Hillenbrand Inc (HI) 2015 Q2 法說會逐字稿

Welcome to Hillenbrand earnings teleconference for the second quarter of fiscal 2015. A replay of this call will be available until midnight Eastern Time, Tuesday, May 26, 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 9488-261. This webcast will be archived on the Company's website at www.hillenbrand.com through to June 12, 2015.

If you ask a question during today's call, 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 Mr. Joe Raver, Hillenbrand President and Chief Executive Officer. Mr. Raver, please go ahead.

Thank you, operator and good morning, everyone. We appreciate you joining us this morning to discuss Hillenbrand's results for the second quarter of fiscal 2015, which ended March 31. I'm joined in the prepared remarks portion of our call today by our CFO, Kristina Cerniglia. During the Q&A portion of our call, we will be joined by Kim Ryan, President of Batesville and Thomas Kehl, President of Coperion.

Prior to getting into our prepared remarks about the business, I'd like to briefly remind you that during this call we may use certain forward-looking statements that are subject to the Safe Harbor provisions of the Securities Laws. These statements are not guarantees of future performance and our actual results could vary materially.

Also during the course of this call, we will be discussing certain non-GAAP operating performance measures. I encourage you to take a look at our 10-Q, which can be found on our website, for a deeper discussion of forward-looking statements, the risk factors that could impact our actual results and more information on our use of non-GAAP operating measures and their reconciliation to GAAP financial measures.

Let me start out with a brief reminder of our overall strategy, which is to leverage the strong financial foundation of Batesville, acquire good businesses in growing markets and make them better through the application of the Hillenbrand Business System. We continue to execute on this strategy as we strive to become a world-class global diversified industrial Company.

We believe we're on the right path and it's showing up in our results. Batesville continues to provide solid, predictable results and cash flow. The industrial businesses we've acquired that form our Process Equipment Group have collectively improved margins as they've become more integrated within Hillenbrand. We're excited about the opportunity we have to build on that success as we now serve a number of large and growing end-markets around the world.

Now let me turn to results for the second quarter. I'll cover some of the highlights and then Kristina will provide a more detailed review later in the call. In the second quarter, we had strong operating results across the Company. As you saw in the release last night, consolidated revenue for the quarter increased 2% to $405 million and adjusted earnings per share was $0.49, about 17% higher than the prior year when normalized for one-time items. We delivered top line growth for the fourth consecutive quarter, despite continued headwinds from currency translations.

Additionally, we demonstrated continued success in reducing costs and taking advantage of the synergies we identified in our Process Equipment Group businesses. Once again, we were able to expand gross margins and adjusted EBITDA margins. That's a trend we've been very pleased with, especially over the past four quarters. Operating cash flow rebounded from the first quarter on the strength of our net income as well as improvements in our working capital and we expect to build on that performance over the next two quarters. Overall, our second quarter results were very positive.

To begin, I'd like to briefly comment on our most recent leadership change. Last month, we announced that Thomas Kehl, Hillenbrand's Senior Vice President and President of Coperion, will be leaving the Company at the end of this quarter. Thomas has been a key member of our team and he helped lead Coperion through a period of significant change. I want to take this opportunity to thank him for his contributions to both Coperion and Hillenbrand.

We wish Thomas well as he returns to private equity in a significant leadership role. Upon Thomas' departure, Kim Ryan will serve as President of Coperion until we've named a permanent replacement and Chris Trainor, Batesville's CFO, will step into the role of Batesville President during the interim. We're fortunate to have a strong team already in place and I'm confident we will continue to execute in each business without missing a beat.

Now I'll comment on segment performance. As you know, our strategy in the Process Equipment Group is to expand globally, penetrate underserved end-markets and grow the top and bottom lines by applying the Hillenbrand Business System. We're pleased with the results that we've delivered in recent quarters as we continue to execute that strategy and the second quarter was no exception.

