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Hillenbrand (HI) Lags on Q2 Earnings & Sales; Lowers View

Hillenbrand Inc. HI, the holding company for Batesville Casket Company, a leader in the North American death care industry, reported weaker-than-expected second quarter fiscal 2016 results, wherein both earnings and revenues lagged the Zacks Consensus Estimate.

Adjusted earnings in the second quarter of 2016 were 49 cents, same as the prior-year quarter, as improved gross margin in the Process Equipment Group and Batesville were offset by lower sales. Earnings fell short of the Zacks Consensus Estimate of 57 cents by 14%.

Hillenbrand's total revenue declined 4% year over year to $387 million, due to lower demand in the industrial equipment and funeral services markets. Currency dragged down revenues by 1%. Revenues also lagged the Zacks Consensus Estimate of $405 million by 4.4%. Organic revenues declined 8% to $374 million.

Adjusted EBITDA increased 4% to $68 million, and adjusted EBITDA margin improved 130 basis points to 17.5%. 

Segment Details

Process Equipment Group: Segment revenues declined 2% to $236 million due to weak end markets and lower demand for equipment. Revenues were flat year over year on a constant currency basis. Nevertheless, overall order volume was in line with the first quarter and increased 16% organically over the prior year.

Adjusted EBITDA margin expanded 40 basis points to 14.8% in the quarter driven by the addition of Abel and Red Valve, improvements to the mix of parts and equipment sales, as well as ongoing process improvements.

Batesville: Segment revenues declined 8% to $151 million due to a decline in volumes in the North American burial market as a result of a lower mortality rate associated with a subdued flu season. We also note that Batesville continues to face the pressure of a secular decline in the burial market as a number of families are opting for cremation nowadays.

Batesville adjusted EBITDA margin improved 150 basis points to 28.4% owing to supply chain productivity initiatives, lower commodities prices, and ongoing efforts to aggressively manage costs.

Other Financial Update

During the second quarter, the company paid down $45 million of debt apart from the $133 million of new debt related to the Red Valve acquisition (completed in February).

The company also paid about $13 million in dividends to its shareholders and repurchased 39,000 shares for approximately $1 million.

Lower Guidance

The company continues to expect challenging end markets for the Process Equipment Group and Batesville in fiscal 2016. Though the company will continue to take proactive measures to boost its profitability, it still expects continued market headwinds.

As a result, for fiscal 2016, Hillenbrand expects to report weaker earnings and revenues. It now expects earnings to be at the lower end of the previously guided range of $2.05 to $2.15 per share. Organic constant currency revenue is also expected to be at the lower end of the previously guided range of down 2% to flat. Total constant currency revenue growth is also expected at the lower end of a 2% to 4% range.

Hillenbrand carries a Zacks Rank #3 (Hold).

Better-ranked stocks in the funeral services industry include Carriage Services Inc. CSV and Service Corporation International SCI, both holding a Zacks Rank #2 (Buy). A better-ranked stock in the broader industrial sector is Parker-Hannifin Corporation PH, also carrying a Zacks Rank #2.

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CARRIAGE SVCS-A (CSV): Free Stock Analysis Report
 
SERVICE CORP IN (SCI): Free Stock Analysis Report
 
HILLENBRAND INC (HI): Free Stock Analysis Report
 
PARKER HANNIFIN (PH): Free Stock Analysis Report
 
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