Q2 2025 Hillenbrand Inc Earnings Call
Operator: Greetings and welcome to the Hillenbrand Q2 fiscal year 2025 earnings conference call and webcast. At this time, all participants are in a listen-only mode. If anyone should require operator assistance, please press star zero on your telephone keypad.
Greetings and welcome to the Hillenbrand's Q2 fiscal year 2025 earnings conference call and webcast. At this time all participants are in listen only mode.
If anyone should require operator assistance. Please press star zero on your telephone keypad.
Operator: A question and answer session will follow the formal presentation. You may be placed into question Q at any time by pressing star 1 on your telephone keypad. As a reminder, this conference is being recorded.
A question and answer session will follow the formal presentation.
You may be places the question queue at any time by pressing star one on your telephone keypad.
As a reminder, this conference is being recorded.
Trent Schwartz: It's now my pleasure to turn the call over to Trent Schwartz, Executive Director, Investor Relations. Trent, please go ahead. Thank you, Operator, and good morning, everyone. Welcome to Hillenbrand's conference.
Speaker Change: My pleasure to turn the call over to Fred Schwartz Executive Director of Investor Relations. Please go ahead.
Speaker Change: Operator, and good morning, everyone.
Speaker Change: Welcome to Hillenbrand's conference call, where we will be discussing our fiscal second quarter performance.
Trent Schwartz: where we will be discussing our fiscal It's a pleasure to rejoin you all on today's call, as my first quarter as head of investor Joining me today is our President and CEO, Kim Ryan. and our senior... CFO, Bob.
Speaker Change: Pleasure to rejoin you all on today's call. It's my first quarter as head of Investor Relations here at Hillenbrand.
Speaker Change: With me today is our president and CEO Jim Ryan.
Bob Bergen: And our senior Vice President and CFO, Bob bathroom Bergen.
Yeah.
Trent Schwartz: I'd like to direct your attention to the supplemental slides posted on our IR website. They'll be referenced on today's... Please note that our comments may contain certain or looking statements. subject to the Safe Harbor These statements are not guarantees of future performance and our actual results could differ from each other.
Bob Bergen: I'd like to direct your attention to the supplemental slides posted on our IR website that will be referenced on today's call.
Bob Bergen: Please note that our comments may contain certain forward looking statements that are subject to the safe Harbor provisions of the securities laws.
Bob Bergen: These statements are not guarantees of future performance and our actual results could differ materially.
Trent Schwartz: Also, during the course of this call, we will be discussing certain non-GAAP operating I encourage you to review the presentation, as well as our TEMQ. or comment our website. for discussion of non-gap.
Bob Bergen: Also during the course of this call we will be discussing certain non-GAAP operating performance measures.
Bob Bergen: I encourage you to review the presentation as well as our 10-Q, 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.
Trent Schwartz: Finally, the results we'll be discussing today for the fiscal second quarter still include the full performance of the Miller-Klein injection molding and extrusion both our consolidated results and in the molding technology.
Bob Bergen: Finally, the results we'll be discussing today for our fiscal second quarter still include the full performance of the milacron injection molding and extrusion business.
Bob Bergen: And both our consolidated results and in the molding technology solutions or MTS segment results.
Kimberly Ryan: 4MTS With that, I'll turn the call over to Thanks, Trent. And good morning, everyone. Thank you for joining today's call.
Ken: With that I'll now turn the call over to Ken.
Ken: Thanks, Tripp and good morning, everyone. Thank you for joining today's call.
Kimberly Ryan: Before discussing our results, I would first like to provide an update on our portfolio following the completion of the divestiture of approximately 51% interest in the Millikron Injection Molding and Extrusion business on March 31st, 2025. As a reminder, this is one of several companies acquired as part of the November 2019 transaction. The MTF segment going forward is now composed of the Moldmasters and DME brands, which round out the remaining assets from that deal.
Ken: Before discussing our results I would first like to provide an update on our portfolio. Following the completion of the divestiture of approximately 51% interest in the milacron injection molding and extrusion business.
Ken: 31st 2025.
Ken: As a reminder, this is one of several companies acquired as part of the November 2019 transaction. The MTS segment going forward is now composed of the mold Masters Nvme brands, which round out the remaining assets from that deal.
Kimberly Ryan: Over the past three years, we have transformed who Hillenbrand is, our portfolio, our purpose, and our operating model. The completion of this divestiture now allows Hillenbrand to focus our core strengths of highly engineered, value-added processing technologies and systems, serving a diverse set of less cyclical, global end markets. Our businesses are focused on performance materials, including plastic, and also food, health, and nutrition end markets that are underpinned by long-term secular growth trends. Our brands are industry leaders in the applications and geographies they serve. And while plastics and food may sound distinctly different, they share a common backbone of key processing steps and highly engineered equipment and a positive long-term demand outlook supported by a growing global middle class and a drive for more sustainable solutions.
Ken: Over the past three years, we have transformed hillenbrand is our portfolio our purpose and our operating model.
Ken: We should have this divestiture now allows hillenbrand to focus on our core strengths highly engineered value added processing technologies and systems, serving a diverse set of less cyclical global end markets are.
Ken: Our businesses are focused on performance materials, including plastic.
Ken: Also food health and nutrition end markets that are underpinned by long term secular growth trends.
Ken: Our brands are industry leaders and the applications and geographies they serve.
Ken: While our plastics and food may sound distinctly different they share a common backbone of key processing steps and highly engineered equipment and a positive long term demand outlook supported by a growing global middle class and a drive for more sustainable solutions.
Kimberly Ryan: This allows us to leverage our most valuable asset, our people. Our expertise in systems design, process technology, engineering, and service, as well as our strong global footprint is leveraged across all of our operating companies, brands, and customers.
Ken: This allows us to leverage our most valuable asset our people our expertise and systems design process technology engineering and service as well as our strong global footprint, it's leveraged across all of our operating company brands and customers.
Kimberly Ryan: I'm proud of our team's efforts in achieving this important strategic milestone, and we're excited for the long-term growth that we can achieve by leveraging this portfolio of products and capabilities for future growth.
Ken: I'm proud of our team's efforts in achieving this important strategic milestone and were excited for the long term growth that we can achieve by leveraging this portfolio of products and capabilities for future growth.
Kimberly Ryan: I'd now like to give a brief overview of our fiscal second quarter and then provide color on the current macro environment as well as the actions we're taking to further strengthen the business.
Ken: I'd now like to give a brief overview of our fiscal second quarter, and then provide color on the current macro environment as well as the actions we're taking to further strengthen the business.
Kimberly Ryan: Bob will then give a more detailed review of our financials and updated outlook for the remainder of the year. Overall, demand in our second quarter continued to be heavily impacted by the ongoing global macroeconomic uncertainty, which escalated through the quarter, largely driven by tariffs. Despite this, our teams delivered revenue of $716 million and adjusted earnings per share of $0.60 per share, ahead of our expectations coming into the quarter, but, as expected, down versus the prior year due to lower starting backlog positions. Our teams continue to aggressively navigate this challenging environment with great discipline and collaboration across the enterprise.
Ken: Bob will then give a more detailed review of our financials and updated outlook for the remainder of the year.
Ken: Overall demand in our second quarter continues to be heavily impacted by the ongoing global macroeconomic uncertainty, which escalated through the quarter largely driven by tariffs.
Ken: Despite this our teams delivered revenue of $716 million and adjusted earnings per share of <unk> 60 per share ahead of our expectations coming into the quarter, but as expected down versus the prior year due to lower starting backlog position.
Our teams continue to aggressively navigate this challenging environment with great discipline and collaboration across the enterprise.