Revenue increased $1 million or about 1% over prior year. The underlying growth was better than those numbers might seem to indicate, as revenue increased 12% when viewed in constant currency. That growth was accelerated on the bottom line as the Process Equipment Group gross margin improved by 140 basis points and adjusted EBITDA margin was up 350 basis points. We feel very good about that performance.

Order volume in the second quarter was relatively low in comparison to the record high level of a year ago. In our last call, we were somewhat cautious about expectations for orders in the short term. So while we would like to have seen more orders in the second quarter, we were not surprised by the results. One of the primary drivers of the lower order intake continues to be large project timing. With that said, I think it's important to clarify how our products and services fit within the portfolios of the customers we serve.

The majority of our revenue with the Process Equipment Group is associated with the plastics industry. We make extrusion and compounding equipment and materials handling systems used in the production of polyolefins, such as polyethylene and polypropylene and in the production of engineered plastics.

Often these projects, especially the polyolefin projects, can be quite large. Some our customers in this space are large, diversified companies that operate in the oil and gas space as well as the plastics and chemicals space. For the past few quarters, we've seen some caution from these customers as they've re-evaluated their overall capital spending budgets for new projects.

It now appears that decision making is returning to more normal time frames and we're seeing signs of momentum with some of our diversified customers, including receiving a significant order in the month of April that had been previously pushed out. To be clear, we remain bullish regarding the plastics market. The availability of low cost feedstock and the increasing use of engineered plastics in a variety of industries such as automotive, construction and packaging, bodes well for long-term demand.

Looking ahead to the second half of the year, the top line for the Process Equipment Group should be relatively flat on a constant currency basis. Lower orders for the quarter affected our backlog which declined 12% from the first quarter and finished at $520 million. Compared to the prior year, backlog is down 27%, or 17% on a constant currency basis. As we move through the back half of the year, we expect order volume to increase and backlog to begin to grow as the projects we are tracking move forward. As I said, we believe the pipeline is sound and we are optimistic as we look forward.

Now let me turn to the Batesville segment. Batesville had a strong revenue quarter with growth of 4% year over year or 5% on a constant currency basis. Growth was driven by higher volumes and we experienced a more severe flu season this year than last. This higher volume was offset to some degree by a lower average selling price. Gross margin was about 40% for the quarter which is in line with the prior year's level.

Batesville has consistently generated significant cash to support the execution of the Hillenbrand strategy. The Business operates with a relatively low investment in CapEx and the management team is very focused on managing working capital. Additionally, the team is constantly pursuing lean initiatives to eliminate waste and keep costs as low as possible. At this time, I'll turn the call over to Kristina for a more detailed discussion of results. Kristina?

Thank you, Joe. As we reported in our filings yesterday, consolidated revenue for the second quarter was $405 million. That was a 9% increase on a constant currency basis and still up 2% despite the ongoing headwinds from currency fluctuations. The Process Equipment Group grew 1% or 12% constant currency, driven by project volumes and Batesville contributed 4% growth, driven by increased burial volumes.

Adjusted gross margin for the quarter was 36.8% or 90 basis points higher than the prior year. The improved margin was again driven by the Process Equipment Group where we experienced an increase in average selling price for equipment and replacement parts as well as service. In addition, lean initiatives continue throughout the business.

As we move to the bottom line, you will recall from previous discussions that the second quarter of last year included approximately $11 million in one-time items such as a $5 million gain from our exercise of warrants related to Forethought, a Company that was acquired by a third-party last January, and a $3 million gain related to a payment received in connection with a cancellation of a service agreement with a customer at Batesville. Those one-time items caused our results to be unusually high and we've removed them from the comparison purposes to show a normalized perspective.

I will come back to this when we discuss guidance. We continue to target profitability improvements through the application of our Hillenbrand Business System across the business. We expect those efforts to help us grow earnings at an accelerated rate. When compared to normalized prior-year results, adjusted EBITDA of $66 million increased 12% and expanded 140 basis points this quarter. Adjusted net income of $31 million resulted in adjusted earnings per share of $0.49. That reflects normalized earnings growth of 17%.

