Q4 2024 Hillenbrand Inc Earnings Call
Greetings and welcome to the Hillenbrand's fourth quarter fiscal year 'twenty four earnings call.
At this time, all participants are in listen only mode.
A question and answer session will follow the formal presentation.
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Speaker Change: It's now my pleasure to introduce the sand mine hurt Vice President Investor Relations. Thank you you may begin.
Thank you operator, and good morning, everyone welcome to Hillenbrand's fourth quarter and fiscal year end 2024 earnings call.
Speaker Change: I'm joined by our President and CEO, Kim Ryan and our senior Vice President and CFO, Bob Behan timber again I'd.
Speaker Change: I'd like to direct your attention to the supplemental slides posted on our IR website that will be referenced on today's call.
Speaker Change: Turning to slide three please note that our comments may contain certain forward looking statements 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.
Speaker Change: Also during the course of this call you will be discussing our results on a continuing operations basis, which excludes any impact from the discontinued operations of batesville as well as certain non-GAAP operating performance measures, including organic comparisons for our segments, which exclude the impact from acquisitions divestitures and foreign currency exchange rates.
Speaker Change: I encourage you to review the appendix in slide three of the earnings call presentation, which can be found on our website as well as our 10-K, which will be filed later this month for a deeper discussion of non-GAAP information forward looking statements and the risk factors that could impact our actual results.
Speaker Change: Finally, as a reminder, on August 1st fishing processed food performance materials business was rebranded under our existing Kocharian brand that will be referred to as S. P. M throughout todays call with that I'll turn the call over to Kim.
Kim Ryan: Thanks, Sam and good morning, everyone. Thank you for joining us today.
Kim Ryan: I'd like to start by recognizing our hillenbrand associates for their dedication and determination throughout the year, while we face demand pressure from persistent macroeconomic challenges our teams rose to the occasion by accelerating initiatives to optimize our cost structure and drive trade working capital efficiency.
Kim Ryan: Diligently managing our discretionary costs and by delivering stronger than planned F. P N margins through the execution of our integration.
Kim Ryan: Got it by our purpose to shape what matters for Tomorrow, we continue to pursue excellence collaboration and innovation for our customers our colleagues and our communities and I'm truly grateful for a team that embodies that purpose each and every day.
Kim Ryan: As we've completed our first full year as a pure play global Industrial company, we remain confident about our future throughout our transformation, we've established a portfolio of leading brands and highly engineered processing technologies, serving large and attractive end markets with long term growth, that's driven by an expanding global.
Kim Ryan: It'll class and an increasing focus on sustainable solutions.
The breadth of our product offering world class applications engineering and process technology expertise and exceptional systems integration capabilities enable us to offer a compelling value proposition to our customers.
Kim Ryan: We were able to deliver the highest quality and highest output equipment and systems anywhere in the world and then leverage our global network of service professionals to maintain upgrade and modernize this equipment to maximize its value for our customers throughout its lifecycle.
Kim Ryan: This fosters strong enduring partnerships and positions us as the preferred and trusted supplier for our customers future needs.
While demand for large polyolefin systems and aftermarket parts and service was robust for the year orders for midsize equipment were more challenged than originally expected as uncertainty around inflation interest rates geopolitical events and global economic activity slowed capital investments.
Kim Ryan: Project quoting pipeline remain very active and tests labs remain full.
Kim Ryan: Any of our customers significantly delayed their capital investment decisions across several key end markets and response, we executed a number of strategic initiatives during the year to help mitigate the impact to the bottom line, we will continue to evaluate and implement additional actions as necessary until the demand environment normalizes.
Kim Ryan: Now touching on our Q4 performance, we delivered revenue of $838 million up 10% in total but down 1% organically. So this reflects an improvement from prior quarter.
This was slightly above our expectations coming into the quarter supported by another record level of aftermarket performance teams in both segments also did an excellent job of executing orders from backlog with.
With the incremental volume and continued cost discipline, our adjusted earnings per share of $1.01 was just above the high end of our previous guidance.
Kim Ryan: Additionally, our ongoing focus on working capital and cash optimization resulted in $167 million of operating cash flow in the quarter, allowing us to reduce our leverage to three three times down sequentially from three five times.
Kim Ryan: Underlines, our stated priority debt pay down.
Kim Ryan: For the full year consolidated revenue increased 13%, primarily driven by the F. T M acquisition and strong aftermarket growth.
Kim Ryan: Organically total revenue was down 5%.
Kim Ryan: Organic revenue in our advanced process solutions or a P. S segment was down 2%, reflecting customer decision delays on capital equipment orders, which more than offset record aftermarket performance.
Kim Ryan: Revenue in our molding technology solutions or MTS segment declined 11%, primarily driven by lower backlog entering the year for injection molding equipment and ongoing soft demand for hot runners globally, particularly within North America.
While we remain cautious in our demand outlook over the near term I'm pleased with how our teams executed to finish the year.
