Matthews International Corp (MATW) 2013 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Matthews first quarter financial results conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, with instructions being given at that time.

(Operator Instructions)

And as a reminder, this conference is being recorded. I would you now like to turn the conference over to Chief Financial Officer Steve Nicola. Please go ahead.

Thank you. Good morning. I'm Steve Nicola, Chief Financial Officer of Matthews. Also on the call this morning is Joe Bartolacci, our Company's President and CEO. 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, dial 1-320-365-3844 and enter the access code 277189. The replay will be available until 11.59 PM, February 1, 2013.

We have posted on our website, which is www.MATW.com, the first 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 annual report on Form 10-Q for the quarter ended December 31, 2012 will not be filed with the SEC until the week of February 4.

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

For the quarter ended December 31, 2012, the Company reported earnings of $0.30 per share. On a non-GAAP basis, the Company's adjusted earnings per share were $0.42. Last year, we began presenting non-GAAP information to provide management investors with better comparability of the Company's operating results. This was in response to requests by investors to provide more clarity concerning these items. The net amount of these non-GAAP adjustments was $0.12 per share for the fiscal 2013 first quarter, and $0.07 a year ago.

In our earnings release, we have provided a reconciliation of earnings per share on a GAAP and non-GAAP basis. The fiscal 2013 non-GAAP adjustments included the following. One, pension and post-retirement expense. Consistent with last year, for our non-GAAP disclosure we have adjusted pension and post-retirement expense to reflect only the service cost components of this expense. Two, acquisition-related costs. We incurred incremental costs in connection with recent acquisitions, and under current accounting rules, most of these costs are required to be expensed. These costs impacted earnings by $0.03 per share for the current quarter.

Three, cost reduction initiatives. As we reported last quarter, we initiated cost reduction programs in several of our businesses. In addition, costs associated with these initiatives unfavorably impacted earnings by approximately $0.03 during the current quarter, compared to $0.01 a year ago. I should also point out that this item includes unusual costs that were incurred during the current quarter as a result of Hurricane Sandy. And four, ERP implementation costs. During the fourth quarter of fiscal 2012, we began a significant initiative to accelerate the completion of an ERP implementation for our Cemetery Products segment. These additional costs unfavorably impacted earnings by approximately $0.02 in the current quarter, compared to $0.01 a year ago.

For the first quarter last year, the Company reported earnings of $0.40 per share, and on a non-GAAP basis, adjusted earnings per share were $0.47 per share. On a GAAP basis, one of the more significant factors in the year-over-year earnings decline for the most recent quarter was the unfavorable impact of the unusual charges. Excluding the unusual charges, the Company's operating profit was only slightly below a year ago. On a non-GAAP basis, the more significant items contributing to the decline in earnings included lower investment income and higher interest expense.

Consolidated sales for the fiscal 2013 first quarter were $225.6 million, compared to $217.2 million for the same quarter a year ago, representing an increase of $8.4 million, or 3.9%. All of the Company's business segments except for Graphics Imaging reported higher sales for the current quarter. Sales for the current period also benefited from acquisitions completed over the last 12 months, which included Everlasting Granite, Wetzel Group and Pyramid Controls.

Consolidated operating profit for the fiscal 2013 first quarter was $16.5 million, compared to $18.9 million a year ago. Unusual charges were a significant factor in the decrease from last year. Excluding unusual charges from both periods, consolidated operating profit for the current quarter was only slightly below last year.

Sales for the Cemetery Products segment were $53 million for the fiscal 2013 first quarter, compared to $45 million a year ago, representing an increase of $8 million, or approximately 17%. Higher unit volume of memorial products and the acquisition of Everlasting Granite were the main factors in the sales improvement. Operating profit for the Cemetery Products segment increased to $6.4 million for the current quarter, compared to $4.5 million a year ago. The increase in operating profit resulted principally from higher sales and improvement in operating margins for the segment's granite operations, and lower material costs. These increases were partially offset by unusual charges in connection with the segment's ERP implementation and other cost reduction initiatives.

