Q1 2025 Hillenbrand Inc Earnings Call
Readings and welcome to the Hilda Brant 1st quarter and full year 2025 earnings call at this time all participants are not listed only mode a question and answer session will follow the formal presentation.
Bob and Himber again.
I'd like to direct your attention to the supplemental slides posted on our IR website that will be referenced on today's call.
If anyone to require operator assistance, please press 0 on your telephone keypad as a reminder this afternoon.
Turning to slide 3, please note that our comments may contain certain forward-looking statements that are subject to the safe harbor provisions of the securities laws.
I'm joined by our president and CEO Kim Ryan, and our senior vice president and CFO.
These statements are not guarantees of future performance and our actual results could differ materially.
Also during the course of this call, our discussion of results will exclude any prior year impact from the discontinued operations of Batesville.
As well as certain non-GAAP operating performance measures.
Q1 results we'll be discussing today include Milliron on both a consolidated basis and within our MTS segment.
Bob will discuss the impact of the transaction on our future reported results later in the call.
I encourage you to review the appendix and slide 3 of the presentation, as well as our 10Q, 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 and I'll turn the call over to Kim.
Thank you, Sam, and good morning everyone.
Thank you for joining us on today's call.
Before we jump into the quarterly results, I'd like to provide an update on the portfolio announcement we made yesterday after market closed.
Following an in-depth portfolio review, we've reached an agreement to sell approximately 51% of our Millicron injection molding and extrusion business to an affiliate of Bain Capital for $287 million while we retain approximately 49% ownership.
This transaction reflects the continuation of Hillenbrand's transformation as we significantly reshape our portfolio towards being a higher margin, higher growth, less cyclical portfolio of industrial leaders in highly engineered processing equipment and systems.
As you know, we began this transformation journey a little over 3 years ago.
And over that time, we've divested our secularly declining death care segments and completed several strategic acquisitions that increased our scale in the attractive food, health and nutrition and markets.
Now representing just shy of 30% of our total revenue mix on a pro forma basis.
We are confident this transaction will deliver value to Hillenbrand and its shareholders, as well as the Meloron team.
Bain Capital has a proven track record of successful corporate partnerships and will provide greater focus and resources to help Meloron drive future growth and success for its associates and customers.
The transaction will enable Hillenbrand to maximize shareholder value by concentrating our resources on growing our core business.
Accelerating our commitment to deleverage.
Enhancing our margin profile and reducing our cyclicality.
Additionally, by retaining an ownership stake,
We maintain a potential for future returns from the Melaron business, which we believe has many opportunities under this new structure.
Bob will provide additional details regarding the transaction a bit later in the call.
Now touching on our Q1 performance.
As expected, this quarter was characterized by continuing uncertainty around inflation, interest rates and government policy.
Despite these persistent pressures, our performance reflects the hard work and dedication of our associates.
I'm proud of their determination and focus as they delivered revenue and adjusted earnings per share in line with our expectations.
As anticipated, overall order volumes were relatively soft, largely driven by lower capital equipment demand related to plastics projects.
partially offset by strong order performance within our food, health and nutrition portfolio in our advanced process solutions or APS segment.
Customer quote pipelines remain robust across the enterprise.
Test lab utilization continued to be high and aftermarket orders in APS reached a new record level.
Consolidated revenue in the quarter was $707 million down 9% year over year and adjusted earnings per share of 56 cents was down 19%, but as mentioned, this was in line with our expectations due to the lower starting backlog coming into the quarter.
I'll now provide a little more color on the dynamics we are seeing across our segments.
Starting with polymers and performance materials and APS.
We remain a market leader for high quality, high output feeding, extrusion of material handling solutions used in the production of base resins, engineering plastics, recycled materials, and other specialty chemicals.
We strongly believe in the Middle East.
These regions continue to be attractive for growth and our strong geographic footprint with local presence.
Already in place, positions as well to capitalize on these opportunities.
Customer quote pipelines, especially in these regions remain healthy.
Despite persistent global macro uncertainty.
We are closely monitoring the demand environment and have taken prudent cost actions in response to near-term volume levels.
While also ensuring we remain well positioned, given our long-term growth outlook.
These actions include several facility consolidations which create centers of excellence, adding to our flexibility and creating more efficient capacity utilization for the long term.
In our food, health and nutrition, or FHNN markets within ATS, we are encouraged by signs of increased demand across all key application areas including baked goods, pet foods, snacking cereals, and pharmaceuticals.