Our adjusted effective tax rate for the quarter was 31.5%. That's 220 basis points higher than the prior year driven by a less favorable geographic mix of pre-tax income. We still anticipate our tax rate will be approximately 30% for the full year, which is in line with historical rates.

Operating cash flow was $10 million for the first half of the year, which was down $72 million from the prior year but rebounded from the $42 million cash outflow experienced in the first quarter. You may recall that last quarter included a significant use of working capital for large projects in our Process Equipment Group as well as payments of approximately $19 million related to a litigation settlement. We expect to see continued improvement in our cash flow over the next two quarters as more of the large Process Equipment Group projects are delivered.

During the quarter, we paid over $12 million of cash dividends. We also repurchased more than 80,000 shares of our common stock to offset dilution for a total cost of about $2.5 million.

Turning to the next slide, I will discuss segment performance beginning with the Process Equipment Group. The Process Equipment Group delivered $241 million of revenue in the second quarter, representing robust growth of 12% on a constant currency basis. Similar to last quarter, unfavorable currency translation especially the lower euro relative to the dollar, had a negative impact on the results as growth was mostly offset by an 11% negative currency impact.

The underlying growth was driven by the volume of capital projects as well as another strong quarter of equipment sales and replacement parts into the proppant market. As Joe mentioned, order backlog of $520 million declined 12% in the second quarter and finished 27% below the prior year. On a constant currency basis, backlog is down $121 million or 17% below prior year. As we move into the second half of the year, we anticipate that the pipeline we see will translate into increasing order volume and growing backlog.

Although the numbers are currently below our targets, it is not unusual for us to experience fluctuations in order volume and revenue, due to the general cyclicality of the market, especially as it relates to large systems and equipment. The Process Equipment Group adjusted gross margin grew 140 basis points to 34.4% and the adjusted EBITDA margin of 14.4% was a 350 basis point improvement over last year. We are very pleased with the ongoing EBITDA expansion which keeps us on pace to deliver on our goal for PEG of 100 basis points of EBITDA margin improvement for the year.

The year-over-year growth is expected to be more modest going forward. However, we continue to find opportunities to drive efficiency and reduce cost in these businesses. In our Batesville business, revenue for the quarter was $164 million, up about 4% from the prior year or 5% on a constant currency basis, in what is historically the largest quarter for the business. Burial volume was again higher year over year, helping to offset a decrease in average selling price, driven by product mix. Batesville delivered an adjusted gross margin of 40.2%, which is down 20 basis points from last year.

Turning to guidance, I want to revisit the discussion about the one-time items. You can see from the bridge the gains of approximately $13 million in 2014 are not expected to recur in the future. When we back out those gains, along with some discrete tax items that worked against us, we get to a normalized number of 2014 adjusted EPS of $1.98.

Using that normalized adjusted EPS base, our guidance range would yield approximately 3% to 9% earnings growth. We are maintaining our full-year outlook for fiscal 2015 with sales anticipated to grow 2% to 4% on a constant currency basis and earnings per share expected to be between $2.05 and $2.15 per share.

We are still forecasting revenue from Process Equipment Group to grow 4% to 6%. As we mentioned in our last call, we expected growth to be higher in the first half of the year. We are pleased by the year-to-date constant currency growth of 12% in the segment and, based on the timing of projects currently in the backlog, we see the back half of the year coming in relatively flat. Batesville is expected to deliver revenue in line with 2014.

When we set guidance our expectation was for FX to weigh down EPS by approximately $0.07 compared to 2014 rates. Given current foreign exchange rates, we now expect a more significant currency translation impact than initially forecasted. We are expecting further pressure on EPS in the range of $0.06 to $0.09 for the full year, depending on the movement of the currencies, especially the euro relative to the dollar, over the next two quarters.

