Matthews International Corp (MATW) 2009 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the third quarter financial results conference call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Instructions will be given at that time. (Operator Instructions) As a reminder, this conference is being recorded.

I would like to turn the conference over to Steve Nicola, Chief Financial Officer, of Matthews. Please go ahead.

Thank you, Linda, good morning. I'm Steve Nicola, on the call with me today is Joe Bartolacci, President and CEO, of Matthews. Today's conference call has been set up for one hour, and we are conducting the call to comply with the Securities and Exchange Commission regulation FD. This call will be available for replay at approximately 1:30 p.m. today. To access the replay, dial 1-320-365-3844 and enter the access code 106407. The replay will be available until 11:59 p.m. August 6th, 2009. We have posted on our Web site, which is www.matw.com the third quarters earnings release and financial information we will discuss this morning. In the left column of our home page under Investor Relations you can click on Investor News to access the earnings release or click on reports to access the quarterly financial data. The financial data is presented under the heading preliminary quarterly reports in a PDF file format.

Before beginning the discussion, at the advice of our legal counsel, I have been advised to read the following disclaimer as it pertains to forward-looking statement. Any forward-looking statements in connection with this discussion are being made pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks and uncertainties that may cause the Company's actual results and future periods to be materially different from Management's expectations. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove correct. Factors that could cause the Company's results to differ from those discussed today are set forth in the Company's annual report on Form 10-K and other periodic filings with the SEC. In addition, please note that the balance sheet and income statement information provided today are preliminary data. Since our quarterly report on Form 10-Q for the period ended June 30, 2009, will not be filed with the SEC until approximately August 7, 2009.

To begin the conference, I will review the financial results for the quarter. Mr. Bartolacci will then provide general comments on our operations. Following that we will open the discussion for questions.

For the quarter ended June 30, 2009, the Company reported earnings of $0.60 per share. Included in the earnings for the current quarter were net unusual charges of $0.03 per share. These unusual charges -- these unusual items primarily consisted of charges related to the consolidation of certain production operations within the Company's Bronze segment and costs related to other operational and systems improvements in certain of the Company's other businesses, net of favorable changes and certain asset values resulting from current market conditions. Fiscal 2009 third quarter earnings also included a favorable tax adjustment of $0.01 per share primarily related to changes in the estimated tax accruals for open tax periods. In addition, changes in the values of foreign currencies relative to the U.S. dollar had an unfavorable impact of approximately $0.03 per share in the current quarter compared to the third quarter last year. Earnings per share for the third quarter last year were $0.69 per share.

For the nine months ended June 30, 2009, the Company reported earnings of $1.38 per share. Year-to-date earnings included unusual charges of $0.28 per share. Unusual charges primarily consisted of severance and other costs related to the consolidation of certain production operations within the Company's Bronze segment, cost related to operational and systems improvement in certain of the Company's other businesses, and asset adjustments resulting from current market conditions. Current year earnings also included a benefit of $0.04 per share related to favorable adjustments in income tax expense. These adjustments related to the Company's ability to utilize a European tax loss carryover, which was generated in prior years, and changes in the estimated tax accruals for open periods. Also, changes in the values of foreign currencies relative to the U.S. dollar had an unfavorable impact of approximately $0.06 per share in the current fiscal year compared to the first nine months last year.

Earnings for the first nine months of last fiscal year were $1.90 per share and included a one-time tax benefit of $0.06 per share related to a favorable adjustment income tax expense which was recorded in the fiscal 2008 first quarter. As a result of tax rate changes in Europe and adjustment to the corresponding deferred income taxes was required under U.S. accounting rules.

Consolidated sales for the third quarter of fiscal 2009 were $192 million compared to $219 million for the same quarter a year ago. Consolidated sales for the first nine months of fiscal 2009 were $581 million compared to $599 million last year. Sales for the current year reflected the acquisition in the Company's Graphics Imaging segment of Saueressig GmbH & Co. KG in May 2008. Saueressig reported sales of $27 million and $77 million for the quarter and nine months ended June 30, 2009 respectively. In addition, changes in the values of foreign currencies against the U.S. dollar unfavorably affected sales by approximately $14 million for the fiscal 2009 third quarter and $28 million year-to-date compared to the same periods a year ago.

