog of $1 $76 billion increased 5% or 18%, excluding the impact of foreign currency exchange with approximately 75% of the backlog expected to convert over the next 12 months.
As we head into fiscal 'twenty three.
The macro environment remains challenging, but our business has shown its resiliency and our strong backlog provides us confidence as we move forward.
Adjusted EBITDA of $527 million decreased 1% compared to the prior year, but increased 3%, excluding the impact of foreign currency as pricing and productivity improvements and higher volume in EPS and MTS were partially offset by inflation lower batesville volume and an increase in strategic investor.
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Adjusted EBITDA margin of 17, 9% decreased 110 basis points, primarily due to the dilutive effect of price cost coverage.
Adjusted EBITDA margin for Aps of 19, 6% increased 10 basis points, while adjusted EBITDA margin for MTS of 27% increased 40 basis points.
Batesville adjusted EBITDA margin of 23% decreased 540 basis points due to the dilutive effect of price cost coverage on lower volume.
GAAP net income of $209 million or $2 89 per share decreased from $3 31 in the prior year, primarily due to the prior year gain of the sale of bobble.
Adjusted earnings per share of $3 93 increased 14th.
Or 4% compared to the prior year as pricing and productivity improvements higher industrial volume and lower shares outstanding were partially offset by inflation lower batesville volume unfavorable foreign currency exchange and an increase in strategic investments.
Adjusted effective tax rate for the year was 29, 1%.
We generated operating cash flow for the year of $191 million.
Down $337 million compared to the prior year, primarily due to the unfavorable timing of working capital related to large plastics projects and an increase in inventory due to higher customer demand and supply chain disruptions.
While cash flow was lower this year or three year average conversion remains at approximately 120%.
Our underlying working capital processes continue to be healthy.
With working capital turns over eight turns.
Looking forward, we're confident in our ability to average 100% conversion and drive roughly 10 times working capital turns over the long term.
Capital expenditures for the year were $50 million, while we expect capex to be higher in fiscal 'twenty three due to the catch up effect of supplier delays, we've experienced in fiscal 'twenty, one and 'twenty. Two we will be actively monitoring the demand environment and prioritize investments accordingly in the case of an increased or prolonged market softens.
Yes.
Now turning to the balance sheet on slide 11.
Net debt at the end of the fourth quarter was $988 million.
And the net debt to adjusted EBITDA ratio was one eight.
At quarter end, we had liquidity of approximately $1 $1 billion, including $234 million in cash on hand, and the remainder available under our revolving credit facility and delayed draw term loan facility.
As we previously announced we closed the linksys transaction on October six.
Upon close of the Peerless transaction and including the debt incurred for the acquisition of links US we expect pro forma net leverage to be approximately 2.8 with liquidity of approximately $555 million.
Turning to slide 12.
As you know we have a proven track record of deleveraging following acquisitions and with the increase in leverage from our recent acquisitions, we plan to prioritize debt reduction until we return comfortably within our guard rails of one 7% to two seven times net leverage which we expect to achieve by the end of fiscal 'twenty three.
Moving to capital deployment on Slide 13, we've returned approximately $266 million to shareholders during the year with $62 million of that through our quarterly dividends and $204 million through the repurchase of approximately $4 8 million shares, including approximately 900000 shares for $37 million in our fourth.
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As we enter fiscal year 'twenty, three we will be focused on reducing debt. While also continuing to make strategic investments for long term growth and operational efficiency such as automation.
But we will be cautious as we monitor the overall demand environment.
Now let me conclude my prepared remarks, with our fiscal 'twenty three outlook on slide 14.
Our guidance will be on an organic basis, excluding FX impacts.
On a total basis, including the acquisitions of links us terrible and gobbler and the impacts of FX.
We have not yet closed the peerless transaction, but do not anticipate that to have a material impact on our guidance.
As the basis for our outlook, we entered the year with record backlog and continued strength in our API segment.
Including strong momentum in our aftermarket business.
However, we expect order and revenue softness for our MTS segment to persist through at least the first half of the fiscal year.
But at this time, we are not incorporating a broad based recession into our guidance.
We also expect foreign currency headwinds to be more pronounced in the first half of the fiscal year.
While supply chain disruptions and inflation have moderated slightly.
