Matthews International Corp (MATW) 2012 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the fiscal year end 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 now like to turn the conference over to our host Mr. Steve Nicola, Chief Financial Officer. Please go ahead.

Thank you, Jeff, 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 11.00 AM today. To access the replay, please dial 132-036-5344(sic) and enter the access code 267624. The replay will be available until 11.59 PM November 30, 2012. We have posted on our website, which is www.matw.com the fourth-quarter earnings release and financial information we will discuss this morning. On the top of our homepage 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 this 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 annual report on Form 10-K for the year ended September 30, 2012 will not be filed with the SEC until the end of November.

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 on our segment reporting during fiscal 2012. Beginning this fiscal year, we changed the titles of our Bronze and Casket segments to the Cemetery Products segment and Funeral Home Product segment respectively. In addition, we recently changed the title of our Marking Product segment to the Marking and Fulfillment System segment. These changes were 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 Product segment.

For the quarter ended September 30, 2012, the Company reported earnings of $0.47 per share compared to $0.71 for the fourth quarter a year ago. On a non GAAP basis, the Company's adjusted earnings per share were $0.61 for the fiscal 2012 fourth quarter compared with $0.75 last year. The significant factors in the year over year earnings decline for the most recent quarter included the ongoing softness in our European markets, in particular the impact on our Graphics business and the value of the euro, the effect on sales of bronze, memorials and caskets of the decline in US deaths, costs associated with the ERP implementation in our Cemetery Products segment and additional costs related to significant cost structure initiatives in several of our businesses. For the fiscal year ended September 30, 2012, the Company reported earnings of $1.98 per share compared to $2.46 for the same period a year ago. On a non-GAAP basis, the Company's adjusted earnings per share were $2.34 for fiscal 2012 compared to $2.60 for fiscal 2011.

Beginning this fiscal year we are presenting 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 for fiscal 2012 was $0.14 for the fourth quarter and $0.36 for the fiscal year. For fiscal 2011 these adjustments amounted to $0.04 for the fourth quarter and $0.14 for the year.

The fiscal 2012 non-GAAP adjustments include 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 discussed throughout this fiscal year we recently implemented a new ERP system for our Cemetery Products segment. This implementation resulted in incremental systems conversion cost which were expected and created inefficiencies during the transition process which is still ongoing. During the fourth quarter we begin a significant initiative to accelerate the completion of this conversion. These additional costs unfavorably impacted earnings by approximately $0.05 during the current quarter and $0.09 for the fiscal year.

Cost structure initiatives. As we announced in our third-quarter earnings call, we also initiated cost structure improvement programs in several of our businesses. These additional costs associated with these initiatives, primarily severance charges, unfavorably impacted earnings by approximately $0.06 during the quarter and $0.09 for the fiscal year. Acquisition related items. We have incurred incremental cost in connection with recent acquisitions and the investigation of new opportunities. Under current accounting rules, most of these costs are required to be expensed. In addition contingent considerations amounts on several prior transactions were not earned and therefore the provisions for these amounts were reversed resulting in a net benefit of $0.02 to our reported operating results during the quarter.

The remaining significant non-GAAP item was the third quarter favorable income tax adjustment. 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. One 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 $0.02 per share compared to the same quarter last year. For the fiscal year, changes in currency values had a $0.05 unfavorable impact compared to fiscal 2011.

Consolidated sales for the fiscal 2012 fourth quarter were $230.1 million compared to $239.8 million for the same quarter a year ago. For the current quarter an increase in sales in our Merchandising Solution, Marking and Fulfillment Systems, and Cremation segments and the impact of recent acquisitions were more than offset by lower Graphics Imaging sales and the impact of unfavorable changes in foreign currency values, principally the euro. For the year ended September 30, 2012, consolidated sales were $900 million compared to $899 million last year. Higher sales in our Merchandising Solutions, Marking and Fulfillment Systems, and Cremation segments and the impact of recent acquisitions were offset by lower sales in our Cemetery Products, Funeral Home Products, Graphics Imaging segments and the unfavorable impact of changes in foreign currency values. Changes in foreign currency values against the US dollar were estimated to have an unfavorable impact of approximately $7.4 million on the Company's sales for the current quarter compared to year ago and $18.4 million for the fiscal year.