In our Memorialization businesses, sales for the Bronze segment was approximately $57 million for the third quarter compared to $67 million last year. On a year-to-date basis, Bronze segment sales were $159 million through June 30, 2009 compared to $182 million last year. A decline in unit volume was the principal factor contributing to the reduction in sales for the quarter and year-to-date period. In addition to the impact of the current recession on volumes and product mix, casketed death rates declined again for the recent quarter compared to last year. Based on available CDC statistics, we estimate the death rates may have declined as much as 5% or more in some of the territories that we serve. Currency rate changes also had an unfavorable impact of approximately $4 million and $9 million on Bronze segment sales for the third quarter and year-to-date periods respectively compared to a year ago.

Sales for our Casket segment were $48 million for the current quarter compared to $54 million a year ago. Year-to-date, Casket segment sales were approximately $156 million compared to $171 million last year. Lower unit volume and unfavorable change in product mix were the main factors in the sales decline.

Third quarter sales for the Cremation segment were $7.7 million compared to $6.8 million for the same period last year. Year-to-date Cremation segment sales were $22 million compared to $19.6 million last year. The acquisition of a small European cremation equipment manufacturer in the fiscal 2009 first quarter was the principal factor in the sales increase.

In our Brand Solutions group, sales for the Graphics Imaging segment were at $57.8 million in the fiscal 2009 third quarter compared to $58.3 million a year ago. Saueressig reported sales of $27 million for the current quarter compared to approximately $18 million in the third quarter last year. The third quarter a year ago it included around two months of activity for Saueressig as the acquisition was completed in early May 2008. Year-to-date, sales for the Graphics Imaging segment were $171 million as of June 30, 2009 compared to $132 million last year. Year-to-date sales for Saueressig this year totaled $77 million compared to $18 million at this time last year. Excluding the Saueressig acquisition from both periods, sales declined from a year ago primarily reflecting lower volume as a result of the current recession. Currency rate changes also had an unfavorable impact of approximately $9 million and $17 million on Graphics Imaging sales for the third quarter and year-to-date periods respectively compared to a year ago.

The Marking Products segment reported sales of approximately $10 million for the fiscal 2009 third quarter compared to $16 million a year ago. So the first nine months of the current fiscal year, sales for the Marking Product segment were $31 million compared to approximately $45 million last year. Sales for this segment continue to be effected by lower industrial capital spending and a decline in the sales of consumables as a result of the current recession.

Sales for our Merchandising Solutions segment were approximately $12 million for the current quarter compared to $18 million a year ago. Year-to-date sales for this segment were $42 million compared to approximately $50 million last year. This segment experienced a significant reduction in projects due to delays or cancellations by customers as a result of the current economic conditions. Project order rates continue to remain soft in this business.

Consolidated operating profit for the quarter ended June 30, 2009 was $29.8 million compared to $36.7 million for the same quarter a year ago. Operating profit for the fiscal 2009 third quarter included approximately $2.1 million of unusual charges. In addition changes in foreign currency values against the U.S. dollar had an unfavorable impact of $1.9 million on the third quarter operating profit compared to the same quarter a year ago. As I noted earlier, unusual items for the current quarter primarily consisted of charges related to the consolidation of certain production operations within the Company's Bronze segment and costs related to operational and systems improvement and certain of the Company's other businesses, net of favorable changes and certain asset values resulting from current market conditions.

Asset adjustments that affected operating profit primarily included adjustments to bad debt expense. Under the Company's accounting policies, we generally provide a reserve for outstanding accounts receivable that exceed certain aging thresholds. During the third quarter, the collection of previously reserved accounts had a favorable impact on operating profit, although the adjustments remain at a net unfavorable affect for the year. Additionally, consistent with the previous two quarters, unusual charges also included costs related to the integration of the Saueressig acquisition and the expansion of the SAP system into certain other business segments within Matthews.

In our Memorialization businesses the Bronze segment reported operating profit of $18.5 million for the fiscal 2009 third quarter compared to $20.7 million a year ago. The decline in operating profit reflected lower sales for the period. In addition, unusual charges of $1.1 million were recorded in the current quarter, primarily representing cost and asset impairment charges in connection with the consolidation of certain production operations. Year-to-date, operating profit for the Bronze segment was $40.1 million as of June 30, 2009 compared to approximately $50.6 million last year. Unusual charges for the first nine months of this fiscal year totaled $6.7 million for the Bronze segment.