Sales for the Funeral Home Products segment were $61 million for the quarter ended December 31, 2012, compared to $59 million last year, representing an increase of $2 million, or approximately 4%. The increase mainly resulted from higher unit volume and an improvement in sales mix during the current quarter. Operating profit for the Funeral Home Products segment for the fiscal 2013 first quarter was $7.7 million, compared to $6.5 million for the fiscal 2012 first quarter. The increase reflected higher sales and the benefit of improved production and distribution efficiencies, which were partially offset by charges in connection with our cost reduction initiatives.

Fiscal 2013 first quarter sales for the Cremation segment were $11.1 million, compared to $9.4 million for the same quarter last year. An increase in equipment sales in the UK and the benefit of a small acquisition completed last year were the principal factors in the segment's sales growth. Operating profit for the Cremation segment for the quarter ended December 31, 2012 was $475,000, compared to $757,000 a year ago. Lower margins on several European-based projects and charges in connection with cost reduction initiatives were the primary factors in the segment's operating profit decline.

For our Brands Solutions group, Graphics Imaging sales were $62 million in the fiscal 2013 first quarter, compared to $70 million last year. Lower sales in each of the segment's principal markets, particularly Europe, and unfavorable changes in foreign currency values were significant factors in the decline. Changes in foreign currency values, principally the Euro, had an unfavorable impact of approximately $2 million on the segment's fiscal 2013 first quarter sales compared to a year ago. First quarter operating profit for the Graphics Imaging segment was $292,000 for fiscal 2013, compared to $5 million a year ago. A significant portion of this decline was anticipated, as our first quarter a year ago was particularly strong in this segment and we had not yet experienced the impact of the European market issues. In addition, unusual items during the current quarter, which primarily included acquisition-related charges and cost reduction initiatives, resulted in a net charge of approximately $1.4 million.

Sales for the Marking and Fulfillment Systems segment for the fiscal 2013 first quarter were $17.9 million, compared to $16.4 million for the same quarter last year. The increase in sales for the quarter was primarily attributable to the 2012 acquisition of Pyramid. Operating profit for the Marking and Fulfillment Systems segment was $376,000 for the current quarter, compared to $1.4 million for the fiscal 2012 first quarter. The decrease mainly reflected an unfavorable change in product mix during the quarter and charges related to cost reduction initiatives.

Fiscal 2013 first quarter sales for the Merchandising Solutions segment were $20.6 million, compared to $17.2 million a year ago. The increase was primarily due to higher sales to several national accounts. As a result, the segment's first quarter operating profit improved from $796,000 last year to $1.3 million for the current quarter.

Sales and operating profit by segment, including unusual items for the quarter, are posted on our website for your reference. Our fiscal 2013 first quarter consolidated operating margin was 7.3% of sales, compared to 8.7% a year ago. The decline in operating margin primarily resulted from the net unfavorable impact of unusual charges.

Gross margin for the quarter ended December 31, 2012 was 35.4% of sales, compared to 35.9% for the same period a year ago. The decline in gross margin percentage was primarily attributed to lower sales in the Graphics Imaging segment. Selling and administrative expense for the current quarter was 28.1% of sales, compared to 27.2% for the same quarter last year. The increased percentage mainly reflected the impact of unusual items.

Investment income for the fiscal 2013 first quarter was $233,000, compared to $1.6 million a year ago. The decrease resulted from lower investment performance on assets held in trust for certain of the Company's benefit plans. Interest expense for the current quarter was $3.2 million, compared to $2.6 million for the same period last year. The increased interest costs for the current quarter resulted primarily from a higher average level of outstanding debt, which was due primarily to borrowings for acquisitions and share repurchases over the last 12 months.

Other income deductions net for the fiscal 2012 first quarter represented a deduction of $1.1 million, compared to $515,000 a year ago. Other income and deductions generally include, among other items, banking-related fees and the impact of currency gains and losses on certain inter company debt. Net income from non-controlling interests for the current quarter resulted in additional income of $252,000, compared to a deduction of $135,000 a year ago.

The Company's effective income tax rate for the quarter ended December 31, 2012 was 35.4% of pre-tax income. Excluding the favorable impact of a second quarter adjustment, the effective tax rate was 34.8% for the fiscal year ended September 30, 2012. The increase for the current quarter resulted from the unfavorable impact of tax losses generated in certain European operations.

