Hillenbrand Inc (HI) 2012 Q1 法說會逐字稿

Good morning, everyone, and welcome to the Hillenbrand's earnings call for the first fiscal quarter of 2012. A replay of the call will be available until midnight Eastern time, Thursday, February 16, 2012, by dialing 1-855-859-2056 toll-free in the United States and Canada or 1-404-537-3406 internationally and using the conference ID number 43684539.

This webcast will be archived at www.HillenbrandInc.com through February 2, 2013. If you ask a question today it will be included in any future use of this recording. Also note that any recording, transcript or other transmission of text or audio is not permitted without Hillenbrand's written consent.

At this time it is my pleasure to turn the conference over to Chris Gordon, Director of Investor Relations. Mr. Gordon, please go ahead.

Thank you, Ally, and good morning everyone. Welcome to our earnings call for the first quarter of fiscal 2012, which ended December 31. With me on the call today are Hillenbrand President and CEO, Ken Camp; and Chief Financial Officer, Cindy Lucchese.

During the course of today's conference call and a question-and-answer session that follows, we may make projections or other forward-looking statements that are subject to the Safe Harbor provisions of the securities laws regarding future events or the financial performance of the Company. We caution you that these statements are only our view of the future and that actual results may differ materially.

We also alert you to the risks described in the documents we file with the Securities and Exchange Commission, such as our annual and quarterly reports on Forms 10-K and 10-Q. We do not undertake any obligation to update or correct any information in forward-looking statements.

Now let me provide some information regarding our call. We have scheduled one hour, and will start with prepared remarks from Ken and Cindy that should last approximately 20 minutes. Ken will start with an overview of the business for the past quarter. Cindy will follow with financial results. Then Ken will wrap up the prepared portion of the call. After that we will move directly to Q&A, when we will be joined by Batesville President, Kim Dennis, and Process Equipment Group President, Joe Raver, who is joining us remotely from Switzerland.

If you have follow-up questions after the call is ended, please don't hesitate to call me at 812-931-5001 or e-mail me at Chris.Gordon@Hillenbrand.com.

Now it is my pleasure to turn the call over to Ken Camp, Hillenbrand's President and CEO.

Thanks, Chris. Good morning everyone and thanks for joining us today. After the market closed yesterday we released our earnings announcement and filed the 10-Q. Both documents are available on our website.

And as you can see, we had another solid quarter in our growth businesses with double-digit increases in revenue, net income and earnings per share. Our top and bottom line results were strengthened significantly as a result of our acquisition strategy to diversify the Company's holdings into various growth industries.

Beginning with the K-Tron acquisition in 2010, and followed by the Rotex acquisition in August of 2011, the Process Equipment Group now represents 37% of our total enterprise revenue and just about one-third of our total EBITDA. Diversification is also evident in our geographic reach with about 15% of our revenue now coming from outside the United States.

We posted annual double-digit revenue growth since our first acquisition in 2010, and perhaps more importantly, we have achieved annual double-digit organic growth in those businesses that we have acquired. They have also been attractively accretive with those businesses adding $0.09 to our EPS in the first quarter alone.

Based on the success of this strategy to date we had a 10% increase in enterprise revenue at $232 million, 15% growth in net income, and a 14% increase in year-over-year earnings per share. Our ability to generate cash remained consistent at $27 million in Q1, even with the volume challenges in the Batesville business that we will discuss later. In short, we continue to execute on our established growth strategy and we are pleased with the results of that strategy.

Because we continue to attract new listeners to our conferences, I will take some time to give background on each of our platforms, starting with the Process Equipment Group. As you have seen in the past seven quarters, the Process Equipment Group continues to perform at exceptional levels, generating $86 million in revenue in Q1, which is 68% more than last year.

While a significant amount of this increase came from the addition of Rotex, in total the Process Equipment Group has reported 20% organic growth across the board during that time.

As many of you know, one element of the Process Equipment Group's strategy is to broaden their product offerings to meet their customers' increasing preference for system solutions, not just equipment alone. This means that they will sometimes sell components that carry a lower margin than their core machine product lines, partly because they currently purchase some of these components from some other suppliers.

