Hillenbrand Inc (HI) 2014 Q1 法說會逐字稿

Good morning, everyone and welcome to Hillenbrand's earnings teleconference for the first fiscal quarter of 2014. A replay of this call will be available until midnight Eastern Time Wednesday, February 19, 2014 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 50525720. This webcast will be archived on the Company's website at www.hillenbrand.com through March 5, 2014. 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 the text or audio is not permitted without Hillenbrand's written consent. At this time, it's my pleasure to turn the conference over to Chris Gordon, Director of Investor Relations. Mr. Gordon, please go ahead.

Thank you, Stephanie, and good morning. Welcome to our earnings call for the first quarter of fiscal 2014 which ended on December 31. After the market closed yesterday, we issued our earnings press release and filed our 10-Q. Both of these documents are available on our website.

With me on today's call are Hillenbrand President and Chief Executive Officer Joe Raver and Chief Financial Officer Cindy Lucchese.

Some of the information you will hear today will consist of forward-looking statements within the Safe Harbor provisions of the securities laws. These statements are not guarantees of future performance, and our actual results could differ materially from what is presented in any forward-looking statements. Please see our latest form 10-Q filed with the SEC for a more in-depth discussion of forward-looking statements and the risks and other factors that could affect them.

During the course of this call, we will be discussing certain non-GAAP operating performance measures. For more information on the use of those measures and the reconciliation to GAAP financial measures. We refer you to our earnings press release in our form 10-Q on the Investor Relations tab of our website at www.hillenbrand.com.

Now let me provide some information regarding our call. We've scheduled one hour and we'll start with prepared remarks from Joe and Cindy that should last approximately 20 minutes. Joe will start with an overview of the business, and Cindy will follow with financial results. Then Joe will wrap up the prepared portion of the call with some closing comments. After that, we'll move directly to Q&A where we'll be joined by Batesville president Kim Ryan and Coperion president Thomas Kehl. As they are both phoning in from outside the country, you may notice some audio quality differences in their phone lines.

If you have follow-up questions after the call is ended, please feel free to call me at 812-931-0551 or e-mail me at chris.gordon@hillenbrand.com. Now it's my pleasure to turn the call over to Joe Raver, Hillenbrand's President and Chief Executive Officer. Joe?

Thanks, Chris. Good morning, everyone, and thank you very much for joining us today. As many of you know, when we became a public company nearly six years ago, we created a straightforward strategy to leverage our strong financial foundation and our exportable core competencies to acquire good businesses in growing markets and make them better. Through our acquisitions, we've transformed Hillenbrand into a global diversified industrial company with businesses in new areas that have attractive growth opportunities. We've worked with our acquired businesses to accelerate their growth through entry into new markets, expansion into new geographies, and serving new customer segments. And we are as excited as ever about the future earnings and cash generation potential of Hillenbrand.

We remain focused on leveraging our strong core competencies, Lean, talent development and strategy management to accelerate the top and bottom line growth of our acquired companies. Our balance sheet remains strong, and our cash generation capabilities continue to improve. Most importantly, I'm confident that the initiatives we have underway will yield even greater results in the future, providing attractive sustainable returns for our shareholders.

I'd like to spend a few minutes updating you on the strategy, performance, and results of the Process Equipment group. As I said before, we believe our competitive advantage in this segment is our ability to use industry leading applications expertise, along with core technologies, to improve mission-critical processes for our customers. The industries we serve -- engineered plastics, energy, processed food, minerals, and chemicals -- are not only diversified, but we believe have attractive near- and long-term growth prospects, as they are geared toward responding to the needs of an increasing world population and, more importantly, a growing global middle class.

Our strategy for the Process Equipment group is to expand globally, penetrate underserved end markets, and grow on the top and bottom line through the application of Lean in all aspects of our business. We believe the acquisition of Coperion accelerates the strategy by enabling rapid low-cost expansion of our non-Coperion product lines into new geographies using Coperion's worldwide network of manufacturing plants, service facilities, and sales and engineering offices.

