Matthews International Corp (MATW) 2012 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Matthews International second-quarter financial earnings 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, today's call is being recorded. Replay information will be given out at the conclusion. Your hosting speaker today is Steve Nicola. Please go ahead, sir.

Thank you, Kevin. 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 scheduled for one hour and will be available for replay at approximately noon today. To access the replay, dial 1-320-3844 and enter the access code 243771. The replay will be available until 11.59 PM May 3, 2012.

We have posted on our website, which is www.MATW.com, the second-quarter earnings release and financial information we will discuss this morning. On the top of our home page, under the investor tab, click on investor news to access the earnings release. For the quarterly financial data, click on financial reports to access the information under the section, Matthews International Quarterly Reports. The documents are presented in a PDF file format.

Before beginning the discussion, at the advice of legal counsel, I have been advised to read the following disclaimer as it pertains to forward-looking statements. 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 in 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, income statement, and cash flow information provided today are preliminary data, since our quarterly report on Form 10-Q for the period ended March 31, 2012 will not be filed with the SEC until the first week of May. 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.

Also, please note that we have made several changes in our segment reporting effective October 1, 2011. Beginning this year, we have changed the titles of our bronze and casket segments to the cemetery products segment and funeral home products segment respectively. This change was made to better represent the current product and service offerings of these businesses. In addition, we have reclassified the cremation casket business from our cremation segment to the funeral home product segment.

For the quarter ended March 31, 2012, the Company reported earnings of $0.54 per share compared to $0.56 for the second quarter a year ago. On a non-GAAP basis, the Company's adjusted earnings per share were $0.61 for the fiscal 2012 second quarter compared to $0.60 last year. For the six months ended March 31, 2012, the Company reported earnings of $0.93 per share compared to $1.01 for the same period a year ago. On a non-GAAP basis, the Company's adjusted earnings per share were $1.08 through the first six months of fiscal 2012, compared to $1.09 last year. Beginning this fiscal year, we are providing this non-GAAP information, to provide management and our investors with a better comparability of the Company's operating results. This is in response to requests by investors to provide more clarity concerning these items.

One of the principal items in our non-GAAP reconciliation is an adjustment to pension and post retirement expense. Because of the volatility and asset rates of return, and a significant decline over the past several years in interest rates, which impacted the discount rates applied in determining these benefit costs, year-over-year comparability of our operating performance has been significantly impacted by changes in pension expense. Accordingly, for our non-GAAP disclosure, we have adjusted pension and post retirement expense for the current and prior periods to reflect only the service cost components of this expense.

In addition, as we have previously discussed, we recently implemented a new ERP system for our cemetery products segment. We anticipated additional costs would be incurred during the current year as a result of the system conversion. These additional costs unfavorably impacted earnings by approximately $0.01 during the current quarter and $0.02 on a year-to-date basis, which we have also reflected in our non-GAAP reconciliation. The last component of the non-GAAP adjustment was severance-related costs incurred during the current year.

One additional significant item affecting earnings comparability was an increase in commodity costs compared to a year ago. The year-over-year increase in the cost of bronze ingot unfavorably impacted the 2012 second quarter by approximately $0.03 per share compared to a year ago, and $0.06 on a year-to-date basis. As the Company completes the ERP implementation, the cemetery products segment has postponed its regular annual price increase, which would have covered some of the commodity cost increases.

Consolidated sales were approximately $226 million for the current quarter compared to $220 million for the same quarter a year ago, representing an increase of 2.5%. For the current quarter, an increase in sales volumes in our merchandising solutions and cremation segments, as well as the impact of recent acquisitions, were the principal factors in the sales growth compared to a year ago. These increases were offset by a decline in funeral home product sales. For the six months ended March 31, 2012, consolidated sales increased 3.6% to $443 million, compared to $427 million a year ago. The year-to-date increase reflected higher sales in each of the Company's brand solutions businesses, and the cremation segment, and the benefit of recent acquisitions.