Kim Ryan: I'll now provide a little more color on the factors driving performance in each of our segments.
Kim Ryan: With M. T. S. We were pleased to see orders improved once again on both year over year and a sequential basis in the fourth quarter, primarily driven by injection molding equipment demand. Although this progress is encouraging we have not yet seen enough demand growth to call. This an inflection in the overall market.
Kim Ryan: India, where we are a leading provider of injection molding equipment continues to perform well.
Kim Ryan: And China Hot runner demand improved year over year and sequentially for the second consecutive quarter, though it remains low relative to historical levels as.
Kim Ryan: As I mentioned, we saw pockets of increased investment in the quarter for injection molding equipment in the U S and India. However, hot runner demand continues to be relatively flat globally.
Kim Ryan: Our fiscal 2025 outlook for MTS. It seems demand will remain relatively consistent with 'twenty 'twenty four we.
Kim Ryan: We expect relatively stronger injection molding performance, which comes at a lower relative margin and continued price cost pressure is expected to partially offset productivity and the incremental $12 million of benefits from the previously announced restructuring program.
Kim Ryan: In addition, we will continue to be disciplined on all discretionary costs.
Kim Ryan: Turning to E P S.
Kim Ryan: We're up sequentially this quarter, but overall capital equipment demand remained soft for midsize equipment, but generally in line with what we expected coming into the quarter.
Kim Ryan: As I mentioned core pipelines and tests lab demand remains robust, but we have experienced significant delays in customer decisions throughout the year across key end markets, such as engineering plastics recycling pet food and other specialty materials.
Kim Ryan: As a result backlog is down year over year and given the longer lead time nature of projects in a P. S. This is expected to put pressure on revenue performance in fiscal 'twenty 'twenty five but generally in line with the expectations. We discussed on last quarter's call.
Kim Ryan: Capital equipment investments remained subdued during the year, but we continue to see solid demand for aftermarket, particularly for larger modernization projects and we're making great strides in driving aftermarket performance within our newer food businesses.
Kim Ryan: Our focus on aftermarket coupled with the strength of our installed base resulted in consecutive years of double digit organic expansion in aftermarket.
Kim Ryan: We expect growth rates to moderate going forward, we anticipate that's more stable highly profitable part of our business will continue to perform well in 2025.
Kim Ryan: Finally, a key focus area. This year has been the continued execution of our integration program, which progressed well throughout the year. We are pleased by the enhancements we've made across the combined food health and nutrition portfolio, including alignment of go to market strategies standardization of pricing practices and.
Kim Ryan: Improved operational efficiencies as exemplified by the strong margin performance. We delivered in this part of the business. We remain on track to achieve our $30 million run rate cost savings.
Kim Ryan: And with significant portion of that already realized we.
Kim Ryan: We have additional opportunities still ahead of us.
Kim Ryan: Our lower backlog coming into the year is expected to be a headwind in 2025, we continue to focus on accelerating initiatives around cost structure optimization strategic pricing and targeted commercial opportunities. We remain very confident in the strategic fit of these assets as we leverage our system expertise.
Kim Ryan: Global footprint and operating model capabilities across the Ats segment. We believe there is a clear path to achieving continued margin expansion and solid topline growth once the demand environment normalizes.
Kim Ryan: Now before I turn the call over to Bob I'd like to highlight some recent updates related to our board of directors and our sustainability disclosures.
Kim Ryan: We are committed to the development of our board and ensuring the skill sets of our directors aligned with the strategic direction and priorities of the company.
Kim Ryan: Last month, we announced the election of Joseph lower to our board.
Kim Ryan: Joe is a seasoned financial executive with deep skill set and finance operations strategic planning capital markets and business development. We're excited for Joe to join the board on December 1st and look forward to leveraging his expertise as we work together to deliver long term value for our shareholders.
Kim Ryan: In addition, we announced the establishment of Vice chairperson roles for two key committees.
Kim Ryan: The audit committee and the nominating and corporate governance or N C. G Committee.
Kim Ryan: Mr. Lowers extensive financial background. He has been named as the Vice chairperson of the audit Committee and current director interpret Sunny has been named as Vice chairperson of the M. C. G Committee.
Kim Ryan: Finally in October we published our first task force on climate related financial disclosures or T. C. F. D report. This report demonstrates our continued transparency and sustainability disclosures and progress towards meeting the global regulatory requirements I'm proud of the team's efforts in achieving this milestone.
Speaker Change: With that I'll now turn the call over to Bob to discuss our financials and our outlook.
Bob Behan: Thanks, Kim and good morning, everyone.
Bob Behan: Turning to our consolidated fourth quarter performance on slide five we.
Bob Behan: We delivered revenue of $838 million, an increase of 10% overall compared to the prior year due to the <unk> acquisition.
Bob Behan: From a pricing and.
Bob Behan: For instance, EPS aftermarket parts and services, which was partially offset by lower volume for mid sized capital equipment across a variety of end markets.