At December 31, 2012, the Company's consolidated cash was $54 million, compared to $58 million at September 30, 2012. Our current ratio was 2.1 at the end of both December 31 and September 30, 2012. Accounts receivable at the end of the current quarter totaled $182 million, compared to $175 million at September 30, 2012. Consolidated inventories at December 31, 2012 were $138 million, compared to $131 million at the end of fiscal 2012.

Long-term debt at the end of the current quarter, including both current and long-term portions, approximated $402 million, compared to $320 million at September 30, 2012. The increase during the current quarter resulted from borrowings in connection with acquisitions. At December 31, 2012, $359 million of the outstanding debt balance represented borrowings under our domestic revolving credit facility at an average interest rate of 2.6%. The borrowing capacity of this facility is $400 million, with a maturity date of March 1, 2017.

The Company had approximately 27.7 million shares outstanding at the end of the current quarter and purchased approximately 156,000 shares under its share repurchase program at a cost of $4.5 million. At the end of the current quarter, approximately 1,659,000 shares remained under the current share repurchase authorization.

Depreciation and amortization expense for the quarter ended December 31, 2012 was $8.1 million. Capital expenditures for the current quarter were $5.3 million.

In summarizing the results for our fiscal 2013 first quarter, the more significant highlights that affected our earnings included our Cemetery Products and Funeral Home Products segments reported higher sales for the quarter, due mainly to increased unit volume of memorial products and caskets, respectively. The Merchandising Solutions business continued to grow and generate improved operating margins. Recent acquisitions contributed to the Company's growth for the quarter. We are making good progress on several key strategic initiatives, including the ERP implementation and cost reduction programs. As several of these projects continue, we expect additional unusual charges during the remaining part of this fiscal year. The market conditions in Europe continued to impact several of our businesses, particularly Graphics Imaging, and several non-operating items, such as investment income and interest expense, affected the comparability of our year-over-year earnings per share.

Based on our first quarter results and current forecasts, we are maintaining our guidance at this time. Accordingly, excluding unusual items, we project our 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. The dividend is payable February 11, 2013 to stockholders of record January 28, 2013.

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

Thank you, Steve. Our first quarter of fiscal 2013 was pretty much in line with our internal expectations. Better than expected results in our Memorialization group was offset by slightly less than expected results from our Brands Solutions business. However, the first quarter marked the end of our significant challenges with our SAP implementation in our Cemetery Products division. We can now begin to focus on improving the results of that division and capitalizing on what we continue to believe has been a good investment. Our employees in that division have worked hard through some challenging times, and we appreciate those efforts.

One of the key efforts that we have underway in that division is a return to normalcy in the workforce. If you recall, during our last call, we have accrued a charge in fiscal 2012 which was associated with our plan to adjust our workforce to normal. This plan was to reduce our operating costs by about $9.5 million on an annualized basis. We are on track to achieve most of those savings by the end of the third quarter. Also, during the quarter, we continue our effort of strategic sourcing and believe this effort will begin to yield results in the third and fourth quarter and well into year 2014. Also on track to roll out our e-services offering by the beginning of the third quarter and believe this to be a significant contributor to our plans to become more efficient throughout our organization, while giving our customers a better experience of doing business with Matthews. We have great hopes for this investment.

Unfortunately, however, we are still operating in difficult economies. Europe continues to be a challenge, and the first quarter results of our Brands Solutions segment was materially impacted by this economy. On a positive note, our backlog in many of our European businesses appears stronger and we expect the group to perform more in line with our expectations during the balance of the year. Moreover, two recent acquisitions in this group will help offset the softness we feel in the European market, while continuing to position our fulfillment business to be a unique competitor in this market.

In all, we feel very positive about our prospects for the balance of the year, particularly with the list of projects and ideas we have for improving our business. We have to execute, but we fully expect the results of our efforts to benefit us for years to come. With that, we remain confident with our guidance, but prudent with our forecast. With that, we'll open it up for 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 and a follow-up question until all those who wish to participate in the Q&A session have had an opportunity to do so. John?