When this happens it can have the effect of reducing the gross margin percentage, while increasing the total number of gross margin dollars. And we all know dollars are the only thing the bank lets us deposit.

As a result of the execution of this strategy, the Process Equipment Group's consolidated order backlog grew 8% sequentially to $129 million. And their backlog currently represents approximately one-third of the platform's annual revenue, which is comprised not only of machine sales but also the sales of wear parts.

Another part of the strategy in the Process Equipment Group is to expand into new geographic markets by taking existing products to new customers. Although this initiative is relatively new, the group's brands are being well received and the earlier results are exceeding our expectations.

In the case of -- excuse me, another core element of Hillenbrand's overall strategy is to use our proven capabilities in lean business to help acquired companies grow more effectively. We are very pleased with the rate at which K-Tron, the size reduction group, and Rotex are adopting these principles to better serve their customers and increase profitability.

For example, when we acquired K-Tron their three size reduction brands -- Pennsylvania Crusher, Gundlach and Jeffrey Rader -- were operating as three separate businesses with minimal coordination among them. After a year of developing a base in lean practices the size reduction leadership team has developed plans to consolidate some operations and manage the group as a single company with the three well-known brands. That work is well underway, including realigning production to improve efficiency, reduce cost and complexity, and better serve their customers.

In the case of Rotex we're very pleased with their performance, and in fact they are adding new orders to their backlog at a very rapid rate. They too have embraced the principles of lean business and are using those techniques to eliminate bottlenecks and expand their production capability without adding brick-and-mortar.

Taking a look at Batesville, despite the continued growth of our Process Equipment Group businesses their strong performance wasn't enough to completely offset the headwinds faced by the Batesville business where cash flow remains robust, but growth has been difficult to achieve.

As you all know, the Batesville business is the original Hillenbrand Company, with the mission of providing earnings and cash to fuel our growth strategy. Despite the challenges of competing in a non-growth industry, Batesville continues to do just that.

The most significant driver which affected Batesville's 9% drop in revenue for the quarter was a decline in the total North American death rate. Although the mortality rate from pneumonia and influenza is currently high, total deaths for the quarter are significantly lower than expected, the basis of which is as yet unexplained.

The cremation rate is also estimated by us to have increased by about 160 basis points, which is higher than the long-term trend of 120 basis points we have observed in past years, but a bit lower than the spike that we saw in 2009 and 2010.

Such a decline in deaths in a short period is unusual, and if history is an accurate indicator, the industry should expect to see total deaths return closer to the norm as the year plays out.

One additional factor in the quarter's results is the decision by many customers to purchase some inventory in advance of Batesville's fiscal 2012 price increase. Typically customers will use this inventory in Q1 as their demand increased. With the drop in total deaths it is taking them a bit longer to use up the inventory they have on hand.

Since the casket industry volume is based on factors outside our, or quite frankly anyone's control, we focus our energy on those things where we can have an effect. For example, even with these challenges we believe that Batesville has maintained relative market share in this somewhat volatile and more competitive environment, and our mix during the period has remained much better than would be expected given the volume.

The leadership team effectively manages their manufacturing capacity to meet market demand by maintaining an adaptable, high-quality and high-velocity supply chain structure. In addition as the industry leader, Batesville can use the flexibility of their balance sheet to support the small independent funeral homes that are working hard right now to remain profitable in this challenging environment. This allows Batesville to maintain the important and long-standing relationships they have with funeral directors.

In an environment where cremation rates continue to grow, the Options by Batesville cremation business is well-positioned to serve evolving consumer needs. Options is the hands-down leader in the cremation products industry and has been growing steadily at rates well above the growth rate of cremation.

The other two Batesville growth businesses, Batesville Interactive and Endura Vaults, although starting from a very, very small base at their beginning, are growing at a combined rate in excess of 75% a year. Compared to the casket market, these young businesses are relatively small. However, in an industry where change comes very slowly, we are pleased with the acceleration of their progress.

Over a period of more than 100 years, Batesville has developed and maintained their brand as the leading manufacturer of burial caskets. And these growth businesses they feel is continuing to build on that brand's strength with a methodical, relentless focus on providing products and services that will allow funeral directors to help families make the most meaningful choices to honor their loved ones and also to help those funeral directors maintain an acceptable level of profitability.