We still expect it to be some time before these issues resolved.
We expect full year revenue of three three to $3 4 billion.
Up 11% to 16%, which represents organic growth of 3% to 6%.
The contribution from acquisitions of 12% to 13%.
Offset by foreign currency headwind of roughly 3%.
We are providing a wide range for adjusted EPS to reflect the potential impacts of the global macro uncertainty.
As a result, we expect full year adjusted earnings per share in the range of $4 10 to $4 50.
With the second half of the fiscal year expected to be stronger than the first half.
We expect free cash flow as a percent of adjusted net income to be approximately 100% for the year with capex of approximately $70 million.
Now to our full year segment outlook.
Starting with advanced process solutions, we expect full year revenue to be 166 billion to $1 74 billion.
Up 31% to 37% representing.
Representing organic growth of 9% to 13%, primarily driven by continued strength in large plastics projects as well as solid growth in aftermarket revenue.
Additionally, we expect a contribution of 28% to 30% from acquisitions and an unfavorable foreign currency impact of approximately 6%.
We expect adjusted EBITDA margin of 19% to 20%.
Organic margin is anticipated to be up roughly 60 to 100 basis points.
As previously discussed the acquired businesses are dilutive to segment margins, but we fully anticipate to bring these margins in line over time, as we integrate and drive synergy realization to the deployment of the hillenbrand operating model.
We assume relatively normal seasonality throughout the year with the first quarter being our lowest quarter and fourth quarter being our highest.
Turning to molding technology solutions, we expect full year revenue to be down 2% to up 1%, including a foreign currency headwind of approximately 2%.
Given the strong backlog, we expect moderate growth in injection molding products, while our quicker turn hot runner product line will be more heavily impacted by the current market situation.
Resulting in a modest decline year over year.
We expect adjusted EBITDA margin of 20% to 21% compared to 27% in fiscal 'twenty two.
Primarily due to unfavorable mix from a higher proportion of injection molding equipment, which comes at a lower relative margin.
As mentioned, we expect a softer first half compared to the second half.
For Batesville, we expect revenue to be down 2% to 4% due to an anticipated decline in burial volume largely due to the impact of <unk>.
In the first half of fiscal 'twenty, two which contributed to nearly 300000 COVID-19 deaths in North America during that period.
This volume decline is largely offset by the carryover of the surcharges, we implemented starting in fiscal Q2 of last year.
We expect adjusted EBITDA margin of 19, 5% to 25%.
Down 30 basis points at the midpoint, primarily due to lower volume, partially offset by productivity actions.
We expect price cost coverage to be relatively neutral for the year.
For phasing, we anticipate a tougher year over year comparison in the first half largely due to the decline in volume and higher expected level of inflation.
Now given the macro economic uncertainty, we are providing a Q1 guidance range for adjusted EPS of <unk> 85 to 93.
This was down moderately from the prior year, primarily due to lower volume in Batesville as a result of the impact of the <unk> variant in the prior year and lower volume in MTS, particularly for our high margin Hot runner product line due to customer order delays. This.
This will be partially offset by EPS growth and lower shares outstanding.
We expect the contribution of approximately six cents from acquisitions in the quarter net of interest, which is offset by the impact of unfavorable foreign currency exchange.
Please review slide 14, four additional guidance assumptions.
Overall heading into fiscal 2023, we have a strong backlog and a solid pipeline with our Aps segment, which will help mitigate the order softness we're experiencing in our MTS segment.
We continue to be focused on investing for growth and delivering world class solutions to our customers in a variety of growing end markets, while utilizing the hillenbrand operating model to help us navigate through the difficult global environment.
Our teams have repeatedly demonstrated the ability to execute through challenging circumstances and I am confident that we will continue to drive sustainable improvements that will create long term value for our shareholders, while remaining nimble and deploying our downturn playbook to contain costs in response to a broader market downturn scenario.
And now I'll turn the call back over to Kim.
Thanks, Bob.
I'll end, our discussion with a few final remarks before taking questions. We.
We continue to operate in a dynamic and challenging macro environment as I mentioned, we remain vigilant towards the external environment and we are taking appropriate action to protect the business in the short term, while not sacrificing our long term opportunity for growth.
