Hillenbrand Reports Fiscal First Quarter 2023 Results; Fiscal 2023 Guidance Updated to Reflect Batesville Sale
Date 2023-02-08 | Earning Reports
- Completed transformation into a pure-play industrial company with closing previously announced sale of Batesville business segment on February 1, 2023; Batesville financial results reported as discontinued operations for all periods presented
- Revenue from continuing operations of $656 million in the quarter increased 16% compared to prior year; organic revenue from continuing operations increased 4%
- GAAP EPS from continuing operations of $0.35 increased 21% compared to the prior year; adjusted EPS from continuing operations of $0.70 increased 25%; total adjusted EPS, including Batesville, was $1.00, compared to guidance of $0.85 – $0.93
- Backlog of $1.96 billion increased 14%, or 5% organically compared to prior year
- Updated Outlook: FY23 adjusted EPS from continuing operations of $3.25 - $3.55; Fiscal Q2 adjusted EPS from continuing operations of $0.65 - $0.73
BATESVILLE, Ind., February 8, 2023 --/PRNewswire/ --Hillenbrand, Inc. (NYSE: HI) reported results for the first quarter, which ended December 31, 2022.
“We delivered a solid start to fiscal 2023, with revenue from our Advanced Process Solutions segment coming in stronger than expected driven by healthy demand in our base business as well as in our recent acquisitions,” said Kim Ryan, President and Chief Executive Officer of Hillenbrand. “We remain in a challenging macroeconomic environment, with continued delays in customer decisions impacting orders within our Molding Technology Solutions segment. As we navigate this period of macro uncertainty, we remain focused on deploying the Hillenbrand Operating Model to manage costs and drive operational improvements. With the completion of our sale of Batesville, we are back within our net leverage targets and well-positioned as a pure-play industrial leader to drive long-term, profitable growth.”
First Quarter 2023 Results of Continuing Operation
Revenue from continuing operations of $656 million increased 16% compared to the prior year, largely due to acquisitions. On an organic basis, which excludes the impacts of the Linxis, Herbold, Peerless, and Gabler acquisitions, the TerraSource Global divestiture, and foreign currency exchange, revenue increased 4% year over year, primarily due to higher aftermarket parts and service revenue and favorable pricing.
Net income from continuing operations was $27 million, or $0.35 per share, an increase of 21% compared to the prior year. Adjusted net income from continuing operations of $49 million resulted in adjusted EPS of $0.70, an increase of $0.14, or 25%, primarily due to pricing and productivity improvements, the impact of acquisitions, fewer shares outstanding, and a lower tax rate, partially offset by inflation, an increase in strategic investments, unfavorable foreign currency translation, and higher interest expense. The adjusted effective tax rate for the quarter was 25%, a decrease of 520 basis points primarily due to the recognition of a discrete tax benefit related to the approval of a tax incentive in China for high-tech companies.
Adjusted EBITDA of $101 million increased 13% year over year, or 3% on an organic basis, as favorable pricing and productivity improvements were partially offset by cost inflation and an increase in strategic investments. Adjusted EBITDA margin of 15.4% decreased 40 basis points, primarily due to inflation.
Advanced Process Solutions (APS)
Revenue of $413 million increased 30% compared to the prior year, largely due to acquisitions. On an organic basis, revenue increased 5% year over year, primarily due to higher aftermarket parts and service revenue and favorable pricing.
Adjusted EBITDA of $71 million increased 31% year over year, largely due to acquisitions. On an organic basis, adjusted EBITDA increased 9%, as favorable pricing and productivity improvements were partially offset by cost inflation and an increase in strategic investments. Adjusted EBITDA margin of 17.3% increased 10 basis points, while organic adjusted EBITDA margin of 18.1% improved 70 basis points.
Backlog of $1.63 billion increased 23% compared to the prior year. On an organic basis, backlog increased 11%, primarily driven by increased demand for large plastics projects and aftermarket parts and service. Sequentially, backlog increased 16%, or essentially flat on an organic basis.
Molding Technology Solutions (MTS)
Revenue of $243 million decreased 2% year over year, but increased 2% on an organic basis, as favorable pricing and higher aftermarket parts and service revenue were partially offset by a decrease in hot runner sales.
Adjusted EBITDA of $43 million decreased 17%, or 11% on an organic basis. Adjusted EBITDA margin of 17.7% decreased 310 basis points as inflation, unfavorable mix, and unfavorable fixed cost leverage from lower volume offset favorable pricing.
Backlog of $334 million decreased 18% compared to the prior year primarily due to the execution of existing backlog and a decrease in orders for injection molding and extrusion equipment. Sequentially, backlog decreased 8%.
Balance Sheet, Cash Flow and Capital Allocation
Operating cash flow from continuing operations reflected a use of cash of $6 million, a decrease of $26 million compared to prior year, primarily due to lower customer advances within Molding Technology Solutions. Capital expenditures were approximately $15 million in the quarter. During the quarter, the Company paid approximately $15 million in quarterly dividends.
As of December 31, 2022, net debt was $1,706 million, and the net debt to pro forma adjusted EBITDA ratio was 2.9x. Liquidity was approximately $689 million, including $195 million in cash on hand and the remainder available under our revolving credit facility.
On February 1, 2023, the Company closed the previously announced sale of Batesville to LongRange Capital for $761.5 million, which included an $11.5 million subordinated note. At closing, after applicable adjustments, we received pre-tax cash proceeds of $698 million and the $11.5 million subordinated note. Following further customary closing adjustments, the Company expects after tax net proceeds of approximately $530 million, which it plans to use for existing debt reduction. Including the debt reduction from the Batesville sale net proceeds, pro forma net debt to adjusted EBITDA ratio (net leverage) would be 2.6x as of December 31, 2022.
Updated Fiscal 2023 Outlook - Continuing Operations
Hillenbrand is providing updated annual guidance for fiscal year 2023 and quarterly adjusted EPS guidance for fiscal Q2 on a continuing operations basis. The Batesville segment performance is not reflected in this updated guidance, as it is being reported as discontinued operations. The Company is raising its overall estimates for annual revenue, adjusted EBITDA, and adjusted EPS to reflect more favorable foreign currency estimates and the acquisition of
Peerless, partially offset by lower expected performance for Molding Technology Solutions due to the impact of continuing delays in customer orders.