Now I will turn the call over to our CFO, Cindy Lucchese. Cindy.

Thank you, Ken. Overall, we are pleased with our first-quarter results. We achieved double-digit revenue growth, had healthy 40% gross margins, and increased net income by 15%, which resulted in first-quarter earnings of $0.50 per share.

Now let me take you through the details. Total first-quarter revenue grew 10%, 9% on a constant currency basis. The key driver of these strong growth numbers was the Process Equipment Group, which delivered a 68% increase in revenue and 65% on a constant currency basis.

Now an important metric to discuss is organic growth, which we define as the year-over-year comparison of revenue on a constant currency basis with all of our acquired companies included in the base year. We believe this is important because it shows comparable performance not only for the core Process Equipment Group, but also the year-over-year growth in newly acquired Rotex.

As Ken mentioned earlier, the organic growth for Process Equipment Group was an attractive 20%. In addition, for the seventh quarter in a row, and in fact ever since we purchased K-Tron, the Process Equipment Group's backlog grew reaching a total of $129 million at the end of the first quarter. This represents an 8% increase over the fourth quarter of 2011.

Now as you may recall, future revenue associated with the Process Equipment Group is strongly influenced by order backlog. On a quarter-by-quarter basis we expect to see some volatility in this number, particularly when we ship very large orders. However, we are more than pleased to see the continued strong growth in our order backlog.

Batesville revenue was $14 million or 9% lower than the prior year driven by a decline in volume. Lower total deaths and an above-average increase in cremation rates resulted in fewer burials year-over-year. Some customers chose to buy ahead in advance of the annual price increase that became effective in October, and that certainly factored into the volume decline, but to a lesser degree.

Gross margins for the Process Equipment Group -- pardon me -- we continue to see a shift in our revenue mix with Batesville now representing less than two-third Of Hillenbrand's revenue compared to a bit more than three-quarters this time a year ago. We expect to see the proportion of revenue from the Process Equipment Group grow, given their strong growth fundamentals and our acquisition strategy.

Now turning to gross profit margin, our gross profit margin was 40.5%, a decline of 270 basis points over the prior year. Batesville's margin declined more than 300 basis points to just under 40%. While increased fuel and steel prices impacted margins, the big driver was really the lower volume.

Now I would also like to give you a sense of how to think about their margins for the remainder of the year. Remember that the Batesville business has always been seasonal, with the second fiscal quarter of the year typically yielding the highest revenues and therefore the highest gross margins of the year. We expect this to be the case this year as well. And we also expect Batesville gross margin percentage for the full year to remain strong and above the 40% mark.

Gross margins for the Process Equipment Group declined by 270 basis points compared to the prior year. This was due to higher large system sales in this quarter, which typically include more outsourced components that generate lower gross margins.

Now, in addition, we saw some customers last year begin to upgrade their technology coming out of the economic downturn. These upgrades included higher-margin technology for weighing and controllers. We typically have a steady volume of this type of business from year to year, but we experienced a higher mix of this type of business last year as companies ramped up production.

For the balance of the year we expect Process Equipment Group gross profit margin percentages by quarter and for the year to be just slightly lower than last year.

For the quarter operating expense as a percent of sales increased to 26% from 23.3% in the prior year. The difference was almost entirely driven by a $2.5 million backlog amortization, and that represents the final charge that we will record for the Rotex backlog. In addition, we had $2 million of long-term incentive comp expense related to the income tax benefit that I will discuss in a minute.

Our adjusted operating expense to sales ratio was relatively flat at 23.6% versus 23.3% in the prior year. More importantly, we were pleased to see this ratio improve for both of our business platforms as well as corporate, showing that our lean initiatives are yielding positive results across the organization. The reason you'll see a slight increase on a consolidated basis is because our Process Equipment Group is now a larger piece of the overall Hillenbrand business.

Remember that the operating expense to sales ratio for the Process Equipment Group is typically in the 20% to 30% range, in large part due to their business model which has a high engineering component. Now the Batesville platform typically has a ratio of 15% to 16%.

Keep in mind that the low operating expense to sales ratio that Batesville achieves is the result of many years of applying lean principles in the business. While this is well ingrained in the Batesville platform we have just begun this journey for the Process Equipment Group.