(Operator Instructions)

Our first question will come from the line of Daniel Moore from CJS Securities. Your line is open.

Good morning. Thanks for taking the questions.

Good morning, Dan.

Good morning, Dan.

What were casketed death rates in the quarter, and have you seen any impact yet or do you anticipate any impact yet, from the reports of the increase in influenza, the early flu season, on death rates and casketed death rates as we go out over the next couple of quarters?

Dan, as a practical matter, the first quarter we saw relatively flat casketed death rates. Death rates did improve versus prior years. We have not seen, what I would call, significant increases yet. Our volumes in January seem to sustain that kind of increase year-over-year. Many of the improvements you're seeing in our results, however, really are internal improvements, as well as better realization on pricing and mix through marketing efforts that we put into place.

Dan, just to add to that, based on the CDC data that we look at, overall death rates were up a little bit during the quarter, but with the impact of cremation, those translated to, call it, relatively flat on the casketed in-ground burial death rate side.

Sounds like at least a return to normal, as far as the operating environment is concerned.

So far. We'll see how the balance of the year is. We have seen continuation of that trend, so our expectation is for a positive year in those conditions.

Okay. And kind of drilling down a little bit, but in Cemetery Products, if you add back the unusual items, we're a little over 14% operating margins. Given the change in mix toward granite, what are your expectations now? Where do you hope to get margins over the next several quarters, and where do you think they should be operating in that segment long-term?

In the next several quarters, we expect still to have some challenges, as we start to take some of those costs out. If you heard my comments, we have almost $10 million worth of costs expected to come out. A lot of that is in our bronze business, our Memorial Products business, but we also have some coming out of our Funeral Home Products businesses, as well. So we expect in the mid-term here to see our Cemetery Products gravitate to a higher teens. We think longer term, the division still should approach that low 20s.

Excellent. And one more, and I'll jump back in queue. Can you remind us of the expected accretion from Wetzel and Pyramid in your -- embedded in your adjusted EPS guidance for the year?

Steve, could you do that?

Sure. Yes. Dan, we haven't disclosed that. I would tell you, we've discussed the top line, which for the Wetzel acquisition, sales on an annual basis are about $50 million, and sales for Pyramid in the mid- to high teens on an annual basis. And we just purchased those recently, so for the balance of the year, I have no reason to believe that, call it, the 9/12 proportion of that isn't what to expect. And that is included in our guidance. And as Joe said, we're just being prudent with maintaining our guidance at this point in time.

Okay. Thanks. I'll jump back in queue.

Now we'll go to the line of Jamie Clement with Sidoti. Your line is open.

Joe, Steve, good morning.

Good morning, Jamie.

Good morning, Jamie.

Okay. Graphics margins for the quarter. You all obviously cannot be pleased with them. Obviously, the situation in Europe is rough. But forget about year-over-year comparisons, and I know you had a great quarter a year ago, sequentially down a lot. Are there actions you can take here over the next couple of quarters to improve margins, or are you just going to have to ride out the economy over there?

No. In fact, Jamie, particularly with our gravure businesses over there, we're pretty comfortable that a lot of the work was shifted from one quarter to the next.

Okay.

So we think -- as you know, a lot of these businesses, especially in the European market, have a lot of embedded fixed costs. So with the backlog we have, we expect a pretty strong second and third quarter as we move forward. Now granted, we still have the economy over there and it's still a little bit of a challenge. But the gravure businesses, the portion of the business that we have better visibility, just because there are longer lead times.

In talking with your people over there, do you think conditions -- and specifically, I'm talking about Germany, although if you want to talk about some other countries, that's fine. But do you think that the perception of the consumer and the willingness of marketers to spend money got materially worse from the September quarter to the December quarter?

Well, I wouldn't say they got materially worse as much as that we have a typically slow period in the first quarter of our fiscal year. Because of the Christmas season, a lot of that marketing is done before.

Got it.

But secondly, I mean, if you look at it from a comparable basis, we had several million dollar reductions year-over-year in that division, on a relatively fixed cost basis. A lot of that drops to the bottom line.

