Hillenbrand Reports Fiscal Third Quarter 2023 Results

Q3 Highlights:

• Revenue from continuing operations of $717 million increased 24% compared to prior year; organic revenue from continuing operations increased 5%
• GAAP EPS from continuing operations of $0.60 compared to $0.42 in the prior year; adjusted EPS from continuing operations of $0.95 increased 36% compared to prior year
• Operating cash flow of $89 million increased $104 million compared to prior year; 112% free cash flow conversion in the quarter
• Entered into agreement to acquire Schenck Food and Performance Materials business, significantly expanding Hillenbrand’s presence in food end market; transaction expected to close in fiscal Q4

FY23 Outlook:

• Updating FY23 adjusted EPS from continuing operations to $3.40 – $3.50 from $3.30 – $3.50

Hillenbrand, Inc. (NYSE: HI) reported results for the third quarter, which ended June 30, 2023.

“We delivered double-digit organic growth in our Advanced Process Solutions segment, saw strong demand for our leading food processing solutions, and generated solid operating cash flow in the quarter. Despite the ongoing macroeconomic uncertainty, I’m proud of the continued execution by our global teams in managing costs and driving productivity. While we are seeing customer delays continue in our Molding Technology Solutions segment and an increase in customer delays of orders for large plastics projects in our Advanced Process Solutions segment, we remain focused on executing our strong backlog and deploying the Hillenbrand Operating Model to drive operating efficiencies across the enterprise,” said Kim Ryan, President and Chief Executive Officer of Hillenbrand.

“During the quarter, we announced that we entered into a definitive agreement to acquire the Schenck Food and Performance Materials business, which will further position us as a global leader of highly-engineered, mission-critical processing equipment and solutions in the attractive end markets of food, durable plastics, and chemicals, which are supported by long-term secular growth trends. I’m excited about the opportunity this acquisition creates in allowing us to offer greater value to our customers, our associates, and our shareholders.”

Third Quarter 2023 Results of Continuing Operations¹ 

Revenue from continuing operations of $717 million increased 24% compared to the prior year, primarily due to acquisitions. On an organic basis, which excludes the impacts of acquisitions and foreign currency exchange, revenue increased 5% year over year, as favorable pricing and higher volume in the Advanced Process Solutions segment was partially offset by lower volume in the Molding Technology Solutions segment.

Net income from continuing operations of $44.0 million, or $0.60 per share, increased $0.18 compared to the prior year primarily due to favorable pricing, the impact of acquisitions, higher APS volume, and productivity improvements, partially offset by cost inflation and lower MTS volume. Adjusted net income from continuing operations of $67 million resulted in adjusted EPS of $0.95, an increase of $0.25, or 36%. The adjusted effective tax rate for the quarter was 30.6%, an increase of 70 basis points compared to the prior year primarily due to the geographic mix of income.

Adjusted EBITDA of $126 million increased 25% year over year. On an organic basis, adjusted EBITDA increased 7% as favorable pricing, productivity improvements, and higher APS volume were partially offset by cost inflation and lower MTS volume. Adjusted EBITDA margin of 17.6% increased 20 basis points, primarily due to favorable pricing and productivity improvements, partially offset by cost inflation.

Advanced Process Solutions (APS)

Revenue of $465 million increased 50% compared to the prior year, primarily due to acquisitions. On an organic basis, revenue increased 14% year over year, primarily due to favorable pricing, higher aftermarket parts and service revenue, and an increase in large plastics systems sales.

Adjusted EBITDA of $94 million increased 55% year over year, or 23% organically, as favorable pricing, higher volume, and productivity improvements were partially offset by cost inflation. Adjusted EBITDA margin of 20.1% increased 60 basis points as favorable pricing, operating leverage from higher volume, and productivity improvements were partially offset by cost inflation and the dilutive effect of the acquisitions. As previously highlighted, the recently acquired businesses have lower relative margins but are expected to be brought in line with the historical Advanced Process Solutions segment margins over the next few years through the deployment of the Hillenbrand Operating Model.

Backlog of $1.6 billion increased 31% compared to the prior year primarily due to acquisitions. On an organic basis, backlog increased 7%, primarily driven by large plastics systems and aftermarket parts and service. Sequentially, backlog decreased 4% due to customer delays of orders for large plastics systems and the execution of existing backlog.