In addition, changes in foreign currency values against the US dollar were estimated to have an unfavorable impact of approximately $2.5 million on the Company's sales for the current quarter, compared to a year ago, and $2.6 million on a year-to-date basis. Consolidated operating profit for the quarter ended March 31, 2012 was $25.3 million compared to $28.5 million for the same quarter last year. Lower sales for the funeral home product segment, higher commodity costs, and the net unfavorable impact of unusual items were the significant factors in the operating profit decline.

Year-to-date consolidated operating profit for the current year was $44.2 million, compared to $50.5 million for the same period last year. Lower sales for the cemetery products and funeral home products segments, higher commodity costs, and the net unfavorable impact of unusual items were also the significant factors in the year-to-date operating profit decline. In addition, changes in foreign currency values against the US dollar were estimated to have an unfavorable impact of approximately $300,000 on the Company's operating profit for the current quarter and year-to-date periods compared to a year ago.

Sales for the cemetery products segment were $53.6 million for the fiscal 2012 second quarter, compared to $52.9 million last year. For the six months ended March 31, 2012, the segment sales were $99 million compared to $103 million a year ago. The increase in sales for the current quarter was primarily related to the recovery of delayed sales from the first quarter. As you may recall, this segment experienced shipping delays in the fiscal 2012 first quarter during the cut over period for the ERP implementation. On a year-to-date basis, sales declined approximately 4% from a year ago, generally reflecting a decline in casketed deaths and lower mausoleum sales. Based on available published data, we estimate US casketed deaths declined in the mid-single digit percentage range for the second quarter and year-to-date periods from the same period last year, which we believe was primarily attributable to the unusually warm winter season. In addition, the segment postponed its regular annual price increase, as it completes the ERP implementation.

Operating profit for the cemetery products segment was $10.2 million for the current quarter, compared to $10.8 million a year ago. On a year-to-date basis, the segment's operating profit was $14.7 million for the current period, compared to $20.9 million last year. The decline in operating profit for the current quarter resulted principally from an increase in bronze ingot costs and incremental costs in connection with the segment's ERP implementation. The current quarter also included an $800,000 benefit from a claim in connection with its granite operation. The year-to-date increase in the segment's operating profit resulted primarily from the impact of lower memorial sales, higher bronze metal costs compared to last year, and ERP implementation costs.

Sales for the funeral home products segment were $62 million for the quarter ended March 31, 2012, compared to $67 million for the fiscal 2011 second quarter. For the first six months, the segment sales were $120 million for the current fiscal year, compared to $129 million a year ago. The quarter and year-to-date decreases primarily reflected the decline in casketed deaths. In addition, sales to independent distributors were significantly lower toward the end of the most recent quarter, as they appeared to adjust their inventory levels, due to the slower than expected winter season. Operating profit for the funeral home products segment for the fiscal 2012 second quarter was $7.3 million, compared to $9.5 million for the fiscal 2011 second quarter. For the first six months of fiscal 2012, the segment's operating profit was $13.8 million, compared to $15.9 million a year ago. The operating profit declines primarily reflected the incremental margin impact of lower sales.

Fiscal 2012 second-quarter sales for the cremation segment were $11.1 million, compared to $8.3 million for the same quarter last year, representing an increase of 34%. For the first six months of the current fiscal year, cremation segment sales were $20.5 million, compared to $16.5 million a year ago, an increase of 24%. Higher sales of cremation equipment in the US and Europe were the main factors in the year-over-year growth. Operating profit for the cremation segment for the quarter ended March 31, 2012 was $1.2 million, compared to $515,000 a year ago. Year-to-date operating profit as of March 31, 2012 for the cremation segment was $2 million compared to $1 million last year. The quarter and year-to-date improvements in operating profit primarily resulted from higher sales.