On the other hand, our operational performance has been better than we had anticipated and we expect that we will partially offset the stronger headwinds from currency. With that in mind, we anticipate being in the lower end of the range.

Let me summarize by saying that we are pleased with the results we've delivered in the second quarter. The underlying revenue growth and operating performance within our businesses has met and in some areas exceeded our expectations. Although the timing of orders is difficult to predict in the short term, we remain confident in the strength of our order pipeline as we look a bit further out. We are as focused as ever on driving profitable growth by controlling our costs and improving our operating leverage. Now I'll turn the call back to Joe for his concluding remarks. Joe?

Thanks, Kristina. We're very pleased with our results for the second quarter and the first half of the fiscal year, especially the strong operating leverage we've generated in the face of significant currency headwinds. The path ahead is not without challenges but we are confident that we are executing well on a strategy that will allow us to continue to grow the business profitably and bring value to our customers as well as our shareholders.

That concludes our prepared remarks. For the Q&A session, we're joined by Thomas Kehl and Kim Ryan, who are both in Europe today. We're ready to take your questions. Operator, would you please open the lines.

(Operator Instructions) Your first question comes from Daniel Moore with CJS Securities. Please go ahead.

Joe, can you give us a sense of the size of the order that you took in April? Is it safe to assume that's in the core North American polyolefin market?

Sure. We don't talk about specific order sizes, typically, or specific customers, but our typical polyolefin line is in that $15 million to $20 million range. I think this project was a couple of lines. So that's the kind of size project that we booked in April.

Excellent. Then just a clarification and then I'll switch gears. I think you said expect Batesville to be flat for the year. Obviously given the strong casketed death trend, the strong flu season and we're up 2% to 3% year-over-year in the first of half. Is that a little bit conservative at this point?

That may be a little bit conservative. What happens -- we've got a lot of history in how the death year, deaths flow through the year. Interestingly, when you get a big flu season in the first half of the year, you tend to have a little bit lower back half of the year.

It sounds a little bit strange, but people who are frail and weak sort of the flu gets them a little bit earlier than normally would have. So the back half of the year tends of to be a little bit lower on a year-over-year basis when we have a strong flu season.

Okay. Understood. I'm sorry about jumping around here. But it appears that you've reached a new higher plateau in terms of margins in Process Equipment, very strong improvement year-over-year, year-to-date. Maybe just talk about some of the key drivers? How much room you see for additional improvement?

So, yes, thanks. This is our fourth quarter of really strong EBITDA percentage improvement, stronger than expectations, quite frankly. There's a number of drivers. I think as I've talked in the past, there are probably three buckets of drivers. One is part of our strategy in the Process Equipment Group is to focus on more profitable product lines.

So particularly at Coperion, we've seen them selling more profitable parts of their product line. These are the places where we create more value for customers. We've been focused on growing those parts of the business where we do have a more profitable product line where customers value what we do.

Secondly, we are constantly looking to take cost out from a lean perspective, not only at the gross margin line but also at the operating expense line. We do a number of projects. We've seen improvements -- some examples in procurement, lead time reductions. We've had some good OpEx improvement as well, so we've consolidated some locations and offices, those types of things.

First is good mix of products. Second is good cost control. Then third, in different parts of the organization we've really been focused on service and growing the service line and making those -- that line of our business more profitable. So it's not necessarily more service, although we do -- we have had good service revenues. It's also we've improved profitability on the service side as we focus there.

Lastly -- go ahead, I'm sorry.

Dan, I just also want to be clear that on the operating expense side, we do have a lot of operating expenses in Europe. So if you're looking on a year-over-year basis also, we do get some favorability from an operating expense perspective because we do have a significant number of people in Europe.

Understood. That's helpful. Then just maybe talk a little bit -- step back, talk a little bit globally about Process Equipment? A little deeper dive into demand trends both in terms of geography and by end market? You mentioned the oil prices. Are there other key factors or macro factors sort of impacting demand in the short term?