Molding Technology Solutions (MTS)

Revenue of $252 million decreased 7% year over year. On an organic basis, which excludes the impact of foreign currency exchange, revenue decreased 6% as a decrease in injection molding and hot runner equipment sales was partially offset by higher aftermarket parts and service revenue and favorable pricing.

Adjusted EBITDA of $51 million decreased 7%, or 5% on an organic basis, as lower volume, cost inflation, and unfavorable product mix were offset by favorable pricing, lower variable compensation, productivity improvements, and cost containment actions. Adjusted EBITDA margin of 20.2% was flat compared to the prior year.

Backlog of $266 million decreased 37% compared to the prior year primarily due to lower orders for injection molding equipment and the execution of existing backlog. Sequentially, backlog decreased 11%.

Balance Sheet, Cash Flow and Capital Allocation

The Company generated operating cash flow from continuing operations of $89 million, an increase of $104 million compared to prior year, primarily due to favorable timing of working capital and higher earnings. Capital expenditures were approximately $14 million in the quarter. During the quarter, the Company paid approximately $15 million in quarterly dividends.

As of June 30, 2023, net debt was approximately $1.05 billion, and the net debt to pro forma adjusted EBITDA ratio was 2.3x. Liquidity was approximately $1.08 billion, including $291 million in cash on hand and the remainder available under the Company’s revolving credit facility.

As previously announced, the Company entered into a definitive agreement to acquire the Schenck Food and Performance Materials business (“FPM”) from Blackstone for an enterprise value of approximately $730 million. The transaction is expected to close during Hillenbrand’s fiscal fourth quarter of 2023, subject to customary closing conditions. Hillenbrand intends to finance the acquisition of FPM using cash on hand and by drawing on its revolving credit facility and borrowing under its recently announced €185.0 term loan. Following the closing of the transaction, Hillenbrand’s projected fiscal Q4 net debt to adjusted EBITDA ratio is expected to be approximately 3.2x, with a plan to return to its communicated target net leverage range of 1.7x to 2.7x within 15 months after closing.

Updated Fiscal 2023 Outlook – Continuing Operations

Hillenbrand is narrowing its annual guidance for fiscal year 2023 based on year-to-date performance and its outlook for the fiscal fourth quarter. Revenue estimates have been lowered modestly due to ongoing customer order delays within the MTS segment, particularly in China, and an increase in customer delays for large plastics projects within the APS segment. The Company is raising the midpoint of its full year adjusted EPS range primarily due to lower interest expense and a more favorable expected tax rate of 29% compared to the previous estimate of 31%, primarily due to the benefit of a strategic tax initiative that will take effect in the fiscal fourth quarter.

Revenue Outlook ($M)	Updated Range	YOY %	Previous Range
Advanced Process Solutions	$1,775 – $1,800	40% – 42%	$1,800 – $1,830
Molding Technology Solutions	$1,000 – $1,010	(4%) – (3%)	$1,010 – $1,030
Hillenbrand	$2,775 – $2,810	20% – 21%	$2,810 – $2,860
Adj. EBITDA Outlook	Updated Range	YOY bps / %	Previous Range
Advanced Process Solutions	19.2% – 19.3%	(50) bps – (40) bps	18.5% – 19.0%
Molding Technology Solutions	18.7% – 19.0%	(200) bps – (170) bps	19.0% – 20.0%
Hillenbrand	$468 – $480	17% – 19%	$468 – $499
Adj. EPS Outlook	Updated Range	YOY %	Previous Range
Full Year	$3.40 – $3.50	26% – 29%	$3.30 – $3.50

 Note: Year-over-Year (“YOY”) growth figures presented in the guidance table above are on a continuing operations basis, which exclude the discontinued operations of Batesville.

¹Batesville financial results are reported as discontinued operations for all periods presented

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About Hillenbrand

Hillenbrand (NYSE: HI) is a global industrial company operating in over 40 countries with over 10,000 associates serving a wide variety of industries around the world. Guided by our Purpose — Shape What Matters For Tomorrow™ — we pursue excellence, collaboration, and innovation to consistently shape solutions that best serve our associates, customers, communities, and other stakeholders. Hillenbrand’s portfolio includes brands such as Coperion, Milacron Injection Molding & Extrusion, and Mold-Masters, in addition to Batesville. To learn more, visit: www.Hillenbrand.com.

Source: Hillenbrand, Inc.