Operating profit for the Casket segment was $3.8 million for the fiscal 2009 third quarter compared to $5.5 million a year ago. Lower sales were the main factor in the decline in operating profit. Unusual charges for the Casket segment during the current quarter were approximately $150,000. Casket segment operating profits for the nine months ended June 30, 2009 was $15.7 million compared to $20.3 million last year. Year-to-date, our operating profits for the Casket statement included unusual charges of approximately $2.6 million primarily related to costs associated with employee terminations and adjustments to bad debt expense.

The Cremation segment reported operating profit of $1.5 million for the fiscal 2009 third quarter compared to $1.2 million a year ago. A favorable change in product mix and the acquisition of a small European equipment manufacturer contributed to the increase in operating profit for the current quarter. On a year-to-date basis, operating profits for the Cremation division was $3.6 million which was relatively unchanged from a year ago.

In the Brand Solutions group the Graphics Imaging segment reported operating profit of $5.3 million for the quarter ended June 30, 2009 compared to $5.4 million a year ago. For the first nine months of fiscal 2009, the Graphics Imaging segment reported operating profit of $11.1 million compared to $12 .9 million last year. The decline in operating profit reflected lower sales and the impact of unusual charges of approximately $600,000 for the third quarter and $2.3 million year-to-date. Unusual items mainly included severance charges and costs incurred in connection with the integration of Saueressig. These declines are partially offset by an operating profit reported by Saueressig for the current quarter and year-to-date period.

The Merchandising Solutions segment reported operating profit of $185,000 for the fiscal 2009 third quarter compared to $1.5 million in the same quarter last year. Year-to-date, the Merchandising Solutions segment reported operating profit of $1.5 million compared to approximately $4.5 million last year. Lower sales were the main factor in the reduction in operating profit from the comparable periods last year. In addition, unusual charges for this segment, which were incurred in connection with employee terminations, approximated $300,000 year-to-date.

Operating profit for the Marking Products segment was $445,000 for the quarter ended June 30, 2009, compared to $2.3 million a year ago. For the first three quarters of fiscal 2009, Marking Products segment reported operating profit of $1.5 million compared to $6 million last year. The decline in operating profit from last year resulted principally from lower sales. Year-to-date unusual charges for this segment were approximately $700,000.

Sales and operating income by segment for the quarter and year-to-date periods are posted on our Web site. We have also posted estimated unusual charges by segment for your reference.

Our fiscal 2009 third quarter consolidated operating margin was 15.5% of sales. Unusual charges included an operating profits for the current quarter were approximately $2.1 million or 1.1% of sales. Our consolidated operating margin was 16.8% in the third quarter last year. For the first nine months of fiscal 2009, our consolidated operating margin was 12.6% of sales compared to 16.3% of sales last year. Unusual charges included in operating profit for the first nine months of this fiscal year totaled $12.8 million or 2.2% of sales.

Gross margins for the quarter ended June 30, 2009 was 39.3% of sales compared to 39.6% for the same period a year ago. Year-to-date gross margin for fiscal 2009 was 37.3% of sales compared to 39.9% last year. The decline resulted from lower sales and unusual charges. In addition the current gross margin percentage for Saueressig is generally lower than the average for the Company.

Selling and administrative expense for current quarter was 23.8% of sales compared to 22.9% of sales in the same quarter last year. SG&A expense for the first nine months of the current fiscal year was 24.6% of sales compared to 23.6% of sales a year ago. Lower sales and the impact of unusual charges were the principal factors in the decline in the percentage of SG&A costs relative to sales.

For the fiscal 2009 third quarter, investment income totaled $1.3 million compared to $392,000 for the same period a year ago. Year-to-date investment income was $629,000 compared to $1.4 million last year. Unusual items for the current fiscal year included a favorable mark-to-market asset adjustment of $800,000 in the current quarter and a net unfavorable adjustment of approximately $400,000 year-to-date, representing unrealized gains and losses in the value of investments held in long-term trusts for certain employee benefits plans. Under the Company's accounting policies, unrealized gains and losses on these investments are reported through the income statement.

Interest expense for the current quarter was $2.8 million compared to $2.6 million for the same period a year ago. For the first three quarters, interest expense was $9.1 million in fiscal 2009 compared to $6.7 million last year. The increase in interest cost resulted primarily from a higher level of debt as a result of the acquisition of Saueressig. Minority interest deduction was $901,000 for the current quarter and $1 million year-to-date, compared to a deduction of 7.-- or $785,000 and $2.1 million respectively for the same period a year ago. At the end of fiscal 2008, the Company purchased the remaining interest in one of its German companies which was the primarily reason for the decline in deduction from a year ago.