Kimberly Ryan: Now turning to the market dynamics impacting our business. As we entered the calendar year, we were cautiously optimistic that our strong project pipeline would begin converting to orders at a more normalized pace. Since then, however, we've seen tariffs expand and escalate significantly. We've seen business and consumer confidence and sentiment fall. And finally, uncertainty on where or when geopolitical and macroeconomic factors will ultimately settle. This unpredictable environment has resulted in delays in our customers' investment plans, with many taking a wait-and-see approach at this time. We expect this elevated uncertainty to persist over the near term, and we have adjusted our outlook for what we know today, as Bob will cover a little later in the call.
Ken: Now turning to the market dynamics impacting our business.
Ken: As we entered the calendar year, we were cautiously optimistic that our strong project pipeline will begin converting to orders at a more normalized pace.
Ken: Since then however, we have seen tariffs expand and escalate significantly.
Speaker Change: In business and consumer confidence and sentiment fall.
Speaker Change: And finally uncertainty on where or when geopolitical and macroeconomic factors will ultimately settle.
Speaker Change: This unpredictable environment has resulted in delays in our customers' investment plans with many taking a wait and see approach at this time.
Speaker Change: We expect this elevated uncertainty to persist over the near term and we've adjusted our outlook for what we know today and Bob will cover a little later in the call.
Kimberly Ryan: I'll now dive a little deeper into each segment specifically. Starting with our Advanced Process Solutions, or APS, segment, we saw year-over-year improvement in capital orders again this quarter for our Food, Health, and Nutrition, or FHN, products. We also experience strong demand in our separation.
Speaker Change: I'll now dive a little deeper into each segment specifically.
Speaker Change: Starting with our advanced process solutions or Aps segment, we saw year over year improvement in capital orders again, this quarter for our food health and nutrition or S. H M products.
Speaker Change: We also experienced strong demand in our separation business.
Kimberly Ryan: Aftermarket and APS continue to provide a stable and profitable base in the quarter as customers continue to steer investment towards parts, service, and refurbishment. However, the increased tariffs and risk of further tariffs has resulted in customers pausing to reevaluate many larger investments that we expected to close in the year in other end markets. Quote pipelines continue to be strong across key end markets and geographies, and we have not experienced cancellations, but the conversion of quotes to orders remains slow. We believe that slowness is macro-driven timing, rather than a fundamental shift in the underlying market or our share position, which we're confident remains strong.
Speaker Change: Aftermarket and a P. S continued to provide a stable and profitable base in the quarter as customers continue to steer investment towards parts service and refurbished.
Speaker Change: However, the increased tariffs and risk of further tariffs has resulted in customers pausing to reevaluate many larger investments that we expected to close in a year in other end markets quote pipelines continued to be strong across key end markets and geographies and we have not experienced cancellations, but the conversion of quotes to orders.
Speaker Change: Slow.
Speaker Change: We believe the slowness is macro driven timing rather than a fundamental shift in the underlying market or our share position, which we're confident remains strong.
Kimberly Ryan: We continue to be focused on executing cost-out initiatives, including cost controls, accelerated footprint consolidation in response to changing environments. But we are maintaining our focus on specific growth opportunities, particularly around our full solution capabilities in FHN and our service office.
Speaker Change: We continue to be focused on executing cost out initiatives, including cost control accelerated footprint consolidation in response to changing environments.
Speaker Change: We are maintaining our focus on specific growth opportunities, particularly around our full solution capabilities and that feature and our service offering.
Kimberly Ryan: Moving on to MTF. Given the Millicron transaction, my commentary will be focused on the hot runner and mold-based businesses that make up MTS going forward. Orders in the quarter remain stable, with improving hot runner demand for consumer goods and packaging, especially in APAC and the Americas, offsetting ongoing broad market sluggishness in Europe. External market indices were showing growth sentiment through the end of the quarter. So that has reversed as tariffs escalated in early April, particularly in China. So far through April, investments have slowed as larger multinational customers that export out of China have paused to assess the impacts of tariffs and evaluate sourcing and production alternatives outside of China, such as India, where we believe we are already well-positioned with local resources in all of our businesses.
Speaker Change: Moving on to MTS.
Speaker Change: Given the Milacron transaction my commentary will be focused on hot runner and mall based businesses that make up MTS going forward.
Speaker Change: Orders in the quarter remained stable with improving hot runner demand for consumer goods and packaging, especially in APAC and the Americas offsetting ongoing broad market sluggishness in Europe.
Speaker Change: External market indices were showing growth sentiment through the ended the quarter.
Speaker Change: So that has reversed as tariffs escalated in early April, particularly in China.
Speaker Change: So far through April investments has slowed as larger multinational customers that export out of China have paused to assess the impacts of tariffs and evaluate sourcing and production alternatives outside of China, such as India, where we believe we are already well positioned with local resources and all of our business.
Kimberly Ryan: In addition to the impact tariffs are having on customer sentiment across our segments, there are also higher costs of doing business that must be addressed.
Speaker Change: In addition to the impact tariffs are having on customer sentiment across our segments. There are also higher cost of doing business that must be addressed.
Kimberly Ryan: Before I turn the call over to Bob, I'll touch on what direct impacts we are seeing. and how our teams are responding. Our teams have been assessing the potential impacts from rapidly evolving tariff policies all over the world and proactively managing our global supply chain. I'm grateful for their tireless efforts in this challenging endeavor, providing Bob and me with daily updates on the status of our exposure and ongoing and evolving mitigation plans. As we've discussed previously, our supply chain strategy has evolved significantly since COVID, with our manufacturing and supply chain footprint now primarily serving in-region, for-region demand.
Speaker Change: Before I turn the call over to Bob I'll touch on what direct impacts we are seeing.
Speaker Change: And how our teams are responding.
Speaker Change: Our teams have been assessing the potential impacts from rapidly evolving tariff policy is all over the world and proactively managing our global supply chain.
Speaker Change: I'm grateful for their tireless efforts in this challenging endeavor, providing bothered me with daily updates on the status of our exposure and ongoing and evolving mitigation plans.
Speaker Change: As we've discussed previously our supply chain strategy has evolved significantly since COVID-19 with our manufacturing and supply chain right now primarily serving in region for region demand is.
Kimberly Ryan: This greatly reduces our direct exposure to tariffs, as we mentioned in the last earnings call. However, we do still have a portion of our domestic suppliers that are international due to their special capabilities, representing approximately 5% of our global cost of goods sold. Spend between China and the U.S. specifically represents only about 1% of our global cost to goods sold. To help mitigate this impact, we have built a comprehensive multi-pronged strategy based on near, medium, and long-term opportunities, including alternative sourcing, strategically shifting inventories and manufacturing capabilities, implementing surcharge pricing, and adjusting contract terms to address higher costs and potential additional tariffs should they go into effect.
Speaker Change: This greatly reduces our direct exposure to tariffs as we mentioned in the last earnings call.
Speaker Change: However, we do still have a portion of our domestic suppliers that are international due to their special capabilities, representing approximately 5% of our global cost of goods sold.
Speaker Change: Spend between China, and the U S. Specifically represents only about 1% of our global cost of goods sold.
Speaker Change: To help mitigate this impact we have built a comprehensive multi pronged strategy based on near medium and long term opportunities, including alternative sourcing strategically shifting inventories and manufacturing capabilities implementing surcharge pricing and adjusting contract terms to address higher costs and potential additional care.
Speaker Change: Should they go into effect.