Bob Behan: Organically revenue was down 1%.
Bob Behan: Adjusted EBITDA of $144 million decreased 2% or 13% organically due to cost inflation and more volume, partially offset by pricing and our cost actions, including savings from the MTS restructuring program.
Bob Behan: We reported GAAP net income of $12 million down from $17 million in the prior year, primarily due to an increase in business integration costs and higher tax expense related to corporate restructuring actions.
Bob Behan: Partially offset by a gain in the quarter related to the previously announced sale leaseback transaction.
Adjusted net income of $71 million resulted in earnings per share of a dollar one.
Bob Behan: Which was slightly above our expectations coming into the quarter, but down 11% compared to the prior year as cost inflation.
Bob Behan: Organic volume and an increase in interest expense more than offset the incremental contribution of the <unk> acquisition.
And cost actions.
Bob Behan: Adjusted effective tax rate in the quarter was 27, 4%.
Bob Behan: We generated cash flow from operations of $167 million in the quarter, an increase of 93 million over the prior year.
Bob Behan: I'm really due to trade working capital benefits and cash received related to the settlement of our U S pension plans.
Bob Behan: Capital expenditures were $13 million in the quarter.
Bob Behan: Now moving to segment performance, starting with EPS on slide six.
Bob Behan: Aps revenue for the quarter of $591 million increased 15% compared to the prior year, primarily driven by the <unk> acquisition.
Bob Behan: Organic revenue decreased 2% year over year.
Bob Behan: Favorable pricing and record aftermarket revenue was more than offset by lower capital equipment volume.
Bob Behan: Adjusted EBITDA of $117 million was essentially flat year over year, but down 14% organically as cost inflation, a more volume more than offset pricing and synergies.
Bob Behan: Adjusted EBITDA margin of 19, 8% was down 300 basis points over the prior year, but at the high end of our expectations for the quarter.
Speaker Change: As Kim mentioned orders improved sequentially, but remained soft overall as we anticipated.
Speaker Change: Backlog of $1 $7 billion decreased 10% compared to the prior year and 3% sequentially.
Speaker Change: What are the pipelines remain healthy across most of our key end markets and regions, but as we've discussed previously customer decision time. It continues to be uncertain in this macro environment.
Speaker Change: Now turning to MTS on slide seven.
Speaker Change: Q4 revenue of $247 million was essentially flat to the prior year.
Speaker Change: Ahead of our expectations due to better than expected execution of backlog and higher orders.
Adjusted EBITDA of $42 million decreased 8%.
Speaker Change: Largely driven by cost inflation and unfavorable product mix, partially offset by the restructuring benefits and other cost actions.
Speaker Change: Adjusted EBITDA margin of 17% decreased 150 basis points compared to the prior year, but was generally in line with expectations.
Speaker Change: Backlog of $241 million decreased 1% compared to the prior year and 3% sequentially.
Speaker Change: Orders were up 10% year over year, and 5% sequentially, primarily driven by injection molding equipment, while hot runner demand remained muted.
Speaker Change: Although this quarter's orders slightly exceeded our expectations.
Speaker Change: Sterling market indicators, such as machine utilization and mold, making activity remained relatively soft and.
Speaker Change: And we have yet to see signs of a sustained recovery in demand.
Speaker Change: The team remains focused on driving productivity and managing discretionary costs to ensure we are well positioned to return to profitable growth once the demand environment groups.
Speaker Change: Now I'll briefly cover full year results on slide eight consolidated revenue of $3.18 billion increased 13% over the prior year, but decreased 5% organically as favorable pricing record aftermarket revenue and an increase in revenue for large polyolefin systems were offset by the persistent.
Speaker Change: Order delays for mid sized capital equipment.
Speaker Change: Adjusted EBITA of $512 million increased 6%, but was down 12% organically compared to the prior year as lower volume and cost inflation more than offset pricing restructuring benefits synergies and productivity.
Speaker Change: We reported GAAP net loss of $230 million down from net income of $107 million in the prior year, largely driven by the noncash impairment charge taken in Q3 related to our MTS segment.
Speaker Change: Adjusted net income of $234 million resulted in adjusted earnings per share of $3 32.
A decrease of 6% compared to the prior year.
Speaker Change: Organic volume cost inflation, and an increase in interest expense more than offset the impact of the SPM acquisition pricing and cost actions.
Speaker Change: The adjusted effective tax rate for the year was 28, 1%, which was consistent with our expectations.
Speaker Change: We generated full year operating cash flow of $191 million down $16 million compared to the prior year as lower earnings and fewer customer advances on large projects were partially offset by reduced inventory.
Speaker Change: Capital expenditures for the year were $54 million, and we returned approximately $63 million to shareholders through quarterly dividends.
Speaker Change: Turning to slide nine.
Net debt at the end of the fourth quarter was $1 $69 billion and net debt to adjusted EBITDA ratio was three three times.
Speaker Change: That reduction continues to be our number one priority for capital allocation.