The year-to-date fiscal 2009 effective income tax rate was 34.2% of pretax income. Excluding the favorable impact of the current year one-time adjustments that I mentioned earlier, our year-to-date fiscal 2009 effective rate was 36.1%. Excluding the one-time favorable adjustment from income tax expense a year ago, the effective rate for the fiscal year ended September 30, 2008 was 36.2%.

At June 30, 2009, the consolidated cash and investment balance was approximately $64 million compared to $60 million at September 30, 2008. Our current ratio was 2.2 at June 30, 2009 and 1.9 at September 30, 2008.

Our outstanding accounts receivable balance at June 30, 2009 was approximately $137 million, which represented 64 day sales outstanding. Outstanding accounts receivable at September 30, 2008 approximated $145 million which represented 60 days sales outstanding. At June 30, 2009, consolidated inventories totaled approximately $94 million compared to $96 million at September 30, 2008.

At June 30, 2009, the Company had approximately 30.339 million shares outstanding. During the first nine months of fiscal 2009, the Company purchased approximately 756,000 shares under its share repurchase program at a repurchase cost of approximately $27 million. At June 30, 2009, approximately 260,000 shares remained under the current repurchase authorization.

Our long-term debt balance of June 30, 2009, both current and long-term portions,approximated $253 million. $178 million of this balance represented borrowings of under our domestic revolving credit facility. The reminder is primarily debt on the books of our German and Italian subsidiaries. The maturity of the domestic revolving credit facility is September 2012.

Depreciation and amortization expense for the quarter and nine months ended June 30, 2009 were $7.3 million and $23.1 million respectively. Capital expenditures for the same periods were at $5 million and $11.6 million respectively.

With respect to our Company's operating results, fiscal 2009 continues to be a very challenging year. Not only are we in the midst of a difficult recession, but the memorialization industry has also seen a decline in the casketed death rate beyond more typical ranges. As a result, our current earnings have not met our long-term growth objects; however, we remain encouraged as we believe that our performance demonstrates the relative stability of Matthews in difficult economic circumstances. As an example, compared to earnings per share of $0.69 in the third quarter last year, we posted earnings per share for the current quarter of $0.60, which included net unusual charges of $0.03 per share, a one-time tax benefit of $0.01 per share and a net unfavorable change in currency values of $0.03 a share.

Our ability to forecast results in the near term remains difficult in these times and as such we continue to remain very cautious. Our business leaders continue to take actions to attempt to mitigate the impact of the decline in revenues. Although the unusual charges associated with these actions have impacted, and will continue to impact profitability in the short term, these steps are designed to provide long-term benefits to our Company when the economy recovers. This concludes the financial review and Joe will now comment on our operations.

Thank you, Steve, good morning. As you can tell from the results, our third quarter continued to feel the effects of this economic downturn. Volumes in almost all of our businesses were down compared to prior year. I am pleased, however, with how our teams managed through these difficult times when you consider that our reported earnings last year through the third quarter were $1.90 and that that included a $0.06 one-time tax benefit. And this year through the third quarter, our adjusted earnings are $1.66, and that included the negative impact of currency which amount to $0.06, I believe we are performing quite well. Moreover, we haven't been standing still. These times have forced us to look at our operations and continue to improve our productivity. Each of our businesses will emerge from this period leaner and thus will perform better when volume does return.

A good example of this is the improved performance at Saueressig. As many of you know, Saueressig has not been a significant contributor since its acquisition last year. Difficult economic conditions and difficult labor laws in Germany have been challenging, but our team in Germany has been working hard and diligently to reduce costs throughout the organization and today I'm pleased to say that Saueressig was a significant contributor to this quarter's performance. Most importantly however I have to acknowledge our Management team and our employees who have stepped up their efforts in these difficult times to help us perform reasonably well when compared to the market. Their efforts are greatly appreciated. We remain very optimistic about our prospects once the economic conditions improve, but we are clearly unsure of when that will occur. But given our efforts to reduce our costs and improve our businesses, you can rest assured that we will come through these difficult times a better Company. With that I would like to open it up for questions.

(Operator Instructions) All right and our first question comes from the line of Bob Labick with CJS Securities. Please go ahead.

Good morning.