Kimberly Ryan: Given the unpredictable nature of the situation, we have included roughly $15 million in direct tariff costs in our updated outlook for the remainder of this year, based on assumptions of the current policies in place as of April 29, 2025, and considering the degree to which we can offset the higher costs in the near term. While we're disappointed in the constrained customer demand we're experiencing in this environment, we remain positive and well positioned with our regional approach and in our leading competitive positions to benefit when demand returns. We believe the long-term demand drivers of our end markets remain firmly intact, and I'm proud of our team's resiliency and agility in responding to the challenges of the day as we continue to be laser-focused on managing what's within our control and ensuring our portfolio of products and capabilities remains well-positioned for long-term success in serving our valued customers.
Speaker Change: Given the unpredictable nature of the situation. We have included roughly $15 million in direct tariff costs and our updated outlook for the remainder of this year based on assumptions of the current policies in place as of April 29, 2025, and considering the degree to which we can offset the higher costs in the near term.
Speaker Change: While we're disappointed in a constrained customer demand we're experiencing in this environment, we remain positive and well positioned with our regional approach and then our leading competitive position to benefit when demand returns.
Speaker Change: We believe the long term demand drivers of our end markets remain firmly intact and I'm proud of our team's resiliency and agility in responding to the challenges of the day as we continue to be laser focused on managing what is within our control and ensuring our portfolio of products and capabilities remains well positioned for long term success in serving our value.
Speaker Change: Customers with that I'll turn the call over to Bob to discuss our financial performance and outlook.
Robert VanHimbergen: With that, I'll turn the call over to Bob to discuss our financial performance and outlook. Thanks, Kim, and good morning, everyone. As a reminder, the Q2 results I'm discussing today still include the full performance of the Millikron Injection Molding and Extrusion.
Bob Bergen: Thanks, Kim and good morning, everyone. As a reminder, our Q2 results I am discussing today still include the full performance of the milacron injection molding and extrusion business.
Robert VanHimbergen: Turning to our consolidated performance on slide six. Revenue of $716 million was down 9% compared to the prior year, primarily due to reduced volume stemming from our lower starting backlog. But as Kim mentioned, this was slightly better than we expected coming into the The just-cut EBITDA of $99 million decreased 19% as productivity, synergies, footprint initiatives, favorable pricing, and the impact of cost actions were more than offset by lower volume and cost inflation. We delivered consolidated adjusted EBITDA margin of 13.8%, a decrease of 180 basis points compared to the prior year, largely due to the impact of lower volume on operating leverage.
Bob Bergen: Turning to our consolidated performance on slide six.
Speaker Change: Revenue of $716 million was down 9% compared to the prior year, primarily due to reduced volume stemming from our lower starting backlog, but as Jim mentioned this was slightly better than we expected coming into the quarter.
Speaker Change: Adjusted EBITDA of $99 million decreased 19% as productivity synergies footprint initiatives favorable pricing and the impact of cost actions were more than offset by lower volume and cost inflation.
Speaker Change: We delivered consolidated adjusted EBITDA margin of 13, 8% a decrease of 180 basis points compared to the prior year largely due to the impact of more volume on operating leverage.
Robert VanHimbergen: We reported a GAAP net loss of $41 million, down from income of $6 million in the prior year due to a non-cash loss on majority sale of millicry. Adjusted earnings per share of $0.60 decreased 21% versus the prior year. but exceeded our expectations as a result of favorable interest expense and other corporate items. Our adjusted effective tax rate in the quarter was 30.9%, which was 280 basis points higher than the prior year, due primarily to our geographic mix. However, we still expect our full year rate to be approximately 2900. Our cash flow from operations was approximately $1 million.
Speaker Change: We reported a GAAP net loss of $41 million down from income of $6 million in the prior year due to a noncash loss on majority sale of milacron.
Speaker Change: Adjusted earnings per share of <unk>, 60, <unk> decreased 21% versus the prior year.
Speaker Change: But exceeded our expectations.
Speaker Change: A result of favorable interest expense and other corporate items.
Speaker Change: Our adjusted effective tax rate in the quarter was 39%, which was 280 basis points higher than the prior year due primarily to our geographic mix of income.
Speaker Change: However, we still expect our full year rate to be approximately 29%.
Speaker Change: Our cash flow from operations was approximately $1 million in the quarter.
Robert VanHimbergen: consistent with the prior year and reflects typical seasonality of our cash flow. Capital expenditures were $9 million. and we paid approximately $16 million to shareholders through our quarterly dividends.
Speaker Change: First it was the prior year and reflects the typical seasonality of our cash flow.
Speaker Change: Capital expenditures were $9 million in the quarter, and we paid approximately $60 million to shareholders through our quarterly dividend.
Yeah.
Robert VanHimbergen: Now moving to segment performance, starting with EPS on slide 7. Revenue of $494 million decreased 12% compared to the prior year, covered by lower volumes due to the lower starting backlog coming in. The adjusted EBITDA of $79 million decreased 22% year-over-year, primarily due to lower volume and cost of inflation, partially offset by productivity, synergies and favorable prices. We delivered a justed EBITDA margin in the quarter of 16%, which was down 200 basis points over the prior year. The backlog of $1.6 billion decreased 15% compared to the prior year. This is largely stemming from increased macro uncertainty from tariffs which led to weaker than expected orders in the country.
Speaker Change: Now moving to segment performance, starting with EPS on slide seven.
Speaker Change: Revenue of $494 million decreased 12% compared to the prior year driven by lower volumes due to a lower starting backlog coming into the quarter.
Speaker Change: Adjusted EBITDA of $79 million decreased 22% year over year, primarily due to lower volume and cost inflation, partially offset by productivity synergies and favorable pricing.
Speaker Change: We delivered adjusted EBITDA margin in the quarter of 16%, which was down 200 basis points over the prior year.
Backlog of $1 $6 billion decreased 15% compared to the prior year. This was largely stemming from increased macro uncertainty from tariffs, which led to weaker than expected orders in the quarter.
Robert VanHimbergen: Given the heightened level of volatility that remains in the market, our updated outlook does not assume these order patterns will improve in the second half of the fiscal year. So as Kim said, we remain confident that this persistent order weakness is macro-driven, not permanent, and that our competitive positioning remains strong.
Speaker Change: Given the heightened level of volatility remains in the market. Our updated outlook does not assume these order patterns will improve in the second half of the fiscal year.
Speaker Change: As Ken said, we remain confident in this persistent order weakness is macro driven not permanent.
Speaker Change: Competitive positioning remains strong.
Robert VanHimbergen: Turn it to MTS on slide 8. Revenue of $222 million decreased 2% year-over-year, largely due to unfavorable foreign exchange Adjusted EBITDA of $32 million decreased 4% and adjusted EBITDA margin of 14.5% was down 40 basis points due to cost inflation, partially offset by protocol. Pricing remained challenged, as we've discussed in previous quarters, but was relatively stable and in line with expectations.
Speaker Change: Turning to MTS on slide eight.
Speaker Change: Revenue of $222 million decreased 2% year over year, largely due to unfavorable foreign exchange.
Speaker Change: Adjusted EBITDA of $32 million decreased 4% and adjusted EBITDA margin of 14, 5% was down 40 basis points due to cost inflation, partially offset by productivity.
Speaker Change: Pricing remained challenged as we've discussed in previous quarters, but was relatively stable and in line with expectations.
Robert VanHimbergen: Backlog of $55 million now excludes the Millicron injection molding and extrusion business. Orders for our Hot Runner, mold-based components, and aftermarket parts and services were stable in the quarter and generally in line with expectations. The short cycle nature of this business can recover quickly and at a high flow through to the bottom line.
Speaker Change: Backlog of $55 million now excludes the milacron injection molding and extrusion business.
Speaker Change: As for our hot runner mold based components and aftermarket parts and services were stable in the quarter and generally in line with expectations.