Speaker Change: We made good progress this quarter with solid cash flow and the execution of an opportunistic sale leaseback transaction. However.
Speaker Change: However, given the uncertain trajectory of orders over the coming year, our anticipated deleverage time and remains prolonged.
Due to our typical seasonality of earnings and cash flow, along with lower starting backlog and the expectation of orders will remain relatively soft in Q1.
We expect leverage to slightly increase in our fiscal first quarter.
Speaker Change: This is normally a cash outflow quarter due the timing of certain annual cash payments.
Now let me conclude my remarks, with our 2025 outlook on slide 10.
Speaker Change: Our guidance for fiscal 'twenty five reflects the potential for ongoing uncertainty in the macro environment and the impact from the timing of orders throughout the year.
Speaker Change: We anticipate total company revenues of approximately $2 $93 billion to $3 9 billion down 3% to 8% compared to the prior year.
Speaker Change: This decline is primarily driven by our Aps segment, which we expect to be down 5% to 10%.
Speaker Change: We expect our MTS segment to be relatively steady with revenues expected to be down 2% to up 2%.
Speaker Change: We expect adjusted EBITDA to be in the range of 452 million to $488 million.
One five years to 12% and adjusted earnings per share of $2 80 to $3.15.
Speaker Change: We're assuming interest expense of approximately $105 million and an adjusted effective tax rate of approximately 29% for the year.
Speaker Change: We are targeting approximately $200 million in operating cash flow for fiscal year 2025, reflecting lower earnings payment timing related to the previously announced restructuring actions and payments associated with synergy realization and accelerated productivity initiatives.
Speaker Change: We expect these impacts to be more than offset by our ongoing efforts to enhance trade working capital efficiency.
Speaker Change: We expect capital expenditures to be approximately $50 million for the year.
Now I'll quickly provide some additional color for our segments.
Speaker Change: Yes, as I mentioned, we anticipate revenue of two point or <unk> 5 billion to $2 $175 billion down 5% to 10% driven.
Speaker Change: Driven by a decrease in capital equipment volume due to lower starting backlog, partially offset by modest growth in aftermarket.
Speaker Change: At the midpoint, we are assuming orders remained essentially flat to 2024.
Speaker Change: With modest sequential improvements starting in our fiscal second quarter. This unexpected customer decision timing as capital budgets reset in the new calendar year.
Speaker Change: We expect adjusted EBITDA margin to be 18 to 18, 5%, which reflects better flow through than a standard decremental margin through the ongoing focus on managing discretionary spend.
Speaker Change: Celebrating productivity and cost synergy initiatives and favorable mix of aftermarket revenue.
Speaker Change: For MTS, we anticipate revenue of $875 million to $915 million down 2% to up 2% with slight growth in our injection molding product line and relatively flat performance in our hot runner product line assumed at the midpoint.
Speaker Change: We are targeting adjusted EBITDA margin of 16, 3% to 17%, reflecting approximately 70 basis points of margin expansion at the midpoint as we realize the carryover benefit of the restructuring actions taken in 2024 and continued focus on controlling cost and driving productivity, partially offset by <unk>.
Speaker Change: Boeing price cost pressure unexpected unfavorable product mix from a higher proportion of injection molding equipment.
Speaker Change: Due to ongoing macro uncertainty, we are providing Q1 guidance as well.
We expect total revenues of 685 million to $705 million and adjusted earnings per share of 52 to 57.
Speaker Change: Down year over year, primarily driven by decreased volume due to lower starting backlog.
Speaker Change: Please review slide time for additional guidance assumptions with that I'll turn the call back over to Kim.
Kim Ryan: Thanks, Bob before we open the line for Q&A I'll end, our presentation with a few closing remarks I'm incredibly proud of the team for delivering solid results to end our fiscal year.
Kim Ryan: We haven't seen clear signals of meaningful demand recovery, yet we're confident in our strategy the strength of our market position and the underlying health of our end markets, which we fully anticipate will return to a solid growth trajectory. Once current macro uncertainties are resolved.
Kim Ryan: I firmly believe our teams have the right tools and capabilities to manage the business through these near term headwinds and come out stronger on the other side.
Kim Ryan: We'll continue to diligently manage costs drive productivity and innovation and execute our integration plans to position Helen brand for long term success with that operator. Please open the line for questions.
Speaker Change: Thank you.
Speaker Change: Well now be conducting a question and answer session.
Speaker Change: I'd like to ask a question today. Please press star one from your telephone keypad and confirmation tone will indicate your line is in the question queue.
Speaker Change: You May press star two to remove yourself from the queue.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
One moment, please while we poll for questions. Thank you.
Thank you and our first question comes from the line of Daniel Moore with CJS Securities. Please proceed with your question.
Thanks, Kim Bob Good morning, Thanks for taking the questions.
Good morning, Dan good.
Speaker Change: Good morning.
Speaker Change: You gave pretty good color, maybe just drill down a little bit you know it sounds like orders starting to improve modestly in Q4.