For our brand solutions group, graphics imaging sales were $65 million in the fiscal 2012 second quarter, which was relatively unchanged from the second quarter last year. The current quarter benefited from the July 2011 acquisition of a graphics operation in Turkey, which was offset by recent softening in the German graphics markets. On a year-to-date basis, the graphics business reported sales of $135 million for the current period compared to $125 million last year, reflecting the Turkish acquisition and first-quarter sales growth, offset partially by unfavorable changes in foreign currency values. Changes in foreign currency values, principally the Euro, had an unfavorable impact of approximately $2.3 million on the segment sales for the current period compared to the first six months last year.

Second-quarter operating profit for the graphics imaging group was $3.7 million for the current year, compared to $5.9 million a year ago. Unusual items during the current quarter, principally acquisition-related costs and severance payments, resulted in a net charge of $1.1 million. Lower sales in Germany and changes in foreign currency rates also contributed to the operating profit decline. Changes in currency rates had an unfavorable impact of approximately $300,000 on the segment's operating profit for the current quarter, compared to the second quarter last year. For the first six months of fiscal 2012, operating profits for the graphics business was $8.7 million, compared to $9.6 million. The decline primarily reflected the net unfavorable impact of unusual items. In addition, changes in foreign currency rates had an unfavorable impact of approximately $300,000 on the segment's operating profit for the current period compared to the first six months last year.

Sales for the marketing products segment for the quarter ended March 31, 2012 were $17.8 million compared to $14.5 million for the same quarter last year. For the first six months of the current fiscal year, marketing products segment sales were $34.1 million compared to $27.4 million last year. The increases in sales for the quarter and year-to-date periods were primarily attributable to acquisitions completed last year, and higher unit volume. Operating profit for the marketing products segment was $2 million for the current quarter compared to $1.9 million for the fiscal 2011 second quarter. The segment's year-to-date operating profit increased to $3.4 million for the current year, compared to $2.9 million last year. The benefit of higher sales was partially offset by an increase in research and development costs. Fiscal 2012 second quarter sales for the merchandising solutions segment were $16.5 million compared to $12.3 million a year ago.

On a year-to-date basis, the segment reported sales of $33.7 million through March 31, 2012, compared to $26.2 million last year, representing an increase of 29%. The increases for the quarter and year-to-date periods were attributable to higher sales to several billable customers. As a result, the segment's operating results improved from an operating loss of $183,000 for the second quarter last year to an operating profit of $787,000 for the current quarter. On a year-to-date basis, operating profit for the merchandising solutions segment improved from slightly better than break-even a year ago, to an operating profit of $1.6 million this year.

Sales and operating profit by segments for the quarter and year-to-date periods are posted on our website for your reference. Our fiscal 2012 second quarter consolidated operating margin was 11.2% of sales compared to 12.9% a year ago. For the first six months of fiscal 2012, our consolidated operating margin was 10% of sales, compared to 11.8% a year ago. The decline in operating margin primarily resulted from higher commodity costs, such as bronze, lower year-to-date sales for the cemetery products and funeral home product segments, and the net unfavorable impact of unusual items. Gross margin for the quarter ended March 31, 2012 was approximately 38% of sales, compared to 40% for the same period a year ago. Year-to-date gross margin for fiscal 2012 approximated 37% of sales, compared to 39% last year. The declines in gross margin percentages were primarily attributable to higher commodity costs and the impact of lower sales in the cemetery products and funeral home product segments, and the German graphics businesses.

Selling and administrative expense for the current quarter was 26.3% of sales, compared to 27.1% for the same quarter last year. Selling and administrative expense for the first six months of the current fiscal year was 26.8% of sales, compared to 27.5% of sales a year ago. Cost containment initiatives favorably impacted our SG&A percentage for the current year. Investment income for the fiscal 2012 second quarter was $1.2 million, compared to $498,000 a year ago. Year-to-date, investment income was $2.8 million compared to $1.6 million last year. The current year reflected higher rates of return on investments held in trust for certain of the Company's benefit plans.