The story is pretty similar to the last quarter in the sense that Europe and Asia from a geographic perspective have been obviously more difficult environments. On the flip side, North America has been really strong for most of our businesses, stronger than expected as we came into the year.

So from a geographic split, that's what we've been seeing. Some of our businesses, we've actually seen some positive impact in China recently and an increase in activity. I think that's driven more by us than by the market there, though. So from a geographic perspective, it's kind of the same story.

So from an end market perspective, I think the biggest thing we talked about last time was, we do have some customers that have multiple product lines and are involved in oil and gas. When you think about, we're mostly plastics -- the majority is plastics on the Process Equipment Group side.

So we're not really in the oil and gas space in a big way. But those customers were re-evaluating their capital spend as they were evaluating their entire businesses.

We've seen some of that free up a little bit over the last quarter. So where there had been some cautiousness, I think we're seeing some of these larger diversified companies move forward, particularly on the plastics and petrochemical side of their business, because it's profitable. Demand is good and particularly in North America, the shale gas as a feedstock is still very economically viable and is a good -- is a very good long-term trend for these companies.

Then I guess just finally, we didn't -- as we foreshadowed last quarter, we didn't expect to book any really big orders this quarter as we saw some of those push out, but they were in the second quarter. But we expect to see more of that going forward as we track some of the larger orders. Again, it's around the world, but especially in North America.

Okay. Helpful. Appreciate it.

(Operator Instructions) Your next question comes from John Franzeb with Sidoti. Please go ahead.

Joe, just sticking with the whole Process business, given the magnitude of the drop-off in backlog, I was pleasantly surprised -- sticking with the guidance and the positive comments in your prepared remarks. Could you just flush out a little bit more detail, the benefits that you mentioned in more profitable product lines?

Also, is there any change in maybe more standardized equipment? Maybe the duration of the shipments are now shorter? A little bit more color there would be helpful.

Sure. Just let me take you back a year and just a reminder, if you remember our second quarter last year, we had a really big order intake quarter. Coperion booked some really large projects in the second quarter. You saw this big spike in backlog, big spike in order intake last year in the second quarter and that persisted.

We had a pretty good third quarter last year too, where we had some large projects. But that second quarter was really big. You've seen that flow through.

So we saw that at the very end of last year flow through. The first half of this year where on a constant currency basis, we're up double-digits in the Process Equipment Group. So that kind of sets the stage.

So as we move into this year, if you think about the back half of the year, about a third of our revenue is -- or 30% is service and parts and that remains consistent and strong and continues to grow. Then as we look at the back half of the year, we have to continue to book large projects, which as I mentioned earlier, we did book a large project in April. We continue to look to book some large projects.

But as you mentioned, we also need to book those shorter cycle pieces of equipment that tend to be non-systems but just pieces of equipment like feeders or a crusher, a separator. Those are reasonably good margins for us. They're relatively quick turns.

So as we look at the second half of the year, I don't see a big mix shift, to tell you the truth, that's a lot different than the first half of the year. We continue to focus on more profitable product lines, make the service business more profitable.

The trick for us in the second half is to book a couple of those large projects where we get POC accounting. Then to continue to see strengthening orders on the equipment side, where we have a little bit faster turn -- where we're turning those in a quarter or two as opposed to longer cycle projects.

Okay. And -- go ahead, you wanted to add something?

I'm not sure if I answered your question. I just wanted to check and make sure.

One more piece is, what are exactly the more profitable product lines in the business mix?

So we don't really break it out by product line. But -- so if you think about equipment is -- so service is profitable for us. There's no question that service is a profitable product line -- parts and services is a profitable product line, which is about a third of our business in terms of a business model.

Then really second would be pieces of equipment. So if we sell an individual piece of equipment, particularly if it's not inside a system. So it doesn't require a ton of engineering; right? It fits the customer's niche really well, that tends to be profitable.