Speaker Change: How do you see order rates trend order trends playing out.
Fiscal 'twenty five.
Speaker Change: Across end markets any additional color relative to those comments you just gave and then when might you expect backlogs to start to level off and begin to grow again is that is it you know maybe late 'twenty five or more likely in fiscal 'twenty six just based on what you see today.
Speaker Change: Yeah, So I'll take that question here so.
Speaker Change: As we as we mentioned on the last call you know 90 days or so ago.
Speaker Change: We clearly see capital budgets really being locked down for the rest of the rest of this calendar year.
Speaker Change: And obviously you know we had back back three months ago, we had a couple of unknowns.
Speaker Change: Unknowns, one certainly the the presidential election, where that would land, but also interest rates and just broader macro.
Speaker Change: Economic topics I would say and so obviously, we have the election behind us. So that's that's unknown, but we still have you know the interest rate environment, and obviously you know what what's Trump being elected obviously he's he's spoken about you know kind of what he's thinking but it's still early days to determine exactly where things are going to land.
Speaker Change: That being said just based on discussions with our customer base, and obviously, where we see interest rates ultimately going we're not expecting a steep recovery here in Q1, but as capital budgets are unlocked here starting in our fiscal second quarter.
Speaker Change: We will start seeing orders trickle in in the second quarter and to continue to accelerate through the second half of the year.
Speaker Change: Yeah.
Speaker Change: Helpful and maybe shifting just to more specifically the hot runner.
Speaker Change: Demand seems like it continues to bounce along the bottom yet can you give any more granularity on what you're seeing kind of across industries as well as geographies from an end market perspective and.
Speaker Change: I've got a quick follow up there.
Yeah.
Speaker Change: So Dan its Ken.
Speaker Change: We continue to see is this is the second second quarter in a row that we've seen you know a good bit of stability and a little bit of growth in that.
Speaker Change: Hot runner market.
Speaker Change: Specifically, we've continued to see a strong quarter.
Speaker Change: And in India, and we also think that stability in China, Although obviously at lower levels than we had originally.
Speaker Change: <unk> been experiencing there.
Some of the activities that we've taken are really moving actively into a variety of end markets in order to expand our reach and we get through new product innovation.
Speaker Change: <unk> moved into some end markets that I think are going to create some opportunities for us specifically in China and India.
Speaker Change: With a couple of products that are going to hit that kind of the mid tier.
Speaker Change: And those products are our scenarios that we're looking to expand we're also continuing to.
Speaker Change: Monitor markets like medical end market, which we believe.
Speaker Change: We will continue to show positive signs of growth in the coming 12 months and will require some additional capital infusion in order to address some of those market opportunities.
Speaker Change: Great and maybe last for me and I'll jump back in queue, but.
Speaker Change: It's only been a few quarters, but I'm just wondering if you're surprised by the kind of degree in degree and duration of the pullback in spending in food and pharma I realize it's subject to the same macro challenges and budget constraints.
Speaker Change: But just curious if.
Speaker Change: The confidence around the thesis that that.
Speaker Change: So those markets will hold up you know generally better in a downturn for capital spending and maybe your sense for kind of pent up demand when the cycle does turn.
Would you expect to see a period of maybe outsized growth beyond the typical kind of mid to high single digits or is it just too early to call. Thanks again.
Speaker Change: I think the the Punjab part of there. Your question is a little bit too early to call I think that the key driver there in those markets as consumer demand and and discretionary income and those are obviously affected by the factors that we brought forward interest rates inflation and those types of topics and so those are some of the things that.
Speaker Change: Consumer demand is what what companies are looking for in order to drive incremental investments in capacity and new products and those are the things that we continue to watch.
Speaker Change: We've seen we've seen pretty stable markets I would say on the food side remember F. P. M is the combination of food businesses and also performance materials I think we've seen good performance.
Speaker Change: Relatively stable performance, even as people are pausing some of the investments on the paid side of this equation and that's that you know really in line with what we expected to see and less market. We're also continuing to use this time.
So really focus.
To really focus our energies on getting the integration done and really taking advantage of this opportunity to leverage the scale that we've created with these businesses drive cost efficiencies, which you have seen and then be able to attack those markets and in a coordinated way as that timing of those orders you know it becomes a little less.
Speaker Change: Dynamic is these as these market conditions continue to stabilize.
That's really helpful I'll jump back with any follow ups. Thank you.
Speaker Change: Thanks Sam.
Speaker Change: Our next question's from the line of Matt Summerville with D. A Davidson. Please proceed with your questions.
Speaker Change: Good morning, Matt.
Speaker Change: Good morning, good morning, so.
Speaker Change: When I look at the Aps deleveraging with organic down to EBITDA down 14, I think it was with the benefit of generating a record aftermarket revenue.
Speaker Change: What are kind of the influencing factors that drove that deleverage and embedded in your guide is a material less impact from deleverage. So if you can kind of bridge that that would be helpful. And then I have a follow up.