Interest expense for the current quarter was $2.7 million compared to $2.1 million for the same period last year. For the first six months of fiscal 2012, interest expense was $5.3 million in fiscal 2012, compared to $3.8 million a year ago. The increased interest costs for the current year resulted primarily from a higher averaged level of outstanding debt, which was due primarily to borrowings for acquisitions and share repurchases in the fiscal 2011 fourth quarter. Other income deductions net for the fiscal 2012 second quarter represented a deduction of $638,000, compared to $697,000 a year ago. For the first six months of 2012, other income and deductions net represented a deduction of $1.2 million compared to $996,000 a year ago. Other income and deductions generally include, among other items, the impact of currency gains and losses on inter-company debt and banking-related fees.

Net income from non-controlling interest was a credit to income of $66,000 for the current quarter, compared to a deduction of $532,000 a year ago. On a year-to-date basis, the deduction for net income from non-controlling interest was $69,000 for the current year compared to $841,000 last year. The year-over-year change principally resulted from the Company's purchase last year of the remaining 22% ownership interest in Saueressig.

The Company's year-to-date effective income tax rate as of March 31, 2012 was 34.5% of pretax income, compared to 34.4% for the fiscal year ended September 30, 2011. Fiscal 2011 included a favorable income tax adjustment related to the closure of certain prior income tax periods. Excluding the favorable impact of this adjustment, the effective tax rate was 35% last year compared to the current rate of 34.5%. The reduction in the consolidated effective income tax rate for the current period reflects the impact of recent operating structure initiatives in Europe.

At March 31, 2012, the Company's consolidated cash and cash equivalents were approximately $55 million compared to $62 million at September 30, 2011. Our current ratio was 2.3 at March 31, 2012, and September 30, 2011. Outstanding accounts receivable at March 31, 2012 were $167 million, compared to $165 million at September 30, 2011. Consolidated inventories at March 31, 2012 were $128 million, compared to $126 million at September 30, 2011. Long-term debt at the end of the current quarter, including current and long-term portions, approximated $318 million, which was relatively consistent with September 30, 2011.

At March 31, 2012, $250 million of the outstanding debt balance represented borrowings under our domestic revolving credit facility, at an average interest rate of 2.9%. Effective March 1, 2012, the borrowing capacity of this facility was increased to $400 million, with a maturity date extended to March 1, 2017. The Company had approximately 28.3 million shares outstanding at March 31, 2012. Through the first six months of the current fiscal year, the Company purchased approximately 354,000 shares under its share repurchase program at a cost of $11.3 million. At the end of the current quarter, approximately 2.476 million shares remained under the current share repurchase authorization.

Depreciation and amortization expense for the quarter and six months ended March 31, 2012 were $7.4 million and $14.5 million respectively. Capital expenditures for the quarter and six months ended March 31, 2012 were $6.7 million and $12.4 million respectively. In developing our earnings projections for the remainder of this fiscal year, there were a number of significant factors taken into consideration. Positive trends at several of our businesses are expected to continue. Specifically, the demand for products and services of our merchandising solutions and marketing products businesses remained solid.

In addition, cremation equipment sales volume has increased in the US, and currently remains steady overseas. However, during the second quarter, we started to experience softening in the German graphics markets. We expect that this is related to the recent economic uncertainties in the European financial markets, and we will continue to closely monitor these developments. In addition, the related decline in the value of the Euro will have an unfavorable impact on our US dollar reported results for the balance of this fiscal year, compared to last year.

Also, one of the more critical elements to our performance for the balance of the fiscal year will be the impact of the US casketed death rate on the cemetery products and funeral home products segments. While cost initiatives in these segments, growth in our other businesses, and acquisitions have effectively mitigated this impact over the first six months of this fiscal year, it continues to create a difficult challenge for generating earnings growth on a short-term basis at the consolidated level. As a result, based on the fiscal 2012 year-to-date operating results, and our current forecasts, we are projecting adjusted non-GAAP earnings per share to be in the range of $2.57 to $2.62 for fiscal 2012, which is relatively consistent with fiscal 2011. On a comparable basis, our adjusted non-GAAP earnings were $2.60 per share in fiscal 2011. This concludes the financial review. And Joe will now comment on our operations.