We've owned Coperion for a little over a year now and made significant progress integrating the Company. Key corporate areas such as financial reporting, tax, treasury, internal controls, legal, and human resources have transitioned effectively, and are operating smoothly. Significantly, Lean training began shortly after the acquisition and continues to this day. Thus far Coperion is focused on projects that improve efficiencies and eliminate waste both in the office and on the shop floor. We're very pleased with the improvements we have seen, and are excited about substantial improvements we expect to see through the application of Lean in the future. We have made good progress in our geographic expansion efforts about leveraging Coperion's global footprint to accelerate our Process Equipment group operations, particularly in India, China, and Russia.

We've been pleasantly surprised at the penetration we received in getting K-Tron feeders into Coperion systems. The customer acceptance rate thus far has been above our initial expectations. We made process with leveraging our presence in the US to increase Coperion's sales and look forward to seeing the positive results we expect as this initiative continues to develop. And finally, we have fully combined Coperion and K-Tron with a new organizational structure under President Thomas Kehl. Most of the integration work is behind us, and the execution phase is under way.

Going forward I will focus my comments on the initiatives that will drive our top and bottom line results. Chief among these will be our initiative to improve Coperion's margins through the application of Lean.

Let me now turn to the results for the process equipment group. Revenue increased almost 60% this quarter, due primarily to the acquisition of Coperion last December. And we are encouraged that backlog continues to grow. It reached $611 million at the end of the quarter, that's a 1% sequential increase from last quarter. Looking forward, we are encouraged by the significant interest that in the polyolefin industry in North America, which is driven by the availability of inexpensive natural gas. The companies that are building these projects have been customers of ours for decades, and we're confident that we'll win our fair share of the projects.

Our non-Coperion product lines is facing headwinds this quarter in a couple of key areas. This resulted in a 9% decrease year-over-year revenue due to reduced demand for small systems and equipment serving end markets, principally chemicals and engineered plastics.

On the positive side, we've seen a gradual increase in quote activity in the past several months, particularly related to smaller systems and investments in new polyolefin production facilities tied to lower-cost raw materials. We remain optimistic about our non-Coperion product lines for 2014, and continue to expect attractive mid-single-digit revenue growth for the full year. In the long term, growth prospects remain very attractive against the entire Process Equipment group as the industries they serve are critical to a growing population and expanding middle class.

Let me now turn to the Batesville business. Batesville continues to leverage its industry-leading position as advanced expertise in Lean to support the Company with cash, earnings, and talent for our continued growth. As many of you may already know from publicly available statistics, the burial rate in North America was down this quarter, primarily due to a decrease in the number of deaths and an increase in the rate at which families choose cremation. As a result, Batesville's revenue decreased 6% compared to last year.

Although we can't control the number of deaths in a quarter, we can control our productivity. Despite lower volumes, Batesville improved their adjusted gross margin 30 basis points this quarter by relentlessly pursuing Lean initiatives over the past few years to improve both manufacturing and supply chain efficiencies. This is a business that requires very low capital investment, and manages its working capital very well. The success of Batesville management team allows it to consistently generate significant cash to support the execution of our strategy.

In the second quarter we expect Batesville's performance to be lower on a year-over-year basis, driven by a declining burial rate and a large second quarter for Batesville last year. While the second quarter is historically Batesville's largest quarter, year-over-year performance can vary significantly depending on the severity of the flu. Although flu season here in North America has been active so far this year, it's affected primarily the younger population, and therefore led to fewer deaths. This is in contrast to last year when North America experienced the significant spike in death due to the flu. In fact, we believe January of last year was one of, if not the, largest death months on record. It's important to note that this expected decrease in the second quarter is reflected in our guidance for 2014.

As I've said before, the longer-term trends for Batesville show that healthcare continues to improve and people are living longer. The demographics of aging generation of baby boomers are expected to be a positive factor in the near future, however it continues to be impossible to predict with any measure of certainty what's in store for the North American death rate. As the death care industry continues to evolve, Batesville will continue its implementation of Lean and aggressively right-size the organization, while staying flexible to meet customers' changing needs. Through these efforts, we expect Batesville to continue to generate strong cash flow and solid financial results for Hillenbrand.