Another driver in the difference between the operating expense to sales ratio for the group is the ongoing amortization expense from the intangibles that were established as a result of the Rotex and K-Tron acquisitions. This represents about $4 million of non-cash expense each quarter with about $1 million of incremental expense for Rotex this quarter when compared to the prior year.

For the full year we would expect to see a consolidated adjusted operating to sales ratio -- operating expense to sales ratio in the 24% to 25% range.

Other income and expense was about $3.5 million unfavorable to the prior year primarily due to the absence of interest income from the Forethought Note. This same variance will also impact us in the second quarter since we collected that note in April of 2011.

Although we expect interest income to be about $6 million unfavorable on a full-year basis, it is important to remember that we have redeployed that cash into the purchase of Rotex, an asset in line with our strategic goals and one that we believe will provide greater returns to our shareholders than the previous value of interest received.

Also, included in the line item is the income from our investments in private equity limited partnerships, which now have a book value of about $14 million. While our ultimate goal is to prudently liquidate these assets they are highly illiquid, difficult to sell, even at a steep discount. So, as a result, it is most prudent for us to maintain them through dissolution which should occur over the next several years. The related income or loss can be relatively lumpy and certainly unpredictable. So some years we experience gains, some years we experience losses.

Last year we had about $6 million in total income from these investments, but the amount varied greatly each quarter -- $600,000 of income in Q1, $3 million in Q2, and $1 million each in Q3 and Q4.

We didn't have any gains in our first quarter this year. And if this were to continue through the end of the year it would ultimately yield about $0.06 of unfavorability to earnings per share in 2012 compared to the prior year.

During the quarter we recognized a $10 million tax benefit by determining that we will now permanently reinvest certain international earnings that we had previously expected to repatriate. As a result of our acquisition of Rotex, we identified the need to retain these earnings overseas to support the continued growth of the Process Equipment Group and begin developing a plan to integrate Rotex into our existing international structure.

As a result, our effective tax rate this quarter was actually a tax benefit of 4.5% versus an income tax expense rate of 35.9% in the prior year. We expect our ongoing effective tax rate this year to be in the 33% to 34% range, excluding the impact of this first-quarter tax benefit. We have excluded the tax benefit in our calculations of adjusted net income, adjusted EBITDA and adjusted EPS.

Now as we like to say here at Hillenbrand, Cash is King, and our results in this area again were positive as we continue to deliver strong operating cash flow quarter after quarter. Operating cash flow was $27 million, right in line with prior year.

Net income increased 15% over the prior year to $31 million, with EPS growing 14% to $0.50. On an adjusted basis net income declined by 7% and EPS by 9% as the strong growth from Process Equipment Group was more than offset by lower Batesville volumes and reduced interest income from the Forethought Note and limited partnership investments.

Adjusted EBITDA was $48 million, a 6% decrease compared to the prior year. Now note that earnings from the Forethought Note are not included in EBITDA, however, limited partnership gains and losses are included in this number.

So now I would like to turn to guidance. We are reaffirming our revenue guidance and continue to expect 2012 global constant currency revenue to exceed the $1 billion mark, increasing between 13% and 17%. When we first provided guidance last quarter forecasts for exchange rates indicated there might be little, if any, impact on revenue in 2012, however, given the recent strength in the US dollar there could be a negative year-over-year impact if currency forecast holds.

These forecasts suggest foreign currency translation could negatively impact revenue by approximately 1% in 2012, which would result in global revenue growth of 12% to 16%. We will provide updates to you in our quarterly releases if warranted by any forecast changes.

Now as a result of the tax benefit that we recorded this quarter, we are now increasing our earnings per share guidance by $0.12 to $1.87 to $1.97. We are reaffirming our adjusted earnings per share guidance, leaving it unchanged at a range of $1.82 to $1.92.

Our adjusted EPS guidance excludes the tax benefit that we recorded in the first quarter, as well as backlog amortization, antitrust litigations, business acquisition costs and sales tax adjustments.

Now we typically experience our largest quarter in Q2 due to the impact of seasonality at Batesville. However, this year we expect adjusted EPS in both Q2 and Q4 to be somewhat equal. In line with historical trends we still expect Batesville to have their largest quarter in Q2. However, we expect Process Equipment Group to have their largest quarter in Q4 due to the expected timing of shipments currently in backlog.