This growth is supported by broad-based geographic strength led by North America.
This improving demand environment was exemplified by record orders for our FHN and market in the quarter.
I'm tremendously pleased with how our teams have accelerated our integration initiative.
As we deliver in high teens margins again this quarter remaining on track to achieve our $30 million run rate costs energy targets by the end of the fiscal year, which is significantly ahead of our initial timeline.
Additionally, we are making great strides in cross-selling opportunities which we expect to accelerate as market conditions continue to improve and as customers respond positively to the breadth of our highly engineered process technologies, systems engineering capabilities and geographic reach.
Finally, turning to aftermarket and APS. As I mentioned, orders were a record in the quarter, largely driven by the value-added services we provide through our life cycle of our equipment, such as large modernization projects of our initial our FA timeline and business.
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As a reminder more than 100, the queues set by low one result or volumes. I'm just.
Still or starting backs the whole log entering performance in the year of Milliron.
According to our consolidated performance on slide 5.
We delivered revenue of $707 million.
down 9% compared to the prior year but in line with expectations.
Favorable pricing and
g ies were more than offset by lower volume and the lower starting backlog entering the year.
Joseph Ida of $97 million decreased 15% as favorable pricing synergies and the impact of cost actions, including the MTS restructuring we completed in fiscal 24.
More than offset by lower volume and cost inflation.
We delivered consolidated, adjustede beta margin of 13.7%, a decrease of 110 basis points compared to the prior year largely due to lower volume.
We report a gap net income of $6 million or 9 cents per share down from income of 17 million or 24 cents per share in the prior year.
Largely due to an increase in business development and integration costs.
Just at earnings per share of 56 cents decreased 13 cents, or 19% year over year and was in line with our expectations.
Or adjusted effective tax rate in the quarter was 29.2%.
Our cash flow from operations represented a use of $11 million in the quarter.
Which was favorable by $130 million compared to the prior year.
Primarily due to improved working capital efficiency.
As a reminder, Q1 is seasonally a lower relative cash flow quarter for Hillenbrand.
Capital expenditures were $10 million in the quarter.
And we returned approximately $60 million to shareholders through our quarterly dividend.
I'm moving to segment performance starting with APS on flight 6.
Revenue of $511 million decrease 10% compared to the prior year driven by lower volumes.
Primarily due to lower starting backlog coming into the quarter.
Justin Iberdoff of $83 million decreased 14% year over year.
Although lower volume and cost inflation were headwinds in the quarter.
We were able to limit the detrimental impact to approximately 22%.
Versus our standard flow through of roughly 30 to 35% to the benefits of favorable pricing, synergies and productivity.
We delivered a just and even a margin in the quarter of 16.2%.
Which was down 70 basis points over the prior year but in line with expectations.
As Kim mentioned, we've recently executed several footprint optimization initiatives.
We will continue to evaluate cost actions to help mitigate the near term market uncertainty.
backlog of $1.6 billion decreased 17% compared to the prior year.
Orders were as anticipated in the quarter as customers continued to delay order decisions.
Uncertainty around interest rates, government policy, and inflation remain key factors in driving customer decisions over the near term.
We remain confident in our competitive positioning and our ability to drive strong performance once order decision timing normalizes.
Uh, turning to MTS on slide 7.
Revenue of $196 million decreased 5% year over year.
And adjusted even of $27 million decreased 15%.
And adjusted even a margin of 14% decreased 170 basis points due to lower volume, cost inflation.
And ongoing pricing pressure.
Partially offset by the benefit of the restructuring completed last year and other discretionary cost actions.
Backlog of $233 million increased 1% compared to the prior year.
Orders were in line with expectations in the quarter.
So we do not yet see a broad-based recovery in the near term.
However, positive movement in Gardner's movement index.
Stability in Asia and strength in India do give us cautious optimism as we look ahead over the medium term.
As a point of reference, approximately 78% of the Q1 ending backlog is related to the Milliron injection molding and extrusion business.
Now turning to slide 8.
Net debt at the end of the quarter was $1.7 billion.
And the net debt to adjust the even a ratio was 3.4 times, which was in line with our expectations.
Debt reduction continues to be our top priority for capital employment.
And all that proceeds from Milliron's sale will be used for this purpose.
Based on the estimated close timing.
We anticipate leverage will increase modestly in Q2.
Before dropping to the low 3s by the end of the fiscal year.
Before turning to our outlook for Q2 and the remainder of the year.