Consolidated operating profit for the fiscal 2012 fourth quarter was $21.9 million compared to $33 million a year ago. Lower consolidated sales and a net unfavorable impact of unusual items were significant factors in the operating profit decline. Consolidated operating profit for the fiscal year ended September 30, 2012, was $93.6 million compared to $118.5 million last year. Lower sales for the Cemetery Products, Funeral Home Products and Graphics Imaging segments, higher bronze material costs and a net unfavorable impact of unusual items were significant factors in the year over year operating profit decline. In addition, changes in foreign currency values against the US dollar were estimated to have an unfavorable impact of approximately $800,000 on the Company's operating profit for the current quarter compared to a year ago and $2.1 million for the fiscal year.

Sales for the Cemetery Products segment were $59 million for the fiscal 2012 fourth quarter which was relatively unchanged compared to year ago. The impact of the acquisition of Everlasting Granite, generally offset a decline in bronze memorial sales volume during the current quarter. For the year ended September 30, 2012, Cemetery Products segment sales for $216 million compared to $225 million a year ago. The decrease in sales from last year reflected the decline in the burial deaths during the current year and lower mausoleum sales which were partially offset by the Everlasting Granite acquisition. Operating profit for the Cemetery Products segment was $5.9 million for the current quarter compared to $13.6 million a year ago. For the year, the segment's operating profit was $33.2 million for fiscal 2012 compared to $52.5 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. In addition, the segment reported severance costs and asset write-down charges in connection with its cost structure initiatives.

Sales for the Funeral Home Products segment or $54.5 million for the quarter ended September 30, 2012, which was approximately the same level as the fourth quarter last year. An improvement in the sales mix during the current quarter offset a decline in unit volume. For the year, the segment sales were $231 million for fiscal 2012 compared to $243 million last year, the decrease 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 fourth quarter was $5.8 million compared to $6.2 million for the fiscal 2011 fourth quarter. The decline primarily reflected a higher material and manufacturing related costs which were offset partially by the net benefit of unusual items. For fiscal 2012, the segment's operating profit was $26.5 million compared to $29 million a year ago, primarily reflecting the impact of lower sales.

Fiscal 2012 fourth quarter sales for the Cremation segment were $13.1 million compared to $13 million for the same quarter last year. Higher equipment sales in the US and the benefit of a small acquisition in the UK were generally offset by the impact of an unfavorable change in currency rates. For the year, Cremation segment sales for fiscal 2012 were $46 million compared to $39.3 million a year ago representing an increase of 17%. Higher sales of cremation equipment in all of the segments markets were the main factor in the year over year growth. Operating profit for the Cremation segment for the quarter ended September 30, 2012 was $566,000 compared to $1.3 million a year ago. Lower margins on several European-based projects and unusual charges in connection with cost reduction initiatives were the main factors in the decline. Operating profit for the year ended September 30, 2012 for the Cremation segment was $3.9 million compared to $3.5 million last year. The improvement in operating profit for fiscal 2012 primarily resulted from higher sales offset partially by the fourth quarter unusual charges.

For our Brands Solutions group, Graphics Imaging sales were $62 million in the fiscal 2012 fourth quarter compared to $76 million last year. Lower sales in the segment's European markets and unfavorable changes in foreign currency values were significant factors in the decline. For the year, the Graphics Imaging business reported sales of $260 million for fiscal 2012 compared to $269 million last year, primarily reflecting a decline in European sales which was partially offset by the benefit of last year's Turkish acquisition. Changes in foreign currency values had an unfavorable impact of $6 million on the segment's fiscal 2012 sales for the fourth quarter and $14 million for the year compared to the same period last year. Fourth-quarter operating profit for the Graphics Imaging segment was $3.5 million for the current year compared to $6.7 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 $745,000 on the segment's operating profit for the current quarter compared to the fourth quarter last year. For fiscal 2012, operating profit for the Graphics business was $14.8 million compared to $22.4 million a year ago. The decline primarily reflected lower European sales and a net $3.4 million unfavorable impact of unusual items. In addition, changes in foreign currency rates had an unfavorable impact of approximately $1.9 million on the segment's operating profit for the current year.