Now as we discussed in many of our past calls, the Process Equipment Group can experience lumpiness from quarter to quarter when sizable jobs are completed and shipped. Like most years, we have a few unusually large orders that will impact our quarterly revenue. I will update you on future calls, however, if our expectations change.

So now I will turn the call back to Ken for his concluding remarks. Ken.

Hillenbrand is a patient, prudent company with a long-term view of the future. When we met many of you at industry events, including our investor day conference in December, we reaffirmed our commitment to an acquisition strategy that is clearly serving us very well.

We are continuing to explore three levels of acquisitions. First, we are interested in pursuing tuck-in or adjacent acquisitions that support the growth strategies of one or more of our operating companies. Through these relatively small acquisitions we intend to increase our ability to offer system solutions, support geographic expansion or add value to a product line or process.

The second level would be a transaction to add an operating company to the Process Equipment Group. Rotex is a prime example of a business that provides access to another dimension of the industries where the Process Equipment Group already operates.

The third type of acquisition in our future is to add a company which has the ability to be the beginning of a third platform. No one should assume that mentioning this implies a signal that a platform acquisition is imminent or that it isn't. It simply is us being transparent about all elements which could be part of our acquisition strategy.

Also, our criteria for acquisitions haven't change. We want to continue to build Hillenbrand as a global diversified manufacturing enterprise with an emphasis on diversification to balance risk and growth. It is also critical that an acquisition candidate be culturally compatible, successful in its industry, poised for growth, and able to leverage our comp core competencies in strategy, lean business and talent development to accelerate that growth.

As we announced last week, Scott George has joined Hillenbrand as Senior Vice President of Corporate Development to drive our acquisition strategy. He is an exceptionally talented M&A executive with 30 years of experience. And Scott was integral in both the K-Tron International and Rotex acquisitions as our primary outside acquisition advisor, so he knows us and our strategy very well. We're very delighted that Scott is part of the Hillenbrand executive team, and I am sure you will get to meet him at some future event.

Over the long haul, the goal is that our strategy will result in double-digit growth in revenue and profitability. As always, our focus will continue to be on strong cash generation that strengthens our balance sheet, enables us to execute our strategy, and allows us to pay an attractive dividend, which as you know, increased in December for the fourth consecutive year. It is a hallmark of our commitment to being careful stewards of the Company and providing meaningful value to our shareholders.

Now for our Q&A session we will be joined by Kim Dennis, Batesville's President, and the Process Equipment Group, Joe Raver is also participating remotely from Switzerland. So there may be some differences in sound quality and we hope that everything will go be clear on both ends. We're ready to take your questions. Ally, would you please open the lines?

(Operator Instructions). Daniel Moore, CJS Securities.

Ken, in your prepared remarks in discussing the Process Equipment and with regards to the backlog being up 8%, you talked about broadening your product offerings and that may be pushing down gross margin percentage a bit. Was that in reference to the backlog as well? Is some of that backlog revenue likely be lower gross margin going forward?

No, it really wasn't. That certainly wasn't a big driver in there. I just wanted to alert investors to the fact that as we, particularly in the K-Tron business, do more system selling there are times where part of that system, which we will sell involves some things we will buy from others. But that is not a big driver -- certainly not the primary driver in the backlog. The big drivers are simply the business opportunities are robust and our companies are taking care of it.

I would just quickly add to that, Dan, that I had mentioned in my remarks that we expect gross margins for Process Equipment Group on an annual basis to be just slightly lower than they were last year, so pretty much in line.

Fair enough, thank you. What are you seeing in terms of trends so far into Q2, only a month in, obviously, but in terms of caskets, and casket deaths versus the double-digit decline in unit volumes in first quarter?

Obviously, we can't give any information on what the actual results were during that period for obvious reasons. But as we look at -- we look at the Center for Disease Control and what they're seeing, and our teams have some pretty robust capabilities there, we have not yet seen the spike that one would expect in what is a big flu year.

