Matthews International Corp (MATW) 2012 Q3 法說會逐字稿

Welcome to the Matthews International third-quarter results conference. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will be given at that time. (Operator Instructions) As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Mr. Steve Nicola. Please go ahead.

Thank you, Earl. 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, please dial 1-320-365-3844 and enter the access code 253400. The replay will be available until 11.59 PM, August 3, 2012. We have posted on our website, which is www.matw.com, the third-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 June 30, 2012 will not be filed with the SEC until the first week of August.

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 made several changes in our segment reporting effective October 1, 2011. Beginning this fiscal year, we 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 reclassified the Cremation Casket business from our Cremation segment to the Funeral Home Products segment.

For the quarter ended January 30, 2012, the Company reported earnings of $0.58 per share, compared to $0.74 for the third quarter a year ago. On a non-GAAP basis, the Company's adjusted earnings per share were $0.65 for the fiscal 2012 third quarter, compared to $0.76 last year. The significant factors in the year-over-year earnings decline for the most recent quarter included the impact on sales of bronze memorials and caskets of the decline in US deaths; softening in our European markets, in particular, the impact on our graphics business and the value of the euro; and the ERP implementation and our Cemetery Products segment.

For the nine months ended June 30, 2012, the Company reported earnings of $1.51 per share, compared to $1.75 for the same period a year ago. On a non-GAAP basis, the Company's adjusted earnings per share were $1.73 for the first nine months of fiscal 2012, compared to $1.85 last year.

Beginning this fiscal year, we are providing 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. The net amount of these non-GAAP adjustments were $0.07 and $0.22 for the fiscal 2012 third quarter and year-to-date periods respectively. For fiscal 2011, these adjustments amounted to $0.02 for the third quarter and $0.10 for the year-to-date period.

The fiscal 2012 non-GAAP adjustments included the following. Pension and post retirement expense. Because of the volatility in 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.

ERP implementation costs. As we have previously discussed, we recently implemented a new ERP system for our Cemetery Products segment. We anticipated that additional costs and related inefficiencies would be incurred during the current year as a result of the system conversion. These additional costs unfavorably impacted earnings by approximately $0.02 during the quarter and $0.04 year to date.

Acquisition-related costs. We have incurred incremental costs in connection with recent acquisitions and the investigation of new opportunities. Under current accounting rules, most of these costs are required to be expensed.

Severance related costs and favorable income tax adjustments. The fiscal 2012 and 2011 third quarters each benefited from adjustments of $0.02 per share, related to the closure of prior income tax periods. An additional significant item affecting earnings comparability was a decline in the value of foreign currencies relative to the US dollar, principally the euro. For the current quarter, changes in foreign currency values unfavorably affected our earnings by $0.03 per share, compared to the same quarter last year. On a year-to-date basis, changes in currency values had a $0.04 unfavorable impact in the current year, compared to the same period a year ago.

Consolidated sales were $227.5 million for the fiscal 2012 third quarter, compared to $231.5 million for the same quarter a year ago. For the current quarter, an increase in sales volumes in our Merchandising Solutions, Cremation, and Marking Products segments, as well as the impact of recent acquisitions, were offset by lower European sales, including the impact of unfavorable changes in the value of the euro and the decline in Cemetery Products and Funeral Home Products sales. For the nine months ended June 30, 2012, consolidated sales increased to $670 million, compared to $659 million a year ago. This 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.

Changes in foreign currency values against the US dollar were estimated to have an unfavorable impact of approximately $8.5 million on the Company's sales for the current quarter compared to a year ago, and $11.1 million on a year-to-date basis. Consolidated operating profit for the quarter ended June 30, 2012 was $27.5 million, compared to $35.1 million for the same quarter last year.

Lower consolidated sales and the net unfavorable impact of unusual items were significant factors in the operating profit decline. These items were partially offset by operating profit improvement in the Cremation, Marking Products, and Merchandising Solutions segments.

Year-to-date consolidated operating profit for the current year was $71.7 million, compared to $85.5 million for the same period last year. Lower sales for the Cemetery Products and Funeral Home Products segments, higher material costs, and the net unfavorable impact of unusual items were the significant factors in the year-to-date operating profit decline. These items were partially offset by operating profit improvement in the Cremation, Marking Products, and Merchandising Solutions segments. In addition, changes in foreign currency values against the US dollar were estimated to have an unfavorable impact of approximately $1 million on the Company's operating profit for the current quarter, compared to a year ago, and $1.3 million on a year-to-date basis.