Sales for the Marking Products segment for the fiscal 2012 fourth quarter were $21.2 million compared to $18.8 million for the same quarter last year. For the year, Marking Products segment sales for fiscal 2012 were $75 million compared to $62 million last year. The increases in sales for the quarter and fiscal year were primarily attributable to acquisitions completed last year and higher equipment sales volumes. Operating profit for the Marking and Fulfillment Systems segment was $3.8 million for the current quarter compared to $3.1 million for the fiscal 2011 fourth quarter. The segment's operating profits for the fiscal year increased to $10.1 million for fiscal 2012 compared to $7.8 million last year. The increase has mainly reflected higher sales and the benefit of acquisitions.

Fiscal 2012 fourth quarter sales for the Merchandising Solutions segment were $20.4 million compared to $19.3 million a year ago. For the year, the segment reported sales of $73 million in fiscal 2012 compared to $61 million last year, representing an increase of 20%. The increases for the quarter and fiscal year were attributable to higher sales to several national accounts. As a result, the segment's fourth-quarter operating profit improved from $2.2 million last year to $2.3 million for the current quarter. For the year, operating profit for the Merchandising Solution segment improved from $3.3 million a year ago to $5.1 million this year.

Sales and operating profit by segment, including unusual items for the quarter and fiscal year periods, are posted on our website for your reference. Our fiscal 2012 fourth quarter consolidated operating margin was 9.5% of sales compared to 13.8% a year ago. For fiscal 2012, our consolidated operating margin was 10.4% of sales compared to 13.2% last year. The decline in operating margin primarily resulted from lower sales, the net unfavorable impact of unusual items and higher material costs for the fiscal year. Gross margins for the quarter ended September 30, 2012 was 37.4% of sales compared to 38.3% for the same period of year ago. Gross margin for fiscal 2012 was 37.4% of sales compared to 39.1% last year. The declines in gross margin percentages were also primarily attributable to lower sales, higher bronze material costs and the net unfavorable impact of unusual items.

Selling and administrative expense for the current quarter was 27.9% of sales compared to 24.5% for the same quarter last year. Selling and administrative expense for the current fiscal year was 27% of sales compared to 25.9% last year. The increased consolidated percentages primarily reflected the effect of lower sales and the net unfavorable impact of unusual items. Investment income for the fiscal 2012 fourth quarter was $871,000 compared to an investment loss of $801,000 a year ago. For the year, investment income was $3.9 million for fiscal 2012 compared to $1.4 million last year. The year over year increases resulted from better investment performance on assets held in trust for certain of the Company's benefit plans.

Interest expense for the current quarter was $3.3 million compared to $2.2 million for the same period last year. For the year, interest expense was $11.5 million in fiscal 2012 compared to $8.2 million a year ago. The increased costs 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. Other income deductions net for the fiscal 2012 fourth quarter represented the deduction of $316,000 compared to income of $1.8 million a year ago. For the year, other income deductions net for fiscal 2012 represented a deduction of $2.1 million compared to income of $298,000 a year ago. The fiscal 2011 fourth quarter included a currency gain on the settlement of inter- Company debt. Other income and deductions generally include, among other items, banking related fees and the impact of currency gains and losses on inter-Company debt.

Net income from non controlling interest for the fiscal 2012 fourth quarter resulted in additional income of $768,000 compared to $49,000 a year ago. For the year, net income from non controlling interest for fiscal 2012 resulted in additional income of $639,000 compared to a deduction of $1.1 million last year. A significant factor in the year over year change was the Company's purchase last year of the remaining 22% ownership interest in Saueressig. In addition, a net loss in fiscal 2012 for the Company 's Turkish operation, which resulted primarily from one-time charges and other unusual costs, resulted in an add back to income related to non controlling interest this year.

The Company's year-to-date effective income tax rate as of September 30, 2012 was 34.2% of the 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 34.8% 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 September 30, 2012, the Company 's consolidated cash and cash equivalents were $58 million compared to $62 million at September 30, 2011. Our current ratio was 2.1 at the end of the current fiscal year compared to 2.3 at September 30, 2011. Accounts receivable at the end of fiscal 2012 totaled $175 million compared to $165 million at September 30, 2011. Consolidated inventories of September 30, 2012 were $131 million compared to $126 million at the end of fiscal 2011. Long-term debt at the end of the current fiscal year, including both current and long-term portions, approximated $320 million which was relatively consistent with September 30, 2011. At September 30, 2012, $281 million of the outstanding debt balance represented borrowings under our domestic revolving credit facility at an average interest rate of 2.8%. The borrowing capacity of this facility is $400 million with a maturity date of March 1, 2017.