Okay. All right. This is really -- I mean, this is a question of top line and operating leverage working against you this quarter, is what it sounds like.

Well, yes. At the end of the day, we don't have a lot of people sitting -- there's not a lot of material costs associated with producing the next reprographics service. So at the end of the day, it's a lot of people. You can't react that quickly. But right now, we don't think we have a great need to react, as our balance of our year seems to be pretty strong.

Okay. And then a follow-up question, just on -- I think the death care businesses have been -- those questions have been asked and answered. In the Marking Products business, can you talk about the relative housing exposure that that business has? As we think about a housing recovery over the next 12 to 24 months, what kind of opportunities do you think you have in that business?

If you take a look at the quarter in Marking Products, obviously, we were not pleased with our results there, either. That was probably our most significant surprise, because we thought things were starting to turn around.

But you did have a great fourth quarter. So maybe there's some lumpiness there.

We did. But at the end of the day, the most profitable product we sell is ink. And the housing market is a great consumer of ink, because we mark just about every gypsum board piece in the country, a lot of lumber, a lot of electrical wiring, and so forth. So to the extent we see a recovery, the drop-through is going to be pretty significant. Now the very, very positive part of it is that our sales did not have a significant drop in that division, and that's because we sold a lot of equipment. Equipment has lower margins, and as a result, we get the lower results that we --

But the more equipment you have installed out there, the more ink that equipment consumes, presumably.

You got it. So that's what we're expecting.

Great. Thank you all very much for your time.

And now we'll go to the line of Liam Burke with Janney Capital Markets. Your line is open.

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

Hello, Liam.

Good morning, Liam.

Joe, could you talk a little about the granite business? It's a nice contributor, but it's regional in nature. Could you give us a sense as to how to continue the momentum by offering granite as part of the product mix nationally?

Liam, we actually are pretty excited about the granite offering. This is the first quarter -- we bought Everlasting the latter part of last year. And it took us a good six, eight months to get some of the things integrated, particularly on the marketing side. I think we're just starting to see what the benefits are. We've always believed that our sales folks on the ground and our customer relationships would prefer to have another product line in their hand, both in terms of things like private mausoleums, as well as features, let alone the upright tombstones that go into cemeteries we don't have today. We think, at least for now, that we have plenty of penetration opportunities in the regional areas that we operate today.

However, you heard me mention about our e-services offering. The opportunities that present us with e-services is not just with respect to our memorial market. There is nobody with the scale or capacity to do what we've done on the stone side. So we believe, longer term, as we look for good acquisition candidates in the regional markets, as well as just expand organically to grow as we did this quarter, we think there's going to be an opportunity to grow that business.

I will caution you, though, Liam, this is not the bronze business. This is not something that has low 20s margins. It is a 10%, 12%, 14% business.

Okay. So I mean, what I'm hearing is you've got penetration in the regions, you're looking to move out of region, either through acquisition. Is there any other way you can do it, either through a joint venture or in partnering with some established locals?

Well, we can clearly do it that way. And what we're hoping to do is also leverage our scale. One of our strategies has been is we don't need to own quarries. There's enough stone cutters around the world, and we'll capitalize on the labor arbitrage around the world to get the cheapest products. Scale's going to be very helpful to us. So the bigger we get, the better leverage we're going to have on the purchasing side, for the stone itself. Couple that with some marketing capabilities coming from our design tools, and I think we're in pretty good shape.

Okay. And quickly, on Pyramid, you spoke about -- sitting in the Marking and distribution area of the business, but where do you see the benefits to each of those businesses now that Pyramid's been bought into the fold?

Take a look at our Marking business. That team has done an excellent job of repositioning. Actually, not repositioning, expanding the position of our business in that field. What we have traditionally been, as the name used to describe it, a Marking Product industry. So we did in-line industrial marketing equipment. With the addition of Lightning Pick a few years ago, ITPI, all picking technologies used for picking products for automated warehousing and logistics, Pyramid, which is a warehouse software management tool, integrates very, very, very nicely to be able to offer a solution to the independent folks around the country who compete with the Dematics and some of the other Intelligrateds out there.