Sales for the Cemetery Products segment were $58 million for the fiscal 2012 third quarter, compared to $63 million last year. For the nine months ended June 30, 2012, the segment's sales were $157 million, compared to $166 million a year ago. The increase in sales from a year ago reflected the decline in deaths during the current year and lower mausoleum sales. These items were partially offset by the benefit of the recent acquisition of Everlasting Granite.

Operating profit for the Cemetery Products segment was $12.6 million for the current quarter, compared to $18 million a year ago. On a year-to-date basis, the segment's operating profit was $27.3 million for the current period, compared to $38.9 million last year. The decline in operating profit for the current year resulted principally from lower sales, higher material costs, and incremental costs in connection with the segment's ERP implementation.

Sales for the Funeral Home Products segment were $56 million for the quarter ended June 30, 2012, compared to $60 million for the fiscal 2011 third quarter. For the first nine months, the segment sales were $176 million for the current fiscal year, compared to $189 million a year ago. The quarter and year-to-date decreases primarily reflected the decline in deaths.

In addition, sales to independent distributors were significantly lower than a year ago. Operating profit for the Funeral Home Products segment for the fiscal 2012 third quarter was $6.9 million, compared to $7 million for the fiscal 2011 third quarter. The impact of lower sales was substantially offset by cost-savings initiatives and an improved sales mix. For the first nine months of fiscal 2012, the segment's operating profit was $20.8 million, compared to $22.9 million a year ago, primarily reflecting the impact of lower sales.

Fiscal 2012 third-quarter sales for the Cremation segment were $12.3 million, compared to $9.7 million for the same quarter last year, representing an increase of 27%. For the first nine months of the current fiscal year, Cremation segment sales were approximately $33 million, compared to $26 million a year ago, an increase of 25%. Higher sales of cremation equipment in all of the segment's markets were the main factor in the year-over-year growth.

Operating profit for the Cremation segment for the quarter ended June 30, 2012, was $1.3 million, compared to $1.1 million a year ago. Year-to-date operating profit as of June 30, 2012 for the Cremation segment was $3.3 million, compared to $2.2 million last year.

The quarter and year-to-date improvements in operating profit primarily resulted from higher sales. For the Brand Solutions group, Graphics Imaging sales were $62 million in the fiscal 2012 third quarter, compared to $68 million last year. Lower sales in the segment's European markets and unfavorable changes in foreign currency values were significant factors in the decline.

On a year-to-date basis, the Graphics business reported sales of $198 million for the current period, compared to $193 million last year, reflecting first-quarter sales growth and the benefit of last year's Turkish acquisition. Changes in foreign currency values, principally the euro, had an unfavorable impact of $6.3 million on the segment's sales for the current quarter and $8.5 million year to date, compared to the same period last year.

Third-quarter operating profit for the Graphics Imaging segment was $2.6 million for the current year, compared to $6.1 million a year ago. Unusual items during the current quarter, principally acquisition-related costs, resulted in a net charge of $1.1 million. Lower European sales and changes in foreign currency rates also contributed to the operating profit decline. Changes in currency rates had an unfavorable impact of approximately $850,000 on the segment's operating profit for the current quarter, compared to the third quarter last year.

For the first nine months of fiscal 2012, operating profit for the Graphics business was $11.3 million, compared to $15.7 million a year ago. The decline primarily reflected lower third-quarter European sales and a net $2.3 million unfavorable impact of unusual items. In addition, changes in foreign currency rates had an unfavorable impact of approximately $1.1 million on the segment's operating profit for the current period, compared to the first nine months last year. Sales for the Marking Products segment for the quarter ended June 30, 2012 were $19.3 million, compared to $15.7 million for the same quarter last year.

For the first nine months of the current fiscal year, Marketing Products segment sales were $53 million, compared to $43 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 equipment sales volume. Operating profit for the Marketing Products segment was $2.9 million for the current quarter, compared to $1.8 million for the fiscal 2011 third quarter. The segment's year-to-date operating profit increased to $6.3 million for the current year, compared to $4.7 million last year. The increases mainly reflected higher sales and the benefit of acquisitions.