The Company had approximately 27.6 million shares outstanding at September 30, 2012 and purchased slightly over 1 million shares under its share repurchase program at a cost of $31 million. At the end of the current quarter, approximately 1.8 million shares remained under the current share repurchase authorization. Depreciation and amortization expense for the year ended September 30 was-- for the year ended September 30, 2012 was $28.8 million. Capital expenditures for fiscal 2012 were $33.2 million.

In summarizing our results for fiscal 2012, our earnings were impacted by several significant factors. 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, a significant increase in bronze material cost compared to last year and the ERP implementation in our Cemetery Products segment. As we disclosed at the end of our third quarter, the Company initiated more aggressive cost reduction programs and accelerated initiatives to resolve the remaining ERP implementation issues, which resulted in additional one-time costs in the fiscal 2012 fourth quarter. These initiatives are still in progress, and as a result, are expected to result in further one-time costs during fiscal 2013. Excluding unusual items from both years, based on our current forecast, we are projecting adjusted non-GAAP earnings per share to be in the range of $2.45 to $2.55 for fiscal 2013.

Lastly, the Board yesterday declared a dividend of $0.10 per share on the Company's common stock. This represents an 11% increase in the dividend rate and reflects the Board's confidence in the Company's future growth opportunities and profitability initiatives. The dividend is payable December 10, 2012 to stockholders of record November 26, 2012. This concludes the financial review and Joe will now comment on our operations.

Thank you, Steve, good morning. Our fourth-quarter results were in line with our expectations. As we had communicated during our last call, we initiated a surge effort during the quarter to accelerate the completion of our ERP implementation in our Cemetery Products division. The cost of the surge coupled with other one-time costs primarily associated with anticipated cost reduction initiatives impacted our reported results, but on a non-GAAP basis, we performed as expected. Let me summarize our results for you.

First and foremost the surge effort in our Cemetery Products division has resulted in significant improvement in the throughput of our foundries. Delivery and productivity are normalizing and we remain comfortable with our guidance of completing the surge in the early part of the second quarter. As a result of these improvements, customer satisfaction has greatly improved thus some of the excess costs associated with expedited orders will subside. We will however continue to incur higher than normal labor costs and other inefficiencies during Q1 and Q2 of the new fiscal year as we finalize our surge effort. We believe that we have anticipated this higher level of cost in our guidance for 2013. As I indicated above however, as part of our fiscal 2012 fourth quarter, we anticipate cost reduction actions to occur during fiscal 2013, and as a result, we expect our workforce reductions to occur throughout the year. On an annualized basis, we expect the workforce reduction to generate about $10 million in savings largely beginning in the third quarter.

Furthermore, as we continue to fully utilize our new ERP, we expect to capture additional cost savings opportunities. For example, we recently began a strategic sourcing initiative that engaged a strategic sourcing partner to assist us with maximizing our global spend. Although we expect the savings derived from this effort to exceed the costs incurred during 2013, the true benefit of our strategic sourcing initiative will be seen in the years to come. During our last quarterly call, we indicated decline in volume within our European businesses. We have continued to experience that decline particularly in our Graphic businesses. The decline in volume coupled with the decline in the euro versus prior year negatively impacted our results compared to the prior year.

In the Funeral Home Products division, the casketed death rate continues to be a substantial-- continue to be substantially below fiscal 2011. Our efforts to mitigate the decline however through cost and price controls have resulted in a relatively flat quarter for our Funeral Home Products business versus prior year. On a more positive note, our Marking and Fulfillment division, our Merchandising division and our US Cremation division have strong results versus prior year. We believe these businesses are well positioned for continued growth next year and each of these businesses have taken steps to assure for that growth.

We know that fiscal 2013 has been a challenge for our shareholders and our employees. But we also know that some of the difficult challenges are behind us now, particularly with respect to our ERP implementation and that we should see further improvement during fiscal 2013. For example, during the last month we have seen a more normalized death rate and our monthly results of our Funeral Home Products division reflect those improvements. Similarly, you can tell by some of our non-GAAP disclosures, we continue to be active in our acquisition programs in each of our businesses having recently announced the acquisition of Wetzel, a German rotogravure manufacturer which fits nicely into our portfolio of European Graphics businesses.