Although, somewhat contradictorily, the CDC is seeing a high mortality rate, meaning that when deaths are reported a large percentage of them come from pneumonia and influenza. So that could be an indication that whatever strain is there has a certain level of mortality and morbidity. But that has not turned into a larger number of deaths.

And for those industrial folks who are on the call now that you just have to get used to some of these discussions about death trends and death rates.

I think what that could imply, although the numbers aren't in yet from CDC, what it could imply is that while the flu is having some effect that underlying things or other conditions which cause greater numbers of deaths are not present.

There is a lot of moving parts in trying to predict what is happening in deaths, and one of the biggest ones is the increases in the effectiveness of health care. As health care gets better, especially emergency care and treatment of heart disease and cancer, life is being extended.

One of the things that you'll often hear us say in this type of environment is that while the death numbers can bounce around from time to time, ultimately they move back toward the norm. Demographics are very powerful here. And whatever happens short-term doesn't imply a pass for any of us. It is merely a deferral in time.

Kim Dennis is here, the President of Batesville. I don't know if I've covered the things you guys are seeing or if you want to add something to it.

Yes, I think so. And, I know one of the things that we have discussed before and that we do continue to look at is what are the long-term trends. If you were to look back historically over the last three, five, 10 years you would see very consistent trends around how for the full year deaths really return to the norm, even though we see spikiness this from quarter to quarter, or even several quarters in a row. Typically over a 12 month period those return to the norms that we have seen very consistently over the last 10 years.

Understood, I appreciate it. And then, obviously, Ken, you typically manage your capacity very closely. Are you looking at taking out incrementally additional capacity, given the short-term declines, or do you feel like you are at a reasonable level right now?

Well, we don't let short-term movements over a quarter or a couple of quarters make those decisions, but we do project long-term. In fact, Kim has taken some actions there recently, and I will let her explain them.

You may have seen that we did make some adjustments to our capacity. And as we -- we constantly assess the amount of capacity that we have versus what we think the long-term demands of the industry are versus our capability to have flexible production to adjust to seasonality and those types of things.

Our recent adjustment to capacity may have been more visible because it affected a shift, but we very frequently adjust our capacity through overtime, down days, Saturday production, short shifts, long shifts, all of those types of things to accommodate demand. And we do that very consistently so that we maintain a very consistent level of inventory and customer fill rate in the marketplace.

Very helpful, I appreciate it. I will jump back in queue.

Clint Fendley, Davenport.

First question just on the Process Equipment Group and the increase in outsourced component. I wondered is that a trend that we would expect to see in the next couple of quarters as well or is it more of a seasonal trend or is it impossible to know, I guess?

Joe Raver is on the line from Switzerland and I will let him -- he is the President of that group -- I will let him answer. Joe.

Well, a couple of thoughts. One, is this is a trend towards larger systems sales that we've been experiencing, particularly K-Tron, over the last couple of years. And so we expect to continue to see more larger systems sales going forward. Now historically those have been a little bit lower margin because we have more buyouts, where we are buying some components from other people.

Also, part of our strategy is to acquire different parts and pieces of that system over time, and K-Tron has a history of doing that. So as Cindy mentioned earlier, we don't expect a big impact in the balance of the year. And while this isn't part of our strategy going forward, we work very hard to maintain the margins that we currently have going forward. So I wouldn't expect a big shift in margin for the group over the coming year or even farther into the future given this strategy.

Clint, it is Ken. I think one of the points also, we look at the margins on, for example, our core machines and on our wear parts, which is a significant part of those businesses in the Process Equipment Group. And those margins, absent the little spike last year for updating to the latest load cell technology and controllers in the K-Tron business, those margins remain very, very solid. What you are seeing is just the added sales of some of our [bought out] products themselves have a slightly lower margin.

You guys saw nice backlog growth during the quarter. Just any other additional color that you can maybe share with us on how your customers are -- the demand that you're seeing from them either by geography or either by just maybe, as Joe referenced a second ago, maybe the size of the equipment or the amount of purchases that they may be considering given the volatility that we have seen in the headlines, especially from Europe during the quarter?

Joe.

It is Joe again. We felt some of that volatility in Europe as well, and we're working with customers to try to help them be able to meet capacity and run their businesses as well as possible. The thing that we have really experienced some upside on is the geographic expansion, which we have talked about over the course of the last few quarters as part of our strategy. So we have experienced good growth in expanding to new geographies.