Good morning, Bob.

Hi. A couple of questions. First, I know Steve touched on it briefly in his opening remarks but I was hoping we could talk a little bit more about the Bronze and in particular if you could kind of break down unit change, trade downs and talk about if there's any other trends we should be watching there from a unit perspective?

Yes Bob, we -- well, we see a couple of things in the revenue line on the Bronze segment. Obviously volume with not only the decline in the casketed death rate, but also a change in product, an unfavorable change in product mix. I -- it's difficult obviously for us to predict where the casketed death rate is going to go from here relative to a year ago, so in terms of identifying those trends, I think that side of the equation is just -- the visibility on that obviously a little more difficult. But I think the trend with respect to the unfavorable change in product mix is going to impact us while the recession continues to go. And when we say product mix, you see it in terms of the types of memorials and the particular sizes that individuals and families may purchase.

Okay. Great. And then just sticking with Bronze, could you discuss I guess the restructuring that's ongoing and your goals for it? How much longer should it be ongoing? What do you hope to accomplish when it's completed in terms of maybe margins or you know consolidating X to Y? Or just give us a little more color around restructuring.

Sure. What we've done, Bob, is we've shut down our West Virginia facility. That was completed here the early part of the quarter and we have also announced the shutdown of our Seneca Falls facility, and consolidation of that into our two existing facilities we have now. We are commencing the construction of a new foundry in Mexico near our casket plant. The benefits of that will be felt as it was with our casket business, it took a while to get there, and this might be a little bit more complicated than the casket business since each one of our pieces are unique (inaudible). So we'll see that over time but we expect to be able to improve our profitability when it comes to margins. But more importantly I think is to continue to meet the market demands for our broader product line at a better price.

Okay. Great. And then moving on to Saueressig, you mentioned, obviously the integration has been going well and some recent success and contribution, how about on the revenue side? Have there been -- has there been any cross-selling opportunities there? I know that there was discussion of potentially bringing the -- I can't say it but to the U.S.--

Well we have, Bob. And we continue to look at that and it continues to be opportunity. Frankly this economic environment is probably not something we want to start a greenfield operation with right now in that, but we are having some success across our border there when it comes to business that is being integrated with our existing facilities over there. Volume at the Saueressig facility is down, there's no question about that. And there's a couple of pieces of the business are decorative and engineering-related and that volume is flat. Fortunately for us our packaging business portion of that business is relatively stable. It's down but not significantly, and we've adjusted our cost for that. When we return -- when the other business does return, and it will return, we expect a pretty good drop through.

Great. And then on Merchandising Solutions, there was a sequential drop. I know it's a lumpy business. I guess Microsoft has a release coming out in October. I don't know if you guys will be involved or not, but if you were, would that come into the September quarter or is like-- or do you not record your sales if you had them until the first quarter of next year?

We won't -- I mean honestly, Bob, we have footprints that have been expanding in all of our customers, well the Microsoft launch has not been let to anybody yet. We'd like to think that we're pretty well-positioned, but we don't know when. We-- one of the mistakes we made awhile back is told people about a pending project that took a year to get there. So we're not in control of when Microsoft will launch or will not launch or some of our other customers. We have seen a number of projects have been put on the table and then pulled off within weeks. So we won't know when that impact will be.

Okay. Great. I will get back in queue. Thank you very much.

Thanks.

You're welcome.

All right, and next we will go to Clint Fendley with Davenport. Please go ahead.

Good morning, Joe and Steve.

Good morning.

Very nice margin improvement here this quarter sequentially in the Bronze segment. I wondered if you could comment on the sustainability of these margins even if the volumes remained depressed at these low levels?

Clint, we take steps all the time to improve our profitability. I think what you're starting to see are some of the results of the benefits of the consolidation. We're doing everything we can to maintain that. I will tell you that copper is moving on us, as you can tell. So I'm not sure, especially in these economic environments, if we're going to be as able to pass on some of the changes that might occur in the copper prices. So sustainability is -- we can do everything within our variable cost controls that we can. Commodities might be out, out of our hands.

Okay. Understood. And any thoughts on a more normalized, I guess, volume environment perhaps next, next winter where we might see these margins go?

I would -- I mean I would expect them in the mid-20s, the mid-to-upper 20s.

Okay. And I -- moving to the Casket segment, obviously you commented during the intro here about an unfavorable sales mix in that segment. I wondered if you can provide us more color?

