Hillenbrand Reports Fiscal Second Quarter 2023 Results
Hillenbrand, Inc. (NYSE: HI) reported results for the second quarter, which ended March 31, 2023.
“Overall, our performance for the second quarter was ahead of our expectations, with strong orders in our Advanced Process Solutions segment and sequential improvement in our Molding Technology Solutions segment. We exited the quarter with record backlog and continued to see strong demand for aftermarket parts and service, though demand for our high margin hot runner equipment remained soft, in line with our expectations,” said Kim Ryan, President and Chief Executive Officer of Hillenbrand.
“Looking ahead, while we continue to experience some customer decision delays, we’re encouraged by the demand pipeline. We are focused on deploying the Hillenbrand Operating Model to further integrate our recent acquisitions, drive productivity, and manage costs in this dynamic operating environment. We remain confident in our ability to execute our profitable growth strategy to create long-term shareholder value through our industry leading brands and highly-engineered processing equipment and solutions.”
Second Quarter 2023 Results of Continuing Operations
(Batesville financial results reported as discontinued operations for all periods presented)
Revenue from continuing operations of $691 million increased 22% 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 9% year over year, primarily due to higher aftermarket parts and service revenue and favorable pricing.
Net income from continuing operations of $24.1 million, or $0.33 per share, decreased $0.05 compared to the prior year primarily due to inflation, discrete tax items, an increase in business acquisition costs, unfavorable foreign currency translation, and inventory step-up charges, partially offset by pricing and productivity improvements, higher APS volume, the impact of acquisitions, and fewer shares outstanding. Adjusted net income from continuing operations of $52 million resulted in adjusted EPS of $0.74, an increase of $0.09, or 14%, primarily due to pricing and productivity improvements, higher APS volume, the impact of acquisitions, and fewer shares outstanding, partially offset by inflation, unfavorable foreign currency translation, and higher interest expense. The adjusted effective tax rate for the quarter was 33.5%, an increase of 50 basis points compared to the prior year.
Adjusted EBITDA of $109 million increased 8% year over year, or 3% on an organic basis. Favorable pricing and productivity improvements were partially offset by cost inflation and an increase in strategic investments. Adjusted EBITDA margin of 15.7% decreased 200 basis points, primarily due to unfavorable product mix 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.
Advanced Process Solutions (APS)
Revenue of $431 million increased 37% compared to the prior year, primarily due to acquisitions. On an organic basis, revenue increased 11% year over year, primarily due to higher aftermarket parts and service revenue and favorable pricing.
Adjusted EBITDA of $73 million increased 12% year over year, or 2% organically, as favorable pricing, higher volume, and productivity improvements were largely offset by cost inflation and an increase in strategic investments. Adjusted EBITDA margin of 17.0% decreased 370 basis points primarily due to the dilutive effect of the acquisitions and an increase in strategic investments.
Backlog of $1.67 billion increased 30% compared to the prior year. On an organic basis, backlog increased 13%, primarily driven by increased orders for large plastics systems and aftermarket parts and service. Sequentially, backlog increased 3%.
Molding Technology Solutions (MTS)
Revenue of $260 million increased 4% year over year. On an organic basis, which excludes the impact of foreign currency exchange, revenue increased 7% as an increase in injection molding equipment sales, favorable pricing, and higher aftermarket parts and service revenue were partially offset by a decrease in hot runner equipment sales.
Adjusted EBITDA of $48 million decreased 6%, or 2% on an organic basis. Adjusted EBITDA margin of 18.2% decreased 190 basis points primarily due to an increased mix of injection molding equipment, which has lower relative margins compared to hot runner equipment.
Backlog of $298 million decreased 29% compared to the prior year primarily due to a decrease in orders for injection molding equipment. Sequentially, backlog decreased 11% as the execution of existing backlog was partially offset by a sequential increase in orders.
Balance Sheet, Cash Flow and Capital Allocation
The Company generated operating cash flow from continuing operations of $50 million, an increase of $65 million compared to prior year, primarily due to favorable timing of working capital. Capital expenditures were approximately $17 million in the quarter. During the quarter, the Company paid approximately $15 million in quarterly dividends.
As of March 31, 2023, net debt was $999 million, and the net debt to pro forma adjusted EBITDA ratio was 2.2x. Liquidity was approximately $1,108 million, including $315 million in cash on hand and the remainder available under the Company’s revolving credit facility.
As previously announced, the Company closed the sale of Batesville to LongRange Capital for $761.5 million on February 1, 2023. At closing, the Company received pre-tax cash proceeds of $698 million and an $11.5 million subordinated note. The pre-tax cash proceeds were used in part to repay the Company’s $100 million Series A notes, and the remainder of the proceeds were used to repay outstanding borrowings on the Company’s revolving credit facility. The Company expects to make a tax payment related to the Batesville sale of approximately $146 million in June 2023. Following the tax payment, pro forma net debt to pro forma adjusted EBITDA ratio is expected to be 2.5x as of March 31, 2023.
Updated Fiscal 2023 Outlook – Continuing Operations
Hillenbrand is providing updated annual guidance for fiscal year 2023 and quarterly adjusted EPS guidance for fiscal Q3 on a continuing operations basis. The Company is maintaining the midpoint of its adjusted EPS guidance, while slightly raising its revenue estimate at the midpoint.
|Revenue Outlook ($M)||Updated Range||YOY %||Previous Range|
|Advanced Process Solutions||$1,800 – $1,830||42% – 44%||$1,790 – $1,840|
|Molding Technology Solutions||$1,010 – $1,030||(3)% – (1)%||$980 – $1,020|
|Hillenbrand||$2,810 – $2,860||22% – 24%||$2,770 – $2,860|
|Adj. EBITDA Outlook||Updated Range||YOY bps / %||Previous Range|
|Advanced Process Solutions||18.5% – 19.0%||(120) – (70)||19.0% – 20.0%|
|Molding Technology Solutions||19.0% – 20.0%||(170) – (70)||19.0% – 20.0%|
|Hillenbrand||$468 – $499||16% – 24%||$464 – $506|
|Adj. EPS Outlook||Updated Range||YOY %||Previous Range|
|Full Year||$3.30 – $3.50||21% – 29%||$3.25 – $3.55|
|Fiscal Q3||$0.88 – $0.94||28% – 36%|
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.
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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.