Then as you get into some of the larger projects, they tend to be a bit less profitable because there's a lot of engineering involved. There's a lot of buyout involved. So what we've seen in the first half is less of those large projects with less buyout items where we don't make a lot of margin. So that's kind of how we think about the product lines and types of products in terms of profitability.

Okay. How much of your -- of process sales is service based? Or is that service and aftermarket's all one big bundle to you?

Yes, it's one big bundle. It differs by business. But we put service and parts together. It's about right at 30% of the revenue.

Okay. In your Q, you mentioned that in process you got price increases? Could you talk a little bit about that?

Yes, we've done some pricing work -- really, some pretty extensive pricing work to make sure that we're selling value and able to capture the price that's available to us where we create the most value. We've seen some nice improvements in pricing. It's not been across the board pricing.

It's been very specific to where we add the most value. We've seen that inside the Process Equipment Group. It's worked well thus far this year and is also a driver of that margin improvement that you see on a year-over-year basis.

Another positive, given I would think a tough competitive landscape, but you should be applauded for that. Lastly, on the SG&A line, how much of the SG&A improvement was currency related? Do you have a sense of that magnitude?

Boy, I'm looking at Kristina. I don't have that broken out. We can probably get you an answer here quickly or give you a call.

But generally, operating expenses have been pretty in control across the entire business. There's no question, we've seen some improvement because of the exchange rate, particularly the euro related to the dollar. That's an important one.

But I can't answer the question in detail. But we can get back to you.

We'll get back to you. We are seeing some favorable FX obviously in Europe, just because of our -- most of our costs in our Coperion business sit in Europe. We will get that answer back to you, John.

Okay. Just I guess lastly, I'll sneak this in. On the cash flow scenario, operating cash flow bounced back to roughly $50 million and change this quarter, versus the outflow last quarter.

It looks like your prioritizing it by reducing debt. Can you talk about your -- the M&A opportunity pipeline? Your thoughts about cash priorities? Can you just discuss that a little bit?

Sure. Let me take that in two buckets. First, I'll just talk about how we allocate capital and think about cash. As you know, we pay a dividend, about $50 million a year on an annual basis. So we fund that.

After that, really we look to -- we think our balance sheet's in pretty good shape. We look to do acquisitions. If we don't find an acquisition that meets our criteria, we will then use cash to pay down debt.

Then opportunistically, like you saw this quarter, we bought back some number of shares, not a lot of shares. We only really do that to offset dilution. Quite frankly, that's subordinated to an acquisition if we have an acquisition available.

So we're very active in the M&A market. We've probably seen more businesses in the last two quarters than we have in a long time.

We just don't have anything to announce right now. Of course, we won't announce anything until we have something. But we are very active. We're looking at a lot of businesses.

The environment remains what I'd call a seller's environment, multiples are high, PE firms are aggressive. There's still a lot of availability of inexpensive capital out there. So we want to remain disciplined, but also recognize that our strategy as a Company is to grow through acquisitions.

Okay. Thanks for taking my questions.

Yes. Thank you, John.

Your next question comes from Gary Farber with CL King. Please go ahead.

I tuned in a minute or two late, so I apologize if anything of this is a repeat. On the aftermarket business, can you just discuss any initiatives that you have underway to sort of increase your share of the aftermarket -- on the Process side?

Yes. So we've done a couple of things that we've talked about in the past. We reorganized or organized all of our businesses to ensure that the parts business is a business unit, because it's a different business model typically than selling larger systems or machines.

Quite frankly, sales reps are a lot more excited about selling a $5 million project or a $0.25 million machine than they are about an $80 part or a $500 part. So we have reorganized the business. That's given us a lot of benefit as we better understand the parts business, where our opportunities are.

We also use an 80/20 process where we segment our customers. We make sure we understand who our best customers are. We've done a lot of voice-of-customer work to ensure that we're serving those best customers as well as possible, continuing to tailor the offering to improve profitability, but also to improve service to the customers.