Fiscal 2012 third-quarter sales for the Merchandising Solutions segment were $18.9 million, compared to $15.1 million a year ago. On a year-to-date basis, the segment reported sales of $53 million through June 30, 2012, compared to $41 million last year, representing an increase of 27%. The increases for the quarter and year-to-date periods were attributable to higher sales to several national accounts. As a result, the segment's third-quarter operating profit improved from $1.1 million last year to $1.2 million for the current quarter. On a year-to-date basis, operating profit for the Merchandising Solutions segment improved from $1.1 million a year ago, to $2.8 million this year.

Sales and operating profit by segment, including unusual items for the quarter and year-to-date periods, are posted on our website for your reference. Our fiscal 2012 third-quarter consolidated operating margin was 12.1% of sales, compared to 15.2% a year ago. For the first nine months of fiscal 2012, our consolidated operating margin was 10.7% of sales, compared to 13% a year ago. The decline in operating margin primarily resulted from lower year-to-date sales for the Cemetery Products, Funeral Home Products, and Graphics Imaging segments, higher material costs, and the net unfavorable impact of unusual items.

Gross margin for the quarter ended June 30, 2012 was 38.6% of sales, compared to 39.7% for the same period a year ago. Year-to-date gross margin for fiscal 2012 was 37.4% of sales, compared to 39.4% last year. The declines in gross margin percentages were primarily attributable to lower sales for the Cemetery Products and Funeral Home Products segment, higher material costs, and the impact of unusual items.

Selling and administrative expense for the current quarter was 26.5% of sales, compared to 24.6% for the same quarter last year. Selling and administrative expense for the first nine months of the current fiscal year was 26.7% of sales, compared to 26.4% a year ago. The increased consolidated percentages primarily reflected the effect of lower Cemetery Products and third-quarter Graphics Imaging sales, and the net unfavorable impact of unusual items.

Investment income for fiscal 2012 third quarter was $176,000, compared to $595,000 a year ago. Year-to-date investment income was $3 million, compared to $2.2 million last year. The investment performance on assets held in trust for certain of the Company's benefit plans was lower than a year ago for the fiscal 2012 third quarter, but still higher on a year-to-date basis.

Interest expense for the current quarter was $2.9 million, compared to $2.2 million for the same period last year. For the first nine months of fiscal 2012, interest expense was $8.2 million in fiscal 2012, compared to $6 million a year ago. The increased interest cost for the current year resulted primarily from a higher average 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 third quarter represented a deduction of $602,000, compared to $559,000 a year ago. For the first nine months of fiscal 2012, other income deductions net represented a deduction of $1.8 million, compared to $1.5 million a year ago. Other income and deductions generally include, among other items, banking-related fees and the impact of currency gains or losses on inter-Company debt.

Net income from noncontrolling interests was a deduction of $60,000 for the current quarter, compared to $296,000 a year ago. On a year-to-date basis, the deduction was $129,000 for the current year, compared to $1.1 million last year. The year-over-year change principally resulted from the Company's purchase last year of the remaining 22% ownership interest in [Saurus].

The Company's year-to-date effective income tax rate as of June 30, 2012 was 33.7% of pretax income, compared to 34.4% for the fiscal year ended September 30, 2011. Both periods each included a favorable income tax adjustment of $0.02 per share related to the closure of certain prior income tax periods. Excluding the favorable impact of these adjustments from both years, the effective tax rate was 34.5% for the current fiscal year, compared to 35% for the fiscal year ended September 30, 2011. The reduction in the consolidated effective income tax rate for the current period principally reflects the impact of recent operating structure initiatives in Europe.

At June 30, 2012, the Company's consolidated cash and cash equivalents were $55 million, compared to $62 million at September 30, 2011. Our current ratio is 2.2 at the end of the current quarter, compared to 2.3 at September 30, 2011. Accounts receivable at June 30, 2012 were $172 million, compared to $165 million at September 30, 2011. Consolidated inventories at June 30, 2012 were $133 million, compared to $126 million at the end of fiscal 2011.