Now I'll turn the call over to Cindy Lucchese, our CFO. Cindy?

Thank you, Joe. I'll start by giving a review of our performance for the quarter.

Revenue grew 26% year-over-year to $385 million, and nearly two-thirds, or $242 million, came from the Process Equipment group, and $143 million was generated by Batesville. We saw growth at the bottom line as well, with adjusted EBITDA growing 4% to $53 million.

Now, the 26% revenue growth was driven by a strong 58% revenue increase in the process equipment group. This growth was due to the addition of Coperion since this quarter has a full three months of Coperion operation and we only had one month in last year's results for the same quarter. Revenue in the non-Coperion process equipment group declined about 9%, primarily due to softer demand for small systems and equipment in certain end markets, mainly engineered chemicals and engineered plastics.

Now, it's important to reiterate what Joe said earlier. Given our visibility into backlog, we still expect this portion of our business to grow in the middle single-digits for the full year. Performance for these product lines is lumpy, as we've discussed on many past calls, so it's typical to see some small quarters followed by large quarters, depending on when large orders are completed and shipped.

And while we're on the topic of the non-Coperion portion of our business, I want to remind you that we won't be sharing specific results for this group going forward. Our practice has been to be as transparent as we can about organic growth when acquisitions cloud underlying results. Now that we've owned Coperion for more than a year, future results will reflect true underlying growth on a comparative basis. We will, of course, provide pertinent information about the drivers of performance within our Process Equipment group such as markets, geographies, and product lines.

And during our last earnings call, we shared with you that we expected process equipment group revenue to be the lowest in the first quarter of this year and the highest in the fourth quarter, and I want to confirm that that is still our expectation.

Now turning to Batesville, Batesville's revenue for the quarter was $143 million, down about 6% from the prior year, or 5% on a constant-currency basis. And this was due to a couple of factors -- lower burial volume and an increase in customers buying ahead of price increases at the end of 2013. And I also want to give you a little color on expected second quarter performance for Batesville. Q2 is historically their largest and we expect that to be the case again this year. However, given the very high revenue quarter Batesville had last year, when the number of deaths was the highest it has been in over 30 years, we naturally anticipate a year-over-year volume decrease in the second quarter, and it should be somewhat similar to that in the first.

Turning to gross margin, our gross margin dollars increased by over $20 million or approximately $18 million on an adjusted basis, and as a percentage of revenue, gross margin was 34%, down about 200 basis points from last year on a GAAP basis and 300 basis points on an adjusted basis. While Batesville's adjusted gross margin was up about 30 basis points to 39%, the process equipment group adjusted gross margin moved from about 36% last year to 31% this year.

Now, as we discussed with you in the past, we expected this shift as Coperion helps us to deliver higher gross margin dollars but at a lower gross margin ratio. And in addition, because this is Coperion's lowest revenue quarter of the year, lower volumes also impacted the percentage.

Our adjusted effective tax rate this quarter was 29.3% compared to 27.9% in the prior year. The increase was largely due to a prior-year tax benefit related to changes in California tax law. Operating cash flow more than doubled in the first quarter to $46 million. The increase was due to lower working capital levels, primarily in the Process Equipment group, as well as two additional months of earnings from Coperion operation.

During the quarter, we returned over $12 million to Hillenbrand shareholders in the form of quarterly dividends.

Turning to bottom line results for the quarter, net income increased 42% to $20 million, with earnings per share of $0.32. The increase was driven by lower acquisition and integration costs related to Coperion in the current year. Now, on an adjusted basis, net income decreased 15%, to $22 million with earnings per share of $0.34. The decrease was largely due to lower volume at Batesville.