This is an area of our business we intend to continue to grow. We think it is a great opportunity for us to begin to integrate not only a solution that includes warehouse management systems, but also integrate our marking technologies directly into that and offer a one-stop shop for the solution. We have great hope for this.

Great. Thank you. And Steve, very quickly, did you have a share count anywhere?

We ended up around 27.7 million shares at the end of the quarter.

Great. Thank you, Joe. Thank you, Steve.

You're welcome.

(Operator Instructions)

And we'll go to the line of Scott Blumenthal with Emerald Advisers. Your line is open.

Good morning, Joe. Good morning, Steve.

Hello, Scott.

Good morning, Scott.

Steve, could you tell us -- just a couple of clean-up questions here -- should we expect any acquisition-related charges to fall into the current quarter, or are we done with those, Wetzel- and Pyramid-related?

I think you're still going to see a little bit. We just recently completed those acquisitions. So as we start the integration process, there will still be some costs lingering.

Okay. And did you give us a CapEx estimate for the year, or could you?

I didn't earlier, but our CapEx estimate right now is about $30 million, to give you a rough number, for the fiscal year.

Okay. And Joe, since I probably should have asked this first, but following up on the last question that Liam posed to you, I know that you're excited about the fulfillment business and could you maybe give us a gauge of the type of interest that you've seen from some of your customers up until this point in the fulfillment business?

Over the last -- sure, Scott. Over the last several years, the team has done a great job in developing what I would call a universal controller that will integrate well with all the tools that we're putting into the puzzle right now. That product is called Viacode. Viacode will ultimately be able to control a lot of these things in an integrated fashion, from marking to the distribution function itself. It is unique in the marketplace today and customer interest is high, frankly. Now, it's a capital spend, so we're tied to the capital spend market and the economies around the world to be able to do that. So interest levels are high, the solutions are visible to our customers, and we're getting entrees into customers we've never seen before.

What portion of your current customer base do you believe has this type of solution right now?

That's a hard question to answer, Scott, because we have traditionally operated in a very, very heavy industry market where a lot of this integrated solution may not be as critical. But if you take a look at some of the better warehouse operators, whether they be retailers that we're talking to right now or large CPGs that we also are talking to, those are customers we never had before. They ultimately had products like this in the past from some other supplier, but they've never had an integrated solution that we're talking about right now.

So this type of a solution should -- might be of interest to current customers, but it should certainly broaden the addressable market for the marking products and fulfillment business in the future.

That's the intent.

Okay. Thank you.

Now we'll go to the line of Jason Rodgers from Great Lakes Review. Please go ahead.

It's actually Greg Halter here.

Hello, Greg.

Hello.

Good morning, Greg.

I was wondering about the charges that you have on the supplemental data, that $3.184 million. Is that the total amount or are there additional items that may be in other pockets of the income statement?

Greg, that's the amount in total.

All right. And what was the tax impact relative to those charges?

Most of those were domestic charges, so I would just apply our normal tax rate to that.

All right. And then Joe, I think you mentioned there were two mergers, or acquisitions, I should say, in Europe recently. Are those ones you've already delineated or are these new ones?

No, this is -- Wetzel, we acquired essentially toward the end of November, beginning of December. That really was not contributory to the quarter at all. We have a lot of the costs associated with the acquisition in there. That was European.

Pyramid, which we acquired, if I recall correctly, sometime in October, late October, early November, was a domestic acquisition, but a critical part to our overall strategy.

Okay. So they're not anything that have not been announced.

No.

All right. And relative to casket pricing, I think normally price changes occur early in the year, just wonder what's going on in 2013.

Price increases went out effective October 1. The big change, I think, frankly, for the marketplace right now is with a relatively stable death rate, let's put it that way, without the declines we felt over the last several years, there's probably a little more rationality out there on the pricing side; and we're able to bring a little better results to our bottom line, coupled with some better indexes overall for better products. It's a little better period than we've seen for the last 24 months.

All right. And would you contribute any of that to Aurora being acquired recently and/or Batesville -- Hillenbrand, I guess I should say -- being, I don't want to say distracted, but they've got some other big acquisitions on their plate that they're working through.