Long-term debt at the end of the current quarter, including both current and long-term portions, approximated $320 million, which was relatively consistent with September 30, 2011. At June 30, 2012, $250 million of the outstanding debt balance represented borrowings under our domestic revolving credit facility at an average interest rate of 3.1%. Effective March 1, 2012, the borrowing capacity of this facility was increased to $400 million, with the maturity date extended to March 1, 2017.

The Company had approximately 28 million shares outstanding at June 30, 2012. Through the first nine months of the current fiscal year, the Company purchased approximately 600,000 shares under its share repurchase program at a cost of $18.9 million. At the end of the current quarter, approximately 2.2 million shares remain under the current share repurchase authorization.

Depreciation and amortization expense for the quarter and nine months ended June 30, 2012, were $7.3 million and $21.9 million, respectively. Capital expenditures for the quarter and nine months ended June 30, 2012 were $8.7 million and $24.6 million, respectively.

In assessing our outlook for the fourth fiscal quarter, we continue to focus on three significant factors that have affected our year-to-date earnings. The impact of the decline in US deaths on sales of bronze memorial and casket products; a slowdown in our European markets, including a recent further decline in the value of the euro; and the ERP implementation in our Cemetery Products segment. In the near term, we expect these challenges to continue. In response, we are planning more aggressive cost-reduction programs and plan to accelerate our initiatives to resolve the remaining ERP implementation issues. These initiatives are expected to result in additional unusual one-time charges.

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 $2.34 to $2.40 for fiscal 2012. On a comparable basis, our adjusted non-GAAP earnings were $2.60 per share in fiscal 2011. Lastly, the Board yesterday declared a dividend of $0.09 per share on the Company's common stock for the quarter ended June 30, 2012. The dividend is payable August 13, 2012 to stockholders of record July 30, 2012.

This concludes the financial review, and Joe will now comment on our operations.

Thank you, Steve. Good morning.

Our fourth-quarter results were a disappointment for us. As many of you are aware, we are not accustomed to not meeting our expectations, and we take those commitments seriously. Unfortunately, throughout the quarter, certain events that we had expected to occur did not, while certain events that we did not expect to occur did. Let me summarize our results for you.

First, we continue to struggle with our ERP implementation in the Cemetery Products division. We had anticipated better throughput in our plans and improved efficiency in our front-end processes, but unfortunately, neither result has been achieved yet. We have significantly improved customer satisfaction, particularly with our more standard products. But we continue to incur higher labor costs and other inefficiencies in our front-end order entry area, which has caused us to be inefficient throughout the plants.

We have initiated a surge effort in this division, which essentially accelerates many of the process improvements that we had anticipated would occur over the next 12 to 18 months. The surge is expected to bring this business back to normal more quickly and move us materially past our service levels and efficiencies which we had prior to the ERP implementation. We anticipate another quarter of one-time costs associated with the surge, and expect the business to return to normal during the first part of fiscal 2013.

Second, during our last quarterly call we indicated that business in Europe was beginning to slow, consistent with the overall economic turmoil in Europe. We have experienced a decline in volume in our European businesses prior to this quarter, which prior to this quarter has been relatively stable. Slower order volumes at all of our Graphics businesses have impacted our results beyond our expectations. We do not believe that we will see a significant improvement in the coming quarter, but we do expect the business to return to normalcy as the situation in Europe improves.

Third, the challenges we faced in Europe in the current quarter were exacerbated by the impact of the decline in the value of the euro. This decline has impacted our year-over-year results by almost $0.03. At this time, it is unclear how much further the euro will decline, but our guidance anticipates the current exchange rates.

Finally, the casket and death rates continue to be substantially below fiscal 2011. This has impacted us materially, both in the form of reduced volume, which has a significant variable margin impact on our results, as well as the effect of aggressive pricing, as competitors each struggle for volume in the difficult environment. Fortunately, much of the aggressive pricing appears to be program-driven, with definite termination dates. Thus, we hope price willing improve as volume returns.

On a more positive note, we know that many of these challenges are transient and should improve throughout fiscal 2013. For example, we have recently seen a decline in the copper costs, which we expect to continue, thus relieving some of the metal cost pressure that we have felt throughout the year. We also know that demographically, death rates will not remain low indefinitely, as the US Census Bureau predicts a roughly 1% rise in total deaths for the near term. And as you can tell by some of our non-GAAP disclosures, we continue to be active in our acquisition programs in each of our businesses.