Adjusted EBITDA is an important measure we use to monitor our ongoing operating performance, since it removes the impact of amortization and interest which naturally results from our acquisition strategy. And this quarter, adjusted EBITDA increased 4% to $53 million. Now, adjusted EBITDA is a percentage of revenue for Hillenbrand overall was about 14% versus 17% last year. The decrease was expected and results from Coperion's business model, as I discussed earlier. Our overall adjusted EBITDA percentage is expected to increase over time as the integration of Coperion continues and Lean becomes fully implemented.

Now turning to guidance, we are reaffirming our full-year 2014 guidance. We continue to expect revenue of approximately $1.7 billion for the year and given current exchange rates, a minimal translation impact to revenue when compared to 2013. And as we shared with you in November, adjusted EPS is expected to range from $2 to $2.10. Now, note that this includes roughly $13 million of amortization expense related to Coperion, and about $30 million of the amortization expense for Hillenbrand overall.

As we discussed in our last call, the fourth quarter is expected to be significantly larger than our other quarters with about 26% to 27% of the revenue and about 30% to 32% of the earnings per share coming in Q4. We discussed in our 10-Q that we filed yesterday that we will have a $5 million investment gain in the second quarter. The gain is from our exercise of warranties related Forethought, a company that was recently acquired by a third party. The gain was expected at the time we established guidance and is included in our estimated earnings range.

And since this is my last earnings call with Hillenbrand, I wanted to take a moment to say it's been fantastic being a part of the incredible transformation of the Company, and one of the best parts has been the opportunity to work with our investors and analysts. It's been an honor and a privilege getting to know you, and I'll certainly miss our interactions. So thank you for your support and friendship over the years, and I do hope our paths cross again in the future.

Now I'll turn the call back to Joe for his concluding remarks. Joe?

Thanks, Cindy. As a key part of the management team that's developed and executed our company's transformation plan, I've been a big supporter and believer in our strategy. In the five months that I've been CEO, I've had had the opportunity to work closely with a variety of our stake holders, including the management team, customers, investors, analysts, and bankers, and I must say I'm even more excited and enthusiastic than I was before for the opportunities ahead for Hillenbrand.

We are focused on attractive markets with multiple pathways for growth, driven by the long-term megatrends of a growing global population and expanding middle class. We expect our core competencies of Lean, talent development and strategy development to drive even greater growth on the bottom line, and there are a number of interesting acquisition candidates that could help accelerate our growth.

As Cindy mentioned, this is her last earnings telephone conference with Hillenbrand. On behalf of the entire company, I'd like to thank her for all she's done to create a public company that truly transformed itself, from a $600 million North American casket manufacturer to a $1.6 billion global diversified industrial company. Cindy has a passion for the Company and has influenced everyone who worked with her. Thank you, Cindy for your efforts on behalf of the Company.

That concludes our prepared remarks. For today's Q&A session we're joined by Batesville president Kim Ryan and Coperion president Thomas Kehl. We're ready to take your questions. Stephanie, would you please open the lines?

Thank you. (Operator Instructions). We'll take our first question from Daniel Moore with CJS Securities. Your line is open.

Good morning, and thank you for taking the questions. First off, just want to do say, Cindy, thank you very much for all of your help over the last two years. It's been a pleasure and I wish you the best of luck.

Thank you.

I'm wondering if you could update us on the progress in many of the polyolefin projects in North America, Joe, are many or most still on schedule? What's the pricing environment like? And when should we expect to hear more about potential awards and maybe think about when the timing of when these might start to begin contributing more meaningfully for revenue beyond the initial project you were awarded last year?

Hi, Dan. So we still remain very positive about the capital expenditures that are in process here, North America, based on the lower priced natural gas. We -- the projects have pushed out a little bit in terms of the timing of the orders. However, we've checked with our customers and in the industry. We don't see any structural issues, no big permitting issues, no big capital issues for customers, so the projects are continuing to move forward.

We expect it start to see some of these orders close in the next couple of quarters. And so again we remain very positive about what's happening in North America, continue to expect to win our fair share, and no big changes in terms of pricing expectations with a competitive environments at this time.

