BATESVILLE, Ind.
Hillenbrand, Inc. (NYSE: HI) reported results today for the first quarter of fiscal 2020, which ended December 31, 2019.
Hillenbrand completed the acquisition of Milacron on November 21, 2019. Total company results for the fiscal first quarter 2020 include 41 days attributable to the acquisition of Milacron, while the prior period comparison does not.
First Quarter Results
Revenue of $567 million increased 38% compared to the prior year, 32% of which was contributed from Milacron. Process Equipment Group grew 9%, which was partially offset by a decrease of 1% in the Batesville segment, resulting in organic growth of 5%. Excluding the negative impact of foreign currency exchange, total revenue increased 39%.
Net loss of $3 million, or ($0.05) per share, decreased $0.50 per share compared to the prior year, primarily as a result of business acquisition and integration costs related to Milacron.
Adjusted net income of $43 million resulted in adjusted earnings per share of $0.63, an increase of 29% over the prior year. Adjusted EBITDA increased 43% to $92 million, primarily due to the Milacron acquisition, which contributed $26 million. Adjusted EBITDA margin of 16.2% expanded 60 basis points compared to a year ago. Organically, adjusted EBITDA increased 1% and adjusted EBITDA margin decreased 60 basis points.
“We’re excited to have closed the Milacron acquisition, which represents a major step in our transformation journey to become a world-class global diversified industrial company, and further establishes Hillenbrand as a leading equipment provider across the plastics value chain. We’re focused on executing our integration plans to advance our strategy and deliver targeted cost synergies. Our teams are already making meaningful progress on these objectives,” said Joe Raver, President and CEO of Hillenbrand.
“The legacy Hillenbrand businesses performed well in the first quarter, delivering solid results that were above expectations. We’re encouraged by sequential backlog growth in each of the Process Equipment Group businesses, with continued strength in large polyolefin systems.”
Process Equipment Group
Process Equipment Group revenue of $307 million increased 9% over the same period in the prior year. Excluding the impact of foreign currency exchange, revenue increased 10%. Revenue growth was primarily driven by continued strong demand for large plastics projects, partially offset by a decline in demand for separating equipment used to process proppants for hydraulic fracturing. Adjusted EBITDA margin of 16.8% increased 40 basis points, mainly due to lower operating expenses as a result of focused efforts to reduce discretionary spending, partially offset by the increased proportion of lower margin, large systems projects and the decline in demand for higher margin separating equipment. Order backlog of $901 million at the end of the first quarter decreased 5% compared to the prior year, or 3% excluding the impact of foreign currency. Sequentially, backlog increased 4% with growth in each business.
Batesville
Batesville revenue of $127 million was 1% lower than the first quarter of the prior year. Volume increased despite an estimated decrease in North American burials driven by an increased rate at which families opted for cremation. The increased volume was more than offset by a lower average selling price. Adjusted EBITDA margin of 18.1% was 270 basis points lower than the prior year, mainly driven by inflation in wages and benefits, including higher healthcare costs, and unfavorable mix. Productivity initiatives and higher burial volume partially offset the effects of these items.
Milacron
During the quarter, Hillenbrand completed the acquisition of Milacron in a transaction valued at approximately $1.9 billion. The transaction added new strategic businesses to Hillenbrand’s portfolio, including hot runner systems and injection molding equipment through Milacron’s leading Mold-Masters and Milacron brands. The combined company provides increased scale and meaningful product diversification, improving Hillenbrand’s ability to address growing demand for durable plastics by serving customers across the plastics value chain.
In the period following the acquisition, Milacron delivered revenue of $133 million and adjusted EBITDA of $26 million, resulting in an adjusted EBITDA margin of 19.8%. Order backlog was $147 million at the end of the first quarter.
Raver continued, “We’re just getting started as a combined company, but I’m highly confident in our deal thesis and the value we can create by bringing Milacron together with Hillenbrand. The macro environment is difficult right now, and we are taking action to deal with the challenges we face, but as I look forward, beyond the short-term external issues, I am excited about our future.”
Cash Flow and Capital Allocation
Hillenbrand generated cash flow from operations of $18 million in the quarter, a decrease of 50% compared to the prior year. The decrease in cash flow was driven by business acquisition and integration costs, partially offset by reduced working capital requirements. During the quarter, the company returned nearly $16 million to shareholders in the form of quarterly dividends.
Net debt at the end of the quarter was $1.7 billion. The company remains focused on paying down debt following the Milacron acquisition, and plans to curtail share repurchases and merger and acquisition activity with a goal to return leverage below 2.75x net debt to adjusted EBITDA over the next twelve months.
As previously announced, Hillenbrand is reviewing strategic alternatives for the Cimcool business. Houlihan Lokey has been engaged as a financial advisor to assist in the strategic review. Management cannot predict the timing or the outcome of this review and does not intend to comment further until the Board of Directors approves a specific transaction or the company believes that disclosure is otherwise appropriate.
Fiscal 2020 Guidance
Guidance for the legacy Hillenbrand businesses has not changed.
Guidance has been updated to include 10 months of Milacron ownership in the fiscal year and incremental acquisition and integration costs, including interest expense, depreciation and amortization.
We are providing a wider range for adjusted earnings per share as we integrate Milacron and consider ongoing uncertainty around the macroeconomic outlook, global trade, the U.S. election, and the coronavirus. We are monitoring these factors closely and taking precautionary actions to mitigate the risk of disruption.