Yahoo Finance Hillenbrand Inc (HI) (Q2 2024) Earnings Call Transcript Highlights: Navigating Through Economic ...
Total Revenue: $785 million, a 14% increase year-over-year.
Adjusted EBITDA: $123 million, up 13% year-over-year.
GAAP Net Income: $6 million, or $0.09 per share.
Adjusted EPS: $0.76, increased by $0.02 or 3%.
Free Cash Flow: Now expected to be $130 million to $150 million for the full year.
Net Debt: $1.88 billion at the end of the quarter.
Revenue Forecast for FY 2024: Adjusted to $3.2 billion to $3.3 billion.
Adjusted EBITDA Forecast: Now expected to be $512 million to $536 million for FY 2024.
Adjusted EPS Forecast: Adjusted to $3.30 to $3.50 for FY 2024.
Release Date: May 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
Hillenbrand Inc reported a total revenue growth of 14%, driven by the acquisition of Schenck Process Food and Performance Materials business.
Adjusted EBITDA increased by 13%, with a 100 basis points expansion in adjusted EBITDA margin.
The company saw improved order rates sequentially in both segments, indicating potential recovery signs.
Hillenbrand Inc is making good progress in integrating recent acquisitions, which is tracking ahead of schedule and contributing to margin expansion.
The company has implemented cost control measures, including targeted restructuring and strict limitations on hiring and discretionary costs, which are contributing positively to financial performance.
Negative Points
On an organic basis, revenues decreased by 5% year over year, indicating challenges in core business areas.
The company faces ongoing global macroeconomic uncertainty impacting customer order decisions, leading to slower final customer decisions and impacting revenue.
GAAP net income was significantly lower at $6 million, down from the previous year, influenced by increased restructuring costs and lower organic volume.
Free cash flow for the year is expected to be significantly lower than previous expectations, primarily due to lower customer advances and the timing of working capital requirements.
Hillenbrand Inc's net debt to adjusted EBITDA ratio increased to 3.5 times, putting pressure on the company's deleveraging timeline and financial flexibility.
Q & A Highlights
Q: Can you discuss the quarter-on-quarter sequential order improvement across both segments? What markets and geographies are driving that? A: Kimberly Ryan-Dennis, President and CEO of Hillenbrand, noted improvements in large project orders in the APS segment, particularly pleased with gaining a significant share of these orders. The robust order pipeline for large projects is expected to materialize over the next several quarters. In the MTS segment, there was a recovery in North America, especially in the automotive area for injection molding, marking the highest order intake in seven quarters. However, there continues to be softness in the hot runner product line, primarily in China and North America.
Q: Regarding the incremental price pressure seen in MTS, is this typical customer behavior in the latter stages of a downturn in that business? A: Robert VanHimbergen, CFO of Hillenbrand, explained that it is typical to see pricing pressure during downturns, although the current cycle is slightly different due to lower growth rates in China compared to previous cycles. He attributed the decline in MTS EBITDA margin to a combination of pricing pressure, unfavorable product mix, and manufacturing inefficiencies, with each factor contributing roughly equally.
Q: Are you seeing any order cancellations in the APS segment, particularly for mid-sized equipment projects? What are customers indicating they need to resume investments? A: Kimberly Ryan-Dennis mentioned that there have been no order cancellations and that pipelines continue to grow based on active discussions. Customers are likely waiting for a stabilization in consumer demand and the completion of large projects before committing to mid-sized projects. Interest rates could also be a factor affecting investment decisions.
Q: Can you provide more details on the incremental restructuring efforts and the expected benefits? A: Robert VanHimbergen noted that the restructuring charge was increased to $25 million, with expected annual run rate savings now at $20 million, up from the previously estimated $15 million. These savings will start to impact 2024 with full benefits realized in 2025. The restructuring primarily involves capacity optimization and cost reduction efforts.
Q: What are the major factors impacting the reduction in free cash flow guidance, and when do you expect to return to typical conversion rates? A: Robert VanHimbergen attributed the reduction in free cash flow guidance to a combination of lower earnings and delays in customer advances, offset partially by improvements in trade working capital. He expects that as orders materialize and working capital improvements continue, free cash flow conversion rates should return to the 90% to 100% range by 2025.
Q: What are the key drivers behind the continued softness in the hot runner product line within the MTS segment? A: The softness in the hot runner product line is primarily due to weaker demand in North America and China, significant markets for Hillenbrand. The company is actively addressing operational inefficiencies in this product line to improve profitability in the coming quarters.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