So again, a very positive story, I think, still in North America, and we expect over the next couple quarters to start to see some of these -- some of these relatively large projects close.

Very good. And perhaps in the non-Coperion, K-Tron and Rotex, mid-single-digit growth for the full year implies, obviously, significant pick up at H2 in terms of growth. What gives you the confidence there? What are some of the key end markets that you see visibility to improve growth in the back half of the year?

Well, as you -- I think as you're aware, last year the markets were relatively flat, and so we've seen an increase in quotes over the last couple of quarters, we've seen an increase in bookings over the last couple of quarters, and so we're pleased the backlog continues to grow. The small systems where we had -- you know, we do a number of subsystems. We hadn't seen much demand for those in 2013, particularly the first two or three quarters in 2013. We're starting to see interest in those pick back up.

So I think we're seeing good demand in the plastics industry, solid demand in the parts, particularly spare parts, and coal power, and coal mining. The potash industry is a little bit frozen right now, but we continue to see good order activity there so we remain positive for the last three quarters of the year on the non-Coperion businesses.

Okay. And lastly, up till this point, the strategy has certainly been to utilize the strong cash generation to pay down debt from the acquisitions that you've made. Given the opportunity that you see ahead, and given the stock trading at about 11 times our estimates cash/earnings for this year, have you given thoughts taking some of that cash flow and perhaps buying back shares or returning cash to shareholders a little earlier than you might have thought previously?

Well, we certainly always consider that and we constantly evaluate the best way to use our cash flows. You know, I think as you saw, we've been paying down debt with cash flows that we've been generating here recently. We'd like to continue to pay our debt down to maintain a strong balance sheet. But certainly, always consider the possibility of share buybacks to return cash to the shareholders. And so we'll continue to evaluate that as we move forward, but we feel good about right now about our cash flow and really are focusing on bringing debt down but also always considering the possibility of buying shares back.

Appreciate it. Cindy, I apologize for cutting you off. Thanks once again and I'll jump back in the queue.

Thank you, Dan.

Thanks, Dan.

Our next question comes from John Franzreb with Sidoti. Your line is open.

Cindy, good luck on your future endeavors.

Thank you.

Joe, just to backtrack on your answer to the previous question, the legacy business was down 9%, but you cited in the Q that one of the reasons that plastics is down but you also just said that's one of the growth drivers going forward. Can you kind of reconcile those comments, what we are seeing in the last quarter and what you expect going forward?

Yeah. Sure. So you -- there's a couple of things. There's quotations at the very start of the process, then it turns into bookings, and then it turns into revenue. We saw a little bit of softness in the compounding business, plastics business in 2013. We've seen activity pick up there, so it's increased quotes and increased bookings coming into 2014. So we do expect some solid growth in that part of our business through 2014. And again, that's driven by increased consumer demand, things like housing and automotive and some of those types of things that are growing around the world as well as in the US.

Now, Joe, are these smaller systems orders, are they part of the backlog, or is it kind of quotation activity that you have a feel for going forward?

So the -- if we book the order, it becomes part of our backlog. The smaller systems typically have a two-quarter kind of lead time so they go from order to revenue in two or three quarters. Think about the larger systems that Coperion does more in the four to five quarter timeframe from the time of booking until the time the equipment is delivered. So they have a little bit shorter lead time. Many times their subsystems are part of a larger system maybe a refill system or something that's part of a larger system and may be more towards the end of the project.

Okay. Okay. Great. And given some of the restructurings that you've already executed at Coperion, can you give us a sense of what your gross margin target for process would be? Let's call it two or three years down the line?

Sure. We're right now kind of in the mid to high 20s in terms of gross margin in the Process Equipment group on a go-forward -- well, I should say I'm sorry Coperion and K-Tron it's a bit higher than that across the entire group, in the low 30s right now. We expect that margin to increase. And we've looked at from an EBITDA margin perspective, we're expecting in the Process Equipment group EBITDA margins to grow about a hundred basis points a year over the next few years, and so a good portion of that is that the gross margin -- at the gross margin line. But we certainly expect gross margins to improve as we go forward, particularly as it relates to our efforts on the Lean front to increase efficiencies in those businesses.