Speaker Change: The short cycle nature of this business can recover quickly and at a high flow through to the bottom line, but given the ongoing macro challenges, we're not assuming a broad based recovery in the near term.
Robert VanHimbergen: But given the ongoing macro challenges, we're not assuming a broad-based recovery.
Robert VanHimbergen: Now turning to slide nine. Net debt at the end of the second quarter was $1.46 billion, and net debt to pro forma adjusted EBITDA ratio was 3.4 times, inclusive of approximately $265 million in cash proceeds from the majority sale at Millicron, which was slightly above our initial estimate of $250 million.
Speaker Change: Now turning to slide nine.
Speaker Change: Net debt at the end of the second quarter was 146 billion and net debt to pro forma adjusted EBITDA ratio was three four times inclusive of approximately $265 million in cash proceeds from the majority sale at Milacron, which was slightly above our initial estimate of $250 million.
Robert VanHimbergen: Additionally, as announced in our earnings press release yesterday, in conjunction with our joint venture partner, we have entered into a definitive agreement to sell the TerraSource global business for $245 million, with expected net proceeds to Hillenbrand of approximately $100 million. The net proceeds will be used to pay down debt, with a favorable impact to our net leverage of roughly 0.2 times. We expect the transaction to close late in our fiscal third quarter or early fiscal fourth quarter 2025. We are pleased with the outcome of this investment and the additional deleveraging benefit it provides.
Speaker Change: Additionally, as announced in our earnings press release yesterday.
Speaker Change: Conjunction with our joint venture partner, we have entered into a definitive agreement to sell the tariff sourced global business for $245 million with expected net proceeds to hillenbrand of approximately $100 million.
Speaker Change: The net proceeds will be used to pay down debt with a favorable impact to our net leverage of roughly 0.2 times.
Speaker Change: We expect the transaction to close late in our fiscal third quarter or early fiscal fourth quarter 2025.
Speaker Change: We are pleased with the utmost divestment and the additional deleveraging benefit it provides.
Robert VanHimbergen: However, given the current environment, including the additional cost of tariffs, our deleveraged path remains challenging.
Speaker Change: However, given the current environment, including the additional cost of tariffs our deleverage path remains challenged.
Robert VanHimbergen: We currently expect our pro forma net leverage ratio to remain relatively consistent with the Q2 exit over the near term or until market conditions Now turning to slide 10, I'll cover our updated guidance.
Speaker Change: We currently expect our pro forma net leverage ratio remained relatively consistent with Q2 exit over the near term or until market conditions improve.
Speaker Change: Now turning to slide 10, I'll cover our updated guidance.
Robert VanHimbergen: As we discussed during this call, the uncertain and unpredictable environment has prompted us to adjust our expectations for the remainder of the year. We now anticipate further demand pressure in the market, and that order levels will not improve over the first half of the year, with the possibility they could decline further. We expect customers to continue postponing their decisions until there is greater clarity around tariff policies and their broader economic impact. Our updated outlook now assumes total revenue of approximately $2.56 billion. $2.62 billion. down significantly from our previous guidance due to the impact of lower orders in the second quarter and the expectation for a soft order environment in the second quarter.
Speaker Change: As we've discussed during this call the uncertain and unpredictable environment, that's prompted us to adjust our expectations for the remainder of the year.
Speaker Change: We now anticipate further demand pressure in the market and the order levels will not improve over the first half of the year with a possibility they could decline further.
Speaker Change: We expect customers to continue postponing their decisions until there is greater clarity around tariff policies and the broader economic impact.
Speaker Change: Our updated outlook now assumes total revenue of approximately 2.56 to 2.62 billion.
Speaker Change: <unk> significantly from our previous guidance due to the impact of lower orders in the second quarter and the expectation for a soft order environment in the second half.
Robert VanHimbergen: Adjusted EBITDA is now $363 to $395 million. reflecting the flow-through impact of lower revenue and the impact of drug tariffs. Partially offset by tariff mitigation actions and costs. Our outlook for adjusted earnings per share is now $2.10 to $2.45. Our updated full-year operating cash flow is expected to be approximately $120 million with $40 million of expected cap backs as we prioritize a deferred spend over the near This outlook includes approximately $15 million of EBITDA impact from direct tariffs. As Kim mentioned, these assumptions are based on tariff policy in place as of April 2020.
Speaker Change: Adjusted EBITDA is now $363 million to $395 million.
Speaker Change: Reflecting the flow through impact of more revenue and the impact of drug tariffs, partially offset by tariff mitigation actions and cost controls.
Speaker Change: Our outlook for adjusted earnings per share is now $2 a ton.
Speaker Change: $2.45.
Speaker Change: Our updated full year operating cash flow is expected to be approximately $120 million with $40 million of expected capex as we prioritize it the first time over the near term.
Speaker Change: This outlook includes approximately $15 million of EBITDA impact from drug tariffs.
Speaker Change: As Kim mentioned these assumptions are based on tariff policy in place as of April 29.
Robert VanHimbergen: Finally, for Q3, we expect revenue of $569 million to $583 million and adjusted earnings per share in the range of 46 cents to 53 cents. lower sequentially primarily due to the impact of the Millicron transaction and the expected impact of Tarot. Please review slides 10 and 11 for additional guidance and support.
Speaker Change: Finally for Q3, we expect revenue of $569 million to $583 million and adjusted earnings per share in the range of 46 to <unk> 53 cents lower sequentially, primarily due to the impact of the milacron transaction and the expected impact of tariffs.
Speaker Change: Please review slides 10, and 11 for additional guidance assumptions.
Kimberly Ryan: With that, I'll turn the call back over. Thanks, Bob.
Speaker Change: With that I'll turn the call back over to Ken.
Kimberly Ryan: Before we open up the line for Q&A, I'll end our prepared remarks with a few closing comments. I want to reiterate our commitment to navigating these challenging times with discipline and strategic focus. The steps we've taken to transform the portfolio, including the footprint and operating structure, have been crucial to successfully managing these changing dynamics with speed and coordination across the enterprise. While the current macroeconomic conditions present near-term headwinds, we remain confident in the underlying strength of our business, our brands, and most importantly, our people, as well as the long-term growth potential for our end markets once macro conditions stabilize.
Speaker Change: Thanks, Bob before we open up the line for Q&A I'll end, our prepared remarks with a few closing comments.
Speaker Change: I want to reiterate our commitment to navigating these challenging times with discipline and strategic focus.
Speaker Change: The steps, we've taken to transform the portfolio, including the footprint and operating structure have been crucial to successfully managing these changing dynamics with speed and coordination across the enterprise.
Speaker Change: While the current macroeconomic conditions present near term headwinds, we remain confident in the underlying strength of our business our brands and most importantly, our people as well as the long term growth potential for our end markets once macro conditions stabilize.
Kimberly Ryan: As we move forward, we will continue to monitor the evolving landscape closely and adapt our strategies as needed.
Speaker Change: As we move forward, we will continue to monitor the evolving landscape closely and adapt our strategies as needed I'm proud of the team's dedication and resiliency and believe the work. We are doing today will further strengthen the foundation we've been building for long term success for hillenbrand and for our shareholders with.
Kimberly Ryan: I'm proud of the team's dedication and resiliency and believe the work we are doing today will further strengthen the foundation we've been building for long-term success for Hillenbrand and for our shareholders.
Operator: With that, operator, please open the line for questions. Certainly, we will now be conducting a question and answer session. If you would like to be placed into question queue, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the call. For participants using speaker equipment, it may be necessary to pick up your handset before pressing Star 1.
Speaker Change: With that operator, please open the line for questions.
Speaker Change: Certainly, we'll now be conducting a question and answer session if you'd like to be placed in the question queue. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.