Further, and as I stated during our last call, we do see the light at the end of the tunnel with respect to our ERP implementation. In fact, we see the road to significant operational improvements driven by the benefits derived from our investment. Purchasing synergies, productivity gains, automation and e-services our amongst the most significant and exciting opportunities that we expect to capitalize on during the quarters to come.

Finally, we are always reminded that we continue to have solid cash flows and that we will deploy that cash for the benefit of our shareholders. As further evidence of our confidence, we again have raised our dividend this time by 11% and repurchased almost 1 million shares during 2012. Expect 2013 to show our continued confidence through these improvements as we finalize our stabilization efforts and begin to capture those opportunities presented by our investments. We are optimistic about our goals but prudent with our guidance. Therefore we are currently projecting a non-GAAP EPS of between $2.45 and $2.55 per share for fiscal 2013. We caution our investors that the world economy remains precarious, and given our breadth in over 20 countries in the world, we are mindful of trying not to underestimate the impact this may have on our results. With that I will open it up to questions.

At this time, we would like to open the call to questions. For those of you who will be asking questions, we request that you limit them to one question on 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)

Daniel Moore CJS Securities.

What-- give us a sense for what organic revenue growth rates you are contemplating for the two segments for memorialization as well as Branded Solutions that's embedded in your fiscal '13 guidance.

I would tell you mid-to low-single digits.

And that's for both?

Correct.

For each of those segments, okay. And then switching gears a little bit looking at the Wetzel acquisition, are you still on track to close during fiscal Q1 and what type of earnings contribution do you expect in '13?

We just recently Dan received the EU's Federal Trade Commission, or their equivalent over there, approval. We expect to close sometime in early December and the impact through the year is yet to be fully determined but we expect it to be contributory and accretive day one.

So some positive earnings contribution but nothing more specifically on that?

Yes. Dan, it'll be accretive to earnings during the year but what we haven't -- what we don't have an estimate on is the acquisition costs and there's--

Transition costs as well.

Yes, as we go through all these accounting measures that require of those costs to be expensed. So when we figure those out, that we still expect a net positive the year.

Got it. And lastly, do you have, Steve, the contribution from Everlasting for revenue for the quarter?

Hold on a sec we'll pulled that for you, Dan.

That might have been $3 million for the quarter.

Roughly $3 million. Thank you, I appreciate it, I'll jump back in queue.

Thanks, Dan.

Clint Fendley with Davenport.

Wondered what the unusual item of about $1.6 million was for the Funeral Home segment in the quarter, I'm sorry if I missed that?

For the Funeral Home segment, yes for the Funeral Home Products segment, Clint a couple of things. We do have some cost reduction initiatives in there but we also had some reversal of contingent consideration from some past acquisitions, so the net of those two actually resulted in a net favorable item for the quarter.

Okay, and also switching over on the bronze, I wondered what the impact was in the quarter from copper costs as well?

For the fourth quarter by itself, actually our fourth quarter fiscal 2012 compared to fourth quarter fiscal 2011 really not significant. The real impact in terms of unfavorable impact in fiscal 2012 really happened in the first three quarters of the year.

Okay, great. Thank you, guys.

You're welcome.

Jamie Clements with Sidoti.

Joe, with respect to guidance for fiscal '13 can you -- is your assumption, I mean honestly this past year was odd in terms of the magnitude of the decline in total deaths, is your assumption that fiscal 2012 sets the new bar and that fiscal '13 and '14 will reflect the trend that we had seen over the prior 5 or 10 years, or are you assuming a more aggressive rebound this coming year?

No, no Jamie, we're expecting to be more normalized return to maybe about 1 point or slightly below 1 point growth in death rates as a whole and a relatively stable slightly down casket death rates which is what we anticipate in our guidance. We do not suggest that there's going to be a major recovery of what we lost last year.

Okay, that is fair. And I don't know, I don't think I heard it in your prepared remarks but I did see in the press release I think you were alluding a little bit to a favorable mix in the Funeral Products segment and it seems to me over the last couple of years it seems like mix is generally across the industry been trending down. I don't know if we've hit bottom or anything like that or whether there's a consumer change or whether it's your Company specifically, but can you talk a little bit about preference and what you're seeing from a mix perspective?