Lastly, we do see the light at the end of the tunnel with respect to our ERP implementation, and clearly see the opportunities that our new system offers us to automate and improve our efficiencies. We continue to have strong generation of cash, and will deploy that cash for the benefit of our shareholders. Therefore, during this difficult time and as evidence of our belief in the short-term nature of some of these challenges, we expect to be more active in our share repurchase program as we move forward.

With that, we will open it up to questions.

Thank you. (Operator Instructions) Daniel Moore.

Can you perhaps quantify the additional noncash charges expected in Q4 related to the surge, as you described? And are those excluded in your non-GAAP -- updated non-GAAP guidance?

Dan, yes, those numbers are excluded in terms of our non-GAAP number for the year, and we are not in a position to quantify those yet today. We are actually still evaluating the extent of the program and the cost of the program.

Okay. And with regard to the ERP system, what is your -- maybe give us a little bit more color around the surge. What is your confidence around timing of resolving some of the issues in productivity that you had mentioned, Joe?

Well, Dan, as I said in my comments, the reality is that we are satisfied -- we are significantly better at satisfying our customer needs than we were before. So, we are improving every day as we move forward. What we are doing today, and what we realized with our implementation of ERP, is the complexity of our product has caused us to be slower in the implementation of the process, as it relates to what we have installed. We are expecting that much of the automation that we had anticipated putting into place over the next 12 to 18 months will be in place by the end of the fiscal -- by the end of the calendar year, excuse me, and that we will begin to see that normalcy return by the end of the first quarter, starting to move forward into the second.

So, we are pretty confident in what we are doing. We had this plan as part of where we were going. We did not expect it would take this long to become efficient; but today, it is stable, it is operating effectively. It's just a lot more expensive to get it through than we had anticipated.

And then, following up, I will ask one more, and then jump back in queue -- maybe remind us some of the benefits and the opportunities that the ERP system enables to you explore, once fully implemented.

Well, frankly, Dan, one of the keys to this whole implementation is to have better information to be able to automate our processes. We are very, very excited about the opportunities presented to us with our e-services offering. The e-services offering will basically automate a lot of the design tools and go directly to shop. Much of the costs associated with producing a product -- and frankly, a lot of the errors and problems that are created through are -- is the number of hand-touched processes we have to go through to get from order to shop. So, we expect there is going to be significant improvement, both from the operating efficiency standpoint, but also on the front end as we begin to market through our e-services a more elaborate, more effective marker.

That is helpful. I will jump back in queue.

And by the way -- unfortunately, the burden is right now being borne by our Bronze business. We see this as an opportunity throughout our organization. It's just the first.

Understood.

Clint Fendley, Davenport.

I wondered if you had an idea how much the casketed death rate was down, specifically in the quarter.

We think it's going to be the mid-single digits, 5% or so. That is our estimate at this point in time. Maybe somewhere between 4.75% and 5.25%.

Okay. And I wondered -- you commented in the opening remarks about the -- your sales to independent distributors being down very significantly. I wondered why you believe that is happening.

It's directly related to my comment on aggressive pricing in the marketplace. Essentially, as the manufacturer, we are able to respond directly to aggressive pricing in the marketplace and match independent distributors. And we have a fairly significant number of those out there right now who are much more tied to a limited margin. Therefore, they are not able to respond as quickly or as effectively in a price-sensitive market. We are developing plans, as we speak, to be able to address that with our distributors and participate in that, and we hope to see the benefit of that going forward. Today, Dan, we are about 80% direct.

80% direct. Okay. And how do you think that the sale of Aurora will change the competitive dynamic in the industry, and the impact on -- specifically on pricing?

The impact on pricing -- Aurora has generally been a very good competitor, so I don't think it's going to have a significant impact on pricing. My understanding is that they are actively looking to roll up a lot of the remaining businesses that are out there. We have had some information to that effect. So, we are hoping to see more discipline brought to the market.