Speaker Change: You May press Star two if you go back to move your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing star one.
Operator: One moment please while we poll for questions.
Speaker Change: One moment, please while we poll for questions.
Matt Summerville: Our first question is coming from Matt Summerville from D.A. Davidson, your line is now live. Thanks. A couple questions.
Matt Summerville: Our first question is coming from Matt Summerville from D. A Davidson your line is that life.
Speaker Change: Thanks.
Kimberly Ryan: First, just to give a little more granularity on the order trend, can you maybe describe the order cadence you saw in the business as the quarter unfolded and what you've seen thus far into April, and specifically on APS, if you could give a little additional color around the food health nutrition side versus large plastics versus engineered plastics, and then I have a follow-up. Thanks. Hey Matt. Morning and thanks for the question. So as we worked through the quarter, we were feeling pretty bullish about where we were through February. And then obviously with Liberation Day, so the world changed quite a bit.
Speaker Change: Questions.
Speaker Change: First just to give a little more granularity on the order trend can you maybe describe the order cadence you saw in the business as the quarter unfolded and what you've seen thus far into April and specifically on the EPS if you could give.
Speaker Change: A little additional color around the food health and nutrition side versus large plastics versus engineered plastics and then I have a follow up thank you.
Matt Summerville: Alright, Hey, Matt Good morning, and thanks for the question.
Matt Summerville: As we work through the quarter and we were feeling pretty bullish about where we were through February.
Matt Summerville: Honestly with with Liberation day, obviously, the world changed quite a bit but specifically into order trends orders were hanging in there through February and then unfortunately, we had some larger orders that were subject to tariff considerations, particularly with pet food health and nutrition, and particularly with between Canada and the U S.
Kimberly Ryan: But specifically to order trends, orders were hanging in there through February. And then, you know, unfortunately we had some larger orders that were subject to tariff consideration, particularly within food health and nutrition and particularly with Canada and the U.S. And, you know, some of those contracts were at the final stages of completion that unfortunately got put on hold. Now those contracts that I'm speaking to are not lost, but certainly there's a reevaluation from our customer base on what that looks like. And then on the poly side of APS, I would say same thing. Orders were generally hanging in there through February, but the macro uncertainty of what the tariff impacts would be caused customers to put really a pause on that as well.
Matt Summerville: Although some of those contracts were at the final stages of completion that Unfortunately got put on hold now those contracts, but do that I'm speaking to are not lost but certainly theres a reevaluation from our customer at customer base on on what that looks like and then on the on the poly side of Aps I would.
Matt Summerville: Say the same thing.
Matt Summerville: Orders were generally hanging in there through February but the macro uncertainty of what the tariff impacts would be caused customers to put really a pause on that as well. We are seeing you know subsequent to.
Kimberly Ryan: We are seeing, you know, subsequent to March close, we're seeing some in-country, for-country orders be in place, particularly in China. Nothing significant yet, but we're starting to see some of those things come to fruition. And then on the MTF side, I would highlight China is obviously a major component for our business, particularly with multinationals. And so we are seeing a pause, a hard pause on orders for that hot runner business in China with the likely move of those orders going to India and other southeastern countries. And specifically to India, more recently, although we haven't won any orders yet, we are seeing an increase in quote activity, particularly from customers that would have placed those orders in China.
Matt Summerville: March close we're seeing some in country for country worst be in place, particularly in China, nothing significant yet, but we're starting to see some of those things come to come to fruition.
Matt Summerville: And then on the MTS side I would highlight.
Matt Summerville: China is obviously a major.
Matt Summerville: Component for our business, particularly with multinationals.
Matt Summerville: And so we are seeing a pause of heart pause on borders for the hot runner business in China with the likely move up those orders going to India and other southeastern countries.
Matt Summerville: And specifically to India more recently, although we haven't won any orders yet we are seeing an increase in quote activity, particularly from customers that would have placed those orders in China.
Kimberly Ryan: Yeah, and that said, despite the situation that Bob referenced on the food, health, and nutrition, some of the pushouts we saw, we also, as we did comment in the prepared remarks, we do see a year over year increase in FDM as they continue to, and our food, health, and nutrition groups, as they continue to work together to offer a fuller solution of products and capabilities into the market. We did continue to see growth again this quarter. So, I think that the strategy of what we're trying to take into the market, the portfolio, and the collaborative efforts across both the engineering and sales teams is, we are seeing the evidence of that in the commercial performance in that business as well.
Matt Summerville: Yeah, and that's not just by the situation that I referenced on the food health and nutrition at some of the push outs. We didn't we saw we also as we did comment in the prepared remarks, we do see a year over year increase in F. T M. As they continue to and our food health and nutrition group as they continue to work together.
Matt Summerville: Other two to offer a fuller solution products and capabilities into the market. We did continue to see growth again this quarter. So I think that the strategy of what we're trying to take into the market the portfolio and the collaborative efforts across both the engineering and sales teams. It's a we are seeing the evidence.
Matt Summerville: That in the commercial performance in that business as well just to clarify.
Matt Summerville: Just to clarify.
Matt Summerville: appreciate that.
Speaker Change: I appreciate that and then as a follow up excuse me, maybe could you talk a little bit about where you're at with <unk>.
Kimberly Ryan: And then as a follow up, excuse me, maybe could you talk a little bit about where you're at with Synergies with respect to some of the things you've done from an acquisitive standpoint, specifically the FHN-related businesses, how you're tracking to that longer-term target you've established, and then are there any other assets you would consider monetizing at this point, you know, post the agreement on TerraSource that you referenced? Relative to the integration piece, I will talk to some of the strategic and action-based orientation that Bob's going to hit the numbers, and we're going to reaffirm what we said last quarter that we are on track with that to achieve our synergies well ahead of schedule.
Speaker Change: Synergies with respect to some of the things you've done from an acquisitive standpoint, specifically the FHA related businesses, how you're tracking to that longer term target you've established and then are there any other assets you would consider monetizing at this point post the agreement on tariffs or.
Speaker Change: So you referenced thank you.
Bob Bergen: Right relative to the relative to the integration piece I I will talk to some of the strategic and action based orientation that Bob is going to hit the numbers and we're going to reaffirm what we said last quarter that we are on track with that to achieve our synergies well ahead of schedule.
Kimberly Ryan: Relative to the changes that have come across that group for integration, it's everything from putting all of our global functions in place, putting our global supply management in place, treating service as a separate business with separate leadership and process around it. The operating model has gone into place with leadership and the layers below leadership, the combining of the sales and commercial activities. All of those activities have moved at a very escalated pace, including some site consolidations, two of which we've completed over the last, I'll call it, 12 months. So, I feel really encouraged with how quickly, especially how quickly the FPM team has come on board in terms of being able to adapt into the way we run our businesses and to be able to get those many, many integration initiatives completed.
Bob Bergen: Relative to that the changes that have come across that group for integration. We it's it's everything from putting all of our global functions in place, putting our global supply management in place, putting the service trading services as a separate business with separate leadership and process around it and the operating model has gone into place with <unk>.
Bob Bergen: Our ship and the layers below leadership.
Bob Bergen: The combining of the sales and commercial activities.
Bob Bergen: Those all of those activities have have moved out of Berry are escalated pace, including some site consolidation that we have that to which we've completed over the last I'll call. It 12 months. So I feel really encouraged with how quickly, especially how quickly the F. P. M team has come on.
Bob Bergen: Sure.
Bob Bergen: In terms of being able to adapt our into the way, we run our businesses and to be able to to get those many many integration initiatives completed so we feel very excited about how quickly that team has come on board and how quickly they are integrating them with the links with companies that we also purchased so I'm going to let Bob hit the.