I can tell you Jamie that we've done a little bit more price control both in terms of our mix marketing as well as discounting in the marketplace. So what we've done -- what we saw in the fourth quarter was better management of that whole process as we went forward. Now I can tell you that one month doesn't make a year, but we saw an improvement in mix frankly in the month of October as well as an increase in our overall death rates which brought us fairly good results. That was the implication I was giving you both for fourth quarter and into the first month of the year in my comments.

Got it. And then final question, Joe, obviously you are operating pretty substantial distribution business in the Northeast and down in the mid-Atlantic. The storm obviously was a big deal in this neck of the woods, how do you feel your distribution performed in the face of that kind of weather?

Unfortunately, we have a great group of people up there who are committed both to us and to their customers at the end of the day. We did lose about four or five days of deliveries in the areas, but we recovered a lot of that. We lost some product that is insured that we'll ultimately recover from the insurance company. Overall we weathered the storm pretty well, not to put-- no pun intended there, but the reality is that we have a very significant market share in part of that storm, so we did have some impact.

Okay, thank you all very much for your time.

Liam Burke with Janney Capital Markets.

Steve, when we finish 2012 on the Cemetery Products from -- there were-- you had the bronze prices easing into the end of year, you have ERP implementation and you also had product mix with more granite in the equation. Fourth-quarter operating margins were in the high teens adjusting for the one-time. Historic operating margins were in the highs 20s, understanding all the puts and takes, what is a -- or directionally where you see normalized operating margins here for the Cemetery Products?

Liam, this is Joe, I would expect the normalized operating margins going forward to be in the low 20s. One of the things you also need to recognize is that I think it might've been the second quarter our conference call we referenced this, is that pricing delays due to the ERP implementation caused us to absorb a lot of the cost out of increased bronze without any price increase. So we had a pretty difficult year from a realization standpoint in that business.

And Liam, you hit on a couple of important factors, and bronze cost being certainly one of them. The ERP implementation was another piece of that, but we also still have and this is part of our ERP implementation, the accelerated initiatives, but we also still have some embedded costs that our affecting productivity. So when we talk about that improvement in margins that's going to take some time. And also the other item that you correctly pointed out is that the mix of granite is ultimately, as we grow that granite business, is ultimately going to impact that overall percentage.

Okay. And staying on the Cemetery Products, how do you feel about the traction you're getting with the Everlasting acquisition?

Very, very good in fact and the team down there is a wonderful group that we've added to our portfolio. Frankly, if you look at our sales force that is on the ground, Everlasting has traditionally been a business that did not have a traveling sales force. So we expect our sales force, although this is a geographic business is hard to shift product t be competitive from Georgia to Washington state, in the territory where we are currently able to serve, our sales force coupled with their abilities at Everlasting has been a good edition. So we feel positive.

Great, thank you.

Greg Halter with Great Lakes Review.

Looking at the Wetzel business in your release you talk about sales of about $58 million I think that was fiscal '11 I believe, wondering if you could talk to growth rates, management, whether or not their-- you're planning on them staying and integration with other businesses over there in Europe?

Actually, Wetzel as I indicated into our-- in my conference comments, is right in our wheelhouse. It's about only four hours from our existing Saueressig operations. We are-- we have a whole team of our German colleagues over there that will be operating that business. We have some strategic initiatives, it'll take probably 24 to 36 months as we move this business into a-- I wouldn't-- we will not be shutting it down, we will probably be making it more specialized in what it produces. And looking at our various footprints, being able to capitalize on those footprints better than we have today. For example, there's some opportunities in Poland, we now have two facilities in Poland. Sooner at some point when the infrastructure in Poland improves, we know that's happening now, we probably will only need one. We are very, very positive of it, it is not a market-- none of our graphics businesses are businesses that grow much differently than some of our other businesses and they all grow relatively low to mid single-digit top line organic growth in a normal economic environment. We're not seeing that right now though, Greg.

Okay. And the second question I have is regarding one of your competitors on the casket side, Aurora Casket acquired by of a private equity firm and it sounds like, at least the way they're talking, they plan on being more aggressive in how they promote the Aurora Caskets products. Just wonder if you could comment on what you're seeing there so far as well as overall pricing in that particular market given the leader Batesville?

I don't know where you're hearing the price competitiveness from them in particular. I don't think we're here-- in a practical matter, we're not seeing any more price competitiveness than the market has already seen for the last several years. At the end of the day, we're hoping there's pretty good rationality out of our new competitor since they're pretty heavily levered to get this deal done. So I would expect that over time it'll be the status quo and we'll probably hopefully get better rationality out of all of our competition in the marketplace.