Thank you, Steve. Good morning. In general, the results of the second quarter of fiscal 2012 had many of the same challenges we saw during the first quarter. Good performance out of our cremation division, our merchandising solutions business, and our marketing products division were offset by challenges in several of our other business units. Some of those challenges were anticipated when we started the year, but others were not.

Looking at our individual businesses, our cemetery products business showed a good recovery in sales relative to the first quarter, as we worked through our backlog created with the ERP implementation. We are continuing to work through these issues with the implementation. Those issues have caused us to incur significant customer-related costs, which are expected to continue for a little while longer. Although we are making strides to improve performance in this business unit, we believe that in the long run, we are best served by satisfying our customers to the extent possible during the challenging times.

Therefore, given our long-term view, we have intentionally chosen to defer a price increase that would have helped to offset the high cost of metal we are feeling this period relative to prior years. You may recall my comments at the beginning of the year, where I stated that we expect our metal costs this year to be the highest average costs in the history of the Company. Another challenge that we faced during the quarter in both our cemetery products business and our funeral home products business is a significant decline in casketed deaths this year, which we believe is attributed to the mild weather and mild flu season. This has impacted our volumes much more significantly than anticipated, but we think this will normalize over time. The decline in casketed deaths has also impacted our independent casket distributors, as they adjusted their inventory levels this quarter to meet current demand. Lastly, the decline in casketed deaths throughout the first six months has caused the marketplace to become more competitive, as suppliers struggle for volume during this slow period.

On a more positive note, our cremation division continues to perform well, with significant backlogs accumulating in the United States and in Europe. We expect this division to finish the year strong, as many of the backlog cremation units are expected to be delivered in the next six months. Similarly, our marketing products and our merchandising solutions businesses continue to perform well, as both of these businesses have exceeded our expectations so far this year, and have significant business opportunities for the balance of the year. Our European graphics business has felt some pressure from the slowing European economy, as well as unusual items that have impacted the quarter. On a year-to-date basis, their performance is in line with our expectations, but going forward, the results will be challenged by the slowing economy and unfavorable currency exchange rate as well. We are monitoring our structure to try to align our costs with demands for these businesses.

In all, we are not satisfied with our results for the quarter, nor are we satisfied with our forecast for the balance of the year. However, considering the unusually large decline in death rates, our businesses otherwise performed well on a consolidated basis. Nonetheless, we expect to continue to generate good income, and we will put the cash generated by our results to use for the benefit of our shareholders. With that, let's open it up for questions.

Yes, for those of you who will be asking questions, we request that you limit them to one question and a follow-up question until all those who wish to participate in the Q&A session have had an opportunity to do so.

(Operator Instructions). First question is from the line of Daniel Moore, CJS Securities. Please go ahead.

You mentioned that you decided to forego price increases for the year. Talk a little bit more about the thought process around that, and is that for the full year, so will the next likely price increase not come until the fiscal 2013?

No, to answer the question for you, let's look back at the year. As I said earlier, we're experiencing our highest cost in bronze we've ever experienced here. The reality is the price increase that we anticipated would have taken effect about January 1, for shipments towards the end of the month. That increase, we have not anticipated would have covered our entire cost increase, frankly. We were taking a little longer view and would have expected to recover that over time. We don't think these prices are normal to be held at these levels. So the reality is that we will probably take a, some form of a price increase before the end of the year, most likely toward the end of this third quarter, and the reason is we have caused a little bit of angst with a lot of our customers as we've delayed shipments, and maybe have made some troubles trying to get product out that we're rectifying and moving forward, we just didn't think it was the right time to go out with a price increase.

Helpful. And you mentioned some customer-related costs will linger. Beyond Q3 at this point?

Difficult to foresee, but we expected to see it in Q3, hopefully diminishing as the quarter goes on.