Okay. Great. Just on Batesville, down revenue is no surprise. Up margin, gross margin, was actually not a surprise either. You've talked about productivity improvements for quite some time. I'm wondering if there's any benefit on mix at all. I know you've been trying to upsell on different product lines and also improve some of the services side have you seen traction on that front, or is that something that has not panned out has you hoped?

You know, mix has been for at least a decade probably longer, mix has kind of been trending down across the industry. It's moderated somewhat in the past quarter we had mix was slightly down when you kind of do a price volume mix analysis, mix was slightly down in the quarter, but it's leveled out a little bit compared to the pace it was dropping in the previous years.

So we continue those efforts. It's a constant battle to keep mix up in an industry that's trending down on a natural basis, but we continue to try to innovate products, particularly above our average price point to make sure that mix stays strong in the business.

Okay. Thank you very much, and good luck again Cindy.

Thank you.

Our next question comes from Clint Fendley with NewBridge Group. Your line is open.

Thank you. Good morning Joe, Cindy, Kim, and Chris.

Hi, Clint.

Hey, Clint.

Hey guys. I guess first of obviously best wishes to you Cindy. It's been great working with you the last five years and all the best to you and your family.

Well, thank you, Clint.

I think it's probably a Kim question here, first off. I am wondering just over the longer term at Batesville how you guys are thinking about your capacity. I guess in light of a market that has continued to show slight declines, is there an opportunity to continue to shift more of your work to other plants, possibly Tennessee or other locations?

Hi, Clint, it's Kim. Hopefully you can hear me. I am calling from out of country, so hopefully I am coming in clear.

As it pertains to capacity for whether it's our service footprints or our manufacturing footprint, that's constantly analyzed, and we do have a long-term game plan that we play out and we've mapped out key trends that we see on a macro basis and then also what we are seeing in terms of product mix from year-to-year we've mapped that out. And basically we have a long-term for what we need to do to rationalize different pieces of our capacity and we continually do that.

So for instance once in a while you will see step changes that we did when took a shift out of Batesville a year ago now. But we know what the long-term plan is both for service and for manufacturing in order to be targeting these 40% margins that we are aiming for to be able to maintain that over the long term.

Okay. Fair enough. And I guess secondly probably for you, Cindy, I am wondering would the $5 million gain that's expected next quarter from Forethought shown as -- do you expect to show that as a non-recurring item, or is that something that's included in your guidance?

Yes, Clint that is included in our guidance. And I'll remind you, we have had a number of ups and downs with the limited partnership and other investments that we got as part of the spin from our former parent. And what our practice has been is we include any of those earnings in our regular ongoing earnings and we have not adjusted those out. And this Forethought warrant is one of those items.

Okay. Fair enough. That's all I have, I'll get back in the queue. Thank you guys.

Thanks, Clint.

Thank you.

(Operator Instructions). Our next question comes from Gary Farber with CL King. Your line is now open.

Yes. Hi, good morning. And thanks again Cindy for all your help. I just had a few questions. One was just on the environment for acquisitions going forward. Can you sort of tell us how the pipeline looks like, how you are thinking about it?

Sure. This is Joe, Gary. It's an interesting transition, I'll just take you back four or five years ago when we first did the spin and become a public company. Particularly in the industrial space, when we would contact companies about acquisition to be part of our process, they sort of scratched their heads and said, "What are these guys doing?" You fast forward a few years later we have a very strong pipeline and we get a phone call if somebody is interested in selling the business or creating some sort of partnership, we tend to get a phone call.

A couple of years ago we also hired Scott George as our Vice President of Business, of M&A and Corporate Development. He has got a vast network of bankers around the world as well as industry connections. So we really have seen a very robust pipeline of acquisition candidates really of all sizes, kind of large businesses, medium businesses, small businesses.