Our backlog remains at record levels, and we remain intensely focused on deploying the hillenbrand operating model to help our teams effectively guide and execute through these challenging global times.
Guided by our purpose shaped what matters for tomorrow, we continue to invest in innovative solutions that help our customers solve their most difficult problems and we're confident that we're taking the right steps to further position hillenbrand to drive long term profitable growth and shareholder value.
Finally, we hope to see you at our Investor Day on December 15th in New York City, where you'll be able to meet key members of our talented and experienced leadership team and members of our board of directors and where we plan to provide further insight into our strategy our transformation journey, our segments and our targeted performance.
We'll now open the line for your questions.
Okay.
Thank you at this time, we'll be conducting a question and answer session.
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One moment. Please so we poll for questions once again Thats star one thank you.
Our first question comes from the line of Daniel Moore with CJS Securities. Please proceed with your question.
Thank you good morning, Kim Good morning, Bob Thanks for taking the questions.
Hey, good morning, Dan.
Let's start with advanced process solutions.
Clearly continuing to see strength, you mentioned record quarter orders adjusted for FX.
I think last quarter, you alluded to a couple of large orders I assume those did closed during the quarter.
I'm just checking there and maybe any more color just on the general outlook and pipeline.
Beyond behind the backlog growth that you're seeing.
You know in this quarter.
Yeah Dan.
Yes, we had seen a couple of those strict land at the beginning of the quarter.
And then a few more of the orders, obviously that we expected to execute towards the end of the quarter and that obviously allowed us to achieve best record order levels. We also saw continuing strength of our by our services business and the order pipeline for that which was.
Thing that we've been talking about as as you know for several quarters and it's something that we've been monitoring and that obviously comes as a result of a lot of the capital that has been purchased over the last number of years and the subsequent parts annuity that we expect to come from these from.
From these systems and projects that we've put in in.
In terms of the pipeline, we still feel that that's good and are a robust and stable and particularly as we.
I had an opportunity to interact with a lot of our customers at K fair over the course of the last 45 days they had an opportunity to really.
Floor.
Lot of the thinking around.
How our customers are approaching market and some of these uncertain times what are some of the projects that they are still planning on how are they thinking about continuing investments in Easter in the durable plastics area and as you might imagine sustainability was a huge focus of K fair and so the there was a high degree of interest and the recent acquisitions that we've made.
Especially in the recycling space. So that we can continue to offer a more fulsome solutions to our customers in the areas whether it's.
Whether it's mechanical recycling solvent based recycling chemical recycling, we have we have we had the opportunity to share data.
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<unk>.
Reference lines that we've been able to put in and all of those areas and how we're gonna be bringing those solutions slight with our with this most recent acquisition. So it was very well received and that's that's I think a pretty good view of kind of how we see things materializing with Aps.
Got it very helpful.
Maybe just switching gears to the MTS side of the house, just talk about what Youre seeing in real time.
Great color on the prepared remarks, but as far as kind of sequentially week to week month to month.
How demand has trended or I should say order rates are trending exiting fiscal 'twenty, two and thus far this quarter.
Sounds like you're kind of setting up for some softness for the next one to two quarters.
What are you hearing from customers.
Maybe compare it to prior downturns, if that's possible.
Yeah, we've we have seen some softness in quarter, four and and coming in and that's primarily on the capital side of the business. We've continued to see a continued.
Continued to see good activity in the parts side of our business on MTS.
Pacifically for extrusion and injection molding systems, we continued to see a continuing a good order trends. There. Obviously, we do have a strong backlog and that injection molding and extrusion side of the business and so we will we will continue to work through that with our partners.
We also continue to monitor the situation in China, and while we have not been shut down in our facility.
And local suppliers that supply that plant it does limit some of our capability to travel very broadly in China with some of the sporadic shut downs that happened in that area and I think that has caused.
A bit of a slowdown in decision we continue to have good robust pipeline of orders had good communications with our customers.
Some of those projects frankly, just require an opportunity to work together face to face and as we continue to see.
C C.
See those areas open up it makes it a lot easier to get those orders order decisions finalized and so that's what we continue to see right now that short cycle the shorter cycle business.
We do expect to see some softness in the first half, but we as we look out to what we're hearing from customers and what we're seeing in our own pipeline, we do expect that to elevate in the second half of the year end.