Then I think third, we do much better on the parts business in our home country. So for some of our product lines that originated in North America, we have great -- a really good share in the parts business in North America.

But even though we have historically sent a lot of products around the world, we haven't been as strong on the parts side in the rest of the world. So we've also focused on growing share in those markets, typically emerging markets, where we don't have as strong a presence.

The acquisition of Coperion really gave us a presence in many of those markets that we send equipment to. So we now have legal entities and people on the ground in places like China and Russia to improve our parts sales around the world. So those are probably the three biggest things that we've done from an initiative standpoint around the parts business.

Then also in your press release, you referenced the weaker sort of global economic uncertainty. I'm just wondering as you?ve moved through from sort of January to today, has that do you think affected the competitive market at all on the Process side?

It's always tougher when the world economy is more difficult. I think North America, the competitive environment is not significantly different than the last time we talked. I think Europe is pretty similar.

I would say it's probably a bit tougher in China in parts of our business as growth has slowed there and competitors get a little bit more aggressive. But the competitive environment is -- it's relatively, I would say, unchanged from what we have been seeing the last several quarters.

Your China exposure as a percentage of the whole Company would be how much?

China in the -- so as a percentage of the whole Company? Let me give you the Process Equipment Group. Historically, we were about a third, a third, a third, North America, Europe and Asia.

I don't know China specifically, but it's the bulk of Asia, although we do do business all over Asia. That may have shifted a bit more to North America as we've done some big projects.

So I would suggest that about 25% of our revenue in the Process Equipment Group is in Asia. The majority of that is in China. Now, I just need to do the math of two-thirds times 25%, would give you the overall total for the Company.

Is the competitive market there much more fragmented than it is in those other two territories?

It is. I think there's a couple of categories of market there. The big multi-nationals, both food companies and plastics companies, they tend to do global sourcing and have a global point of view. So we're competing against, in many cases, the exact same people we're competing against in Europe or the Middle East or North America in China or Asia in some of those bigger projects and bigger customers.

But as you get down to smaller customers, it gets much more fragmented, smaller pieces of equipment, less sophisticated pieces of equipment. It gets much more fragmented in China and Asia than it is in North America, for instance. So it's a little bit different environment depending on the type of project or job, but yes, overall it is much more fragmented in China.

Okay. Thanks. Then just one last one. Can you just repeat what you said earlier in the call regarding the April order that you got?

Yes, the point that I was trying to demonstrate or make on the April order is, in the last call, we demonstrated some caution around some of our larger projects because customers were re-evaluating their capital spending, not just in the plastics and petrochemicals industry, but across their entire portfolio, which for some of our customers includes oil and gas and energy. So what we saw in April is a relatively large order get booked in April that had been one of those orders that had pushed out because of some of that uncertainty.

So we're seeing a little bit more momentum in the marketplace and seeing customers with a little more certainty about how they're going to move forward. As we expect, the petrochemicals and the plastics industry, the dynamics are good for medium and long-term growth in these businesses with inexpensive feedstock prices, the substitution of plastic for other types of materials. So we remain bullish in the plastics market and we've seen that -- our customers with that same sentiment here in the last few months.

You said $10 million to $20 million a line and this had multiple lines? Does that mean you would have booked an order in excess of $50 million for this?

No, this had a couple of lines. This had two lines. So think less than $50 million.

Okay. All right. Thanks so much.

You're welcome.

(Operator Instructions) Your next question comes from Daniel Moore with CJS Securities. Please go ahead.

Just a couple of follow-ups. Kristina, I think I just wanted to clarify, the FX headwind that you see this year is the initial $0.07 plus another $0.06 to $0.09; is that correct?

That is correct, yes.