Speaker Change: Yeah. So if you think about if your question is more on Q4.
Speaker Change: Matt you know I think year over year.
Speaker Change: Certainly our EBITDA percent was a little bit better than what we thought going into the quarter, but year over year. We did have an impact of volumes. We did have timing of incentive compensation that was a headwind for us in the quarter versus last year and then we did have a mix of.
Speaker Change: Projects are lower margin projects that we executed this quarter versus you know versus last quarter.
Speaker Change: If I'm thinking forward to fiscal 'twenty five in our guide.
Speaker Change: Order volume is going to be relatively flat, what we see as we just as I mentioned earlier on the call.
Speaker Change: We do see some modest improvements in an aftermarket volume and pricing, but we're going to see some some mixed pressure no I'd say within our food health and nutrition business as well so with.
Speaker Change: With all that being said I think we're going to continue to focus on cost containment actions and integrations.
Speaker Change: Kim has just highlighted.
Speaker Change: Got it and you mentioned.
Speaker Change: In your prepared remarks that you're seeing continuing to see price pressure on the MTO side of the business and maybe quantify that a little bit and then talk about what youre thinking is in terms of incremental price capture to your last comment Bob for Aps in fiscal 'twenty five relative to fiscal 'twenty four thank you.
Sure, Yes sure so.
Speaker Change: If I think about pricing in Q4, it's been relatively consistent to what from what we've seen all year. So EPS continues to see.
Speaker Change: Price cost coverage, well above 100% MTS, we've been pressured all year and been below a 100% in total hillenbrand above 100%, which is which is great MTS, specifically, though I'd say in Q4, we actually saw some improvement this quarter from what we've seen throughout the last the last couple of.
Speaker Change: Quarters, and so that's certainly something we're pleased to see but as we think forward to fiscal 'twenty five at this point, we're not we're not assuming a continued steep recovery in pricing. So we're still assuming some muted pressure on on that front going into 'twenty five.
Speaker Change: Got it thank you.
Speaker Change: Our next questions are from the line of Mitch Mart with Keybanc capital markets. Please proceed with your question.
Speaker Change: Hey, guys good morning.
Speaker Change: I'm wondering that's this quarter came this quarter came in a bit higher than you'd guided to I'm. Just wondering if you could speak to what trended better for you in the quarter kind of relative to your expectations a couple of months ago.
Speaker Change: Yeah, I'd say, so if I think about about Aps certainly with higher revenue on the food health and nutrition as well as the plastic side.
Aftermarket revenue was another record quarter for us.
Speaker Change: F. P M specifically continues to outperform.
Speaker Change: EBIT aside so we bought that business a year ago at 13% margins and as Ken highlighted on some of the integration that we've seen we're well ahead of what our expectations are on that front and so I think we'll consistently see that business operating at that mid teens margins as we had here recently and going into 2025, and so we'll continue to see.
Speaker Change: No that that that business performed well.
Speaker Change: On the MTO side.
Speaker Change: Revenues came in stronger on the injection molding business and we saw that strength, both in the Americas as well as India.
Speaker Change: On the hot runner business I'd say, it's still bouncing around the bottom of the cycle, Although we did see some.
Speaker Change: Some slight improvements in China, particularly in the automotive space and so you know that business when it does return is.
Speaker Change: Is it does spike up we are not assuming that now, but we're seeing some signs of of some recovery there. So.
Speaker Change: That's really what drove the really the benefit in the in the quarter versus the guide that we gave.
Speaker Change: Great. That's helpful. And then just on the MTS. It seems like it's becoming stable kind of at a low level and potentially turning a corner here.
Speaker Change: With your initial guidance, how did you get comfortable with the flat sales guide for the year.
Speaker Change: Yeah.
So again, you know based on discussions.
Speaker Change: Discussions with our customers.
Speaker Change: We've seen spikes in the last year, where we where we have a good month and then the next month is a bit muted and so as we sit here today, obviously you know Trump.
Speaker Change: One one box that got checked but certainly interest rates is still something that is a wait and see and you know the customer base within MTS is a little bit more subject to the interest rate environment. So as we sit here today, we're seeing recovery in the injection molding side that hot runner business, maybe a little bit less recovery.
Speaker Change: And so right now it's kind of a wait and see until we see some some you know order it was really getting them locked in at this point in time.
Speaker Change: Being cautious in the one thing I would highlight though as you know we did take some restructuring actions as we highlighted last couple of quarters and so we do see margin improvement on the MTS side, because we have completed all those restructuring actions and so we will see that incremental $12 million of benefit coming through.
Fiscal 'twenty five so as a reminder, we did have that charge of $25 million $20 million of synergies coming from that and so we'll see that here throughout 2025.
Great. Thanks, I'll hop back in queue.
Speaker Change: As a reminder, if you'd like to ask a question today you May press star one from your telephone keypad.
The next question is from the line of John Friendship with Sidoti and company see with your questions.