Okay, and Steven, you mentioned there was an $800,000 gain I believe in the cemetery products segment. Can you elaborate on that?

I can't elaborate too much on that, but it really related to a settlement of a claim and it actually goes back to our granite acquisition.

Got it. We should -- okay. But that was a one-time gain in fiscal Q2?

One-time item.

Okay, perfect. Two more, and I'll jump back in queue. Graphics imaging, can you give a sense for if you back out the Turkish acquisition and the impact of FX, what kind of core organic growth would have looked like in the quarter?

Excluding that Turkish acquisition, the sales in the graphics segment declined quarter-over-quarter and that obviously had a lot to do with some of the softening in the German graphics market. On a year-to-date basis, even excluding the acquisition, sales were up because of a strong first quarter.

We expect that some of our second quarter sales were pulled into the first quarter, Dan.

Got it, and lastly, can you just elaborate on the charge? I know you touched it, Steve, but I kind of missed it, the $1 million charge in that segment.

In the graphics segment, some of it related to acquisition-related costs for acquisitions that, or one acquisition that didn't come to fruition. Some related to post-acquisition integration-related costs, and then we had some severance during the quarter.

Okay. I'll jump back. Thank you.

(Operator Instructions). Next question is from the line of Clint Fendley of Davenport. Please go ahead.

Wondered, on the softening that you've seen in the German graphics market, what are your expectations there for the second half of the year? Are you expecting continued flat revenue performance? Or do you think it might decrease further from here?

Well, Clint, we have 2-fold on there. One is going to be the currency impact. We're going to feel it at these rates. Unless things change, we'll feel the impact on the top and bottom line. As it relates to the business itself, we're expecting third quarter to continue to be slow. We have some things coming online in the fourth quarter. We expect we'll pick this up. We've had some success with some customers over there. The ramp-up is a little slow, but expect to see it in the fourth quarter.

Okay, and I guess just similarly, along those lines, you've mentioned in the press release that one of the critical elements to your performance for the second half will be the casketed death rates. I just wonder, what's implicit from a volume assumption for your updated guidance? I mean, are you expecting it to remain negative, or what are you thinking?

We're trying to be prudent, Clint. Frankly, we ended the year, didn't anticipate what we saw today, it's one of those items we didn't think, but for our forecast purposes, we're not expecting to come back. Hopefully it will, and we'll have some benefit from that. But right now, we're expecting the same-old for the third and fourth quarter.

Okay, great. Thank you.

Next question is from the line of Jamie Clement, Sidoti. Please go ahead.

Your people on the ground in Germany, as they talk to customers in the graphics market there, in terms of how this softness is manifesting itself, is this just fewer packaging changes, fewer new product launches? What exactly is going on as a practical matter?

That's exactly what's going on. For the most part, we're seeing a slowdown in our packaging launches. I mean, we -- our business is either maintenance mode or new packaging launches. We've seen a pullback on the launch of new packages. Maintenance is always there. But we also have a, what I would call a cyclical business in some of the engineering products we do over there, that frankly did not see a good market this second quarter.

Is your sense that -- and your sense of history that these are projects that are getting shelved for a little bit and will hopefully kind of reemerge in a couple of quarters? I mean, is that the way you all like to think about it, or at least hope to think about it?

I mean, honestly, consumer products where we do most of our work, live by new packaging innovations, so we expect them to be shelved for a while and then come off at some point. I think it's when they feel the effectiveness of that packaging will be most important, maybe in the recessionary period, most of our customers just don't think they are going to get the bang for the buck by spending it right now.

And then just last follow-up there is in terms of getting the graphics segment back to a 10%-plus margin, obviously currency in the short-term is an issue. I get that. But I mean, other than that, is it simply just a question about volume?

Well, that and frankly, Jamie, one of the items that is impacting the graphics performance is our pension costs.

Okay, fair. Fair, fair. Okay.

That would change the results today.

Okay, great. All right. Thanks very much for your time.