Sure. I mean as it is happening with most consumer products out there, you see a trade down in the customers' preference for the products they are buying. Part of that is probably just an overall concern with, with the economic situation for the families that we serve and part of it might be our funeral directors just trying to be more accommodating in a difficult time. We don't think-- this (inaudible) has been a down shift over a period of time in the market place, but not to this gravity. So I suspect that we have seen some evidence that in some markets people have started to feel an uptick, but it is not back to the normal mix that we are used to seeing.

Okay. Thank you. That's helpful. And then finally Steve, I wondered if you could comment on the DSOs coming in at 64 days, that's up a few days from where we were at the end of September last year and the outlook there?

Yes, well we, we continue to think the outlook was reflected -- with respect to receivables, is a little better than maybe what the accounting charges reflect. We've got accounting policies that, that we follow as to how we reserve accounts receivable when they reach certain aging thresholds. And we've been fortunate that we haven't seen the same degree of actual uncollectible accounts. I want to start with there. With respect to the increase in the DSO, that's really just been a function of the economy that we're in and while we've seen an increase in the reserve. We've seen customers that have slowed in their payment patterns, our collections have slowed. Certainly something that we keep our eye on and something that is concerning to us. But again I have to quickly add that we haven't seen anything of significance that shows us that we've got any real large collectability issues.

Okay, great. Thank you, guys.

Sure

Next we will go to the line of Jamie Clement with Sidoti & Company. Please go ahead.

Joe, Steve, good morning.

Good morning, Jamie.

Good morning.

Sort of a follow-up question, a little bit more backward looking than forward looking. Do you all have a sense, now that you have another quarter under your belt, as you look at revenue decline in your, in your death care-related businesses, how much of this is economy driven whether trade down or trade out versus the mortality rate being down significantly year-over-year? Do you have a rough guess? I mean I know that is a difficult question.

Yes Jamie, I would tell you it's probably half and half.

Okay.

We probably expect that there's going to be 5%, 6% that is related to death rates and deferrals and things of that nature. 5% is related to death rates. Cremation, everybody has their own opinion on this. We've not-- there are no gathered statistics and there won't be for awhile til we see that. But we suspect there's probably been a little bit of a tick on the cremation side, is it 1%, is it 0.5%, is it 5%, we don't know that. And the balance I would say is mixed.

Okay, okay. And that's very fair. I just-- 50/50 is -- that's -- that seems reasonable. And I mean would -- Joe, would you expect -- I know you're not expecting in the near term to see any sort of material improvement in the economy or anything, but I mean in your experience with Matthews, I mean have you guys ever seen two years of this kind of mortality rate in a row?

No, not at all, Jamie. So there-- I mean there will probably a return to normalcy. I mean-- either that or we're all going to live forever.

Okay. All right. Thanks very much.

You're welcome.

We'll go to the line of Liam Burke with Janney Montgomery Scott. Please go ahead.

Thank you. Good morning, Joe, good morning Steve.

Hi, Liam.

I had a question again on the Casket side. You'd mentioned product mix having moved down margins. Were there any offsets either in raw materials or any kind of reorganizational benefits?

We're starting to see the benefits of the metal purchases. We said early on that we were-- because of our inventory turns and working through that, we would start to see the benefit of steel price decline probably latter part of the third quarter beginning into the fourth quarter. So we'll start to see some of that there. But I-- but metal-- have to warn you, Liam, sometimes metal is not enough to offset some of the short drops that we've felt on the mix side. We see, in some cases, we see average customers -- I had a discussion with somebody just the other day where the average mix of a particular customer was at one point in time $1,000 and his new mix is somewhere around $600. We don't have that kind of metal in our product.

Okay. And on Saueressig, due to some obvious restrictions over in Germany, you got a slower start than would you have liked on the restructuring. Are you pretty much complete on that part of the business?

We said the German government frankly has been probably more flexible in the last three or four months than the U.S. government has, but maybe on some job-sharing opportunities. We're still learning how we can work with that, and I think there's some more opportunity to participate in that program with the exempt employees over there. But I will tell that you we think that we have stabilized the business to its current volume and we'll get at least consistent results at this level.

Great, Thank you.

Go to the line of Jack Ripsteen with PCAP. Please go ahead.

Hi, good morning, thanks for taking my call. I wanted to ask a little about the customer base in the Casket business given that we're talking about small businesses. How is their credit quality holding up and their ability to purchase, et cetera?