John Friendship: Good morning, Thanks for taking the questions.
Speaker Change: Good morning, John Russell motivated about the future.
Speaker Change: Changes in geography, and demand in both India and China. It seems like this inflection point is going on in both regions.
Speaker Change: Yeah, I would say.
Speaker Change: Relative to India, you know, we're continuing to we we continue to see a lot of opportunity in India and I think you heard us comment on the fact that we saw a good quarter in our India injection molding business at a good level quarter in our hot runner business and you know that continues to be an opera.
Speaker Change: <unk> for growth as we think about projects on the Ats side of the equation as well as we anticipate further investments in India due to that growing global Middle class, which as you know is an underpinning of why additional products and services are going to continue to grow in that region and hence the need for our equipment.
Speaker Change: Right.
Speaker Change: In terms of China, China has really been.
Speaker Change: While we had experienced that.
Speaker Change: And efficacy downsizing of volume in that market over the last year and a half, especially on the M. T outside of our best defense in Hot runners that has leveled out and continues to kind of bounce around it's not growing at historical growth excuse me growth rates, but it you know continues to be stable and especially as we continue to invest as I.
Speaker Change: Mentioned on on Dan's question, and that kind of upper mid tier and some interesting end markets for us I think we're going to be able to continue to look for opportunities to leverage to leverage our footprint. There. We are very focused from a supply chain standpoint on a real local for local approach both in India.
Speaker Change: And in China, and then the U S, which allows us to we believe be able to compete over the long term even if some of these macroeconomic situations work out we think we're best positioned with that footprint to be able to attack opportunities in each of those geographies.
Speaker Change: Fair enough. Thank you and in the past you talked about test labs, as being an indicator of future demand.
Speaker Change: Can you kind of update us on the test lab activity in and is that still the case.
Speaker Change: Yeah. We have continued to see you know we do a lot of R&D with customers and typically that tests lab experience is what allows them to to do proof of concept and that's a precursor often almost always for for their capital investments specifically because that was a collaborative I those of <unk>.
Speaker Change: Or it is the experiments and test labs and those are a pay to play environment. So it's not just it's not just an environment, where they come in and and utilized facilities. They are also paying for those trials and so there. It really can I would say a very serious investment on their side and on our side to investigate viability for those lines.
Speaker Change: The recycling labs are fall day, polyolefin Lathrop, all the food lab careful so we do feel very encouraged by that and as we have mentioned before typically we see those lab trials really slow down if we are entering a down cycle and that has not occurred here nor have we seen down cycling of art.
Speaker Change: Parts and services business in fact, those have as we've mentioned continue to be very robust and so those are both bellwethers for.
Speaker Change: Some of the optimism we feel as we look at it and say that the next year and and some of the things that we have continued to double.
Speaker Change: Double down on as we look for some of these capital decisions to start working themselves through the pipeline as we enter the beginning of the calendar year.
Speaker Change: That's good to hear best of luck contextually detail.
John Friendship: Great. Thanks, John.
Speaker Change: Thank you. Our next questions are follow up from the line of Daniel Moore with CJS Securities. Please proceed with your question.
Speaker Change: Thank you again I apologize if you mentioned it I may have missed it how much of the 30 million synergies were realized as of September 30th and what's left in terms of incremental benefit for 25 and beyond.
Speaker Change: Yeah. So you know.
Speaker Change: Our original guide going into the year and we thought we'd have about seven to nine of that achieved and work closer to like two times that amount here in the year and you know I think we will continue to see acceleration there.
Speaker Change: Within 2025 and into 2026 as well.
And they are a reminder, that those are cost synergies and we feel very comfortable with the cost synergies and you see that coming through in the margin and.
Speaker Change: They performed very well on our execution of the projects that they had in their pipeline and they have also been able to bring forward a lot of valuable benefit from shared services from their operating our operating model implementation and also now above the co branding and the simplification of that branding story into the marketplace, which was.
Speaker Change: Completed in September.
Speaker Change: That we also obviously see opportunities on aftermarket collaboration and the organization just went into place October 1st for combined aftermarket approach and also the operating model that they've put in place that really create synergies among all of the food companies.
Speaker Change: And and how we're approaching all of that and that has that organizationally created a number of synergies as well that are started.
Speaker Change: Started being implemented in June and then completed its implementation on October one. So we're we're really pleased with the way that is going at the cadence and the rigor with which we are managing that implementation and the folks that are doing that all of our teams.
Speaker Change: Got it really helpful and I think I can answer this one but the the guidance in terms of Kashi P. S. For 25 doesn't include it doesn't assume any material change in tax rate correct.
Speaker Change: Correct that's right.
Speaker Change: And lastly, appreciate the guide for operating cash flow as well as Capex was there a working capital headwind embedded in the 200 million O C. F Guide.
Speaker Change: As demand and as demand for mid and large sized systems recovers how much of a tailwind could that be as we look out to 'twenty six and beyond I'm. Just wondering how quickly we can get back to you know.