Next question is from the line of Liam Burke, Janney Capital. Please go ahead.

Steve, on the casket inventory, I know you were shifting. You had to increase inventories when you shifted more to a direct model than distribution. Are those inventories been worked through, or do you still have some higher inventory levels on the casket side?

We still have higher inventory levels on the casket side, Liam. We've started to take some of that out this year. We've seen a little bit of a decline there. But the short answer was we have more work to do.

Okay, and on copper prices, I know it's -- they are easing a bit now. Are you opportunistically buying, or are you just going to continue to manage it the way you have been in the past?

Frankly, we're buying a little bit. We said earlier, we're bought out till probably the end of July, which is this third quarter. I think that hopefully we'll get some opportunity to buy more for the fourth quarter at lower prices than we've been incurring, but we're not counting that right now.

Okay, great. Thank you.

Next question is from the line of Greg Halter, Great Lakes Review. Please go ahead.

Wondering if you could comment on the granite business and the performance you're seeing out of that entity, I guess you would want to call it.

It's relatively break-even at this point in time. The reality of our granite business is what we're looking for is going to come out on the back side of this ERP implementation. We see some pretty big opportunities in that business and what I would call formalizing processes and ordering capabilities across the United States through the benefits of what we're doing on our ERP. So we won't have big impact yet, but we expect to see it coming as we move forward.

And when you say back side, is that a quarter or year away?

I would tell you it's year-plus. I mean, this is a longer-term strategy for us.

Okay, and then secondarily, Steve, regarding the unusual items that you broke out in Note 2 in the supplemental figures--

Yes.

Are those included or excluded in the operating profit numbers that are shown above in that table?

Those costs are part of the determination of operating profits shown in the above table. The above table reflects the GAAP operating profit, if you will, as reported.

Okay. All right, thank you.

Next question is from the line of Scott Blumenthal, Emerald. Please go ahead.

Joe, we seem to be doing a little bit better in the US now than the folks in Europe are. I was wondering if you might be able to address how your funeral home products mix is year-over-year? When we were still in recessionary or coming out of recession, people were a little bit more cost conscious. Are you seeing that ease up at all now, or is the mix still kind of--?

We're seeing stability. We're not seeing degradation like we were for the last several years, Scott. But what we're seeing in our products, our memorialization side of our business has returned to normalcy, and our cremation units, for example, you see the results coming out of that. So we think that both in terms of some marketing strategies that we have coming out, we'll be able to start to move that number forward again.

Since you mentioned cremation, Joe, could you maybe compare what the total revenue opportunity would be to Matthews for a cremation funeral compared to a casketed funeral and what the current realized revenue is in a cremation funeral, and what you could do to kind of I guess increase the overall, I guess out-of-pocket share of your customer?

If I gave you an average, that would -- if I looked at it from what I would call a casketed death, we would end up with a casket and a marker in some form or fashion. I would expect that to be somewhere in the $1,500 to $1,600 range, more or less. A cremation that utilizes a cremation casket as well as an urn and some form of memorialization, even albeit a smaller, could be close to maybe $700. So the issue is not necessarily what our revenue opportunities are. It is getting that realization to occur in the US today, is probably somewhere around 10% to 15%, where all those facets are being utilized. But there is an effort by just about every one of us, including our customers, to move in that direction. So we think longer term there's some upside opportunity just from that.

Okay, that's really helpful. Thank you.

(Operator Instructions). And there are no questions in queue at this time.

All right. Well, thank you. We would like to thank all for participating in our call this morning, and we look forward to our call in July regarding the third-quarter results. Thank you, and have a good day and a good weekend.

Ladies and gentlemen, thank you for joining us today. This call will be available for replay starting today at approximately 12.00 PM Eastern time and will run through May 3, midnight. You may dial the AT&T Executive Playback service by dialing 320-365-3844 with the access code 243771. Now, that does conclude your conference. We do thank you for joining. You may now disconnect. Have a good day.