Well I mean, to be honest with you, our customers are still doing business every day. I think they're probably collecting slower from their from their families and therefore turning around and paying us on a slower basis. So fortunately the industry is very, very, very fragmented on the Casket side. We do not have a lot of large, large customers, so a credit risk on an individual basis is not significant, but on a whole, if everybody extends out an extra 30 days, you're going to feel that.

And are you starting to see that materially creep up? Or is it still well contained?

Yes, we have. And that's really behind the question we had a little earlier as to why our DSO has been creeping up this year. It's getting, as of the end of June, it's 64 days where it was 60 as of the end of September. So that's a function of the, of the environment that we're in. But at the same time, as I mentioned earlier, we haven't seen actual collectability issues as much as we've just seen a slowdown in the timing of those payments.

Okay. And is some of that a factor of some of these being prepaid in essence of the funerals et cetera or is that something entirely different?

Not an issue on our side. We're not in the pre-need business from a sales standpoint.

On the Caskets.

Yes, I think it's just a pure collection issue at the funeral home side. We've heard from a number of people where it's taking longer for them to collect from the family.

Got you. Great, I appreciate it. Thank you.

You're welcome.

Go to the line of Scott Blumenthal with Emerald Advisers. Please go ahead.

Good morning, Joe, good morning, Steve.

Hi, Scott.

Good morning, Scott.

I'm going to move back to the Casket segment for a moment, if I might. Can you talk about -- Joe, I guess on the last call, you mentioned a lower cost casket. I'm not sure if it was the last call or the previous call, but can you talk about maybe the units sold? I understand the mix is bad, but are they more or less comparable between wood and metal and higher and lower end caskets?

Well ironically Scott, we've seen maybe a little bit of an uptick on the wood side and I think that's acknowledgement from some of our markets of the quality of our wood products. But at the same time, I think what we've seen on the metal side is just a downgrade. We've had to-- we've seen customers just moving down. From a volume standpoint, we're still -- we're down consistently top line as you're seeing. So if we're looking at a 10% drop, we're looking at about a 10% drop on our volume levels. But the mix within that is probably at least as impactful as, as you've seen on the volume side.

Is that true of the industry as a whole about 10%?

It's interesting, my recent discussions that we're talking -- I've had with some of the larger players, some of the consolidators in the industry, and so they're seeing similar kind of drops in their services that they're performing over the last several months. I'll let them speak for themselves in their own conference calls, but I don't think it's inconsistent with what we're hearing out there.

Okay. And you did mention about 50/50 in product mix and decline in the death rate.

Right.

I guess that was to Jamie. We like to think of that as Matthews building backlog.

Somebody's building it.

That's right. Joe or Steve, can you talk a little bit more about the new foundry in Mexico, what you expect that's going to cost, if you started breaking ground there and when the sequencing of those costs is--?

Yes, Scott, we're very, very early into the process. We have -- we have an estimated budget for it, but we're still pricing out equipment and everything. I can tell you it's probably not to the same scale that our casket plant was. We spent about $12 million for the casket plant four years ago. And I don't think it's anywhere near that level, but -- we'll have more detail for you. We're really right now just breaking ground on some of the building structure.

Okay. Fair enough. And just one more, if I may, the Marketing Products division. We've seen a little bit of an uptick in some of the industrial indicators over the past few weeks. And I was wondering if that was being reflected at all in that segment?

I'll tell Scott what our guys are telling us is that they have had more inquires than they have ever had, they just can't bring it to an order. So I mean from a, from a feeling-around standpoint, sure, we probably see a little bit more of an uptick there, but we have not realized it. And we -- that is business that only has maybe two, three week lead time. So if it became an order, we'd, we'd see the impact of it on our bottom line but we'd know about it here.

Yes, that's one business that's really feeling the impact of other companies' cost-cutting and cost-control efforts.

Okay. Yes, sounds like a lot of price shopping there.

Yes, it's also just production in the United States being down.

Yes. Yes.

And using existing equipment a little longer than they would have --

Yes, than they would have normally.

Sure. Well hopefully that's also building backlog as well.

Like to think so.

Okay, thank you.

Sure

And there are no other questions in queue at this time.

Okay. Thank you, Linda. Well we'd like to thank all for participating in our, in our call this morning, and we look forward to our earnings release and conference call in November. Thank you again and have a great day.

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