We also constantly work to identify attractive end industries and target those industries with solutions that will help them be more efficient. And so we have seen some positive moves in the food industry. We have also seen some positive moves in energy. And so we have seen it across a variety of industries, but it is the emerging middle class, the emerging economies where we have been having more success over the last few quarters, and we expect that to continue.

Thank you. That is helpful. Then, I guess switching over to the Batesville segment, just a couple of questions there. I think you guys have covered a lot of the color around the volume. I wonder -- the one comment that I guess seemed new was your comment both in your filing last night and in your prepared remarks around seeing some of your customers buying in advance of the price increases. Is that something that you typically see them doing in the months leading up to October?

Clint, it is Kim. Yes, this is something that we typically see in the fourth quarter of each year. I won't say that we saw a good amount of it this year. And typically as Ken mentioned that inventory bleeds off pretty quickly in the first quarter of the year because we see that spike in death and spike in burials. This year just with the death rate down the bleed off of that inventory was slightly slower.

okay, understood. So was the price increase -- any just comment on maybe how that has been received by your customers. And the advanced buying is that skewed at all towards some of the larger publicly held companies?

No, no. And the price increase that we implemented was very consistent with what we have seen across the board from other competitors in the marketplace, and has been very consistent consistently applied, and generally well-implemented across the board as well, both with independent customers and our national customers.

Okay and (multiple speakers).

There was not anything out of the ordinary with this year's price increase, not from a competitive standpoint nor an acceptance standpoint with customers.

I would assume any advanced buying is going to be done by either the larger public companies or even larger homes in general.

No, actually not the case. This was -- the advanced buying is very typically done by our independent funeral directors.

That is helpful. Then last question, I know it is small, but any idea of how much revenue we might expect from the Endura this year?

Well, Clint, it is Ken. I will help a little bit with that. It is certainly more than last year. I have said many times I'm not too happy with how -- the pace at which that is going. As my guys will tell you, even to my face is they know I am frequently pleased, but rarely satisfied. And I have been pleased with the way the Endura team ended last year and is starting this year. I think they're getting some good traction.

You know this is a slow to change industry. We don't break that revenue down. When it gets to be big enough that it is a real needle-mover then we will probably start doing something about chunking that out so you can see it, but right now we don't. But my outlook has become much more bullish, I guess I should say on that currently small business, but one with what I believe is a great future.

Thank you, guys.

Steve O'Neil, Hilliard Lyons.

Cindy, I was wondering, Batesville casket sales were down $14 million year-over-year. I was wondering if you had that dollar breakdown between volume, price and currency?

Sure. It is about -- volume is about $14.6 million. Rate mix together are a positive $700,000. And then the FX impact was basically -- it was just $100,000, and that was negative.

And then occasionally you will talk about in dollar amounts about the impact of fuel and steel in the quarter.

We do. Fuel and steel this quarter were not big drivers -- as big drivers as they had been in the past, so we did not identify specifically what those were.

So higher raw material costs were really not that big a factor, it was mainly the lower volume?

Yes, that is right. As we go quarter by quarter we are getting more -- remember last year we had several quarters where the comparison year-over-year was pretty negative when you looked at fuel and steel, but now we're getting into a more consistent market.

Okay, great. Thank you very much.

Jamie Clement, Sidoti.

Ken, I was wondering -- I know that you said as yet unexplained decline in the death rate -- have you all -- or do you think there is any truth that the warm weather that a lot of retailers have complained about in terms of stocking the right kind of clothes in their stores, do you think that warm weather may have had an impact on the mortality rate?

I have to tell you I don't know. I will tell you when -- we're quant people here, and when there is some anomaly in this we begin to look for all sorts of things, but not quite as far as global warming. But one of the big drivers that we have begun to observe, although it is very difficult to quantify, you can see it in medical records or articles, is that improvements in health care have been really significant over the last decade or so, as described to me by a cardiologist not long ago.