All right. Thank you.

You're welcome.

Scott Blumenthal with Emerald Advisers.

Joe, I guess on a flat market for both of your business segments, we're really happy to see you continue to make efforts to grow the business with Everlasting and now Wetzel. Could you talk a little bit about more broadly your plans for the gravure businesses that you have a acquired? Where do you think you can take those, and how I've been anxious for you to bring some more of that product to the US and maybe your progress on that type of an effort?

Well let me give you a little bit of feel because the best direction comes from our customers. As you all have heard of speak, we acquired a business in Turkey. The acquisition in Turkey was largely driven by our more significant customers particularly the tobacco industry, who said we need a partner in Turkey. With that effort in the European businesses in particular, what we've seen is that the major customers that we have there have found in us a relatively stable financially capable entity for with whom they can grow. They've talked to us about expanding in Russia, Latin America, and that's the way I would prefer to grow that business is with customers in hand in a partnership role. Today quite frankly we want to get our arms around what we already have, which is Wetzel and our Turkish businesses, where we still think there's opportunities. We're probably going to continue to look at what Russia offers to be able to consolidate that market over there but we think that there are more parts of the world including the United States where we think there's opportunities for continued expansion.

And how large do you think that, that business can be? I guess the inverse or question would be, what percentage of the market do you believe that you hold now and where do you think you can go with that?

On a worldwide basis we're miniscule. On a European, I would say Northern European we are significant. We are by far the dominant player in the European market. And we expect that in the European market we are probably pushing 25% to 30% of the market today. There are some areas of the market where we just will not enter and play, because pricing has become so terrible, and that is a choice that we make. But on the other side of the coin, there are some areas where our customers are taking where it's both favorable for us and favorable for them to have the quality and service that we can offer with the financial resources. If you look at our facilities over there, they're well capitalized and they're on the cutting edge of the technologies in which we operate in. I can't tell you that's the case of a lot of the competition we have in Europe, largely because they're smaller entities owned by families whose pocketbooks are a little bit more limited.

So do you think that the future growth in that business, which seems like a really nice business, is that going to be through continued maybe incremental smaller acquisitions similar to the ones that you've done to maybe get a foothold or a beachhead in some of these markets? Or do you think you're at the point with the scale now and as well known as you are that you can grow this thing organically from here?

Let me give you a feel, it's both and Turkey is the perfect example to that, Scott. What we did in Turkey was bought a local player for-- I would call it a small player in the grand scheme of things. And they do not have neither the capital wherewithal nor the technical wherewithal to invest in the kind of processes and equipment that our larger players in the industry have expected, they've come to expect from us in particular. So we bought it-- a business over there and as you can see from our capital expenditures throughout this year, a lot of that has gone into Turkey as we put new what we call a tobacco line, but tobacco lines is just an internal name for quality line. It is highly automated, very precise, precision efficient equipment that is fairly significant that only can serve the finest of customers that you want that kind of quality. We expect that investment will yield over the next several years far beyond what we've invested for the equipment. I'm a little low Scott, and this is the issue, of going into the Greenfield without customer support.

Sure, sure, understood.

It will take a while.

And Joe, if I could just sneak one last one in on this subject, are you the largest player and if so to what degree are you larger than your second largest competitor?

In Europe?

Yes.

In Europe we are double the closest player and the other-- the closest player is another German operator that is a good competitor I would call them sound competitors, but they're not at our scale.

Okay, terrific. Thank you.

Daniel Moore with CJS Securities.

Steve, I apologize I missed this number, I think you said it, but number of shares repurchased in the quarter and given stock drifting back a little bit your appetite for perhaps picked up or stepped up share repurchases at these levels?

We purchased a little over 400,000 shares during the fourth quarter and a little over 1 million shares from a year and given where the stock price is certainly we'll continue to be active in the market.

And this is the $64,000 question, but I'll give you a chance to address it, obviously death rates are-- casket death rates improving a little bit recently. As you look back over the last year, have you gleaned any more of an insight into maybe some of the causes that have dragged on the overall death rates and your confidence that will get back to a normal level sometime in fiscal '13? I know it's a crystal ball that's fuzzy, but maybe you can just address it a little bit?