And move some of those decisions some projects I had at that time.
Perfect, maybe one more and I'll jump back, but just in terms of price costs remind us kind of where we are now when you expect to be fully caught up.
For the full year, you do but.
We still have a little bit of catch up to go in certain parts of the business for Q1, Q2s. It the right way to think about it Bob yes.
So I think we've demonstrated with our global supply chain management team that we've got some good fundamentals put in place.
As expected we saw continued improvement as we work through throughout the year and so Q3 was the first quarter that we were a 100% price cost covered and then in Q4, we were actually above a 100% as a total company with that being said full year, we're just shy of being 100% price cost covered.
And I would say you know batesville is the most behind of the group.
But with that being said, we feel great exiting the year, where we did that will be 100% price cost covered going forward, obviously, that's dilutive to margins, but on a dollar for dollar basis.
We'll be protected going forward.
Perfect I'll jump back clinic follow ups. Thank you.
Dan.
As a reminder, if you'd like to ask a question. This morning. Please press star one from your telephone keypad.
Next question comes from the line of Matt Summerville with D. A Davidson. Please proceed with your question.
Thanks.
Questions first can.
Can you talk about.
I apologize for the voice what cost and revenue synergies you may be expecting from four deals either closed or soon to be closed and over what period.
Yes.
Links US is our is our biggest acquisition and so we're expecting about $10 million of synergies to come through over the next several years with with some of those obviously being in the near term primarily in the global supply chain management execution of procurement save and operational savings.
As a reminder, we did not put into our business case was the opportunity on the commercial side, but with that being said I think our teams have already gotten to work on what we're going to do with cross selling and so we've already began to offer a broader portfolio to our to our customers. The other thing I'd highlight too right as the links.
This business was underrepresented.
Underrepresented as far as our aftermarket parts and so we've leveraged and started leveraging some of our best practices to improve their entitlement on aftermarket, but then the last thing I would say is right. I mean, we've got key account relationships. So we didn't have a lot of customer overlap between both companies, but I can tell you on the first 30 day.
As we have identified several several multimillion dollar opportunities that we're going to go quote that we wouldn't have had we had we been separate companies and so I think our team has done a fantastic job already really getting to work and so we feel good about where things are going and I would I would just add that as well.
As with any of these acquisitions, we evaluate as we determine whether or not we can make appropriate returns on these acquisitions, we bought it.
Valuate that in our various disciplined M&A process that we conduct with our board of directors and we base that primarily on cost and then as we get into the as we get into the integration planning and we are really able to test some of the areas that we have around other opportunities that we will continue to update those synergies as we move along.
Through the integration as we have demonstrated with the.
The milacron integration, if it becomes appropriate to do so well update on on what types of opportunities we see there.
Understood.
Two follow ups first can you maybe provide a little bit more of a high level comment Jim on the Batesville process, you know you're roughly four months into this are you happy with the interest level, you're seeing and maybe how the current market environment, maybe influencing the process.
Aye.
I would say that we we continue to work this process.
And we are we are confident that we will arrive at a final outcome that will be the best result for associates customers shareholders I would say, even though there is a <unk>.
LNG market in front of Us I think.
We've had a great partner involved in this and we've been able to really.
B.
<unk> had a very fulsome look at the opportunities out in the marketplace and be able to make sure that.
All interested parties have an opportunity to evaluate that.
Great asset that we are.
That we are exploring strategic alternatives for it.
And we will continue to provide operational says come available.
I appreciate that and then just finally, just one more for me. If you look at slide 14 in the organic guidance you've provided by segment I. Appreciate you providing that can you maybe comment by segment.
Much of the organic is split between volume and price.
For the for the for the acquisitions, yes.
Can here Matt.
If you think about I guess, maybe let's take Aps, obviously, what we're all the where the acquisitions are.
The volume is going to be the biggest driver in that segment that is gonna be about call. It.
Mid single digits.
Acquisitions is going to be closer to the to.
The higher <unk>, and that's primarily primarily volume theres not too much price, there's going be some price opportunity. We have as part of our synergies are Matt, but I would consider most of that to be volume right. Now, but then obviously total total prices going to be kind of mid single digits and have an impact and then we've got foreign exchange really offsetting that but as far as the acquisitions along.