Speaker Change: 250, maybe even $300 million in operating cash flow in a.
Speaker Change: Ironman where demand does pick up thank you again.
Yes, so I'll give you some color on that Dan. So if you'd think about you know the $200 million can you just maybe just talk about free cash flow none of the Capex do you think about where we landed in fiscal 'twenty four we had $137 million of free cash flow coming in the door. If you think about what that looks like for fiscal 'twenty five we do have lower earning.
Speaker Change: So obviously that would be a headwind.
Speaker Change: We also had a one time pension settlement.
Speaker Change: You saw in our in our remarks and in our press release as well as previously discussed we did offload our pension assets and liabilities to an insurance company. This year and so there was $27 million of cash.
Leftover from that so that that was shown as a onetime item in our and our cash flow statement here.
Speaker Change: This quarter.
Speaker Change: So you have a couple of headwinds there and then what you what we really see as upside with lower interest expense and then actually working capital improvements, particularly on inventory.
Speaker Change: A R. A D. P. We continue to focus on trade working capital as a percent of sales for things that we can control and certainly some.
Speaker Change: <unk> and advances in that second half of the year now if if order trends pick up a little bit quicker. Obviously, we know what the cash advances that could move that $150 million free cash flow number.
Speaker Change: North.
Speaker Change: Really that would come in I guess, probably Q3 Q4 is what I would say there they're going to want to highlight is there.
If you're trying to bridge your free cash flow year over year, we did have that sale leaseback transaction that we announced.
Speaker Change: And in Q4 that was about $55 million of cash coming down that's actually shown as investing cash flows. It is not in our $137 million. So its additional cash that came in the door, we used to to pay down debt. So that's kind of a bridge year over year, and then well again.
Some of the Lumpiness of orders, it's hard to predict when those advances come in but that certainly would be upside in the second half of the year.
Speaker Change: Okay, but I think fair to say Dan.
Speaker Change: Places, where we've had the most pressure is on us on those.
Speaker Change: And that mid sized here mid the mid to large and when I say large I don't mean like Mega large I mean, I don't mean giant polyol it's.
Speaker Change: It's been that it's been that engineering classic space. Those do those are P O see him projects.
Speaker Change: Projects that would still come with down payments are both down payments are for both our engineering hours as well as buyout. So.
Speaker Change: You know those are.
Speaker Change: Those are the types of business that we're waiting to break on these orders is the type of business. It is a company with down payments.
Speaker Change: That says that have been very steady and kind of our our steady pay as you go the parts business that the individual equipment business that is smaller projects. Those are the types of businesses that have been a little more steady in them over the course of the last year and it's those mid size with accompanying down payments that are that create some.
Speaker Change: <unk> if those break.
Speaker Change: It does take more quickly.
Speaker Change: It makes sense and and safe to assume that debt repayment remains priority beyond dividends as it relates to the use of incremental cash generation at least near term.
Speaker Change: Yes.
Speaker Change: Perfect. Thank you again.
Speaker Change: Thanks, Dan.
Speaker Change: Thank you. Our next questions are follow up from the line of Matt Summerville with D. A Davidson. Please proceed with your question.
Speaker Change: Just following up on the last point.
Speaker Change: In the context that your integration activities with F. P M.
Speaker Change: Seemingly quite successful maybe ahead of kind of the trajectory you had laid out when you bought the business and knowing.
Speaker Change: I think at least as your desire to get back into the M&A market.
Speaker Change: Sooner versus later to continue that acquisitive pivot towards more particularly attractive businesses.
It is indeed, the case, how should we be thinking about this.
Speaker Change: This 3% dividend yield and in context of <unk>.
Speaker Change: Thinking about where you guys want to go in.
Speaker Change: The idea that you would probably want to get back in the market sooner versus later.
Speaker Change: From an M&A standpoint, I guess, Kim how are you thinking about all that.
Kim Ryan: Yeah, Dan that's you know that's obviously a topic as we discuss our our capital allocation priorities, we continue to discuss that and evaluate that with our with our board and and obviously in consideration of our our Investor base and so we continue to you know we continue to look at that as we look.
Kim Ryan: At our priorities as we look at our portfolio of all of those things that as part of our normal processes with our board and so you know I can I can tell you that that we are we have active considerations about exactly what we think best you satisfy our cashes.
For the benefit of shareholders and we'll continue to do that and if any changes are if.
Kim Ryan: If any changes are on the horizon, well, you know, obviously well share that if and when that is appropriate.
Speaker Change: Thanks, Ken.
Speaker Change: Thank you at this time I'll turn the floor back to Jim Ryan for closing remarks.
Alright, Thanks again, everyone for joining us on the call today, we appreciate your ownership and interest in hillenbrand.
Speaker Change: And look forward to talking to you again in February with our first quarter results have a great rest of your day.
Thank you. This does conclude today's teleconference. We thank you for your participation you may now disconnect your lines at this time.