Sure, Dan. The reality is, is that we're still dealing with the troughs of the death rate to early 30s. I mean there are--

Birth rates

Birth rates, excuse me, birth rates of the early 30s. If you look back over history, there are these anomalies that do occur rarely but they do occur. As I've said in the past, if you look at the Census Bureau's projection of where we should be today in terms of the number of deaths and what they project for the next 20 years, it's more normalized with what we have anticipated in our budgets going forward which is a 1-ish plus or minus increase in death rates which pretty much levels out to a stable number of casket deaths and then we participate on the cremation side as well. We think that this year-- 2012 was more of anomaly. We have done our own internal estimates of how much we think that might have impacted us and it was significant. And we have budgeted and forecast results that are more in line with traditional death rates.

Thank you.

You're welcome.

Greg Halter with Great Lakes Review.

Hello again, I had a couple others come up. Noticed that your capital spending in fiscal '12 was about just over $33 million, wonder what your plans are for this fiscal year?

Yes, the $33 million spend this fiscal year, a lot of that was in our Graphics Imaging business in particularly in Turkey as Joe just mentioned a few minutes ago. Next fiscal year I would tell you it would also be slightly higher than what I would consider our maintenance capital expenditure rate. I think our maintenance capital expenditure rate is somewhere in the low to mid- 20s now and-- but next year I expect that to be a little bit higher than that because we still have some ERP spending that we're doing and we still actually have some European gravure spending as well.

All right, and no one's really talked about it much, obviously is been touched on, on the raw material side, but just wonder if you could comment on what you're seeing there? How far you're bought out? It looks like prices have come down somewhat which should be a little bit of a relief here.

We were brought out probably into the middle of the second quarter of 2013, our fiscal quarter 2013, and the cost our a little bit below where they were last -- where we ended up last year, not materially right now. We are taking some initiatives to make sure that when can-- when we get guidance we anticipate what we think we're going to actually spend throughout the year and we're today comfortable that's where we can end up for the year.

All right, and noticed in your presentation that you have on the website that I think it's the -- just find it real quick -- you cited one of the marginal performers as United Memorial and I just wondered if you could elaborate a little more on the granite business plan that you've noted for that particular area?

Sure. One of the marginal performance was United Memorial on the West Coast. We-- part of it restructuring costs that you see in there would include some terminations and workforce reductions on that side of the business. As well, the folks at Everlasting are bringing great knowledge of operating controls to that business. So we expect improvement year over year out of that business in 2013 and continuing through 2014 and '15.

All right and one last one for you, just wondered in the six different businesses if you could maybe provide on an annual basis where you think the margins, operating margins for each one of those businesses should be over the longer term?

Which businesses are you referring to, all of them or just--?

Yes all six of them, Graphics Imaging --

Okay so not-- I thought you were looking at the individual businesses within. I would tell you that if you look historically at most of our business, that those are probably more normalized rate. Bronze-- or what we used to call our Bronze, which is our Cemetery Products business right now, as we said earlier we'd expect it to be in the low 20s because of the mix of products we're selling at this point in time versus historical norms. Our Casket business we see very good trends towards improving toward that mid- 15s business that we had always projected. And in fact, if you saw our internal results for that one month albeit just one month, are very reflective of that. Our Cremation business, we think with our European businesses being a little lower margin and our US businesses being a little higher, I would also say mid teens as well. Graphics businesses, mid teens is probably 12% to 15% probably with our gravure business as being a little bit more capital intensive, thus have a little bit more DNA.

Our Marking Products business where we are very, very bullish on because of some initiatives that they've come up on, we need a little bit of it-- what you're seeing in our Marking Products business today is not representative of our historic results. There's been a great effort including some research and development in the business that leads to some pretty good products coming forward. We need some economic recovery there, some of our best margins are made in the ink side of that business, what you're seeing now is still I wouldn't call it trough levels of ink consumption, but I would call it lower than normal levels of ink consumption. When that business returns on the ink side with some of the other investments, we should be mid teens to maybe a little higher on that. And our Merchandising Solutions business, we expect that business to be approaching the high singles to 10 over time.

Great, thank you very much.

You're welcome.

Mr. Nicola, there are no other questions in queue at this time.

Okay, we would like to thank everyone for participating in the call this morning and we look forward to our first quarter earnings release and conference call in January. Thank you and have a good day.

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