Right now the environment is such that sellers tend to want the higher multiples than what buyers tend to want to pay, and so we are seeing a little bit of that in the marketplace. But we have an active acquisition program. We actively are looking at businesses, and it's unlikely that you will see us to do anything significant in the near-term, based on us wanting to pay debt down, also the Coperion and the K-Tron businesses are very busy on their own integration and continuing to come together, we are active and have a very strong pipeline right now.

Okay. And another question was you merged K-Tron and Coperion pretty recently. Can you give us any updates on how that's going?

Sure. I think it was one of things as we look at these businesses, we knew that these businesses were closely aligned in terms of end markets and geographies and customers. I think on the corporate side we were a bit surprised at how aligned these businesses are, and really how tightly they work together and servicing end markets and customers. And so it really made a lot of sense.

There is not a lot of duplication in terms of product line. Historically K-Tron is very much a feeders, and pneumatic conveying company. Their pneumatic conveying tended to be smaller systems, so think about the -- one way to think about it is a diameter of a pipe, and so they tended to do pipes that were just let's just say small, so six inches or less. Coperion tended to do projects with pipes that are big, 8 inches or larger, and so it's a very nice complementary fit really across the board.

Thomas Kehl was named the leader of that combined group. He has brought the management teams together. So he now operates with a single management team. We've made some brand transition, and customers have responded very well to the combination of Coperion and K-Tron.

So it's going quite well. We feel really good about the activities that have taken place so far and both of the companies have strong brands. And so it was really nice for the K-Tron people who have a great brand, to be associated with Coperion, which also has a very strong brand in the industry. So we're very happy with what's going on right now.

Right. And what -- a question on Batesville, you touched on Batesville sort of having or being down also in the second quarter. Are you referring to sort of the growth rate or more just the absolute dollar amount is going to be similar in the second quarter?

It was the year-over-year.

We look at the year-over-year -- so we really look at the Batesville business because there is some seasonality associated with it on a year-over-year basis. And the second quarter is typically the largest quarter for the Batesville business, primarily because it's when the most deaths happen due to flu. And as we said in our prepared remarks and as you can see publicly, the flu, while there is an active flu season, the strain of flu that is in the market or I should say in the US, in the North American geography right now is a flu that doesn't have a ton of mortality associated with it.

And so last year we had a flu that had a lot of mortality and we saw a big spike in deaths. Thus far this year we have not seen that same big spike in deaths that we saw last year. It's a more typical kind of flu season this year.

So on a year-over-year, quarter-over-quarter comparison now we can't -- if it changed tomorrow, we can't predict the future, but thus far we've seen a relatively modest flu season compared to last year.

Right, okay so it's my interpretation it's going to be down year-over-year, the growth rate being down. It was down somewhat 6% in the first quarter, it could be down less than that in second quarter, could be down similar, is that a fair way to look at it?

Yes, I think that's a fair way to look at it.

Yes.

Okay. And then just wanted two more, just on the backlog, can you just sort of give a sense of the backlog was up slightly, is there any way to get a sense of like what the inbound was in the quarter, sort of what you ran off, even if we can't get into details, just to give some kind of direction to sort of understand what's underpinning, what's in that backlog?

Sure. So in the backlog I think the way to think about our backlog on a sequential basis is, it's up slightly. We didn't see any major shifts on a sequential basis from product line to product line or business to business. And so it's relatively across the board increase in backlog, so pretty stable backlog. We didn't have any really large, super large projects closed in this past quarter. So there wasn't a big impact of any $50 million projects or anything like that closing.

So I think what it says is the base business is in pretty good shape, and we expect the backlog to grow as the year goes on. The challenge with backlog looking forward is we do have a number of large projects, particularly as it relates to the polyolefin plant, that the timing is uncertain and they can move -- they can be $30 million, $40 million, $50 million projects, and so they can move around a little bit on us and have a big impact on backlog. But generally pretty stable across the board, and we expect continue to increase as the year goes on.

But you would say even given those variables, you think your current guidance encompasses that?