Kimberly Ryan: So, we feel very excited about how quickly that team has come on board and how quickly they're integrating in with the Linksys companies that we also purchased.
Robert VanHimbergen: So, I'm going to let Bob hit the other – be more specific on some of the synergy topics, et cetera.
Be more specific on some of the synergy topics et cetera, yeah, so that actually amount and your second question I think Jim's covered the synergies topic, but on the on your second question was with other assets in the portfolio.
Robert VanHimbergen: Yeah.
Robert VanHimbergen: So, actually, Matt, on your second question, I think Kim's covered the synergy topic, but on your second question with other assets in the portfolio, listen, we continue to look at all of our businesses and assets to see if we're the right owner or not. And you saw us make the decision to sell the Millicron business. You did see TerraSource, as you highlighted here. And so, I would tell you, we continue to evaluate, again, are we the right owners or not? We'll continue to make the right decisions for the business as well as the businesses that we're looking at as well as those assets.
Speaker Change: Listen we continue to look at all of our businesses and assets to see if we're the right owner or not and you saw us make the you know the decision to sell.
Bob Bergen: The Milacron business you did see taro sources as you've highlighted here.
Bob Bergen: And so I would tell you you know we continue to evaluate again are we the right owners or not we will continue to make the right decisions for the business as well as the businesses that we're looking at as well as those assets.
Matt Summerville: Thank you guys. Thanks, Pat. Thank you.
Bob Bergen: Got it thank you guys.
Matt Summerville: Thanks, Matt.
John Franzreb: Next question today is coming from John Franzreb from Sidonian Company. Your line is now live. Good morning, everybody, and thanks for taking the questions. I'd like to go back to the four levers that you kind of targeted to offset the tariffs. Can you talk about which one you expect to make the most immediate impact and maybe a little bit more about the surcharges you plan on putting in place and how targeted are they? Yeah, so I would say that the one that's going to have the largest impact in near term is going to be really looking at our dual sourcing, John.
Speaker Change: Thank you next question today is coming from John friend threat from Sidoti and company. Your line is now live.
John: Good morning, everybody and thanks for taking the questions.
John: I'd like to go back to the the four levers that you've kind of targeted to offset the tariffs.
John: Can you talk about which one you expect to make the most immediate impact and maybe it's a little bit more about the surcharges you plan and put in place and how how targeted are they.
John: Yeah. So I would say that's the one that's going to have the largest impact near term is gonna be a really looking at our dual sourcing John.
Kimberly Ryan: You know, on the surcharge pricing, there is some targeted pricing in certain aspects of both the APS business and MTS. And we'll see stronger pricing power within the APS business, the MTS business, I'd remind you that we've seen pricing pressure for the last several years. With that being said, we have created a pricing desk that sits up top that analyzes the market, where that is, as well as our cost and our pricing, including what our competitors are doing. And so I am comfortable that as that process continues to evolve, you know, we are going to get the right pricing in place.
John: On the surcharge pricing there is some targeted pricing in certain aspects of both the Aps business and MTS I think we will see stronger pricing power with again, the EPS business. The MTS business I'd remind you that we said pricing pressure for the last several years, but that being said we have created a price.
John: Desks that sits up top that analyzes the the market where that is as well as our costs and our pricing, including what our competitors are doing and so I am comfortable that as that process continues to evolve we are going to get the right pricing in place, but near term, it's going to be more are our procurement team is doing a fantastic job providing.
Kimberly Ryan: But near term, it's going to be more our procurement team that's doing a fantastic job providing Kim and myself literally daily updates with where we are on cost and the opportunities. We are looking at this as a total cost of ownership. So are we better off, you know, under a make versus buy scenario? We're looking at alternative suppliers while also understanding what the tax impact would be. But we've been working on dual sourcing for a while ever since COVID. There's just a couple more variables today than what we had, you know, 90 days ago.
John: Kevin myself literally daily updates with where we are on.
John: On cost and the opportunities we are looking at this as a total cost of ownership. So are we better off under a make versus buy scenario. We're looking at alternative suppliers. While also understanding what the tax impact would be but we've been working on dual sourcing for a while ever since COVID-19. There's just a couple more variables today than what we had.
John: You know 90 days ago, but.
Robert VanHimbergen: But, you know, I'd say those are probably the two that I'd highlight right now, John. make sense. And Bob, of that $15 million, is anything built in from those levers into that number, or is that just an absolute number without any successes, say, in surcharge? So there's a little bit that's in this year that's included that number, but never say never. I'd like to think that's the high end of our exposure. And again, with the daily activities and dedicated resources that we have focused on this across government affairs, finance, and our procurement team, I think there's going to be opportunity to mitigate that as quickly as possible.
John: I'd say those are probably the two that I'd highlight right now John.
John: Makes sense.
And Bob of that $15 million is any of the any anything built in from those levers into that number or is that just an absolute number without any successes and surcharges.
John: Well, so theres a little bit that's in in this year. That's that's included in that number, but you'll never say never.
John: I think that's the high end of our exposure and again with the daily activities and dedicated resources that we have focused on this across government Affairs finance.
John: And our procurement team.
John: You know I think there's going to be opportunity to mitigate that as quickly as possible, but I would tell you. Some of these things will be equipped and some might take a couple of months to implement so I feel better about as we think about what the impact would be in 2026 with maybe some upside in 2025.
John Franzreb: But I tell you, some of these things will be quick and some might take a couple months to implement. So I feel better about as we think about what this impact will be in 2026 with maybe some upside in 2025. Okay, thanks for the clarity.
Speaker Change: Okay. Thanks for the clarity and one last question can you just walk us through the the Pterosaurs divestiture.
Robert VanHimbergen: And one last question. Can you just walk us through the the TerraSource divestiture, the timing of the cash, and what, you know, what went on there? Sure. Yeah, so TerraSource was an acquisition that we made back in 2010 as part of the Katron acquisition. And in October of 2021, we essentially sold 51% of this for really a note receivable for about $26 million. Now that note did have interest being accrued. And so as we close this transaction, that note will be approximately $34 million. Okay, so the sales price of $245 million that that business will pay down that that will include our $34 million, as well as some other third party loans.
Speaker Change: The timing of cash and what you know what went on there.
Speaker Change: Sure Yeah. So so terra source was an acquisition that we made back in 2010.
Speaker Change: As part of the K Tron acquisition, and then October of 2021, we essentially sold 51% of this for really a note receivable rose about $26 million now that note did house of interest being accrued and so as we close this transaction that note will be.
Speaker Change: Approximately $34 million, okay. So the sales price of $245 million that that that.
Speaker Change: That business will pay down debt that will include our $34 million as well as some other third party.
Robert VanHimbergen: And then we'll pick up about 46% of the net proceeds. And in total, that'll be about, you know, $34 million from the note and about $65 million from the net proceeds after paying down debt. And so we'll get about $100 million. Right now, we're targeting that to be at the end of Q3, or early Q4.
Speaker Change: Loans, and then we'll pick up about 46% of the net proceeds and in total that will be about $34 million from the note and about $65 million from the net proceeds after paying down debt. So we'll get about $100 million right now we're targeting that to be.
Speaker Change: The end of Q3 or early Q4, and you know as I mentioned in our prepared remarks that will all go to paying down debt.
John Franzreb: And you know, as I mentioned, in our prepared remarks, that'll all go to paying down debt. Thanks for the clarity, Bob. I'll get back into queue. Thank you. As a reminder, that's star one to be placed into question Q.
Matt Summerville: Got it got it thanks for the clarity Bob I'll.
Speaker Change: Ill get back into queue.