Okay. And just last question here, sort of bigger picture -- I know you guys referenced in the release that you believe the business can return to traditional levels of growth after some of these short-term pressures subside. Can you maybe help us understand how you are able to get to that growth? And obviously, a lot of things have changed in the industries that you serve, both with regard to the consumer and also the competitive dynamic. So, maybe just a view to the roadmap of what had been kind of a very consistent level of 10% to 15% earnings growth for the Company, and how you might be able to achieve that. And if it's possible, within maybe two years, what the time frame might be in order to get back to that.

The reality is, is we need a stabilization in the death rates. If we can get a stabilization in the death rates, we are pretty confident we can achieve our standard model for achieving growth. Historically, we have grown mid-single digits, 4% to 7% organically. We added to that with 4% to 5% of acquisitions, and added our share buyback to get us over that 10% to 12% every year for the last several years. We don't see that as a change in our model. We continue to have plenty of opportunities, both in our strategy of expanding our granite side of our business and continuing to improve on our casket side of the business.

We have great hopes for what we think is going to be a wonderful tool with our e-services to continue to reduce costs, but also to sell up. And there remains plenty of opportunities to acquire, particularly in our European businesses, from the Graphics side. So, we don't see a change in that. A lot of these things are outside of our control. We can't -- the currency is going to be what the currency will be, and the economy will be the same. So, we need some stability, and that is what we have lacked for the last several years to be able to do that.

Got it.

Also, the one thing that we were hoping, frankly, Clint, is we think that there is a longer-term downward trend in our copper costs. We are not certain of that, but every indication is there is enough capacity coming online to take a lot of the pressure off that we are seeing on the copper side. As you have heard from us in the past, we are currently experiencing, and we continue to experience, despite some drop in the metal, we are currently experiencing record metal prices at a time when unfortunately, due to our own difficulties in implementing the ERP, we have not been able to raise our prices until this quarter.

Got it. Thank you, guys.

Liam Burke, Janney Capital Markets.

Either Joe or Steve -- your Casket business, you had mentioned that as you shifted you integrated acquisitions, you had to carry double the inventory. Have you been able to work out that -- work down that excess inventory on the casket side?

Yes, Liam, we have taken about $5 million out so far. Our target is about $15 million over the course of the next several years, and this ERP implementation, frankly, is a substantial part of improving that for us.

Okay.

And we expect to drop assets out, particularly on the inventory side.

Okay. And you had on Caskets still, or Funeral Home Products now -- you had positive operating margin year over year on lower sales levels. You have talked about productivity initiatives. Do you see that trend continuing?

As we have always said, we believe that we can get this business to the mid-teens, as an operating profit. Unfortunately, had we not had some of the pricing and volume issues, we would be further along that path today. But our expectations, Liam, have not changed.

Okay. And on the Cremation business, you saw system sales up. Are a lot of them in Europe, especially the new filtration, or are they the typical systems?

Unfortunately, Liam -- I guess fortunately, because the currency has gone the other way -- but unfortunately for us, most of the growth has been in the US. Our team in the United States has wonderful new products. And to the extent you can find cremators exciting, they are exciting products.

Okay.

And we think that it will change our business going forward, including the model which we operate.

Okay. And just sticking on cremation, I know this is a long cycle for you and a long-term project, but are you seeing any positive signs on memorialization of cremation? I know only a small percentage of cremations are actually memorialized. How -- are you seeing any potential in some of these funeral home programs that you have mentioned before?

Well, I can tell you that some of our larger customers, as I may have said publicly in the past, have now committed significant dollars to building capacity. One of the first things that has to happen is you have to have an offering at the cemetery to be able to put that. So, we know that Stewart, for example, has done a fine job with a couple of properties that we helped them design. One particular that I visited just a couple of weeks ago, which is far beyond the kind of thing that we need to be seeing more of in the United States. As the larger competitors -- or larger customers see success, we think that trend will continue.

Okay, great. Thank you.

Greg Halter, Great Lakes Review.

I just wanted to get a couple of numbers straight first. Steve, I think you said the average share count was around 28 million for the quarter.

That was -- 28 million is the ending balance of shares outstanding, Greg. I think -- this is the way I look at it -- the average share number, diluted share amount for the quarter was about 28.2 million when you take into account the dilution and the way the new accounting rules work on earnings per share.

Okay. And also, relative to the euro impact for the quarter, can you provide that on the sales, operating income, and EPS? Or reiterate what you said, I think?