Yes. Yes it does.

Right, okay. I think that's all I have for now, but thank you.

Thank you.

Thank you.

Our next question comes from Daniel Moore with CJS Securities. Your line is open.

Thank you again. We've talked a lot about the opportunities in North America. I'm hearing a lot more nervousness in mix manufacturing data out of China. What are you seeing at Coperion in that key market, what are your expectations for growth may be a potential contraction over the coming years or I should say over the coming year or two?

Yes, this is Tom.

This will be a great question for Thomas to answer. Go ahead Thomas. Sorry to interrupting.

The market in China has been growing at a significantly high rate year-over-year, the last year. And currently we do see somewhat a slowdown in that growth. However the market is still growing, and the reason you are seeing for that is the automotive industry was booming and it's now going back to a more normal growth, but it still grows bigger than other regions in that respect. Also that the government in China is controlling the credit lines and the financing opportunities for our customers, and that causes somewhat a delay, but we still do see growth and we are confident that we are returning back to the growth rates that we have seen for many years.

Okay, very good. And then Joe, you mentioned 100 basis points of sort of margin EBITDA margin uplift per year would be a goal to think about. Was that Coperion-specific or the overall Process Equipment Group?

That's across the Process Equipment Group. And just to put it into perspective, I mean we really expect and really are seeing margin improvement across the group on a year-over-year basis. So it's really across the group.

But as you know, I mean Coperion, breaking out the Coperion/K-Tron sort of combined business is really the vast majority of that Process Equipment group, it's the biggest chunk. But we do expect to see margin improvement across all the businesses inside the Process Equipment Group In this fiscal year.

That's great. And lastly, I can back into it, but what was organic growth at Coperion in the quarter? I know this is the last time you are breaking them out.

Yes, so organic growth at Coperion -- I will remind you from the last call that this quarter was substantially lower than the quarter a year ago because the quarter a year ago was actually a year-end quarter and the year-end, that's where we see the big push due to hitting plan and bonus plans et cetera. So they were down in the low single-digits, call it 10% or something, 10% to 12% in the quarter but it was largely due to the fact that we are comparing an apple to an orange here in terms of quarters.

Right, and so Dan just a little more color on that, what you will see in our second quarter which was there last year, so because the end the year, so we had a relatively low second quarter last year, so you will see more year-over-year growth in our second quarter this year because that was their first quarter last year, their historical first quarter.

Understood, so it's a shift in time for Coperion.

Does that make sense?

It does, it does. Obviously there is a push for orders in that last quarter that didn't take place this year.

That's right, and let me just add real quickly Dan, that as we said I will reiterate that we expect a nice mid-single digit organic growth rate for Coperion for the year.

Yes.

Okay. Thank you once again.

Thanks, Dan.

(Operator Instructions). Our next question comes from John Franzreb with Sidoti. Your line is open.

Yes, Cindy, couple of quick questions before you ride off into the sunset. The $5 million one-time gain, that's $5 million is a pretax number?

Yes, that's pretax.

Okay, what is your depreciation and amortization and expectations for this year, and also your CapEx budget?

Okay, so depreciation and amortization should be roughly $30 million each. So $60 million in total, $30 million each.

Okay.

When it comes to CapEx, we spent somewhere in the neighborhood of $30 million last year. We expect to spend a little bit more this year. We talked about using 2% of revenue as a good guide, but I would say somewhere little bit north of $30 million, but not a lot.

Any meaningful projects there?

There are no meaningful projects in there, a lot of that is just more or less maintenance CapEx.

All right, thanks a lot Cindy.

You're welcome.

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

Once again, thank you everyone for joining us today. I would like to remind you that our annual shareholders meeting is scheduled for Wednesday, February 26th at 10 AM. And our next quarterly earnings call will be in May, when we will discuss our results for the second quarter of fiscal 2014. Have a good rest of the day, everyone.

Thank you, ladies and gentlemen. That does conclude today's conference. You may all disconnect and have a wonderful day.