Thanks Scott.
Speaker Change: Thank you as a reminder, that star one to be placed in the question queue.
Jeffrey Hammond: Our next question today is coming from Jeff Hammond from KeyBank Capital Markets. Your line is now live. Hey, good morning, everyone. Morning. Morning, Jeff.
Speaker Change: Our next question today is coming from Jeff Hammond from Keybanc capital markets. Your line is now live.
Jeff Hammond: Hey, good morning, everyone.
Speaker Change: Good morning, Jeff.
Jeffrey Hammond: So, I just want to come back to the, you know, surcharge pricing dynamic. It seems like, you know, most of my other companies that have been reporting are talking about significant price actions, and you guys seem to be, you know, a little more targeted.
Speaker Change: So I just wanted to come back to you.
Speaker Change: Surcharge pricing dynamic it seems like you know most of my other companies that had been reporting or are talking about significant price actions and you guys seem to be you know a little more targeted so I'm just wondering maybe.
Kimberly Ryan: So I'm just wondering, maybe why not lean in more on price and surcharges and just maybe for background, talk through the inflationary pressures you saw during COVID and supply chain and how you were able to push price and why that might be more difficult or different today. A couple of things, Jeff. Good morning. Thanks for the question. So, during COVID, our supply chain did have a lot more exposure to specifically China, which created challenges for us, as well as many other companies, as you know, from stoppage of supply, inability to get goods transported logistically out of the country, pending shutdowns, too low a supply of ships, etc.
Speaker Change: Why not lean in more on price and surcharges and just maybe for background.
Speaker Change: Talk through.
Speaker Change: Inflationary pressures you saw during Covid supply chain and how you were able to push price in and why that.
Speaker Change: That might be you know more difficult or different today.
Jeff Hammond: I've got a couple of things Jeff.
Speaker Change: Good morning, Thanks for the question.
Speaker Change: So during Covid supply chain was was it did have a lot more exposure to specifically, China, which which create a challenge for us as well as many other companies as you know from stoppage of supply inability to get goods transported logistically.
Speaker Change: Out of the country, having shut down to lowest supply of.
Speaker Change: Ships et cetera, so we during COVID-19 and post Covid have very much focused on an in region for region type of approach for as much of our supply base as we could economically put in each region. So we I think you've heard us say before we like to approach this in region for region.
Speaker Change: We we we make where we sell and we buy where we make and so in large part we have mitigated a lot of exposure that we saw during COVID-19 I think the difference between Covid and the period that we've just gone through is the demand situation. During COVID-19 there for our business I know not for every business for our business.
Speaker Change: You saw an extremely escalated demand.
Speaker Change: And so you you had a lot more during that time, a very high demand and very high backlog, everyone had a lot more pricing capability now as we have said the ATF business has significantly better pricing.
Speaker Change: <unk> capability in the business, especially because those contracts happened over the long term and you can't write the contract such that.
Speaker Change: We work with our customers to determine you know when these contracts are going to execute for a year or two years, you don't know exactly what the tariff situation is going to look like at the time you are required to deliver the products and so on.
Kimberly Ryan: And so, really, more of that business is focused on making sure that you have the right language so that everybody recognizes how those costs are going to be covered if they are in place when the product delivers T plus 12 or 24 months from now. That business has, as we have discussed in many previous quarterly calls, that business has the ability to be very transparent about those costs, whether it's logistics or tariffs or whatever the case may be, and have that all transparently documented and carried through in the contracting, because of the way we quote in that.
Speaker Change: Really more of that business is focused on making sure that you're right you have the right language. So that everybody recognizes how those costs are going to be covered if they are in place when the product delivers T plus 12 or 24 months from now.
Speaker Change: That business has as we have discussed in many previous quarterly calls that business has the ability to be very transparent about those costs, whether it's logistics or tariffs or whatever the case may be and and and have that all transparently document it carried through in the contracting because the way we quote in that when you got a quick turn business like we do in the M C.
Robert VanHimbergen: When you've got a quick-turn business like we do in the MTS business, your ability, especially with lower demand, as we have seen on the MTS side of the house, with lower demand, a lot of capacity out there, and everybody fighting for volume, you see a lot of pricing pressure in this space. Hopefully that helps clarify. The situation on kind of that tale of two cities a bit. Okay, that's helpful. So just to be clear on the $15 million, you're kind of building in your guide that that's kind of fully unmitigated, and maybe you can move some stuff around.
Speaker Change: Yes business your ability, especially with lower demand as we have seen and on the MTO side of the house with lower demand a lot of capacity out there and everybody fighting for volume you see a lot of pricing pressure in this space.
Hopefully that helps clarify.
Speaker Change: The the situation.
Speaker Change: Kind of that tale of two cities Tibet.
Speaker Change: Okay.
Speaker Change: That's helpful.
Speaker Change: So just to be clear on the 15 million, you're you're kind of building in your guide that's kind of fully unmitigated and and maybe you can you can move some stuff around but if we look a year out and that's the number you know I'm a half your $30 million annualized.
Robert VanHimbergen: But if we look a year out, and that's the number on a half year, $30 million annualized.
Robert VanHimbergen: If we look a year out, what do you think you can do in terms of, you know, getting that number down or, you know, offsetting it, you know, with with other actions, whether it be price or otherwise? Yeah, I think a year from now, Jeff, I'm not sure I can commit to all of it. But based on the things we see, I would expect most of it to be to be mitigated. Your $30 million number, by the way, is probably a bit on the high end, because we are seasonally stronger in the second half. So that 15 is probably in the mid 20s, as you think about an annualized number.
Speaker Change: If we look a year out what do you think you can do in terms of you know.
Speaker Change: I'm getting that number down or you know offsetting it with with other actions, whether it be price or otherwise.
Speaker Change: Yeah, I think a year from now Jeff.
Speaker Change: I'm not sure I can commit to all of it but based on the things we see I would expect most of it to be to be mitigated, there's $30 million number by the way, it's probably a bit on the high end because we are seasonally stronger in the second half.
Speaker Change: No.
Speaker Change: 15 is probably in the mid Twenty's as you think about an analyzed annualized number but again some of these actions going in place are already in the works and so I think 2020 sets will be able to mitigate most of that.
Robert VanHimbergen: But again, some of these actions going in place are already, you know, in the works. And so I think 2026, we'll be able to mitigate most of that. Okay, thank you.
Speaker Change: Okay. Thank you.
Daniel Moore: Thank you. Next question is coming from Daniel Moore from CGS Securities. Your line is now live. Thank you.
Daniel Moore: Thank you. Your next question is coming from Daniel Moore from CJS Securities. Your line is now live.
Daniel Moore: Good morning, Kim. Good morning, Bob. Touched on it, touched on it, Kim, I think, but maybe just an update on parts and service business. Are they holding up, you know, as, as, as you would expect, given the obviously incremental, challenging macro Yeah, I could take that one, Dan. So, you know, in the quarter, you know, aftermarket revenue was down low single digits, but sequentially up high single digits. Now, when you double click on that, I'd say, you know, one of the downturns we're seeing is just with lower original equipment and large equipment orders being placed.
Daniel Moore: Thank you good morning came morning, Bob.
Speaker Change: I touched on that I touched on it came I think but maybe just an update on parts and service business are they holding up.
Speaker Change: As you would expect given the obviously incremental challenging macro environment.
Dan: Yeah, I can take that one Dan So you know in the quarter.
Dan: Aftermarket revenue was down low single digits, but sequentially up high single digits now when you when you double click on that I'd say you know one of the one of the the downturn. We're seeing is just with lower.