Greg, I wouldn't say that. I would just attribute to it the fact that we're not all struggling to get the next product off the shelf. Demand is pooling to a level that we expected it to pool, rather than a lot less and everybody trying to meet their numbers. And one last one. I think I heard about some lower material costs, and I presume that's on the copper side. Just wondering if you could provide commentary on copper, where you're bought out, and where you see that impacting your costs. We're bought out through probably the end of February, beginning of March. And our guidance anticipates that, as well as some prudence on the backside. We just don't know what the balance of the year is going to look like. So we're covered until the end of February, beginning of March right now, maybe a little further than that. But our expectations are that we'll be able -- we're not going to have any great shocks throughout the year that we're not already anticipating.

All right. Thank you.

Now we'll go to the line of Adam Hammel with Gates Capital Management. Please go ahead.

Yes. It's actually Jeff Gates. I have a question. What would organic revenue growth have been during the quarter excluding FX and acquisitions?

Steve, do you have that?

There was a little bit of organic growth during the quarter. We don't break out the organic versus non organic growth, but there was organic growth during the quarter.

And then I'm kind of wondering with pricing -- I mean, is the end -- do you expect pricing power to return to caskets or should we still view this as flat pricing?

I'm sorry, you said you were Adam?

It's Adam.

Okay, Adam, I think the quarter -- I think we should expect what we're seeing right now. I think there's a little bit more rationality out there. We're able to bring a good portion of what our price increase has been to our bottom line, and we expect that to continue. Price increases --

More broadly -- I'm sorry, I missed that last part.

Price increase in October was about 4% to 4.5%. We're bringing a lot of that to the bottom line.

Okay. So should we deduce from that that the incursion that Chinese manufacturers in caskets, have they backed off or -- ?

They have had for many, many years a niche. They will continue to have a niche, and we don't see them growing beyond where they are right now.

Great. Okay. Thank you.

And now we'll go to the line of Daniel Moore with CJS Securities. Your line is open.

Thank you again. Joe, if you can, as much as possible, elaborate on your confidence in the ERP system now gaining traction. Obviously, you went into some detail, but given that it's taken longer than expected, maybe some anecdotal evidence, anything more you can elaborate on there would be very helpful.

Sure. The ERP, as you heard in my comments earlier, I would tell you that we're past the challenging portion of that implementation. I'd say we have another quarter of some outside assistance in trying to get us to where we would like it to be from an efficacy standpoint. We will continue to tweak and turn it for years to come, frankly, but at that point -- by the end -- by this past quarter, I would tell you the significant challenges are behind us. We are now looking at how do we take the tool that we put into place and get the greatest use out of it, through automation, through reporting tools, through tracking abilities, through integration with our e-services, we are finally starting to focus on the benefits that we have anticipated.

You also heard me talk about our Strategic Sourcing efforts, which we hold great hope for, although we won't see the benefits of until the latter part of this year and mostly into 2014. That's accomplished because of our ERP system. The ability to aggregate our spend, at least on a domestic basis, and then, over time, also on an international basis, is the benefit of our ERP system. So I think we've only started to see what the opportunities and the benefits of that system will be. We're bullish as a result of our ERP system.

Appreciate it. And lastly, I think the last segment we haven't touched on, Cremation. You added almost $2 million in revenue, and operating income declined a little bit. Can you talk about what's going on in the marketplace there and where you hope to get margins back to?

Our revenue increases largely were from our European businesses that are struggling to get our costs adjusted in. Frankly, our Italian business is the one that's struggling today. And we have already taken steps in the form of identifying and taking the charge in 2012; but unfortunately, our ability to act quickly is diminished by the laws of operating in Italy. So we will correct those costs. They've already been identified and the charges taken, and we expect that to come to a more normal and not be a detractor starting this quarter.

Starting the current quarter. Very good. Thank you very much.

(Operator Instructions)

There are no more questions on the phone lines.

All right. Well, thank you, John. We'd like to thank everyone for participating in the call this morning, and we look forward to our second quarter earnings release and conference call in April. Have a good day.

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