Loan consider that mostly volume and then we'll work through our through our.
Our processes.
<unk>.
Of integration and planning the <unk> to get pricing and aftermarket mix.
Although on the other two segments came from volume versus price school.
Yes, I would say.
MTS were primarily it's primarily price offset with some some slight volume headwinds and then foreign exchange on Batesville.
As you can imagine with the <unk> virus, we had last year and we don't have this year.
We're going to lose volume of about kind of high single digits, but that'll be offset by price and so that's how you get to that kind of 2% to 4% decline.
Great. Thank you for that.
Our next question comes from the line of John <unk> with Sidoti and company. Please proceed with your question.
Good morning, everyone and thanks for taking my questions.
I like to start with the.
The M&A environment.
Considering you've made a couple of acquisitions in the past year.
What are your thoughts about additional M&A versus taking maybe some time to digest, what you've got before you go again in the M&A market.
Yeah, I would say that I would say a couple of things.
I think we've been very clear that we are we have our guard rails setup, we work very hard to stay within those guardrails comfortably within those guardrails of it. So you should anticipate that our priority is focusing on our integration and achieving the synergies of those integrations and making sure that we.
<unk> pay down debt and get back comfortably with them the guardrails that that will be a priority of ours.
We don't jump into and out of the M&A market as you can imagine that the targets that we identified and executed on this year are things that we've been looking at for years as a part of our long term growth strategy and so we don't jump in and jump out I would say that we are we are very focused our priorities are investing in.
And it'd be internal opportunities were identified in the data sets that we've been discussing paying down debt and getting these integrations done in the fashion that you would expect in that we've previously demonstrated with prior acquisition and we do not expect to.
In the near term, we don't expect to.
Just to be doing a lot of other transactions until we're back within those guardrails.
Great and in regards to repurchasing stock versus paying down debt and I guess, the first thing how much is left in the authorization and what are your thoughts about spending capital on reducing debt versus buying stock.
Yeah. So just maybe give you some background rates of through the throughout this last year, we've been pretty active in share repurchases and so we've we've bought close to 5 million shares back really for about $200 million, we did execute about $37 million in our fourth quarter remember are our price it bounced around in that.
Hi, <unk> to low $40 range, but we had to do that or that was the opportunistic opportunity. We had just because of our of our the way our debt structure works. John So we had to fix that and we did had we would've had prepayment penalties how do we pay down debt. So it really buying shares was the best alternative for our shareholders.
To answer your first question, we do have a $125 million left on our authorization as we move forward, but as you think about our guard rails as Kim mentioned.
The links with transaction and Fearless transactions, we're going to be just just north of our net leverage guardrails of one 7% to seven and so near term we are going to be focused on paying down that debt and really putting a pause on share repurchases here.
Great and I might have missed this in the prepared remarks, but what's the backlog look like ex acquisitions on a year over year basis.
Yes, so maybe I'll give you some color because we do have some moving parts there.
So our backlog ended at $1 762, as I mentioned, but the biggest driver is really volume and so volume was up about 9% you're over a year and so thats the biggest driver, but the other thing I'd highlight is we did have an impact of price just because of the some of the fundamentals that we've put in place with the.
Global supply chain management teams, we picked up about 4% there. So if you think organically backlogs up about 13%. We also had the impact of of an uplift of the gobbler and <unk> acquisitions, we picked up another 5% of backlog there. So that's about 18% year over year growth.
Now Unfortunately with the foreign exchange rates. We did we did have a reduction of about 13% just on the on the euro rupee in RMB.
Versus the dollar and most of that obviously being the euro. So net net we ended up 5% organically <unk> up 13, and then excluding foreign exchange up 18%.
Got it and just I guess, one last question if I may.
Regarding faithful and the price cost recovery, you're saying that's lagging the most.
Why is that the case I would think considering its book in turn shipping cycle.
That'd be easier, but are you locked into like long term contracts.
Just a little color there would be helpful.
Yes.
From an industry structure standpoint that industry has previously normally characterized by its normal annual price increase that would go into effect and then.
And then we would we.
We would help our customers they have a lot of work that has to be done in order to implement those price increases and the resulting pricing changes that happened in.
All of their presentations to their consumers.