Dan: Original equipment and large equipment orders being placed we generally sell our spare parts package, along with that and so we're seeing a bit of a delay on that front, but on the flipside. The true break fix all the aftermarket is doing well and so we continue to focus our team on some of that break fix and being proactive with customers.
Robert VanHimbergen: We generally sell a spare parts package along with that, and so we're seeing a bit of delay on that front. But on the flip side, the true break six of aftermarket is doing well, and so we continue to focus our team on some of that break fix and being proactive with customers to continue to grow that business.
Dan: To continue to grow that business.
Robert VanHimbergen: That's helpful, Bob. Correct me if I'm wrong on the numbers, but at the midpoint, your EBITDA guide is lower by about $50 million, but your OCF guide is lower by about $80 million relative to initial expectations. How much of the Delta is lower upfront payments for large projects? How much is kind of inflationary pressures on COGS? Yeah, so you're right on the EBITDA. Our free cash flow, we've brought down from $105 million in Q1 to $80 million now, Dan. And that's about earnings of about $25 million, as well as some additional small restructuring payments associated with some of the EPS activities we're doing.
Bob Bergen: That's helpful Bob.
Speaker Change: Correct me, if I'm, if I'm wrong on the numbers, but at the midpoint of your EBITDA Guide is lower by about 50 million, but your O C. F guide lower by about 80 million relative to initial expectations. How much of the Delta is lower upfront payments for large projects. How much is kind of inflationary pressures on Cogs just help us.
Bob Bergen: Kind of think about that.
Bob Bergen: Yeah, so our so you're right on on the on the EBITDAR, our free cash flow, we brought down from $105 million in Q1 to 80 million now Dan and that's about earnings of about $25 million as well as some additional smaller reduction restructuring payments associated with.
Bob Bergen: Some of the Vps activities, we're doing and that's partially offset by Capex, just reducing capex as we monitor where we are on the macro uncertainty in the environment, but.
Robert VanHimbergen: And that's partially offset by CapEx, just reducing CapEx as we monitor where we are on the macro and certainty of the environment. But outside of that, it's going to be continued focus on trade working capital. We continue to make good progress on that front each quarter.
Bob Bergen: Outside of that it's going to be continued focus on trade working capital. We continued to make good progress on that front each quarter.
Robert VanHimbergen: I appreciate that. Just looking specifically at kind of legacy coperian businesses. Plastics, Engineered Plastics. You know, when do we need to see orders start to pick up in order to? you know, flat. nature of, you know, kind of longer term. nature of some of those projects when we need to see things. Yeah, so as you forecast, as we forecast what 2026 will look like, it's going to be under a significant amount of pressure for that to be, for 2026 to be higher than 2025. We really need to see orders coming in, you know, on the last, I'd say the last month and into Q3.
Speaker Change: Alright, I appreciate that I'll I'll check that I'm, just looking specifically at kind of legacy co purion businesses, and I'm thinking large plastics engineered plastics.
Speaker Change: When do we need to see orders start to pick up in order to be you know flat or were you know potentially generate some positive revenue growth in fiscal 'twenty six it's just given the nature of kind of longer term nature.
Speaker Change: Nature of some of those projects when do we need to see things turn to to start kind of thinking about inflicting positively from a revenue perspective.
Speaker Change: Yes, so as you.
Speaker Change: We forecast as we forecast what 2026 will look like it's going to be under a significant amount of pressure for that to be for 'twenty six to be higher than 2025, we really need to see orders coming in you know in the last I'd say the last month and indeed into Q3, and so as I sit here today, you know, we're expecting to end the year with with lower back.
Robert VanHimbergen: And so as I sit here today, you know, we're expecting to end the year with lower backlog in that pilot business. And it's unfortunate, because again, we were doing well through February, the pipelines still remain strong. Testing facilities are 100% full, but, you know, I would, I would expect that orders are going to be continued under pressure here for, you know, another couple months until hopefully the tariff uncertainty is a little bit more clear.
Speaker Change: Walk in that and that probably business and it's unfortunate because again, we were doing well through February.
Speaker Change: Pipeline still remains strong testing facilities are 100% full but.
Speaker Change: I would I would expect that orders are going to be continued under pressure here for another couple of months until hopefully the tariff uncertainty is a little bit more clear.
Speaker Change: Yeah.
Robert VanHimbergen: Thank you for your time. It was a pleasure. And just lastly, you know, maybe it's maybe you already touched on it, but your revised guidance just it implies What does it imply from a macro perspective? Obviously, you're you know, I think you're prudently not anticipating or expecting a pickup in orders Are you are we thinking, you know kind of mild recession? more meaningful fall-off or just sort of status quo, you know with where we sit today for Yeah, you know, as we sit here today, we're, we're, we're assuming that orders declined from where they were in 2024.
Speaker Change: Understood makes perfect sense, and just lastly, I know, maybe it's maybe you already touched on it but your revised guidance. It implies what does it imply from a macro perspective, obviously your you know I think you prudently not anticipating or expecting a pick up in <unk>.
Speaker Change: <unk> are you are we thinking you know kind of a mild recession more meaningful falloff or just sort of status quo, you know with where we sit today for.
Speaker Change: The next several months thanks again for the color.
Speaker Change: Yeah, you know as we sit here today, we're we're we're assuming that orders decline from where they were in 2024, So I guess I'd, probably put that in a mild recession case Dan.
Robert VanHimbergen: So I guess I'd probably put that in the mild recession case, Dan. Now, as you think about the guide we gave when we entered the year, we were, if you think about CapEx, for instance, we were cautious on some of the investments that we were projecting, knowing that if, you know, the market turned around a little bit quicker, we'd be, we'd be in investment mode. So we kind of entered the year thinking maybe a recession. And as we sit here today, it's, you know, it's a little bit, I'd say more in that camp. So we're going to continue with the fundamentals we've been working on, on discretionary costs, prioritizing CapEx, and focusing on, on, you know, trade working capital and those things that are in our control.
Speaker Change: Think about the guide we gave when we entered the year. We were just to think about Capex for instance, we were cautious on some of the investments that we were projecting knowing that as you know the market turnaround, but winter we'd be we'd be in investment mode. So we kind of entered the year thinking maybe a recession and as we say today.
Speaker Change: You know, it's a little bit.
Speaker Change: I'd say more in that camp. So we're going to continue with the fundamentals we've been working on.
Speaker Change: Discretionary cost.
Speaker Change: <unk> capex and focusing on on trade working capital all those things in our control, but we're being pretty cautious as far as where we're spending our dollars right now.
Robert VanHimbergen: But we're being, I'd say, pretty cautious as far as, you know, where we're spending our dollars right now.
Robert VanHimbergen: Understood, thank. Thank you.
Speaker Change: Understood. Thank you.
Kimberly Ryan: We've reached the end of our question and answer session. I'd like to turn the floor back over to Kim for any further or closing comments. Thanks again for joining us everyone on our second quarter call. We appreciate your ownership and interest in Hillenbrand and look forward to talking with you again this summer when we will cover our third quarter results. Thank you and have a great rest of your day.
Speaker Change: Thank you we've reached end of our question and answer session I like to turn the floor back over to Kim for any further or closing comments.
Speaker Change: Yeah.
Speaker Change:
Speaker Change: Thanks again for joining US everyone on our second quarter call. We appreciate your ownership and interest in Hillenbrand and look forward to talking with you again. This summer when we will cover our third quarter results. Thank you and have a great rest of your day.
Operator: Thank you, that does conclude today's teleconference and webcast, you may disconnect your line at this time and have a wonderful day. We thank you for your participation today.
Speaker Change: Thank you that does conclude today's teleconference and webcast you may disconnect. Your lines at this time and have a wonderful day, we thank you for your participation today.