He said in the past a 50-year-old had a heart attack at a hospital had a 50-50 chance of making it. Now the EMT system, people having an aspirin available, all those kinds of things seem to be extending life. And it is a guy who is, as I described on the back nine, although someone was wondering if that was really an 18 hole course or not when they looked at me. You start to think a little differently about that. So I'm actually very happy, and I think we all are about the changes in health care.

But ultimately what it does is it makes it challenging for us quarter by quarter and year by year to figure out what is likely to happen. But the end result is going to be the same. And, of course, we have left out of the discussion the demographics which are when the baby boomers, which I am on the leading -- of which I am on the leading edge -- begin to meet our demise, just looking at birth and immigration rates that is going to make a big difference in funeral service.

I don't know that it is going to be this year. I don't think it is going to be longer than five. But it is one of those things that we try to keep a close eye on, but as you know with your experience in this business, it is hard to do much about it.

Absolutely.

To get a handle on it short-term.

Absolutely. It is just -- it seems like the weather has been so anomalous from October through January that you start -- you look for anomalies in the data, and so do I, and I'm just wondering if that may be -- who knows, we will see.

Anyway, changing gears to the process side, you commented that based on the backlog and the timing of orders, you expect the fourth quarter to be seasonally strong. I am just wondering just with the addition of Rotex and with an additional three months of K-Tron, and how the year is breaking out, how should we think about the seasonality of the full 12 months, you know, first quarter through fourth quarter, in terms of the seasonal strength and weakness of the group overall?

Hey, Jamie, it is Joe. I think the driver is not really seasonality in the movement of revenue from quarter to quarter. It is really more along an economic cycle or the size of specific jobs. So we will have some jobs that can be $10 million jobs. And that has a big impact on a quarterly basis if one of the companies has a $10 million job that is going to shift in a particular quarter.

So really what we see is if there is any seasonality it is swamped by the economic strength of the economy and just the size of orders and how they move and impact the quarters. Does that make sense?

Yes, absolutely. So in other words what you're saying is when you guys commented on the expected strength in the fourth quarter that was based on the specifics of what is in your backlog rather than broader seasonality. Okay, I got that.

Joe, you are on line from Europe. What is your sense of the attitude of your customers vis-a-vis the broader economy? Are people as nervous as they were over the summer or are people getting numb to the headlines?

I think people are certainly numb to the headlines. There is no doubt about that. I think recently with some of the actions of the European Central Bank, some of the movement we have seen from Germany in that regard, I think there is -- there has certainly been an easing of the concern that a lot of people have here. And I think there's a lot more confidence that the euro will stay intact and the European Union and the Eurozone will muddle through.

Still some long-term structural issues that need to be solved, but I think everyone has taken a little bit of a breather and feel like there has been some relief in the last several weeks. So I think the mood has improved. We saw a little tick up in the Purchasing Managers' Index in December. So I think it is not rocketing up, but I think certainly the mood has improved here in Europe.

Thank you all very much for your time.

(Operator Instructions). John McDonald, JHM Enterprises.

Good presentation, Ken and Cindy. Given the strategic importance of your non-casket business, and the very important announcement on the 23rd of Scott coming with you full time, it seems reasonable to me to look at the timetable of the K-Tron and subsequently Rotex acquisitions, and given that Scott and Joe looked at 700 companies and therefore this is a [ball in motion], do you have any comments as to your expected timetable for future acquisition and corporate development activities which could play a very important part, I think, or is it too early to ask the question?

What we do is make a practice of limiting our comments on acquisitions partly because a comment for could end up -- if we gave a hint that something is in the works it could end up not coming true and then people are disappointed and feel misled. Or if you get into the practice of commenting on it, or saying there is nothing, then when there is you have the implication there our lawyers tell us about announcing that.

But I will say that you could certainly -- we didn't entice Scott George here because he needed something new to do or because he wanted to move to a little town in Indiana. We are -- and I will also tell you that our efforts and the work that we're doing in talking to and evaluating lots of businesses around the world is certainly undiminished. And as soon as I know something you guys will know as well.

Very good. That is the right answer.

We have no more questions, so now I would like to turn the call back over to Chris Gordon for final comments.

Once again, thank you everyone for joining us today. We look forward to speaking with you again in May for next quarter's call. Have a great rest of the week.

That concludes today's conference. Thank you for your participation. You may now disconnect from the call.