And their customers and so we had this industry is typically characterized by by that annual price increase typically in October of every year.
Over the course of the last year or so with inflation and the really.
Outpaced inflation that all businesses, we're seeing we implemented surcharge surcharges during the year one in January and again in May to address the inflationary situations that we have there. There are there is timing elements of that because some contracts obviously.
You know we have to we have to go in with the price timing that we've agreed to contractually, but those even even with those.
Those surcharges it does take time to implement those things.
And pass those through to customers and they in turn then pass that through to consumers. So it's that industry is typically characterized by not real time pricing in an effort to support the processes that our customers have to adhere to.
John I would highlight we are we are caught up we did catch up on price cost in the fourth quarter and that's what gives us confidence moving forward, but for the full year. Obviously, we started behind in Q1 Q2.
I'm going to sneak one more in hospitalizations up on.
On a higher.
Fluence our rate are you seeing any impact on the batesville business on that.
No we're not.
Okay.
Okay.
Question is typical flu season does come in our second our fiscal second quarter is when we typically see that more prevalent play.
<unk> remains to be seen how close vaccines match that.
All kinds of other factors that influence how.
How that how that influenza season, well behaved this year.
Okay. Thank you very much Ken.
Thank you.
The next question is from the line of Daniel Moore with CJS Securities. Please proceed with your questions.
Thanks, again, maybe just one more on batesville.
Looking at the guidance for this year for fiscal 'twenty three.
Specifically from a volume perspective.
Does that imply kind of close to full quote normalization post pandemic or are we sort of back to the what would have been.
The run rate.
If we had not had the.
The spike in the pandemic or is that still kind of above trend.
Dan that'll get us back to kind of a new the new kind of 1% to 3% will be down to the 1% to 3% when you adjust for the impact we had in Q1 and Q2 right. So we're we're have come down high single digits, but again most of that's going to be first half and that will be in that kind of 1% to 3% secular decline after that.
Sort of back to normal right and remember Dan the model that we kind of tried to tried to get everybody has had around was well. It's taken that 2019 pre COVID-19 number and then kind of modeling that forward for the normal secular decline, we see in this market and kind of drawing that trend line plus or minus to end and that when we arrived back post.
Post COVID-19 it would kind of be back in that range and that's where we are.
And then just.
One final point and so we're talking volume, obviously and so we do have pricing in place with the surcharge and obviously with a deflationary environment.
There could be risk that our our pricing does come down where I was going to be slow to do that but should that happen our margins will actually improve but will still be covered on a dollar for dollar basis.
No. It makes sense I ask it just because the if you look back to 'twenty nine.
A different dollar level given all the inflation in cost you've had to pass through.
And then lastly, cant blame me for asking just any any preview of the analyst Investor day, not necessarily numbers, but you know what types of long term targets might you be thinking about in terms of end market adjacencies.
You know kind of the longer term opportunities.
Yeah, I mean, it's so we'll give some clarity around.
Financially I would say through 2025, so think three year horizon, but obviously, we're going to provide a lot of color on some of the strategic investments. We've made in the the impacts led our hillenbrand operating model has provided and will continue to provide going forward.
Obviously, we will obviously share it while the new strategic markets.
Size of those markets the growth trends that we are that we are expecting both in the shorter and longer term and how we how we will play in those markets given that recycling and food.
Food, especially have been areas that we haven't historically talked a lot about it we'll have a lot more color on that as well.
Obviously, that's a much differently sized part of our portfolio as we come into <unk>.
As we come into Investor day that's.
Another great end market that takes advantage of all the skills and capabilities that we have as a corporation and we're excited about about the diversity that that provides from an end market perspective in our portfolio.
Very good look forward to it I appreciate the color.
Great. Thanks, Dan.
Thank you at this time, we've reached the end of the question and answer session I will now turn the call over to Kim Ryan for closing remarks.
Thank you. Thank you again, everyone for joining us on the call today. We appreciate your ownership and your interest in the transformation going on here at Hillenbrand, We look forward to talking to you again in December at our Investor Day, and then in February when we will report our first.
Our first quarter fiscal 'twenty three results I hope you all have a safe and healthy Thanksgiving holiday. Thank you again for joining us this morning.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.
Yeah.