Yes, on the sales side for the quarter, it was $8.5 million, and for the operating profit side, I believe it was about $1 million.

I think you said $0.03 unfavorable EPS?

I'm sorry, earnings per share impact was $0.03 unfavorable for the quarter and $0.04 unfavorable impact year to date.

Okay. And can you speak to the granite side, how that is doing since you have made some acquisitions in that area?

Our recent addition of Everlasting in the South has proven to be a nice little addition for us. It is both a model change, as well as a geographic change for us. Their model is much more inside sales, strong telephonic support, and we are coupling that with our sales force in the Northeast and the Southeastern part of the United States because they are located in the Georgia area. We see that going well so far, although it's very, very early.

Okay. And would you expect to expand that model throughout the country as you grow that piece of the business?

We not only expect to expand the model, we think it's going to be a significant beneficiary of our e-services offering. There is nobody of any scale out there able to do what we are doing on the e-services side, especially on stone, so we are expecting this to be a benefit.

Okay. Can you speak to order trends in the businesses where orders are important, maybe Graphics or Marking Products and so forth?

I can tell you in that our -- interestingly enough, in our Graphics businesses, as we said, we are predominantly a European business, and we have seen a slowing. And that slowing has not changed at this point in the fourth quarter. On our Marking Products businesses, I would tell you that we had one of our strongest quarters from the equipment sales side, largely driven by new products and new things that we have developed, and not necessarily driven by the market. And why I say that is, we have still not seen a return to normalcy on the ink side, which is an indicator of production. So, that business has done a fine job of positioning itself in a difficult market, for new markets to deal with the new products and new opportunities. When we see a return to somewhat more normal construction in our traditional businesses, we expect significant improvement there.

Okay. And on the -- relative to the ERP system implementation, what is left to go on to that system?

What is left to go on? This is it, for all practical purposes. The irony of it for us, as you all know, we have many businesses. We have saved Bronze for last, and we rarely talked about our ERP implementation over the last four implementations we did. Unfortunately, our most important and most difficult one to install had challenges that we were faced with, largely driven by the complexity of the business. We produced 300,000, 400,000 one-off pieces, and that is the challenge. And that has really slowed the implementation down from an efficiency standpoint.

And relative to the share repurchase, you had indicated there on the call earlier that you expect with your strong good cash flow generation to be more active in the share repurchase. Is there a level -- and I presume you may put some debt on as well, or maybe not -- but what kind of level of debt to cap would you go to?

Greg, I think when we talked about being more aggressive, I think at the present time, our expectation is just to remain in the opportunistic mode that we have been in. Certainly, it will be based on price, our good cash flow that has continued, and how we use that cash flow. So, we really haven't thought of it in terms of where we would take our debt-to-equity ratios. It's really just going to take a more -- call it aggressive approach or proactive approach, as we see opportunities here in the next quarter or so.

All right. And one last one for you -- kind of relative to the ERP system, or going back to that. What level of confidence can us as analysts and investors take away that you have made the progress that you are seeing and you expect to see the benefits now?

As we said earlier, we are not expecting great change in the fourth quarter here. So, will you have an indication of that before we start to give guidance for 2013. But I can tell you that we have all hands on deck, and we believe we have identified what changes need to be made. And we expect that by the time we come out with our next quarter, you will have a very clear understanding of where we are.

Okay. Thank you.

Daniel Moore.

Just as far as Europe is concerned, if you look at the last two months sequentially, are things getting worse with regard to the Graphics Imaging business, backing out currency, just the fundamentals? Or is it sort of bouncing along the bottom?

We have been bouncing along the bottom for the last, I would say, two to three months. As we said, we saw a decline in the final part of last quarter. That has pretty much levelized.

Okay. And then, lastly, is there anything mechanically keeping from you being in the market today or in a very short time frame, as far as share repurchases?

Not that I'm aware of. Steve may know otherwise. I don't think there is anything mechanically.

Okay, thank you very much.

Okay. And I'm not showing anybody else in the queue, sir.

All right, thank you, Earl. Well, we would like to thank everyone for participating in the call this morning, and we look forward to our fourth-quarter earnings release and conference call, which will be in November 2012. Thank you and have a good day.

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