Got it. Then just looking at -- as we look out to 2016, I know the crystal ball gets fuzzier, obviously, but given the sort of soft patch in backlog here and the tough comps you'll have, is there -- can you fill backlog quickly enough to show positive growth in Process Equipment in early -- kind of the early stages of 2016? I realize there's a lot of moving parts.

You have quicker turn businesses. But how should we think about trends beyond perhaps the next two quarters?

Yes, I think you can look at trends. I think the plastics industry, which is as you know a large part of what we're involved in has really good underlying fundamentals. We've seen a lot of investment in North America. We expect that to continue.

I think in the past, we've said we expect that to peak around 2016 or so -- the revenues for that to peak around 2016 and into 2017. Then after that, we are a little bit faster turn, so it's hard to go out that far. The other thing to keep in mind, even though we have some long lead time projects and businesses, the timing of orders is really important to us on large projects because we use POC accounting.

So the timing of those bookings is pretty important. It's not like we book it and then we recognize all the revenue five quarters later when the entire project is completed. We begin to recognize the revenue relatively soon after we book it, typically.

So it's a little bit harder to go out too far because the timing of some of those larger orders which is a significant chunk of our business. It's lumpy. It can make the revenue a bit lumpy as well as you get past a few quarters.

Then -- appreciate it. Just switching gears one more time to Batesville. In the past, you've done an exceptional job of maintaining margins even in the face of occasional volume declines. If it's more mix than volume, is it more or less difficult to kind of hold the line on margins if customers are sort of -- are shifting to lower price points?

Dan, it's more difficult for us to hold the line on margins if mix deteriorates. Now, we see -- we have seen a mix down in the industry for over a decade.

This last couple of quarters, we saw a bit of an acceleration of that. We're not sure if that's a longer term trend or whether that will kind of bounce back. It's sometimes hard to tell during the flu season because there's a lot of volume flowing through and then it may come back to more normal levels which is really the expectation.

But because -- as you know, because we're a pretty high fixed cost business, both in the manufacturing but really also in the distribution, mix is an important issue because it costs the same to deliver that high end bronze casket as it does the low end 20-gauge non-sealing metal casket. So mix does have an impact on our profitability.

But again, we've seen the mix down over time. We've been adjusting to it over time. We continue to work to take cost out and get more efficient.

We saw just a little bit more than normal this quarter. Again, it's hard to tell when you have a big flu season whether that's a real trend or whether it will snap back to kind of normal levels of mix down as we move forward.

Lastly, maybe just another crack at or a different way to ask a question that was asked previously. Your balance sheet really has improved materially over the last couple of years and generated a ton of cash. I recognize that the strategy is to grow via acquisition.

But I think based on our math, you're probably down to 1 times net debt to EBITDA, maybe even below that by the end of this fiscal year. So why not consider buying back a little bit more stock with the shares trading at a very low multiple of what your cash earnings generation looks like?

From a debt to EBITDA multiple, I think we're -- (multiple speakers)

We were a little higher --

-- a little higher.

-- we were right around 2, Dan, right now.

Right. I know people calculate that a little bit differently in what they include, but we're right around 2. We really are working to do acquisitions. We like to do acquisitions.

As you know, we did buy some stock back in the first quarter of the year. We bought a little bit back here in the second quarter.

As we go through the summer months, we go through our strategy planning process, we always re-evaluate our capital allocation strategy. We really update it on a quarterly basis. But we take a hard look at it during the summer months as part of our strategy process.

So clearly, if we don't do an acquisition, we'll make different decisions. I don't think we're quite to that point yet, but we are evaluating that. We'll continue to evaluate that as we go forward.

Okay. Leverage ratio is kind of where we expect you to be in a couple of quarters, but appreciate the color.

Yes, okay. Thanks.

We have no more questions. So now I'd like to turn the call back over to Mr. Joe Raver for final comments.

Thank you very much. I want to just say thank you to everyone who joined us for the call today. We look forward to speaking to you again for our third-quarter earnings call in August. I just wish everyone a good rest of the day. Thanks.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.